Assignment I

STRATEGIC
MANAGEMENT
(5574)

MBA Executive

ZAHID NAZIR
Roll # AB 523655

Semester: Spring 2010

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 QUESTION 1
What are the key elements of strategy?
How and by whom should the allocation
of scarce resources be managed for
distribution to competing ends and
means?

(20)

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 STRATEGY
The term strategy may be used in two senses. As an adjective assigning particular
importance to some action, activity or process, it is possible to speak of strategic
management, strategic planning or strategic decision making, all deemed to be
activities which are essential to the organizations survival. It is also used as a
noun, to describe a pathway along which the organization moves towards its
goals. There are as many definitions of strategy as there are experts and
commentators in the field. Following are some strategy definitions that shows the
underlying similarity among the range of viewpoints.

Strategy is the pattern of organizational moves and managerial approaches used

to achieve the organizational objectives and to pursue the organizations mission.

Strategy is the organizations pre-selected means or approach to achieving its

goals or objectives, while coin with current and future external conditions.

Strategies, large scale action plans for interacting with environmental in order
to achieve long term goals.

Strategy is the direction and scope of a organization over the long term, ideally
which makes its resources match its changing environment, and in particular its
markets, customers or clients, so as to meet stakeholders expectations.

Strategy is the search for directions, which energize the life of an organization.

The Purpose of Strategy

Provides direction

Provides coherence

Allows day-to-day processes to be designed

Should give direction for one off procedures

The essence of strategy is coping with competition.

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The corporate strategists goal is to find a position in the market where his or her
company can best defend itself against the collective industry forces or can
influence them in its favour.

Michael E. Porter

The Focus of Business Strategy

There is an ever-increasing prevalence of incorporating global migration,

international learning, skills recognition and multiculturalism strategies by
businesses, governments and educators in order to tackle anticipated pressures in
service delivery, labor supply and business investment. Business strategy
motivates management and staff to recognize the benefits of developing and
maintaining a global presence strategy for much greater creativity.

Business Strategy- What Is It?

What exactly is business strategy? In simple terms, a business strategy is an

articulation of the overall direction of the business. Strategies that are identical to
those of your competitors can result in the failure of your objectives.

Business strategy can also be seen as a decision made at the highest levels of the
company on positioning and direction. Such a decision serves to establish a clearly
defined framework for subsequent decisions. Accordingly, strategy and decision-
making become inseparable; without organizational competence for decision-
making, the formulation of a strategy in itself does not have much meaning.

Key Elements of Good Business Strategy

A good business strategy steers clear of destructive competition. It has to focus

on uniqueness, geared to delivering unique value to the important needs of target
customers. Strategy should not be confused with aspiration. For example, "to
become a leader in technology" is as a goal, not a strategy.

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A well-formulated business strategy is a definition of the goal and the ways that
the business is going to achieve that goal. It also outlines boundaries for achieving
the goal thus preventing any 'straying' from the set direction.

Some of the key elements of strategy are:

Mission
The reason for existence for an organization
Mission Statement
States the purpose of an organization
Goals
Provide detail and scope of mission
Strategies
Plans for achieving organizational goals
Tactics

The methods and actions taken to accomplish strategies

Planning and Decision Making

Mission

Goals

Organizational Strategies

Functional Goals
Finance Marketing Operations
Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures
2-11

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Business Strategy- Need and Purpose

Developing a good business strategy is a thoughtful process. It takes a balanced

approach to come up with a strong but flexible business strategy that can absorb
change without disintegrating. Just as a good topographical map is indispensable
to a hiker outlining explicit geographical hazards, so is a good business strategy to
a company. It encompasses information on competitors and technology, suppliers
and customers and provides directional guidance.

In today's fast moving world, changes are fast and imminent. Use of the Internet
lends a mind-boggling speed to nearly every business process. The competitive
environment in which a business has to operate is in a constant state of flux.
Business strategy, therefore, has to be constantly monitored and modified to suit
the circumstances, in order to remain progressive.

A good business strategy should address:

The core purpose and the aspirations of the organization

The path chosen for further growth
The basis for choosing the path
The keys for execution
The ways to constantly sense change and adjust accordingly

STRATEGY EQUATION
The Strategy Equation consists of the set of statements that define the strategic
positioning of an organization. There is a tight and interactive relationship
between each of the component parts of the equation. Each component part
defines an essential element of the overall equation and interconnects with all
other elements in specific and defined ways. The strategy equation consists of
three clusters of grouping:

1. Defined ENDS: the Vision, Mission and Goal Statement are concerned with
the ends that the organization seeks to achieve.

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 2. Defined MEANS: the Strategies and Objectives are focused on the means
to achieve the ends.
3. Defined RULES: the Policies and Values set out the rules and behaviors
appropriate to the pursuit of both the Means and Ends.

Ends Means
Values Values

Mission Strategies
Goals Objectives
Vision

Policies Policies

Strategic Operational

The Strategy Equation

The Vision

Vision defines the type of organization they wish to be, and be seen to be. The
vision statement may be accompanied by a statement of values that describes
those attributes and characteristics that it most wants to attain and express. It
seeks to answer the following question: What type of organization do we wish to
be?

The Mission

Mission defines the landscape in which the organization seek to operate and
therefore the business in which they wish to be engaged. It seeks to answer the
following question: What is our business? What industry are we in?

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The Goals

Goals define positions to be adopted and achieved within that landscape. They
represent the long run outcomes directly sought by the organization and its key
stakeholders. They interact with both the organization and its external
landscapes. They link the Mission and Vision to the Strategies and Objectives.
They have both a direction and a destination component. They seek to answer the
following question: Where do we want to go (direction) and what do we wish to
reach (destination)?

The Strategies

Strategies define the pathways towards the goals. The pathway is expressed in
the form of an operational plan or series of plans and related actions and
activities. They are central to the whole definitional process and serve to link the
strategic with the operational. They seek to answer the following question: How
do we get to the Ends we have defined for ourselves, and by what Means
(pathways)?

The Objectives

Objectives map out the strategies, they anchor them in the external landscapes
and provides means with which to put the strategies into practice. They are
specific time-based points of measurement that the organization intends to meet
in pursuit of its broader goals. They seek to answer the following question: How
exactly do we stage the journey along the pathways?

The Policies

Policies apply at both the Strategic and Operational levels. They are the guidelines
that attach to both ends and means and to the strategic as well as operational
levels of the strategy equation. They answer the question: By what managerial
and administrative rules and boundaries do we live and ensure progress into the
future?

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The Value

Value statements also apply at both the strategic and operational levels of an
organization. They seek to answer the following question? How should we
behave? and How do we want to be seen to be behaving?

Collectively these elements come together to constitute the strategy equation

for an organization.

RESOURCE ALLOCATION
In strategic planning, a resource-allocation decision is a plan for using available
resources, especially human resources especially in the near term, to achieve
goals for the future. It is the process of allocating resources among the various
projects or business units.

The plan has two parts: Firstly, there is the basic allocation decision and secondly
there are contingency mechanisms. The basic allocation decision is the choice of
which items to fund in the plan, and what level of funding it should receive, and
which to leave unfunded: the resources are allocated to some items, not to
others.

There are two contingency mechanisms. There is a priority ranking of items

excluded from the plan, showing which items to fund if more resources should
become available; and there is a priority ranking of some items included in the
plan, showing which items should be sacrificed if total funding must be reduced.

Resource allocation is a major management activity that allows for strategy

execution. In organizations that do not use a strategic-management approach to
decision making, resource allocation is often based on political or personal
factors. Strategic management enables resources to be allocated according to
priorities established by annual objectives. Nothing could be more detrimental to
strategic management and to organizational success than for resources to be
allocated in ways not consistent with priorities indicated by approved annual
objectives.

All organizations have at least four types of resources that can be used to achieve
desired objectives: financial resources, physical resources, human resources, and

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technological resources. Allocating resources to particular divisions and
departments does not mean that strategies will be successfully implemented. A
number of factors commonly prohibit effective resource allocation, including an
overprotection of resources, too great an emphasis on short-run financial criteria,
organizational politics, vague strategy targets, a reluctance to take risks, and a
lack of sufficient knowledge.

Managers normally have many more tasks than they can do. Managers must
allocate time and resources among these tasks. Pressure builds up. Expenses are
too high. The CEO wants a good financial report for the third quarter. Strategy
formulation and implementation activities often get deferred. Today's problems
soak up available energies and resources. Scrambled accounts and budgets fail to
reveal the shift in allocation away from strategic needs to currently squeaking
wheels.

The real value of any resource allocation program lies in the resulting
accomplishment of an organization's objectives. Effective resource allocation does
not guarantee successful strategy implementation because programs, personnel,
controls, and commitment must breathe life into the resources provided.
Strategic management itself is sometimes referred to as a "resource allocation
process."

Reference:

www.scribd.com

Strategic Management AIOU

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 QUESTION 2
(a) What are the organizational and
environmental conditions that
determine how far into the future an
organization can project its vision?
(10)
(b) What is the importance of accurate
measurement to effective management?

(10)

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a).

VISION
Many organizations today develop a "vision statement" which answers the
question, what do we want to become? Developing a vision statement is often
considered the first step in strategic planning, preceding even development of a
mission statement. Many vision statements are a single sentence. For example
the vision statement of Stokes Eye Clinic in Florence, South Carolina, is "Our vision
is to take care of your vision." The vision of the Institute of Management
Accountants is "Global leadership in education, certification, and practice of
management accounting and financial management."

MISSION
Mission statements are "enduring statements of purpose that distinguish one
business from other similar firms. A mission statement identifies the scope of a
firm's operations in product and market terms. It addresses the basic question
that faces all strategists: What is our business? A clear mission statement
describes the values and priorities of an organization. Developing a mission
statement compels strategists to think about the nature and scope of present
operations and to assess the potential attractiveness of future markets and
activities. A mission statement broadly charts the future direction of an
organization. An example mission statement is provided below for Microsoft.

Microsoft's mission is to create software for the personal computer that

empowers and enriches people in the workplace, at school and at home.
Microsoft's early vision of a computer on every desk and in every home is coupled
today with a strong commitment to Internet-related technologies that expand the
power and reach of the PC and its users. As the world's leading software provider,
Microsoft strives to produce innovative products that meet our customers'
evolving needs.

External Opportunities and Threats

External opportunities and external threats refer to economic, social, cultural,

demographic, environmental, political, legal, governmental, technological, and
competitive trends and events that could significantly benefit or harm an
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organization in the future. Opportunities and threats are largely beyond the
control of a single organization, thus the term external. The computer revolution,
biotechnology, population shifts, changing work values and attitudes, space
exploration, recyclable packages, and increased competition from foreign
companies are examples of opportunities or threats for companies. These types
of changes are creating a different type of consumer and consequently a need for
different types of products, services, and strategies.

Other opportunities and threats may include the passage of a law, the
introduction of a new product by a competitor, a national catastrophe, or the
declining value of the dollar. A competitor's strength could be a threat. Unrest in
the Balkans, rising interest rates, or the war against drugs could represent an
opportunity or a threat.
A basic tenet of strategic management is that firms need to formulate strategies
to take advantage of external opportunities and to avoid or reduce the impact of
external threats. For this reason, identifying, monitoring, and evaluating external
opportunities and threats are essential for success.

Environmental Scanning

The process of conducting research and gathering and assimilating external

information is sometimes called environmental scanning or industry analysis.
Lobbying is one activity that some organizations utilize to influence external
opportunities and threats.

Environment scanning has the management scan eternal environment for

opportunities and threats and internal environment for strengths and
weaknesses. The factor which are most important for corporation factor are
referred as a strategic factor and summarized as SWOT standing for strength,
weaknesses, opportunities and threats.

Environmental Scanning
Internal Analysis External Analysis
The external environment consist of opportunities and threats variables that
outside the organization.
External environment has two parts:
Task Environment

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 Social Environment

Task Environment:
Task environment includes all those factors which affect the organization and
itself affected by the organization. These factor effects the specific related
organizations. These factors are shareholders community, labor unions, creditor,
customers, competitors, trade associations.

Social Environment:
Social environment is an environment which includes those forces effect does not
the short run activities of the organization but it influenced the long run activities
or decisions. PEST analysis are taken for social environment PEST analysis stands
for political and legal economic socio cultural logical and technological.

Internal Strengths and Weaknesses/Internal assessments

Internal strengths and internal weaknesses are an organization's controllable
activities that are performed especially well or poorly. They arise in the
management, marketing, finance/accounting, production/operations, research
and development, and computer information systems activities of a business.
Identifying and evaluating organizational strengths and weaknesses in the
functional areas of a business is an essential strategic-management activity.
Organizations strive to pursue strategies that capitalize on internal strengths and
improve on internal weaknesses.

Strengths and weaknesses are determined relative to competitors. Relative

deficiency or superiority is important information. Also, strengths and weaknesses
can be determined by elements of being rather than performance. For example,
strength may involve ownership of natural resources or an historic reputation for
quality. Strengths and weaknesses may be determined relative to a firm's own
objectives. For example, high levels of inventory turnover may not be strength to
a firm that seeks never to stock-out. Internal factors can be determined in a
number of ways that include computing ratios, measuring performance, and
comparing to past periods and industry averages. Various types of surveys also
can be developed and administered to examine internal factors such as employee
morale, production efficiency, advertising effectiveness, and customer loyalty.

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b)

MEASUREMENT AS AN EFFECTIVE MANAGEMENT TOOL

Measurement is an effective management tool because it provides the
information decision makers require to accurately monitor key issues related to
company and organizational goals, progress and quality at both the executive and
project levels, and performance against a plan. Measurement also provides data
that managers need to ask the right questions -- and make the right decisions
based on objective information.

As managers, measurement helps us do the following:

Communicate effectively and improve visibility. Measurement supports

communication among stakeholders across all levels of the organization.
Objective measurement also reduces ambiguity. It provides an effective
way to communicate status between suppliers and their clients.
Identify and correct problems early. Measurement facilitates pro-active
management. It allows us to identify and manage potential problems early
in the development lifecycle. Problems discovered late are more difficult to
manage and more costly to fix. With measurements, managers do not have
to wait for problems to arise; instead, they can anticipate and quickly
address them.
Make key trade-offs. Decisions in one area often impact others.
Measurement helps assess the impact objectively so that managers can
make informed trade-off decisions to best meet project objectives.
Track specific project objectives. Measurement helps managers answer
specific questions such as: "Is the project on schedule?" or "Is the quality
improving?" or "Is the system ready to be delivered?" By tracking actual
measures against a plan, managers can assess progress toward project and
organizational objectives.
Manage risks. Risk management is a widely accepted best practice that
involves identifying and analyzing risks early in a project's lifecycle. Risks
uncovered late can be difficult and costly to fix. With high-quality objective

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 data, managers can gain visibility into risk areas such as requirements
creep. By measuring and monitoring requirements volatility, they can
determine whether a risk has been mitigated.
Defend and justify decisions. Managers must effectively defend and justify
their decisions. Given a choice between basing their decisions on subjective
or objective data, the vast majority would choose objective data.
Measurement provides objective historical performance or trend data as
well as current performance data. It also provides perspective with respect
to time, projects, releases, and so forth. This allows decision makers to
interpret the measures and decide on appropriate actions.
Plan future projects. In project planning, managers must set realistic goals
and schedules, not to mention budgets. Recording timelines and
expenditures for past projects provides the data that managers need to
predict schedules and costs for similar projects.

Reference:

www.12manage.com

www.mindstool.com

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 QUESTION 3
Compare and contrast alternative ways of
perceiving and describing the workings of
the strategy process within organizations,
and between organizations and their
environments.
(20)

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 STRATEGY FORMATION
Following descriptions set out the main perspectives, or school of thought, on
strategy as developed through the insights and research of observers and writers
on strategic management over the last 50 years. This overview is largely derived
from the work of Mintzberg. He has identified a range of perspectives, each of
which helps to highlight and clarify an aspect of the way in which the strategic
management process works within organization

Strategy Models Schools of Thought

Schools of Thought

Prescriptive: How strategies should be formulated

To the following Schools: Strategy Formation is seen as:

Design School a Conceptual Process

Planning School a Formal Process

Positioning School an Analytical Process

Process: How strategies do in fact get made

To the following Schools: Strategy Formation is seen as:

Entrepreneurial School a Visionary Process

Cognitive School a Mental Process

Learning School an Emergent Process

Political School a Power Process

Cultural School an Ideological Process

Environmental School a Passive Process

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 Life Cycle Models

To the following Schools: Strategy Formation is seen as:

Configurational School an Episodic Process

The table above identifies at least ten different ways of looking at strategy. These
ten perspectives or schools can be grouped into three clusters. Each cluster
represents a main viewpoint: Prescriptive, Process and Life Cycle.

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Comparison of Schools of Thought

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Reference: www.12manage.com

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 QUESTION 4
Discuss the significance of collective or
group based objective setting in
developing a broad based approach to
organizational governance?
(20)

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 OBJECTIVES
Objectives are the specific and unambiguous action initiators that drive the
organization along their selected mix of strategy pathways. They operationalize
the strategic thought and convert it into measurable actions. In summary,
Objectives should be:

Strategic to the organization. (Focused on the strategic future and

therefore able to be integrated with the Ends components of the strategy
equation).
Action Initiator. (Linkable to action plans and therefore a point of
connection and initiation for resource distribution into the strategic
positions undertaken by the organization especially regarding resource
allocation and use).
Specific and unambiguous. (Strong in focus, precise in expression, and
possessing clarity, not clouded by avoidable ambiguities or misalignment
between strategic thought and operational action).
Concise and easily understood. (Brief but able to instruct and inform those
with responsibility for their implementation).
Widely communicated and communicable.

Objectives should have:

a content (a statement or description of what is being measured an

aspect of customer satisfaction)
a measure or indicator (expressed as an absolute value or as a relative
measure such as percentage or ratio)
a level (85% of customer calls to be answered within first 30 seconds of
ringing)
a time period for achievement (per dd/mm/yy; per shift; per session; per
cycle etc)

Apart from providing traction for strategic action, objectives also provide a
decision and action matrix around which organizational structure and culture can

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be built. When poorly defined , partially understood, or not fully agreed to by
individuals and interest groups, the objectives may become dysfunctional in their
application and use. Getting the objectives properly defined is an important first
step. They must however be accompanied by an understanding and agreement
amongst the members of the organization. Management decision making
techniques such as Management by Objectives (MBO) represent one attempt to
develop and use such a system to achieve coherence and order in the
management planning process.

MANAGEMENT BY OBJECTIVES

Management by objectives (MBO) is a systematic and organized approach that

allows management to focus on achievable goals and to attain the best possible
results from available resources.
It aims to increase organizational performance by aligning goals and subordinate
objectives throughout the organization. Ideally, employees get strong input to
identify their objectives, time lines for completion, etc. MBO includes ongoing
tracking and feedback in the process to reach objectives.
Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in
his book 'The Practice of Management'. In the 90s, Peter Drucker himself
decreased the significance of this organization management method, when he
said: "It's just another tool. It is not the great cure for management inefficiency...
Management by Objectives works if you know the objectives, 90% of the time
you don't."
CORE CONCEPTS
According to Drucker managers should "avoid the activity trap", getting so
involved in their day to day activities that they forget their main purpose or
objective. Instead of just a few top managers, all managers should:
participate in the strategic planning process, in order to improve the
implementability of the plan, and
implement a range of performance systems, designed to help the
organization stay on the right track.

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MANAGERIAL FOCUS
MBO managers focus on the result, not the activity. They delegate tasks by
"negotiating a contract of goals" with their subordinates without dictating a
detailed roadmap for implementation. Management by Objectives (MBO) is about
setting yourself objectives and then breaking these down into more specific goals
or key results.
MAIN PRINCIPLE
The principle behind Management by Objectives (MBO) is to make sure that
everybody within the organization has a clear understanding of the aims, or
objectives, of that organization, as well as awareness of their own roles and
responsibilities in achieving those aims. The complete MBO system is to get
managers and empowered employees acting to implement and achieve their
plans, which automatically achieve those of the organization.

Organizational
Objecives reviewed

MBO for the next

Employees
operating period
objectvies set
begins

Achievers rewarded Progress monitored

Performance
evaluated

Management by Objectives (MBO)

The Five Step MBO Process

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WHERE TO USE MBO
The MBO style is appropriate for knowledge-based enterprises when your staff is
competent. It is appropriate in situations where you wish to build employees'
management and self-leadership skills and tap their entrepreneurial creativity,
tacit knowledge and initiative.

SETTING OBJECTIVES
For Management by Objectives (MBO) to be effective, individual managers must
understand the specific objectives of their job and how those objectives fit in with
the overall company objectives set by the board of directors.
The managers of the various units or sub-units, or sections of an organization
should know not only the objectives of their unit but should also actively
participate in setting these objectives and make responsibility for them.
The review mechanism enables leaders to measure the performance of their
managers, especially in the key result areas: marketing; innovation; human
organization; financial resources; physical resources; productivity; social
responsibility; and profit requirements

BALANCE BETWEEN MANAGEMENT AND EMPLOYEE EMPOWERMENT

The balance between management and employee empowerment has to be

struck, not by thinkers, but by practicing managers. Turning their aims into
successful actions, forces managers to master five basic operations:
setting objectives,
organizing the group,
motivating and communicating,
measuring performance, and
developing people, including yourself.

These Management by Objectives (MBO) operations are all compatible with

empowerment, if you follow the main principle of decentralization: telling people
what is to be done, but letting them achieve it their own way. To make the
principle work well, people need to be able to develop personally. Further,

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different people have different hierarchy of needs and, thus, need to be managed
differently if they are to perform well and achieve their potential.
Empowerment recognizes "the demise" of the command-and-control system, but
remains a term of power and rank. A manager should view members of his or her
team much as a conductor regards the players in the orchestra, as individuals
whose particular skills contribute to the success of the enterprise. While people
are still subordinates, the superior is increasingly dependent on the subordinates
for getting results in their area of responsibility, where they have the requisite
knowledge. In turn, these subordinates depend on their superior for direction and
"above all, to define what the 'score' if for the entire organization, that is, what
are standards and values, performance and results."

INDIVIDUAL RESPONSIBILITY
Management by Objectives (MBO) creates a link between top manager's strategic
thinking and the strategy's implementation lower down. Responsibility for
objectives is passed from the organization to its individual members. It is
especially important for knowledge-based organizations where all members have
to be able to control their own work by feeding back from their results to their
objectives.
Management by objectives is achieved through self-control, the tool of
effectiveness. Today the worker is a self-manager, whose decisions are of decisive
importance for results.
In such an organization, management has to ask each employee three questions:
1. What should we hold you accountable for?
2. What information do you need?
3. What information do you owe the rest of us?

MBO: Key Advantages and Disadvantages

Advantages
MBO programs continually emphasize what should be done in an
organization to achieve organizational goals.
MBO process secures employee commitment to attaining organizational
goals.

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 Disadvantages
The development of objectives can be time consuming, leaving both
managers and employees less time in which to do their actual work.
The elaborate written goals, careful communication of goals, and detailed
performance evaluation required in an MBO program increase the volume of
paperwork in an organization.

Reference:

Strategy Management AIOU

http://www.1000ventures.com/business_guide/mgmt_mbo_main.html

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 QUESTION 5
Demonstrate an understanding of the
relationships between an organization
and its environments.
(20)

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 AN ORGANIZATION AND ITS ENVIRONMENT
Although the foregoing definition stated that organizations were essentially
separate, distinct entities, it did not say that organizations are autonomous and
completely independent of their environment. Indeed they are not. Dr. William B.
Wolf, in his article Reflections on the Theory of Management, observes that
the organization cannot be isolated from the broader society of which it is a part.
Philip Selznick states that an organization is adaptiveadapting to influence
upon it from an external environment, and Chester I. Barnard, writing in The
Functions of the Executive, notes that the very survival of an organization
depends on a proper environment equilibrium.

Figure 1 is a graphic example of this delicate balance. Note that the arrows depict
a continual interchange between the organization and its environment. For
example, if the organization is a business firm, it must advertise and sell its
product to customers who are in the broader environment. If the firm cannot sell
its product, it will not survive. Therefore, a business firm draws its very
sustenance from the environment, and if it cannot, it ceases to be a viable
organization.

Similarly, a military organization must satisfy the political environment from

which it draws the budget which is imperative to its resource base. This
environmental interchange is continuous. A firm sends its product out to
customers, and the customers return revenues to the firm when they buy its
product. Employees are hired from the environment, and federal laws impose
certain constraints on how the firm can treat them. In fact, this relationship is so
complex and so critical it is well to note various sectors of the environment with
which this interaction takes place.

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 THE ORGANIZATION AND THE ENVIRONMENT
The MACROENVIRONMENT
Components: legal, political, economic, technological, demographic and social
and natural factors
The COMPETITIVE ENVIRONMENT
Components: firm, competitors, suppliers, customers, new entrants, and
substitutes
THE MACROENVIRONMENT
Laws and Regulations
The Economy
Technology
Demographics
Social Issues and the Natural Environment

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THE COMPETITITIVE ENVIRONMENT
Includes the specific organizations with which the organization interacts
COMPETITORS
Identify Competitors
small domestic firms especially their entry into tiny premium markets
overseas firms, especially their efforts to solidify positions in small niches
big domestic companies exploring new markets
strong regional competitors
unusual entries
Analyze tactics

THREAT OF NEW ENTRANTS

Barriers to entry are conditions that prevent new companies from entering an
industry.
Major Barriers
Government policy
Capital requirements
Brand identification
Cost disadvantages
Distribution channels

THREAT OF SUBSTITUTES
SUPPLIERS provide the resources needed for production and may come in the
form of people, aw materials, information and financial capital
Switching costs are fixed economic and psychological costs buyers face if they
change suppliers.
CUSTOMERS
Final Consumer is a consumer who purchases products in their finished form.

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Intermediate Consumer is a customer who purchases raw materials or wholesale
products before selling them to final customers.
Customer Service refers to the speed and dependability with which an
organization can deliver what customers want.
Speed of filling and delivering normal orders
Willingness to meet emergency needs
Quality of merchandise delivered
Readiness to replace defective goods
Availability of installations and repair of parts
Service charges

ENVIRONMENTAL ANALYSIS
ENVIRONMENTAL UNCERTAINTY
Lack of information needed to understand or predict the future that arises from
complexity and dynamism
Environmental complexity refers to the number of issues to which a manager
must attend as well as their interconnectedness.
Environmental dynamism refers to the degree of discontinuous change that
occurs within the industry.
Techniques and methods for collecting, sorting through and interpreting
information about the environment must be developed.

ENVIRONMENTAL SCANNING
is searching for and sorting through information about the environment that is
unavailable to most people and sorting through information to interpret what is
important and what is not.
Competitive intelligence is the information that helps to decide how best to
manage in the competitive environment.

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SCENARIOS
are narratives that describe a particular set of future conditions that were
developed from alternative combinations of different factors.
FORECASTING
is the method used to predict how variable/s will change in the future.
BENCHMARKING
Is the process of comparing an organizations practices and technologies with
those of other companies.

RESPONDING TO THE ENVIRONMENT

ADAPTING TO THE ENVIRONMENT
To cope with environmental uncertainty, organizations make adjustments in their
structures and processes.
Empowerment is the process of sharing power with employees, thereby
enhancing confidence in their ability to perform, their jobs and their belief that
they are influential contributors to the organization.
In response to dynamism, organizations tend to establish more flexible structures,
(organic structures). These type of organizations is less formal and decisions are
made through interaction and mutual adjustment among individuals rather than a
set of predefined rules.
ADAPTING AT THE BOUNDARIES
Buffering refers to creating to supplies of excess resources in case of
unpredictable needs.
Input side: contingent workers
Output side: ending inventories
Smoothing refers to leveling of normal fluctuations at the boundaries of the
environment

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ADAPTING AT THE CORE
Flexible processes are methods for adapting the technical core to the changes in
the environment.

INFLUENCING YOUR ENVIRONMENT

Proactive Responses:
1. Independent Action is a strategy that an organization acting on its own
uses to change some aspect of its current environment.

Competitive aggression exploiting a distinctive competence o improving

internal efficiency for competitive advantage
Competitive pacification independent action to improve relations with
competitors
Public Relations establishing and maintaining favorable images in
the minds of those making up the environment
Voluntary Action voluntary commitment to various interest groups,
causes and social problems
Legal Action private legal battle with competition on antitrust
deceptive and advertising or other grounds
Political Action efforts to influence elected representatives to
create a more favorable business environment or
limit competition

2. Cooperative action is a strategy used by two or more organizations working

together to manage the external environment. These make most sense
when taking joint action will reduce the organizations costs and risks. The
cooperation will also increase their power.

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Coalition formation happens when local businesses band together to cub the
rise of employee health care costs and when organizations in the same
industry form associations and special-interest groups.
Contraction negotiation of an agreement between the organization
and another group to exchange good, services,
information, patents, etc.
Cooptation adapting new elements into the organizations
leadership structure to avert threats to its stability o
existence
Coalition two or more groups coalesce and act jointly with respect
to some set of issues for some period of time

CHANGING THE ENVIRONMENT YOU ARE IN

Strategic maneuvering is an organizations conscious efforts to change the
boundaries of its environment.
Prospectors are companies that continuously change the boundaries for their
task environment by seeking new products and markets, diversifying and
merging or acquiring new enterprises.
Defenders are companies that stay within a more limited, stable product
domain.

Domain selection entering industries or markets with limited competition

or regulation and ample suppliers and customers;
entering high-growth markets

Diversification investing in different types of businesses, manufacturing

different types of products or geographic expansion to
reduce dependence on a single market or technology

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 Merger and Acquisition combining two or more firms into a single
enterprise; gaining possession of an ongoing enterprise

Divestiture selling one or more businesses

CHOOSING A RESPONSE APPROACH

CONSIDERATIONS:
1. Change appropriate elements of the environment
Environmental responses are most useful when aimed at elements that
a. cause the company problems
b. provide it with opportunities
c. allow the company to change successfully
2. Choose responses that focus on pertinent elements of the environment
3. Choose responses that offer the most benefit at the lowest cost

The Organization and its External Environment

1) Technological Factors: Technology is the most important factor of external
environment. It is Science that provides Knowledge, and it is technology that uses
it. The impact of technology is seen in new products, new machines, new tools
and new materials. A few of benefits of technology are greater productivity,
higher living standard , greater variety of product. For example great variety of
cars available.

So we can say that technology has a very good impact on the organization. It
greatly effects the organization. For example a firm is using old technology and
follows old methods of production. How they can compete in the environment.

2) Social factors: The social environment has also great impact on the
organization. Social environment include, desire , expectation, behavior, beliefs
and customs of people in a group or society.

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So we can say that social environment will affect the organization.

3) Political and Legal factors:

a) Political factors: The attitude and action of political and government leader
play a vital role in the success of an organization. If there is stability in the
country, the organization can operate easily in that state .The government will
provide opportunities for the investors to come and start their business in their
country and reduce the tax margin . the government open different types of
consultancies for the businessmen which provide fruitful suggestion to people
that how they can start and operate their business . like SME ( small and medium
size enterprise ) work in Pakistan .

The government can sign new trade policies with other countries to promote
export and import.

b) Legal environment: Legal issues are also important for an organization.

Because it effect the organization policies. If any firm violate the rules and
regulation of a country , that firm will be in trouble . like some laws are made for
the protection of labor , consumer, communities , copyright . if any one violate
these kind of rules he will be punishable. So the organization should keep these
things in mind .

Reference:

www.12manage.com
www.mindstool.com

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