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

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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.

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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

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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.

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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

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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)