Chapter 5

The micro-, market and macro-environment

Techniques used for gathering data in 3 env

Resource based - micro Value chain analysis - micro SWOT - all 3 Environmental scan - external env Porter’s five forces field - external

env PESTLE - external

env

Sectors in macro-env Primary

Extraction of raw material from nature Farming, mining, forestry

Secondary

Process raw materials into finished or semi-finished goods

Tertiary

Where goods are sold Include various services (banking, insurance, transport

etc)

Consumer goods

Convenience goods - bread, milk etc Shopping goods - shoes,

clothing Speciality goods - cars Industrial goods - to make

something else Services - transport,

insurance, grading, storage

Micro-environment

Vision stmt• Dream of the buss• Inspires and remind stakeholders

what is important• Must be easily understood• Ambitious

Mission stmt

• Describes buss customers• Major products or services• Differentiating qualities• Social responsibility• Environmental concerns

Also deals with values of buss ie

Honesty, integrity, transparency, innovation

Starting point for all major strategic initiatives

Long term objectives

Must be measurable Compare actual performance against the

objectives- Includes- Improving POI- Keeping costs low- Maintain or improve market share- Employee development- Public and social responsibility elements

Strategy

Based on competitive advantage that was identified when analysing the environments

Structure of the buss

Way in which labour, authority, responsibility and other resources are organised to make sure they all work together

Take into account the following when deciding on org structure

Range of control Ability to delegate Authority Responsibility accountability

LINE ORGANISATION

LINE ORGANISATION - CHARACTERISTICS

Supervisors make all the decisions and give all the instructions

Instructions received from the person immediately superior

Only one person gives the orders

LINE AND STAFF ORGANISATIONAL STRUCTURE

LINE AND STAFF ORGANISATIONAL STRUCTURE

Line authority – right to command Staff authority – right to give advice Incorporates functional managers and

consultants/ advisors Managers give order, advisors give

advice. Line and staff personnel work closely

together

ADVANTAGES

Easy to understand Only one manager giving instructions

within a department Manager assisted by advisors Greater specialization Span of control is limited Greater division of labour Quicker decision making

DISADVANTAGES

More complex structure Some experts know more than their

superiors Channels of communication can be

distorted Advice can be too theoretical Advisors are expensive Managers can become too dependent on

their advisors.

FUNCTIONAL STRUCTURE

Specialized staff with authority in their own departments

Workers have the benefit of specialized direction

Advice is available from other experts

FUNCTIONAL STRUCTURE

PROJECT ORGANISATIONAL STRUCTURE

PROJECT ORGANISATIONAL STRUCTURE

Specialists from various departments are brought together fro a specific project

Temporary structure for the duration for the project

Structure dissolved once the project has been completed

Disadvantage - same team seldom work on same projects

Difficult to get to know each other

Matrix

Projects move between specialist departments

Staff members not transferred back to original depts

Improves productivity More permanent structure

Strategic Buss Units (SBU) Buss establish buss units according to products

or geographical regions If there are different buss units, management

must make sure units have same strategies which may include IT or product strategies

Virgin - brand image amongst all units Main adv - unlocks value in the supply

chain and helps to build a competitive adv based on co-operation

Individual buss are worth far more in the CORPORATE structure than if they were independent

Networking or virtual structures

With use of technology, units operate across traditional buss units and often across regional boundaries

Require fewer middle managers because they are flatter and leaner structures

Culture of the buss

Values or attitudes that is shared in the buss

These shared values motivate people to act in a certain manner

Can be changed if it is not in line with the strategy of the buss

Difficult, time consuming process

Resources in the buss

Physical resources - assets, financial resources

Also knowledge Knowledge – human capital Line managers must make sure that

valuable staff are retained

Functions in buss

General manager must ensure there is co-ordination between the activities that make up the auxiliary functions of the buss

Purchasing Production Marketing Financial Administrative Personnel Public relations

Functional managers plus every employee must be aware of buss objectives

Internal co-operation is critical Must have an understanding of how

they are going to work together

Market environment

When investigating the market environment, Porters Five Forces Model is used:

1. Level of rivalry in the market

2. Availability of substitute products

3. Threat of new entrants into the market

4. Power of suppliers

5. Power of buyers

Other models add in Trade unions

Model the buss use is not important, but rather that the buss scans the environment to pre-empt events

Level of rivalry

Porter separates competition from substitute products (look at them together)

Competitors may be more than people selling the same product

Who will be the competitors of Simba Chips?

Lays, Willards - Chip suppliers Snack mixes like peanuts, rice cakes,

biscuits, popcorn

Buss must find out as much as possible about competitor

Include: Ownership structures Location Financial performance (where?) Products, including patents, quality,

brand loyalty, new products, market share, promotion strategies, distribution channels,

Organisational culture and oral

Is it legal ? (ethical?) Doing a competitor profile is not illegal Get to know your enemy Also look at future competitive threats

Threat of a new entrant The greater the opportunity for profits, the

more likely a new entrant will enter the market

Also true if there is not enough suppliers to meet demand

Threat diminished if certain barriers

Barriers1. Brand loyalty2. Govt policies (BEE)3. Huge capital outlays4. Ltd distribution channels

Barriers to the adv of existing com, but makes it difficult for the buss should we like to branch out

Power of suppliers

Raw materials or products to be sold The right quality and the right quantity at the right

time at a reasonable price

Costs involved if buss has a stock-out1. Loss of production2. Idle time of machinery3. Difficult to negotiate discounts4. Loose customer goodwill

What about labour suppliers (strike)?

The buyer

Buyer is more than final consumer Include intermediaries (agents,

wholesalers etc) Control intermediaries

Sole agency1. Sole right to sell in a specific area2. Wholesaler gets commission3. Wholesaler agrees to sell at prescribed

price and not to sell similar goods

Contract system (price binding)

1. Manufacturer offers a discount to retailer, but has to sell at prescribed price

2. Not honoured, dealer is blacklisted

Financial control

1. Dealer gets fin assistance2. Manufacturer gains control over

dealer force him to sell only his goods

3. Petrol companies help garages selling their brands

Buss sells to final consumer, must know who customers are

Geographic profile :Age, gender, income etc Lifestyle criteria : Hobbies, religion, cultural

etc

Liquor Store scenario

Distribution channels on pg 99.

Macro (External) Environment

Increasing globalisation, technological advances makes macro env exciting and volatile

Events in macro-env occur in 2 ways

1. Trends - predictable- buss can plan for them- impact difficult to predict- technological change

, labour developments etc

2. Crisis - unexpected, unplanned

- throw buss intounstable situation

- natural disasters, war

- labour strikes, diseases

Strategies as tools

Strategy - specific plan of action, formulated to set in motion the effective use of resources with the aim of achieving the org objectives

Without strategy Haphazard decision making Ineffective use of resources Frustrated employees (not knowing what to

expect etc)

Advantages of strategy

Gives direction to buss Ensures consistent decision making Differentiates management roles and

areas of responsibility Puts buss and role in the broader eco

in perspective Anticipates change in internal and

external env

Steps in implementing a management strategy (x8)

Define buss mission, vision and objectives

Analyse the different env in detail using a SWOT analysis for micro and marker env and a PESTLE analysis for macro env

Identify strategic options available

Issues to consider - ROI

- Financial and physical risk- potential for buss growth- image of buss- effect on ownership and control- political and social issues

Evaluate and analyse the viability of each option ( in order of priority)

Plan the implementation of the chosen strategy

ImplementMonitor and control of strategy

PESTLE Analysis (very NB)

P - Political factors E - Economic factors S - Social factors T - Technological factors L - Legal factors E - Ethical factors

Extension of PESTLE analysis

Depending on type of buss, some buss may use PESTLE where

* physical environment (mining) * ethical environment (p64)

Activity

Considering the Vision of Mr Price, conduct a PESTLE analysis for the business.

Events in external environment

Pre-empt what is going to happen, plan ahead

Environmental scanning -keeping a watchful eye on the economy that might affect your buss

NB to watch competitors

Competitors - what they do may give them edge or give good indication what not to do

Similar industries may also give clues Developing eco look at other

developing nations Seasonal or occasional trends – load

shedding (devise better strategies)

Crisis in external environment

Crisis management part of every happenings in buss

Always unforeseen circumstances Must have contingency plan to cope with

happenings

2 Strategies to cope with crisis management A. risk management assessment strategy B. decision tree strategy Very complex (serve only as an introduction)

Risk management assessment strategy Quantifying possible risks is not an

exact science, but pre-deciding “what would happen if” is a good idea

Use this to assess potential physical or health risks, put plans is lace

Occupational Health and Safety Act No 85 of 1993

Employers must take precautions for all possible risks

Insurance co’s use this to assess your risk profile

Factory would do risk assessment for occurrences such as fire, flood, labour unrest etc

Risk assessment plan Who would be in charge in an emergency? Critical duties (demarcation of safe areas,

media liaison, crowd control etc Emergency equipment such as spare

phones, radios etc Escape routes and procedures Workers must be trained in emergency

procedures

Decision tree

Used to graphically compare different options available when making a decision

Aim - Promote rational decision making and clarify available options

Benefit - each decision option is quantified, so each decision process can be calculated and a value is reached which shows the probability of success of each option

Simpler version is used for risk management

Scenarios are brainstormed with decisions noted

Case of a crisis, decision tree is used to apply to a specific situation

Because possibilities were analysed in a calm way when there was no crisis, it eliminates the possibility of overlooking an important option

Decision tree

Micro-, market and macro-environment

External env - ever changing demands that are out of buss control

Internal env - within control of management