Environments & Strategies

• Micro, Market and Macro Environment

  Levels of control that a business has over its environment
• Environmental Scanning

  Process of identifying threats before they are imminent, identifying possible opportunities and gaps in the market, and keeping track of competitors
• Environmental Scanning

  Done BEFORE business is started and DURING running of business
• What we look at BEFORE starting a business

  • Viability of product
  • Strength of competitors
  • Size of potential market to allow new player in industry
  • Stability of resources such as suppliers, financiers, staff, premises and investors
• Elements of the Micro Environment

  • Vision, Mission, Goals, Objectives
  • Organisational Culture
  • Organisational Resources
  • Management and Leadership
  • Organisational Structure
  • Eight business functions
• Techniques/Tools used in the Micro Environment

  • SWOT Analysis
  • Resource Based Approach
  • Value Chain Analysis
  • Balanced Scorecard
• Elements of the Market Environment

  • Customers
  • Suppliers
  • Competitors
  • Regulators
  • Unions
  • Intermediaries
  • Non-governmental Organisations (NGOs)
  • Community based organisations (CBOs)
  • Strategic Alliances
  • Other Organisations
• Porter's Six Forces Model


  Tool used to scan the Market Environment
• Level of Rivalry


  • A business must know what their competitors are up to
  • Identifying an area where the competitor is successful may be an indicator of a threat to the business
  • Factors to review: size and financial resources of business, market share, quality of products/services, consumer brand loyalty, pricing of products/services, convenience of location and distribution channels, trading hours
  • Strategies to overcome/deal with above factors: customer loyalty programs, reduction of prices, improve quality of service and products
• Threat of new entrants

  • An existing business will see any new entrant as a threat to its market share and profits
  • Strategies to build barriers/prevent new businesses from entering: big retailers negotiating with mall management, registering a patent, spending large sums on advertising and promotions, government imposing tax on imported goods
• Availability of Substitute Products


  • Does NOT refer to another brand, but a different product that satisfies the same need
  • Increasing availability of substitute products generates more indirect competition
• Power of Suppliers


  • Ability of suppliers to dictate prices
  • Critical for business to develop and maintain relations with suppliers
  • No raw material = no sales = no profit
  • No raw material = inefficient use of machinery and labour
  • Stockout = Loss of competitive edge
  • No stock = customer frustration= bad publicity = decrease in sales = decrease in profits
• Power of Buyers


  • Ability of buyers to dictate prices
  • Factors to consider: type of product/service, consumer brand loyalty, price sensitivity, snob-value
• Power of Complementary products


  • Complementary product is where the use of one product is interrelated with the use of another
  • A business can use this to their advantage by having specials on complementary products
• P₂E₂STEL Analysis


  • Political
  • Physical Environment
  • Economic Factors
  • Ethical Factors
  • Social /Socio-Economic factors
  • Technological Factors
  • Environmental factors
  • Legal Environment
• Political Factors


  Likelihood of government interference in economic functioning, political stability, government policies, political ties with other countries
• Physical Environment


  Geographical locations, physical location, weather
• Economic Factors


  Economic growth and development, inflation rates, interest rates, exchange rates, unemployment, taxes
• Ethical Factors


  Difference between ethical and legal, fair trade, corporate social responsibility, employee rights vs business rights
• Social /Socio-Economic factors


  Impact of social trends on economy, businesses and consumer behaviour/lifestyle
• Technological Factors


  Development of social media, automation, advances in online money transfer, online shopping, product innovation
• Environmental factors


  Environmental rules and regulations, global warming, natural disasters
• Legal Environment


  All laws that impact the business, such as labour legislation, consumer protection, environmental laws, white collar crimes
• Strategy


  A very specific plan of action that defines the processes to be used to achieve a desired outcome
• Strategies


  • Used for trends and crises
  • Trend: predictable changes the business can plan for
  • Crises: unexpected and unplanned-for happenings that can throw an economy/industry/business into unstable conditions
  • Advantages: gives direction, ensures consistency, differentiates management roles, anticipates changes
• Corporate Strategies


  • Growth/Intensive Strategies
  • Decline/Defensive Strategies
  • Corporate Combination
• Growth/Intensive Strategies


  Intended to increase market share/turnover/sales volume
• Decline/Defensive Strategies


  • Retrenchment
  • Divestiture
  • Harvesting
  • Liquidation
• Corporate Combination


  Joint Venture, Merger and Takeover
• Generic Strategies


  • Low Cost Strategy
  • Differentiation Strategy
  • Focus Strategy (niche market)
• Low Cost Strategy


  Having the lowest cost in the industry by savings costs
• Differentiation Strategy


  Providing a unique product/service to ensure customer loyalty
• Focus Strategy (niche market)

  All efforts aimed at a specific market segment
• Integration Strategies


  • Forward Vertical Integration
  • Backward Vertical Integration
  • Horizontal Integration
• Forward Vertical Integration


  Business takes over retailer to get rid of the middleman in distribution process
• Backward Vertical Integration


  Business buys out supplier to secure source of raw materials
• Horizontal Integration


  Taking over a competitor
• Other Strategies


  • Revise business mission/and or objectives
  • Allocate resources differently
  • Benchmarking
  • Financial Ratios
  • Performance appraisals (360⁰) and self-evaluation
  • Total Quality Management (TQM)
• Total Quality Management (TQM)


  Process where everyone in business is committed to thinking about how all actions impact on quality of all tasks and overall customer satisfaction
• Quality of product


  Determined by inspections, sampling, and customer feedback