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Impact of Internal & External factors on
OrganisationsS. Sredharran – M.C.A, M.B.A, M.Phil, M.Sc(Psychology)
Strategic management
Set of managerial decisions that determine the long term performance of a firm
Entails the analysis of external and internal environments of a firm to maximize the effective use of resources in relation to its objectives
Context:Strategic Analysis
Content:Strategic
Choice
Process:Strategy
Implementation
The environment
Culture and stakeholderexpectations Resources
and strategiccapabilities
Planning and
allocating resources
Firm structure
and design
Managing strategic change
Identifying strategic options
Evaluating options
Selecting strategy
Components of Strategy
Environmental Scanning
Environmental scanning is the ability to identify strategic factors (both external and internal to the organization) that can significantly impact the firm's business operations.
Environmental scanning requires the ability to assess the internal strengths and weakness of the organization as well as the external opportunities and threats to the organization
The New Business Environment
DRIVERS OF THE NEW BUSINESS ENVIRONMENT• Information revolution
• Technological advances & breakthroughs• Globalization
IMPLICATIONS• Continual Turbulence & change• Reduced need for physical assets
• Vanishing distance• Compressed time
CRITICAL SUCCESS FACTORS• Ability to embrace change• Creativity & Innovation• Being a world-class org.
• Org. mission, vision, & objectives• Corporate social responsibility
• Organizational learning
Resource based view
Strategy
Competitive advantage
Capabilities
Resources
Step 1: Identify and classify firm’s resources. Assess strengths and weaknesses of these relative to competitors. Identify opportunities
Step 2: Identify capabilities which are its strengths. Identify resource inputs for it
Step 3: Appraise rent gathering potential in terms their potential for sustained competitive advantage and appropriability
Step 4: Select a strategy which matches all these steps
Step 5: Identify resource gaps. Invest in replenishing, upgrading and augmenting resource base.
The Planning Model
Defining Critical Success Factors
Matching the Profile to the Environment
Examining the environment
Doing an independent and honest review of each aspect
Examining the organizational profile
Determining the level of competence required to operate effectively in this environment as to:
Determining the level of competence the organization has as to:
Marketing and salesProduction
Financial ManagementResearch and Development
Human Resource Management
Matching what needs to be doneWith what can be doneIn all aspects of the business
Marketing and salesProductionFinancial ManagementResearch and DevelopmentHuman Resource Management
Sources of Competition
New Technologies New or changing Customer needs Change in the governmental dispositions Changed expectations on quality of products &
Services Change & Innovations sweeping through Emergence of untapped, new and potential
markets and new sectors Shift in Paradigm from (Production, Marketing,
Manufacturing, quality based to Customer Service based)
Liberalisation, Privatisation, Globalisation, as well as creation of new states and embracing new political & economic order
Culture of an Organization
OrganizationalCulture/basic functions
Provides asense ofidentity formembers
Enhancescommitmentto the organization’smission
Clarifiesandreinforcesstandardsof behavior
What Is Organizational Culture?
Organizational Culture
Organizational culture (or corporate culture) refers to the collection of beliefs, expectations and values shared by an organization's members and transmitted from one generation of employees to another. Examples: 1. Sony – co-founder Akio Morita; strong commitment to
high quality engineering and design products 2. Bertelsmann – founder Reinhard Mohn; strong
adherence
to decentralized management 3. Google – less structured environment; strong adherence
to innovation and experiment.
Organizational Culture
14
The Organizational Profile, Strengths and Weaknesses(SW)
A strength means you are already equipped to handle the situation and you are using state of the art procedures.
A weakness means you don’t have the tools to deal with the issue.
Put another way: A strength is something you have that you
need, A weakness is something you don’t have
that you need.
15
Analyzing the Environment, Opportunities and Challenges (threats)(OT)
An opportunity is something that if taken, will result in something positive for the organization.
A challenge (threat) is quite different. Out of the environment, something with a negative consequence to your organization is going to happen unless you act in some way.
Defining Organizational Critical Factors
SWOT diagram
Environmental Threats
Environmental Opportunities
Internal Strength
Internal Weakness
SWOT Analysis
Environmental Threats
Environmental Opportunities
Internal Strength
Internal Weakness
The “cells” of a SWOT diagram
Environmental Threats
Environmental Opportunities
Internal Strength
Internal Weakness
Cell “B”Be aggressive
Cell “A”Redesign practices
Cell “C”Be Defensive
Cell “D”Use your strengths in new places
19
Cell “A” Grand Strategy, “Re-design practices”
An organization with internal weakness which is facing an industry with numerous opportunities
Must focus attention on re-designing how business is done so that the opportunities can be effectively captured.
20
Other Cell “A” Strategies
Retrenchment/turn around Joint Venture Strategic Alliance
Cell “B” Grand Strategy, “Be aggressive”
An organization with internal strengths which is facing an industry with numerous opportunities
Expand operations into new markets, invest in growth and reproduce success in other areas.
Other Cell “B” Strategies
Product developmentMarket developmentVertical Integration
Cell “C” Grand Strategy, “Be Defensive”
An organization with internal weakness which is facing an industry with numerous threats
Needs to revaluate whether or not it is advisable to stay in business.
Other Cell “C” Strategies
DivestitureLiquidation
25
Cell “D” Grand Strategy, “Use your strengths in new places”
An organization with internal strengths which is facing an industry with numerous threats
Evaluate whether or not their expertise could be transferred to a new, less threatening environment.
Other Cell “D” Strategies
Horizontal Integration Concentric Diversification
PESTLE
Political Economical Social Technological Legal Environmental
Political System
Political system includes the structures, processes, and activities by which a nation governs itself.
Political systems can be assessed according to two dimensions Degree to which they emphasize
collectivism as opposed to individualism Degree to which they are democratic or
totalitarian
Both private and public groups need to balanceeach other’s power
Every aspect ofpeople’s lives must becontrolled to preserve order - No individual liberties
Only individuals andprivate groups canpreserve personal liberties
Totalitarianism AnarchismPluralism
Political Ideologies
The Political Spectrum
AuthoritarianF
ascist
Com
mun
ist
Liberal
Con
serv
ativ
eTotalitarianismDemocracy
DemocraticGovernment
Nondemocratic Government
Political Strategies for Business(National & International)
Political Risk—caused by political instability• Promotes fear that operating position will
deteriorate• Tends to be higher in totalitarian regimes
Sources of political risks Unstable Political System Political involvement of religious or military
leader Frequent changes in government Corrupt or poor leadership Civil disorder due to:
Economic conditions Human rights violations Conflict among races, religions & etnics Group animosity
Political Risks
Can cause: Procurement difficulties Work stoppages Shipment delays Property damage
Types of political risk Micro—political actions are aimed at specific
foreign investments Eg; Pakistan, France, Zimbabwe
Macro—political actions affect a broad spectrum of foreign investors
Eg; Cuba, Myanmar, North Korea
Political
Political Change – regime change through coup, violence, etc. Change in government through democratic election can influence future business strategy. e.g. the opportunities that are now available in
Russia and Eastern Europe following the collapse of communism
Political Uncertainty – in countries like Zimbabwe, Sudan, Venezuela. Political uncertainty can lead to a fall in investment by businesses and influence decisions on expansion and business ventures
War/Terrorism – create uncertainty Political Doctrine – can affect the ease with which
business is conducted
Economic
All these factors need to be considered in any strategic business venture: Tax Systems Investment Considerations and Allowances Sophistication of Financial Markets – ease with
which capital can be moved and raised Commodity Prices – oil, energy, metals Monetary and Fiscal Policies – interest rates, tax
regimes, government aid Internal Regulation and Bureaucracy – can be
stifling! Exchange Rates
Social Consumer reaction to
animal furs, etc.
Student attitudes about software piracy
Privacy and security while purchasing merchandise on the Internet.
Ethical considerations
Cultural issues
Religious Considerations – appropriateness of some business ventures – e.g. selling condoms in staunchly Catholic countries
Impact on local communities of business development – availability of jobs, training, environmental impact for these communities
Impact on the environment – can impact on the businesses image
Technological
Availability and developments in technology can have a powerful influence on global business strategy:
e.g. Access to bandwidth PC ownership Technology and sales – processing
payments and sales Compatibility of technologies in Business
Management – accounting systems, language differences, etc.
Legal Systems
Rules - laws - that regulate behavior Processes through which laws are
enforced & grievances are redressed
Three main types of legal systems – in use around the world: Common law Civil law Theocratic law
Kinds of Legal Systems
Common law—based on tradition, precedent, custom, and usage
• Interpretation by the courts• US and UK
Civil law—codified legal system• Based on a detailed set of laws that make up a code• Rules for business transaction included• Based on how the law is applied to the facts• Germany France, Japan
Theocratic law—based on religious precepts• e.g., Islamic law
– has remained frozen– moral rather than commercial law– intended to govern all aspects of life– Sudan, Pakistan, Saudi Arabia, Iran
Legal Issues for Business(National & Intnl.,)
Worker relations Health and safety standards Workweek
Employment practices Antitrust prohibitions Environmental practices Patents, trademarks, and intellectual
property protection Taxes and reporting requirements Foreign Corrupt Practices Act Intellectual Property Rights Product Safety and Liability
Regulatory Environment
Regulatory environment consists of laws and regulations that has been developed by federal,state,and local governments in order to exert control over business practices. The main forms of regulations are :
Command and control instruments - these directly regulate behaviour, typically through permit and authorising procedures.
Incentive based instruments - these modify behaviour using incentives and disincentives, which are usually financial.
Other Instruments - these often contain a non-mandatory element and aim to affect behaviour by (i) improving the supply of information (ii) raising the voluntary commitment, both at an individual and collective level, to change existing practices.
Objectives of Regulations
To protect and enhance the rights and liberty of citizens.
To promote a safe and peaceful society. To collect taxes and ensure that they are
spent in accordance with policy objectives. To safeguard health and safety or protect
citizens from ‘harming’ themselves. To protect consumers, employees and
vulnerable groups from abuse. To promote the efficient working of markets. To protect the environment.
Environmental Factors
The impact on the environment not only affects human communities but can also inflict widespread ecological damage. This imposes social costs on the environment but also can cost the business large sums in legal costs and compensation.
Global Warming Pollution Oil Slicks Deforestation Tsunami Urbanisation and reduction in Cultivable lands Ozone layer depletion Raising sea levels Melting of Ice Glaciers
Governance – Mgmt Structure
Grouping Tasks, Functions and Divisions Allocating authority and responsibility(Creation of
unambiguous hierarchy of authority and span of control)
Minimum chain of command Centralization or Decentralization decision Integration and Integrating Mechanisms(Direct contact,
Liaision roles, Teams) Strategic Control (provides the monitoring and incen
tive systems necessary to make an organizational structure work as intended and extends corporate governance down to all levels inside the company). The main kinds of strategic control system are output con trol and bureaucratic control, rewards systems, and control through information technology.
Strategic role of Managers
In most modern organizations one finds two types of managers: general managers and functional managers. General Managers are individuals who bear responsibility for the overall performance of the organization or for one of its major self-contained divisions. Their overriding concern is for the health of the total organization under their direction. Functional managers bear responsibility for specific business func tions, such as human resources, purchasing, production, sales, customer service, and accounts.
One of the key strategic roles of any manager, whether general or functional, is to provide strategic leadership for subordinates. Strategic leadership refers to the ability to articulate a strategic vision for the company and to motivate others to buy into that vision.
Strategic role of Managers
Good leaders of the strategy-making process have a number of key attributes: vision, eloquence, and consistency; commitment; being well informed; a willingness to delegate and empower; political astuteness; emotional intelligence.
Best Practices
Simultaneous continuous improvement in cost, quality, service, and product innovation
Breaking down organizational barriers between departments
Eliminating layers of management creating flatter organizational hierarchies.
Closer relationships with customers and suppliers
Intelligent use of new technology Global focus Improving human resource skills
Scenario Planning
Scenario planning, also called scenario thinking or scenario analysis, is a strategic planning method that some organizations use to make flexible long-term plans. It is in large part an adaptation and generalization of classic methods used by military intelligence.
The original method was that a group of analysts would generate simulation games for policy makers.
The games combine known facts about the future, such as demographics, geographical, military, political, industrial information, and mineral reserves, with plausible alternative social, technical, economic, environmental, educational, political and aesthetic (STEEEPA) trends which are key driving forces.
Game Theory
Strategic military intelligence organizations also construct scenarios. The methods and organizations are almost identical, except that scenario planning is applied to a wider variety of problems than merely military and political problems.
As in military intelligence, the chief challenge of scenario planning is to find out the real needs of policy-makers, when policy-makers may not themselves know what they need to know, or may not know how to describe the information that they really want.
Game Theory
Good analysts design wargames so that policy makers have great flexibility and freedom to adapt their simulated organizations.
Then these simulated organizations are "stressed" by the scenarios as a game plays out. Usually, particular groups of facts become more clearly important.
These insights enable intelligence organizations to refine and repackage real information more precisely to better serve the policy-makers' real-life needs.
Usually the games' simulated time runs hundreds of times faster than real life, so policy-makers experience several years of policy decisions, and their simulated effects, in less than a day.
Decision Analysis
Decision analysis (DA) is the discipline comprising the philosophy, theory, methodology, and professional practice necessary to address important decisions in a formal manner.
The word was coined by Professor Ronald A. Howard at Stanford University in 1964.
Decision analysis includes many procedures, methods, and tools for identifying, clearly representing, and formally assessing important aspects of a decision, for prescribing a recommended course of action by applying the maximum expected utility action axiom to a well-formed representation of the decision, and for translating the formal representation of a decision and its corresponding recommendation into insight for the decision maker and other stakeholders.
Delphi Method of Forecasting
The Delphi method is a structured communication technique, originally developed as a systematic, interactive forecasting method which relies on a panel of experts.
In the standard version, the experts answer questionnaires in two or more rounds. After each round, a facilitator provides an anonymous summary of the experts’ forecasts from the previous round as well as the reasons they provided for their judgments. Thus, experts are encouraged to revise their earlier answers in light of the replies of other members of their panel.
Delphi is based on the principle that forecasts (or decisions) from a structured group of individuals are more accurate than those from unstructured groups. This has been indicated with the term "collective intelligence". The technique can also be adapted for use in face-to-face meetings, and is then called mini-Delphi or Estimate-Talk-Estimate (ETE). Delphi has been widely used for business forecasting.
Social Forecasting
The term Social Forecasting is not a recent addition business studies.
The use of social forecasting stems from recognition that social social pressures are becoming an increasing determinant for the success of any organization.
The various indicators indicate that the society will be experiencing a total change in next few years. Someof these changes have to be anticipated and must be incorporated in any long-range plans of an organization.
Daniel Bell, a sociologist Daniel Bell felt that we need to learn how to "predict" the future, rather than to"forecast" it in order to raise the number of possibilities so as to the directions in which society should be changing can provide better insights..
Factors in Social Forecasting
The Individual(Attributes, Relationships)
The Political Process(National, International)
Education(Formal, Informal)
Socio-Economics(Money, it’s distribution, existence of Caste, Class & Creed)
Demographics(Size of Population, Age Structure, Migration within & out of country, Chars. Of Population)
Socio-Technology(Use, Benefit, spread, control & Dissemenation of Technology)
Groups in Society(Political, Non-Political, Formation Issues)
Quality of Life(Morality, Arts & Science, Pollution & Ecology, Health & Welfare, Work & Leisure)