The micro-, market and macro-environment

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Chapter 5

• The micro-, market and macro-environment

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Techniques used for gathering data in 3 env

• Resource based - micro
• Value chain analysis - micro
• SWOT - all 3
• Environmental scan - external env
• Porters five forces field - external env
• PESTLE - external env

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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)

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• 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

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Micro-environment

• Vision stmt
• Dream of the buss
• Inspires and remind stakeholders what is
  important
• Must be easily understood
• Ambitious

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• 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

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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

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Strategy

• Based on competitive advantage that was
  identified when analysing the environments

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Structure of the buss

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

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Take into account the following when deciding on
org structure

• Range of control
• Ability to delegate
• Authority
• Responsibility
• accountability

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LINE ORGANISATION
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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

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LINE AND STAFF ORGANISATIONAL STRUCTURE
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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

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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

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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.

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FUNCTIONAL STRUCTURE

• Specialized staff with authority in their own
  departments
• Workers have the benefit of specialized direction
• Advice is available from other experts

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FUNCTIONAL STRUCTURE
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PROJECT ORGANISATIONAL STRUCTURE
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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

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Matrix

• Projects move between specialist departments
• Staff members not transferred back to original
  depts
• Improves productivity
• More permanent structure

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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

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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

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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

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Resources in the buss

• Physical resources - assets, financial resources
• Also knowledge
• Knowledge human capital
• Line managers must make sure that valuable staff
  are retained

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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

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• 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

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Market environment

• When investigating the market environment,
  Porters Five Forces Model is used
• Level of rivalry in the market
• Availability of substitute products
• Threat of new entrants into the market
• Power of suppliers
• Power of buyers

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• 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

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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

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• 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

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

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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
• Barriers
• Brand loyalty
• Govt policies (BEE)
• Huge capital outlays
• Ltd distribution channels

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

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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-out
• Loss of production
• Idle time of machinery
• Difficult to negotiate discounts
• Loose customer goodwill
• What about labour suppliers (strike)?

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The buyer

• Buyer is more than final consumer
• Include intermediaries (agents, wholesalers etc)
• Control intermediaries
• Sole agency
• Sole right to sell in a specific area
• Wholesaler gets commission
• Wholesaler agrees to sell at prescribed price and
  not to sell similar goods

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• Contract system (price binding)
• Manufacturer offers a discount to retailer, but
  has to sell at prescribed price
• Not honoured, dealer is blacklisted

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• Financial control
• Dealer gets fin assistance
• Manufacturer gains control over dealer force him
  to sell only his goods
• Petrol companies help garages selling their brands

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• 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.

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Macro (External) Environment

• Increasing globalisation, technological advances
  makes macro env exciting and volatile
• Events in macro-env occur in 2 ways
• Trends - predictable
• - buss can plan for them
• - impact difficult to predict
• - technological change , labour
  developments etc

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• Crisis - unexpected, unplanned
• - throw buss into unstable situation
• - natural disasters, war
• - labour strikes, diseases

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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)

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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

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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

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• 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
• Implement
• Monitor and control of strategy

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PESTLE Analysis (very NB)

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

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Extension of PESTLE analysis

• Depending on type of buss, some buss may use
  PESTLE where
• physical environment (mining)
• ethical environment (p64)

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Activity

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

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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

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• 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)

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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)

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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

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• Insurance cos use this to assess your risk
  profile
• Factory would do risk assessment for occurrences
  such as fire, flood, labour unrest etc

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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

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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

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• 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

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Decision tree
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Micro-, market and macro-environment

• External env - ever changing demands that are out
  of buss control
• Internal env - within control of management