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Macro environment: Business strategies

Macr envirnment: Business strategies Businesses are faced with many challenges in all three business envirnments. These challenges may have a negative impact n business success. It is imprtant that these
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Macr envirnment: Business strategies Businesses are faced with many challenges in all three business envirnments. These challenges may have a negative impact n business success. It is imprtant that these challenges are identified. Industrial analysis tls are used t analyse the challenges f the business envirnment. Businesses must devise strategies t address and respnd t the identified challenges. They must cntinuusly evaluate the effectiveness f implemented strategies. Overview Macr envirnment: Business strategies CONTENT Definitin/ descriptin f a strategy Steps in develping a strategy The strategic management prcess Types f business strategies Effectiveness (psitives) f each type f business strategy Industrial analysis tls SWOT analysis Prter's Five Frces PESTLE analysis Activities/steps in strategy evaluatin CONTENT DETAILS FOR TEACHING, LEARNING AND ASSESSMENT PURPOSES Define a strategy Outline/Describe/Explain/Discuss the strategic management prcess. Apply the strategic management prcess t slve business-related prblems. Identify business challenges frm given case studies. Identify and describe/explain/discuss the different types f business strategies. Devise/Develp/Analyse/Frmulate strategies t vercme challenges frm given scenaris f businesses and make recmmendatins fr imprvement. Explain hw/when businesses can apply each type f business strategy. Evaluate the effectiveness (psitives) f each type f business strategy. Analyse case studies and apply the fllwing industrial analysis tls t analyse the challenges f the business envirnment: - SWOT analysis - Prter's Five Frces - PESTLE analysis Recmmend business strategies t address challenges identified frm given case studies/scenaris. Outline/Explain/Recmmend activities/steps in strategy evaluatin. Key cncepts These definitins will help yu understand the meaning f key Business Studies cncepts that are used in this chapter. Term Business envirnment Micr r internal envirnment Market r task envirnment Definitin The business envirnment includes all thse factrs that affect a cmpany s peratins. The business envirnment cnsists f micr, market and macr envirnment. The envirnment within the business. The business has full cntrl ver the factrs in this envirnment. The external envirnment that influences the rganizatin directly. E.g. suppliers, custmers/cnsumers, intermediaries, cmpetitrs, civil sciety, regulatrs and strategic allies. Business has limited cntrl ver these factrs. Macr-envirnment The majr external and uncntrllable factrs that influences an rganizatin and effect its perfrmance. E.g. Natural/physical envirnment, ecnmic envirnment, scial, cultural and demgraphic envirnment, the plitical and legal, the technlgical and the internatinal envirnment. Frmulatin f strategies Implementatin f strategies T devise/develp a strategy. It takes place after the frmulatin f the strategy and invlves all the activities that are required int putting the strategy int actin. Evaluatin f strategies It takes place after the implementatin f the strategy and determines whether the implemented strategy reslved the challenge. Industry analysis tls SWOT, Prter s Five Frces and PESTLE analysis mdel is used t analyse the challenges f the business envirnment. Suppliers Buyers Cmpetitrs Substitute prduct r service Include factries/prviders f gds/services that businesses wuld btain/buy frm in rder t perate their business. The final users f the prduct/services. Are selling the same/similar prducts/services as the business. Are different prducts/services that at least partly satisfy the same needs f cnsumers and can be used t replace ne anther. New Entrants Are ther businesses that are selling the same/similar prducts in the existing market fr the first time. Steps in develping a strategy Definitin/ descriptin f a strategy A strategy is a plan f actin t address an pprtunity r t slve a prblem/respnd t a challenge. Steps Envirnmental scanning f the business envirnments by applicatin f SWOT analysis/pestle/prter's Five Frces mdel. Frmulate strategies t meet bjectives Implement strategies using actin plan Evaluatin f strategies/cmpare the expected perfrmance with the actual perfrmance. Activity 1 Read the fllwing scenari and answer the questins that fllws: Flex Building Suppliers is struggling t make a prfit and their sales are decreasing every mnth. They are cncerned abut their situatin and decide t cmpile a SWOT analysis. 1. Identify the step in develping a strategy that Flex Building Suppliers used in the scenari abve. [2] 2. Name the THREE ther steps that they will still have t use in develping a strategy. [3] Answer t activity 1 1. Envirnmental scanning f the business envirnments 2. Frmulate strategies t meet bjectives Implement strategies using actin plans Evaluatin f strategies/cmpare the expected perfrmance with the actual perfrmance. The strategic management prcess Review visin statement. Analyse/Re-examine missin statement. Cnduct an analysis using mdels such as PESTLE/PORTERS. Frmulate strategy, referring t strategies such as defensive/retrenchment. Implement strategy, using templates such as actin plans. Cntrl f strategy t identify gaps in planning. Evaluate strategy t identify deviatins in implementatin. Take crrective actin t ensure gals/bjectives are met. Activity 2 Read the fllwing scenari and answer the questin that fllw: Helen wns a hair saln. She is a very gd hairdresser, but she finds it hard t cmpete with ther salns ffering services at lwer prices. She wants t use the strategic management prcess t vercme her business challenge, but lacks knwledge f the prcess. 1. Explain t Helen hw t use the strategic management prcess t vercme her business challenge. [10] Answer t activity 2 Review visin statement. Analyse/Re-examine missin statement. Cnduct an analysis using mdels such as PESTLE/PORTERS. Frmulate strategy, referring t strategies such as defensive/retrenchment. Implement strategy, using templates such as actin plans. Cntrl f strategy t identify gaps in planning. Evaluate strategy t identify deviatins in implementatin. Take crrective actin t ensure gals/bjectives are met. Types f business strategies Integratin strategies Definitin: It invlves taking ver r merging with ther businesses t increase grwth ptential. Types Frward vertical integratin A business cmbines/takever/merge with the seller/retailer/distributr f their prducts. Backward vertical integratin A business cmbines/takever/merge with their supplier t reduce dependency. Hrizntal integratin Business takes cntrl f ther businesses selling/prviding the same prducts/services (cmpetitr). Intensive strategies Definitin: It invlves increasing sales and market share by making use f existing prducts and resurces thrugh extreme effrts. Types Market penetratin Businesses use aggressive marketing campaigns, e.g. lw prices, t attract cmpetitrs' clients/attempt t persuade cnsumers that are already buying their prducts t cntinue supprting them. Increase the market share f existing prducts/prmte new prducts that have becme well established. Reduce prices t increase sales. Market develpment A prcess f explring/finding/searching new markets fr existing prducts. Businesses sell their existing prducts t new markets. Example: Finding new markets in ther twns and cities. Prduct develpment Businesses generate new ideas and develp a new prduct r service. The intrductin f a new prduct r service int existing markets. Example: A cell phne manufacturer designs a new phne that can als be used t make internet phne calls. Diversificatin strategies Definitin: A business adds related prducts t its current prduct. Types Cncentric diversificatin The business adds a new prduct r service that is related t the existing prducts and which will appeal t new cnsumers. Occurs when a business wants t increase its prduct range and markets. Hrizntal diversificatin The business adds new prducts r services that are unrelated t existing prducts, but which may appeal t existing custmers. Occurs when a business acquires r merges with a business that is at the same prductin stage, but may ffer a different prduct. Cnglmerate diversificatin The business adds new prducts r services that are unrelated t existing prducts which may appeal t new grups f custmers. Cnglmerate diversificatin means that a business grws int new prducts, services and markets. Defensive strategies Definitin: It is a last resrt after business have tried everything, it is t defend/prtect the existence f the business. Types Retrenchment Terminating the emplyment cntracts f emplyees fr peratinal reasns. Decreasing the number f prduct lines/clsing certain departments may result in sme wrkers becming redundant. Divestiture The business dispses/sells sme assets/divisins that are n lnger prfitable/ prductive. Unprductive assets are sld t pay ff debts/reduce peratinal csts. Liquidatin All assets are sld t pay creditrs due t a lack f capital/cash flw. Selling the entire business in rder t pay all liabilities/clse dwn the business. Activity 3 1 Identify a business strategy represented by EACH statement belw: 1.1 The wner f Sup Kitchen decides t als sell freshly baked bread in her shp. 1.2 Fying Fisheries has pened new branches in the Eastern Cape t increase market share. 1.3 Ben s grape farm bught Juicy Stres. 1.4 Belw Zer Stres reduced the prices f all there winter stck t encurage sales. 1.5 Kmani Bricks sld all its assets t pay creditrs and clsed dwn the business. (10) Answer t activity Hrizntal diversificatin/diversificatin 1.2 Market develpment/intensive 1.3. Frward vertical integratin/integratin 1.4 Market penetratin/intensive 1.5 Liquidatin/Defensive If asked t analyse/justify the effectiveness f business strategies respnses must include psitive r negatives r bth. Effectiveness (psitives) f each type f business strategy Integratin strategies -Ensure supplies and business has mre cntrl ver the final prices f prducts. -Eliminate cmpetitrs. -Increase the prfitability by nt making use f a supplier/distributr. Intensive strategies Increased market share reduces the business's vulnerability t actins f cmpetitrs. Cntrl ver prices may increase/imprve. Increase in sales/incme and prfitability. Imprved service delivery may psitively impact/increase sales Decrease in price culd influence custmers t buy mre prducts. Diversificatin strategies Diversificatin is nt risky because the business is already familiar with its existing prduct/custmers. Sales wuld increase by adding the new/existing prducts t new/existing markets. The business will be highly cmpetitive by adding the new/existing prducts it wuld increase the target market. The business s present channels f distributin can be used t market the new/existing prducts t current/new custmers. Defensive strategies Decrease expenses f the business. Increase prductivity by fcusing n the activities that are prfitable. Cmpanies in financial difficulty may apply fr business rescue t avid liquidatin. Activity 4 Discuss the effectiveness f intensive strategies in addressing business challenges. (8) Answer t activity 4 Increased market share reduces the business's vulnerability t actins f cmpetitrs. Cntrl ver prices may increase/imprve. Increase in sales/incme and prfitability. Imprved service delivery may psitively impact/increase sales Decrease in price culd influence custmers t buy mre prducts. Industrial analysis tls Strengths & Weaknesses are INSIDE the business. Opprtunities & Threats are OUTSIDE the business. SWOT analysis Strengths It is psitive and within the cntrl f the business. Weaknesses It is negative but within the cntrl f the business. Opprtunities It is psitive, and nt within the cntrl f the business. Threats It is negative, but nt within the cntrl f the business. Activity 5 1 Read the fllwing scenari and answer the questins that fllw: Cmputer Wrld (CW) CW ffers internet services t businesses. They emply qualified technicians t d the installatin. The business des nt have a reliable bkkeeping system. Businesses wh ffer the same services are clsing dwn. CW is lcated in a high crime area. 1.1 Cmpile a SWOT analysis fr CW. [4] 1.2 Suggest ONE strategy t handle each weakness and threat identified in Questin 1.1 [4] Answer t activity SWOT ANALYSIS Strengths They emply qualified technicians Weakness The business des nt have a reliable bkkeeping system. Opprtunities Businesses wh ffer the same services are clsing dwn. Threats CW is lcated in a high crime area. 1.2 Strategy t handle nt having a reliable bkkeeping system Outsurce the bkkeeping activities f the business. Install an cmputerized accunting prgramme. Regularly check that the bkkeeping activities has been perfrmed by the bkkeeping department. Strategy t handle perating in a high crime area CW shuld install security systems/hire mre security t safeguard the business. Engage in CSR/CSI prgrammes that are aimed at reducing crime in the cmmunity. Prvide emplyment pprtunities fr lcal peple/the cmmunity. Relcate the business t ther areas where the crime rate is minimal. Wrk tgether with the Cmmunity Plicing Frums (CPF). Prter's Five Frces Mdel The mdel is based n five imprtant frces that will determine the cmpetitive pwer in the market envirnment f a business. TIP: Prter s Five Frces Mdel is nt fcusing n strategies t vercme the frces, BUT the fcus is n analysing the psitin f the business in the market. Pwer f suppliers -A business must assess the pwer f the suppliers t influence prices. -The mre pwerful the suppliers, the less cntrl the business has ver them. -The smaller the number f suppliers, the mre pwerful they may be as the chice f suppliers may be limited. Pwer f buyers -Buyers buying in bulk can bargain fr prices in their favur. -The business must assess hw easy it is fr buyers/custmers t drive prices dwn. -This will depend n the number f buyers/the imprtance f each buyer t the business and the cst f switching t ther prducts. -If buyers can d withut the business's prducts then they have mre pwer t determine the prices and terms f sale. -Businesses must cnduct market research s that they can get mre infrmatin abut their buyers. Pwer f cmpetitrs/cmpetitive rivalry -Cmpetitive rivalry refers t the number f cmpetitrs and their ability t influence/cntrl the market. -If cmpetitrs have a unique prduct/service, then they will have greater pwer. -A business with many cmpetitrs in the same market has very little pwer in their market. -Businesses must draw up a cmpetitr's prfile s that they can determine their wn strength as well as that f cmpetitrs. Threat f substitutin/ substitutes -If the business's prduct can be easily substituted, it weakens the pwer f the business in the market. -Unique prducts will nt be threatened by substitute prducts. -Businesses shuld d market research t assess if custmers using substitute prducts/services have reasns fr using these alternatives. Threat/Barriers f new entrants t the market -The pwer will depend n hw easy it is fr new businesses t enter the market. -New cmpetitrs can quickly/easily enter the market, if it takes little time/ mney t enter the market. PESTLE analysis Yu must be able t identify challenges frm a scenari and make recmmendatins PESTLE is used t identify and evaluate the factrs in the external envirnment that can influence the business PESLTE ELEMENT Plitical Ecnmic Scial Technlgical Legislatin Envirnmental CHALLENGES Trade agreements that prevent imprts High inflatin/interest rates Lw incme f custmers Keeping up with the latest technlgy Paying fines fr nn-cmpliance t Acts Harmfulness f prducts/prcesses t the custmers and envirnment Activity 6 1. Read the fllwing scenari and answer the questins that fllw: ZUKO & PHIWE CLOTHING (ZPC) ZPC specialize in manufacturing f clthing. The prfitability f the business has decreased due t high interest rates and using cmputerized machinery that needs cnstant up-dating. ZPC uses harmful chemicals when preparing their clths fr prductin. 1.1 Qute THREE challenges fr ZPC frm the scenari abve. [3] 1.2 Identify the PESTLE element that links t EACH challenge, as quted in Questin 1.1. [6] 1.3 Recmmend ONE way in which ZPC can deal with EACH challenge, as identified in Questin 1.1 [6] Answer t activity 6 CHALLENGES 1.1 The prfitability f the business has decreased/due t high interest rates. Cmputerized machinery used needs cnstant upding. ZPC uses harmful chemicals when preparing their clths fr prductin. PESTLE ELEMENT 1.2 Ecnmic Technlgical Envirnmental RECOMMENDATIONS 1.3 Pay ff unnecessary debt. Cut dwn n unnecessary spending. Enter int a cntract fr up-dating the machinery. Wrk ut an up-dating prgramme. Only run necessary up-dates. Research availability and make use f less harmful chemicals. Make changes t the prcess that wuld nt require the use f these harmful chemicals. Steps in strategy evaluatin Examine the underlying basis f a business strategy. Frmulate strategies t meet bjectives favurably. Implement strategies using actin plans. Lk frward and backwards int the implementatin prcess. Cmpare the expected perfrmance with the actual perfrmance. Measure business perfrmance in rder t determine the reasns fr deviatins and analyse these reasns. Take crrective actin s that deviatins may be crrected. Set specific dates fr cntrl and fllw up. Draw up a table f the advantages and disadvantages f a strategy. Decide n the desired utcme. Cnsider the impact f the strategic implementatin in the internal and external envirnments f the business. Activity 7 Outline the steps in evaluating a strategy. (8) Answer t activity Examine the underlying basis f a business strategy. Frmulate strategies t meet bjectives favurably. Implement strategies using actin plans. Lk frward and backwards int the implementatin prcess. Cmpare the expected perfrmance with the actual perfrmance. Measure business perfrmance in rder t determine the reasns fr deviatins and analyse these reasns. Take crrective actin s that deviatins may be crrected. Set specific dates fr cntrl and fllw up. Draw up a table f the advantages and disadvantages f a strategy.
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