This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
The assignment requires the analysis of the issues of competitiveness and strategy in business action. The first part of the assignment requires an analysis of the competitiveness of a chosen industry. The analysis also aims to answer on competitiveness issues within the industry, especially in consideration to the entry of a new organisation into the industry. For the purposes of the assignment, the analysis will focus on the Greek Telecommunications industry.
PART ONE - COMPETITIVENESS ANALYSIS
Competition issues in relation to any business or industry involve the analysis of a set of factors which relate to the business or industry. Competitiveness is an important aspect of business operation, as it appears to be related to both external and internal aspects of business operation. For example, competition is related to the macro and micro environment surrounding any industry and organisation. "The surrounding market in which companies operate has a direct link to competition issues, as the different factors which affect an industry, provide the basis for action on behalf of the organisations" (Walley, 1998).
In relation to the Telecommunications industry, competition has emerged as an important aspect of business operation. The developments in technology, and the expansion of the markets in almost all parts of the world have affected the operation of organisations and industries. Technological developments have affected the production of goods, as well as the quality of goods and services offered. Technological developments have also affected the operation of the markets, as the level of quality in production has expanded the customer range. The cost of business operation has also been affected, as mass production becomes easier, quicker and less costly, therefore allowing different companies to enter a market. All these factors seem to increase competition within any given market. As a result, the different players within the market or industry compete so as to gain or increase their market share (Kridel et al, 1996 and OECD, 1995).
Analysis of the External Environment
The competitiveness of any industry is as previously mentioned, closely related to the macro and micro environment of the industry. The analysis of the macro and micro environment surrounding an industry is an important part of strategic organisation, as it helps in the identification of possible risks, opportunities and actions. The importance of the strategic planning has affected the work of different theorists and analysts, who have attempted to explain the best method of analysis. As a result of these efforts, different tools can now be employed.
In relation to the macro environment of a company, relevant theory provides that the macro environment refers to the factors which are external to the company's operation, and which therefore cannot be controlled by the company's operation as such. The macro environment in short may refer to factors such as political regulation actions, competition within the market, the change in interest rates, a change in cultural cohesion and operation which affects any given market (Business Dictionary, 2010), and finally it may refer to changes in the economic environment, such as the current economic crisis for example (MGMT: 4).
Although the operation and viability of businesses and organisations is important in terms of the micro environment which we will examine further on, the macro environment is important, as it can alter the face of business activity. The macro environment does not fall within the operation of the company, but nevertheless it is an important part of business strategy and business management. Companies must consider the macro environment in which they operate, and must also work so as to effectively plan actions in terms of potential macro environmental factors. The operation and viability of business organisations lies in the drafting of action plans for the future, which consider the external factors to the organisation, with the same importance as the internal factors. In relation to competitiveness issues, the analysis of the macro environment may prove to be a useful tool for future action planning (MGMT: 4).
1.1.1 PESTLE Analysis
The analysis and importance of the macro environment in business operation has been recognised by different sources, which have developed many theories in relation to the determining correct applicability method. Possibly the most common source of analysis of the macro environmental factors is the PESTLE analysis. The method of the analysis is based on the PEST tool, and concerns the analysis of business management with regard to the environmental influences on a business. PESTLE is an acronym which stands for the Political, Economic, Social and Technological issues that could affect the strategic development of a business. The PESTLE analysis is important in business planning and organisation as it relates to the analysis of the external environment of a business or an industry (Gillespie, 2007). The PEST framework for macro environmental analysis has developed over the years, into the PESTLE. The difference of PESTLE to PEST is that many theorists have added environmental and legal factors into the analysis. This is the result of the growing concern on environmental action and the need to protect the environmental resources. The insertion of the legal factors into the PEST analysis is justified by a number of sources, by the fact that as businesses expand both domestically and abroad, there is a need to control the environment surrounding these activities. This policy is evident as legislation becomes more and more evident in the effort to control business activity (Wilkinson et al, 2007).
However, the insertion of a list of PESTLE factors is not in itself very helpful. "What managers need to do is to think about which factors are most likely to change and which ones will have the greatest impact on them i.e. each firm must identify the key factors in their own environment" (Gillespie, 2007). For example, the effect of government regulation is more important in certain categories of businesses, as government action is applied according to specific needs. "Managers must decide on the relative importance of various factors and one way of doing this is to rank or score the likelihood of a change occurring and also rate the impact if it did. "The higher the likelihood of a change occurring and the greater the impact of any change the more significant this factor will be to the firm's planning" (Gillespie, 2007).
According to the PESTLE framework, the political factors are those which "refer to government policy such as the degree of intervention in the economy" (Gillespie, 2007). The political factors are determined by the degree which is expected to be followed by the state, as the state has interest in certain aspects of business activities. In specific the following can be summarised:
Political intervention for the regulation of the Telecommunications industry in a common market as in the European Union.
Setting of a governmental framework for the industry.
Intervention of different pressure groups.
Political pressure form multinational organisations.
The economic factors of the PEST analysis of the macro environmental issues relate to "interest rates, taxation changes, economic growth, inflation and exchange rates"(Gillespie, 2007).
The effects of the current economic crisis in the development of the Telecoms industry in Greece.
The diminishing of the consumer market share in the Greek market.
The diminishing of profits by members of the industry.
Competing prices within the industry.
The third important aspect of the PEST analysis refers to the social factors. Changes in the social structure and environment affect business operation, as business are addressed to members of the society. "Changes in social trends can impact on the demand for a firm's products and the availability and willingness of individuals to work" (Gillespie, 2007). Changes in the social aspect of businesses are linked to economic factors. An economic crisis can lower demand for products, as well as change the consumers' perspective on price issues (The Times 100).
Differentiation of social needs as a result of the economic crisis in Greece.
Realisation of consumer strength in the industry, as customers appear more focused.
Quality of services in determining the service provider.
Finally, the macro environmental analysis according to the PESTLE tool relates to technological aspects. Technological developments and advancements are an important aspect of business organisation. According to Gillespie "new technologies create new products and new processes. Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organisations providing the products" (Gillespie, 2007). It is for these reasons that technology has found a strong basis in PEST analysis (Evans, 2010).
Technological developments within the Greek Telecoms industry.
Development of infrastructure in the Greek market.
Competition as a result of the technological developments will boost business action.
The macro environment also relates to the legal aspect which surround the industry. State interference often appears, so that the state can set a legal framework for business operation (Evans, 2010). In relation to the telecoms industry the following may be summarised.
The setting of a legal framework to guarantee the level of services.
The setting of a legal framework to safeguard competition.
The setting of a legal framework for consumer protection.
Finally, the macro environment analysis relates to the consideration of the environmental factors surrounding an industry. The increases of 'greener' policies, together with the realisation that environmental protection and sustainability must be preserved, have affected business operation, as green action is required. Although the telecoms industry does not appear to have raised environmental concerns, it seems that the promotion of greener policies plays an important role in markets. The following can be summarised (Evans, 2010).
Support of environmental action.
Minimisation of the effects on environmental resources.
1.2 The Analysis of the Micro Environment - SWOT Analysis
The analysis of the micro environment has also received the interest of theorists and analysts. In this respect the SWOT analysis seems to be the most important tool. A SWOT analysis is the analysis of the fundamental issues of company operation. A SWOT analysis is a management tool which aims to recognise factors relevant to the managerial issues of a company. It is therefore helpful in providing solutions as to potential problems and different issues which might arise. SWOT is also an acronym and it stands for 'strengths, weaknesses, opportunities, and threats'. Strengths and weaknesses are the internal factors, while opportunities and threats are the external factors (Kneale and Aspinall, 2003: 1).
A SWOT analysis is helpful in business organisation and management as it "provides a structure for analysing either your own strengths and weaknesses, and the opportunities and threats you face, or in a work context for analysing the strengths, weaknesses, opportunities and threats a business or event faces" (Kneale and Aspinall, 2003: 1). An analysis based on the SWOT model helps in the appreciation of the "the strengths of a situation; defining the weaknesses; making the most of the opportunities that present themselves, and recognising the possible threats and treat them in a planned and organised way" (Kneale and Aspinall, 2003: 1).
An analysis of the 'strengths', concentrates on the company's strengths, on the areas the company shows effective and successful work, and in generally on recognition of the company's strengths as others see them. The telecoms industry has long been a powerful industry. The developments within the industry have strengthened its position, as telecommunications are a vital aspect of everyday life. People rely in telecoms to communicate and conduct business. The telecommunications industry has witnessed a lot of changes in Greece over the last few years. An example of technological developments and their outcome is in relation to the broadband internet in Greece. The development of broadband internet in Greece was one of the slowest, but currently it seems that the levels of penetration show a steady rise. The competition through the entry of new players in the Greek Telecoms market has shown a steady rise (Pavlides, 2007).
The analysis of the 'weaknesses' may refer to the weaknesses both internal and external of the company. Therefore, the analysis will have to concentrate on the track records of industry performance, to establish the weaknesses of the industry. Weaknesses also relate to customer evaluation, as customers very often offer the insight to the level of services. The weaknesses are important in relation to competition. For example, the existence of a single provider in Greece until recently was a weakness of the market, as the presence of a monopoly is usually related to a lack of developments and breakthroughs. Customer satisfaction seems poor as the alternative of a different service is non-existent.
The 'opportunities' analysis is the analysis of potential work and actions the industry can participate in. In other words, it is an analysis of the potential future opportunities. The analysis of this part of the SWOT tool can appear complex as a number of factors can affect the operation and prospect of a company. For example, governmental activities and policies in relation to business operation are an important aspect of the market. Opportunities are also closely related to changes in technology and infrastructure, which can affect business action. In relation to Greek market, the rise of the broadband share provides an opportunity for market rise and increase.
Finally, the analysis of threats is the last part of the SWOT analysis. Threats analysis may relate to the examination of aspects both internal and external. Threats are closely linked to the analysis of opportunities. The classification of the analysis is therefore specific to the factors of each company. The threats in relation to the position of Greek telecoms relate to the level of service offered by the companies. Since competition has shown an increase over the last few years, with different players attempting to get a share in the market, it is vital for the success of a company that the level of customer satisfaction is high. This can be achieved through competitive prices, and through efforts to develop the level of services offered.
1.3 The Five Forces Model
Porter's 'five forces model' also proves to be a helpful tool in determining the issues of competitiveness. According to Porter (1979), "many factors determine the nature of competition, including not only rivals, but also the economics of particular industries, new entrants, the bargaining power of customers and suppliers, and the threat of substitute services or products. A strategic plan of action based on this might include: positioning the company so that its capabilities provide the best defence against the competitive forces; influencing the balance of forces through strategic moves; and anticipating shifts in the factors underlying competitive forces" (Porter 1979:151).
Porter's five forces include:
Existing competitive rivalry between suppliers.
Threat of new market entrants.
Bargaining power of buyers.
Power of suppliers.
Threat of substitute products (including technology change) (Chapman, 2009).
According to Porter's theory a strategic plan in relation to entry of a new player in the market, must first of all consider the rivalry between the suppliers. The analysis of the competition between the different telecoms players will help to identify the proposed success into the market. This analysis will support the company's proposed business plan. The analysis of the market entrants will show the possibilities and opportunities of entry to the market. For example, the Greek Telecoms market seems to be characterised by the entry rates of broadband users. The specific market is characterised by competition as different players attempt to raise their share in the market. As a result, prices have drastically been affected, and in particular have lowered. Finally, according to Porter's theory, it is important to develop strength against the power of the suppliers. The technological advancements within the market may increase the company's share.
According to the five forces model, and the different analysis tools like the PESTLE and SWOT analysis, competitiveness relies on a number of factors. The entry of an organisation in any industry, and in specific in relation to the telecoms industry, relies on the examination of different factors. The drafting of a specific plan, which addresses the issues that appear is essential for the successful entry into the market. The PESTLE and SWOT analysis can assist in the determination of the pros and cons of market entry.
"The concept of competitiveness gains is effectively operational if it fulfils the following condition: its measure must be natural, objective and continue. The naturalness definition establishes that it is a necessary condition the existence of a suitable or approximately true causal model with respect to real situations -that is, that all the important factors for the measurement of the concept have been considered in the model and the causal powers that the model attributes were those that are observed in the reality- in conjunction with a justified procedure of measurement" (Gonzalez, 2006: 2).
PART TWO - DOES STRATEGY MATTER?
It is often stated that businesses depend on the drafting of a framework which aims to strengthen their operation within the market. The framework for business action is the work of the management, which aims to regulate and organise all aspects of operation. The strategy to be followed by an organisation has gained extensive interest by theorists and analysts. It is often stated that businesses or industries should be based on a strategy, which provides the basis for action.
Strategy has been referred to as the driving force behind an organisation, as strategy provided for the goals which are to be followed and pursued. But the theory in relation to strategy has been questioned recently. Different theorists and analysts have been questioning the effect of a strategy, and whether the drafting of a strategic plan really matters in business operation. In the second part of this assignment we shall analyse the theory behind the importance of strategy.
A strategy relies on a number of factors. For example, risk analysis can assist in the development of a strategic plan. Business are as much dependent on profits, as they are on damages, as both possibilities change the meaning of business, and effectively lead to a review of the business strategy. Consequently, "it is clear that risk management is now a core business process and should be planned accordingly and on a continuing basis so as to reduce risk and volatility and improve returns" (The institute of chartered accountants (ICAEW), 2002: 4).
The development of the risk theory has affected business operation and the organisation of business plans. Although there are now many tools which assist in the assessing of risks in business operation, most risk management tactics will cover the following criteria and procedures: Any company needs to ensure that it has a proper continuous risk management process. Each company will organise its risk management differently, but in general terms the process generally involves the following steps: "identifying and ranking the risks inherent in the company's strategy (including its overall goals and appetite for risk); selecting the appropriate risk management approaches and transferring or avoiding those risks that the business is not competent or willing to manage; implementing controls to manage the remaining risks; monitoring the effectiveness of risk management approaches and controls; and earning from experience and making improvements" (The institute of chartered accountants (ICAEW), 2002: 6).
The analysis of a risk management plan is a complex issue, as it involves the analysis of different factors which exist in relation to the specific business activity and which affect the company both internally and externally. Externally, the analysis of the risk factors might relate to the effects of the current economic crisis. The potential of weakening of the consumer's share into the market appears to be a viable problem as a result of the economic crisis. It is important for the company to support the business advantages, as competition is likely to strengthen. The support of the internal factors, such as the branding and marketing techniques which exist may strengthen the product against the potential threats.
Porter seems to recognise the importance of strategy. "Dramatic operational improvements have resulted, but rarely have these gains translated into sustainable profitability. And gradually, the tools have taken the place of strategy. As managers push to improve on all fronts, they move further away from viable competitive positions" (Porter, 1996). According to Porter, the effectiveness of business action is closely related to the performance of a company. Therefore, strategies are important since they help recognise a unique operational aspect (Porter, 1996).
Strategic planning can help in the determination of the success or failure of business activity. Theory stresses though that strategic organisation should not be viewed as a limited development. Contrary, it is an ongoing, living part of the organization. "The strategic direction should be inculcated within the fabric of the institution, including its daily operations. Additionally, in rapidly changing environs, strategy shouldn't exclusively be focused on the long term" (Cady, 2010).
Strategic development is also an evolving concept. It requires re-development according to the different aspects which affect any market. The analysis through tools such as PESTLE, SWOT and the five forces model can help in the re-designing of a strategy. These tools help the company in the instance of sudden changes and alterations in the market. Therefore, the effective strategic planning can support the operation of a business against its internal and external aspects (Cady, 2010).
Strategic development seems to be a vital part in business organization. The development of a strategy is in essence the development of a plan which sets forth the operation and structure of any business organization. Businesses do not operate in a theoretical perspective. Business operation is based on the setting out of goals and objectives which must be followed, so that the company successfully operates in any business environment. Management is responsible for the drafting of the plan to be followed, and is also responsible for making sure that the plan is carefully executed as planned. The importance of a strategic plan seems to be supported by the development of management theories and practices. Risk theory works so as to ensure that the strategic plan is followed and ensured. If a company operates outside the limits of a drafted and set strategy, it seems that risk management is useless. Although the business environment is one which is constantly changing, evolving and is subject to risks, it does not operate randomly or accidentally. Successful businesses follow strategic plans which managers carefully plan and execute.