Strategy Direction Scope

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LECTURER: GEORGES

“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 expectation”.( Johnson , )

INTRODUCTION:

Strategy is important for the growth of an organisation. This research is about how the strategic plan should be drafted and how is it going to face the challenges given by the changing environment. It also talks about the levels of strategy and the micro-environment. Macro-environment is analysed using PESTEL and five forces model is also used to see how the external and internal factors affect the business of an organisation. This paper concludes with some recommendations on how to implement the strategic plan so as to achieve success in the market.

Startegy:

(Chandler, 1962) defines strategy as “The determination of the long run goals and objectives of the enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”

Strategy planning:

Strategy is representation of the pattern of the organisation and its structure in which their vision and mission can be attained. Certain factors should be an important criteria in planning a strategy. The strategy has to be built for long term success of an organisation despite of the changes in the business environment.

All organisations may need to adopt with the changes that happens in the future and it would have the ability to face the challenges in the competitive business world. The resources and competences of any organisation should take advantage and should be able to compete with their rivals. The complexity of the organisation should have to be understood by the management and the decision should be made accordingly.

The scope of the organisation should be critically evaluated while planning if the organisation should concentrate on one area of activity or many. The research should be made on the availability of resources and allocating them matching to the business environment inorder for an organisation to plan a strategy for a perfect positioning in the market. While planning a strategy, it is necessary to make sure whether the business fits the management as well as organisation should know whether it will be considered by the society. The strategy should understand the expectation of stakeholder and need to fulfil it. The alteration in the organisation should not affect the organisation's plan as it requires wise decisions to be taken in the appropriate time.

Level of strategy:

Corporate level strategy :

Corporate level strategy are determined by the top order of an organisation They fundamentally concerned with the overall purpose of the organisation , the type of business in which the organisation going to be involved and scope of the organisation. The strategic decisions taken by higher authorities should focus on the goals , mission and provides the value to the various units of the organisation.

Business level strategy:

Business level strategy concerns with methodology of success of the organisation in specific market. They try to analyse of how to make changes in the existing one or identifying new options in that market , what kind of product should

be developed in certain market , what type of services and values , the customers required in that market and what should be provided by the organisation in order to be successful and over the long term direction of the organisation.

Operational level strategy:

Operational level strategy deals at the functioning end of an organisation. The strategies that are carried out in the organisation are more concerned with how precisely they execute the part of corporate level and business level strategies of an organisation.

Uses of strategic planning:

Strategic planning helps organisation to make an effective plan of business over the long term success . An effective planning leads bringing out the best quality of goods and services , where you get the maximum customer satisfaction. Customer satisfaction gets you the large market share which leads to the success of an organisation over the long term .

Business Environment:

Business environment is the environment in which everything evolves around the business . The organisation gets input from their environment and turns in to goods and services to the customers through transformation process which adds value to the inputs .The business organisation and its environment is considered as the open system where the elements cannot be identified as steady one because they tend to shift according to the factors that affects the business environment . The organisation's performance are greatly influenced by the environment and its very important for the organisation to get adapt to the factors that affect the business environment. The two major classification of business environment are ,

1. Microenvironment

2. Macroenvironment

Microenvironment:

Microenvironment of an organisation comprises of those who have direct interest in organisation . They have the high priority in influencing the business activities of an organisation. They are also termed as stakeholders of an organisation. Stakeholders includes customers, suppliers, employees, shareholders, media.

Customers:

Customers are the most vital part in microenvironment of an organisation. They are the key deciding factors for the success of an organisation. The consuming behaviour of the customer changes in every period of time. So to become a successful business organisation, the organisation should be proactive in meeting the customer needs.

Example: McDonalds' change their food strategy i.e. from Bigmac to Halal. The Halal foods are preferred by the Muslim community , So to get the Muslim community in to business , they changed bigmac to halal foods which turns to be a successful one.

Suppliers:

Suppliers provides raw materials to the organisation which are then converted to value added products to the customers. The suppliers critically influence the business activities as the best quality of the goods they provide which reflects the organisation's product and attitude in market. They are the key deciding factors of demand and pricing strategy of the product in the market( as rise of price in supplies influence the price of the product).

Media:

Media plays an vital role in the product of an organisation in the market . Positive or negative thoughts from the media influences the business very much in the market. A positive comment given by the media helps creating the large market share for the product where as the negative comments leads to adverse of it.

Example: Pepsi uses media as their principle source of marketing. They use cricket players in their advertisement which increases the market and the usage of pesticides in drinks in India affects the market share of the product.

Employees:

Employees are the internal customer of an organisation. The selection of effective manpower with efficient workmanship paved the way for the success of an organisation. Training the employees on required skills and motivating them by the concept of appraisal, award and rewards, recognition are the crucial part of strategy thereby increases the efficiency of an organisation.

Macroenvironment:

Macroenvironment are those who doesn't have direct relationship with the organisation . They don't influence the organisation business activities directly but alteration in the macroenvironmental factors changes the nature of the relationship of the microenvironmental factors of the organisation. The macroenvironmental factors of the organisation are ,

Political environment:

Political environment is the environment which are less predictable elements for the business organisation , however changes in the political environment directly or indirectly affects the business firms. The organisation should always be aware of the political environment. The organisation critically evaluate the criteria about the political environment while entering into new market

* Stability of the government:

The organisation will always check for the stability of the government, because a stable government have security over their investment whereas unstable government have insecurity.

* Laws passed by the government

The laws passed by the government sometimes is in favour or not favoured to the organisation's business activities.

Economic environment :

The nation's economy growth always depends on the economy of the organisation. The growth rate of the organisation directly or indirectly reflects the nation's growth. The country and organisation have close relationship in terms of economy. The organisation have to analyse the current growth rate and projected growth rate . The company gets more profit when there are more export than import which in turn increase the growth rate of the economy of the country. The increase in Growth Domestic Product rate means the nation's economy is improving. More numer of exports generates revenue to the company thereby increasing the economy.

The tax regulations passed by the governments reflects on business firms . increase in tax affects the profit growth of the organisation .The uneven distribution tax rate may also affects the economy , for example the people whose annual income till £150,000 were charged between 20% - 25% of tax , those who earn also £20,000 also pays 20% tax and who earns £149,000 also pays 20% tax .This make feel that people that they are paying more taxes and revenue to the government is uneven, so the government should take effective measures in imposing on taxes. The more number of taxes on product reflects on the pricing of the product which affects the economy of the organisation. The exchange rates determines the value of the currency globally. If the value of your currency is going down , there would be a loss , the economy is going down . The variations in the value of currency also affects the revenue of the organisation.

Social and cultural environment:

Our world is changing, the people, culture, social factors changes in time period . The organisation should be aware of the changing environment and acts according to changes thereby to run successfully in the market. The certain culture of people never changed and they are passed through generations, the company should be aware of those culture and providing them with value goods and services thereby gaining the customer satisfaction.

Example : Halal foods are preferred by the muslim community. McDonalds changed their Bigmac to Halal to gain the market of muslim community.

The company should be aware of the demographic conditions such that what kind of people resides in a specific area, what is their requirements and providing them , thereby leading to the success .

Example : The old people resides more than younger people in China , so the company should focus on more number of aged people products .

Technology environment:

Technology is termed as the introduction of science into business. The technology field is the changing environment . The technology have a greater impact on business .The technology helps organization in bringing out the diversification of products , creating a new market , marketing the existing product(e- marketing ) easily and widely , creating new kind of jobs, improving the customer service.

Business organization should be aware of the emerging technologies.

The technology helps the organization to expand its market worldwide and helps reducing the cost of communication there by making the price of the product very low which increases the customer. The technology is used in various sectors such as banking, mobile, internet, inventory. The technology helps the organization to reach customers very easily. The organizations spends lot of money in research and development and encourages many new researchers. The concept of introducing the new technology in the market makes the organization ahead of the competitors makes the organization run over the long term direction.

Example: In film industry, the technology plays a vital role. It involves in each and every part of the film industry. In those days, they were only on stage shows, as time goes by, the technology plays its part and at present the film comes in HD view, I-Max version, CD, DVD format.

The concept of e-banking in banking industry reduces the pressure of banking sector and made it convenient to the customers. It reduces times, cost of both the bank and customers. The technology helps to secure the database there by increases the reliability.

Ecological and Legal environment:

Ecology is termed as the green environment in which the customer resides. The organisation resides on the world and its their duty to make necessary things that is safe for the environment because the impact which organisation make on environment will have the adverse effect on it as the organisation is itself a part of the environment. Due to globalisation, the life style of the people changes, the requirement of the people varies. The people become more healthy conscious, they concentrate more on health and hygiene, so it is necessary for the organisation to concentrate on more on health and hygiene to gain the market . The customers don't prefer fast foods, chunky, fatty foods as they are oily and injurious to health , therefore its essential for the organisation to concentrate on ecological factors to become successful and provide and health and safety environment.

The Legal environment and political environment are closely connected as each are interdependent. Any laws that influences the activities of organisation are called as legal factors. The laws are proposed by the government which directly or indirectly affects the organisation's activities. Each and every stakeholders of the organisation are to be abided by the law. The laws that are proposed sometimes favour the organisation such as data protection act , protection on intellectual property rights , etc. The law like consumer right act give the customer more rights which sometimes affects the organisation. The different types of act that are passed with the relationship between customers and organisation.

* Trade Description Act 1968

* Sales of Goods Act 1979

* Consumer credit Act 1974

* Consumer Protection Act 1984

Porters five forces :

Porters stated “ business strategy is all about dealing with the competition and competitor within the industry”.

This tool is used to analyse the source of competition within the industry. The five forces framework is used to asses industry attractiveness , To identify the key success factor of the organisation. They are used to know in which position the business stands with in the organisation. Each of the forces in this analysis is dependent on each other . A change in any one of the forces can alter than nature of other forces. This analysis is very useful for those who wants to enter in a new market or new region and how organisation prepares itself with competition ahead.

Porter

(source : http://www.mindtools.com/pages/article/newTMC_08.htm)

The threat of potential entrants:

The organisation who are well established in one region or industry or market faces the challenges, when a potential competitor from other sector or region or industry enters into competition in the particular market. The threat of entry depends on which the entrants extent to the barriers of entry . the barriers are the obstacle or criteria which are faced by the new entrants while entering into new markets

Example : The entry of Wal- Mart (ASDA in 1997) into UK retailing market was the potential threat to the UK ‘s largest supermarket ‘s Tesco and Sainsbury.

Threat of substitutes:

The substitutes reduce demand for the specific product in a market as there will be a more options for the buyer . The companies have to face a lots of pressure from the substitutes and from the competitors as they will separate the part of the products share in the market. The three type of threat faced by the organisations are ,

* Product by product substitution

* Substitution of need of new product

* Generic substitution

For example , If Tesco brings out with a new product like cola , then the competitor like coca cola have to think about substitutes in order to sustain the product share in the market.

(Palmer, Hartley , 2006)

The power of buyers :

The buyers are the end customers and responsible for the success of the organisation. The most important criteria for buyers power are size and concentration of the customer . The other factors are when there is a large number of suppliers compared to the buyers. When there is a price or quality of goods cannot be supplied from the suppliers , the customers can change the companies which affects the growth of the organisation.

The power of suppliers:

The suppliers power is high when there is less supplier compared to the demand of the customer , when the switching cost is high ie, the cost that takes when changing from one supplier to other supplier, when the supplier cannot market without brand strategy.

Existing competitive rivalry:

The rivalry occurs when there is a heavy competition between the competitors focusing the specific customer group. The criteria rivalry occurs are when there is low barrier of entry because if the barrier is low, there will be many new entrants to the market thereby increasing the competition. The other factor is when there is a high fixed cost .

Implementing and managing the strategy:

From the analysis organisation can predict the issues concerned with the business environment, and it is necessary to implement the strategy with respect to risk and decisions should be taken at appropriate time.

Management should have good relationship with the stakeholders they should manage the strategy at the time of crisis and need to take necessary decisions to recover from the issues. It is necessary decisions should stimulate actions and operations should be done corresponds to time.

Conclusion:

As through this report we have seen that , how a strategy helps organisation to run successfully over the long term . The success of the organisation depends on the planning of strategy and implementing it effectively. The microenvironment and macroenvironment has been discussed clearly which gives the idea of how business environment is. The analytic tool used here is Porter's Five forces which is used to analyse the competition of business within the organisation.

References:

ü Adrian ,P and Bob ,H , The Business Environment : McGraw Hill

ü Britton,B (2000), The Business Environment , pearson education.

ü David, F (2002), strategic management: concepts, pearson education.

ü Pearce, J and Robinson R (2003), strategic management: formulation, implementation, and control: McGraw Hill Irwin.

ü Porter M (1998), competitive strategy for analysing industries and competitors: Free Press.

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