Strategic management is the process of evaluating an organization mission, establishing the organization design, and guiding the organization plan to carrying out to ensure the management is consistent with the organization strategy (Dan F., 2011). It is including strategic analysis, strategic formulation, and strategic implementation to achieve the organization goals.
2.1 Definition of Strategic Analysis
Strategy simply means that how an organization planned to achieve the company goals. It is the direction and scope of an organization over the long-term which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations". Therefore, every organization must have their own strategic analysis to achieve the company goals. Why every organization should perform their own strategic analysis? This is because strategic analysis analyzes the external environment and internal environment of the organization. Therefore, the organization can define what strategic they need to implement it.
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2.2 General Environment
General environment is referring as macro-environment. Macro-environment is the external and internal environments that influences an organization decision making, and affect its performance and strategies. General environment consists of political, economic, social, and technological. It is known as PESTLE or PEST analysis.
An organization must always scanning and monitoring their general environment for the weak signals according to PESTLE. Weak signal is referring to threats such as terrorist attack, natural disaster, and the others. So, it is very important for an organization identify it.
PEST analysis is a useful tool or method for an organization. It can be used to help detect trends in the external environment that will ultimately find their way into competitive environment. It also provides a link between general and competitive environment in weak signals in the general environment can become key forces for change in the competitive environment.
2.3.1 Political Factors
Political factor is affecting to government policy. Inasmuch as government policy is work out through legislation, it encompasses all legal elements of this analysis. These factors include government stability, taxation policy, and government regulation.
2.3.2 Economic Factors
Economic factor is affecting to the purchasing power of potential customers and the firm cost of capital. Economic factor are included interest rates, disposable income, unemployment rates, retail price index (inflation), Gross Domestic Products (GDP), and exchange rates. By scanning and monitoring the general environment for signs of economic shifts, it might impact an organization industry a bit difficult. It will generally benefits to the organization.
2.3.3 Social Factors
Social factor is including the cultural changes within the environment and known as social-culture. It is the important factor for every organization doing the research and development and manufactures the products to fulfill the customer needs and wants. Besides that, the organizations produce more favourable products or choices to give the consumer choose their own flavour and it would influence consumer spending pattern. These factors are included as concern for customers and environment, women in the workforce, and awareness of health and fitness issues.
2.3.4 Technological Factors
Technological factor and it can lower the barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. These factors are included R&D activity, automation, technology incentives, and rate of technological change. Nowadays, the technology changes very fast and speedy and the new technology can be replaced the old or current technology anytime. So, the organization must improve and implement the new technology to increase the sales. The technological changes include the usage of high speed telecommunications, internet, powerful operating hardware and software, highly intellectual individual, and others.
2.4 Scenario Planning
Scenario planning is a disciplined method for rediscovering the original entrepreneurial power of creative foresight in contexts of accelerated change, greater complexity, and genuine uncertainty. The theory of scenario planning can be separate into few parts such as scenario stories, learning, mental models, decision, and performance.
2.4.1 Scenario Stories
These stories promote a discussion of possibilities beyond the most likely one and encourage the organization to consider 'what if' questions. Scenario is a challenging plausible and internally consistent view of what the future might turn out to be.
The effectiveness of learning in a system of scenario planning is embedding in the assumption that a goal of any planning system is to reperceive organization and its environment.
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2.4.3 Mental Models
Mental models defined as "deeply embedded assumptions, generalizations, or even photo or image that influence how we understand the world and how to take action. Very often, we are not consciously aware of our mental models or the effects they have on our behavior.
Decision is an act or process of reaching a conclusion or making up one's mind. Making decision is very important because it provide the decision maker with an adequate amount of right information at the right time.
Performance can be seen as the primary outcome planning system in the research. Above the four points can affect performance but cannot embody performance themselves.
2.5 SWOT Analysis
SWOT analysis to strength, weaknesses, opportunities, and threats. For strength and weaknesses are under to the organization's internal environment which the firm has control. Opportunities and threats are under to the organization's external environment which the firm has much less control. Strength means the areas where the organizition maybe at a competitors while weaknesses are the areas where the organization maybe at a comparstive disadvantage. SWOT analysis may take place in both general and competitive environment.
2.6 Competitive Environment
Competitive environment is essentially the ability of a firm, sector or economy to compete against with other firms, sectors or economies. Competitive environment is under external environment.
2.7 Porter's Five Forces Framework
The Porter's Five Forces Framework is a tool of analysis to assess the attractiveness of an industry based on strengths of five competitive forces. Porter referred to these forces as microenvironment, to contrast it with the more general term macro environment. The analysis is best used at the level of an organization's strategic business unit (SBU). The five forces are threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products or services, and intensity of rivalry.
2.7.1 Threat of New Entrants
Threat of new entrants is many new entrants may decide to enter an industry and decrease the profitability being earned by incumbent firms. If an organization in an industry earned profits more than cost of capital, it will attract more new entrant. New entrants easy to enter for new organization but it have some barriers to entry. The main barriers to entry are included economies of scale, capital requirement, products, differentiation, access to distribution channels, cost advantages independent of size, and switching costs.
2.7.2 Bargaining Power of Buyers
Bargaining power of buyers means the buyers can be affected to an industry or market and they have the ability to force down the price, bargain for high quality or good services, and play competitors off against each other. It is include concentration of buyers and buying volumes are high, the products it purchases from the industry are standard or undifferentiated, switching costs are low, a threat of backward integration, industry's product is unimportant to the quality of buyer's products or services, buyer earns low profits, and buyer has full information.
2.7.3 Bargaining Power of Suppliers
Bargaining power of suppliers increase supplier power is the mirror image to increase buyer power. Supplier is the producer of firm inputs while buyer is the firm in industry. Suppliers are powerful under the following circumstances. There are the suppliers' industry is dominated by few companies and is more concentrated than the industry it sells to, suppliers are faced with few substitutes, the industry is not an important customer of the supplier, the supplier's products are an important input to the buyer's, the supplier's products are differentiated or it has built up switching costs for the buyer, and a threat of forward integration.
2.7.4 The Threat of Substitute Products or Services
Threat of substitute products or services is the consumer can shift the products or services to the similar needs. Threats of substitute products or services are buyer switching cost, buyer propensity to substitute, quality depreciation, and substandard product.
2.7.5 Intensity of Rivalry
Intensity of rivalry is determinant of the competitiveness of the industry. The following factors affect to rivalry that are numerous or equally balanced competitors, slow industry growth, high fixed costs, lack of differentiated or switching costs, extra capacity in large increments, and high exit barriers.
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2.8 Internal Environment
Strengths and weaknesses are under internal environment and it also included value chain.
2.9 Value Chain Analysis
Value chain analysis is allows an organization to ascertain the costs and value that emanate from of its value activities. This analysis includes two activities. There are primary activities and support activities.
2.9.1 Primary Activities
Primary activities mean the activities which are directly involved in the creation and sales of products or services. It includes five generic categories such as inbound logistics, operations, outbound logistics, marketing and sales, and service.
2.9.2 Support Activities
Support activities are activities which ensure that the primary activities are carried out efficiently and effectively. There are four generic support activities such as procurement, technology development, human resource management, and firm infrastructure.