chapter ii day 2 of 11th jan 2015
TRANSCRIPT
Managing Organization ABE Graduate Diploma (QCF Level -6)
Prepared & Presented
by
Pyi Kyaw Lynn
B.A (English), Yangon University
M.B.A (Finance), Assumption University of Thailand
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CHAPTER [II]
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THE CONTEXT OF ORGANIZATION
Analyzing the environment
TODAY’S AGENDA
A. The Organization in its Environment
B. The General External Environment
C. The Specific External Environment
D. The Internal Environment
E. Conduction an Environmental Analysis
Introduction
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Introduction to the module
An organization affected by the environment > in which it operates.
Type of organizations defined by > the resources, culture, nature of product or service, management capacity.
Environment not only physical surrounding > but also economic, social, legal, political, technological
There are major environment forces and impactsinfluencing organizations
A. The Organization In Its Environment
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• Nature of Environments by Johnson & Scholes
- Its Dynamic
Stable
Unstable
- Its Complexity
In –depth knowledge
Interrelated environmental factors.e.g., fuel price & exchange rates
Influences [the greater the no of influences, the more complex]
• Classifying the Environment
- At the Centre
Resources
Employees
Porducts
Technology
Can be controlled & determined !!
- Specic external
Cann’t be directly controled
- General external
Out of control
by management
The Environmental Context of Organizations
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Org
Customers
Suppliers
Middlemen
Shareholders
Employees
Banks
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The Environmental Context of Organizations
[B] THE GENERAL EXTERNAL ENVIRONMENT [PESTL]
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POLITICAL/LEGAL• legal & regulatory framework• changes in legislation• taxation & labor laws• environmental law• health & safety regulations• economic policy• labor boycotts
ECONOMIC• market, land, labor & capital • interests & exchange rates • level of demand & supply •inflation & unemployment rate• GDP & GNP• purchasing power• Budget surplus & deficit
TECHNOLOGICAL• technological change• adoption of new technology• e-commerce• telecommunication• MIS application• Data base system• computerization & IT
SOCIAL• population demographic • low birth-rates• distribution of income• change in lifestyles• ethnic structure of an area• employment pattern changes• education & health• cultural environment
Cultural Environment
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Highlight people’s > beliefs & values, behavior & thought patterns.
Visible sign of culture style of dress, adoption of rituals, ceremonies
Globalization create huge variations in national and regional values & beliefs. E.g., a trend of (Western Culture) to become established as an international norm.
In 1980 Professor Geert Hofstede identify 4 dimensions of common culture > in different countries > including Europe, U.S, Far East, Australia, South America and UK > excluding Middle East, Africa, Caribbean.
Knowledge of a culture of a society important to organizations.
Product or service fit to the culture of a society ??
E.g., Refrigerator sales in Saudi
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Dimension of Cultural Environment
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4 Dimensions of Cultural Environment
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Power Distance HighFrance, Latin America countries
LowGermanyItalyUKUSAus
Level of inequalities High or Low ?? High power distance Autocratic leadership style Leaders /Manager decides for
action subordinates just follow. Low power distance Participative leadership style
Power distance
UncertaintyAvoidance
IndividualismCollectivism
Masculinity/Femininity
2nd Dimension of Cultural Environment
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Uncertainty Avoidance
Level of risk taking High or Low ? Some societies prefer clear cut order & feel
threatened by unusual situations
Other societies are prepared to take risks & innovation.
Low Holland Scandinavian countries USUKCanada Australia
HighFrance Germany Latin America countries
3rd Dimension of Cultural Environment
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Individualism/Collectivism
Some societies stress importance on individual performance [bonuses].
They care for themselves & immediate family.
E.g. capitalism Some societies stress on collectivist culture E.g. team working.
HighUSUKFrance Spain
Low Portugal Hong Kong IndiaGreece
4th Dimension of Cultural Environment
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Masculinity/Femininity
“Masculine” characteristics assertiveness competitiveness status achievement. “ Feminine trait” sharing & caring sympathy & service value for quality of life
HighUS, UKItaly
Germany Japan
LowHolland Scandinavian countries
4th Dimension of Cultural Environment
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Technological Environment
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Technological change
Technology atmosphere Complex & dynamicDifficult to predict & plan
ahead for organizations. Change in production or
working methods. E.g., robots Effects of new tech on staffing automation instead of manual workers. Change in communication
PCs networking, videoconferencing technology. New technology create new
products create new markets. E.g., ???.
Computerization & IT
Technology change the way Goods & Services are deliveredOnline shopping & payment
systems [credit cards, ATMs]Database application
[ MIS, ERP, A/C packages].Decision support systems.
E.g., payment history of customers to access credit worthy. Internet & email .Create virtual office rather
than traditional offices, enabling flexible working patterns.
• Improve productivity
or reduce costs.• Improve the way
service is delivered.
Current Trends : Globalization & Ecommerce
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Impact of Globalization
MNCs dominate world market with global scales.
Advanced communication systems, reduction in trade barriers
Growth in international financing > expansion of MNCs.
Sourcing materials from world markets. E.g,.tender
Exposures of language & management skills
Employees get new experiences from diverse cultural and methods.
E- Commerce
Fastest development system of commerce.
No matter the size of organization> one employee even can trade online via a website.
No respecter of boundaries. E.g., no tax and restrictions.
All information not reliable Economic – Low set up costs
for a web page. Deliver access – reservations
via internet by clients. Security risks – hackers and
viruses.
Impacts
On
organizations
[C] THE SPECIFIF EXTERNAL ENVIRONMENT
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Organizations cannot control external environment > need to responsive > for changes of factors in the environment.
External environment comprise sourcing markets > from which raw materials, labor, financing obtain. customer markets > into which goods & services flow.
The interactions with market forces great effect upon > the success & effectiveness of organizations.
Customer Analysis
Supplier Analysis
Competition Analysis
http://www.mindtools.com/pages/article/newTMC_08.htm
http://www.quickmba.com/strategy/porter.shtml
Michael Porter’s 5 Forces Model
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Threat of new entrants
Suppliers Power
Buyers Power
Threat of SubstitutesProducts
Customer Analysis
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Organization to understand customer base > what they need ??
Key elements of any customer [existing & potential]analysis :
Demographic characteristics : age, gender, class, wealth, ethnicity.
Relationship with product: products types , order size ,frequency.
Size of customer base : growing , stable or in decline ??
Relationship with customer: attitude towards the biz & satisfaction level.
Bargaining power of customers dependent on > availability of alternatives > switching cost to other products > the importance of the product to the customer > the importance of customer to the supplier.
The fewer the powerful buyers you have > the more powerful they are. [They are able to dictate /determine terms to you].
Customer includes partners in the supply chain. E.g., retailers.
In UK The largest indirect customer of food industries > supermarkets.
Supplier Analysis
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• Organizations need to focus not only customers, but also suppliers in the supply chain process. Suppliers crucial in > JIT production & quality management.
• The bargaining power of suppliersmajor force > meaning that > they can control conditions of supply > price, quality & volume, availability, etc.
• Factors need to be considered whether > the supplier is in a position of charging monopoly prices, any substitutes for the product, the importance of the supplier’s product to the customer, the switching cost to a new supplier.
• Suppliers concentration The fewer the supplier choices you have > the more you need suppliers' help > the more powerful your suppliers are.
Michael Porter’s Competition Analysis
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Competition the most significant forces > organizations face.
Organizations compete regardless of types > private or public.
5 forces influencing competition in any industry.
The treat of new entrants to the industry.
The bargaining power of customers.
The bargaining power of suppliers.
The availability of substitute products.
Rivalry amongst current competitors.
Michael Porter’s Five Forces Within Industry
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Michael Porter’s Five Forces
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New Entrants to the Industry
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New entrants have to overcome barriers to obtain market share [break market] as follows.
Capital requirement new entrant require capital > high capital > high risk > strong barrier. E.g. high start up & marketing costs to compete with established markets to set up brand image.
Economies of scale the bigger the size > the lower the average costs > less immediate benefits of new entrants compared to established one.
Technology & Patents time and costs of entry knowledge & government policies.
Established brand image customer loyalty for established products & strong product differentiation > difficult to break into the market.
Switching costs Banking , health care & telecommunication services > once subscribed, users sign a long term contract with high cancellation fees > a high switching cost/time to competitor’s products.
Access to distribution channel A barrier to the new entrants.
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Buyer is powerful when:
Buyer purchases large proportion of seller’s products [Buyer market]
Buyer concentration: a few high-volume buyers & very concentrated gain bargaining power
Alternative suppliers are plentiful
Very little switching costs for changing suppliers
The product’s importance to the buyer, the lower the importance, the higher the bargaining power of buyer.
Supplier is powerful when:
Supplier industry is dominated by a few companies but sells to many different industries.
[supplier market]
Its product is unique or the switching costs of supplier is high
Substitutes are not readily available
Purchasing industry buy only a small portion of supplier’s goods.
Bargaining Power of Buyers
Bargaining Power of Suppliers
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Substitute mean : alternative product or service or same product or service from another source.
Substitute products : appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on biz or industry.
E.g., A tennis club may face with competition form a leisure center offering the same tennis facilities.
E.g., Plastic bottles are substitutes for aluminum in packaging industry.
The intensity of rivalry in an industry affect the profitability of the industry
Rivalry intensified when the market is stagnant or slow growth
Competition is encouraged when buyers can easily switch from one supplier to another. [low switching cost]
If exit cost are high, switching out of the industry is difficult, forcing companies to remain in a industry [if not very profitable]
Intense rivalry related to : no of competitors, industry growth rate, amount of fixed costs, height of exit barriers, little product differentiation
Availability of SubstituteProducts
Rivalry Among CurrentCompetitors
Michael Porter’s Five Forces Model
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Nike’s example
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Five Forces Analysis Of The Mobile Service Industry
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Five Forces Score Rationale
Rivalry among current competitors
Rivalry is high leading to high customer: unfavorable
Services are differentiated through new features , customer switching costs are low
Threat of new entrants
Threat of new entrants is low: moderately favorable
New service providers must purchase a bandwidth license by spending billions of $.
Supplier power Supplier power is high:moderately unfavorable
Government have raised the price of additional bandwidth through auctions.
Buyer power Buyer power is low: very favorable
Even large customers have little power to set terms & conditions in this oligopolistic industry
Threat of substitutes
Threat of substitutes is high: moderately unfavorable
WiFi networks to access the internet could challenge the 3G network of mobile phones.
[D] THE INTERNAL ENVIRONMENT
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Structure
& CultureResults
Returns to Stakehold
ersSystems
InternalEnviron
ment
Products&Services
Resources
Situation or Position Audit Analysis of Internal Environment
Resources
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Human resources workforce size , skills, labor costs, labor turnover rates, industrial relations, Org structure & management style, training & development
Physical resources materials where & how much? Suppliers who ? Wastage levels what ? Any alternative suppliers & materials ?? Fixed assets what ? Technology outdated or advanced?
Financial resources working capital how much? Debt ratio ? Credit policy? Financing sources? Deposit/Landing rate at the bank?
Intangibles Goodwill, Brand image, Corporate image, Trademarks & Patents protected ?? Reputation being exploited ??
Systems : Production system equipments & methods used ? Control system > procedures & practices ??Quality systems > TQM methods ? Six sigma??
Competences : Core competences > hybrid of experiences & talents of individuals. Distinctive competence something that cannot be replicated or imitated. Is there Competitive advantage over competitors ??
The Internal Environment [Cont’d]
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Products : Goods & Services• The stage of product life cycle, the market share, total size of current market & potential of new entrants, marketing capacity
The Internal Organization : Structure, Culture, Authority , Systems,
Results : Performance Indicators, Financial Reports, Performance Appraisals [HR], Survey Reports e.g., customer satisfaction, Customer Complaints e.g., after sales service. [Qualitative & Quantitative ]
[E] Conducting an Environmental Analysis
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FORECASTING : To reduce uncertainty
Dependent variable = f (independent variables) Sales = f ( price, advertisings, promotions, time)
Time series techniques : extrapolation, exponential smoothing Casual techniques : Regression & correlation methods. Cross –impact analysis : identification of key trends Demand/Hazard forecasting : identification of major events
Suitable for dynamic & unpredictable situations & for a single industry.
Developing Models
Forecasting Models
Scenario Building
Judged & analyzed by the best people. Delphi model, Jury method, Advisory committee, Consultant
firms, External agencies. Issues : opinions not fact and expensive services charges.
Subjective Techniques
SWOT ANALYSIS
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Strengths Distinctive competencies over
rivals. Present market position, size,
structure, managerial expertise, resources, staffing, image or reputation & goodwill
Weaknesses Deficiencies to be minimized in
the competencies. Running in a narrow market,
outdated technology, high fixed costs, bureaucratic structure, customer complaints, shortage of capable staffs
Opportunities Favorable conditions arise
from changes in environment. New markets, technology
advances, failure of rivals, improved in economic factors.
Threats Unwanted situations likely to
effect the operations of the firms. Changes in legislation, new
products from rivals, political unrest, change in customer needs & wants.
SWOT [Cont’d]
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Inward looking appraisal
Strengths to be exploited by suitable strategies.
Weaknesses to be minimized . Factors to audit positions All
stakeholders , skills & expertise of management & stuffs, responsiveness to change, access to resources [capital & labors, raw],market position.
To be compared with industry standards, competitors, government regulations.
Outward looking analysis
Opportunities to be identified from environmental changes and exploited by strengths.
To review the potential of the opportunities & to maximize the potential of the opportunity with its strengths.
Threats to anticipate economic conditions, government policies, technological advances, competitors 'activities. E.g., increase in provisions for bad debts by banks in economic downturn.
Strengths & Weaknesses Opportunities & Threats
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The established brand in the globe
The biggest shares in the beverage market (over 45 %).
Unparallel advertising strategies by sponsoring of world cups , English premier leagues
Customers’ loyalty to coca cola
Focuses on the carbonated drinks which are likely to be ignored by consumers due to health issues.
Not diversified, focuses on production of beverage products only
Increasing annual demand of beverages in the US & others developing countries.
Taking advantage of setting up new factories with relatively low labor costs in those countries.
Reduction of consumption of carbonated drinks
Pure water scarcity in the near future
Competition from other emerging beverage companies
W
TO
S
Comparative Analysis
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Objectives
To access efficiency & effectiveness of internal environment.
E.g., management practices & allocation of resources.
To compare results & performances.
To explore the possibilities of market entry in new territories
Comparison Bases
Historical – results to compare with historical data
Competitors - to make comparisons of suppliers & clients.
Industry norms – to compare with standards in industry.
Best practice - to compare with competitors’ practices
Stakeholder Analysis
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A further Approach : Analyzing environment in terms of the relationship between the organization and its stakeholders.
The approach recognize : biz can make strategic gains by recognizing stakeholder interests
Stakeholders : employees, shareholders, customers, suppliers, financiers, local authorities, the government, the community & professional bodies.
Potential of Conflict of Interests : between stakeholders
Stakeholder approach Relevant to non-profit making organizations or charitable bodies where social interests far outweigh financial ones.
Industry Growth Rate by Forbes
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Source : http://www.forbes.com/sites/sageworks/2012/12/31/in-2013-check-out-these-fast-growing-industries/
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Thank You !
Q & A !!
1. Organizations often use a SWOT analysis to help them conduct an environment analysis. Assess the advantages and disadvantages of SWOT analysis. [10 marks]
Identify and appraise TWO alternatives to a SWOT analysis that could be used for an environmental analysis. [10 marks]
2. Explain the contribution a “SWOT” analysis can make to organizational performance. [10 marks]
Discuss how far, if at all, companies should abandon profit maximization to pursue their corporate social responsibilities. [15 marks]
3. Companies gain competitive advantage over their rivals by combining their resources in such a way that they can sustain above-average profitability in their chosen markets.
Analyze how companies can gain competitive advantage over their rivals.[10 marks]
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4. Making sense of the external environment in which their company operates is vital for successful resource allocation decisions by managers.
With the aid of examples, examine how PEST analysis can affect the way a company organizes its resources. [10 marks]
5. It has been suggested that the SWOT model offers no practical assistance with the task of translating its findings into behavior that will improve organizational effectiveness. Discuss this statement .
[25 marks]
6. Environmental analysis is an important area for all organizations. The “SWOT” concept is often used by organizations to help them decide on strategic decisions.
Explain and evaluate “SWOT” analysis. Use relevant theory & examples from the workplace to support your answer. [20 marks]
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7. Various frameworks, such as “PESTLE”, can be sued to analyze the macro environment of an organization.
Select an organization or industry to provide the context of your answer. Analyze the macro environment of your chosen organization or industry using a framework such as “PESTLE” [20 marks]
8. Organizations need to analyze their internal environment. Identify five key areas an organization would need to consider when analyzing this environment and explain the process they could adopt. [20 marks]
9. You are the manager of a medium – sized manufacturing organization. The organization is being threatened by increased competition.
Using Michael Porter’s Five Forces Framework” theory or any other relevant theory, discuss the external forces that will influence how this organization will prepare itself for, and react to, the competition it encounters. [20 marks]
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