Transcript Document
HEAD FOR SUCCESS
Business Studies Grade 12
TERM 1
Topic 5: Macro environment – Business Strategies
MACRO ENVIRONMENT – BUSINESS STRATEGIES
INTRODUCTION:
• • • • • •
Devising strategies in response to the business environments
Businesses devise strategies to address challenges in the business environment.
A strategy is a plan aimed at achieving a goal.
Strategies therefore describe how a business deals with challenges.
Each challenge has its own strategy.
To devise a strategy, businesses must be creative.
• • • Creative thinking techniques used to devise strategies, include: Brainstorming Delphi technique Force field analysis • SCAMPER
MACRO ENVIRONMENT – BUSINESS STRATEGIES
INTRODUCTION: Devising strategies in response to the business environments Brainstorming: Delphi technique: Force field analysis:
• • • • • • • • • A problem is given to participants and each participant is given the chance to provide a possible solution.
Brainstorming is used to gather as many ideas from participants as possible, even ideas that seem impossible at first.
Usually, a time limit is put on a brainstorming session.
Brainstorming mobilises creativity, because participants can build on one another’s ideas until the best idea is found.
The Delphi technique is used to obtain information from experts who are unable to meet.
A series of questions is developed and sent to all the participants to answer.
The answers are then gathered and merged.
This process carries on until consensus amongst participants is reached The force field analysis considers all the forces for and all the forces against a certain decision.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
INTRODUCTION: Devising strategies in response to the business environments
SCAMPER:
• The SCAMPER technique makes use of a set of questions to help a person solve a problem: Substitute people/processes/material/products Combine people/processes/material/products Adapt people/processes/material/products Modify people/processes/material/products Put to another use people/processes/material/products Eliminate people/processes/material/products Reverse/rearrange people/processes/material/products • • When strategies are being devised, creative thinking techniques are used in conjunction with industry analysis tools.
Industry analysis tools are used to assess a business’ position in the market.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
•
Strategy development
Strategy development process comprises four steps:
Step 1: Step 2: Step 3: Step 4:
• • • • • Determine the need for a strategy by assessing a business’ position in the market.
Use industry analysis: SWOT-analysis Porter’s five forces analysis PESTLE analysis Formulate a strategy.
Use creative thinking techniques like brainstorming, Delphi, force field analysis or SCAMPER.
Implement the strategy.
• • Evaluate the strategy.
Reasons for strategy evaluation include: Determining the success of the strategy.
Avoiding making the same mistakes in the future.
Determining the feasibility of a strategy.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
Industry analysis tools: a) SWOT-analysis (Micro-, market- and macro environment) • SWOT is the abbreviation for strengths, weaknesses, opportunities and threats.
• Strengths and weaknesses are internal.
• Opportunities and threats are external.
• A SWOT analysis is used to determine a business’ position in the business environment.
• A business enterprise has full control over strengths and weaknesses but cannot control opportunities and threats.
• Each business environment (micro/market/macro) can be assessed with a SWOT analysis.
• This analysis should be done critically, carefully and honestly.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
Industry analysis tools:
a) SWOT-analysis MICRO ENVIRONMENT:
• • • • • •
Strengths:
The elements of the micro environment is largely under the control of the enterprise’s management.
Qualified managers Motivated employees Skilled employees Leadership skills
Opportunities:
Expansion • • • • • • • •
Weaknesses:
Difficult employees Lack of vision and mission Lack of adequate managerial skills Poor employee work ethics High rate of employee absenteeism High employee turnover rate
Threats:
Labour action Loss of employees due to HIV/Aids
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Strategy development
Industry analysis tools:
a) SWOT-analysis MARKET ENVIRONMENT :
• • • • • •
Strengths:
Strategic responses.
The business can find new customers.
Change to a better supplier.
Negotiate with trade unions.
Opportunities:
Forming strategic alliances.
Integration.
•
Weaknesses:
Enterprises have no control over factors like suppliers, competitors, regulators, strategic allies and unions.
• • •
Threats:
Competition.
Shortages of supply.
Changes in consumer tastes and habits
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
Industry analysis tools:
a) SWOT-analysis MAKRO OMGEWING:
• • • • •
Strengths:
Lobbying government to change laws.
Building power relationship
Opportunities:
Government tenders.
Expansion to overseas markets.
E-commerce.
• • • • • • • •
Weaknesses:
The enterprise has no control over the elements of the macro environment.
Threats:
Political changes.
Legislation.
Labour restrictions.
HIV/AIDS.
Interest rates.
Dumping.
Take-overs.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
Industry analysis tools: b) Porter’s five forces (Market environment) • This analysis is designed by Prof. Michael Porter, a professor at Harvard Business School.
• This analysis analyses the competitive power / force of the business to be profitable.
• The goal is to determine the profitability of a business / product.
• This is done by analysing the strength of the five forces that affect competition.
• It is a type of a force field analysis to determine where the power in a business situation seat.
• It helps the business to understand the power of its current competitive position as well as the benefits of the position that he considers moving to.
• With a clear understanding of where the power lies, the business may benefit form a position of strength strengthen a weak position and prevent wrong actions
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Strategy development
Industry analysis tools:
b) Porter’s five forces
1.
Strength / power of suppliers 2.
Strength / power of buyers / consumers, including intermediaries 3.
Threat of new entrants to the market 4.
Power / strength of competitors / level of competition 5.
Threat of substitute product and services
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Strategy development
Industry analysis tools:
b) Porter’s five forces Strength / power of suppliers
• • • •
Five forces
A business assesses a supplier’s power to force up prices.
These providers may include suppliers of raw materials, stock, equipment, parts, services such as transportation and insurance, labour brokers, etc.
Suppliers use their power to increase power.
Suppliers of scarce goods are usually powerful, because scarce goods are hard to find – if there is only one supplier of a scarce good and consumers demand this good, suppliers can demand a high price.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Industry analysis tools:
b) Porter’s five forces Strength / power of suppliers Five forces
• • • • In what lies the power of suppliers?
The extent to which they can increase their prices without resistance.
The number of suppliers for the same product / service.
The uniqueness of the product / service.
Reliability.
Timeliness of deliveries.
Long-term contracts with businesses.
Cost for business by switching to another provider.
The more powerful suppliers are, the less control can be exercised over them by business enterprises.
The smaller the choice of suppliers and if the business is highly dependent on the suppliers’ assistance, the more powerful the suppliers are.
Price fixing and cartels by suppliers may make it difficult to do profitable business. E.g. Pioneer Foods fixing bread prices together with other millers in the bakery industry, SASOL applying price fixing in fertilizer, etc.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
Industry analysis tools:
b) Porter’s five forces Strength / power of buyers / consumers, including intermediaries Five forces
• • • • A business assesses the power of buyers to force down prices.
The power of consumers / buyers lies in: How easy it is for them to enforce prices.
The number of buyers.
The importance of each individual buyer for the business.
How easy buyers can change to competitors / other products, etc. Buyers can also include other stores such as retailers who buy stock form wholesalers with the intention to resell it (intermediaries).
The more powerful buyers are, the less control can be exercised over them by business enterprises.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
Industry analysis tools:
b) Porter’s five forces Strength / power of buyers / consumers, including intermediaries
• • • • •
Five forces
To do business on a profitable basis, businesses should know who their buyers are and what their needs are. This can be determined through market research.
Businesses must apply the power of consumers to their benefits, by giving existing customers good deals, to keep them happy through good service delivery (including after sales services) and the selling of products of good quality.
This includes the tastes and preferences of consumers regarding need satisfaction.
The financial position of consumers also plays a role.
Consumer resistance e.g. businesses who apply unethical practices.
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Strategy development
Industry analysis tools:
b) Porter’s five forces Threat of new entrants to the market Five forces
• • • A business assesses its position in the market in terms of barriers to entry.
A business’ power in the market will depend on how easy it is for new competitors (entrants) to enter the market.
Barriers to entry refers to obstacles that a business faces when it wants to enter a particular market, for example: Legislation.
Access to resources.
Amount of capital needed to enter a market.
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Strategy development
Industry analysis tools:
b) Porter’s five forces Threat of new entrants to the market Five forces
• • If it is easy to enter a particular market, new competitors can weaken the position of business enterprises that are already operating in that particular market.
New competitors can in the following cases get quick and easy entry to the market: If there are big opportunities for profit in the market.
If it can be done quickly and cheap.
If there are many buyers but only a few businesses who are delivering the product / service.
Existing businesses have little control over the design / patent, e.g. the patent is not registered.
There is little competition during the time of intended entry, etc.
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Strategy development
Industry analysis tools:
b) Porter’s five forces Threat of new entrants to the market Five forces
• • Barriers to entry protect businesses that are already doing business in a particular market, because it restricts competitors from entering that market.
The following cases makes it difficult for new entrants to the market: Access to distribution channels: New businesses may find it difficult to establish their own distribution channels, especially when the options are controlled by existing businesses.
Scale savings: Existing businesses have an advantage over new entrants when costs decrease as production increases.
Capital requirements: New entrants do not have sufficient capital to enter the specific maket.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
Industry analysis tools:
b) Porter’s five forces Threat of new entrants to the market Five forces
• • Product differentiation: Existing businesses will benefit if their product is considered to be unique, has a good brand or control a specific segment of the market.
Government policy: The government may limit the number of businesses in a particular market.
Existing infrastructure of new entrant: It is difficult to change from one production industry to another since the company’s total infrastructure will have to change which requires high capital investment.
Variables in the market environment can make it difficult for businesses to get access to the market.
In addition to variables in the macro environment, this force creates challenges for companies.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
Industry analysis tools:
b) Porter’s five forces Power / strength of competitors / level of competition Five forces
• • • A business assesses the power of competitors to influence its own operations.
Competitors are other businesses that provide the same or similar products / services as your business.
The power of competitors is assessed in terms of: Consumer loyalty The number of competitors Switching costs.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Industry analysis tools:
b) Porter’s five forces Power / strength of competitors / level of competition
• • • • • • •
Five forces
The power of competitors lies in the number and strength of these businesses.
A business that provides a unique product / service has a strong power.
Some financially strong competitors may force other competitors out of the market through the selling of their products / services at a loss for a long period (price war).
If there are many competitors in the same industry, the business has little power over the situation because consumer behaviour is unpredictable and consumers may easily change to another business.
A business must compile a competitors’ profile of each competitor to enable them to understand their business practices to gain a competitive advantage.
Entrepreneurs must apply on-going market surveys to ensure that they know their competitors’ strengths and power.
Many competitors continue to enter the market and this cause challenges to existing businesses.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
Industry analysis tools:
b) Porter’s five forces Threat of substitutes (products and services)
• • • • •
Five forces
A business assesses the influence of substitute goods on its operations.
Substitute goods refers to different goods that serve the same purpose, for example original medicine versus generic medicine and glass bottles versus plastic bottles.
The power of businesses decreases if substitute products are readily available.
The position of a business weakens if the demand for a product is influenced by the price change of a substitute product, for example: the position of a business that supplies glass bottles will weaken it there is a decrease in the price of plastic bottles.
The threat is that competitors may improve their products or supply products of a lower quality at lower prices.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Industry analysis tools:
b) Porter’s five forces Threat of substitutes (products and services)
• • • • • •
Five forces
A business’ existing customers become aware of it, and start to buy products offered by competitors.
If substitution is easy and sustainable, it weakens a firm’s market power, even if the business switches over to these products.
In some cases, the substitute causes a business to lose their market share completely.
Replacement products and new products due to improved technology can create additional challenges for existing businesses. e.g. in the mobile phone and computer industry.
If the price of an imported product began to rise due to a weaker Rand, e.g. coffee, more people started to buy tea produced and manufactured in South Africa.
Through market research, a business can determine why customers choose substitute products / services and based on this information, the business must improve their existing product / service to stay competitive.
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Strategy development
Industry analysis tools: c) PESTLE analysis (Macro environment) • The PESTLE analysis evaluates a business enterprises’ position in terms of the following macro environmental factors: • Political factors: labour laws, tax laws • Economical factors: inflation rate, interest rate, exchange rates • Social factors: demography of consumers likes and dislikes of consumers • Technological factors: availability of technology, technological changes • Legal factors: consumer laws, laws regarding the formation of a business.
• Environmental factors: climate, natural resources.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
Industry analysis tools: c) PESTLE analysis (Macro environment) • The Pestle analysis helps management to anticipate political, economical, social, technological, legal and environmental problems – business enterprises cannot control these factors, since they are from the macro environment.
• These variables are used to create a comprehensive summary of developing current business strategies to deal with external factors, as well as opportunities that offered by these variables.
• Each of these six variables must be analysed to determine the impact of each on the business, as well as the importance of these element on the success of the business.
• • • This analysis is further extended and is known as P²ESTLE².
P² = Physical environment, e.g. location, infrastructure, etc. E² = Ethical conduct by the business.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
• • • Formulation of strategies: A strategy can be formulated once the position of a business has been determined.
• • When management formulates a strategy, the following must be borne in mind: The position of the business in the market.
The challenge that must be addressed.
• The resources available to the business.
A strategy is formulated by making use of creative thinking and problem solving techniques.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
• • • • Formulation of strategies: Strategy formulation refers to the process where a selection of the most appropriate plan of action is made so that the objectives of the business can be achieved.
This process is essential to achieve goals and to handle challenges.
Use creative thinking techniques in formulating strategies.
This includes the allocation of resources and a clear explanation to the employees of what is expected of each, to set the plan in action.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
• Formulation of strategies: A good strategy meets the following criteria:
Ethical: Adds value: Practical: Economical: Right timing:
• • • • • • • A strategy must meet ethical requirements.
Example: if waste management is the problem, it is not an ethical strategy to dump the waste in a river.
A strategy must put the business in a better position than before.
It must be possible to implement the strategy with the available resources.
A strategy should not put available resources under pressure.
The right strategy must be devised at the right time.
Internet trading, for example, is a great strategy to increase sales, but it would not have been successful in the 1980’s.
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
• Formulation of strategies: The following steps should be followed in the formulation of business strategies: • Set objectives • Evaluate the environment • Set goals • Plan strategy according to goals • Analyse performance • Choose a strategy
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Strategy development
• • • • Implementation of strategies: Strategy implementation involves putting into action the strategy that was formulated during the strategy formulation process.
Strategies can be implemented by making use of a strategy implementation process.
• A strategy implementation process may comprise the following steps: Determine the time frame for rolling out the strategy.
• Familiarise employees with the strategy implementation process in terms of reasons for rolling out the strategy.
• Motivate employees to support the strategy • Lead by example Management can influence the success of the strategy implementation process
MACRO ENVIRONMENT – BUSINESS STRATEGIES
Strategy development
• Implementation of strategies: Management must carry out the following tasks during the strategy implementation process:
Top level management Middle level management Lower level management
• • • • • • • Organises the strategy roll out process.
Establishes policies that support the strategy.
Rewards the achievement of targets relating to the new strategy.
Implements strategies in their departments.
Allocates resources in the best possible way.
Implements strategies on the lowest level of an enterprise.
Assists employees in implementing the strategy.
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Strategy development
• • • • • Implementation of strategies: Some strategies, for example retrenchment strategies, have the potential to cause panic amongst employees.
If a business has to implement such a strategy, sufficient counselling must be made available to employees.
Strategy implementation can be held back if it is not rolled out correctly.
Two key factors are needed to ensure a successful implementation of the strategy, namely: • Communication with all stakeholders involved in the implementation of the strategy • Flexibility to change the strategy if the process does not work Factors that may impede strategy implementation include: • Resistance form employees • Lack of resources • Changes in technology • Economic conditions
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Strategy development
• • • Evaluation of strategies: The aim of strategy evaluation is to determine whether the chosen strategy resolved the challenge that was threatening business operations.
Strategy evaluation is the process of monitoring a business’ performance results so that actual results can be compared to desired results.
• • • • The following questions should be asked during the strategy evaluation process: Does the strategy address the challenge or problem?
Was the strategy economical?
Does the strategy add value to the business?
Were employees sufficiently prepared before the strategy was implemented?
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Strategy development
• • Evaluation of strategies: The strategy evaluation process comprises the following steps: • Examine the foundation of the business strategy by obtaining regular feedback on the strategy implementation process.
• Determine the results / standards that must be achieved so that actual performance can be measured against these standards.
• Compare expected performance to actual performance to detect any deviations from the expected performance.
• Determine and analyse causes of these deviations.
• Take corrective action to prevent repetition of such deviations.
Once a strategy has been evaluated, management must make recommendations for improvement so that future strategies are implemented smoothly.