How the Business Environment Is Considered in Strategy Formulation - Essay Example

? BUSINESS STRATEGY Table of Contents Section Analysis of how the business environment is considered in strategy formulation 3 Answer to question 1: 3 Answer to question 2: 4 Answer to question 3: 5 Answer to question 4: 6 Section 2- Process of Strategic Planning 8 Answer to question 1: 8 Section 3 – Approaches to strategy evaluation and selection 11 Answer to question 1: 11 Answer to question 2: 13 Reference 15 Section 1- Analysis of how the business environment is considered in strategy formulation Answer to question 1: Business strategy of a company primarily makes an analysis of its external environment. This seeks to highlight the company’s position in the industry. This includes making an analysis of the competitive position and assessing the capabilities of the company to meet the challenges at present and in future. This includes making an analysis of the company’s political, economic, socio-cultural, technological, environmental and legal issues. Based on this analysis, the company’s strengths, weaknesses, opportunities and threats are determined. The next step in business strategy is to make a customer analysis. This would reveal the changes and tastes and preferences of customers. It would also reveal the changing demographics which would consequently determine the company’s strategies. It would also reveal the customer’s perceptions regarding the services of the company. The customer analysis would determine the price strategies for the company. The competitive analysis would provide insight into the competitors’ weaknesses and strengths. Firms practicing an advanced and systematic competitive profiling remain at an advantage of knowing the competitor’s background, products, finances, facilities, products, markets and strategies. This would give an idea of the expected moves that the competitors would take. Based on this, the company would design its own strategies to have an extra edge over its customers. An internal analysis makes an analysis of the internal environment for the formulation of appropriate strategies. In this regard, the value chain analysis gives highlights on the main and the supportive activities which would add value to the company. The resource based view analyses the competencies and resources of the firm. The firm’s performance would depend on the distinctive capabilities. The company must also make a thorough analysis of its financial position. This allows proper management and reduction of costs associated. It is seen that the operating costs of British Airlines have increased steadily with the rise in fuel prices (BBC News-a, 2011). Financial assessments would also allow the company to undertake other cost cutting strategies like employee downsizing, compensation structure of employees, or other operations costs. The financial position would determine whether the company would be to withstand sudden shocks and the measures to be taken during such times. Answer to question 2: The British Airways considers the importance of working closely with stakeholders. It is important to make the stakeholder’s analysis to ensure their interests are met. More so because the organisation’ policies and actions affect the people who have direct stake in the company. It is also important that they provide their views, opinions and suggestions which would allow giving shape to the organisation fight from the stage of infancy. The existence of powerful stakeholders provides support for the company. This allows greater possibility of attainment of success for the company. The first step in stakeholder’s analysis would be to identify the key stakeholders as well as the business interest associated with them. For example, the British Airways’ approach towards the implementation of corporate social responsibility is influenced by the fact that the airline generates major economic and social benefits. At the same time it also has significant environmental impacts and on the communities surrounding the airport (CBI, 2006, p.1). Following this, the company would have to evaluate the extent to which the stakeholders would be affected. It is evident that British Airways would have to identify certain risks related to health, environment, safety, etc. This could act as a hindrance towards attracting investors for the growth of the business. Thus a thorough analysis of the different factors involved and the extent to which they would be affected is required. Lastly, the company would also have to identify the best ways of engaging the stakeholders (WWF, 2005, p.4). Answer to question 3: Following is an organisational and environmental audit for British Airways which involves assessing the direction in which the business is moving and comparing the direction to that which is required for it to succeed in the changing environment (Carey, 2005, p.1). The environmental audit would include the PESTEL analysis, i.e., analysis of the political, economic, socio-cultural, technological, environmental and legal position of the organisation. Political- The British Airways would be subjected to heavy and strict regulations. That is why compliance would be most essential for the survival of the organisation. The security conditions have also been enhanced significantly because of the increased number of terrorist attacks in the country (CIA, 2011). Economic- Because of the onset of the global economic recession, it can be expected that business travel would reduce considerably. Thus there is a possibility that business travellers would resort to other ways of communication like teleconferencing. Moreover, the value of pound has also weakened (Theunissen, 2011). The British Airways would also remain vulnerable because the low exchange rate in UK. The consumer spending also saw a sharp decline in UK (Duncan, 2008). Social- The ageing population in UK suggests that the older generation would have ample time for leisure activities. Thus the propensity for international travel would also increase. The nation has also been demonstrating increase in unemployment lately. The number of jobless people is climbing constantly (BBC News-b, 2006). Environmental and Ethical- The nation demonstrates strong controls over noise pollution and also energy controls. The Government would be implementing strict legislations pertaining to the environment (CIA, 2011). It is likely that the operational costs of the company could increase because of the reason. Consumer awareness about the environment had also improved. The company would also have to makes strict rules relating to ethical issues. There should be more security checks and ethical concerns to hold the company’s reputation. Legal- the Government has recently put regulations on mergers and acquisitions. This could hamper the possibility of any strategic move that the company would undertake. The British laws are extremely protective towards their employee relations and labour laws. Favourable employee relations would be a prerequisite in maintaining uninterrupted operations (Gennard & Judge, 2005, p.143). Answer to question 4: The strategic positioning of British Airways (BA) would be done on the basis of the company’s comparative strengths, weaknesses, opportunities and threats. Strengths of the company lie on its strong focus on its customers. The company also focuses greatly on its social corporate responsibilities which results in an enhanced goodwill for the company. The company should increase its expertise in customer care and provision of the best quality of services to the customers. It should especially aim to cater to the customer complaints and try to cater to a wide customer variety. The British Airways relies very little on marketing strategies which accounts for one of its main areas of weakness. It is recommended that the company focuses on developing aggressive marketing strategies. This would include various schemes to cater to a wide variety of customers who belong to different income groups. Designing of competitive package for the customers would help in attracting clients and earn greater revenues. The rapidly changing technological scenario would account for one prime threat for the company. Different airlines have been emerging using the latest of technologies. The company should focus on availing the best technology to survive the threat of new entrants. Also, increase in communication system has made it very easy for companies to continue operations without travelling, ex, telecommunication. The emergence of new airlines can be used as an opportunity to make alliances with and for expanding services. This would allow the company to maximize its services and increase its customer base. Mergers would allow the company expand its network and to reach out to a new customer base. Section 2- Process of Strategic Planning Answer to question 1: Following is the strategic plan developed for BA based on the analysis made through the previous questions. This strategy would aim to reduce the number of complaints arising from customers. The company’s has been confronting with problems coming from few of the leading airlines in the world. They have been complaining about baggage mishandling which is consequently delaying other international flights. It has also been causing disruption in the international schedules (Business Standard, 2009). The strategy aims to improve the internal process in the organisation so that it can operate without hassles. Strategic thinking: The strategic thinking has been elaborated briefly for British Airways. The Ansoff Growth Matrix is used for helping the business to decide which strategy would be most favourable. Following is the diagram depicting the same. Figure 1: Ansoff's growth-vector matrix (Bachmeier, 2009, p.3) It is recommended that the company chooses the strategy of market penetration. As it is a well established company, it can penetrate the market using its present services. It can try to gain the confidence of its competitor’s customers through the improvement of its products quality and the quality of its services. It can use the marketing communication tools like advertising for convincing the non users of its services to use more of the same. Planning systems: this would include determination of the approach that would be suitable for the company. In this case, the bottom-up planning is recommended which would include beginning with the company itself, its management and business models, history and growth prospects, and the other distinctive qualities. First it would require evaluating its merits and loopholes and then assessing its position in the market. Based on this the business strategy would be developed. Strategic Planning Issues: Since the bottom-up strategy is chosen, this would involve the lower level employees of the organisation. This would include developing the performance objectives and then aggregating them up to developing the company’s objective (Levy, 2007, p.209). Strategic Planning Techniques: The planning technique is represented using the BCG matrix which is divided into four cells. The four cells are termed as “stars, cash cows, question marks (or problem children), and dogs” (Kozami, 2002, p.254). The following diagram shows a typical BCG matrix, which determines the planning technique based on the growth rate of the industry and the relative share of the market. Figure 2: BCG Matrix (Kozami, 2002, p.254) In this case, since the business is already established and already generates high amounts of cash, the company would fall in the category of cash cows. This would help the company to reap benefits of its experience gathered over the years. The company could go for reinvesting and establishing stability measures (Kozami, 2002, p.254). The following provides a summary of the chosen methods of the above four components of the strategic planning process. Firstly, the company could use the market penetration strategy and try to attract new customers through quality improvement of original services. In this case, the bottom-up approach could be used which would include redesigning of business models and management strategies. This would be done using the lowest level employees and directing them to the company’s goals and objectives. It is also seen that the company falls in the category of ‘cash cows’ which suggests that it can go for new investments and rely on its already gathered experience and reputation. Suitability- Following the SWOT analysis, the British Airways have been seeing an increase in the number of customer complaints which has been spoiling its relationship with customers. It has been losing its reliability. The company also has a large pool of talent which can be recruited and motivated to perform better. This would result in reduced imperfections in work processes and consequently reduce disruptions in services. The rapidly changing technology and emergence of advanced software would make the work process easier and free of errors. The use of the internet has also increased which would serve the purpose of handling customer complaints better. Acceptability- Customers and employees would be mutually likely to improve relations with one another. Customers’ perception of the quality of airlines services are predominantly based on their association with the company through relationship with the employees. Feasibility- Improvement of internal processes would reduce errors or shortcomings. This would consequently help in cutting costs like compensations which are given by the company for baggage mishandling. It would also help in earning goodwill for the company. Section 3 – Approaches to strategy evaluation and selection Answer to question 1: The following is the evaluation of the alternative strategies for British Airways. Some of the alternatives are attainment of substantive growth, limited growth and retrenchment. Substantive growth- One of the substantive growth strategies for the company would be make alliances with other airlines. It could also aim to acquire other airlines. This would benefit both companies through accessibility of each others’ resources. It would allow greater network expansion and widening the customer base. It would make them attractive to the customers allow for greater financial success. However, the drawback is that acquiring a smaller firm would be more beneficial for the other company than BA, while a firm greater in size would be difficult to acquire. Limited Growth- This strategy would include diversifying into other services. This could be forming a different package for specific customers. The company could modify the services and the costs involved with those services according to the needs of customers. However, this would require extensive research and study. This would also be a risky affair and would take time to bring profits to the company. Moreover, price alterations are not always easily welcome by the customers. It would involve the risk of losing its already established customer base. Retrenchment Strategy- The retrenchment strategy would include withdrawing some of the services offerings of the company. This could involve cancelling a certain flight destination which has not been yielding much profit for the company. However, this strategy has a number of limitations. Firstly it would lose a vast base of customers to other competitors. Moreover, complete withdrawal of a service would involve closing of a particular destination which would be a costly affair. The best alternative would be substantive growth as it would yield profits in the long run. It also does not include measures of cutting costs or withdrawing of services. Rather, it would yield mutual benefits to the two companies through accessing each other’s resources and customer base. Answer to question 2: The recommended future strategy for British Airways would be growth through acquisition. This could be considered as one form of diversifying. It would leave both the airlines in better positions. In case of BA, it would be able to reach those destinations which had been out of its reach. The company is recommended to undertake downstream merger. Downstream merger is one in which a firm acquires another firm which is larger in size. This would allow the organization to retain its privileges and rights. The smaller firm would have to abide by the rules of the large firm. It would allow the company its already established image. British Airways would also be in a position to obtain and retain more number of staff for the growth of the business. The acquisition would result in enhancing the company’s expertise in different specializations and industry niches (Lindquist, 2007). Firstly, the company would have to make an analysis of its internal strengths and weaknesses. Then it would have to identify the niches in the market which were not tapped. Most importantly, it would involve making an analysis of the costs of expanding in the market. In trying to attain a niche specialization, the company could alter its price strategies to evolve as a unique service provider in the market (Lindquist, 2007). The most prominent of such acquisitions would be the realization of the scale economies. The company would be able to gain tax advantages. Moreover, this would help in removing inefficiencies and gain the advantage of complimentary resources. Most importantly acquisition would BA to attain greater market power by purchasing its competitors and penetrating in diverse geographical locations. Reference Bachmeier, K. 2009. Analysis of Marketing Strategies Used by PepsiCo Based on Ansoff's Theory. GRIN Verlag. BBC News-a. 2011. Petrol prices 'could reach 140p a litre' say retailers. [Online]. Available at: http://www.bbc.co.uk/news/business-12567988. [Accessed on February 26, 2011]. BBC News-b. 2006. Unemployment at seven-year high. [Online]. Available at: http://news.bbc.co.uk/2/hi/6149830.stm. [Accessed on February 25, 2011]. Business Standard. 2009. EU sends complaints against American, BA, Iberia deal. Available at: http://www.business-standard.com/india/news/eu-sends-complaints-against-american-ba-iberia-deal/11/32/372035/. Accessed on February 26, 2011]. Carey, A. 2005. How to audit your business strategy. [Pdf]. Available at: http://www.triarchypress.com/pages/articles/Audit_your_business_strategy.pdf. Accessed on February 25, 2011]. CBI. 2006. British Airways. [Pdf]. Available at: http://www.article13.com/CBI/CBI_CSR_Case_Study_BA_March_06.pdf. [Accessed on February 25, 2011]. CIA. 2011. United Kingdom. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html. [Accessed on February 25, 2011]. Duncan, G. 2008. Consumer spending drops to two-year low. [Online]. Available at: http://business.timesonline.co.uk/tol/business/economics/article3444224.ece. [Accessed on February 25, 2011]. Gennard, J. & Judge, G. 2005. Employee relations. CIPD Publishing. Kozami, A. 2002. Business policy and strategic management. Tata McGraw-Hill. Levy. 2007. Retailing Management 6E (Sie). Tata McGraw-Hill. Lindquist, T. M. 2007. Growth Through Acquisition. [Online]. Available at: http://www.nysscpa.org/cpajournal/2007/707/essentials/p56.htm. [Accessed on February 26, 2011]. WWF. 2005. Cross-Cutting Tool Stakeholder Analysis. [Pdf]. Available at: http://assets.panda.org/downloads/1_1_stakeholder_analysis_11_01_05.pdf. [Accessed on February 25, 2011]. Read More

 

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