Chapter ii day 2 of 11th jan 2015

Managing Organization ABE Graduate Diploma (QCF Level -6)

Prepared & Presented

by

Pyi Kyaw Lynn

B.A (English), Yangon University

M.B.A (Finance), Assumption University of Thailand

11/1/2015 PKL 1

CHAPTER [II]

11/1/2015 PKL 2

THE CONTEXT OF ORGANIZATION

Analyzing the environment

TODAY’S AGENDA

A. The Organization in its Environment

B. The General External Environment

C. The Specific External Environment

D. The Internal Environment

E. Conduction an Environmental Analysis

Introduction

11/1/2015 PKL 3

Introduction to the module

An organization affected by the environment > in which it operates.

Type of organizations defined by > the resources, culture, nature of product or service, management capacity.

Environment not only physical surrounding > but also economic, social, legal, political, technological

There are major environment forces and impactsinfluencing organizations

A. The Organization In Its Environment

11/1/2015 PKL 4

• Nature of Environments by Johnson & Scholes

- Its Dynamic

Stable

Unstable

- Its Complexity

In –depth knowledge

Interrelated environmental factors.e.g., fuel price & exchange rates

Influences [the greater the no of influences, the more complex]

• Classifying the Environment

- At the Centre

Resources

Employees

Porducts

Technology

Can be controlled & determined !!

- Specic external

Cann’t be directly controled

- General external

Out of control

by management

The Environmental Context of Organizations

11/1/2015 PKL 5

Org

Customers

Suppliers

Middlemen

Shareholders

Employees

Banks

11/1/2015 6PKL

The Environmental Context of Organizations

[B] THE GENERAL EXTERNAL ENVIRONMENT [PESTL]

11/1/2015 PKL 7

POLITICAL/LEGAL• legal & regulatory framework• changes in legislation• taxation & labor laws• environmental law• health & safety regulations• economic policy• labor boycotts

ECONOMIC• market, land, labor & capital • interests & exchange rates • level of demand & supply •inflation & unemployment rate• GDP & GNP• purchasing power• Budget surplus & deficit

TECHNOLOGICAL• technological change• adoption of new technology• e-commerce• telecommunication• MIS application• Data base system• computerization & IT

SOCIAL• population demographic • low birth-rates• distribution of income• change in lifestyles• ethnic structure of an area• employment pattern changes• education & health• cultural environment

Cultural Environment

11/1/2015 PKL 8

Highlight people’s > beliefs & values, behavior & thought patterns.

Visible sign of culture style of dress, adoption of rituals, ceremonies

Globalization create huge variations in national and regional values & beliefs. E.g., a trend of (Western Culture) to become established as an international norm.

In 1980 Professor Geert Hofstede identify 4 dimensions of common culture > in different countries > including Europe, U.S, Far East, Australia, South America and UK > excluding Middle East, Africa, Caribbean.

Knowledge of a culture of a society important to organizations.

Product or service fit to the culture of a society ??

E.g., Refrigerator sales in Saudi

11/1/2015 PKL 9

Dimension of Cultural Environment

11/1/2015 PKL 10

4 Dimensions of Cultural Environment

11/1/2015 PKL 11

Power Distance HighFrance, Latin America countries

LowGermanyItalyUKUSAus

Level of inequalities High or Low ?? High power distance Autocratic leadership style Leaders /Manager decides for

action subordinates just follow. Low power distance Participative leadership style

Power distance

UncertaintyAvoidance

IndividualismCollectivism

Masculinity/Femininity

2nd Dimension of Cultural Environment

11/1/2015 PKL 12

Uncertainty Avoidance

Level of risk taking High or Low ? Some societies prefer clear cut order & feel

threatened by unusual situations

Other societies are prepared to take risks & innovation.

Low Holland Scandinavian countries USUKCanada Australia

HighFrance Germany Latin America countries

3rd Dimension of Cultural Environment

11/1/2015 PKL 13

Individualism/Collectivism

Some societies stress importance on individual performance [bonuses].

They care for themselves & immediate family.

E.g. capitalism Some societies stress on collectivist culture E.g. team working.

HighUSUKFrance Spain

Low Portugal Hong Kong IndiaGreece

4th Dimension of Cultural Environment

11/1/2015 PKL 14

Masculinity/Femininity

“Masculine” characteristics assertiveness competitiveness status achievement. “ Feminine trait” sharing & caring sympathy & service value for quality of life

HighUS, UKItaly

Germany Japan

LowHolland Scandinavian countries

4th Dimension of Cultural Environment

11/1/2015 PKL 15

Technological Environment

11/1/2015 PKL 16

Technological change

Technology atmosphere Complex & dynamicDifficult to predict & plan

ahead for organizations. Change in production or

working methods. E.g., robots Effects of new tech on staffing automation instead of manual workers. Change in communication

PCs networking, videoconferencing technology. New technology create new

products create new markets. E.g., ???.

Computerization & IT

Technology change the way Goods & Services are deliveredOnline shopping & payment

systems [credit cards, ATMs]Database application

[ MIS, ERP, A/C packages].Decision support systems.

E.g., payment history of customers to access credit worthy. Internet & email .Create virtual office rather

than traditional offices, enabling flexible working patterns.

• Improve productivity

or reduce costs.• Improve the way

service is delivered.

Current Trends : Globalization & Ecommerce

11/1/2015 PKL 17

Impact of Globalization

MNCs dominate world market with global scales.

Advanced communication systems, reduction in trade barriers

Growth in international financing > expansion of MNCs.

Sourcing materials from world markets. E.g,.tender

Exposures of language & management skills

Employees get new experiences from diverse cultural and methods.

E- Commerce

Fastest development system of commerce.

No matter the size of organization> one employee even can trade online via a website.

No respecter of boundaries. E.g., no tax and restrictions.

All information not reliable Economic – Low set up costs

for a web page. Deliver access – reservations

via internet by clients. Security risks – hackers and

viruses.

Impacts

On

organizations

[C] THE SPECIFIF EXTERNAL ENVIRONMENT

11/1/2015 PKL 18

Organizations cannot control external environment > need to responsive > for changes of factors in the environment.

External environment comprise sourcing markets > from which raw materials, labor, financing obtain. customer markets > into which goods & services flow.

The interactions with market forces great effect upon > the success & effectiveness of organizations.

Customer Analysis

Supplier Analysis

Competition Analysis

http://www.mindtools.com/pages/article/newTMC_08.htm

http://www.quickmba.com/strategy/porter.shtml

Michael Porter’s 5 Forces Model

11/1/2015 PKL 19

Threat of new entrants

Suppliers Power

Buyers Power

Threat of SubstitutesProducts

Customer Analysis

11/1/2015 PKL 20

Organization to understand customer base > what they need ??

Key elements of any customer [existing & potential]analysis :

Demographic characteristics : age, gender, class, wealth, ethnicity.

Relationship with product: products types , order size ,frequency.

Size of customer base : growing , stable or in decline ??

Relationship with customer: attitude towards the biz & satisfaction level.

Bargaining power of customers dependent on > availability of alternatives > switching cost to other products > the importance of the product to the customer > the importance of customer to the supplier.

The fewer the powerful buyers you have > the more powerful they are. [They are able to dictate /determine terms to you].

Customer includes partners in the supply chain. E.g., retailers.

In UK The largest indirect customer of food industries > supermarkets.

Supplier Analysis

11/1/2015 PKL 21

• Organizations need to focus not only customers, but also suppliers in the supply chain process. Suppliers crucial in > JIT production & quality management.

• The bargaining power of suppliersmajor force > meaning that > they can control conditions of supply > price, quality & volume, availability, etc.

• Factors need to be considered whether > the supplier is in a position of charging monopoly prices, any substitutes for the product, the importance of the supplier’s product to the customer, the switching cost to a new supplier.

• Suppliers concentration The fewer the supplier choices you have > the more you need suppliers' help > the more powerful your suppliers are.

Michael Porter’s Competition Analysis

11/1/2015 PKL 22

Competition the most significant forces > organizations face.

Organizations compete regardless of types > private or public.

5 forces influencing competition in any industry.

The treat of new entrants to the industry.

The bargaining power of customers.

The bargaining power of suppliers.

The availability of substitute products.

Rivalry amongst current competitors.

Michael Porter’s Five Forces Within Industry

11/1/2015 PKL 23

Michael Porter’s Five Forces

11/1/2015 PKL 24

New Entrants to the Industry

11/1/2015 PKL 25

New entrants have to overcome barriers to obtain market share [break market] as follows.

Capital requirement new entrant require capital > high capital > high risk > strong barrier. E.g. high start up & marketing costs to compete with established markets to set up brand image.

Economies of scale the bigger the size > the lower the average costs > less immediate benefits of new entrants compared to established one.

Technology & Patents time and costs of entry knowledge & government policies.

Established brand image customer loyalty for established products & strong product differentiation > difficult to break into the market.

Switching costs Banking , health care & telecommunication services > once subscribed, users sign a long term contract with high cancellation fees > a high switching cost/time to competitor’s products.

Access to distribution channel A barrier to the new entrants.

11/1/2015 PKL 26

Buyer is powerful when:

Buyer purchases large proportion of seller’s products [Buyer market]

Buyer concentration: a few high-volume buyers & very concentrated gain bargaining power

Alternative suppliers are plentiful

Very little switching costs for changing suppliers

The product’s importance to the buyer, the lower the importance, the higher the bargaining power of buyer.

Supplier is powerful when:

Supplier industry is dominated by a few companies but sells to many different industries.

[supplier market]

Its product is unique or the switching costs of supplier is high

Substitutes are not readily available

Purchasing industry buy only a small portion of supplier’s goods.

Bargaining Power of Buyers

Bargaining Power of Suppliers

11/1/2015 PKL 27

Substitute mean : alternative product or service or same product or service from another source.

Substitute products : appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on biz or industry.

E.g., A tennis club may face with competition form a leisure center offering the same tennis facilities.

E.g., Plastic bottles are substitutes for aluminum in packaging industry.

The intensity of rivalry in an industry affect the profitability of the industry

Rivalry intensified when the market is stagnant or slow growth

Competition is encouraged when buyers can easily switch from one supplier to another. [low switching cost]

If exit cost are high, switching out of the industry is difficult, forcing companies to remain in a industry [if not very profitable]

Intense rivalry related to : no of competitors, industry growth rate, amount of fixed costs, height of exit barriers, little product differentiation

Availability of SubstituteProducts

Rivalry Among CurrentCompetitors

Michael Porter’s Five Forces Model

11/1/2015 PKL 28

Nike’s example

11/1/2015 PKL 29

Five Forces Analysis Of The Mobile Service Industry

11/1/2015 PKL 30

Five Forces Score Rationale

Rivalry among current competitors

Rivalry is high leading to high customer: unfavorable

Services are differentiated through new features , customer switching costs are low

Threat of new entrants

Threat of new entrants is low: moderately favorable

New service providers must purchase a bandwidth license by spending billions of $.

Supplier power Supplier power is high:moderately unfavorable

Government have raised the price of additional bandwidth through auctions.

Buyer power Buyer power is low: very favorable

Even large customers have little power to set terms & conditions in this oligopolistic industry

Threat of substitutes

Threat of substitutes is high: moderately unfavorable

WiFi networks to access the internet could challenge the 3G network of mobile phones.

[D] THE INTERNAL ENVIRONMENT

11/1/2015 PKL 31

Structure

& CultureResults

Returns to Stakehold

ersSystems

InternalEnviron

ment

Products&Services

Resources

Situation or Position Audit Analysis of Internal Environment

Resources

11/1/2015 PKL 32

Human resources workforce size , skills, labor costs, labor turnover rates, industrial relations, Org structure & management style, training & development

Physical resources materials where & how much? Suppliers who ? Wastage levels what ? Any alternative suppliers & materials ?? Fixed assets what ? Technology outdated or advanced?

Financial resources working capital how much? Debt ratio ? Credit policy? Financing sources? Deposit/Landing rate at the bank?

Intangibles Goodwill, Brand image, Corporate image, Trademarks & Patents protected ?? Reputation being exploited ??

Systems : Production system equipments & methods used ? Control system > procedures & practices ??Quality systems > TQM methods ? Six sigma??

Competences : Core competences > hybrid of experiences & talents of individuals. Distinctive competence something that cannot be replicated or imitated. Is there Competitive advantage over competitors ??

The Internal Environment [Cont’d]

11/1/2015 PKL 33

Products : Goods & Services• The stage of product life cycle, the market share, total size of current market & potential of new entrants, marketing capacity

The Internal Organization : Structure, Culture, Authority , Systems,

Results : Performance Indicators, Financial Reports, Performance Appraisals [HR], Survey Reports e.g., customer satisfaction, Customer Complaints e.g., after sales service. [Qualitative & Quantitative ]

[E] Conducting an Environmental Analysis

11/1/2015 PKL 34

FORECASTING : To reduce uncertainty

Dependent variable = f (independent variables) Sales = f ( price, advertisings, promotions, time)

Time series techniques : extrapolation, exponential smoothing Casual techniques : Regression & correlation methods. Cross –impact analysis : identification of key trends Demand/Hazard forecasting : identification of major events

Suitable for dynamic & unpredictable situations & for a single industry.

Developing Models

Forecasting Models

Scenario Building

Judged & analyzed by the best people. Delphi model, Jury method, Advisory committee, Consultant

firms, External agencies. Issues : opinions not fact and expensive services charges.

Subjective Techniques

SWOT ANALYSIS

11/1/2015 PKL 35

Strengths Distinctive competencies over

rivals. Present market position, size,

structure, managerial expertise, resources, staffing, image or reputation & goodwill

Weaknesses Deficiencies to be minimized in

the competencies. Running in a narrow market,

outdated technology, high fixed costs, bureaucratic structure, customer complaints, shortage of capable staffs

Opportunities Favorable conditions arise

from changes in environment. New markets, technology

advances, failure of rivals, improved in economic factors.

Threats Unwanted situations likely to

effect the operations of the firms. Changes in legislation, new

products from rivals, political unrest, change in customer needs & wants.

SWOT [Cont’d]

11/1/2015 PKL 36

Inward looking appraisal

Strengths to be exploited by suitable strategies.

Weaknesses to be minimized . Factors to audit positions All

stakeholders , skills & expertise of management & stuffs, responsiveness to change, access to resources [capital & labors, raw],market position.

To be compared with industry standards, competitors, government regulations.

Outward looking analysis

Opportunities to be identified from environmental changes and exploited by strengths.

To review the potential of the opportunities & to maximize the potential of the opportunity with its strengths.

Threats to anticipate economic conditions, government policies, technological advances, competitors 'activities. E.g., increase in provisions for bad debts by banks in economic downturn.

Strengths & Weaknesses Opportunities & Threats

11/1/2015 PKL 37

The established brand in the globe

The biggest shares in the beverage market (over 45 %).

Unparallel advertising strategies by sponsoring of world cups , English premier leagues

Customers’ loyalty to coca cola

Focuses on the carbonated drinks which are likely to be ignored by consumers due to health issues.

Not diversified, focuses on production of beverage products only

Increasing annual demand of beverages in the US & others developing countries.

Taking advantage of setting up new factories with relatively low labor costs in those countries.

Reduction of consumption of carbonated drinks

Pure water scarcity in the near future

Competition from other emerging beverage companies

W

TO

S

Comparative Analysis

11/1/2015 PKL 38

Objectives

To access efficiency & effectiveness of internal environment.

E.g., management practices & allocation of resources.

To compare results & performances.

To explore the possibilities of market entry in new territories

Comparison Bases

Historical – results to compare with historical data

Competitors - to make comparisons of suppliers & clients.

Industry norms – to compare with standards in industry.

Best practice - to compare with competitors’ practices

Stakeholder Analysis

11/1/2015 PKL 39

A further Approach : Analyzing environment in terms of the relationship between the organization and its stakeholders.

The approach recognize : biz can make strategic gains by recognizing stakeholder interests

Stakeholders : employees, shareholders, customers, suppliers, financiers, local authorities, the government, the community & professional bodies.

Potential of Conflict of Interests : between stakeholders

Stakeholder approach Relevant to non-profit making organizations or charitable bodies where social interests far outweigh financial ones.

Industry Growth Rate by Forbes

11/1/2015 PKL 40

Source : http://www.forbes.com/sites/sageworks/2012/12/31/in-2013-check-out-these-fast-growing-industries/

11/1/2015 PKL 41

Thank You !

Q & A !!

1. Organizations often use a SWOT analysis to help them conduct an environment analysis. Assess the advantages and disadvantages of SWOT analysis. [10 marks]

Identify and appraise TWO alternatives to a SWOT analysis that could be used for an environmental analysis. [10 marks]

2. Explain the contribution a “SWOT” analysis can make to organizational performance. [10 marks]

Discuss how far, if at all, companies should abandon profit maximization to pursue their corporate social responsibilities. [15 marks]

3. Companies gain competitive advantage over their rivals by combining their resources in such a way that they can sustain above-average profitability in their chosen markets.

Analyze how companies can gain competitive advantage over their rivals.[10 marks]

11/1/2015 42PKL

4. Making sense of the external environment in which their company operates is vital for successful resource allocation decisions by managers.

With the aid of examples, examine how PEST analysis can affect the way a company organizes its resources. [10 marks]

5. It has been suggested that the SWOT model offers no practical assistance with the task of translating its findings into behavior that will improve organizational effectiveness. Discuss this statement .

[25 marks]

6. Environmental analysis is an important area for all organizations. The “SWOT” concept is often used by organizations to help them decide on strategic decisions.

Explain and evaluate “SWOT” analysis. Use relevant theory & examples from the workplace to support your answer. [20 marks]

11/1/2015 43PKL

7. Various frameworks, such as “PESTLE”, can be sued to analyze the macro environment of an organization.

Select an organization or industry to provide the context of your answer. Analyze the macro environment of your chosen organization or industry using a framework such as “PESTLE” [20 marks]

8. Organizations need to analyze their internal environment. Identify five key areas an organization would need to consider when analyzing this environment and explain the process they could adopt. [20 marks]

9. You are the manager of a medium – sized manufacturing organization. The organization is being threatened by increased competition.

Using Michael Porter’s Five Forces Framework” theory or any other relevant theory, discuss the external forces that will influence how this organization will prepare itself for, and react to, the competition it encounters. [20 marks]

11/1/2015 44PKL