Introduction to Business Concepts

Unit 3: Strategy Prepared by: Lecturer, Ouch Phanhavisoth

Strategy
1.

What is strategy?
Strategy is the direction and scope of an organization over the long-term: - To achieves advantage for the organization through its configuration of resources within a challenging environment - To meet the needs of markets - To fulfill stakeholder expectations

Vision, Strategy, Planning and Tactics

Vision: - What you want the organization to be; your dream. - A vision must be sufficiently clear and concise that everyone in the organization understands it and can buy into it with passion.

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Strategy - What you are going to do to achieve your vision - Your strategy is one or more plans that you will use to achieve your vision.

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Planning - Is the process of thinking about and organizing the activities required to achieve a desired goal. - Planning is the conscious, systematic process of making decisions about goals and activities that an individual, group, work unit, or organization will pursue in the future.

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Tactics - How you will achieve your strategy and when - Your tactics are the specific actions, sequences of actions, and schedules you will use to fulfill your strategy.

The basic planning process

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Step 1: Situational Analysis
Example: Clothes shop - What kind of clothes should I sell? - Where can I establish my business? - who will buy my clothes?

Step 2: Alternative Goals and Plans

- I will sell adult clothes or kid clothes? - I will go and get the clothes in Thailand or China? - How can I achieve my goals?

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Step 3: Goal and Plan Evaluation - If I sell adult clothes, will there be buyers or if I sell kid clothes, will there be customers according to my situation? - If I go to gather the clothes in Thailand or China, what will be the cost and quality from those two countries? - If I face any risks, how will I solve it?

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Step 4: Goal and Plan Selection - I will sell adult clothes - I will go to China - I will ask my father for help if I face any risks Step 5: Implementation The owner has selected the goals and plans, he/she must implement the plans designed to achieve the goals.

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Step 6: Monitor and Control - Income statement - Lost and profit account - Should I continue or dis-continue? - Should I keep my business the same or update it or completely change my business?

Strategic Management Process

Step 1: Establishment of Mission, Vision, and Strategic Goals Step 2: Analysis of External Environment/PESTLE Analysis Step 3: Analysis of Internal Environment Step 4: SWOT Analysis Step 5: Strategy Implementation Step 6: Strategic Control

Step 1: Establishment of Mission, Vision, and Strategic Goals

Step 2: Analysis of External Environment/PESTLE Analysis

describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Theyre included:
1.Political:

factors are how and to what degree a government intervenes in the economy. 2.Economic: factors include economic growth, interest rates, exchange rates and the inflation rate. 3.Social: factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety.

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4. Technological: factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. 5. Environmental: factors include ecological and environmental aspects such as weather, climate, and climate change. 6. Legal: factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law.

Step 3: Analysis of Internal Environment

The internal business environment has a direct impact on the business such as the Company Structure, Culture, Resources, Financial Analysis, Marketing Research, HRM and Competencies.

1. Company Structure

2. Culture
The

culture of internal business environment is a collection of beliefs, values and assumptions shared by members of an organization, which is often taken for granted.

3. Resource
Company Resources are Profitability, sales, product quality brand associations, existing overall brand, relative cost of this new product, employee capability.

4. Financial Analysis
Examines financial strengths and weaknesses through financial statements such as a balance sheet and an income statement or profit and lost account.

5. Marketing Research

While it applies to a wide range of situations, marketing research gives decision-makers the information they need to find solutions to business problems, such as the following:

1. How satisfied are customers with your product and service offering? 2. How will customers react to a decision to change a price or product? 3. What are service representatives hearing from customers? 4. What responses to competition will bring you success in a given market?

Simply put, the solution to most business problems can be found through marketing research.

6. Human Resource Management

Examines strengths and weakness of all levels of management and employees and focuses on key human resources activities, including recruitment, Selection, Placement, Training and development, relationship, and quality of work.

7.Competencies
The next last of internal business environment is Identifying resources and competencies that your company owns. It can be tangible (i.e. financial), intangible (i.e. reputation) or human (i.e. skills & knowledge).

Step 4: SWOT Analysis

SWOT analysis (alternately SWOT Matrix) is a structured planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture.

Step 5: Strategy Implementation

As with any plan, formulating the appropriate strategy is not enough. Strategic managers also must ensure that the new strategies are implemented effectively and efficiently.

Step 6: Strategic Control

The final component of the strategic management process is strategic control. A Strategic Control System is designed to support managers in evaluating the organizations progress with its strategy and, when discrepancies exist, taking corrective action

Five Forces Model

Five forces interact with one another to determine the setting in which companies compete and, hence, the attractiveness of the industry: 1.Rivalry among companies in the industry 2.Bargaining power of suppliers 3.Bargaining power of buyers 4.Threat of new entrants 5.Threat of substitute products or services

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Rivalry among existing firms

Strongest

of the five forces Industry is more attractive when: 1. Number of competitors is small or low 2. Competitors are not similar in size or capacity 3. Industry is growing fast 4. Opportunity to sell a differentiated Produce or service exists

Bargaining Power of Suppliers

The

greater the leverage of suppliers, the less attractive the industry. Industry is more attractive when: 1. Many suppliers sell a commodity product 2. Switching costs are available 3. Items account for a small portion of the cost of finished products

Bargaining power of buyers

Buyers

influence is high when number of customers is small and cost of switching to a competitors product is high or a lot. Industry is more attractive when:
1. Customers switching costs are low or a few 2. Number of buyers is large 3. Customers want differentiated products 4. Customers find it difficult to collect information for comparing suppliers 5. Items account for a small portion of customers finished products

Threat of New Entrants

The larger the pool of potential new entrants, the less attractive an industry is. Industry is more attractive to new entrants when: 1. Advantages of economies of scale are absent. 2. Capital requirements to enter are high 3. Buyers are loyal to existing brands 4. Governments business requirements are restricted to the entrance of new companies

Threat of Substitutes

Substitute products or services can turn an industry on its head. Industry is more attractive to new entrants when: 1. Quality substitutes are not readily available 2. Prices of substitute products are not significantly lower than those of the industrys products 3. Buyers switching costs are low