External and Internal Environments and How They Influence Business Operations - Case Study Example

Strategic Management Strategic Management Organization’s external and internal environments The business environment is made up of the aspects that have a direct impact on business operations. There are two types of business environments: external environments and internal environments that are classified depending on how they influence business operations (Lindblad and Demand Media, n.d.). A company’s internal environment is made up of the aspects within an organization. These include the current employees within an entity, management, the corporate culture, leadership style and the company’s mission statement. There are the aspects that a company has control over and can alter such as the physical facilities, personnel and the general organization to suit the environment (Pearce and Robinson, 2009). Though some aspects impact the business as a whole, others only influence the management. On the other hand, the external environment has a direct impact on the business and refers to factors that are uncontrollable by the entity. There are two types of external environment: the micro environment and the macro environment (Baldwin and Demand Media, n.d.). The microenvironment has a direct influence on activities in the firm. It includes suppliers, the public, customers, financers and marketing intermediaries (Baldwin and Demand Media, n.d.). The macro environment is also referred to as the general environment and it is made up of the political, social, economic, environmental and legal, technical environments (Baldwin and Demand Media, n.d.). The internal and external environments influence the long term business strategies and objectives within an entity (Baldwin and Demand Media, n.d.). The internal environment determines the resources that are available in an organizations and the bearing that a company is going to take. On the other hand, changes in the external environment including competitive forces affect business strategies and long- term objectives. Differences between low-cost leadership from a differentiation strategy and a focus strategy A company’s position in the industry establishes the profitability in a company. This leads to the three generic strategies that can be adopted in achieving improved profitability. These include focus strategy, differentiation strategy and low- cost leadership (The Enterprise Theme, n. d.). Low cost leadership refers to the strategy that is used by firms to become the lowest cost producers in their respective industries (University of Cambridge, n. d.). This can be obtained from cost advantage that differs depending on the structure of the industry. They may include proprietary technology, economies of scale and superior access to raw materials (The Enterprise Theme, n. d.). Companies that employ this strategy must come up with strategies that give them a cost advantage. If an organization attains low cost leadership, then it will be an outstanding performer in the industry. On the other hand, in a differentiation strategy, a company strives to be unique along the aspects that are valued by the customers (The Enterprise Theme, n. d.). An organization settles on one or more features that most buyers within a given industry consider to be important and strategically position itself to meet these needs. It is remunerated for this uniqueness with a premium price. Finally, the focus strategy refers to a situation where a company channels its resources on venturing or spreading its operations in a narrow industry or market segment (The Enterprise Theme, n. d.). This is employed in organizations that are fully aware of their market segments and has products that can appropriately satisfy its needs in the market. This strategy has two options, the differentiation focus and the cost focus (The Enterprise Theme, n. d.). A company seeks to gain a cost advantage in the target market in the cost focus while it seeks differentiation in the focus strategy. Vertical Integration This is a strategy that is used by companies to acquire other companies that supply it with inputs or acts as customers for its outputs. Vertical integration can be described as the extent to which a company owns its downstream buyers and upstream suppliers. A firm that is vertically integrated has integrated all features of the supply chain such as retailing, warehousing, distribution and manufacturing (Pearce and Robinson, 2011: 16). There are two important issues that are taken into account before are two important issues to be taken into account before an integration (Harrigan, 2003: 34). The scope of the firms and the costs involved. A company should consider on whether engaging in new industries will interfere with their current competencies. This owes to the fact that new activities are harder to integrate and control. On the other hand, companies should integrate when the costs of producing a product within the company are lower than the costs of buying the product. There are two types of vertical integration, backward integration and forward integration. Forward integration is when an organization goes downstream the supply chain meaning that they take the role of a distributor or even a retailer. On the other hand, backward integration or upstream integration refers to a process where a firm takes the control function of the suppliers. Companies that opt for this strategy do it for various reasons (Wessels, 2000: 45). These include getting a greater market share, improving the quality of supplies, improving coordination in the supply chain, securing distribution channels, improving investments in specialized areas and lower costs. Areas where Strategic Planners establish Long- Term Objectives To attain long- term stability within an organization, strategic planners need to establish long- term objectives in a number of areas. These include productivity, profitability, employee relations, employee development, public responsibility and technological leadership. Long-term objectives in productivity help companies to deal with changing customer demands (Pride, 2011: 17). Strategic planners should come up with ways for organizations to satisfy customers’ production demands. Secondly, strategic managers should come up with long term objectives when dealing with profitability within an entity (Pearce and Robinson, 2009). Profitability is the major reason behind a company’s operations and therefore strategic planners should come up with long term objectives in this area. Thirdly, employee relations are important to an organization since they determine their contribution to the company (Pride, 2011: 17). Strategic planners should come up with effective strategies that improve employee relations for the benefit of the company. Fourthly, companies should come up with long term objectives in employee development. Employee development is important as it improves employees’ contribution to the entity. It also makes them feel appreciated and royal to the company. Fifthly, strategic planners devise long term objectives in public relations (Pride, 2011: 33). This is owing to the increased importance in issues relating to corporate social responsibility in the contemporary world. Organizations should be careful in how they treat their customers, suppliers and the members of society at large. Finally, strategic planners should come up with long term objectives in technological leadership. The world of technology is ever-changing and organizations should ensure that they remain at par with these changes so as to compete appropriately with other players in their respective industry (Pride, 2011: 89). These are the main areas where strategic planners should come up with long- term objectives. Concepts behind differentiation In the current competitive business world, companies are urged to constantly scrutinize their products and services to improve their customer relations. Strategies that may have worked or yielded huge profits in the past may not work well in the current times (Hoffman and Bateson, 2010: 34). This essay addresses two concepts that are important in product differentiation and they include positioning and product differentiation. Product differentiation is the integration of aspects such as price and quality into a product so as to attract a higher number of consumers (Ireland et al., 2008: 13). For instance, companies manufacturing a certain type of computers may lower their prices to attract a higher number of consumers. Product position on the other hand refers to how companies brand their products to make them stand out in the market (Hoffman and Bateson, 2010: 16). This is the second step after differentiation. The other important concept to consider is the positioning statement that is a short statement that shows the essence of positioning and differentiation strategies. There are several risks involved in the differentiation strategy. First, there is the risk of resource misallocation. This is the case for small firms that are under pressure to distribute their resources. The resources can be strained by brands that are not appropriately differentiated and that do not maintain customer loyalty (Ireland et al., 2008: 23). Secondly, there are the risks of distributor resistance since distributors are afraid of stocking a high number of brands in their businesses. They are likely to resist new brands mainly from unknown marketers. Finally, there is the risk of consumer disappointment where the products fail to meet the consumers’ expectations on differentiation. Grand Strategy Clusters Model Companies have a number of grand strategy alternatives as shown in the Grand Strategy Matrix shown in the figure below (Weidermann, 2013: 23). (Weidermann, 2013: 34). It is important that an entity can opt to pursue one or more options simultaneously. This notwithstanding, the overpowering priority may propose that a company should stick to one particular cell in the above matrix. There companies that are presently in the first cell include Nokia, Sony, Yahoo! and Carrefour. The second cell involves backward and forward integration (Weidermann, 2013: 78). Vertical integration is a way of making a company more competitive through the reduction of either buyer power or supplier power. For instance, in the airline industry buying jet fuel is a huge cost for airline companies. In 2012, Delta airlines acquired and oil refinery that specialized in the production of jet fuel to reduce costs. On the other hand, conglomerate diversification takes place when organizations acquire companies that operate in industries that are unrelated to their original business. For instance, Nokia was a paper producing company before it got into the tyre industry and finally got into the mobile phones industry (Pearce and Robinson, 2009: 25). In the third cell, a well established business pursues growth. Such companies are so solid that they do not need mergers or acquisitions to promote competitiveness (Weidermann, 2013: 56). The best example of such a company is Apple. In the fourth cell, the best strategy that can be adopted by a company to capitalize on its strengths is by acquiring the competitor. This is an external growth strategy that aims to impact on one of the major aspects of the Porter Five model (Kachru, 2005: 15). Through the acquisition of a competitor, the company minimizes the level of competition. This is common in well- established industries such as pharmaceuticals, financial services and food. References Baldwin, A. & Demand Media. (n. d.). Internal & external factors that affect an organization. http://smallbusiness.chron.com/internal-external-factors-affect-organization-16641.html Lindblad M & Demand Media (n.d.). Internal & external factors that affect an organization. Retrieved from http://yourbusiness.azcentral.com/internal-external-factors-affect- organization-11641.html Harrigan, K. R. (2003). Vertical integration, outsourcing and corporate strategy. Beard Books. Retrieved from http://www.beardbooks.com/beardbooks/vertical_integration_outsourcing_and_corporate _strategy.html Hoffman, K., & Bateson, J. (2010). Services marketing: Concepts, strategies and cases. (4th ed.). Cengage Learning. Retrieved from http://books.google.co.ke/books?id=YbJRaY4OAjQC&dq=%28Hoffman+and+Bateson, +2010:+34%29.&source=gbs_navlinks_s Ireland, D. R., Hoskisson, R., & Hitt, M. (2008). Understanding business strategy: Concepts and cases. (2nd ed.). Cengage Learning. Retrieved from http://www.amazon.com/Understanding-Business-Strategy-Concepts- Plus/dp/0538476818 Kachru, U. (2005). Strategic management: Concepts and cases. Excel Books India. Retrieved from http://books.google.co.ke/books?id=AunEMmTu7fkC&dq=Grand+Strategy+Clusters+M odel&source=gbs_navlinks_s Pearce, J. 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Barrons Educational Series. http://books.google.co.ke/books/about/Economics.html?id=0hggJhQQQboC&redir_esc= y Read More