Impact of Internet and E-Commerce

Selling through websites is the fastest growing method of trading worldwide. There are two main forms of e-commerce:

Business to business (B2B) trading where companies trade and exchange information using the World Wide Web.

Business to consumer (B2C) trading where companies deal directly with customers through web pages, and ordering is carried out online.

There are many different types of products and services that are traded on line including books, CDs, cars, holidays, and insurance.In response to e-tailing and e-trading, most businesses have now set up their own websites.

Trading online

Trading online enables businesses to reach much wider audiences while cutting the costs of traditional retailing methods. For example, an e-tailer does not have to spend so much on an expensive High Street presence.

Until recently The Times 100 was a paper based resource that was used by every school in the United Kingdom. Now the resource appears in two formats - in a photocopiable folder of materials, and online. The online presence has opened up viewing of The Times 100 to a globalmarket and a large number of hits are recorded from students in almost every country in the world. Existing users are able to benefit from the convenience of quickly accessing case studies online and a range of additional online features have been added such as a theory section, and a range of tests and questions for students.

Although the outlay on developing a good website is substantial the potential benefits are enormous in providing most types of business with a competitive advantage. One group of businesses that have been particularly successful as a result of the development of the web are specialist suppliers of items such as paintings, photographs, confectionery, and other items. An individual working from home can now advertise and sell their produce worldwide.

A web page is a single document. A website is a collection of related documents. The World Wide Web consists of graphic and text documents that can be connected together through clickable 'hypertext' links.

Source / Further Readings: http://www.thetimes100.co.uk/theory/theory--the-impact-e-commerce-on-business-activity--171.php

Impact of Internet and E-Commerce on Strategy

There is a positive relationship between e-commerce and firm strategy. Companies that incorporate e-commerce with strategy will implement firm strategy effectively.

Matching e-commerce with internal and external situation

The choice of e-commerce model is one of many strategic decisions that organisations make when conducting business activities in the e-commerce environment. Current literature on both strategic decision making and the development of e-commerce models does not adequately address. In developing the framework, organisations need to have a good understanding on the types of models available for adoption. While there is no single unique classification system for the types of e-commerce models available. For example, B2B e-commerce models are generally classified into four generic categories: merchant models; manufacturer models; the buy-side model; and brokerage models. Each of these models has different functional characteristics resulting in different models being more applicable or suitable to particular industries, markets or situations. In addition, the focus of these models varies from buyer centric (such as the buy-side model) to supplier centric (such as the manufacturer model) with some being neutral (such as the mega-exchange model). Based on these four categories, a recent study has identified 10 specific e-commerce models as being used for conducting B2B e-commerce in the agribusiness industry. In addition to the complexity of the models, many factors are known to influence the strategic decision making process of organisations, which are also likely to impact on the choice of e-commerce models. The choice of e-commerce model is a strategic decision as the model chosen will form the framework for the organization to pursue its business activities in the e-commerce environment and will also affect an organizations’ overall strategic direction.

E-commerce is generally less complex than any IT solution, so a firm must start with normal IT initiatives before creating e-commerce tasks (John A. Rodgers, David C. Yen and David C. Chou, 2002). E-commerce includes two basic types, business to consumer (B2C) and business to business (B2B), that are two separate concepts. The former refers primarily to the buying and selling activities over the Internet, including such transactions as placing orders, making payments, and tracking delivery of orders on the Internet. So, the focus of B2C is typically on the customer side as well. All other stakeholders of the organization, including employees and suppliers, are generally not the main concern for B2C. It relies on client-to-server or port-to-port data flow (Moltzen, E, 2000). B2B generally refers to the use of the web and Internet-related technology to connect the extended organization, including such entities as suppliers, employees, and regulatory authorities.

In general, expectations of B2B are high and in most cases justified. However, B2B is not just an application program and thus not a plug and play solution. B2B is a contingency approach, meaning that there is no one best way for the B2B transformation. Each case needs separate evaluation. It takes a conscious, thorough and extensive internal and external analysis of the organization, clear and appropriate goals, a deliberate strategic concept and change management at its best, to turn an organization into an successful e-company and hence to be able to leverage the opportunities of e-commerce in an optimal way. Therefore, we propose that e-commerce matched with internal and external situation would be a great benefit to the implementation of strategy.

Matching e-commerce with internal and external situation of firm will bring positive impact on implementation of firm strategy.

Optimizing value chain by e-commerce

The process of forming a corporation strategy is to respond to the challenges of environmental change. Normative thinking requires that a firm should analyze its industry forces and value-chain activities in order to identify opportunities for business innovation. Furthermore, it should examine assets, resources, and competency of the staff and identify those mechanisms that confer a distinctive advantage over their rivals. Choice of appropriate strategy could then lead to superior performance. With the help of e-commerce, firms implementing such initiatives should carefully analyze external forces, internal resources and their core competencies.

From the IS perspective, the value chain model highlights interdependence activities in businesses where competitive strategies can be best applied and where IS are most likely to have strategic impact. As information technologies developed, novel ways of business process redesign emerged. Most organizations today use Internet technology to redesign their processes in ways that provide new competitive advantage. For example, through the infrastructure of existing B2B exchanges in the e-marketplaces, many organizations will eventually be able to integrate activities of their value chain encompassing suppliers, customers, and distribution channels within an industry or across industries. B2B is not limited to the externalities of a firm. A company that wants to leverage the promising opportunities of B2B has to focus not only on its external relationships with channel partners along the value system. It also needs to adopt its value chain internally, to an appropriate extend. B2B, in a broad sense, offers solutions to both, the external as well as the internal challenge. Moreover, it gives an organization the possibility to redefine itself, its strategic position within its industry and its relations with its business and non-business environment. This leads to Proposition 3: Proposition 3. Optimizing value chains by e-commerce will bring positive impact on implementation of firm strategy. Companies that optimize their value chains by e-commerce will achieve their strategic objectives easily.

CONCLUSION

The use of e-commerce has played a major role in many strategic initiatives. But, organizations still are unsure how e-commerce system would be developed to support firm strategy. This study sought to investigate how e-commerce impact firm strategy and examine the fit between e-commerce development method and corporation strategy. We tested for the effect of three types of e-commerce development methods on strategy and found significant effects of e-commerce on strategy implementation. The findings from our study suggest that while firms face many challenges in crafting strategies, it is critical to think of the role of e-commerce. The greater the impact of e-commerce on firm strategy, the more significant is application of e-commerce.

Role of Strategic Management in Marketing, Finance, HR and Global Competitiveness

STRATEGIES FOR GLOBAL MARKETS

INTRODUCTION

In this unit we look at the strategies companies adopt when they expand outside their domestic marketplace and start to compete on a global scale. One alternative available for companies is to follow the same strategy worldwide, which is referred to as a global strategy. Selling the same product the same way in every nation (standardization) allows a company to realize substantial cost savings from greater

economies of scale. These cost savings can then be passed on to consumers in the form of lower prices, enabling firms to gain market share from competitors. However, to succeed in a new marketplace, it may have to customize its product offering to cater to the tastes and preferences of local consumers. While this may help, the shorter production runs associated with such a strategy sometimes raise the costs of Competing and lower a firm’s profit margins.The decision to standardize or customize is a classic dilemma that confronts global companies. In this unit, we consider the different strategies that companies use to compete in the global marketplace and discuss the advantages and disadvantages of each. In this unit we also examine the different approaches that companies employ to enter foreign markets-including exporting, licensing, setting up a joint venture, and setting up a wholly owned subsidiary. 

NEED FOR GLOBAL EXPANSION MarketsExpanding globally allows companies to increase their profitability which is not possible to purely domestic enterprises. Companies that operate internationally can: i) earn a greater return from their unique competencies; ii) realize location advantages by dispersing different value creation activities to those locations where they can be performed most efficiently; and iii) come down the experience curve faster than the competitors, thereby offering more competitive products to the consumers.

UNIQUE COMPETENCIESUnique competencies are defined as “unique strengths that allow a company to achieve superior efficiency, quality, innovation, or customer responsiveness.” Such strengths are typified by product offerings that other companies find difficult to match or imitate. Thus, unique competencies are vital for a company’s competitive advantage. They enable a company to lower costs and also differentiate its product offerings. Companies with valuable distinctive competencies can often realise huge returns by applying those competencies and the products they produce to foreign markets, where indigenous competitors lack similar competencies and products.

LOCATION ADVANTAGESLocation advantages are those that occur from performing a value creation activity in the most advantageous location for that activity- in whichever part of the world that might be (transportation costs and trade barriers permitting). Locating a value creation activity in the most favourable location for that activity can have one of two effects. It can: i) lower the costs of value creation, helping the company achieve a low-cost position or ii) enable a company to differentiate its product offering and charge apremium price. A company that realises location economies by dispersing each of its value creation activities to its optimal location should have a competitive advantage over a company that concentrates all its activities at a single location. It should be better able to differentiate its product offering and lower its cost structure than its single-location competitor. The basic assumption is that by dispersing itsmanufacturing and design activities, a firm will be able to establish a competitive advantage for itself in the global marketplace.

EXPERIENCE CURVEExperience curve refers to the systematic decrease in production costs that occur over the life of a product. Learning effects and economies of scale lie behind the experience curve and moving down that curve allows a company to lower the costs. A company that moves down the experience curve more quickly will have a cost advantage over its competitors. Most of the sources of experience-based cost

economies are generally found at the plant level. Dispersing the fixed costs of building productive capacity over a large output reduces the cost of producing a product. Hence the answer to riding down the experience curve as rapidly as possible is to increase the accumulated volume produced by a plant as quickly as possible. Global markets are larger than domestic markets and, therefore, companies that servea global market from a single location are likely to build up accumulated volume faster than companies that focus primarily on serving their home market or on serving multiple markets from multiple production locations.

COMPULSIONS FOR COST REDUCTION AND RESPONSIVENESSCompanies that compete globally generally face two types of competitive pressures: pressures for cost reductions and pressures to be locally responsive. International companies must cope with pressures for cost reductions. This is more so for industries producing commodity-type products such as bulk chemicals, petroleum, steel, sugar, etc. for which price is the main competitive weapon. Pressures for cost reductions are also severe in industries in which the competitors are based in low-cost locations.Liberalization of the world trade environment is also expected to generally increase cost pressures because of greater international competition. Countering pressures for cost reductions requires that a company minimize its unit costs. To attain this goal, a company may have to base its value creating activities at the most favorable low-cost location anywhere in the world and offer a standardized product globally in order to ride down the experience curve as quickly as possible.In contrast, responding to pressures to be locally responsive requires that a company differentiate or customize its product offering and marketing strategy from country to country in an effort to cater to the different consumers’ tastes and preferences, business practices, distribution channels, competitive conditions, and governmental policies. Since differentiation across countries can involve significant duplication and a lack of product standardization, it may raise costs. Dealing with these conflicting andContradictory pressures are a difficult challenge for a company, mainly because being locally responsive tends to raise costs.

RESPONSIVENESS TO LOCAL NEEDSPressures for local responsiveness crop up due to differences in consumers’ tastes and preferences, differences in infrastructure, differences in distribution channels, and the demands of the host government. Consumers’ tastes and preferences differ significantly between countries due to historic or cultural reasons. Hence, the product and marketing messages have to be customized to appeal to the tastes and preferences of local consumers in such cases. This typically requires entrusting the production and marketing decisions to local subsidiaries. Pressures for local responsiveness also crop up due to differences in infrastructure and/or traditional practices among countries, creating a need to customize products suitably. This may again require the delegation of manufacturing and production functions to local subsidiaries. Differences in distribution channels among countries may require adopting different strategies. This may necessitate the delegation of marketing functions to national subsidiaries. Finally, economic and political demands imposed by host governments may necessitate a degree of local responsiveness. Generally, threats of protectionism, economic nationalism, and local content rules all dictate that international businesses manufacture locally. Pressures for local responsiveness restrict a firm from realizing full benefits from experience-curve effects and location advantages. In addition, pressures for local responsiveness imply that it may not be possible to transfer from one nation to another the skills and products associated with a company’s distinctive competencies.

STRATEGIC CHOICE

Companies use four basic strategies to enter and compete in the international environments which are discussed below. Each of these strategies has its advantages and disadvantages.

International StrategyCompanies that pursue an international strategy create value by transferring valuable skills and products to foreign markets where local competitors lack those skills and products. Most international companies have created value by transferring differentiated product offerings developed at home to new markets overseas.Consequently, they tend to centralize product development functions in their home country. However, they also tend to establish manufacturing and marketing functions in each major country in which they do business. Although they may undertake some local customization of product offering and marketing strategy, this tends to be limited in scope. Ultimately, in most international companies the head quarters retains tight control over marketing and product strategy. An international strategy makes sense if a company has valuable unique competencies that local competitors in foreign markets lack and if the company faces relatively weak pressures for local responsiveness and cost reductions. In such situations, an international strategy can be very profitable. However, when pressures for local responsiveness are high, companies pursuing this strategy lose out to companies that place a greater emphasis on customizing the product offering and market strategy to local conditions. Furthermore, because of the duplication of manufacturing facilities, companies that pursue an international strategy tend to incur high operating costs. Therefore, this strategy is often unsuitable for industries in which cost pressures arehigh.

Multidomestic StrategyCompanies pursuing a multidomestic strategy orient themselves toward achieving maximum local responsiveness. As with companies pursuing an international strategy, they tend to transfer skills and products developed at home to foreign markets. However, unlike international companies, multidomestic companies extensively customize both their product offering and their marketing strategy to different national environments. Consistent with this approach, they also tend to establish a complete setof activities – including production, marketing, and R&D in each major national market in which they do business. As a result, they generally do not realize value from experience-curve effects and locations advantages and, therefore, often have a high cost structure.

A multidomestic strategy makes most sense when there are high pressures for local responsiveness and low pressures for cost reductions. The high cost structure associated with the replication of production facilities makes this strategy inappropriate in industries in which cost pressures are intense. Another limitation of this strategy is that many multidomestic companies have developed into decentralizedgroupings in which each national subsidiary functions in a largely autonomous manner. As a result, after some time they begin to lose the ability to transfer the skills and products derived from distinctive competencies to their various national subsidiaries around the world.

Global StrategyCompanies that follow a global strategy focus on increasing profitability by reaping the benefits of cost reductions that come from experience-curve effects and location economies. That is, they are pursuing a low-cost strategy. The various activities such as production, marketing, and R&D of companies pursuing a global strategy are concentrated in a few favorable locations. Global companies do not tend to customize their product offering and marketing strategy to local conditions. This is because customization raises costs because it involves shorter production runs and the duplication of functions. Instead, global companies prefer to market a standardized.

Competitive Scenarios and StrategyProduct worldwide so that they can reap the maximum benefits from the economies of scale that lie behind the experience curve. This strategy makes sense in those cases in which there are strong pressures for cost reductions and where demands for local responsiveness are minimal. These conditions exist in many industries manufacturing industrial goods.

Transnational StrategyCompanies whose operations are spread across several locations worldwide and are not confined to any country or a region and which pursue low cost and product differentiation at the same time is referred to as transnational companies. In essence, transnational companies operate on a global level while maintaining a high level of local responsiveness. A transnational strategy makes sense when a company faces high pressures for cost reductions and high pressures for local responsiveness. Companies that pursue a transnational strategy basically try to achieve low-cost and differentiation advantages simultaneously. Although this strategy looks attractive, in practice it is a difficult strategy to pursue. Pressures for local responsiveness and cost reductions place conflicting demands on a company. Local responsiveness raises costs, which clearly makes cost reductions difficult to achieve. Although a transnational strategy apparently offers the most advantages, it should be remembered that implementing it raises difficult organizational issues. The appropriateness of each strategy depends on the relative strength of pressures for cost reductions and for local responsiveness.

APPROACHES TO GLOBAL ENTRYThere are five main modes of entering a foreign market: exporting, licensing, franchising, entering into a joint venture with a host country company, and setting up a wholly owned subsidiary in the host country. Each entry mode has its advantages and disadvantages, and companies must weigh these carefully when deciding which mode to use.

ExportingMany manufacturing companies begin their quest for global expansion as exporters and then switch to other modes. Exporting has two distinct advantages. First, it avoids the costs of establishing manufacturing facilities in the host country, which are often quite substantial. Second, by manufacturing the product in a centralized location and then exporting it to foreign markets, the company may be able to realize substantial economies of scale from its worldwide sales. For instance, many Indian companies inthe floriculture business export their entire production to Europe to take advantage of the lower cost of production and the favorable climatic conditions in the country. On the contrary, there are a number of negative aspects to exporting. First, exporting from the company’s home base may not be appropriate if there are low-cost manufacturing locations abroad. A second drawback is that high transport costs canmake exporting uneconomical, particularly for bulk products. One way of overcoming this problem is to manufacture bulk products locally. This strategy allows a company to realize economies from large-scale production and at the same time minimize transport costs. Thus, many multinational companies manufacture their products from a base in a region and serve several countries in that regional base. Third, tariff barriers can make exporting uneconomical. In fact the threat of tariff barriers by acountry may sometimes force a company to set up manufacturing facilities in that country. Finally, the practice of delegating marketing activities to a local agent among companies that are just beginning to export also poses risks since there is no guarantee that the agent will act in the company’s best interest. Moreover, many foreign agents also deal with the products of competitors leading to divided loyalties. Therefore, company would perform better if it manages marketing on its own. One way to do it is to set up a wholly owned subsidiary in the host country to handle marketing locally. This can lead to huge cost

advantages arising from manufacturing the product in a single location and controlling the marketing activities in the host country.

LicensingLicensing is an arrangement by which a foreign licensee buys the rights to produce a company’s product in the licensee’s country for a negotiated fee. The licensee then invests major share of the capital required to commence the operations. The advantage of this arrangement is that the company need not bear the development costs and risks associated with launching foreign operations. Hence, licensing is avery attractive choice for companies that can not invest capital to develop overseas operations or for companies unwilling to take the risk of committing substantial financial resources in unfamiliar or politically volatile foreign environment. In high technology areas it is quite common for companies to provide know-how through licensing arrangements. For instance, Ranbaxy Laboratories Ltd. is seeking partners for out-licensing its urology, respiratory and anti-infectives technologies. Licensing as a mode of entry into global arena has three serious drawbacks. First, companies do not reap the benefits of cost economies and location economies since licensees typically set up their own manufacturing facilities. And in cases where these economies are important, licensing may is not the best mode to go overseas.Second, in a global marketplace it is necessary to coordinate all the operations across all the countries in order to use the profits earned in one country to support competitive attack in another. Licensing severely restricts a company’s ability to do this. A licensee will not let a multinational company to take its profits to support competitive moves of the company in other countries. A third and a very major problem with licensing is the risk associated with licensing and sharing technological know-how with foreign companies. Technological knowhow provides a formidable competitive advantage for many technology based companies and licensing its technology can quickly erode its competitive advantage.

FranchisingFranchising is a strategy employed mainly by service companies. The advantages of franchising are similar to those of licensing. The franchiser does not bear the development costs and risks of commencing the operations in a foreign market on its own since the franchisee typically assumes those costs and risks. Thus, a service company can build up a global presence quickly and at a low cost, using a franchising strategy. The disadvantages, however, are less prominent than in the case of licensing.Since franchising is a strategy used by service companies, a franchiser need not coordinate manufacturing activities in order to realise experience- curve effects and location advantages. McDonald Restaurants have entered India through the franchising and so is Kentucky Fried Chicken of US. A major disadvantage of franchising is the lack of quality control. A basic notion of franchising arrangements is that the company’s brand name conveys a message of quality to the consumers. The geographic distance from the franchisees and the large number of franchisees make it difficult for the franchiser to maintain quality and hence quality problems generally persevere. To overcome this handicap, companiesset up a subsidiary, which is wholly owned or a joint venture with a foreign partner in each country and region in which they plan to operate. Closeness and the limited number of independent franchisees to be monitored reduce the problem of quality control. This type of arrangement is well accepted in franchising.

Joint VenturesJoint venture with a foreign partner to enter foreign markets has been the vogue in recent times. A 50:50 venture is quite common, in which each party takes a 50 percent ownership stake and operating control is shared by a team consisting of managers from both parent companies. Some companies, however, prefer joint ventures in which they have a majority shareholding since this allows tighter control by the

principal partner. As mentioned earlier, joint venture is a very mode of entry into foreign markets. In our country we have seen a spate of joint ventures in various sectors, particularly in automobile and pharmaceutical sector. Honda Company’s joint venture with Hero Cycles, Suzuki’s JV with TVS, Suzuki with Maruti Udyog, Wipro with GE are the examples of a large number of JVs that have come up in recent years. Joint ventures have a number of advantages, the first one being the benefit a companycan derive from a local partner’s knowledge of a host country’s business ecosystem. Second, a company might gain by sharing high costs and risks associated with opening of a new market with a local partner. Finally, political considerations in some countries make joint ventures the only practical way of entering those markets. Despite these advantages, joint ventures are difficult to establish and run because oftwo reasons. First, as in the case of licensing, a company risks losing control over its technology to its venture partner. To minimize this risk, the dominant company can seek a majority ownership stake in the joint venture to exercise greater control over its technology provided the foreign partner is willing to accept a minority ownership. The second disadvantage is that a joint venture does not give a company the tight control over its subsidiaries needed to realize experience curve effects or location advantages or to engage in coordinated global attacks against its rivals.

Wholly Owned SubsidiaryA wholly owned subsidiary offers three advantages. First, when a company’s competitive advantage is based on its technological superiority, a wholly owned subsidiary makes sense, since it reduces the company’s risk of losing control over this critical aspect. For this reason, many high-tech companies prefer wholly owned subsidiaries to joint ventures or licensing arrangements. Second, a wholly ownedsubsidiary gives a company the kind of tight control over operations required for global coordination to take profits from one country to support competitive strategy in another. Finally, a wholly owned subsidiary may be the best choice if a company has to realize location advantages and experience-curve effects. The entry of a number of South Korean companies such as LG, Samsung, Hyundai into India by setting up subsidiaries without a local partner are examples of wholly owned subsidiaries.

SUMMARYIn this unit we examined the various ways in which companies can benefit from global expansion. We also discuss the optimal choice of entry mode to serve a foreign market. International expansion represents a way of earning greater returns for companies by transferring the skills and product offerings derived from their unique competencies to markets in which indigenous competitors lack those skills. Due to national differences, a company can benefit by basing each of activity it performs at the location where factor conditions are most favorable to the performance of that activity. This is referred to as location advantage. By increasing sales volume rapidly, global expansion can assist a company in the process of moving down the experience curve.

The best choice of strategy for a company to pursue is affected by two kinds of pressures: pressures for cost reductions and pressures for meeting the needs of local markets (local responsiveness). Pressures for cost reductions are greatest in industries producing commodity-type products, for which price is the main competitive weapon. Pressures for local responsiveness arise from differences in consumers’ tastes andPreferences in national infrastructure and/or traditional practices, in distribution channels, and in demands by host governments. Companies following an international strategy transfer the skills and products derived from unique competencies to foreign markets and at the same time undertake someLimited local customization. Companies pursuing a multidomestic strategy customize their product offering, marketing strategy, and business strategy to national conditions. Companies pursuing a global strategy focus on deriving benefits from cost reductions that come from experience-curve effects and location advantages. There are five different ways of entering a foreign market-exporting, licensing,

franchising, entering into a joint venture, and setting up a wholly owned subsidiary. The optimal choice among entry modes depends on the company’s strategy.

Strategic Marketing issueThe marketing manager is the company’s primary link to the customer and the competition. The manager, therefore, must be especially concerned with the market position and marketing mix of the firm.

Market position & Segmentation

Market position deals with the question, “Who are our customer?” it refers to selection of specific areas for marketing concentration and can be expressed in terms of market, product, and geographical locations.

Through market research, corporations are able to practice market segmentation with various products or services so that managers can discover what niches to seek, which new types of products to develop, and how to ensure that a company’s many products do not directly compete with one another.

Marketing Mix

The marketing mix refers to the particular combination of key variables under the corporation’s control that can be used to affect the demand and to gain competitive advantage. And these variables are product, place, promotion and price.

Product Life Cycle

Product life cycle is a graph showing time plotted against sales of a product as it moves from introduction to growth and maturity to decline. This concept enables a marketing manager to examine the marketing mix of a particular product or group of products in terms of its position in its life cycle.

Strategic financial issues

HR’s Strategic RoleIf a firm’s competitiveness depends on its employees, then the business function responsible for acquiring, training, appraising, and compensating those employees has to play a bigger role in the firm’s success. The notion of employees as competitive advantage has therefore led to a new field of study known as strategic human resource management, “the linking of HRM with strategic goals and objectives in order to improve business performance and develop organizational cultures that foster innovation and flexibility.”37 Ideally, HR and top management together craft the company’s business strategy. That strategy then provides the framework that guides the design of specific HR activities such as recruiting and training. This should produce the employee competencies and behaviors that in turn should help the business implement its business strategy and realize its goals.

Human Resources Series

1. HR’s Strategic Role2. Effective Recruitment & Selection1. Techniques2. Benefits3. Labor & Employee Relations4. Compensation Fundamentals5. Health, Wellness, & Disability6. Management7. HR Development

HR’s Strategic Role

1. HR’s Evolving Role2. Strategic Planning & the Change1. Management Process2. HRIS3. Organization Design4. Measuring Organization Performance5. Measuring Human Performance6. Ethics

Roles are evolving from administrative (personnel function) to strategic partner.

– Consultative Role: Coach Managers to manage their resources within the laws & ensure maximum potential.– Change Management Role, systems design.– Administrative Role, e.g. records maintenance.

Focus on Business Objectives – Structure activities around key business objectives

Focus on the Environment – Scenario planning on workforce issues to anticipate changes in the environment.

Focus on Core Values

– Ensure that core values are embedded in key HR elements, e.g. hiring, job requirements, rewards.

Emerging Roles Examples of Strategic Partnering– Effectively managing & utilizing people– Tying performance appraisal & compensation to competencies.– Developing competencies that enhance individual & organizational performance– Increasing the innovation, creativity & flexibility necessary to enhance competitiveness.

Strategic Roles for Finance

• Measuring the performance of critical processes so that improvement or deterioration is visible and the

underlying causes are understood and communicated

• Redeploying capital from projects and activities that are not producing an attractive rate of return to

more lucrative opportunities

• Providing actionable, relevant and time-sensitive information to business leaders so that they can make

more informed decisions

• Forecasting and communicating business changes so that leaders can position the company to either

exploit opportunity or mitigate risk

• The assumption of roles with greater value and strategic importance will position finance as an essential

and trusted advisor to business leaders.

Finance Transformation

Competitive pressures and the capabilities that finance can now command compels it to transform and

assume a greater strategic role. Transformation is an approach for the CFO who seeks to become an agent

of leadership and change. The approach of adding personnel to add capacity is no longer effective. It has

high long term costs, diminishing incremental value and only maintains the capability status quo.

Transformation must incorporate the adoption of new roles and responsibilities, software tools and

programs for finance to become a more valued partner with the operating managers of the company.

Transformation requires addressing four key areas: Process Efficiency, Business Performance

management, Analytical Support and Predictive Analysis.

Process Efficiency

Finance must eliminate labor-intensive transactions and transaction processing. This is accomplished by

implementing automation, re-engineering and outsourcing. These improvements free finance from low-

value activities enabling a shift of focus to high-value analysis and a role as a strategic business partner.

Business Performance Management (BPM)

BPM greatly reduces the time spent on gathering and consolidating planning, budgeting, actual and

operational data by seamlessly integrating the disconnected information and activities of financial

processes. A unified BPM approach allows finance to minimize low-value compilation and reconciliation

activities and spend more time on valuable analysis to improve business performance.

Analytical Support

Once analytical tools are in place, finance must implement the kind of analysis and investigation that will

be relevant and valuable by using its inherent analytical strengths to help business leaders solve

problems, gain marketplace advantage and support new initiatives. Examples include expenditure

analysis, activity based costing and project cost/benefit analysis.

Predictive Analysis

The most valuable capability of finance is to rapidly project the impact of current events or future

scenarios and developments on each part of the business through its forecasts and analysis. Finance is

then able to provide business leaders an understanding of the factors that will impact future results so that

they can position the company to maximize the opportunity or mitigate the risk.

The Strategic Advantage of Finance

Leaders are the most valuable asset of an organization. They integrate internal business information with

market events and industry knowledge to identify new opportunities and formulate strategy. The next wave of productivity and performance increases will come from using processes and tools to combine financial and operational information with the market knowledge possessed by business leaders. Finance has an opportunity to drive these performance increases with transformation. Finance organizations that transform to focus on the future, produce superior information and communicate will empower leaders to make better decisions. The accumulation of better operational, tactical and strategic decisions by informed leaders will drive improved financial and operational performance and create a strategic advantage for companies with finance leadership.

Environmental Scanning - Internal & External Analysis of Environment

Environmental scanning is the monitoring, evaluating, and disseminating of information from external and internal environments to key people within the organization. A corporation uses this tool to avoid strategic surprise and to ensure its long- term health. Researches establish a positive relationship between environmental scanning and profits.

Organizational environment consists of both external and internal factors. Environment must be scanned so as to determine development and forecasts of factors that will influence organizational success. Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organization’s internal and external environment. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another.

Analysis of Societal environment

Market Analysis

Competitor Analysis

Supplier Analysis

Community Analysis

Interest Group Analysis

Government Analysis

Selection of Strategic Factors

Opportunities Threats

Analysis of Societal environmentEconomic, Socio cultural, Technological, Political- Legal Factors

Community Analysis

Interest Group Analysis

Internal analysis of the environment is the first step of environment scanning. Organizations should observe the internal organizational environment. This includes employee interaction with other employees, employee interaction with management, manager interaction with other managers, and management interaction with shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational potential, etc. Also, discussions, interviews, and surveys can be used to assess the internal environment. Analysis of internal environment helps in identifying strengths and weaknesses of an organization.

As business becomes more competitive, and there are rapid changes in the external environment, information from external environment adds crucial elements to the effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify competitors’ moves and actions. Organizations have also to update the core competencies and internal environment as per external environment. Environmental factors are infinite, hence, organization should be agile and vigile to accept and adjust to the environmental changes. For instance - Monitoring might indicate that an original forecast of the prices of the raw materials that are involved in the product are no more credible, which could imply the requirement for more focused scanning, forecasting and analysis to create a more trustworthy prediction about the input costs. In a similar manner, there can be changes in factors such as competitor’s activities, technology, market tastes and preferences.

While in external analysis, three correlated environment should be studied and analyzed —

immediate / industry environment national environment broader socio-economic environment / macro-environment

Examining the industry environment needs an appraisal of the competitive structure of the organization’s industry, including the competitive position of a particular organization and it’s main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also implies evaluating the effect of globalization on competition within the industry. Analyzing the national environment needs an appraisal of whether the national framework helps in achieving competitive advantage in the globalized environment. Analysis of macro-environment includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of organization’s external environment reveals opportunities and threats for an organization.

Strategic managers must not only recognize the present state of the environment and their industry but also be able to predict its future positions.

Economic Technological Political- Legal SocioculturalGDP Trends Total government

spending for R&DAntitrust regulation Lifestyle changes

Interest rate Total industry spending for R&D

Environmental protection laws

Career expectation

Money Supply Focus for technological efforts

Tax laws Consumer activism

Inflation rates Patent protection Special incentives Rate of family formationUnemployment Levels New products Foreign trade

regulationsGrowth rate of population

Wage/ price controls New development in Attitude toward foreign Age distribution of population

technology transfer from lab to marketplace

companies

Devaluation/ revaluation

Productivity improvement through automation

Laws on hiring and promotion

Regional shifts in population

Energy availability and cost

Internet availability Stability of government Life expectancies

Disposable and discretionary income

Telecommunication infrastructure

Birth rates

PESTEL FRAMEWORKThe external forces can be classified into six broad categories: Political, Economic, Social, technological, Environmental and Legal Forces. Changes in these external forces affect the changes in consumer demand for both industrial and consumer products and services. These external forces affect the types of products produced, the nature of positioning them and market segmentation strategies, the types of services offered, and choice of business. Therefore, it becomes important for the organizations to identify and evaluate external opportunities and threats so as to develop a clear mission, designing strategies to achieve long-term objectives and develop policies to achieve short-term goals. Here, we will discuss all the six forces individually and then try to come to the conclusion regarding environmental analysis.

Few indicative points are listed to guide you to find the key forces at work in the general environment. While the framework may be used to understand the most important factors at the present time, it should be primarily used to look into the future impact which may be different from their present or past impact.

The PESTEL Framework – Macro-environmental influences. The framework primarily involves the following two areas:

1. The environmental factors affecting the organization;2. The important factors relevant in the present context and in the years to come.

Political1. Government stability2. Political values and beliefs shaping policies3. Regulations towards trade and global business4. Taxation policies5. Priorities in social sector

Environmental Analysis Economic Factors1. GNP trends2. Interest rates/savings rate3. Money supply4. Inflation rate5. Unemployment6. Disposable income7. Business cycles8. Trade deficit/surplus

Socio-cultural Factors1. Population demographics

2. ethnic composition3. aging of population4. regional changes in population growth and decline5. Social mobility6. Lifestyle changes7. Attitudes to work and leisure8. Education – spread or erosion of educational standards9. Health and fitness awareness10. Multiple income families

Technological1. Biotechnology2. Process innovation3. Digital revolution4. Government spending on research5. Government and industry focus on technological effort6. New discoveries/development7. Speed of technology transfer8. Rates of obsolescence

Legal1. Monopolies legislation/Antitrust regulation2. Employment law3. Health and safety4. Product safety

Political: Politics has a serious impact on the economic environment of a country. Political ideology and political stability or instability strongly influence the pace and direction of the economic growth. Also it contributes to the economic environment which is conducive for some businesses to grow or remains indifferent for some businesses and at times is a hurdle. Subsequent to general elections of 2004 in thecountry, there has been a change in the government at the centre. A new coalition United Progressive Alliance (UPA) led by the Congress party and supported by Left is ruling at the centre and the implications on business can be seen through few of the policy statements announced by the government. Even though the broad policy direction is in line with the policy of an open economy and private sector initiative, the Strategic Analysis Common Minimum Programme has identified few priority areas which is going to have an impact different than before. Particularly when there are certain ideologies which view differently the issues like FDI and privatization, the future of different sectors like insurance and banking, aviation and telecommunication have become uncertain.

Common Economic Indicators

A. National Income B. Policy Initiatives

GNP Monetary policyPersonal disposable Income Fiscal policyPersonal consumption Labor and employment policy

C. Savings D. Foreign Sector

Personal savings Exchange ratesCorporate savings Exports/Imports

Balance of PaymentsE. Industry F. Sectoral Growth

Industry Investment AgricultureFDI flows IndustryServicesInfrastructure

G. Capital Market H. Prices, Wages, ProductivityEquity market InflationBond market Labor productivity

Economic factors throw light on the nature and direction of the economy in which a Environmental Analysis firm operates. The firms must focus on economic trends in segments that affect their industry. For example the present trend of low interest rates on personal savings may compel individuals to move towards equity and bond markets leading to a boom in the capital market activity and the mutual fund industry. Consumption patterns are usually governed by the relative affluence of market segments and firms must understand them through the level of disposable income and the tendency of people tospend. Interest rates, inflation rates, unemployment rates and trends in the gross national product, government policies and sectoral growth rates are other economic influences it must consider.

The services sector’s contribution to national income is increasing year after year and the family incomes are rising faster than individual incomes, job opportunities are more diverse and therefore these speak for different types of opportunities and challenges which are emerging before the business. With the opening up of the economy, trends in global market need a careful look. The above needs to be analyzed and incorporated in your inferences for the general environment and its other forces and how all these together may influence business.

Social Demographic Factors: Demographic characteristics such as population, age distribution, literacy levels, inter-state migration, rural-urban mobility, income distribution etc. are the key indicators for understanding the demographic impact on environment. The shifts in age distribution caused by improved birth control methods have created opportunities for youth centric products ranging from clothes to entertainment to media. The growing number of senior citizens and their livelihoodneeds have been highlighted and the government is being forced to pay more attention in the form of social security benefits etc.

Considering Literacy and the composition of literates in the country creates opportunities for particular type of industries and type of jobs. For example on one hand, the presence of a large number of English speaking engineers encouraged many software giants to set up shops in India and on the other, the availability of cheap labor, India becomes a destination for labor intensive projects. Moreover, largelabor mobility across different occupations and regions, in recent times, has cut down wage differentials greatly and this has an impact for business which needs to be understood.

Cultural Factors: Social attitudes, values, customs, beliefs, rituals and practices also influence business practices in a major way. Festivals in India offer great business opportunity for certain industries like clothes and garments, jewellery, gift items, sweetmeats and many others, the list could be endless.Social values and beliefs are important as they affect our buying behavior. For example, Mc Donald’s does not serve the beef burgers in India because Indians do not

Strategic Analysis have cow meat since the animal is considered holy and sacred. A related example ofWalt Disney also brings out clearly, the impact different cultures may bring to business. Walt Disney which has been so suffcessful in US market could not be so similarly successful in European countries

because of the difference in the way in which people entertain themselves there. Walt Disney had to customize its offerings in order to be successful in these markets. The spread of consumerism, the rise of the middle class with high disposable income, the flashy lifestyles of people working in software, telecom, media and multinational companies seem to have changed the socio-cultural scenario and this need to be understood deeply. Values in society also determines the work culture, approach towards stakeholders and the various responsibilities the organization thinks of owing to its stockholders and thesociety.

Technology: Technological factors represent major opportunities and threats which must be taken into account while formulating strategies. Technological breakthroughs can dramatically influence the organization’s products, services markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices and competitive position. Technological advancements can open up new markets, change the relative position of an industry and render existing products and services obsolete. Technological changes can reduce or eliminate cost barriers between businesses, create shorter production runs, create shortages in technical skills and result in changing values and expectations of customers and employees.The impact of information technology (IT) which combines fruits of both telecommunications and computers has been revolutionary in every field. Not only has it opened up new vistas of business but also has changed the way the businesses are done. IT has specifically brought in another dimension ‘Speed’ which organizations recognize as the additional source of competitive advantage beyond low cost and differentiation. Manufacturers, bankers and retailers have used IT to carry out their traditional tasks at lower costs and deliver higher value added products and services.

PESTLE Analysis of the Global Aviation IndustryIntroduction

When we think of airlines, we usually think of luxury and opulence as well as comfort and convenience. However, beneath the veneer, the airlines worldwide are caught in a cycle of higher operating costs, lower profits, and decreasing margins because of the various factors discussed in this article. Though the passengers might not notice these aspects, it is the case that once one scratches the surface and does some research, it is clear that the airline industry is in a mess and only, radical restructuring can help revive its fortunes. The PESTLE methodology is a useful tool to analyze the current state of the airline industry.

Political

The political environment in which airlines operate is highly regulated and favors the passengers over the airlines. This is because of the fact that the global aviation industry operates in an environment where passenger safety is paramount and where, the earlier tendencies towards monopolistic behavior by the airlines have made the political establishment weary of the airlines and hence, they have resorted to tighter regulation of the operations of the airlines. Further, the global aviation industry is also characterized by deregulation on the supply side meaning more competition among airlines and regulation on the demand side meaning passengers and fliers are in a position where they can press for more amenities and low prices.

Economic

The global airline industry never really recovered from the aftermath of the 911 attacks. Added to this was the prolonged recession in the wake of the dotcom bubble bursting. The other debilitating factor was the fluctuations in the price of oil because of the Second Iraq War and the subsequent spike in oil prices just before The Great Recession of 2008. This last aspect or the ongoing global economic slowdown has meant that the already struggling airlines now have to contend with declining passenger traffic, competition from low cost carriers, high aviation fuel prices, labor demands, and soaring maintenance and operating costs. All these factors have made the airlines loss making and prone to bankruptcies and closure because they can no longer afford to run their operations profitably. Of course, this has also resulted in greater consolidation among the airlines as they seek to leverage the efficiencies from the economies of scale and the synergies from the merger with other airlines.

Social

In the recent years, the emergence of the Millennial generation into the consumer class has meant that the social changes of a generation used to entitlement, instant gratification, and more demanding in terms of service has resulted in the airlines having to balance their costs with the increasing demands from this segment. Added to this is the retiring of the Baby Boomer generation that has resulted in the airlines losing a lucrative source of income. Next, the profile of the passengers has changed with more economically minded passengers and less business class passengers who prefer to leverage on the improved communication facilities to conduct meetings remotely instead of flying down to meet their business partners.

Technological

Though it is a fact that the airline industry uses technology extensively in its operations, they are limited to the aircraft and the operations of the airlines excluding the ticketing and the distribution aspects. This has prompted many experts to call on the airlines to make use of the advances in technology for the front office and the customer facing functions as well. In other words, the technological changes have to be adapted to include mobile technologies as far as ticketing, distribution, and customer service are concerned. Further, social media has to be leveraged by the airlines to ensure that the boarder social and technological changes do not pass by the airline industry.

Legal

In recent years, the number of lawsuits against airlines from both customers as well as workers has gone up. Further, the regulators are being stricter with the airlines, which mean that they are now increasingly wary of their strategies, and actualizing their strategies only after they are fully convinced that they are not violating any laws. The “double whammy” of increased regulation and more expensive lawsuits apart from the legal system becoming intolerant of delays, safety issues, and other aspects has only served to heighten the fears among the airlines as each and every move of theirs is being scrutinized.

Environmental

With climate change entering the social consciousness, passengers are now counting their carbon footprint with the result that they are now more environmentally conscious. This has resulted in the airlines being forced to adopt “green flying” and be more responsive to the concerns of the environmentalists. Further, the social responsibility initiatives are becoming more pronounced and more

under scrutiny as consumers and activists turn a critical eye towards the airlines and their corporate social responsibility.

Conclusion: The Airline Death Spiral

The discussion so far leads to the conclusion that the global airline industry is now in a phase where the “Airline Death Spiral” has taken over. This has resulted in a wave of bankruptcies and closure of airlines worldwide. Further, the regulators are not lenient with airlines when they ask for more time or ask for less strict rules and regulations. Apart from this, the demanding fliers and competition from low cost airlines means that full service airlines can no longer compete on price or volume. Finally, the increased costs of doing business have dented the profitability and the viability of the global airline industry.

Industry Analysis An industry is a group of firms producing a similar product or services, such as soft drinks or financial services. Industry analysis refers to an in- depth examination of key factors within a corporation’s task environment.

Porter’s approach to industry analysis Michael Porter, an authority on competitive advantage, contends that a corporation is most concerned with the intensity of competition within its industry. The level of this intensity can be better determined by basic competitive forces, which are depicted below:

“The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long- run return on invested capital”.

In careful scanning its industry, the corporation must assess the importance to its success of each of the six forces:

Threat of new entrants Rivalry among existing firms Threat of substitute products or services Bargaining power of buyers Bargaining power of suppliers Relative power of other stakeholders

Porter’s Five Forces Model of CompetitionMichael Porter (Harvard Business School Management Researcher) designed various vital frameworks for developing an organization’s strategy. One of the most renowned among managers making strategic decisions is the five competitive forces model that determines industry structure. According to Porter, the nature of competition in any industry is personified in the following five forces:

i. Threat of new potential entrants ii. Threat of substitute product/services

iii. Bargaining power of suppliers iv. Bargaining power of buyers v. Rivalry among current competitors

FIGURE: Porter’s Five Forces model

The five forces mentioned above are very significant from point of view of strategy formulation. The potential of these forces differs from industry to industry. These forces jointly determine the profitability of industry because they shape the prices which can be charged, the costs which can be borne, and the investment required to compete in the industry. Before making strategic decisions, the managers should use the five forces framework to determine the competitive structure of industry.

Let’s discuss the five factors of Porter’s model in detail:

1. Risk of entry by potential competitors: Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. Entry of new players increases the industry capacity, begins a competition for market share and lowers the current costs. The threat of entry by potential competitors is partially a function of extent of barriers to entry. The various barriers to entry are-

Economies of scale Brand loyalty Government Regulation Customer Switching Costs Absolute Cost Advantage Ease in distribution Strong Capital base

2. Rivalry among current competitors: Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses a strong threat to profitability. The strength of rivalry among established firms within an industry is a function of following factors:

Extent of exit barriers Amount of fixed cost Competitive structure of industry Presence of global customers Absence of switching costs Growth Rate of industry Demand conditions

3. Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product or the firms who distribute the industry’s product to the final consumers. Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. Strong buyers can extract profits out of an industry by lowering the prices and increasing the costs. They purchase in large quantities. They have full information about the product and the market. They emphasize upon quality products. They pose credible threat of backward integration. In this way, they are regarded as a threat.

4. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs( labour, raw materials, services, etc) or the costs of industry in other ways. Strong suppliers can extract profits out of an industry by increasing costs of firms in the industry. Supplier’s products have a few substitutes. Strong suppliers’ products are unique. They have high switching cost. Their product is an important input to buyer’s product. They pose credible threat of forward integration. Buyers are not significant to strong suppliers. In this way, they are regarded as a threat.

5. Threat of Substitute products: Substitute products refer to the products having ability of satisfying customer’s needs effectively. Substitutes pose a ceiling (upper limit) on the potential returns of an industry by putting a setting a limit on the price that firms can charge for their product in an industry. Lesser the number of close substitutes a product has, greater is the opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal).

The power of Porter’s five forces varies from industry to industry. Whatever be the industry, these five forces influence the profitability as they affect the prices, the costs, and the capital investment essential for survival and competition in industry. This five forces model also help in making strategic decisions as it is used by the managers to determine industry’s competitive structure.

Porter ignored, however, a sixth significant factor- complementary. This term refers to the reliance that develops between the companies whose products work is in combination with each other. Strong complimentary might have a strong positive effect on the industry. Also, the five forces model overlooks the role of innovation as well as the significance of individual firm differences. It presents a stagnant view of competition.

Competitor Analysis - Meaning, Objectives and Significance

Organizations must operate within a competitive industry environment. They do not exist in vacuum. Analyzing organization’s competitors helps an organization to discover its weaknesses, to identify opportunities for and threats to the organization from the industrial environment. While formulating an organization’s strategy, managers must consider the strategies of organization’s competitors. Competitor analysis is a driver of an organization’s strategy and effects on how firms act or react in their sectors. The organization does a competitor analysis to measure / assess its standing amongst the competitors.

Competitor analysis begins with identifying present as well as potential competitors. It portrays an essential appendage to conduct an industry analysis. An industry analysis gives information regarding probable sources of competition (including all the possible strategic actions and reactions and effects on profitability for all the organizations competing in the industry). However, a well-thought competitor analysis permits an organization to concentrate on those organizations with which it will be in direct competition, and it is especially important when an organization faces a few potential competitors.

Michael Porter in Porter’s Five Forces Model has assumed that the competitive environment within an industry depends on five forces- Threat of new potential entrants, Threat of substitute product/services, bargaining power of suppliers, bargaining power of buyers, Rivalry among current competitors. These five forces should be used as a conceptual background for identifying an organization’s competitive strengths and weaknesses and threats to and opportunities for the organization from it’s competitive environment.

The main objectives of doing competitor analysis can be summarized as follows:

To study the market;To predict and forecast organization’s demand and supply;To formulate strategy;To increase the market share;To study the market trend and pattern;To develop strategy for organizational growth;When the organization is planning for the diversification and expansion plan;To study forthcoming trends in the industry;Understanding the current strategy strengths and weaknesses of a competitor can suggest opportunities and threats that will merit a response;Insight into future competitor strategies may help in predicting upcoming threats and opportunities.

Competitors should be analyzed along various dimensions such as their size, growth and profitability, reputation, objectives, culture, cost structure, strengths and weaknesses, business strategies, exit barriers, etc.

Competitive intelligenceCompetitive Intelligence is a formal program of gathering information on a company’s competitors the need for an effective competitive intelligence system (CIS) is paramount. In establishing such a system, there are five principal steps:

Setting up the system, deciding what information is needed and, very importantly, who will use the outputs from the system and how

Collecting the data Analyzing and evaluating the data Disseminating the conclusions Incorporating these conclusions into the subsequent strategy and plan, and feeding back the results so

that the information system can be developed further.

A framework for developing a CIS is given in Figure below The mechanics of an effective CIS are in many ways straightforward and involve:

Selecting the key competitors to evaluate. However, in deciding who these competitors should be, the planner should never lose sight of the point that we make about the way in which, in many markets, the real competitive threat comes not from the established players but from new and often much unexpected players who operate with different rules.

Being absolutely clear about what information is needed, how it will be used and by whom.

Selecting and briefing those responsible for collecting the information. Allocating the appropriate level of resource to the collection and evaluation processes. Publishing regular tactical and strategic reports on competition. Ensuring that the outputs from the process are an integral part of the planning and strategy development

processes rather than a series of reports that are rarely used. The sources of data are, as we observed at an earlier stage, likely to vary significantly from one industry to another. However, a useful framework for data collection involves categorizing information on the basis of whether it is recorded, observed or opportunistic.

Approaches to Competitor Analysis (Source Harbridge House)

Arket Environmental Analysis (Opportunities/threats)

Market environmental analysis (ETOP model - External Threats and Opportunities model) is carried out to understand and give quantitative measure to opportunities and threats that are impelling on the operational space of the company.

Example:

Key environmental factorsRelative importance (1-10)/ Weight

Impact(-5 <> +5)/ Rating Score

Market demand 8 +4 +32Cheap raw material 5 +3 +15Regulations 3 -4 -12 Total Score +35

After strategic managers have scanned the societal and task environment and identified a number of likely external factors for their particular corporation. They may want to refine their analysis of these factors using a form such as:Opportunities

Economic integration of European community Demographics favor quality appliances Economic development of Asia Opening of Eastern Europe Trend of “Super Stores”

Threats Increasing government regulation Strong U.S. competition New product advances Japanese appliance companies

Table is one way to organize the external factors into generally accepted categories of opportunities and threats as well as to analyze how well a company’s management (rating) is responding to these specific factors in light of the perceived importance (weight) of these factors to the company.

To obtain the result add the individual weighted scores for all the external factors for that particular company. The total weighted score indicates that how well a particular company responds to current and expected factors in its external environment. The score can be used to compare that firm to other firms in its industry.

Company Capability Analysis (Strengths/ weaknesses)

Company capability analysis (OCP model) is used to assess the business's chance of success in relation to the market opportunity identified. After the analysis the company will know whether the internal competencies of the organization favor the proposed diversification.

Example:

Key organizational factor Relative importance (1-10)

Impact(-5 <> +5) Score

Sales team 7 +4 +28Obsolete machinery 5 -3 -15Advance MIS 4 +3 +12

Cheap financing 2 +2 +4 +29