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7 - Analysing the strategic position of a business (2) (Porter's five…
7 - Analysing the strategic position of a business (2)
The impact of the social and technological environment on strategic and functional decision-making
Social changes
Urbanisation and migration
Two important aspects
of the UK population are
longer life expectancy
and
increased immigration
. These changes impact the
types of goods and services demanded
and the
overall workforce structure.
Migration is the movement of people between countries.
A positive is it has caused an
increase in the labour force
which
adds to the skills available
particularly in the health sector. It also
boosts demand
in the economy.
Urbanisation is the movement of people form the countryside to towns and cities.
This has happened as a
result of the Industrial Revolution
and is now happening on a large scale in emerging nations.
Changes in consumer lifestyle and buying behaviour
Rising incomes
afford
more opportunities
,
more leisure time
allows for a
wider variety of opportunities
and
advances in technology
make communication and life altogether much
easier.
Consumers
have a
vast amount of information
at their fingertips on a whole range of issues including
h
ealth, the
environment
,
holiday destinations
and
shopping
in general. Some of the
resulting changes in lifestyle
include...
Health
:
growing awareness of issues
surrounding health ranging from smoking dangers, sugar and salt consumption to the benefits of a healthy diet and exercise.
Holidays
:
more holidays
taken due to
more leisure time
and
greater affluence.
Organic and fair-trade produce
: although affected by the recession, this sector
represents a large market.
Ready meals and eating out
The growth of online businesses
The growth of online shopping has had a
big impact on supermarkets
, which were once
competing for prime out-of-town retail space
and adopting
longer opening hours
and
bigger stores
.
These things are now
less important.
For a business to achieve its
full potential
in this internet age, it has to have a
highly respected internet presence.
This is likely to involve the following...
High-quality
, user-friendly
website
.
A carefully
targeted audience.
Content that is
increasingly personalised.
Mobile capabilities
for
modern
consumers.
Integrated
sales channels.
Technological changes
Technological changes relate to innovation in services provided, products manufactured or processes of production.
Computer-aided design
(CAD) has
shortened lead times
and
computer-aided manufacture
(CAM) has made
productions more efficient.
Technology has provided
access
to
greater information about consumers
and their buying habits.
Benefits...
Increased sales
Working environment
: become cleaner, quieter and safer, especially in manufacturing.
Improved communication
Quality
: due to CAD and CAM (CADCAM).
Lower costs
Drawbacks...
Competition
Security
: hackers able to
access confidential material and customer information
= need for
higher-security
systems adding further to
costs
.
Pace of change:
businesses must keep moving forward to stay ahead of competition.
The social environment including corporate social responsibility
Corporate social responsibility is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits to all stakeholders.
Reasons for and against CSR
For
The 'right thing to do'.
Resources
Customer and employee engagement
Prevent government intervention
: taking action means a business can offset the need for gov. intervention and regulation.
Brand differentiation
: CSR reporting could lead to a competitive advantage for a company that took it seriously.
Cost saving
: arising from using less packaging or less energy.
Against
State of the economy
: low growth/recession = not possible to take a socially aware approach.
The market
Customer perception
: others might not be willing to pay more for environmentally aware business products.
Stakeholders' views
Profit
: socially responsible policies have a cost and some argue the business should focus on profit.
The difference between stakeholder and shareholder concepts
Shareholder concept proposed by Milton Freedman
and it states that it's the
responsibility of business
to
increase profit
within the
basic rules of society.
However, the
awareness of CSR
has encouraged businesses to take the
interests of all stakeholders
into
consideration
.
Carroll's corporate social responsibility pyramid
Link to the diagram:
The pyramid of corporate social responsibility is the pyramid proposed by Carroll to illustrate the four layers of corporate responsibility: economic, legal, ethical and philanthropic.
It is sometimes claimed that the basis of what we consider to be
CSR
is rooted in the
four types of responsibility depicted
...
Legal
: responsibility to
ensure business practices are legal
. Involves
obeying laws
and regulations
relating
to employees, consumers and the environment.
Ethical
: responsibility
extends beyond the letter of the law
to do what is '
right
' in terms of, for example waste.
Economic
: responsibility to be
profitable
, to
provide a return
to shareholders, to
create jobs
and to
contribute
useful products and services to
society
.
Philanthropic
: responsibility to be
good corporate citizens
and to
improve the lives
of others in society.
The pressures for socially responsible behaviour
The
growing concerns for CSR
over the past two decades has added to businesses pressures to
act in a responsible manner
. Other pressures include...
Self-regulation
: more likely to act in a socially responsible way if there is a
well-organised and effective system
of
industrial self-regulation
in place.
Regulation
:
strong and well-enforced
state regulation makes
socially responsible
behaviour
more likely.
The
media
: big
impact on businesses
, making CSR more likely as businesses aim to
avoid negative publicity.
Pressure groups
: actions of groups such as
Greenpeace
can
draw unwanted attention
to a business's activities and in
extreme cases
influence consumer
purchasing choices.
Consumer perception
:
consumers are more aware
and through
social media
could
massively impact
a business that
isn't acting responsibly.
Porter's five forces
Porter's five forces model is an analytical tool that provides a framework for analysing the nature of competition within an industry.
Link to the model:
Entry threat
It's not just existing firms that may pose a threat; this may also come from
new entrants to the industry
. Although it should be possible for a firm to
enter any market,
in practice there may be
significant barriers to entry...
Government barriers
Patents
: these give the holder a
competitive advantage,
which may make it
more difficult
for a new entrant to access a market.
Cost of entry
Economies of scale
: whether a
new entrant
or
how quickly a new entrant
would
benefit
from economies would act as a barrier to entry.
Access to suppliers
Buyer power
Link to table:
Supplier power
Link to table:
Rivalry
Likely to be
high in the following situations...
Low levels of product differentiation
Slow market growth
Many firms of similar size
High exit costs
Substitute threat
A business's
ability to achieve profitability
is
affected by the threat of substitutes
, giving consumers the
ability to choose
an alternative product.
A
substitute product
is one from
another industry
that offers
similar benefits
to the one produced by a particular business.
How the five forces shape competitive strategy
Differentiation strategy
:
calls for the development of a product or service which offers unique attributes that are valued and perceived to be different from competitors by customers
.
Focus strategy
Cost leadership strategy
:
aims to gain a competitive advantage by having the lowest costs in the industry.
Financial methods of assessing an investment
It's important that a business
estimates the benefits of an investment
in
financial terms in order to identify the best option
and thereby
reduce risk.
The
different appraisal techniques
allow an organisation to
assess the effects
an investment will have on its
cash flow
. This is achieved by
evaluating the costs and benefits
of the investment over its
useful or expected life span.
Link to example:
Factors influencing investment decisions
The economy
Competitive environment
Industrial relations
Corporate image and objectives
Logistics
The value of sensitive analysis
Sensitive analysis is an analytical tool (a 'what if' tool) that enables the impact of a change in a variable on a given project or investment to be examined.