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BUSINESS STRATEGY AND POLICY
IN THE DIGITAL EDGE 4.0

Aditya Wardhana

PENERBIT CV. EUREKA MEDIA AKSARA

i
 BUSINESS STRATEGY AND POLICY
IN THE DIGITAL EDGE 4.0

Penulis : Aditya Wardhana

Editor : Mahir Pradana, Ph.D.

Desain Sampul : Eri Setiawan

Tata Letak : Salsabela Meiliana Wati

ISBN : 978-623-516-510-3

No. HKI : EC002024199273

Diterbitkan oleh: EUREKA MEDIA AKSARA, SEPTEMBER 2024

ANGGOTA IKAPI JAWA TENGAH
NO. 225/JTE/2021

Redaksi :
Jalan Banjaran, Desa Banjaran RT 20 RW 10 Kecamatan Bojongsari
Kabupaten Purbalingga Telp. 0858-5343-1992

Surel: eurekamediaaksara@gmail.com

Cetakan Pertama : 2024

All right reserved

Hak Cipta dilindungi undang-undang

Dilarang memperbanyak atau memindahkan sebagian atau seluruh
isi buku ini dalam bentuk apapun dan dengan cara apapun,
termasuk memfotokopi, merekam, atau dengan teknik perekaman
lainnya tanpa seizin tertulis dari penerbit

ii
 PREFACE

I give thanks to God Almighty, because with His blessing and

mercy, we were able to finish this book. The writing of the book is
the fruit of the author's thoughts, entitled "Business Strategy And
Policy In The Digital Edge 4.0". We realize that without help and
guidance from various parties it would be very difficult for us to
complete this work. Therefore, we would like to thank all those who
have helped prepare this book. So that this book can be presented to
readers.
The systematics of the book entitled "Business Strategy and
Policy in The Digital Edge 4.0" refers to related concepts and
discussions, consisting of 16 units which are explained in detail in
the discussion of each unit.
UNIT 1 Understanding Business Strategy and Policy
UNIT 2 Scope of Business Strategy and Policy
UNIT 3 Vision, Mission, Goals, and Company Values
UNIT 4 External Business Environment Analysis
UNIT 5 Analysis of Internal Business Environment
UNIT 6 Generic Competitive Strategies
UNIT 7 Selection of Business Strategies and Policies
UNIT 8 Execution of Business Strategies and Policies
UNIT 9 Business Strategies and Policies in The International
Market
UNIT 10 Company Human Resource Strategy
UNIT 11 Company Marketing Strategy
UNIT 12 Corporate Financial Strategy
UNIT 13 Corporate Operations Strategy
UNIT 14 Ethics and Corporate Culture
UNIT 15 Corporate Leadership Strategy
UNIT 16 Evaluation of Business Strategies and Policies

The author realizes that this book is still far from perfection.
Therefore, constructive criticism and suggestions are needed to
improve this book. Finally, we hope that God Almighty will repay
all the kindness of all those who have helped. Hopefully this book
will bring benefits to the development of science.

iii
 TABLE OF CONTENTS

PREFACE ............................................................................................ iii

TABLE OF CONTENTS ................................................................... iv
LIST OF FIGURES .............................................................................ix
LIST OF TABLES............................................................................. xiii
UNIT 1 UNDERSTANDING BUSINESS STRATEGY
AND POLICY ...................................................................... 1
A. Definition of Business Strategy and Policy................... 1
B. Elements of Effective Business Strategy and Policy .... 3
C. Sustainable Competitive Advantage........................... 11
D. Understanding Strategic Management ....................... 13
E. Characteristics of Strategic Management ................... 15
F. Differences Between Business Strategy and
Business Policy .............................................................. 21
G. Changes in Business Strategies and Policies .............. 42
H. Levels of Business Strategy and Policy ....................... 45
I. Development of Business Strategy Theory................. 49
J. Benefits of Implementing Business Strategies and
Policies ........................................................................... 58
K. Failure of Business Strategies and Policies ................. 71
REFERENCE ....................................................................... 76
UNIT 2 SCOPE OF BUSINESS STRATEGY AND POLICY ..... 87
A. Dimensions of Business Strategy and Policy.............. 87
B. Business Strategy and Policy Process ......................... 94
C. Theory of Business Strategy and Policy
Formulation ................................................................. 103
D. Business Strategy and Policy Implementation
Theory .......................................................................... 120
E. Theory of Business Strategy and Policy
Evaluation and Control .............................................. 131
F. Business Model ........................................................... 131
G. Forms of Business Models in the Industry 4.0 Era ... 133
H. The Relationship Between Business Strategy and
Business Models.......................................................... 141
REFERENCE ..................................................................... 142

iv
UNIT 3 VISION, MISSION, GOALS, AND COMPANY
VALUES ........................................................................... 152
A. Corporate Vision ........................................................ 152
B. Corporate Mission ...................................................... 159
C. Company Objectives .................................................. 165
D. Company Values ........................................................ 167
REFERENCE .................................................................... 172
UNIT 4 EXTERNAL BUSINESS ENVIRONMENT
ANALYSIS....................................................................... 178
A. Understanding the External Business
Environment ............................................................... 178
B. Factors of the External Business Environment ........ 179
C. Importance of the External Business
Environment ............................................................... 190
D. External Factors Analysis (EFAS) Matrix ................. 191
REFERENCE .................................................................... 197
UNIT 5 ANALYSIS OF INTERNAL BUSINESS
ENVIRONMENT ............................................................ 200
A. Definition of Internal Business Environment .......... 200
B. Factors of Internal Business Environment ............... 201
C. Importance of Internal Business Environment ........ 209
D. Dimensions of the Internal Business
Environment ............................................................... 211
E. Internal Factors Analysis (IFAS) Matrix ................... 213
F. IFAS Matrix................................................................. 216
REFERENCE .................................................................... 225
UNIT 6 GENERIC COMPETITIVE STRATEGIES .................. 228
A. Definition of Generic Competitive Strategies .......... 228
B. Key Aspects of Generic Competitive Strategy ......... 244
C. Characteristics of Cost Leadership Strategy ............ 244
D. Characteristics of Differentiation Strategy ............... 245
E. Characteristics of Cost Focus Strategy ..................... 247
F. Characteristics of Differentiation Focus Strategy .... 248
G. Characteristics of Stuck in the Middle Strategy....... 250
REFERENCE .................................................................... 252

v
UNIT 7 SELECTION OF BUSINESS STRATEGIES AND
POLICIES ......................................................................... 259
A. Understanding Company Competitive Position ..... 259
B. The Process of Analyzing a Company’s
Competitive Strategy .................................................. 263
C. Factors Affecting Performance and Relative
Position of a Company in the Market ....................... 268
D. Strategic Position and Action
Evaluation (SPACE) ................................................... 272
E. Boston Consulting Group Matrix (BCG Matrix) ...... 272
F. Internal External Matrix (IE Matrix) ......................... 274
G. Market Penetration Strategy ...................................... 275
H. Market Development Strategy .................................. 278
I. Product Development Strategy ................................. 278
J. Backward Integration Strategy. ................................. 279
K. Forward Integration Strategy .................................... 280
L. The Horizontal Integration Strategy ......................... 281
M. Grand Strategy (GS) ................................................... 281
N. Quantitative Strategic Planning Matrix (QSPM)...... 283
O. Diversification Strategy .............................................. 285
P. Company's Ability to Execute Strategy .................... 293
Q. Maximizing Company Resources in Strategy
Implementation........................................................... 295
REFERENCE ..................................................................... 297
UNIT 8 EXECUTION OF BUSINESS STRATEGIES AND
POLICIES ......................................................................... 304
A. Definition of Strategy and Business Policy
Execution ..................................................................... 304
B. Implementation of Strategy and Business Policy..... 305
C. Implementation of Strategy into Work Programs ... 305
D. Techniques for Evaluating the Effectiveness of
Strategy Implementation............................................ 307
E. Connection Between Strategy Execution and
Policy Implementation ............................................... 316
F. The Importance of Business Policies in Guiding
Organizational Activities ........................................... 317

vi
 REFERENCE .................................................................... 318
UNIT 9 BUSINESS STRATEGIES AND POLICIES IN
THE INTERNATIONAL MARKET ............................. 321
A. Understanding Business Strategies and Policies
in the International Market........................................ 321
B. Forms of International Strategies Based on
Flexibility and Global Efficiency ............................... 322
C. International Business Strategies Based on
Business Situation and Objectives ............................ 330
REFERENCE .................................................................... 341
UNIT 10 COMPANY HUMAN RESOURCE STRATEGY ........ 355
A. Definition of Human Resource Strategy and
Policy ........................................................................... 355
B. Approaches to HRM Strategy ................................... 355
C. HR Recruitment Strategy ........................................... 358
D. HR Selection Strategy ................................................ 366
E. HR Training Strategy ................................................. 368
F. Human Resource Compensation Strategy ............... 371
G. Strategic Career Alignment ....................................... 375
H. Talent Management Strategy. ................................... 376
I. E-HR Strategy. ............................................................ 380
REFERENCE .................................................................... 382
UNIT 11 COMPANY MARKETING STRATEGY ..................... 386
A. Definition of Company Marketing Strategy ............ 386
B. Benefits of an Effective Marketing Strategy in
Business Operations ................................................... 388
C. Characteristics of a Successful Marketing
Strategy ....................................................................... 390
D. Marketing Strategy Development Process ............... 392
E. Forms of Marketing Strategies .................................. 394
REFERENCE .................................................................... 403
UNIT 12 COMPANY FINANCIAL STRATEGY ........................ 413
A. Definition of Corporate Financial Strategy .............. 413
B. Main Areas of Corporate Finance Study .................. 414
C. Stages in Formulating Corporate Financial
Strategy ....................................................................... 420

vii
 D. Forms of Corporate Financial Strategies................... 424
REFERENCE ..................................................................... 432
UNIT 13 CORPORATE OPERATIONS STRATEGY................. 440
A. Definition of Corporate Operations Strategy ........... 440
B. Importance of Corporate Operations Strategy ......... 441
C. Decision-Making Process in Operations
Management ............................................................... 441
D. Indicators and Strategies in Company
Operations ................................................................... 442
REFERENCE ..................................................................... 451
UNIT 14 ETHICS AND CORPORATE CULTURE..................... 454
A. Definition of Corporate Ethics ................................... 454
B. Forms of Corporate Ethics ......................................... 457
C. Models of Ethics and the Environment .................... 465
D. Impact of Ethical and Environmental
Relationships ............................................................... 468
E. Understanding Corporate Culture ............................ 471
F. The Importance of Corporate Culture ...................... 472
G. Models of Corporate Culture..................................... 473
H. Corporate Culture Styles ............................................ 477
I. Quality Corporate Culture ......................................... 480
REFERENCE ..................................................................... 482
UNIT 15 CORPORATE LEADERSHIP STRATEGY .................. 487
A. Understanding and Role of Leadership.................... 487
B. The Role of Leadership in Management ................... 490
C. Leadership Process in Management ......................... 492
D. Leadership Strategy Approaches .............................. 493
REFERENCE ..................................................................... 516
UNIT 16 EVALUATION OF BUSINESS STRATEGIES
AND POLICIES ............................................................... 528
A. Understanding Business Strategy and Policy
Evaluation ................................................................... 528
B. Stages of Business Strategy and Policy Evaluation .. 529
REFERENCE ..................................................................... 551
AUTHOR PROFILE ........................................................................ 553

viii
 LIST OF FIGURES

Figure 1.1 Three Key Elements of a Good Strategy .................. 11

Figure 1.2 Characteristics of Strategic Management ................ 20
Figure 1.3 Differences Between Business Strategy
and Business Policy ................................................... 21
Figure 1.4 Factors Influencing Business Strategy ..................... 32
Figure 1.5 Factors Causing Changes in Business Strategies
and Policies ................................................................ 45
Figure 1.6 Levels of Business Strategy and Policy .................... 48
Figure 1.7 Development of Business Strategic Management
Theory......................................................................... 57
Figure 1.8 Benefits of Implementing Business Strategies and
Policies ........................................................................ 71
Figure 1.9 Failure of Business Strategies and Policies .............. 75
Figure 2.1 Dimensions of Business Strategy and Policy .......... 94
Figure 2.2 Implementation of Business Strategy Based on
SWOT........................................................................ 101
Figure 2.3 Business Strategy and Business Policy Process..... 103
Figure 2.4 Strategy Formulation Theory-
Fred R. David (2019) ................................................ 104
Figure 2.5 Strategy Formulation Process ................................. 107
Figure 2.6 Porter’s Generic Strategy Model (1980) ................. 109
Figure 2.7 Product Life Cycle (PLC) – Porter (1980) ................. 114
Figure 2.8 Strategies for Growing Businesses
– Porter (1980) .......................................................... 114
Figure 2.9 Strategy Formulation - Yoshida (2006) .................. 119
Figure 2.10 Strategy Formulation .............................................. 120
Figure 2.11 Kurt Lewin's Organizational Change Theory ....... 122
Figure 2.12 Theory of Leaders and Leadership Styles
by Kreitner & Kinicki .............................................. 124
Figure 2.13 Organizational Structure Theory by Max Weber . 125
Figure 2.14 Theory of Organizational Change by Chris
Argyris and Donald Schön ..................................... 126
Figure 2.15 The Learning Organization Peter Senge ................... 127
Figure 2.16 McGregor's Theory X and Theory Y ...................... 128

ix
Figure 2.17 Leadership Theory by Warrem Bennis .................. 130
Figure 2.18 Business Strategy and Policy Implementation
Theories..................................................................... 131
Figure 2.19 Forms of Business Models in the Era of
Industry 4.0............................................................... 140
Figure 3.1 Key Elements of a Vision ......................................... 155
Figure 3.2 Associated Word Generation .................................. 157
Figure 3.3 Success Word Generation........................................ 158
Figure 3.4 Steps in Formulating a Vision ................................. 159
Figure 3.5 Criteria for an Effective Mission ............................. 162
Figure 3.6 Important Elements of a Mission............................ 163
Figure 3.7 Steps in Developing a Mission ................................ 164
Figure 3.8 SMART Goals ........................................................... 165
Figure 3.9 The Importance of Company Values...................... 169
Figure 3.10 Steps to Formulate Company Values ..................... 170
Figure 4.1 Macro External Business Environment Analysis
(PESTEL) ................................................................... 186
Figure 4.2 Factors of Micro External Constraints .................... 190
Figure 5.1 Internal Business Environment............................... 202
Figure 5.2 Internal Business Environment............................... 209
Figure 5.3 Dimensions of the Internal Business
Environment ............................................................. 213
Figure 6.1 Generic Competitive Strategy ................................. 243
Figure 6.2 Characteristics of Cost Leadership Strategy .......... 245
Figure 6.3 Characteristics of Differentiation Strategy ............. 246
Figure 6.4 Characteristics of Cost Focus Strategy ................... 248
Figure 6.5 Characteristics of Differentiation Focus Strategy .. 249
Figure 6.6 Characteristics of Stuck in the Middle Strategy .... 251
Figure 7.1 The Process of Creating a Company’s
Competitive Advantage .......................................... 262
Figure 7.2 Process of Analyzing Company Competitive
Strategies ................................................................... 267
Figure 7.3 Stages of the Competitive Strategy Formulation
Analysis Process ....................................................... 268
Figure 7.4 Key Factors Influencing a Company's
Competitive Position ............................................... 271

x
Figure 7.5 Strategic Position and Action Evaluation
(SPACE) .................................................................... 272
Figure 7.6 BCG Matrix .............................................................. 274
Figure 7.7 Internal External Matrix (IE matrix) ...................... 275
Figure 7.8 Market Penetration Strategy ................................... 277
Figure 7.9 Internal External Matrix (IE matrix) ...................... 282
Figure 7.10 Quantitative Strategic Planning Matrix (QSPM) .. 284
Figure 7.11 Diversification Strategy........................................... 293
Figure 8.1 Stages of Implementing Strategy into Work
Programs .................................................................. 307
Figure 8.2 Steps for KPI Analysis ............................................. 316
Figure 9.1 Forms of International Strategy Viewed from
Global Integration and Local Responsiveness ...... 329
Figure 9.2 International Business Strategies Based
on Business Situation and Objectives .................... 340
Figure 10.1 Four Company Approaches to HRM Strategy ...... 358
Figure 10.2 Recruitment Strategy ............................................... 365
Figure 10.3 HR Selection Strategy .............................................. 367
Figure 10.4 Human Resource Training Strategy....................... 371
Figure 10.5 Compensasion Strategy .......................................... 375
Figure 10.6 Talent Management Strategy ..................................... 379
Figure 10.7 E-HR Strategy .......................................................... 381
Figure 11.1 Characteristics of a Successful Marketing
Strategy ..................................................................... 392
Figure 11.2 Marketing Strategy Development Process ............ 394
Figure 11.3 Forms of Marketing Strategies ............................... 402
Figure 12.1 Main Areas of Corporate Finance Study ............... 416
Figure 12.2 Considerations in Formulating Corporate
Financial Strategy .................................................... 421
Figure 12.3 Stages in Forming a Company's Financial
Strategy ..................................................................... 423
Figure 12.4 Forms of Corporate Financial Strategies ............... 424
Figure 13.1 Corporate Operation Strategy ................................ 450
Figure 14.1 Work Ethics .............................................................. 456
Figure 14.2 Corporat Internal Ethics.......................................... 462
Figure 14.3 Ethics and Environment Models ............................ 468

xi
Figure 14.4 Leadership Guidelines Related to Corporate
Culture ...................................................................... 477
Figure 14.5 Gaya Budaya Perusahaan........................................ 479
Figure 15.1 Elements of Successful Leadership Abilities ......... 489
Figure 15.2 Main Functions of Leadership ................................ 492
Figure 15.3 Leadership Process .................................................. 493
Figure 15.4 Traits of Successful Leadership .............................. 503
Figure 15.5 Vroom-Yetton Decision-Making Model................. 508
Figure 15.6 Behavioral Leadership Style.................................... 510
Figure 15.7 Leadership Approaches........................................... 515
Figure 16.1 Business Strategy and Policy Process ..................... 529
Figure 16.2 Business Strategy and Policy Process ..................... 550

xii
 LIST OF TABLES

Table 1.1 Differences Between Business Strategy and

Business Policy ................................................................ 22
Table 1.2 Examples of Business Strategy....................................... 23
Table 1.3 Examples of Business Policy .......................................... 32
Table 2.1 Differences Between Strategy Formulation
and Strategy Implementation ........................................ 98
Table 3.1 Difference Between Vision and Mission ..................... 160
Table 4.1 Opportunity Factors of External Factors ..................... 193
Table 4.2 Threat Factors of External Factors ............................... 194
Table 4.3 EFAS Opportunities ...................................................... 195
Table 4.4 EFAS Threats ................................................................. 195
Table 5.1 Internal Strength Factors .............................................. 215
Table 5.2 External Threat Factors ................................................. 216
Table 5.3 Questionnaire Data Summary (Comparison
Between Variable Indicators) ....................................... 216
Table 5.4 Comparison Matrix ....................................................... 218
Table 5.5 Normalizing The Matrix............................................... 219
Table 5.6 Division of the Comparison Matrix by the Total
in Each Column 2 .......................................................... 219
Table 5.7 Normalizing The Matrix............................................... 220
Table 5.8 Weighting ...................................................................... 221
Table 5.9 Weakness Factors of Internal Factors .......................... 222
Table 5.10 Questionnaire Evaluation of Strength Factors............ 222
Table 5.11 IFAS ................................................................................ 223
Table 12.1 Three Decisions in Corporate Financial Strategy ....... 418
Table 14.1 The Multidimensional Work Ethic Profile (MWEP) .. 455

xiii
 BUSINESS STRATEGY AND POLICY
IN THE DIGITAL EDGE 4.0

Aditya Wardhana

xiv
UNIT EXTERNAL BUSINESS

4
ENVIRONMENT
ANALYSIS
EXTERNAL BUSINESS ENVIRONMENT ANALYSIS

A. Understanding the External Business Environment

Every company operates within a specific business context
and has different external environments. Changes in the external
environment can present opportunities for certain companies
but can also pose threats to others. The external environment
consists of forces, factors, and institutions that entrepreneurs
must face to achieve their goals (Suratman, 2021; Hans, 2019;
Robbins, Coulter, Fernandez, 2019; Raviasi and Schultz, 2006;
Needle, 2004). To succeed in business competition, companies
must focus and consistently monitor changes in their external
environment to formulate appropriate business strategies. The
external environment, which includes both macro and micro
aspects, is an essential element that companies must pay
attention to. These aspects are beyond the control of the
company's internal environment and encompass various factors
that can be opportunities or threats to the business (Wardhana et
al., 2021; Zhao, Teng, and Wu, 2018; Purwanti, Pudji, Fattah, and
Muhammad, 2011).
Dwiningrum (2011) explains that the micro or specific
environment is part of the external environment that directly
influences the achievement of organizational goals. This
environment involves various parties who have an interest in the
organization, including consumers, suppliers, competitors,
investors, creditors, and the government. Meanwhile, Wardhana
et al. (2021) state that the macro or general environment

178
 encompasses various aspects such as economic, political, legal,
socio-cultural, demographic, geographical, technological,
ethical, and organizational social responsibility, as well as global
factors that can impact business. Syntia and Mulya (2018) explain
that organizations are always in a reciprocal relationship with
the external environment outside of themselves. The interaction
between business entities and their external environment results
in various effects. Changes in external environmental conditions
influence changes within the business entity itself. Therefore, it
is important for business entities to adapt to dynamic changes in
the external environment.
The external environment includes all external elements
that influence business strategies and policies. This concept is
dynamic and involves trends in various aspects such as politics,
economics, society, technology, the environment, and legality,
often abbreviated as PESTEL. Every company needs to have a
solid conceptual framework and policies to support the
development and use of business and environmental
information, including geospatial data, in decision-making
processes. This framework is important to identify the values of
the external business environment and to set goals and priorities
based on geographical factors at various spatial levels
(Wardhana et al., 2021; Hans, 2019; Cherulinam, 2012).

B. Factors of the External Business Environment

Wardhana et al. (2021) and Hans (2019) explain that many
factors influence companies within an inclusive and integrated
business framework, operating within a series of clusters. For
example, government regulations that support business growth
and security are external factors that influence company
strategies and policies. These factors can interact with each other
and operate beyond the company's control, often referred to as
external constraints. The main factors in the external
environment, which are included in the PESTEL analysis, can be
described as follows:

179
 1. Political Factors in PESTEL Analysis. Political factors in
PESTEL analysis encompass elements related to the influence
of government and political conditions on the business
environment. Here are the political (P) factors from PESTEL
along with examples:
a. Tax Policy. For example, changes in tax policy by the
government can affect a company's operational costs and
financial strategy.
b. Political Stability. For example, stable political conditions
tend to create a safer environment and can encourage
business investment.
c. Industry Regulation. For example, the adoption or
modification of industry regulations by the government
can impact competition, safety standards, and production
requirements within a sector.
d. International Trade Policy. For example, protectionist
policies or free trade agreements can affect a company's
ability to export or import goods and services.
e. Economic Policy Stability. For example, stability in
economic policy, such as controlled inflation or consistent
interest rate policies, can create a more predictable
environment for business.
f. Legal Provisions. For example, changes in legal
provisions related to intellectual property rights,
consumer protection, or labor laws can significantly
impact business operations.
g. Rule of Law. For example, legal uncertainty or lack of law
enforcement can create additional risks for companies
operating in a particular country or region.

2. Economic Factors in PESTEL Analysis. Economic factors in

PESTEL analysis encompass elements related to economic
conditions that can influence businesses. Here are the
economic (E) factors from PESTEL along with examples:

180
 a. Interest Rates. For example, an increase in interest rates
can raise borrowing costs for companies and consumers,
while a decrease in interest rates can encourage
investment and consumption.
b. Inflation Rates. For example, stable inflation rates create
a more predictable environment for cost planning and
product pricing.
c. Unemployment Rates. For example, high unemployment
rates can reduce consumer purchasing power, while low
unemployment rates can create more competition for
recruiting skilled labor.
d. Currency Exchange Rates. For example, fluctuations in
currency exchange rates can affect the cost of imports and
exports, as well as the profits of companies operating in
international markets.
e. Economic Growth. For example, high economic growth
can create new opportunities for business expansion and
increased sales.
f. Consumer Disposable Income. For example, an increase
in consumer disposable income can boost demand for
goods and services, while a decrease in income can hinder
business growth.
g. Savings and Investment Levels. For example, high
savings levels can reduce consumer spending, while
increased investment levels can drive economic growth.
h. Stock Market Conditions. For example, changes in stock
market conditions can influence investor confidence and
the availability of capital for companies.

3. Social Factors in PESTEL Analysis. Social factors in PESTEL

analysis encompass aspects related to society, culture, and
changes in social behavior that can influence businesses. Here
are the social (S) factors from PESTEL along with examples:

181
 a. Demographic Changes. For example, an aging population
or changes in family structure can affect the demand for
certain products and services, such as healthcare products
or elderly care.
b. Lifestyle Changes and Consumer Preferences. For
example, increasing awareness of healthy lifestyles can
boost demand for organic or fitness-related products,
while changes in fashion trends can impact the clothing
industry.
c. Consumer Behavior. For example, shifts in consumer
behavior related to online shopping or a tendency to
support socially responsible brands can influence
marketing and distribution strategies.
d. Culture and Societal Values. For example, companies
must understand the local culture and societal values in
their areas of operation to avoid violating social or cultural
norms that could harm the business's reputation.
e. Education. For example, rising education levels in society
can create greater demand for knowledge-based products
and services.
f. Social Changes and Movements. For example, social
movements, such as environmental or human rights
movements, can influence consumer perceptions of
brands or drive changes in business practices.
g. Changes in Family Structure. For example, an increase in
single-parent families or changes in family dynamics can
affect the demand for certain products and services.

4. Environmental Factor in PESTEL Analysis. The

Environmental factor in PESTEL analysis refers to the
external conditions and influences related to the natural
environment that can impact a business or industry. This
includes both the direct and indirect effects of environmental
changes on an organization. Understanding these factors is
essential for businesses to operate sustainably and comply

182
with environmental regulations. Here’s a breakdown of key
aspects of the Environmental factor in PESTEL analysis:
a. Climate Change. Businesses must consider the long-term
impact of climate change, such as rising temperatures,
extreme weather events, and changing precipitation
patterns. These can affect operations, supply chains, and
product demand. For example, a company in agriculture
might face reduced crop yields due to droughts or floods.
b. Environmental Regulations. Governments often impose
regulations aimed at protecting the environment, such as
emission standards, waste management rules, and
restrictions on resource use. Companies must comply with
these regulations, which can impact costs and operations.
For example, stricter emission controls may require
manufacturers to invest in cleaner technologies.
c. Sustainability Initiatives. Many companies adopt
sustainability initiatives to reduce their environmental
impact and appeal to environmentally-conscious
consumers. This includes efforts to reduce carbon
footprints, use renewable energy, and promote recycling.
These initiatives can lead to cost savings, brand
differentiation, and compliance with regulations.
d. Resource Scarcity. The availability of natural resources,
such as water, minerals, and fossil fuels, is a critical
consideration. Resource scarcity can lead to increased
costs and supply chain disruptions. Companies need to
manage their resource usage efficiently and explore
alternatives to scarce resources.
e. Public and Consumer Awareness. Increasing public
awareness of environmental issues can influence
consumer behavior and demand for sustainable products.
Companies that fail to address environmental concerns
may face reputational risks and lose market share to more
environmentally friendly competitors.

183
 f. Biodiversity and Ecosystem Health. The impact of
business activities on biodiversity and ecosystems is an
important consideration. For instance, deforestation or
pollution can harm local wildlife and ecosystems, leading
to legal and reputational risks.
g. Waste Management and Pollution. Effective waste
management practices and minimizing pollution are
crucial for reducing environmental impact. Companies
need to manage their waste and emissions responsibly to
avoid fines, legal actions, and damage to their reputation.
h. Renewable Energy Usage. The shift towards renewable
energy sources, such as wind, solar, and hydropower, is
an important factor. Companies adopting renewable
energy can reduce their carbon footprint and reliance on
fossil fuels, aligning with environmental regulations and
consumer expectations.

5. Technological Factors in PESTEL Analysis. Technological

factors in PESTEL analysis encompass elements related to
technological innovations and their impact on industries or
businesses. Here are the technological (T) factors from
PESTEL along with examples:
a. Technological Innovation. For example, advancements in
computing technology or artificial intelligence (AI) can
create new opportunities for the development of more
sophisticated products and services.
b. Internet Development. For example, the growth of the
internet and better connectivity can influence business
models, facilitate e-commerce, and create new
opportunities in digital marketing.
c. Automation of Production Processes. For example, the
use of robots and automation in production processes can
increase efficiency and reduce production costs.

184
 d. Adoption of Digital Technology. For example, the
adoption of digital technology in various sectors, such as
e-learning in education or telemedicine in healthcare, can
fundamentally change how services are delivered.
e. Information Technology Security. For example,
cybersecurity threats and data protection may require
additional investment in information security systems to
protect customer data and business operations.
f. Growth of the Technology Industry. For example, the
growth of the technology industry, such as the
cybersecurity or blockchain technology sectors, can create
new opportunities for businesses operating in these fields.
g. Software Evolution. For example, the development of the
latest software, such as mobile applications or cloud-based
platforms, can change how businesses interact with
customers and manage internal operations.
h. Renewable Energy Development. For example,
innovations in renewable energy technology, such as solar
panels or energy storage batteries, can impact the energy
industry and create new opportunities for companies that
adopt them.

6. Legal Factors in PESTEL Analysis. Legal factors in the

PESTEL framework encompass elements related to
regulations and laws that can affect a business or industry.
Here are the legal (L) factors from PESTEL along with
examples:
a. Industry Regulations. For example, health and safety
regulations, production standards, quality requirements.
b. Legal Provisions. For example, changes in labor laws,
contract law, tax law.
c. Legal Updates: For example, changes in industry
regulations, amendments to corporate law, new trade
policies.

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 d. Intellectual Property Rights. For example, patents,
copyrights, trademarks, intellectual property protection.
e. Legal Compliance. For example, environmental
compliance, tax compliance, trade regulation compliance.
f. International Trade Law. For example, free trade
agreements, export and import regulations, international
trade law.
g. Antitrust Policy. For example, competition law, antitrust
regulations, anti-monopoly law.
h. Consumer Law. For example, consumer rights, product
labeling, manufacturer responsibility.
i. Privacy Law. For example, data privacy policies, personal
data protection, GDPR compliance.
j. Labor Law. For example, employment contract
requirements, working hours, termination policies.
k. Environmental Law. For example, waste management
regulations, environmental permits, environmental
liability.
l. Financial Law. For example, financial market regulations,
banking law, audit compliance

Figure 4.1 Macro External Business Environment Analysis

(PESTEL)
Source: Wardhana, et al (2021) & Hans (2019)

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Examples of companies conducting PESTEL analysis include:
a. Apple Inc. conducts PESTEL analysis as follows:
1) Political (P). Monitoring international trade policies
and regulations related to intellectual property rights
in the countries where they operate, such as
adjustments to tariff policies, import quotas,
registering patents, trademarks, and copyrights in
various countries, and addressing violations related to
patent and copyright infringements on their
technological innovations.
2) Economics (E). Analyzing global and local economic
conditions to determine product pricing and
marketing strategies, such as inflation, economic
growth, currency fluctuations that can affect product
prices in different countries, consumer purchasing
power, competition levels, tax policies, and marketing
strategies that include pricing, promotion, and
distribution.
3) Social (S). Considering social trends and consumer
preferences, such as the increasing demand for
environmentally friendly products, like the use of
recycled materials, reducing carbon footprints, using
renewable energy in the production process, reducing
plastic use and choosing more easily recyclable
materials, reducing the use of harmful substances,
environmental protection marketing campaigns, and
trends towards eco-friendly products.
4) Technology (T). Investing in research and
development to stay ahead in technological
innovation, such as Apple allocating a significant
budget in 2023 for R&D on cutting-edge technologies
like artificial intelligence, augmented reality, and
innovative hardware, around 7.8% of its revenue, the
highest percentage ever achieved.

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 5) Environmental (E). Adopting sustainability and
environmentally friendly policies, including the use of
recycled materials in Apple products, which in 2021
reached nearly 20%, the highest figure ever achieved,
Apple's commitment to achieving net-zero carbon
emissions by 2030, using 100% recycled cobalt in
Apple-designed batteries as well as 100% recycled tin
in solder and gold plating for their products by 2025,
and collaborating with over 300 suppliers to ensure
that the materials Apple uses comply with
sustainability and environmental standards.
6) Legal (L). Complying with various regulations and
laws in different international markets related to data
privacy and copyright, such as Apple's clear and
transparent privacy policies regarding how they
collect, use, and share users' personal data, like GDPR
and the Digital Markets Act (DMA) in the European
Union, which regulate the protection of personal data
and user privacy.

External micro constraints often refer to micro external

factors. Several elements of the micro external environment can
be described (Wardhana et al., 2021; Suratman, 2021) as follows:
1. Consumers or Customers. Refers to the community that uses
the goods and services produced by companies, business
entities, government agencies, and other non-profit
organizations. For example, in 2017, United Airlines faced a
major controversy after passenger David Dao was forcibly
removed from a flight to make room for airline staff. This
incident caused public outrage and widespread criticism of
United Airlines' customer service.
2. Suppliers. These are parties that provide goods and services
as raw materials needed by the company in the production
process. For instance, in 2020, Apple faced challenges related
to supply uncertainty from factories in China due to the
COVID-19 pandemic, which affected iPhone production and
resulted in delivery delays.

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3. Intermediaries. They act as a link in the distribution of goods
and services from producers to consumers or customers. For
example, PT Hasjrat Abadi experienced delays in receiving
car units from the parent company to the dealer, due to issues
in the distribution channels. This caused delays in deliveries
to customers and customer satisfaction problems.
4. Competitors. These are business entities that offer similar
goods and services to consumers or customers within the
same segment. For example, Yahoo faced intense competition
from Google in internet search and online advertising. Yahoo
was unable to compete with the innovation and efficiency
offered by Google, leading to a decline in users and relevance.
5. Creditors. This includes financial institutions and investors
who provide financial support to business entities. For
example, PT. Bumi Resources faced serious challenges due to
a very large debt to creditors. The company struggled with
debt restructuring and rescheduling payments, which
disrupted operations and led to a decline in confidence from
investors and creditors.
6. Government. This refers to government institutions that
formulate regulations related to the economy at local,
regional, and national levels, influencing the operational
activities of organizations. For instance, PT. Pertamina faced
operational challenges due to conflicts with the Blora
Regency Government related to permits and operational
activities. This issue disrupted the company's smooth
operations and created obstacles in carrying out business
activities.
7. Unions. These are organizations that unite workers to
advocate for workers' aspirations and rights. For example, PT
Go-Jek faced conflicts with driver unions demanding
improvements in the compensation system and working
conditions. This case illustrates the tension between the
company and workers regarding labor rights and protection.

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 Figure 4.2 Factors of Micro External Constraints
Source: Wardhana (2023)

C. Importance of the External Business Environment

Wardhana et al. (2021) and Hans (2019) state that the
external business environment is crucial for business entities in
the following ways:
1. Building Business Reputation. This is a process where
understanding the environment helps organizations enhance
their image, reflected in their sensitivity to the environmental
conditions where they operate. For example, facing energy
supply constraints, many companies have built Captive
Power Plants in their production facilities to meet their power
needs independently. Similarly, General Electric (GE)
recognized the importance of the company's reputation by
divesting from their computer and air conditioning
businesses due to their inability to achieve a top 1 or 2
position in those industries.

190
 2. Meeting Business Competition Demands. This process
involves environmental analysis helping companies evaluate
competitors' strategies and formulate their own strategies
that align with market conditions. Competition becomes
more meaningful when there is a competitive advantage.
Strategists can gather qualitative information about the
business environment and use it to design effective business
strategies. For example, The Standard Hotel projected a
bright future in the travel and tourism industry post-
pandemic, leading them to start building hotels in various
locations such as Thailand, Singapore, Melbourne, Lisbon,
Dublin, Brussels, and Las Vegas.
3. Recognizing Company Strengths and Weaknesses. This is
the result of considering the business environment, especially
with attention to technological advancements and
globalization. SWOT analysis (Strengths, Weaknesses,
Opportunities, Threats) is a key element in evaluating a
company's potential and performance. The business
environment sets limits and potential opportunities for
entrepreneurs. For example, regulations such as trade
liberalization policies and relaxation of import policies
provide opportunities for business actors (Schrodt, 2002).

D. External Factors Analysis (EFAS) Matrix

External Factor Analysis Matrix (EFAS) provides a clearer
picture of the key factors affecting a company's success in the
context of its external environment. The steps to develop an
External Factor Analysis Matrix (EFAS) are as follows:
1. Identify 5 to 10 key external factors that play a crucial role in
the success of the organization or company.

2. Assign weights to each factor, ranging from 0.0 (not

important) to 1.0 (most important). These weights reflect the
relative importance of each factor to the company's success in
the given environment or industry. The total weight of all
factors should add up to one (1.0) or 100%, indicating the total

191
 impact of all key factors on the company. The formula for
calculating the weights is:
∑ 𝐴𝑠𝑠𝑒𝑠𝑠𝑚𝑒𝑛𝑡 𝑜𝑓 𝐸𝑎𝑐ℎ 𝐼𝑛𝑑𝑖𝑐𝑎𝑡𝑜𝑟
𝑊𝑒𝑖𝑔ℎ𝑡 =
∑ 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑠𝑠𝑚𝑒𝑛𝑡 𝑅𝑒𝑠𝑢𝑙𝑡 𝑜𝑓 𝐴𝑙𝑙 𝐼𝑛𝑑𝑖𝑐𝑎𝑡𝑜𝑟𝑠

3. Assign a rating from 1 to 4 to each critical success factor. This

rating is based on the state or condition of the external
environment (1 = very low threat or opportunity; 2 = low
threat or opportunity; 3 = high threat or opportunity; 4 = very
high threat or opportunity). The formula for calculating the
rating is:
∑ 𝑃𝑠𝑠𝑒𝑠𝑠𝑚𝑒𝑛𝑡 𝑜𝑓 𝐸𝑎𝑐ℎ 𝐼𝑛𝑑𝑖𝑐𝑎𝑡𝑜𝑟
𝑅𝑎𝑡𝑖𝑛𝑔 =
∑ 𝑅𝑒𝑠𝑝𝑜𝑛𝑑𝑒𝑛𝑡

4. Multiply the weight of each external factor by its rating to

obtain the weighted score for each factor. The formula for
calculating the weighted score is:

𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 𝑊𝑒𝑖𝑔ℎ𝑡 𝑥 𝑅𝑎𝑡𝑖𝑛𝑔

5. Sum the weighted scores of all factors to obtain the total

weighted score for the external environment.

6. The total weight of all external factors faced by the company

is 1, indicating the overall impact of the external environment,
including both macro and industry external factors, on the
company's performance is 1 or 100%.

7. Ratings reflect perceptions of the condition of external

factors, with scores of 1 and 2 indicating threats, while scores
of 3 and 4 indicate opportunities. The cutoff point for external
factor conditions is set at a value of (1+4)/2 = 2.5, with a rating
range from 1 to 4.

192
8. Based on the weighted score calculations in the External
Factor Analysis Summary (EFAS) matrix, a result of 2.45 is
obtained. This figure indicates that the company generally
faces threats, as the EFAS score of 2.45 is lower than the cutoff
value of 2.5 (2.45 < 2.5).

9. Justify the opportunities or threats faced. If the analysis

result shows a score below the cutoff value, it can be
concluded that changes in external factors pose a threat to the
company. Conversely, if the analysis result shows a score
above the cutoff value, it can be said that external factors
provide opportunities. Based on these opportunities or
threats, strategic planners can consider alternative company
strategies after obtaining information about the company's
strengths or weaknesses. Thus, it can be concluded that the
results of the external factor analysis allow us to identify
opportunities or threats arising from changes in the external
environment.

Example of Applying the External Factors Analysis (EFAS)

Matrix.
The results of PT. XYZ's opportunity analysis was
obtained through interviews with the Director and staff, as well
as direct observations at the workplace. Opportunity factors
included in the discussion and observation results involve
elements of external factors such as market opportunities.

Table 4.1 Opportunity Factors of External Factors

No. Opportunity Variable Indicators

1 Opportunities in the market are identified as still open.
2 Conditions in the startup business sector are still
supportive.
3 The level of technological advancement remains
relevant in the market.
4 The demand for products remains high.
5 Offering product variations can enhance the company's
competitiveness.

193
 Table 4.2 Threat Factors of External Factors

No. Threat Variable Indicators

1 Increasing level of business competition
2 Risk associated with pricing strategies
3 Risk from competitors offering product and service
variations
4 Risk related to the growing number of startups
5 Risk due to the increasing growth of marketplaces

After identifying the strategic external factors of a

company, an EFAS table is compiled to formulate these factors
in the context of opportunities and threats. This EFAS table
includes internal factors, weights, ratings, and scores. The
process involves steps such as listing opportunity and threat
factors, calculating weights, ratings, and scores using data
obtained from distributing questionnaires to top-level
management, consisting of five respondents (CEO, Finance, SPV
Coworking Space, SPV Food & Beverage, and Community and
Event). Weighting is performed using the Analytic Hierarchy
Process (AHP), where the total weight (opportunities and
threats) must sum to 1. Nominal ratings are obtained from the
average Likert scale results, while nominal scores are derived
from the multiplication of weights and ratings. In this study, the
EFAS matrix is used to evaluate the position of each factor that
has been included in the opportunity and threat factors after
undergoing weighting, rating, and scoring. Identification of a
company's strategic external factors includes:
1. Preparation of the EFAS table with internal factors, weights,
ratings, and scores.
2. Use of the Analytic Hierarchy Process (AHP) to calculate
weighting.
3. Data collection through the distribution of questionnaires to
top-level management.
4. Use of the EFAS matrix for evaluating the position of factors
after weighting, rating, and scoring.

194
 The EFAS calculation results are as follows:

Table 4.3 EFAS Opportunities

Opportunity Variable
No. Weight Rating Score
Indicators
Opportunities in the market are
1 0.17 3.40 0.58
identified as still open.
Conditions in the startup
2 business sector are still 0.12 3.00 0.36
supportive.
The level of technological
3 advancement remains relevant 0.14 3.20 0.45
in the market.
The demand for products
4 0.18 3.00 0.54
remains high.
Offering product variations
5 can enhance the company's 0.12 3.20 0.38
competitiveness.
Total Score 2.31

Table 4.4 EFAS Threats

No. Threat Variable Indicators Weight Rating Score

1 Increasing level of business
0.04 3.00 0.12
competition
2 Risk associated with pricing
0.04 3.20 0.13
strategies
3 Risk from competitors offering
0.07 3.00 0.21
product and service variations
4 Risk related to the growing
0.07 3.20 0.22
number of startups
5 Risk due to the increasing
0.04 3.20 0.13
growth of marketplaces
Total Score 0.81
Total Score EFAS Opportunities and
1,00 3.12
Threats

195
 Based on the results of the EFAS matrix in the table above,
the opportunities and threats factors are identified through
interviews and observations. After constructing the EFAS, the
ranking of opportunities is determined based on scores obtained
from questionnaires using the Analytic Hierarchy Process (AHP)
method. The factor 'Demand Level for Products' received the
highest weight of 0.18, indicating a high level of importance and
significant influence on the company's growth. Conversely, the
two lowest opportunity indicators, 'Business Startup Sector
Condition' and 'Product Variation Offered,' have weights of 0.12,
indicating less significance compared to other opportunity
factors in the growth of PT XYZ.
From the questionnaire results with AHP, two critical
factors were identified: 'Risk of Competitors Offering Product
and Service Variations' and 'Risk of Business Startup Growth
Level,' with the highest weight of 0.07, indicating the greatest
level of importance and influence on the company's growth.
Other factors have equal weights of 0.04, showing the same level
of importance for PT XYZ's growth. The overall EFAS rating
(score) is 3.12, with a total opportunity score of 2.31 and a total
threat score of 0.81. This indicates that the company's
opportunities are more dominant than its threats.

196
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 AUTHOR PROFILE

Dr (Cand). Aditya Wardhana, S.E., M.Si.,

M.M., CHRMP, CIRP, CHRA, CPP, CHRBP
The author is a permanent lecturer at Telkom
University, Indonesia. He completed his
Bachelor of Economics studies at Padjadjaran
University in 1997 as the best graduate.
Then, the author completed his Master of
Science studies at Padjadjaran University in 2003 and his Master of
Management Studies at Pasundan University in 2012 as the best
graduate—currently, the author is a Doctoral candidate in
Management Science at Pasundan University.
The author has expertise in Marketing, Human Resource (HR), and
Strategic Management. The author has Marketing practitioner at
Citibank NA, one of the largest banks in the world and HR
practitioner experience in the section of Human Capital at PT
Perusahaan Gas Negara Tbk, one of the state-owned enterprises
(SOEs) in the oil and gas sector in Indonesia, as well as as a strategic
consultant in various State-Owned Enterprises (SOEs) such as PT
Surveyor Indonesia, PT Indonesia Ship Classification Agency (PT
BKI), PT Pertamina, PT BNI 46, PTPN VIII West Java, PT Biofarma,
as well as in the Indonesian Ministry of Economic Coordinator, and
the Ministry of Transportation. The author has certifications in the
field of HR, namely The Certified Human Resources Management
Professional (CRMP), Certified Industrial Relations (CIRP),
Certified Human Resources Analyst (CHRA), Certified Personality
Practitioner (CPP), and Certified Human Resources Business
Partner (CHRBP). The author actively writes more than 500 books
in business and management and has Non-Fiction Book Author
Certification from the National Professional Certification Agency
(BNSP)-Republic of Indonesia. The author was awarded as a
lecturer with the best research performance in West Java and Banten
from LLDIKTI Region IV in 2022.

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