1.0 Introduction: –
For an organization to survive and grow, they must have strong build strategy. Strategy is defined as a tool to assist organizations to achieve its long-term goals Hubbard, Rice & Beamish (2010). These goals are the prime reason for an organization to exist and strategies are developed to achieve these goals.
Fig. 1.1- ESC model for strategy development
Hubbard, Pocknee and Taylor’s (1996), explains the strategy making process via ESC model. Fig 1.1 shows the ESC (Environment, Strategy & Capabilities) model to describe the strategy making process for an organization. Strategies are made keeping a number of factors in consideration. Environment stands for Macro and industry based environment and factors that effect the operation of an organization. Environment is discussed more in detail in later part of this report. Business strategies are made considering the interest of stakeholders, company’s mission and value statement and values of the organizations. Capabilities for an organization are their resources, staff, economy of working and systems available for an organization to work in.
This section is also discussed in details in this report. Also, to make effective strategies companies need to generate and gather information, analyze that information, process and implement those chosen strategies. Hubbard, Rice & Beamish (2010) explains that final part of strategy implementation is to review and monitor the strategies to find the gaps in results and fill those gaps accordingly to improve company performance. 2.0. Macro Environment Analysis
Hubbard, Rice, Beamish (2010), explains that all the factors outside the organization that effect the business are studied under external environment analysis. These factors effect the strategy formulations, vision and mission planning and future organizational business. Environment analysis comprises
of two major elements i.e. Macro environment analysis and Industry environment. Macro environment includes all the broad forces that surround and effect the organization and are as follows:-
2.1 Economic Dimension:- Economic dimension of an organization is the overall financial condition of the economy where organization is operating. Most important economic factors for an organization is GDP, inflation rates, exchange rates, taxation rates and wages rates. These factors define the economic dimension of an organization.
Example: – Starbucks business in US during Global Financial Crisis
During GFC, Starbucks was forced to pay more for its resources and to cover these additional expenses; company was forced to increase its product prices. But with the rise in interest rates and less borrowing/spending power of customers in the market, Starbucks had no option other than bearing the costs itself without increasing the prices. This additional burden forced Starbucks to close 600 stores in July 2008 (page 151, Howard Schultz, 2011). This example clearly explains the effect of Economic conditions on an organization when low purchasing power of customers lead to less demand and its effect on an organization.
2.2 Political/Legal Dimension: – This refers to the government regulations of business and its general effect, relationship with it. Its important for an organization as it defines what the organization can do and what they cannot. Customs, policies, regulations of a particular country affects the business of a international organization.
2.3 Technological Dimension: – This factor defines the resources available to operate its business in a country. It defined how an organization can convert its resources into products and services. Technology is applied with the discretion of the organization but its availability and form depends on the general environment.
2.4 Socio cultural: – Socio cultural dimensions include the culture, social
effect and trends, customs, values and demographic patterns and trends in a particular demographic area. This includes the patterns people are used to and defined the future for the company with respect to its products.
Example: – Starbucks in planning to expand its business in Asian countries and is planning to change 5000 year old tea-drinking culture into coffee culture (Ed Liston, 2011). Asian countries have a strong culture of consuming tea and have significant medicinal beliefs as well. Starbucks is planning to expand its business in these countries directly challenging the socio cultural dimension (page 296-305, Howard Schultz, 2011). This strategy can have mixed effects on the business. It’s a direct competition between old traditional beliefs and habits v/s young coffee drinking generation. There are no significant results available on the topic, but will be an interesting topic to work. This strategy can affect Starbucks business dramatically.
2.5 Sustainability: – It’s a new trend mostly visible in developed countries to develop sustainable business practices to address environmental issues. Companies are expected to follow guidelines, to develop their sustainable image. This includes fair work practices, focus towards general environmental damages, deforestation, ecological concerns etc.
Example: – Starbucks fostering Sustainability
Starbucks tag their stores as green and try to design the stores with recyclable products, reused cabinets, natural colors, and efficient lights.
Company’s agricultural methods are organic, using no petrochemical based fertilizers and insecticides, and they are beneficial to the environment and water (page 317-321, Howard Schultz, 2011). Starbucks also offers 10% discount if customers bring their own coffee mugs (page 161-165, Howard Schultz, 2011). Starbucks has been busy promoting their environment involvement by developing new environmental strategies and by minimizing their carbon footprint (Starbucks Website).
3.0 Industry Analysis/ Porter’s five forces Analysis: –
Fig. 1.3 – Porter’s Five Forces Model
Industry analysis is used to determine the factors that influence the profitability of an organization. As shown in fig 1.3, industry analysis consists of five main forces. Porter (2008) describes these forces as the main drivers of profitability for an organization Fig 1.3.
3.1 Competitors/ Threat of new entrants: – For an organization, competitors are those individuals or groups that can reduce the revenue or can share the revenue. New or existing organizations that compete for their business, survival and growth are termed as competitors. It can be from existing market players or new entrants to the market. Mostly organizations compete for customers, revenue but competition can also be for the resources as labor/staff, new technology or patents to ensure future revenue growth.
3.2 Suppliers: – In a producing industry, suppliers play an important role by providing resources to an industry to offer services/products to the customers. This depends on the industry-supplier relationship. If suppliers are strong, they can offer resources at a higher price to get the profit share in the organization and vice versa. Thus, in a industry its very important to have consistent and reliable suppliers.
Example: – Starbucks coffee bean suppliers
Starbuck buys its coffee from East Africa, Arabian Peninsula, Southeast Asia and Latin America. Starbucks has its approved suppliers list and to be part of that list, suppliers have to undergo a series of tests and pass some checklists. Once Starbucks approves their supplier, the company helps the suppliers to grow coffee sustainably (page 317-318, Howard Schultz, 2011). Starbucks helps their suppliers by providing knowledge, help, funds and trainings. This helps to develop the strong relationship with the suppliers and also ensures the quality of the harvest. Thus in this case both suppliers and the industry are in win-win situation.
3.3 Bargaining power of buyers: – Porter (2008) explains that if the buying power of buyer is strong, that implies that the buyer has more options to choose from and the industry has more competition.
3.4 Substitutes: – Porter (2008) explains that if the products/services of different business or company can satisfy the needs of the customers,
depicts that there is a substitute available to the customers. It leads to the competition in terms of price, quality and added values to the products.
3.5 Industry Rivalry: – In a traditional economic model, if there is rivalry among the organizations in the industry, then it drives profits to zero. But there is not perfect competition and in this case companies thrive to take competitive edge over other companies. A firm can switch costs, reduce product cost, increase add on values, offer better customers service to gain the competitive edge.
Example: – Starbucks competitive edge
Starbucks markets their sustainable and green approach towards environment (page 147-148 & 317-318, Howard Schultz, 2011). In this modern era, with more educated groups emerging, Starbucks is attracting more educated customers. With its initiative towards green earth and working for environmental issues, customers are supporting the brand and thus Starbucks is earning reputation and revenues. The above-mentioned example is in relation with Philip Kotler’s (2001), strategy of Marketing and is proving worth full for Starbucks.
4.0 Resources, Capabilities and Creation Of Values
Fig. 1.4- Resource, Capabilities and Creation of Value
According to resource-based view to develop the competitive advantage over other companies, organization must have resources and capabilities that are
the best in the market. In fig. 1.4, Hubbard, Rice & Beamish (2010), explains that for
an organizations there are four necessary conditions to pioneer the market. These conditions are outlined as below: –
4.1 Resources: – Resources are the main factor that decides the organization’s future. Hubbard, Rice & Beamish (2010), have used VRIO/VRINE model to describe these resources better and resources must be: –
Valuable: – Organization should monitor the market and its customers carefully and must have the resources to deliver the value to the customer. Customer needs are volatile in nature and keep changing, thus organizations must enhance and upgrade their resources according to the demand.
Rare: – Resources of an organization should be rare and hard to imitate by the competitors. These rare resources provide a competitive edge to the organization and must be scarce to some degree of demand in the market.
Inimitable: – Resources should not be easily inimitable, and should be sophisticated to imitate. It’s hard to keep inimitable resources in technological sector as long as the technology is a patent.
Non-Substitutable: – Resources should be non substitutable, i.e. there cannot be any substitute to the particular resource.
Organized: – Resources of an organization should be arranged and organized according to their requirement. They should be readily available when and where required and should be properly deployed as per requirement to deliver the best quality to the customers.
Exploitable: – Resources should be readily accessible and available to different sectors across the organization to transform them to add value to the customers.
Capabilities: – Capabilities stand for the organization’s ability to convert the available resources to customer value. It’s the ability of an organization to utilize its resources in an efficient manner. Organizations should have dynamic capabilities so that they can manage their knowledge, learn from them and also brings out new innovations as per requirement.
Example: – Starbucks Logistics Chain: – As mentioned above Starbucks gets its coffee beans from East Africa, Arabian Peninsula, Southeast Asia and Latin America. Different regions specialize in different blend of coffee. A perfect coffee is not just a single origin, but is a mix of different beans. Starbucks has the capability to gather beans from different regions and make a perfect blend to deliver across all its stores worldwide. Its not easy to document this capability and thus not easily imitable. This is a competitive edge that Starbuck has over its competitors to pick, mix and deliver the beans faster than any other competitor in the market.
Organizations should monitor and review their operations to check the purpose of the operation. Capabilities should be valuable to the customers, they should be rare, and difficult to imitate by competitors, specific to the organization and should be better than the competitors in the market. In order to manage the capabilities organizations should exercise their capabilities across their business.
These above discussed conditions should work in closely coordinated manner to develop a competitive edge over its customers and should bring better value for the customers. For example Starbucks have strong inbound logistics that in relation to Porter’s value creating activity is a competitive edge to create customer value.
5.0 Bibliography: –
Hubbard, Pocknee and Taylor’s (1996), “Practical Australian Strategy”, Ch. 5, Prentice Hall Australia, Sydney.
Hubbard, G. & Beamish, P. (2011). “Strategic management: Thinking, analysis
and action”, 4th ed., Pearson Education: Australia.
Hubbard, Rice, & Beamish, (2011), “ Strategic Management: Thinking, Analysis and Action”, 4th ed., Pearson Education, Australia.
Michael E. Porter (2008), “The Five Competitive Forces that Shape Strategy”, Harvard Business Review, p.86-104, Harvard Business Publication, Boston, USA.
Ed Liston (2011), “ What is more popular: Coffee or Tea”, Blog on www. Stockriters. Com, Viewed on 05th Jan’12.
Kotler Philip (2001),” A Framework for Marketing Management”, Prentice-Hall, Inc. 1997, Pearson Education Company, New Jersey, USA.
Starbucks website viewed on 4th Jan’12, http://www.environmentalgraffiti.com/business/news-starbucks-contribution-sustainability.
Howard Schultz & Joanne Gordon (2011), “Onwards: How Starbucks Fought for its life without losing its soul”, John Willey & Sons, United Kingdom.