Assignment For The Business Environment
‘Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging business environment, to meet the needs of markets and to fulfil stakeholder expectations'
Strategy is the trend and span of an organisation over the lasting, which configures its resources to achieve advantage for the organisation within a challenging environment and to fulfil stakeholder expectations. These characteristics have some consequences, these are; by nature strategic decisions are likely to be complex. Thus the defining feature of strategy and strategic decisions depend on this complexity. These feature of strategy and strategic decisions are especially for organisations with wide geographical scope of multinational company or wide ranges of products or services. Strategic decisions also depend on situations of uncertainty, its sometime really impossible to realize the future and taking the right decisions. Strategic decisions are also depend on an integrated approach to managing the organisation. Porter (1985) suggested that a firm is able to achieve advantage through product differentiation or cost leadership. These two sources of competitive advantage coupled with the scope of activities for which the firm seeks a achieve them lead to three generic positions: A low cost strategy over a broad target, a differentiation strategy over broad target and a focus strategy involving either a low-cost strategy over a narrow target or a differentiation strategy over a narrow target. A unique asset is one that a firm has that has not been initiated by other firms and allows the firm to carry out some activity or activities better than other firms.
A competence encompasses the skill, ability and knowledge that organization members have individually or collectively which allows them to undertake an activity or activities to contribute to the transformation of inputs into outputs directly or indirectly (Williamson, et al, 2004).
By disaggregating a business organization's environment into a number of components, it is easy to introduce three important groups of components. The external environment comprises all of those forces and events outside the organization that impinge on its activities. Some of these events impinge directly on the firm's activities - these can be described as forming an organization's microenvironment. Other events that are beyond the immediate environment nevertheless affect the organization and can be described as the macro environment. As well as looking to the outside world, company must also take account of factors within other functions of their own firm. This is referred to as the internal environment. (Palmer and Hartley, 2006)
As part of the normal production activity, businesses are involved in buying (inputs- like labour and raw materials) and selling (outputs- the finished products). Buying and selling take place in markets and although there are many different types of markets the basic analysis remains the same.
The quantity demanded refers to the quantity of a good or service that households are willing and able to purchase at a particular price. This definition shows that it is effective demand that is important; although many people would like to own a Rolls-Royce they could not afford it and so their demand is not effective on the market. The demand for a good or service depends on a number of factors (Worthington and Britton, 2006).
It is also important to understand the expectations of different stakeholders in more detail and the extent to which they are likely to seek influence over an organisation's purpose and strategies. Stakeholders are those individuals or groups who depend on the organisation to fulfil their own goals and on whom, in turn, the organisation depends (Johnson and Scholes, 2003).
Good forecasting and successful business strategy can reach the company in top level; on the other hand the company will drop suddenly by unsuccessful business strategy. In recent time the Tesco reached in highest level in UK for its successful business strategy but in few years ago the General Motors felt in sudden death for its unsuccessful business strategy.
Strategy is nothing but forecasting the direction and scope of an organisation
A full story of a selected business strategy is a business plan defining: the company vision, the strategy and policy that will enable the company to reach those objectives, the resources requisite, and how they are going to be obtained; what the main milestones and steps are along the way; who is responsible for causing each step to occur; what are the company's business risks and external factors that need to be kept under review for indications that a change in strategy or plan may be required. Strategizing is much more than just visioning, forecasting and planning. In the new rapidly changing economy, all substantiveissues of strategy have been redefined as issues of implementation. Today, strategizing is concerned with the match between the internal capabilities of the company and its external environment.
As strategy today is a subject of application, rather than a discipline, the obvious underpinning disciplines for strategy are economics and organizational sociology. (www.1000ventures.com).
Most initiative at strategic planning is not succeed because the strategic planning structure used have been urbanized by academics and are based on what other businesses did in the past. Unfortunately most corporate executives look on corporate strategy as just another task that must be repeated periodically. The result is either an unprofessional strategy or a strategy that is bound to fail because it does not take account of reality. In the end a lot of strategic planning fails because of uselessness or lack of interest on the part of those responsible for the strategic map (www.corporateexecutivecoach.com).
Developing a marketing strategy is very important for any business. Without this, organisation's efforts to attract customers are likely to be jumbled and inefficient.
Strategy must take account of how business' strengths and weaknesses will affect marketing.
Begin marketing strategy document with an honest and rigorous SWOT analysis, looking at strengths, weaknesses, opportunities and threats. It is a good idea to conduct some market research on existing customers at this point, as it will help to build a more honest picture of reputation in the marketplace (businesslink.gov.uk).
John Ibbotson, Director, Retail Vision, Retail Consultants told, What Made TESCOthe Best Retailer in the World? According to him following is the reasons which made Tesco the best in world (www.retail-vision.co.uk):
Tesco has a retail strategy to find who their customers are in each market and what they want now and in the future. They implement all the retail processes, systems and retail organisation that enables them to deliver to the customer. The secret is: Find out what the customer wants and give it to them.
How are they doing this? Well they put the retail strategy into their business that finds out who their customers are, what they want, but above all they are delivering their services consistently to the customer.
Particular competitive advantage makes an organisation profitable
A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.
A crucial point in the concept of generic strategies is the need for a firm which wishes to achieve a competitive advantage, to make a choice about the type of competitive advantage it wishes to achieve. This is at the heart of Porter's argument and in order to pursue his ideas it is useful to examine his descriptions each generic strategy.
Sometime organisation selects one or more criteria for the product or service on the basis of customer needs in a market and then provides specific criteria uniquely for specific customer. These specific criteria make the product different from others. This is actually differentiation strategy. Normally in this strategy company use their strong brand image for their products. For an example: Mercedes and BMW cars. Sometime company provide service and product in lowest price in the market, this strategy make them cost leader in the market. Tesco is the very good example of cost leadership. In cost leadership it is not all time possible to provide good quality product or service. Company takes another strategy which is mainly based on focus on niche market. It's may be on differentiation focus like niche retailers or specialist holiday operator or may be on cost focus like discounted level products.
To get competitive advantage it is very important to build an organisation that consistently delivers the best customer offer. They get a clear path to beat the competition, succeed in difficult markets, increase their sales and profits, but above all increase their customer's satisfaction and loyalty.
Resources of an organisation are the main driving power of the strategy
Strategic capability is underpinned by the resources available to an organisation since it is resources that are deployed into the activities of the organisation to create competences. From a strategic perspective an organisation's resources include both those that are owned by the organisation and those that can access to support its strategies. Some strategically important resources may be outside an organisation's ownership, such as its network of contacts or customers.
To deliver a strategy, physical resources covers wide range of operational resources which concerned with the physical capability. These are production facilities, marketing facilities, information technology etc. Human Resources are the most important skills-base of the business. What skills does the business already have and are they sufficient to meet the needs of the chosen strategy? Are these human resources flexed / stretched to meet the new requirements? Existing staffing resources, changes required resources etc need to be assessment for an audit of human resources. Financial resources distress the capability of the business to finance its chosen strategy. A strategy that requires significant investment in production capacity, new products, distribution channels and working capital will place great pull on the business finances. From a finance point-of-view, such a strategy needs to be very carefully managed. An existing finance funds, ability to raise new funds etc need to be assessment for the audit of financial resources. It is not necessary to consider the intangible resources for assessing how to deliver a strategy. But intangible resources like goodwill, reputation, brands, intellectual property etc is very crucial for any organisation.
Product sustainability depends on market behaviour and its structure
A successful business strategy also depends on the needs of market or demand of market. The demand for a good or service depends on a number of factors; the price of the other goods, disposable income, tastes etc.
Suppose for a beer company the quantity of beer consumed will be affected by the price of substitutes or complements. A substitute for beer may be lager, and the price of the lager goes down, some individuals may switch from beer to lager; thus demand for beer goes down. Complementary goods are one which trends to be consumed with another good. For beer, it is possible that individuals eat crisps or smoke cigarettes at the same time as drinking beer. The relationship is the opposite of that for substitutes, if the price of a complement goes up, individuals might be less likely to drink beer and demand will fall. If the price of a complement goes down, the demand for beer will rise. Changes in disposable income will clearly affect demand. If the economy moves into recession, then retail sales and the housing market might suffer. As incomes increase once the economy recovers, then such sectors will pick up again. Higher incomes will lead to increased consumption of most goods. Thus an increase in disposable income will lead to an increase in demand for goods. As incomes fall the demand for those goods will fall. There are inferior goods, however, that experience a fall in demand as a result of income increases. A good example is hard toilet paper; as individuals become richer, they are likely to substitute more expensive soft toilet paper, and thus demand for hard toilet paper will fall. Taste include attitudes and preferences of customers, and will be affected by such things as fashion and advertising campaign by the government pointing out the effects of smoking would cause tastes to change and demand for cigarettes to fall.
On the other hand strategy should be also focused on different kinds of market structure in sense of different kinds of products or services. Generally there are four kinds of market structure in business, these are; perfect competition, monopolistic, oligopoly and monopoly. In perfect competition, a product or service of company falls in a huge competition with other same product or service in the market. Price apparently is decreasing in this kind of market structure and it is not a positive sign for a better business. Monopolistic market structure is the initial stage for going to monopoly market structure. In this market structure the competition exist but not like perfect completion. Oligopoly market structure is the most stable stage among all of the market structure. Generally a few company compete with each other, it's actually good for both customer and company. For an example, the retail market in UK the large super markets are in oligopoly market structure. The last stage of market structure is monopoly, here only one company exist for a particular product or service and this company fixed up the product price without considering anything. In this kind of market structure customer has no another choice or option.
The uncertainty of business environment comes as a challenge for the organisation
Business organisations differ in many ways, but they also have a common feature: the transformation of inputs into output. This transformation process takes place against a background of influences which affect the firm and its activities. This environment is complex, volatile and interactive but it cannot be ignored in any meaningful analysis of business activity.
Figure: The principle elements of a business organization's environment (Palmer and Hartley, 2006).
The factors which affect the organisation's relationship indirectly to its market are the macro environment. The macro environmental factors cover a wide range of unformulated phenomena. The different external factors such as political, economical, social, technological etc are belongs to macro environment for an organisation. PESTLE analysis is the tool to find out the present situation and status of an organisation or individuals in relation to their macro environment and current role. PESTLE analysis means current political situation, economical condition, social/cultural factors, technological innovation, legal pressure and environmental issues analysis. This tool is very important to determine the current position of the company and to make a strategy. But sometime organisation face difficulties because of change in external environment within a short period especially for political, economical and environmental factors, in this case PESTLE analysis doesn't work.
The impact of the main external factors of Tesco can be examined by a PESTLE analysis:
The political factors can be local authority,national government or international community. Many authorities can be involved. For instance, Tesco now is dealing with British and Columbian politics in issue of its coffee supply.Economic factors have large reasonable impacts for the company. Up-down in the stock market and the tax increases have a serious effect for the bottom line of a company like Tesco. New technologies also have a great impact. For instance, online shopping has become a most important factor in Tesco's recent success. The changes caused by all the external impacts lead to many legal problems. Large organisation has an environmental impact. Tesco uses fossil fuel in its transportation network. Dropping this demand is a most important challenge (www.321books.co.uk). The microenvironment is concerned with actual individuals and organisations such as customers, suppliers and intermediaries that a company may currently deal directly with some of these, while other exist with whom there is currently no direct contact, but could nevertheless influence its policies.
Now we can look in detail at how Porters five forces can be applied on the Tesco PLC. Classical economics predicts that competition between companies should drive profits to zero. This is partly down to the threat of substitutes. Tesco has competition from companies like Sainsbury that can drive the prices of groceries down in both companies because they provide substitutes for their goods. Buyer power also create extra to force prices down. If any products are too expensive in Tesco, buyers will easily move to Sainsbury. Fortunately there is little large super market in UK and they are disciplined. Discipline stops the profit war.
Supplier power is very important element of the Porters five forces model. Supplier power is wielded by suppliers demanding that retailers pay a certain price for their goods. If retailers don't, they don't get the goods. But in case of large supermarkets supplier has no bargaining power, like Tesco, have a crushing advantage over the small shopkeeper-they can dictate the price. If the supplier does not reduce the price, they will be left with a much smaller market.
Tesco, Asda, Sainsbury and other supermarket chains created considerable barriers to entry. There are different kinds of barriers (implicitly or explicitly) which has imposed on them by the existing supermarkets if anyone starting up a new supermarket chain. For instance, Tesco s pays suppliers, per-item, is a lot less than the corner shop. It achieves this, partly, through buying large volumes of goods. A small supermarket chain can only buy a relatively small volume of goods, at greater expense.
The organisation cannot satisfy one stakeholder at the expense of another
Few individuals have sufficient power to determine unilaterally the strategy of an organisation. Influence is likely to occur only because individuals share expectations with others by being part of a stakeholder group. Individuals tend to identify themselves with the aims and ideals of stakeholder groups, which may occur within departments, geographical locations, different levels in the hierarchy, etc. Also important are stakeholders of the organisation, typically financial institutions, customers, employees, suppliers, shareholders and unions. Stakeholders always include the big three: Customers, Employees, and Owners. These three are the most important for most commercial enterprises and most time the scope of the performance dimension is habitually focused on them. Customers are very important, but in the long run if employees are unhappy, they will not provide the good levels of service to satisfy the customers. On the other hand, merely lowering prices to attract more customers may not be satisfied by the owners.
So it is very important to determine the expectations or satisfaction attributes of each stakeholder. The determination of stakeholder expectation must be objective and fact-based, not based on inflexible judgments or assumptions. The expectations of customers, employees, and owners need to be verified by survey, focus groups, or through other acceptable methods. Many organizations just assuming the stakeholder' expectation and make the serious mistake.
Failure and success of a business fully depend on its strategy. Strategy is nothing but a forecasting power by a company on the basis of resources, market demand and variability, competitive advantage, uncertain business environment and its stakeholder expectation. It is easier or it is not all time possible for a company to start any business by fulfilling all kinds of resources at a time. If we analyse all successful company, they started their business with many lacking, but they took right strategy considering their lacking and they have overcome their lacking step by step. Market needs is not stable it has reasonable up and down and it is depends on many factors. So while the policy makers of a company is making a strategy should be kept in mind those factors and reasons. Competitive advantage is the main arms of a company which gives the company long term profit and sustainability. Business environment is always unstable and uncertain in some factors. It's actually a big challenge for a company and it is the main focused point of a strategy. Now stakeholder expectation is the main difficult issue for a company while they are making the strategy. Because there are different kinds of stakeholder and their expectation is different and vies-versa. So many successful companies focused on one's expectation and minimize other's expectation for their longevity and sustainability. At the end strategy always find the way and the scope of business.
The spotlight of strategy should beto makesure that products and services meet customer needs andthat developlong-term and profitable relationships with those customers. To achieve this, any company will need to create a flexible strategy that can respond to changes in customer perceptions and demand. At the same time it is very necessary for a company to make a friendly environment with the rest of stakeholder in course of their expectation. It may also help identify whole new markets that can successfully target. Every company has to face the uncertainty; they should be well prepared for all possible uncertainty with considering difficult business environment.
- Johnson, G. and Scholes, K., 2003, Exploring Corporate Strategy, Prentice- Hall of India Private Limited, New Delhi.
- Williamson, et al, 2004, Strategic Management and Business Analysis, Butterworth-Heinemann, Oxford.
- Palmer, A. and Hartley, B., 2006, The Business Environment (5th edi.), McGraw-Hill Education, Berkshire, UK.
- Worthington, I. and Britton, C., 2006, The Business Environment (5th ed.), De Monfort University, Leicester.
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