Strategic Management Exam
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Question 1
Business leaders should study the external environment since the external environment influences the operations of the organizations. External environment refers to inclusive concepts and factors outside the business environment, which the organization must respond to for a smooth flow of operations. (Khandwalla, 2012). In a sense, these are elements of the business environment outside the scope of the organizations’ control, yet they cannot be ignored. The external environment of organizations involves globalization, economic forces such as technology, political stability, sociocultural forces and natural disasters. Organizations need to adapt, thrive, exploit and strive to fit within the impacts of these factors. In a sense, an organization comprises a group of individuals joined together with a common purpose, which is achieved by implementing structured and organized plans, objectives, and goals. Therefore, organizations will always exist in varying external environments. As such, every organization has to be structured to accomplish both external and internal demands and opportunities of either internal or external environments.
The external environment presents several challenges and opportunities, which a business leader should be aware of. However, several factors determine the operations of an organization in its external environment. These elements include; location, purpose, scope, type, size and mission of the organizations. Each business leader should understand these elements and their determinant effect on the organization’s external environment. A business leader should identify elements from the external environment that affect different stakeholders at the organization. More so, the business leader should identify elements from the external environment that interests him or the shareholders. Lastly, a business leader should understand the external environment to gain insights on developing strategies, policies and tactics that will facilitate the organization to navigate through all the external environment elements. By doing so, they will be able to run the business aware of the influences and impacts of external environment elements on a business.
The stability and profitability of organizations are founded on identifying and responding to external environmental factors in time. (Banham, 2010). in a sense, the external business environment is prone to changes now and then. A business leader should identify these changes as they appear and respond to them appropriately in the minimum time possible. In essence, change is inevitable in the business worlds. As such, having the ability and flexibility to respond appropriately to these changes means the difference between success and failure. If a business leader is slow and ineffective in responding to the business’s external environmental changes, he/she risks the extinction of the business. Therefore, a business leader should scan the external environment to be able to respond to its changes.
A business leader should always conduct an external scan of the business environment to be prepared for any changes. Although some of these changes are unpredictable, a business leader can always be prepared for their occurrences. A common tool for conducting an external environmental scan is by the PESTEL approach model. The PESTEL approach is a matrix model for evaluating the external environment of a business. PESTEL approach represents the Political stability, Economic status, sociocultural factors, Technological development, Ecological environment and the legal requirements surrounding the region of the businesses’ operation. (Issa, Chang, and Issa, 2010). Employing the PESTEL model would enable a business leader to analyze the external environment surrounding the business.
Question 2
Creating value forms the primary role of all businesses. Value creation enables the construction of a sustainable competitive environment. A business is said to create value from a financial perspective when it earns revenue that exceeds its expenses. (Grönroos and Ravald, 2011). The revenue earned is used to sponsor major aspects of the organization’s elements. However, modern scholars have widened the definition of value creation by the business. Most of the modern scholars describe value creation to be represented in an increased accumulation of intangible business drivers like innovation, creativity, people, brand, ideas, among others. In the modern business world, value creation has been linked with better management of goals than strict adherence to traditional financial standards measures of performance. In many instances, value creation has been related to cost management which produces short term results ahead of investments that facilitate long-term growth.
According to Porters Value Chain, an organization comprises different systems and sub-systems, dealing with inputs, transformative process and outputs. (Sivula and Kantola, 2014). These three aspects of the porter’s value chain are majorly involved with the acquisition and consumption of resources. As such, the way value chain activities are carried out impacts costs and ultimately influences profit. An organization’s activities in a while converting inputs into outputs are divided into primary or secondary activities. These activities define the value creation of an organization. A combination of these activities makes the value chain more effective in organizations embracing the model. The porter’s value chain, however, is arguably limited to new business models and collaborative arrangements.
Porters value chain faces challenges from new business model and other network arrangements. In a sense, the porter’s value chain breaks down the firm into supportive activities and then evaluates each activity’s cost and quality advantage. (Koc and Bozdag, 2017). However, value chain involves a consideration of different elements within the organization. This approach enables the firm to achieve consistency. Besides, a firm might garner a competitive advantage by linking separate elements within the organization better than other firms. This enables such a firm to enjoy the competitive advantage in its industry of operation. In essence, the porter’s value chain, the model does not offer the above-mentioned advantages. More so, the porter’s value chain is more suited to manufacturing and service providers; this makes it unsuitable for other forms of businesses. Furthermore, the model is time-consuming. (Teece, 2010). The porter’s value chain was initially intended to be quantitative analysis. In this dimension, the porter’s value chain requires accounting and recalibrating systems to make individual cost allocations. These have formed the major criticism of the porter’s value chain model. The same criticisms have also been why value chain definition by other models usually limits the porter’s value chain model in building a sustainable competitive environment.
Question 3
A business requires a wide variety of portfolio of products and services for its survival. The said portfolio should contain products and services marked with either a high or low rates of growth. (Whitehead, 2015). The high-growth commodities require huge amounts of money for investments. On the other hand, low-growth commodities create more cash, though they require a little investment. These differing portfolios require careful allocation of resources. The BCG matrix developed by Bruce Henderson is a tool useful for corporates leaders who want an effective strategy of allocating their resources. It is an essential tool in marketing and planning analysis as well as brand management. The matrix identifies the strengths and weaknesses of each product/service and the appropriate course of action.
Conversely, the BCG matrix is not elastic enough to cover all the areas affecting the organization. This forms the BCG matrix’s major limitation, and it motivated McKinsey to develop the GE/McKinsey matrix. This model utilizes or capitalizes on the weaknesses of the BCG model. The GE/McKinsey model consists of 9 blocks of the systematic and efficient decision-making framework. (Caldart, 2015). It is better applied for a decentralized business corporation focused on developing new market segment entries. In essence, the GE/McKinsey matrix approach considers a multidimensional approach to market analysis. This forms the major contrast between the GE/McKinsey and the BCG matrix, whereby the latter focuses on a singular component of the market. Rather than focusing on a singular component of the market based on four elements like the BCG matrix, the GE/McKinsey matrix focuses on two elements.
The two models can be used differently in the business world. Firstly, the BCG matrix is primarily focused on a customized strategy approach for each of the businesses’ product. (Khatami and Mehdizadeh, 2008). On the other hand, the GE/McKinsey matrix is a one-size-fits-all approach. (Khatami and Mehdizadeh, 2008). In this dimension, the BCG matrix is more effective in a company with a variation of products or services. For instance, a food and Beverage Company is introducing a new beverage in the market. Such a company will benefit from utilizing the BCG matrix in analyzing the market entry of its new product, considering the same company has other types of beverages selling in the same market. This could apply for a corporation like Coca-Cola if they want to introduce a different beverage in the same industry. Besides, the GE/McKinsey matrix could be useful to a company that wants to analyze their products’ entry in the industry. For instance, a fast-food company wants to introduce two different menus in the market. The company will use this matrix to analyze the entry of those products cumulatively. Such a matrix could be useful to a corporation like MacDonald’s if they want to introduce varieties of menus into the existing market.
Question 4
Born global businesses are assisted by technology to achieve competitive advantage. (Tanev, 2012). In a sense, a born global business is a business that was started to operate globally from the first day. In essence, several factors impact global businesses. Among these factors, technological approach plays a major role. As such, such business leaders should be able to handle technology in a way that it will benefit them. The management of an organization should be wary of competitors approaches to technological development. These businesses needed to identify their competitors’ characteristics and aspects, which make them strive in the global market. In essence, born global business can utilize technology to gain a competitive advantage. Moreover, these businesses can employ technology to ensure rapid growth.
The global-local dilemma is the biggest challenge facing born global businesses. The global-local dilemma refers to the standardization of products and services across national boundaries. In a sense, it refers to the urge to create products and services that can be adapted across nations since they comply with specific requirements of each nation. The global-local dilemma is founded on market, cost, government and competitive drivers. All of these elements, except for the competitive drivers, are constant. The competitive drivers bring about competitive advantage. In many instances, the corporation with a competitive advantage often embraces modern aspects of technology. Such businesses can utilize technology to enhance the rapid growth of the company.
Technology can be used to facilitate rapid growth of born-global businesses. In most instances, born global business often exploit the opportunities presented by technology. (Knight, Cavusgil, 2004). These business use technology to their advantage. In essence, a born global business can employ technology in its product or service category. A business can develop products and services designed to beat the competition, using new technology that other businesses have not achieved. Such will promote the rapid growth of the company. The newly established global businesses can employ technology to create products and services that the existing companies in the industry have not created. This will present the newly founded born global business an opportunity to grow rapidly before the =existing players in the industry realize the technology being applied.
Furthermore, born global businesses can employ technology in creating ICT segments designed to enhance and ease customer experience with the company. (Knight, Cavusgil, and 2004). Such a platform could be used to disseminate information regarding the company and offer a segment for the clients to give their suggestions. This would act as a leap forward in the industry, considering that many born global businesses do not have such platforms designed to enhance customer service. In essence, technology can be applied in several ways to enhance rapid growth for newly founded born global businesses. However, it is majorly useful in establishing a product or service that the industry’s existing players did not offer customers.
Reference
Banham, H.C., 2010. External environmental analysis for small and medium enterprises (SMEs). Journal of Business & Economics Research (JBER), 8(10).
Caldart, A.A., 2015. GE matrix (Competitive Position Attractiveness Matrix). Wiley Encyclopedia of Management, pp.1-2.
Grönroos, C. and Raval, A., 2011. Service as business logic: implications for value creation and marketing. Journal of service management.
Issa, T., Chang, V. and Issa, T., 2010. Sustainable business strategies and PESTEL framework. GSTF International Journal on Computing, 1(1), pp.73-80.
Khandwalla, P.N., 2012. Environment and its impact on the organization. International studies of management & organization, 2(3), pp.297-313.
Khatami, B. and Mehdizadeh, H., 2008. COMPARATIVE STUDY AND EVALUATION OF STRATEGIC PLANNING MODELS AND DEVELOP A NEW FRAMEWORK FOR PLANNING.
Knight, G., Cavusgil, S.T. and Innovation, O.C., 2004. the Born-global Firm. Journal of International Business Studies, 35(2), pp.124-141.
Koc, T. and Bozdag, E., 2017. Measuring the degree of novelty of innovation based on Porter’s value chain approach. European Journal of Operational Research, 257(2), pp.559-567.
Sivula, A. and Kantola, J., 2014. Combining crowdsourcing and Porter’s value chain. International Journal of Advanced Logistics, 3(1-2), pp.17-26.
Tanev, S., 2012. Global from the start: The characteristics of born-global firms in the technology sector. Technology Innovation Management Review, 2(3).
Teece, D.J., 2010. Business models, business strategy and innovation. Long-range planning, 43(2-3), pp.172-194.
Whitehead, J., 2015. BCG (Growth Share) Matrix. Wiley Encyclopedia of Management, pp.1-2.