BUSINESS POLICY AND STRATEGY UNIT - 2.pptx

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1. BUSINESS POLICY AND STRATEGY BY : Dr. BHAWNA SINGH [email protected]

2. ENVIRONMENTAL ANALYSIS MEANING Environmental analysis is a strategic tool. It is a process to identify all the external and internal elements, which can affect the organization’s performance. The analysis entails assessing the level of threat or opportunity the factors might present. These evaluations are later  translated into the decision-making process . The analysis helps align strategies with the firm’s environment. Businesses are greatly influenced by their environment. All the situational factors which determine day to day circumstances impact firms. So, businesses must constantly analyze the trade environment and the market.

3. . Advantages of Environmental Analysis The internal insights provided by the environmental analysis are used to assess employee’s performance, customer satisfaction, maintenance cost, etc. to take corrective action wherever required. Further, the external metrics help in responding to the environment in a positive manner and also aligning the strategies according to the objectives of the organization. Environmental analysis helps in the detection of threats at an early stage, that assist the organization in developing strategies for its survival. Add to that, it identifies opportunities, such as prospective customers, new product, segment and technology, to occupy a maximum share of the market than its competitors. 1. Assess employee’s performance 2.Customer satisfaction 3.Maintenance cost 4. helping organization to respond to environment in positive manner 5.Aligning the strategies according to organizational objectives 6.Identifying objectives 7. Helps in detection of threats at an early stage

4. Steps Involved in Environmental Analysis Identifying : First of all, the factors which influence the business entity are to be identified, to improve its position in the market. The identification is performed at various levels, i.e. company level, market level, national level and global level. Scanning : Scanning implies the process of critically examining the factors that highly influence the business, as all the factors identified in the previous step effects the entity with the same intensity. Once the important factors are identified, strategies can be made for its improvement. Analyzing : In this step, a careful analysis of all the environmental factors is made to determine their effect on different business levels and on the business as a whole. Different tools available for the analysis include benchmarking, Delphi technique and scenario building. Forecasting : After identification, examination and analysis, lastly the impact of the variables is to be forecasted.

5. INTERNAL ENVIRONMENT  For a strategy to succeed, it should be based on a realistic assessment of the firm’s internal resources and capabilities. An internal analysis provides the means to identify the strengths to build on and the weaknesses to overcome when formulating strategies. The internal analysis process considers the firm’s resources; the business the firm is in; its objectives, policies, and plans; and how well they were achieved. The conditions and forces that exist within the organization are called the internal environment factors of an organization. Internal environment factors portray an organization’s ‘in-house’ situations. An organization has full control over these situations. Unlike the external environment, the internal environment is much more directly controllable.

6.  These internal environment factors are as below : Resources of the organization - physical, human , financial , informational, and technological resources Owners/Stockholders/Shareholders Board of Directors Organization’s Culture Organization’s Image/Goodwill

7. Framework for Internal Environment Factors Analysis Strengths Weaknesses Adequate financial resources? Poor strategic direction? A distinctive competence? No clear vision? The positive image of the company? Lack of managerial talent? Proprietary technology? Poor track record in strategy implementation? Excellent Competitive skills? Obsolete machinery? Cost advantages? Falling behind in research and development? Access to economies of scale? Lack of competencies? Competitive advantages ? Narrow product line? Good leadership and management? Competitive disadvantages? Product innovation abilities? Weak market image? Well-crafted functional strategies? Inadequate working capital? Achieved market leadership? Poor Marketing skills?

8. EXTERNAL ENVIRONMENT External Micro Environment: Suppliers of inputs Customers Marketing Intermediaries Competitors Public External Macro Environment: 1. Economic 2. Social 3. Technological 4. Political and Legal 5. Demographic

9. Approaches to Environmental Scanning: The experts have suggested three approaches, which could be adopted for, sort out information for environmental scanning. 1. Systematic Approach: Under this approach, information for environmental scanning is collected systematically. Information related to markets and customers, changes in legislation and regulations that have a direct impact on an organization’s activities, government policy statements pertaining the organization’s business and industry, etc , could be collected continuous updating such information is necessary not only for strategic management but also for operational activities.

10. 2. Ad hoc Approach: Using this approach, an organization may conduct special surveys and studies to deal with specific environmental issues from time to time. Such studies may be conducted, for instance, when organization has to undertake special projects, evaluate existing strategy or devise new strategies. Changes and unforeseen developments may be investigated with regard to their impact on the organization. 3. Processed-form Approach: For adopting this approach, the organization uses information in a processed form available from different sources both inside and outside the organization. When an organization uses information supplied by government agencies or private institutions, it uses secondary sources of data and the information is available in processed form.

11. Sources of Information: A company can obtain information from different sources, but it should be ensured that the information is correct.  The various sources from where information can be gathered include: 1. An internal document viz, files, records, management information system, employees, standards, drawings, charts, etc. 2. Trade directories, journals, magazines, newspapers, books, newsletters, government publications, annual reports of companies, case studies, etc. 3. Internet, television, radio news etc. 4. External agencies like customers, suppliers, inspection agencies, marketing intermediaries, dealers, advertisers, associations, unions, government agencies, share holders, competitors, etc. 5. Market research reports, consultants, educational institutions, testing laboratories etc. 6. Spying considered as a powerful way of extracting information from other companies.

12. Techniques Used for Environmental Scanning: The techniques used for environmental scanning may be either very systematic to intuitive. Selection of a technique depends on data required, source of data, timelines of information, relevance, cost of information, quantity, quality and availability of information, etc. Some of the methods widely used can be categorized as follows: Scenario Writing, Simulation, Single Variable Extrapolation, Morphological Analysis, Cross Impact Analysis, Field Force Analysis, Game Theory, etc. The techniques are either statistical or mathematical in nature. However, judgmental and institutive techniques are also widely used.

13. The entire process consists of following steps: 1. Major events and trends in environment are studied. 2. A cause and effect relationship established with regard to events and trends for long and short term. This is done through brain storming in a group. 3. Diagrams showing interrelationships amongst various factors are prepared and an attempt is made to quantify the results. 4. The study is reviewed by a group of experts who deliberate on each aspect and on the possible strategies that may be decided.

14. Competitive Structure Analysis: Meaning and Levels of Competition Meaning: Undoubtedly one of the major contributions in recent years to our understanding of the ways in which the competitive environment influences strategy has been provided by Porter Porter’s works is based on the idea that competition in an industry is rooted in its underlying economics, and competitive forces that go well beyond the established combatants in a particular industry. Porter has also emphasized that the first determinant of a firm’s profitability is the attractiveness of the industry in which it operates. The second determinant is competition

15. This is what lead Porter to suggest that the nature and intensity of competition within any industry is determined by the interaction of five key forces: 1. The threat of new entrants 2. The power of buyers 3. The threat of substitutes 4. The extent of competitive rivalry and 5. The power of suppliers

16. Competition at various levels: It is possible to see competition operating at four levels: 1. Competition consists only of those companies offering a similar product or service to the target market, utilizing a similar technology, and exhibiting similar degrees of vertical integration, e. g Reebok, Adidas and Nike (in sportswear and shoes). 2. Competition consists of all companies operating in the same product or service category Malls like Garuda and Forum in Bangalore; PVR Cinema and Innox in theatres, banks like HDFC, ICICI and SBI with their retail, corporate and investment banking service; and insurance companies like HDFC Life, SBI Life, ICICI Prudential and ICICI Lombard.

17. 3. Competition consists of all companies manufacturing or supplying products which deliver the same service (Nokia, Motorola and Sony Ericsson in the GSM handset market). 4. Competition consists of all companies for cornering the same spending power of the target group (Visa and MasterCard) while making electronic payment either through credit or debit card. This may be for various purpose like travel ticket, hotel and utility bills and so on.

18. ETOP ANALYSIS The preparation of ETOP involves dividing the environment into different sectors and then analyzing the impact of each sector on the organization. A comprehensive ETOP requires subdividing each environmental sector into sub factors and then the impact of each sub factor on the organization is described in the form of a statement. A summary ETOP may only show the major factors for the sake of simplicity. The table 1 provides an example of an ETOP prepared for an established company, which is in the Two Wheeler industry.

19. Table 1: Environmental Threat and Opportunity Profile (ETOP) for a Motor Bike company: Environmental Sectors Impact of each sector Social (↑) Customer preference for motorbike, which are fashionable, easy to ride and durable. Political (→) No significant factor. Economic (↑) Growing affluence among urban consumers; Exports potential high. Regulatory (↑) Two Wheeler industry a thrust area for exports. Market (↑) Industry growth rate is 10 to 12 percent per year, For motorbike growth rate is 40 percent, largely Unsaturated demand. Supplier (↑) Mostly ancillaries and associated companies supply parts and components, REP licenses for imported raw materials available. Technological (↑) Technological up gradation of industry in progress. Import of machinery under OGL list possible.

20. The preparation of an ETOP provides a clear picture for organization to formulate strategies to take advantage of the opportunities and counter the threats in its environment.The strategic managers should keep focus on the following dimensions: 1. Issue Selection 2. Accuracy of Data 3. Impact Studies 4. Flexibility in Operations

21. SWOT Analysis: It is a technique of environment analysis which evaluates organisation’s strengths and weaknesses, environmental opportunities and threats and helps to formulate strategies and achieve objectives by: 1. Exploiting organisational strengths, 2. Exploiting environmental opportunities, 3. Minimising and correcting the weaknesses, and 4. Minimising environmental threats.

22. Objectives of SWOT analysis: 1. To compare company’s profile (strengths and weaknesses) with threats and opportunities in the product or market areas where it wants to compete. 2. To compare company’s profile with that of competitors. ( i ) Strength is a positive attribute of the organisation that enables it to accept environmental challenges and improve its competitive position - Common strengths, and Distinctive competencies. (ii) Weakness is an attribute which restricts competitive strength of the organisation . It restricts its ability to make effective strategies. Internal weaknesses can be high cost of production, poor functioning of departments, conflicts amongst superiors and subordinates, lack of managerial or innovative ability, obsolete technology, low financial reserves, long delivery times, inadequate R&D facilities etc.

23. (iii) Opportunities are environmental challenges which improve organisation’s operational efficiency. They are the favourable environmental conditions. The external opportunities are: boom in the economy, development of new technology, growing markets, liberal government policies, government subsidies, accelerating market growth etc. (iv) Threats are environmental challenges which weaken the organisation’s competitive position. They are the unfavourable environmental conditions. Some of the external threats are: recession in the economy, changing consumer preferences, new technology adopted by competitors, substitute products with high brand image or low cost, foreign competitors, increasing competition, political instability, economic downturn etc.

24. RESOURCE AUDIT What is a Resource Audit? A resource audit is the process of going through everything that your business or organization has available to it. These resources can take on many forms, and are not limited to just obvious items like cash and inventory. The resource audit for your organization is likely to be unique to you because it will take into consideration specific needs that your industry has for things like experience and knowledge in a particular field. While it might take some time and effort to perform a proper resource audit on your organization, the information that this  strategy process  will reveal to you can be invaluable. Let’s take a look at some of the categories of resources that could relate to your business. Some of the following will be obvious to you, but some of these items you might not have thought about as obvious resources up until this point.

25. Physical Resources This is probably the first thing you think about when considering the resources that you have on hand. These are things like equipment, inventory, and even buildings that allow you to do what it is you do. Most likely, you are already making the most of these resources since they are the ones that get the most time and attention. When you take the time to review everything that you do and how you use what you have, you might be surprised to notice inefficiencies where you didn’t think any existed. Financial Resources Accurate financial records are one of the essentials for any organization, so this is an area that you hopefully have under control already. As with your physical resources, a review of financial resources is something that should be happening on an ongoing basis. You should always be finding ways to be more efficient with your money, so that the organization squeezes every last cent out of each dollar. In the competitive business environment that exists today, no company can afford to just give away money due to poor decision making or laziness among management.

26. Human Resources  Each person that works within your company has a specific set of skills and experiences that is unique to them. If you want to get the best possible performance from your business as a whole, it starts by getting the most out of each individual person that you have available to you. Instead of trying to keep all of your employees or team members stuck in the same role that they are currently filling, encourage exploration and collaboration so you can uncover skills that you didn’t know existed within the work force. In doing this, you might find that you don’t need to hire as many new people when new projects come up – because the skills and experience are already found within your team. Give your employees the benefit of the doubt and provide them with opportunities to impress you by going outside of their usual routine.

27. The Intangibles Intangible resources can include things like a great reputation within the community, many years in business, or a presence in a niche market that lacks significant competition. Take a look at the advantages that you have from an intangible perspective and think about ways you can make those advantages work for you. For example, if your organization has been in business for a long time, you should leverage that point in advertising and marketing efforts to make sure potential customers understand how trustworthy you really are. It takes time to build up many of the intangibles in business, so don’t waste them once you have successfully put them in place.

28. STRATEGIC ADVANTAGE ANALYSIS Strategic analysis is about looking at what is happening outside your organisation now and in the future. It asks two questions: How might what's happening affect you? What would be your response to likely changes? It's called strategic because it's high level, about the longer term, and about your whole organisation . It's called analysis because it's about breaking something that's big and complex down into more manageable chunks. The focus is external because factors outside your organisation have a powerful influence on it. Increasingly organisations appreciate that they can learn to manage their response to those influences, rather than assume there is nothing they can do. It's part of the overarching process of strategic planning.

29. Strategic analysis boosts organisational effectiveness Strategic analysis helps to: Anticipate what might happen Evaluate how likely it is to happen Prepare for it happening Strategic analysis will lead to clearer more relevant goals, better quality decisions, and a more secure future as you are better prepared for what will happen. Otherwise known as "external environmental analysis" it is a key step in strategic planning. It is the link between getting your overall direction right and making the right decisions. You will make better decisions if you understand the influences from the outside world to which you might have to respond in the future. Many funders are reassured by strategic analysis because they know that organisations that are well prepared for their future are more likely to use grants, donations and loans to greatest advantage and to maximise the difference their organisation makes. The cost of not doing at least a small amount of strategic analysis means missed opportunities (some call this 'opportunity cost' - the cost of not doing something). If you don't do strategic analysis you risk being left behind, missing opportunities for beneficiaries.