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Business Studies Grade 12Head for successTopic 5:Macro environment Business Strategies term 1MACRO ENVIRONMENT BUSINESS STRATEGIES INTRODUCTION:Devising strategies in response to the business environmentsBusinesses devise strategies to address challenges in the business environment.A strategy is a plan aimed at achieving a goal.Strategies therefore describe how a business deals with challenges.Each challenge has its own strategy.To devise a strategy, businesses must be creative.Creative thinking techniques used to devise strategies, include:BrainstormingDelphi techniqueForce field analysisSCAMPERMACRO ENVIRONMENT BUSINESS STRATEGIES INTRODUCTION:Devising strategies in response to the business environments

Brainstorming: A problem is given to participants and each participant is given the chance to provide a possible solution.Brainstorming is used to gather as many ideas from participants as possible, even ideas that seem impossible at first.Usually, a time limit is put on a brainstorming session.Brainstorming mobilises creativity, because participants can build on one anothers ideas until the best idea is found.Delphi technique:The Delphi technique is used to obtain information from experts who are unable to meet.A series of questions is developed and sent to all the participants to answer.The answers are then gathered and merged.This process carries on until consensus amongst participants is reachedForce field analysis:The force field analysis considers all the forces for and all the forces against a certain decision.MACRO ENVIRONMENT BUSINESS STRATEGIES INTRODUCTION:Devising strategies in response to the business environments

When strategies are being devised, creative thinking techniques are used in conjunction with industry analysis tools.Industry analysis tools are used to assess a business position in the market.

SCAMPER:The SCAMPER technique makes use of a set of questions to help a person solve a problem:Substitute people/processes/material/productsCombine people/processes/material/productsAdapt people/processes/material/productsModify people/processes/material/products Put to another use people/processes/material/productsEliminate people/processes/material/productsReverse/rearrange people/processes/material/productsMACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentStrategy development process comprises four steps:

Step 1:Determine the need for a strategy by assessing a business position in the market.Use industry analysis:SWOT-analysisPorters five forces analysisPESTLE analysisStep 2:Formulate a strategy.Use creative thinking techniques like brainstorming, Delphi, force field analysis or SCAMPER.Step 3:Implement the strategy.Step 4:Evaluate the strategy.Reasons for strategy evaluation include:Determining the success of the strategy.Avoiding making the same mistakes in the future.Determining the feasibility of a strategy.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:a) SWOT-analysis (Micro-, market- and macro environment)SWOT is the abbreviation for strengths, weaknesses, opportunities and threats.Strengths and weaknesses are internal.Opportunities and threats are external.A SWOT analysis is used to determine a business position in the business environment.A business enterprise has full control over strengths and weaknesses but cannot control opportunities and threats.Each business environment (micro/market/macro) can be assessed with a SWOT analysis.This analysis should be done critically, carefully and honestly.

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:a) SWOT-analysis

MICROENVIRONMENT:Strengths:Weaknesses:The elements of the micro environment is largely under the control of the enterprises management.Qualified managersMotivated employeesSkilled employeesLeadership skillsDifficult employeesLack of vision and missionLack of adequate managerial skillsPoor employee work ethicsHigh rate of employee absenteeism High employee turnover rateOpportunities:Threats:ExpansionLabour actionLoss of employees due to HIV/AidsMACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:a) SWOT-analysis

MARKET ENVIRONMENT:Strengths:Weaknesses:Strategic responses.The business can find new customers.Change to a better supplier.Negotiate with trade unions.Enterprises have no control over factors like suppliers, competitors, regulators, strategic allies and unions.Opportunities:Threats:Forming strategic alliances.Integration.Competition.Shortages of supply.Changes in consumer tastes and habitsMACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:a) SWOT-analysis

MAKRO-OMGEWING:Strengths:Weaknesses:Lobbying government to change laws.Building power relationshipThe enterprise has no control over the elements of the macro environment.Opportunities:Threats:Government tenders.Expansion to overseas markets.E-commerce.Political changes.Legislation.Labour restrictions.HIV/AIDS.Interest rates.Dumping.Take-overs.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces (Market environment)This analysis is designed by Prof. Michael Porter, a professor at Harvard Business School.This analysis analyses the competitive power / force of the business to be profitable.The goal is to determine the profitability of a business / product.This is done by analysing the strength of the five forces that affect competition.It is a type of a force field analysis to determine where the power in a business situation seat.It helps the business to understand the power of its current competitive position as well as the benefits of the position that he considers moving to.With a clear understanding of where the power lies, the business maybenefit form a position of strengthstrengthen a weak position andprevent wrong actions

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces Strength / power of suppliersStrength / power of buyers / consumers, including intermediariesThreat of new entrants to the marketPower / strength of competitors / level of competitionThreat of substitute product and services

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces

Five forcesStrength / power of suppliersA business assesses a suppliers power to force up prices.These providers may include suppliers of raw materials, stock, equipment, parts, services such as transportation and insurance, labour brokers, etc.Suppliers use their power to increase power.Suppliers of scarce goods are usually powerful, because scarce goods are hard to find if there is only one supplier of a scarce good and consumers demand this good, suppliers can demand a high price.MACRO ENVIRONMENT BUSINESS STRATEGIES Industry analysis tools:b) Porters five forces

Five forcesStrength / power of suppliersIn what lies the power of suppliers?The extent to which they can increase their prices without resistance.The number of suppliers for the same product / service.The uniqueness of the product / service.Reliability.Timeliness of deliveries.Long-term contracts with businesses.Cost for business by switching to another provider.The more powerful suppliers are, the less control can be exercised over them by business enterprises.The smaller the choice of suppliers and if the business is highly dependent on the suppliers assistance, the more powerful the suppliers are.Price fixing and cartels by suppliers may make it difficult to do profitable business. E.g. Pioneer Foods fixing bread prices together with other millers in the bakery industry, SASOL applying price fixing in fertilizer, etc.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces

Five forcesStrength / power of buyers / consumers, including intermediariesA business assesses the power of buyers to force down prices.The power of consumers / buyers lies in:How easy it is for them to enforce prices.The number of buyers.The importance of each individual buyer for the business.How easy buyers can change to competitors / other products, etc. Buyers can also include other stores such as retailers who buy stock form wholesalers with the intention to resell it (intermediaries).The more powerful buyers are, the less control can be exercised over them by business enterprises.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces

Five forcesStrength / power of buyers / consumers, including intermediariesTo do business on a profitable basis, businesses should know who their buyers are and what their needs are. This can be determined through market research.Businesses must apply the power of consumers to their benefits, by giving existing customers good deals, to keep them happy through good service delivery (including after sales services) and the selling of products of good quality.This includes the tastes and preferences of consumers regarding need satisfaction.The financial position of consumers also plays a role.Consumer resistance e.g. businesses who apply unethical practices.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces

Five forcesThreat of new entrants to the marketA business assesses its position in the market in terms of barriers to entry.A business power in the market will depend on how easy it is for new competitors (entrants) to enter the market.Barriers to entry refers to obstacles that a business faces when it wants to enter a particular market, for example:Legislation.Access to resources.Amount of capital needed to enter a market.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces

Five forcesThreat of new entrants to the marketIf it is easy to enter a particular market, new competitors can weaken the position of business enterprises that are already operating in that particular market.New competitors can in the following cases get quick and easy entry to the market:If there are big opportunities for profit in the market.If it can be done quickly and cheap.If there are many buyers but only a few businesses who are delivering the product / service.Existing businesses have little control over the design / patent, e.g. the patent is not registered.There is little competition during the time of intended entry, etc.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces

Five forcesThreat of new entrants to the marketBarriers to entry protect businesses that are already doing business in a particular market, because it restricts competitors from entering that market.The following cases makes it difficult for new entrants to the market:Access to distribution channels: New businesses may find it difficult to establish their own distribution channels, especially when the options are controlled by existing businesses.Scale savings: Existing businesses have an advantage over new entrants when costs decrease as production increases.Capital requirements: New entrants do not have sufficient capital to enter the specific maket.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces

Five forcesThreat of new entrants to the marketProduct differentiation: Existing businesses will benefit if their product is considered to be unique, has a good brand or control a specific segment of the market.Government policy: The government may limit the number of businesses in a particular market.Existing infrastructure of new entrant: It is difficult to change from one production industry to another since the companys total infrastructure will have to change which requires high capital investment.Variables in the market environment can make it difficult for businesses to get access to the market.In addition to variables in the macro environment, this force creates challenges for companies. MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces

Five forcesPower / strength of competitors / level of competitionA business assesses the power of competitors to influence its own operations.Competitors are other businesses that provide the same or similar products / services as your business.The power of competitors is assessed in terms of:Consumer loyaltyThe number of competitorsSwitching costs.MACRO ENVIRONMENT BUSINESS STRATEGIES Industry analysis tools:b) Porters five forces

Five forcesPower / strength of competitors / level of competitionThe power of competitors lies in the number and strength of these businesses.A business that provides a unique product / service has a strong power.Some financially strong competitors may force other competitors out of the market through the selling of their products / services at a loss for a long period (price war).If there are many competitors in the same industry, the business has little power over the situation because consumer behaviour is unpredictable and consumers may easily change to another business.A business must compile a competitors profile of each competitor to enable them to understand their business practices to gain a competitive advantage.Entrepreneurs must apply on-going market surveys to ensure that they know their competitors strengths and power.Many competitors continue to enter the market and this cause challenges to existing businesses.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:b) Porters five forces

Five forcesThreat of substitutes (products and services)A business assesses the influence of substitute goods on its operations.Substitute goods refers to different goods that serve the same purpose, for example original medicine versus generic medicine and glass bottles versus plastic bottles.The power of businesses decreases if substitute products are readily available.The position of a business weakens if the demand for a product is influenced by the price change of a substitute product, for example: the position of a business that supplies glass bottles will weaken it there is a decrease in the price of plastic bottles.The threat is that competitors may improve their products or supply products of a lower quality at lower prices.MACRO ENVIRONMENT BUSINESS STRATEGIES Industry analysis tools:b) Porters five forces

Five forcesThreat of substitutes (products and services)A business existing customers become aware of it, and start to buy products offered by competitors.If substitution is easy and sustainable, it weakens a firms market power, even if the business switches over to these products.In some cases, the substitute causes a business to lose their market share completely.Replacement products and new products due to improved technology can create additional challenges for existing businesses. e.g. in the mobile phone and computer industry.If the price of an imported product began to rise due to a weaker Rand, e.g. coffee, more people started to buy tea produced and manufactured in South Africa.Through market research, a business can determine why customers choose substitute products / services and based on this information, the business must improve their existing product / service to stay competitive.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:c) PESTLE analysis (Macro environment)The PESTLE analysis evaluates a business enterprises position in terms of the following macro environmental factors:Political factors: labour laws, tax lawsEconomical factors: inflation rate, interest rate, exchange ratesSocial factors: demography of consumers likes and dislikes of consumers Technological factors: availability of technology, technological changesLegal factors: consumer laws, laws regarding the formation of a business.Environmental factors: climate, natural resources.

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentIndustry analysis tools:c) PESTLE analysis (Macro environment)The Pestle analysis helps management to anticipate political, economical, social, technological, legal and environmental problems business enterprises cannot control these factors, since they are from the macro environment.These variables are used to create a comprehensive summary of developing current business strategies to deal with external factors, as well as opportunities that offered by these variables.Each of these six variables must be analysed to determine the impact of each on the business, as well as the importance of these element on the success of the business.This analysis is further extended and is known as PESTLE.P = Physical environment, e.g. location, infrastructure, etc. E = Ethical conduct by the business.

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentFormulation of strategies:A strategy can be formulated once the position of a business has been determined.When management formulates a strategy, the following must be borne in mind:The position of the business in the market.The challenge that must be addressed.The resources available to the business.A strategy is formulated by making use of creative thinking and problem solving techniques.

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentFormulation of strategies:Strategy formulation refers to the process where a selection of the most appropriate plan of action is made so that the objectives of the business can be achieved.This process is essential to achieve goals and to handle challenges.Use creative thinking techniques in formulating strategies.This includes the allocation of resources and a clear explanation to the employees of what is expected of each, to set the plan in action.

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentFormulation of strategies:A good strategy meets the following criteria:

Ethical:A strategy must meet ethical requirements.Example: if waste management is the problem, it is not an ethical strategy to dump the waste in a river.Adds value:A strategy must put the business in a better position than before.Practical:It must be possible to implement the strategy with the available resources.Economical:A strategy should not put available resources under pressure.Right timing:The right strategy must be devised at the right time.Internet trading, for example, is a great strategy to increase sales, but it would not have been successful in the 1980s.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentFormulation of strategies:The following steps should be followed in the formulation of business strategies:Set objectivesEvaluate the environmentSet goalsPlan strategy according to goalsAnalyse performanceChoose a strategy

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentImplementation of strategies:Strategy implementation involves putting into action the strategy that was formulated during the strategy formulation process.Strategies can be implemented by making use of a strategy implementation process.A strategy implementation process may comprise the following steps:Determine the time frame for rolling out the strategy.Familiarise employees with the strategy implementation process in terms of reasons for rolling out the strategy.Motivate employees to support the strategyLead by exampleManagement can influence the success of the strategy implementation process

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentImplementation of strategies:Management must carry out the following tasks during the strategy implementation process:

Top level managementOrganises the strategy roll out process.Establishes policies that support the strategy.Rewards the achievement of targets relating to the new strategy.Middle level managementImplements strategies in their departments.Allocates resources in the best possible way.Lower level managementImplements strategies on the lowest level of an enterprise.Assists employees in implementing the strategy.MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentImplementation of strategies:Some strategies, for example retrenchment strategies, have the potential to cause panic amongst employees.If a business has to implement such a strategy, sufficient counselling must be made available to employees.Strategy implementation can be held back if it is not rolled out correctly.Two key factors are needed to ensure a successful implementation of the strategy, namely:Communication with all stakeholders involved in the implementation of the strategyFlexibility to change the strategy if the process does not workFactors that may impede strategy implementation include:Resistance form employeesLack of resourcesChanges in technologyEconomic conditions

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentEvaluation of strategies:The aim of strategy evaluation is to determine whether the chosen strategy resolved the challenge that was threatening business operations.Strategy evaluation is the process of monitoring a business performance results so that actual results can be compared to desired results.The following questions should be asked during the strategy evaluation process:Does the strategy address the challenge or problem?Was the strategy economical?Does the strategy add value to the business?Were employees sufficiently prepared before the strategy was implemented?

MACRO ENVIRONMENT BUSINESS STRATEGIES Strategy developmentEvaluation of strategies:The strategy evaluation process comprises the following steps:Examine the foundation of the business strategy by obtaining regular feedback on the strategy implementation process.Determine the results / standards that must be achieved so that actual performance can be measured against these standards.Compare expected performance to actual performance to detect any deviations from the expected performance.Determine and analyse causes of these deviations.Take corrective action to prevent repetition of such deviations.Once a strategy has been evaluated, management must make recommendations for improvement so that future strategies are implemented smoothly.