Environmental Analysis

Nature of Business Environment

- Complex
- Dynamic
- Multi-faceted
- Far-reaching impact

Components of Business Environment

- Internal Environment
o Resources
 Human, physical, financial, intellectual, information resource
o Competencies
o Stakeholders
 Customers, suppliers, competitors, intermediaries, labor unions, pressure
groups
o culture
- External Environment
o Political-legal
 Political
 Political System
 Political institution
 Political philosophies
 Legal
 Laws
 Court of law
 Law administrators
o Economic
 Economic systems
 Free market, centrally planned and mixed economy
 Economic policies
 Monetary, fiscal and industrial policy
 Economic condition
 Economic stage, income, employment, business cycle, inflations
 Regional economic groupings
o Socio-cultural
 Social
 Demographic
 Social Institutions
 Pressure groups
 Social Change and mobility

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 o Technological
 Level of technology
 Labor based or capital based
 Technology change
 Technology transfer
 Research and development budget

Environment Analysis Process

- Scanning
o Identify relevant forces in environment
o Determine source of information
o Select forecasting methods
o Scan and respond to data
- Forecasting
- Monitoring
- Assessment

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Techniques of Environment analysis
PEST analysis

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 Organizational Analysis
Nature of organizational resource
- Deals with internal environment
- Focuses on resource and competencies within a organization
- Evaluates strength and weakness based on competencies and resources
- Locates strategic advantage for organization
- Starting point for strategy formulation

Process of Organizational analysis

- Identify Key Capability Factors
o Unique resources
o Functional Capabilities
 Financial, marketing, production, human resource, R & D capability
- Assess Strength and Weakness of Key Capability Factors
- Locate Strategic Advantage
o Unique resource
o Core competencies
- Prepare Strategic Advantage Profile

Major areas of organizational analysis

- Production/operation factors (technology factors)
- Marketing factors
- HR factors
- Finance and accounting factors
- R & D factors
- General Management Factors

Strategic Advantage and Core competencies

- Gaining advantage over competitors based internal strength of the organization
- Combination of unique resource and core competencies determine strategic advantage
- Sustainability of strategic advantage depends on
o Durability
o Imitability

Value Chain Analysis

- Primary activities
o Inbound logistics
o Operations
o Outbound logistics
o Marketing and Sales
o Service

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 - Supporting Activities
o Procurement
o Technology Development
o Human resource management
o Infra structure

Methods of Organizational Analysis

- Resource Deployment Matrix
- Financial Analysis
o Ratio analysis
o Economic Value added
o Activity based Costing
- Strategic Advantage Profile
o Identify key strategic factors
o Identify importance of key strategic factors
o Assess strength and weakness of relevant key strategic factors
o Prepare SAP
- SWOT analysis
- Organizational Norm Analysis

Critical Success Factors

- Unique physical Resources
- Unique Intellectual Resource
- Important Expertise
- Valuable HR
- Strategic Alliance
- Competitive capabilities

Sources of CSF
- Industry characteristics
- Competitive position
- External Environments
- Organizational Developments

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 Strategy Formulation
Process of strategy formulation
- Review Strategic element
o Vision
o Mission
o Objectives
o Strategies
- Conduct SWOT analysis
o Internal Analysis
o External Analysis
- Identify strategic options
o Strategies
 Grand strategies
 Generic Strategies
o Directions
 Protect/build
 Product development
 Market development
 Diversification
o Methods
 Internal Development
 Merger and acquisitions
 Joint development and strategic alliances
- Evaluate Strategic options
o Suitability
 Ranking
 Decision trees
 Scenarios
o Acceptability
 Return Analysis
 Risk Analysis
 Stakeholder’s reaction analysis
o Feasibility
 Fund flow analysis
 Break even analysis
 Resource deployment analysis
- Make strategic Choice
o Corporate level
o SBU level
o Functional level

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Alternative strategies at Corporate Level/Grand strategies
Stability Expansion Retrenchment Combination
-pursued in relatively -pursued in highly -pursued in threatening -pursued in changing
stable environment competitive environment environment environment
-organization is market -pace of activity -pace of activity -organization has
leader increases decreases multiple business units
-no change in product , -new product, market -product, market and -simultaneous use of
market or functions and functions are added functions are reduced stability, expansion and
-product is at maturity -product is in growth -product is in decline retrenchment in
stage stage stage different parts of the
-current operations are -through increased -through reduced market organization
made efficient and there market share and share, dropping product -product life cycle in
is incremental production capacity line and market, different stages
performance divestment -aim is to improve
improvement performance
Benefits: Benefits: Benefits: Benefits:
>less risky >facilitate growth in size >greater returns can be >useful to large multiple
>routines are not essential in long run obtained in other SBU organization
disrupted >increase in productivity opportunities >adaptive to many
>doing well and stays and performance >tax advantage can be environments
well >high risk, high reward taken >useful in periods of
>action oriented, no >monopoly power can >resource are freed up transition
alternatives considered be gained due to size >helps to deal with
>inefficiencies are >experience curve and stakeholder’s pressure
avoided scale of operation =
strategic advantage

Diversification
- Related Diversification
o Vertical Integration
o Horizontal integration
- Unrelated Diversification

Evaluating Benefits of Diversification

- Core competency
o Competitive advantage
o similar to existing business
o difficult to imitate
- Sharing infrastructure
- Balancing financial resources
- Maintain growth
- Reduce risk

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Alternative strategies at business level/Generic Strategies
Low Cost leadership strategy
- Control Cost drivers
o Economies of scale, Experience curve, Cost of key resources, Resource sharing,
Outsourcing, Capacity utilization, First mover advantage
- Revamp value chain
o Shifting to e-business technologies, Direct marketing, Simplify product design, No-frills
offer, Bypass high cost materials, Relocate facilities, Reengineering

Broad Differentiating Strategy

Bases of differentiation
- Product parameters, service back-up, personnel, promotions, image, tech-innovation

Drivers of differentiation
- Unique product performance, unique product features, new technologies, unique services,
detailed information

Focused Strategies
- Aim to serve buyers better in market niche than competitiors
- Focused low cost
- Focused differentiation

Quick response
- Provides flexibility to the firm
- Developing, producing and delivering products to customers faster than competitors

Strategies at Functional Level

- Keizen for improving customer value
o Raise benefits
o Reduce costs
o Both simultenously
- Strategic development in critical areas of management
o Marketing
o Operations
o R&D
o Accounting
o Purchasing
o HRM

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Strategic Management in market life-cycle
Introduction Growth Maturity Decline
Product -try to be first in -Quality improved -differentiation -weak product line
the market -new features with new brand are phased out
-small product mix added and models -market niche are
-Product -new segments -product catered
innovation is high entered positioning is done
Price -high price -slightly lowered -competition -low but stable
-market skimming to attract price based price price
or market sensitive -price war
penetration customers
-cost-plus basis -cost fall
Place -selective channels -intensive -more intensive -selective
used for distribution to distribution distribution
distribution increase coverage
Promotion -high level of -slightly increased -brand loyalty is -limited to
promotion to build -awareness to emphasized reinforcement
awareness preference
Competition -limited -new competitors -competitive -very low
competition get attracted rivalry peaks
-pioneers gain
competitive
advantage

Tools for strategy selection

Hofer’s model: stage of product/market evolution vs competitive position

- Push -1,2,4,5,7: invest aggressively

- Caution: 3,6,8,10,11: invest selectively

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 - Danger: 9,12,13,14,15: Harvest

Strategy Implementation
Process of strategy implementation
- Designing Stricture
o Job design
o Job grouping
o Relationships
- Preparing resource plan
o Corporate level resource plan
o Business level resource plan
o Functional level resource plan
- Establishing management system
o HRM
o Information management
o leadership
- Exercise strategic Control

Operationalizing strategy/Tactical aspects od Strategy Implementation

- Short term objectives (Action Plans)
- Structure
- Resource Plans
- Management System
- Reengineering

Resource Planning
Factors affecting resource plan
- Objectives
- Managerial preference
- Internal Politics
- External indluence

Resource planning at corporate level

Determine and evaluate alternative future sources

Identify resource gap

Select future source of resource mobilization

Forecast Future resource need Formulate Resource action plans

Assess available resources Prepare Budget

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Resource planning at business level
- Approaches used
o Top down
o Bottom up
o Mixed

Resource Allocation at functional level

- Actions plans are prepared to identify
o Functional activities
o Time frame
o Accountability
o Outcomes

Essentials of effective implementations

- Organizational Structure
o Simple
o Functional
o Divisional
o Holding company
o Matrix
o Team based
o Network
- Leadership
o Leading
o Performance based rewards
o Supportive environment
o Open communication
o Team building
o Benchmarking
o Shaping organizational culture
- Information management
o Directing – needs, priorities
o Collecting – information sources, contracts
o Analyzing – appropriate, reliable and valid
o Dissemination – reports, others

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Strategic Evaluation and Control
Characteristics
- Right Direction
- Proactive
- Future oriented
- Focus
- Time horizon
- Responsibility
- Techniques
- Corrective actions

Traditional Approach
- Setting standards (criteria for control)
- Measure actual performance (performance feedback)
- Evaluate performance (Evaluation criteria)
o Quantitative and qualitative criteria
- Corrective actions
o Do nothing, Correct deviations or change standards

Contemporary Approach
- Premise Control
- Implementation Control
- Strategic surveillance
- Special Alert Control

Process of Strategic Evaluation and Control

Review Assumptions Measure Performance Adjust Strategies

Criteria for evaluating strategies

- Consistency
- Consonance
- Feasibility
- Advantage

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Barriers to strategic Control

Concepts of Strategic Change

Kiran
Incremental

Nature of Change

Big Bang
Scope of Change

Transformation Realignment

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