Organization and its Environment

Organizations have internal and external environments which will influence and manage the
organizational behaviors. Which are the factors impact the strategic decisions of an organization.

Figure 01- Organization and its environment

Internal Environment
The factors which are available within organization such as employees, customers, suppliers,
strategic patterns, competitors, regulations and labour markets which impact the strategic
decisions entitle as internal environment.
Strategy
It is the long term direction and scope of an organization to achieve competitive advantage and
fit with business environment and act for fulfills the stakeholder expectations. It has three levels
of strategy, which are operational, business level and corporate level strategy. It should be carry
the mission, vision, goal, objective, capability, long term directions, business model and control.

TOWS Analysis
By identify the external analysis (Threats and Opportunities) to use technique for internal
analysis (Weaknesses and Strengths) for get better results, so the company has to consider the
weaknesses and threats to convert the Strengths and opportunities.
 Figure 02- TOWS Analysis

Analyze the External Environment

PESTEL Analysis
In this analytical tool which considers external factors and impacts, PESTEL pointed Political,
Economical, Social, Technological, Environmental and Legal.

Figure 03- PESTEL Analysis

Political Analysis: Political impacts on every organization in so many ways, basically it will be
point out in starting the business, international markets, Political blocks, tariffs, tax policies,
restrictions and corruptions also considered under Political factors.
Economical Analysis: Economic factors are concern to businesses because exchange rates,
interest rates, taxation and inflation are suddenly changed. The government’s substantial
reduction in interest rates helped to minimize further rises in unemployment. In this case
Economical growth also will effect on businesses.
Social Analysis: Businesses have to consider in quality and every consumers as the key point. It
is really respects the social such as in education, health, cultural and life style. Other things are
the population, demographic will effect on business.
Technological Analysis: Technology is the main part in the world to overcome the competitors
and creates efficiency. Businesses have to use new technologies to produce the best quality
products also it will be use in their daily process. Every time the technology changes in the world
if they are not adopt with new technology they cannot be achieve targets.
Environmental Analysis: The climate changes and weather will consider and also pollution is
the major problem in environmental factor, so they have to consider those environmental factors
and have to protect the environment.
Legal Analysis: Every businesses needs to follow rules and regulations to succeed in market
such as antitrust law, consumer law, discrimination law, employment law, health and safety law,
etc. Even made changes on legal factors also have to consider by businesses.

Five forces Analysis

Five forces analysis considers threat of new entrants, threat of substitutes, bargaining power of
suppliers, bargaining power of buyers and industry competitors to explain the external
environment. Industry structure frame work will help to market research.

Figure 04- Five forces Analysis

Threat of New Entrants: It may be affect the level of competition. The threat of new entrants
largely depends on the barriers to entry. Key barriers to entry include: Economies of scale,
Capital / investment requirements, Product differentiation, Customer switching costs, Market
saturation, Access to industry distribution channels, the likelihood of retaliation from existing
industry players which is independent economies of scale for new entrants.
Threat of Substitutes: Substitutes affects in all price ranges, with varying levels of services and
facilities. It is high threatening. For an example: Iron Vs Plastic so the industries will concern by
the substitutes.
Bargaining Power of Suppliers: Availability of alternative suppliers will decide power of
suppliers. Even though the new entrants will increase the bargaining power to suppliers also the
direct materials are the several usage goods therefore suppliers may get bargaining power. On
the other hand the backward integration will reduce the supplier power.
Bargaining Power of Buyers: Nowadays customers have high bargaining power because more
competitors and substitutes are in market. Number of customers, switching cost, forward
integration and concentration of buyers will influence on power of buyers.
Rivalry among Competitors: The intensity of rivalry between competitors in an industry will
depend on the structure of competition, industry costs, differentiation, Switching costs, Strategic
objectives, Exit barriers.

Stake holder Analysis

Who have interest on organization’s stability and sustainable in the market call as stake holders.
It can be the internal or external anyhow they influence and they have power to make strategic
decisions.

Figure 05- Stake holder analysis

Value Chain

The firm's value chain links to the value chain of upstream suppliers and downstream buyers.
The result is a larger stream of activities known as the value system. The development of a
competitive advantage depends not only on the firm-specific value chain, but also on the value
system of which the firm is a part.

Figure 06- Value Chain

Primary Activities
Inbound Logistics: Elements of this stage include the receipt of goods from suppliers, storage,
handling and transportation internally and placing the products. In applying a quality control
procedure concerning damaged goods and products, it provides an excellent opportunity to
reduce costs unfairly incurred by businesses, therefore preventing these costs being passed on to
the consumer.

Operations: Businesses have been acclaim by some reviewer of supply chain management,
effective use of new trends to low cost leadership strategy will consider in transforming inputs.

Outbound Logistics: It is concerned collect, store and distributes the goods to consumers.

Marketing and Sales: To attract more customers by advertising. Businesses may give some
constraints in terms of selling environmentally friendly products and after sale services.

Service: Customer service will consider in this part.

Support Activities

Infrastructure: Planning and control functions are the ones that account to provide the continued
focus on the costs and cash control the operations.

Human Resource Management: It is covering everything from recruitment to management

development.

Technology Development: Activity and is the ability to provide new innovative product ranges/
solutions that anticipate customer needs.

Procurement: The function of purchasing the raw materials and other inputs use in the value-
creating activities in businesses.

GE Stoplight Strategy
It is use to composite measure of business strength and industry attractiveness. Here the Green
cells justify investment and growth strategy, Yellow cells are observed for change in either
industry attractiveness or business strategy and finally the Red cells are no longer deserve
investments and may become cash cows. Figure 07 shows everything by short form.

Figure 07- GE Stoplight Strategy

BCG Matrix
The market growth rate measures industry attractiveness. The underlying theory for examining
market growth rate is the industry life cycle. The BCG assumes that growth rates, life cycle
stages affect a firm’s finances.

Figure 08- BCG Matrix

Placing products in the BCG matrix results in 4 categories in a portfolio:

Stars: (high growth, high market share). Frequently in balance on net cash flow. However if
needed any attempt should be made hold share, because the rewards will be a cash cow if market
share is kept.

Cash Cows: (low growth, high market share) Profits and cash generation should be high, and
because of the low growth, investments needed should be low. Keep profits high.

Dogs: (low growth, low market share) Avoid and minimize the number of dogs in a company.

Question Marks: (high growth, low market share) Beware of expensive ‘turn around plans’
Have the worst cash characteristics of all, because high demands and low returns due to low
market share.
Ansoff Matrix
It suggests four alternative strategies which are consider the market and the products are existing
or new. Market Penetration is existing market and existing products which involves increasing
market share existing market segments. The Product Development involves developing new
products in existing markets, it considers on outperform the products of competitors. Market
Development entails finding new markets for existing products, market research and further
processes will help to identify the new customers. And final alternative which is Diversification
involves moving new products into new market at the same time; it might be the most risky
strategy. Those are the strategies to stable and sustain in the market.

Figure 09- Ansoff Matrix

Generic Business Level Strategy
There are four generic strategies that are used to help organizations establish a competitive
advantage over industry rivals. Firms may also choose to compete across a broad market or a
focused market. Cost leadership strategy is achieved mainly through an emphasis on efficiency;
Differentiation strategy achieved through an emphasis on product or service quality, innovation
in providing new features to psychological desires of customers. On the other hand the focuse
strategy is attained through a focus the segments.

Figure 10- Generic Business Level Strategy

Competitive Strategic Options
Analyze a company's competitive position in comparison to the contributions of competitors. As
with Porter's Generic Strategies, Bowman considers competitive advantage in relation to cost
advantage or differentiation advantage. There are six core strategic options:

Figure 11- Competitive Strategic Options

First one is Standard price likely to be segment specific, then Low price is low margin or cost
leader, third is Hybrid which is low cost base and reinvestment in low price and differentiation,
fourth is Differentiation valued by buyers it is in better quality at good prices. Then for Focus
differentiation is perceived added value to a segment justifying a premium price. For Standard
product risk of losing market share, the increased price demonstrates only feasible in a
monopoly situation, and finally the eighth element shows that Low value is loss of market share.
Those 6, 7, 8 elements are generally demonstrate loss of market.

Strategic Business Unit (SBU)

The basic concept of a discrete personal service SBU product / market areas are identified. Each
product / market segment is a different situation because, as a group was formed for each SBU.
This is the best way to achieve a sustainable competitive advantage over its rivals was to
differentiate their service.
Corporate Level Strategy

It is concerned with the overall purpose and scope of the business to meet stakeholder
expectations and diversified company to establish business positions in different industries.
Following figure shows related corporate strategies such as growth strategy (Market Penetration,
Product Development & Market Development), focus strategy relate with SWOT analysis.

Figure 12- Corporate Level Strategy

Integration

Horizontal integration

The acquisition of additional business activities at the same level of the value chain is referred to
as horizontal integration.
Vertical Integration
 Forward integration
Moving into distribution of its own products or service to realize additional profit potential and
ensure the quality of the final product.

 Backward integration
Moves into supplying some or all products or services used in producing its products or services
to ensure the availability and quality of the supplies and control cost and improve overall profits.

Diversification

 Seeks to increase profitability through greater sales volume obtained from new products and
new markets. It may categorize as concentric, horizontal and conglomerate diversification.

Concentric diversification
Introduce the new products or services that are similar to the organization’s products or services.

Horizontal diversification
Introduce the new products which are technologically unrelated to the current product, but appeal
to current customers.

Conglomerate diversification
Launch new products which are significantly different from existing product and targeting
customers also differ from current.

Strategies for declining industries

Figure 13- strategy in declining industries

If the organization in declining level it should be taken strategy to take over the situation, which
are:
Turnaround strategy
Try to improve efficiency of operations during a decline in an organization’s financial situation.

Divestment strategy
Conclude the organizations immediately which are in declining stage.

Liquidation strategy
Terminate the organizations which are in declining level by selling or shutting down.

TOWS Analysis
Capability considers Strengths and Weaknesses will relate to external environment such as
Opportunities and Threats. By analyzing this model companies can convert their weaknesses and
threats into opportunities and strengths and should overcome from their weaknesses. It is shown
by the figure 14.

Figure 14- TOWS Analysis

Organizational Structure
It determines the roles, power and responsibilities are assigned, controlled and coordinated. Also
it shows how information flows between the different levels of management. A structure depends
on the organization's objectives and strategy.
In a centralized structure, the top layer of management has most of the decision making power
and has tight control over departments and divisions.
In a decentralized structure, the decision making power is distributed and the departments and
divisions may have different degrees of independence.
It may affect pessimistically by some poor or inappropriate structures such as, poor
communication, slow/ wrong decisions, loss of motivation, late, insufficient or incorrect
information, lack of coordination, inability to respond to change, extra cost, etc…

Elements of organizational structure

 Work specialization
 Chain of command: unbroken line of authority that links all persons refers to hierarchy of
control.
 Span of control: number of people reporting directly to next level in the hierarchy.
 Centralization and decentralization
 Formalization: refers to the degree organizations standardize their behavior rules,
procedures, formal training and other mechanism.
 Departmentalization: employees and their activities are grouped together.
 Process orientation
 Internal relationships: line, functional, staff and lateral
Characteristics between mechanistic and organic
Mechanistic Organic
Narrow span of control Wider span of control
Centralization Decentralization
Rules and procedures Knowledge based
Written communication Oral communication
Tall structure Info vertical and horizontal
Task oriented Customized approaches
Table 01 Characteristics between mechanistic and organic
Types of Organizational Structure
Functional structure

It specifies the specialized units that report to a single authority.

Figure 15- Functional structure

Divisional structure

Here the organization is grouped in such a way that the employees who are involved in making a
specific product are grouped together into one division. A product divisional structure will divide
the company into products and each division will have its own hierarchy. 

Figure 16- Divisional structure

Geographical structure
Use the regional basis for organizing activities. It will responsive to regional customer, more
control over region and reduce transportation cost.

Regional Operations

Central OperationsRegional Operations

Regional Operations

Regional Operations

Individual Stores

Figure 17- Geographical structure

Team based (lateral) structure

The entire organization consists of work groups or teams that perform the organization’s work.

Figure 18- Team based (lateral) structure

Network structure
It is an alliance of several organizations for the purpose of manufacturing a product or serving a
customer.

Figure 19- Network structure

Matrix structure

Matrix organization structures are a combination of the functional and product organization
structures.

Figure 20- Matrix structure

Culture
Levels of culture

Cultures are three types which are notified and brief introductory in given figure 21.

Figure 21- Levels of culture

Culture formation

Culture is formed by the results of long term behavior with values, assumptions and beliefs.

Influence Behavior
Leader
Influence

Values Reinforce Create

Influence

Attitude
Culture
Influence

Figure 22- Culture formation

Deciphering culture
Through some aspects of culture will decipher the culture which are artifacts observe symbols
and signs, physical layout, employees’ rewards and stories or legends obey rules and rulers, then
the rituals and ceremonies, language, physical structures, controls and power also decode the
culture of an organization.

Organizational culture and performance

Culture is the major role in organizational performance. Good culture is good for run the
business, it has functions such as influence on employee decisions and behaviours, the bonds
people together and makes them feel part of an organizational experience and the other one is
assists the sense making process.

Changing and strengthening organizational culture

Culture will change by the leaders or founders’ actions of an organization. It may strengthen by
introducing culturally consistent rewards, maintaining a stable work place, managing the cultural
networks and selecting and socializing employees.

Organizational culture’s influence on strategy

Corporate
Development of Performance
Culture Implementation
Strategy

If unsatisfactory

Tighter control

Reconstruct or
develop new strategy

Abandon paradigm &

adopt new one
Figure 23- Organizational culture’s influence on strategy

Figure 23 is shown that the organizational culture will influence on strategy implementation
which is the culture is good and match with the company’s strategy then develop the strategy and
implement the strategy is possible, on the other hand if unsatisfactory performance there are
three types of unsatisfactory decisions, here the first tighter control which means just make some
control and implement the strategy, second is reconstruct or develop new strategy it means again
have to develop the strategy and implement, third decision is abandon paradigm and adopt new
one means again have to change the culture and develop strategy then only implement. So can
understand the culture is the key point of implement the strategy if culture is bad the
performance should be unsatisfactory. So companies have to select the culture and pursue will
help to strategy implementation.