Page | 1

Assignment I

STRATEGIC

MANAGEMENT

ZAHID NAZIR

Roll # AB 523655

Semester: Spring 2010

(5574)

MBA Executive

Page | 2

QUESTION 1

What are the key elements of strategy?

How and by whom should the allocation

of scarce resources be managed for

distribution to competing ends and

means?

(20)

Page | 3

STRATEGY

The term strategy may be used in two senses. As an adjective assigning particular

importance to some action, activity or process, it is possible to speak of strategic

management, strategic planning or strategic decision making, all deemed to be

activities which are essential to the organization’s survival. It is also used as a

noun, to describe a pathway along which the organization moves towards its

goals. There are as many definitions of strategy as there are experts and

commentators in the field. Following are some strategy definitions that shows the

underlying similarity among the range of viewpoints.

“ Strategy is the pattern of organizational moves and managerial approaches used

to achieve the organizational objectives and to pursue the organization’s mission.”

“ Strategy is the organization’s pre-selected means or approach to achieving its

goals or objectives, while coin with current and future external conditions”.

“ Strategies, large scale action plans for interacting with environmental in order

to achieve long term goals”.

“Strategy is the direction and scope of a organization over the long term, ideally

which makes its resources match its changing environment, and in particular its

markets, customers or clients, so as to meet stakeholders expectations”.

“Strategy is the search for directions, which energize the life of an organization.”

The Purpose of Strategy

• Provides direction

• Provides coherence

• Allows day-to-day processes to be designed

• Should give direction for ‘one off’ procedures

‘The essence of strategy is coping with competition.

Page | 4

The corporate strategist’s goal is to find a position in the market where his or her

company can best defend itself against the collective industry forces or can

influence them in its favour.’

Michael E. Porter

The Focus of Business Strategy

There is an ever-increasing prevalence of incorporating global migration,

international learning, skills recognition and multiculturalism strategies by

businesses, governments and educators in order to tackle anticipated pressures in

service delivery, labor supply and business investment. Business strategy

motivates management and staff to recognize the benefits of developing and

maintaining a global presence strategy for much greater creativity.

Business Strategy- What Is It?

What exactly is business strategy? In simple terms, a business strategy is an

articulation of the overall direction of the business. Strategies that are identical to

those of your competitors can result in the failure of your objectives.

Business strategy can also be seen as a decision made at the highest levels of the

company on positioning and direction. Such a decision serves to establish a clearly

defined framework for subsequent decisions. Accordingly, strategy and decision-

making become inseparable; without organizational competence for decision-

making, the formulation of a strategy in itself does not have much meaning.

Key Elements of Good Business Strategy

A good business strategy steers clear of destructive competition. It has to focus

on uniqueness, geared to delivering unique value to the important needs of target

customers. Strategy should not be confused with aspiration. For example, "to

become a leader in technology" is as a goal, not a strategy.

Page | 5

A well-formulated business strategy is a definition of the goal and the ways that

the business is going to achieve that goal. It also outlines boundaries for achieving

the goal thus preventing any 'straying' from the set direction.

Some of the key elements of strategy are:

• Mission

– The reason for existence for an organization

• Mission Statement

– States the purpose of an organization

• Goals

– Provide detail and scope of mission

• Strategies

– Plans for achieving organizational goals • Tactics

– The methods and actions taken to accomplish strategies

2-11

Planning and Decision Making

Mission

Goals

Organizational Strategies

Functional Goals

Finance

Strategies

Marketing

Strategies

Operations

Strategies

Tactics Tactics Tactics

Operating

procedures

Operating

procedures

Operating

procedures

Page | 6

Business Strategy- Need and Purpose

Developing a good business strategy is a thoughtful process. It takes a balanced

approach to come up with a strong but flexible business strategy that can absorb

change without disintegrating. Just as a good topographical map is indispensable

to a hiker outlining explicit geographical hazards, so is a good business strategy to

a company. It encompasses information on competitors and technology, suppliers

and customers and provides directional guidance.

In today's fast moving world, changes are fast and imminent. Use of the Internet

lends a mind-boggling speed to nearly every business process. The competitive

environment in which a business has to operate is in a constant state of flux.

Business strategy, therefore, has to be constantly monitored and modified to suit

the circumstances, in order to remain progressive.

A good business strategy should address:

The core purpose and the aspirations of the organization

The path chosen for further growth

The basis for choosing the path

The keys for execution

The ways to constantly sense change and adjust accordingly

STRATEGY EQUATION

The Strategy Equation consists of the set of statements that define the strategic

positioning of an organization. There is a tight and interactive relationship

between each of the component parts of the equation. Each component part

defines an essential element of the overall equation and interconnects with all

other elements in specific and defined ways. The strategy equation consists of

three clusters of grouping:

1. Defined ENDS: the Vision, Mission and Goal Statement are concerned with

the “ends” that the organization seeks to achieve.

Page | 7

2. Defined MEANS: the Strategies and Objectives are focused on the “means”

to achieve the ends.

3. Defined RULES: the Policies and Values set out the rules and behaviors

appropriate to the pursuit of both the Means and Ends.

‘Ends’ ‘Means’

Values Values

MissionVision

StrategiesObjectives

Policies Policies

Strategic Operational

Goals

The Strategy Equation

The Vision

Vision defines the type of organization they wish to be, and be seen to be. The

vision statement may be accompanied by a statement of values that describes

those attributes and characteristics that it most wants to attain and express. It

seeks to answer the following question: What type of organization do we wish to

be?

The Mission

Mission defines the ‘landscape’ in which the organization seek to operate and

therefore the business in which they wish to be engaged. It seeks to answer the

following question: What is our business? What industry are we in?

Page | 8

The Goals

Goals define positions to be adopted and achieved within that landscape. They

represent the long run outcomes directly sought by the organization and its key

stakeholders. They interact with both the organization and its external

landscapes. They link the Mission and Vision to the Strategies and Objectives.

They have both a direction and a destination component. They seek to answer the

following question: Where do we want to go (direction) and what do we wish to

reach (destination)?

The Strategies

Strategies define the pathways towards the goals. The pathway is expressed in

the form of an operational plan or series of plans and related actions and

activities. They are central to the whole definitional process and serve to link the

strategic with the operational. They seek to answer the following question: How

do we get to the Ends we have defined for ourselves, and by what Means

(pathways)?

The Objectives

Objectives map out the strategies, they anchor them in the external landscapes

and provides means with which to put the strategies into practice. They are

specific time-based points of measurement that the organization intends to meet

in pursuit of its broader goals. They seek to answer the following question: How

exactly do we stage the journey along the pathways?

The Policies

Policies apply at both the Strategic and Operational levels. They are the guidelines

that attach to both ends and means and to the strategic as well as operational

levels of the strategy equation. They answer the question: By what managerial

and administrative rules and boundaries do we live and ensure progress into the

future?

Page | 9

The Value

Value statements also apply at both the strategic and operational levels of an

organization. They seek to answer the following question? How should we

behave? and How do we want to be seen to be behaving?

Collectively these elements come together to constitute the “strategy equation”

for an organization.

RESOURCE ALLOCATION

In strategic planning, a resource-allocation decision is a plan for using available resources, especially human resources especially in the near term, to achieve goals for the future. It is the process of allocating resources among the various projects or business units. The plan has two parts: Firstly, there is the basic allocation decision and secondly there are contingency mechanisms. The basic allocation decision is the choice of which items to fund in the plan, and what level of funding it should receive, and which to leave unfunded: the resources are allocated to some items, not to others. There are two contingency mechanisms. There is a priority ranking of items excluded from the plan, showing which items to fund if more resources should become available; and there is a priority ranking of some items included in the plan, showing which items should be sacrificed if total funding must be reduced. Resource allocation is a major management activity that allows for strategy execution. In organizations that do not use a strategic-management approach to decision making, resource allocation is often based on political or personal factors. Strategic management enables resources to be allocated according to priorities established by annual objectives. Nothing could be more detrimental to strategic management and to organizational success than for resources to be allocated in ways not consistent with priorities indicated by approved annual objectives. All organizations have at least four types of resources that can be used to achieve desired objectives: financial resources, physical resources, human resources, and

Page | 10

technological resources. Allocating resources to particular divisions and departments does not mean that strategies will be successfully implemented. A number of factors commonly prohibit effective resource allocation, including an overprotection of resources, too great an emphasis on short-run financial criteria, organizational politics, vague strategy targets, a reluctance to take risks, and a lack of sufficient knowledge. Managers normally have many more tasks than they can do. Managers must allocate time and resources among these tasks. Pressure builds up. Expenses are too high. The CEO wants a good financial report for the third quarter. Strategy formulation and implementation activities often get deferred. Today's problems soak up available energies and resources. Scrambled accounts and budgets fail to reveal the shift in allocation away from strategic needs to currently squeaking wheels. The real value of any resource allocation program lies in the resulting accomplishment of an organization's objectives. Effective resource allocation does not guarantee successful strategy implementation because programs, personnel, controls, and commitment must breathe life into the resources provided. Strategic management itself is sometimes referred to as a "resource allocation process."

Reference:

www.scribd.com

Strategic Management AIOU

****************

Page | 11

QUESTION 2

(a) What are the organizational and

environmental conditions that

determine how far into the future an

organization can project its vision?

(10)

(b) What is the importance of accurate

measurement to effective management?

(10)

Page | 12

a).

VISION Many organizations today develop a "vision statement" which answers the question, what do we want to become? Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example the vision statement of Stokes Eye Clinic in Florence, South Carolina, is "Our vision is to take care of your vision." The vision of the Institute of Management Accountants is "Global leadership in education, certification, and practice of management accounting and financial management."

MISSION Mission statements are "enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm's operations in product and market terms. It addresses the basic question that faces all strategists: What is our business? A clear mission statement describes the values and priorities of an organization. Developing a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. A mission statement broadly charts the future direction of an organization. An example mission statement is provided below for Microsoft. Microsoft's mission is to create software for the personal computer that empowers and enriches people in the workplace, at school and at home. Microsoft's early vision of a computer on every desk and in every home is coupled today with a strong commitment to Internet-related technologies that expand the power and reach of the PC and its users. As the world's leading software provider, Microsoft strives to produce innovative products that meet our customers' evolving needs.

External Opportunities and Threats External opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an

Page | 13

organization in the future. Opportunities and threats are largely beyond the control of a single organization, thus the term external. The computer revolution, biotechnology, population shifts, changing work values and attitudes, space exploration, recyclable packages, and increased competition from foreign companies are examples of opportunities or threats for companies. These types of changes are creating a different type of consumer and consequently a need for different types of products, services, and strategies. Other opportunities and threats may include the passage of a law, the introduction of a new product by a competitor, a national catastrophe, or the declining value of the dollar. A competitor's strength could be a threat. Unrest in the Balkans, rising interest rates, or the war against drugs could represent an opportunity or a threat. A basic tenet of strategic management is that firms need to formulate strategies to take advantage of external opportunities and to avoid or reduce the impact of external threats. For this reason, identifying, monitoring, and evaluating external opportunities and threats are essential for success.

Environmental Scanning The process of conducting research and gathering and assimilating external information is sometimes called environmental scanning or industry analysis. Lobbying is one activity that some organizations utilize to influence external opportunities and threats. Environment scanning has the management scan eternal environment for opportunities and threats and internal environment for strengths and weaknesses. The factor which are most important for corporation factor are referred as a strategic factor and summarized as SWOT standing for strength, weaknesses, opportunities and threats. Environmental Scanning Internal Analysis External Analysis The external environment consist of opportunities and threats variables that outside the organization. External environment has two parts:

Task Environment

Page | 14

Social Environment Task Environment: Task environment includes all those factors which affect the organization and itself affected by the organization. These factor effects the specific related organizations. These factors are shareholders community, labor unions, creditor, customers, competitors, trade associations. Social Environment: Social environment is an environment which includes those forces effect does not the short run activities of the organization but it influenced the long run activities or decisions. PEST analysis are taken for social environment PEST analysis stands for political and legal economic socio cultural logical and technological. Internal Strengths and Weaknesses/Internal assessments Internal strengths and internal weaknesses are an organization's controllable activities that are performed especially well or poorly. They arise in the management, marketing, finance/accounting, production/operations, research and development, and computer information systems activities of a business. Identifying and evaluating organizational strengths and weaknesses in the functional areas of a business is an essential strategic-management activity. Organizations strive to pursue strategies that capitalize on internal strengths and improve on internal weaknesses. Strengths and weaknesses are determined relative to competitors. Relative deficiency or superiority is important information. Also, strengths and weaknesses can be determined by elements of being rather than performance. For example, strength may involve ownership of natural resources or an historic reputation for quality. Strengths and weaknesses may be determined relative to a firm's own objectives. For example, high levels of inventory turnover may not be strength to a firm that seeks never to stock-out. Internal factors can be determined in a number of ways that include computing ratios, measuring performance, and comparing to past periods and industry averages. Various types of surveys also can be developed and administered to examine internal factors such as employee morale, production efficiency, advertising effectiveness, and customer loyalty.

**********************

Page | 15

b)

MEASUREMENT AS AN EFFECTIVE MANAGEMENT TOOL

Measurement is an effective management tool because it provides the information decision makers require to accurately monitor key issues related to company and organizational goals, progress and quality at both the executive and project levels, and performance against a plan. Measurement also provides data that managers need to ask the right questions -- and make the right decisions based on objective information.

As managers, measurement helps us do the following:

Communicate effectively and improve visibility. Measurement supports

communication among stakeholders across all levels of the organization.

Objective measurement also reduces ambiguity. It provides an effective

way to communicate status between suppliers and their clients.

Identify and correct problems early. Measurement facilitates pro-active

management. It allows us to identify and manage potential problems early

in the development lifecycle. Problems discovered late are more difficult to

manage and more costly to fix. With measurements, managers do not have

to wait for problems to arise; instead, they can anticipate and quickly

address them.

Make key trade-offs. Decisions in one area often impact others.

Measurement helps assess the impact objectively so that managers can

make informed trade-off decisions to best meet project objectives.

Track specific project objectives. Measurement helps managers answer

specific questions such as: "Is the project on schedule?" or "Is the quality

improving?" or "Is the system ready to be delivered?" By tracking actual

measures against a plan, managers can assess progress toward project and

organizational objectives.

Manage risks. Risk management is a widely accepted best practice that

involves identifying and analyzing risks early in a project's lifecycle. Risks

uncovered late can be difficult and costly to fix. With high-quality objective

Page | 16

data, managers can gain visibility into risk areas such as requirements

creep. By measuring and monitoring requirements volatility, they can

determine whether a risk has been mitigated.

Defend and justify decisions. Managers must effectively defend and justify

their decisions. Given a choice between basing their decisions on subjective

or objective data, the vast majority would choose objective data.

Measurement provides objective historical performance or trend data as

well as current performance data. It also provides perspective with respect

to time, projects, releases, and so forth. This allows decision makers to

interpret the measures and decide on appropriate actions.

Plan future projects. In project planning, managers must set realistic goals

and schedules, not to mention budgets. Recording timelines and

expenditures for past projects provides the data that managers need to

predict schedules and costs for similar projects.

Reference:

www.12manage.com

www.mindstool.com

*******************

Page | 17

QUESTION 3

Compare and contrast alternative ways of

perceiving and describing the workings of

the strategy process within organizations,

and between organizations and their

environments.

(20)

Page | 18

STRATEGY FORMATION

Following descriptions set out the main perspectives, or school of thought, on

strategy as developed through the insights and research of observers and writers

on strategic management over the last 50 years. This overview is largely derived

from the work of Mintzberg. He has identified a range of perspectives, each of

which helps to highlight and clarify an aspect of the way in which the strategic

management process works within organization

Strategy Models – Schools of Thought

Schools of Thought

Prescriptive: How strategies should be formulated

To the following Schools: Strategy Formation is seen as:

Design School a Conceptual Process

Planning School a Formal Process

Positioning School an Analytical Process

Process: How strategies do in fact get made

To the following Schools: Strategy Formation is seen as:

Entrepreneurial School a Visionary Process

Cognitive School a Mental Process

Learning School an Emergent Process

Political School a Power Process

Cultural School an Ideological Process

Environmental School a Passive Process

Page | 19

Life Cycle Models

To the following Schools: Strategy Formation is seen as:

Configurational School an Episodic Process

The table above identifies at least ten different ways of looking at strategy. These

ten perspectives or schools can be grouped into three clusters. Each cluster

represents a main viewpoint: Prescriptive, Process and Life Cycle.

Page | 20

Comparison of Schools of Thought

Page | 21

Page | 22

Reference: www.12manage.com

******************

Page | 23

QUESTION 4

Discuss the significance of collective or

group based objective setting in

developing a broad based approach to

organizational governance?

(20)

Page | 24

OBJECTIVES

Objectives are the specific and unambiguous ‘action initiators’ that drive the

organization along their selected mix of strategy pathways. They operationalize

the strategic thought and convert it into measurable actions. In summary,

Objectives should be:

Strategic to the organization. (Focused on the strategic future and

therefore able to be integrated with the ‘Ends’ components of the strategy

equation).

Action Initiator. (Linkable to action plans and therefore a point of

connection and initiation for resource distribution into the strategic

positions undertaken by the organization especially regarding resource

allocation and use).

Specific and unambiguous. (Strong in focus, precise in expression, and

possessing clarity, not clouded by avoidable ambiguities or misalignment

between strategic thought and operational action).

Concise and easily understood. (Brief but able to instruct and inform those

with responsibility for their implementation).

Widely communicated and communicable.

Objectives should have:

a content (a statement or description of what is being measured – an

aspect of customer satisfaction)

a measure or indicator (expressed as an absolute value or as a relative

measure such as percentage or ratio)

a level (85% of customer calls to be answered within first 30 seconds of

ringing)

a time period for achievement (per dd/mm/yy; per shift; per session; per

cycle etc)

Apart from providing traction for strategic action, objectives also provide a

decision and action matrix around which organizational structure and culture can

Page | 25

be built. When poorly defined , partially understood, or not fully agreed to by

individuals and interest groups, the objectives may become dysfunctional in their

application and use. Getting the objectives properly defined is an important first

step. They must however be accompanied by an understanding and agreement

amongst the members of the organization. Management decision making

techniques such as Management by Objectives (MBO) represent one attempt to

develop and use such a system to achieve coherence and order in the

management planning process.

MANAGEMENT BY OBJECTIVES

Management by objectives (MBO) is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources.

It aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach objectives.

Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in his book 'The Practice of Management'. In the 90s, Peter Drucker himself decreased the significance of this organization management method, when he said: "It's just another tool. It is not the great cure for management inefficiency... Management by Objectives works if you know the objectives, 90% of the time you don't."

CORE CONCEPTS

According to Drucker managers should "avoid the activity trap", getting so involved in their day to day activities that they forget their main purpose or objective. Instead of just a few top managers, all managers should:

participate in the strategic planning process, in order to improve the implementability of the plan, and

implement a range of performance systems, designed to help the organization stay on the right track.

Page | 26

MANAGERIAL FOCUS

MBO managers focus on the result, not the activity. They delegate tasks by "negotiating a contract of goals" with their subordinates without dictating a detailed roadmap for implementation. Management by Objectives (MBO) is about setting yourself objectives and then breaking these down into more specific goals or key results.

MAIN PRINCIPLE

The principle behind Management by Objectives (MBO) is to make sure that everybody within the organization has a clear understanding of the aims, or objectives, of that organization, as well as awareness of their own roles and responsibilities in achieving those aims. The complete MBO system is to get managers and empowered employees acting to implement and achieve their plans, which automatically achieve those of the organization.

Management by Objectives (MBO)

The Five Step MBO Process

Organizational Objecives reviewed

Employees objectvies set

Progress monitored

Performance evaluated

Achievers rewarded

MBO for the next operating period

begins

Page | 27

WHERE TO USE MBO

The MBO style is appropriate for knowledge-based enterprises when your staff is competent. It is appropriate in situations where you wish to build employees' management and self-leadership skills and tap their entrepreneurial creativity, tacit knowledge and initiative.

SETTING OBJECTIVES

For Management by Objectives (MBO) to be effective, individual managers must understand the specific objectives of their job and how those objectives fit in with the overall company objectives set by the board of directors.

The managers of the various units or sub-units, or sections of an organization should know not only the objectives of their unit but should also actively participate in setting these objectives and make responsibility for them.

The review mechanism enables leaders to measure the performance of their managers, especially in the key result areas: marketing; innovation; human organization; financial resources; physical resources; productivity; social responsibility; and profit requirements

BALANCE BETWEEN MANAGEMENT AND EMPLOYEE EMPOWERMENT

The balance between management and employee empowerment has to be struck, not by thinkers, but by practicing managers. Turning their aims into successful actions, forces managers to master five basic operations:

setting objectives,

organizing the group,

motivating and communicating,

measuring performance, and

developing people, including yourself.

These Management by Objectives (MBO) operations are all compatible with empowerment, if you follow the main principle of decentralization: telling people what is to be done, but letting them achieve it their own way. To make the principle work well, people need to be able to develop personally. Further,

Page | 28

different people have different hierarchy of needs and, thus, need to be managed differently if they are to perform well and achieve their potential.

Empowerment recognizes "the demise" of the command-and-control system, but remains a term of power and rank. A manager should view members of his or her team much as a conductor regards the players in the orchestra, as individuals whose particular skills contribute to the success of the enterprise. While people are still subordinates, the superior is increasingly dependent on the subordinates for getting results in their area of responsibility, where they have the requisite knowledge. In turn, these subordinates depend on their superior for direction and "above all, to define what the 'score' if for the entire organization, that is, what are standards and values, performance and results."

INDIVIDUAL RESPONSIBILITY

Management by Objectives (MBO) creates a link between top manager's strategic thinking and the strategy's implementation lower down. Responsibility for objectives is passed from the organization to its individual members. It is especially important for knowledge-based organizations where all members have to be able to control their own work by feeding back from their results to their objectives.

Management by objectives is achieved through self-control, the tool of effectiveness. Today the worker is a self-manager, whose decisions are of decisive importance for results.

In such an organization, management has to ask each employee three questions:

1. What should we hold you accountable for?

2. What information do you need?

3. What information do you owe the rest of us?

MBO: Key Advantages and Disadvantages

Advantages

MBO programs continually emphasize what should be done in an organization to achieve organizational goals.

MBO process secures employee commitment to attaining organizational goals.

Page | 29

Disadvantages The development of objectives can be time consuming, leaving both

managers and employees less time in which to do their actual work.

The elaborate written goals, careful communication of goals, and detailed performance evaluation required in an MBO program increase the volume of paperwork in an organization.

Reference:

Strategy Management AIOU

http://www.1000ventures.com/business_guide/mgmt_mbo_main.html

*******************

Page | 30

QUESTION 5

Demonstrate an understanding of the

relationships between an organization

and its environments.

(20)

Page | 31

AN ORGANIZATION AND ITS ENVIRONMENT Although the foregoing definition stated that organizations were essentially

separate, distinct entities, it did not say that organizations are autonomous and

completely independent of their environment. Indeed they are not. Dr. William B.

Wolf, in his article “Reflections on the Theory of Management,” observes that

“the organization cannot be isolated from the broader society of which it is a part.

Philip Selznick states that “an organization is adaptive—adapting to influence

upon it from an external environment,” and Chester I. Barnard, writing in The

Functions of the Executive, notes that “the very survival of an organization

depends on a proper environment equilibrium.”

Figure 1 is a graphic example of this delicate balance. Note that the arrows depict

a continual interchange between the organization and its environment. For

example, if the organization is a business firm, it must advertise and sell its

product to customers who are in the broader environment. If the firm cannot sell

its product, it will not survive. Therefore, a business firm draws its very

sustenance from the environment, and if it cannot, it ceases to be a viable

organization.

Similarly, a military organization must satisfy the political environment from

which it draws the budget which is imperative to its resource base. This

environmental interchange is continuous. A firm sends its product out to

customers, and the customers return revenues to the firm when they buy its

product. Employees are hired from the environment, and federal laws impose

certain constraints on how the firm can treat them. In fact, this relationship is so

complex and so critical it is well to note various sectors of the environment with

which this interaction takes place.

Page | 32

THE ORGANIZATION AND THE ENVIRONMENT

The MACROENVIRONMENT

Components: legal, political, economic, technological, demographic and social and natural factors

The COMPETITIVE ENVIRONMENT

Components: firm, competitors, suppliers, customers, new entrants, and substitutes

THE MACROENVIRONMENT

Laws and Regulations

The Economy

Technology

Demographics

Social Issues and the Natural Environment

Page | 33

THE COMPETITITIVE ENVIRONMENT

Includes the specific organizations with which the organization interacts

COMPETITORS

Identify Competitors

small domestic firms especially their entry into tiny premium markets

overseas firms, especially their efforts to solidify positions in small niches

big domestic companies exploring new markets

strong regional competitors

unusual entries

Analyze tactics

THREAT OF NEW ENTRANTS

Barriers to entry are conditions that prevent new companies from entering an industry.

Major Barriers

Government policy

Capital requirements

Brand identification

Cost disadvantages

Distribution channels

THREAT OF SUBSTITUTES

SUPPLIERS provide the resources needed for production and may come in the form of people, aw materials, information and financial capital

Switching costs are fixed economic and psychological costs buyers face if they change suppliers.

CUSTOMERS

Final Consumer is a consumer who purchases products in their finished form.

Page | 34

Intermediate Consumer is a customer who purchases raw materials or wholesale products before selling them to final customers.

Customer Service refers to the speed and dependability with which an organization can deliver what customers want.

Speed of filling and delivering normal orders

Willingness to meet emergency needs

Quality of merchandise delivered

Readiness to replace defective goods

Availability of installations and repair of parts

Service charges

ENVIRONMENTAL ANALYSIS

ENVIRONMENTAL UNCERTAINTY

Lack of information needed to understand or predict the future that arises from complexity and dynamism

Environmental complexity refers to the number of issues to which a manager must attend as well as their interconnectedness.

Environmental dynamism refers to the degree of discontinuous change that occurs within the industry.

Techniques and methods for collecting, sorting through and interpreting information about the environment must be developed.

ENVIRONMENTAL SCANNING

is searching for and sorting through information about the environment that is unavailable to most people and sorting through information to interpret what is important and what is not.

Competitive intelligence is the information that helps to decide how best to manage in the competitive environment.

Page | 35

SCENARIOS

are narratives that describe a particular set of future conditions that were developed from alternative combinations of different factors.

FORECASTING

is the method used to predict how variable/s will change in the future.

BENCHMARKING

Is the process of comparing an organization’s practices and technologies with those of other companies.

RESPONDING TO THE ENVIRONMENT

ADAPTING TO THE ENVIRONMENT

To cope with environmental uncertainty, organizations make adjustments in their structures and processes.

Empowerment is the process of sharing power with employees, thereby enhancing confidence in their ability to perform, their jobs and their belief that they are influential contributors to the organization.

In response to dynamism, organizations tend to establish more flexible structures, (organic structures). These type of organizations is less formal and decisions are made through interaction and mutual adjustment among individuals rather than a set of predefined rules.

ADAPTING AT THE BOUNDARIES

Buffering refers to creating to supplies of excess resources in case of unpredictable needs.

Input side: contingent workers

Output side: ending inventories

Smoothing refers to leveling of normal fluctuations at the boundaries of the environment

Page | 36

ADAPTING AT THE CORE

Flexible processes are methods for adapting the technical core to the changes in the environment.

INFLUENCING YOUR ENVIRONMENT

Proactive Responses:

1. Independent Action is a strategy that an organization acting on its own uses to change some aspect of its current environment.

Competitive aggression exploiting a distinctive competence o improving internal efficiency for competitive advantage

Competitive pacification independent action to improve relations with competitors

Public Relations establishing and maintaining favorable images in the minds of those making up the environment

Voluntary Action voluntary commitment to various interest groups, causes and social problems

Legal Action private legal battle with competition on antitrust deceptive and advertising or other grounds

Political Action efforts to influence elected representatives to create a more favorable business environment or limit competition

2. Cooperative action is a strategy used by two or more organizations working together to manage the external environment. These make most sense when taking joint action will reduce the organization’s costs and risks. The cooperation will also increase their power.

Page | 37

Coalition formation happens when local businesses band together to cub the rise of employee health care costs and when organizations in the same industry form associations and special-interest groups.

Contraction negotiation of an agreement between the organization and another group to exchange good, services, information, patents, etc.

Cooptation adapting new elements into the organization’s leadership structure to avert threats to its stability o existence

Coalition two or more groups coalesce and act jointly with respect to some set of issues for some period of time

CHANGING THE ENVIRONMENT YOU ARE IN

Strategic maneuvering is an organization’s conscious efforts to change the boundaries of its environment.

Prospectors are companies that continuously change the boundaries for their task environment by seeking new products and markets, diversifying and merging or acquiring new enterprises.

Defenders are companies that stay within a more limited, stable product domain.

Domain selection entering industries or markets with limited competition or regulation and ample suppliers and customers; entering high-growth markets

Diversification investing in different types of businesses, manufacturing different types of products or geographic expansion to reduce dependence on a single market or technology

Page | 38

Merger and Acquisition combining two or more firms into a single enterprise; gaining possession of an ongoing enterprise

Divestiture selling one or more businesses

CHOOSING A RESPONSE APPROACH

CONSIDERATIONS:

1. Change appropriate elements of the environment Environmental responses are most useful when aimed at elements that

a. cause the company problems b. provide it with opportunities c. allow the company to change successfully

2. Choose responses that focus on pertinent elements of the environment 3. Choose responses that offer the most benefit at the lowest cost

The Organization and its External Environment

1) Technological Factors: Technology is the most important factor of external

environment. It is Science that provides Knowledge, and it is technology that uses

it. The impact of technology is seen in new products, new machines, new tools

and new materials. A few of benefits of technology are greater productivity,

higher living standard , greater variety of product. For example great variety of

cars available.

So we can say that technology has a very good impact on the organization. It

greatly effects the organization. For example a firm is using old technology and

follows old methods of production. How they can compete in the environment.

2) Social factors: The social environment has also great impact on the

organization. Social environment include, desire , expectation, behavior, beliefs

and customs of people in a group or society.

Page | 39

So we can say that social environment will affect the organization.

3) Political and Legal factors:

a) Political factors: The attitude and action of political and government leader

play a vital role in the success of an organization. If there is stability in the

country, the organization can operate easily in that state .The government will

provide opportunities for the investors to come and start their business in their

country and reduce the tax margin . the government open different types of

consultancies for the businessmen which provide fruitful suggestion to people

that how they can start and operate their business . like SME ( small and medium

size enterprise ) work in Pakistan .

The government can sign new trade policies with other countries to promote

export and import.

b) Legal environment: Legal issues are also important for an organization.

Because it effect the organization policies. If any firm violate the rules and

regulation of a country , that firm will be in trouble . like some laws are made for

the protection of labor , consumer, communities , copyright . if any one violate

these kind of rules he will be punishable. So the organization should keep these

things in mind .

Reference:

www.12manage.com

www.mindstool.com

*****************