BUSINESS OPERATION SKILLS- KIM

104
Session 02: Formation of Business Environment
Presented By: Muhammad Mahbub Alam FCA
 Vision

Mission

Goals

Non-operational /Qualitative Operational /Quantitative Goals

Goals

Objectives
Aims

SMART
 Vision Statement is a statement of what is possible, the picture of the future you want to create.
“We shall be recognized as the leader in all the business sectors in which we compete in Bangladesh”

“Our success will be built on our absolute dedication to the satisfaction of our customers, through constant
innovation, operational efficiency, cost effectiveness and the talents of our people. We shall always apply high
standards of integrity and responsibility in our activities”.

“To attain customer satisfaction by delivering nothing but the best, by means of utilizing the highest quality of
resources and world-class systems.”
 Mission Statement will turn your vision into practice. The Mission Statement is the one that will actually
do the work . The elements of mission:

 Purpose : Why do organization exist and for whom

 Strategy : What and how we do it
 Policies and standards of behavior :
 Values : What the organization believes to be important

Example:
Globe Textile India Ltd is committed to the consistent upliftment and improvement of both its products and its
responsibilities towards it’s employees. Striving hard to achieve highest levels of customer satisfaction through
timely deliveries along with enhanced quality and value of all our products.
 Goals: The intentions behind decisions or actions or a desired
end result. Goals give flesh to the mission. Goals are two types:

o Non-Operational _Qualitative goals (Aims).

o Operational _ Quantitative goals (Objectives)

Operational goals (Objectives) should be SMART

Specific
Measurable
Achievable
Relevant
Time-bound
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Organisational Structure
Formed by the grouping of people into Departments or Sections and the allocation of responsibility and authority.
Organizational Structure sets out how the various functions are formally arranged.

Mintzberg’s Suggests that all business structure can be

analyzed into six building blocks :
 Operating Core: people directly involved in the process of
obtaining inputs and converting them into outputs
 Middle Line: conveys the goals which are set by the strategic apex.
 Strategic Apex: ensure the organization following it mission
 Support Staff: Ancillary services such as PR, legal counsel, the
cafeteria and security staff.
 Techno structure: analysis determine and standardize work process
and technique
 Ideology : values, beliefs and tradition i.e. the business culture
What is Strategy
Strategy is course of action, including specification of resources required, to achieve a specific objectives and a
strategic plan as a statement of long term goals along with a definition of the strategies and policies which will
ensure achievement of these goals.

Strategy is concerned with:

• The long-term direction (objectives) of the business
• The environment in which it operates
• The resources at its disposal
• The return it makes to stakeholders

Drucker suggested that an organisation needed to ask five
fundamental questions in relation to its strategy. 
Levels of Strategy
Strategy can exist at several levels in an organisation as shown in the diagram below:
Levels of Strategy
Corporate strategy
Corporate strategy is generally determined at head office/main board level. The types of matters dealt with include:
 Determining the overall corporate mission and objectives
 Overall product/market decisions, e.g. expand, close down, enter new market, develop new product etc. via methods such as
organic growth, merger and acquisition, joint venture etc.
 Other major investment decisions besides those for products/markets, e.g. information systems, IT development
 Overall financing decisions - obtaining sufficient funds at lowest cost to meet the needs of the business
 Relations with external stakeholders, e.g. shareholders, bondholders, government, etc.

Business strategy
This normally takes place in strategic business units (SBUs).
An SBU is 'a section, within a larger organisation, which is responsible for planning, developing, producing and marketing its
own products or services’.
Competitive strategy is normally determined at this level covering such matters as:
 How advantage over competitors can be achieved
 Marketing issues, such as the 4Ps (product, price, promotion, place).

Functional (operational) strategies

This refers to the main functions within each SBU, such as production, purchasing, finance, human resources and marketing, and
how they deliver effectively the strategies determined at the corporate and business levels.
Strategic Planning
A formal or rational approach to strategic planning involves four key stages:
 Strategic analysis
 Strategic choice
 Implementation of chosen strategies
 Review and control

The formal approach to strategic management in a process of strategic planning has

frequently been criticised because:
1. It assumes that human activities are rational and logical, which is very often not
the case. Managers have psychological limitations so they cannot weigh up the
consequences of options or be the objective analysts that the formal, rational
approach expects.
2. It produces prescriptive solutions for the long-term which are rarely achieved
because changes in the environment in the short term, such as competitors bringing
out new products, necessitate immediate changes to the strategy.

The emergent approach to the strategy process addresses these two problems by:
 Adapting to human needs and
 Evolving continuously and incrementally

The emergent approach to strategy can include the same degree of strategic analysis as
the formal approach but strategic choice and implementation go on at the same time in
a continuous process. It therefore involves three stages.
 Strategic analysis
 Strategic choice and implementation
 Review and control
Strategic Analysis
Stage Comment Key tools, models, techniques

Step-1 External analysis (analysing Identify opportunities and threats in the business’s PESTEL Analysis, Porter's five
the environment) external environment forces analysis, Competitor analysis

Step-2 Internal analysis (analysing Identify strengths and weaknesses. Analyse the Resource audit, Distinctive
the business) business's current resources, products, customers, competences, Value chain, Supply
systems, structure, results, efficiency, effectiveness chain, Product life cycle, BCG
Matrix

Step-3 Corporate appraisal Combines Steps 1 and 2 SWOT analysis

Step- 4 Mission, goals and Mission denotes values, the business's rationale Stakeholder analysis, Mission
objectives for existing; goals interpret the mission for statement
different stakeholders; objectives are quantified
embodiments of the mission
Step-5 Gap analysis Compares outcomes of Step 3 with Step 4 Gap analysis
Strategic Choice
Stage Comment Key tools, models, techniques

Come up with new ideas: (a) Resource based strategies.

01.Strategic
(a) How to compete in the market. (b) Positioning based strategies: i.e. Porter's generic
option
(b) where to compete. strategies
generation
(c ) Method of growth (c) Ansoff's product/market strategies

Normally, each strategy has to be evaluated

on the basis of:
02.Strategic (a) Acceptability to shareholders
(a)Stakeholder analysis
option (b) Suitability to the business operational
(b) Risk analysis
evaluation circumstances
(c ) Feasibility in terms of available finance,
resources, time and competences

03.Strategic
Choosing between the alternative strategies.
selection
Strategic Implementation and Review & Control
Strategy implementation is the conversion of the strategies chosen into detailed plans or objectives for operating units. The
planning of implementation has several aspects.
 Resource planning
 Operations planning
 Organisation structure and control systems

Strategy review & control is very much vital because organisations are most vulnerable when they are at the peak of their
success and then chosen strategy become obsolete with dynamic changes of internal and external environment.
Business Environment
The business environment contains some internal and external factors ‘surrounding the organisation’ and the combination of
those factors influence the organisations operating situation.

Rational planning approach: Environmental appraisal is a one-off assessment which establishes the forces acting on the
business at present and forecasts how these may develop during the years of the plan.

Strategic management approach: The need for environmental scanning. This is a continuous awareness by management of
environmental issues enabling them to be routinely considered in decision
Gathering and disseminating environmental information
An effective system:
 Gathers environmental information
 Validates and corroborates the information
 Disseminates the information so that people who need it can find it.
Sources of environmental information
Internal sources include:
 Employees: Some will be following developments affecting the firm or their field of work, or have past experiences and
networks of contacts that can provide insights.
 Internal records system: This will reveal comments of sales teams at meetings, revenue and cost trends at different locations,
customer requests or complaints etc.
 Formal information resources: Many firms may employ information resources specialists to create current awareness
reports e.g. large accountancy firms have technical departments that monitor changes to regulations and the outcomes of
adjudications, test cases and appeals.
External sources include:
 Trade media: The magazines and journals specific to the industry or to particular business functions
 Published accounts of rivals, suppliers and clients
 Government statistical reports
 On-line resources: Subscriptions to business information vendors, current awareness services (emails from vendors who
monitor the media for articles containing keywords specified by management)
 Market reports: Published research from investment analysts, market researchers, trade departments of governments etc.
Gathering and disseminating environmental information
Validating environmental information
Methods:
 Appointing an Information Officer with skills of 'librarianship'. to act as a central point of contact for obtaining, sifting and
relaying information
 Appointing a database administrator for information stored and disseminated electronically, e.g. via an intranet, to check on
the validity of postings.
Issues to consider in validating environmental information include:
 Integrity of the source: internet gossip and market rumours lack integrity on their own
 Forecasting and predictive record in the past
 Degree of substantiation: is there more than one report or instance of this from independent sources?
 Age of the information: how up to date is it?
 Motivation of provider: does the provider have something to gain from convincing the firm of this information?
Disseminating environmental information
Tacit knowledge refers to 'information the organisation does not know it has' i.e. it is known to very few people and not easily
available to the organisation as a whole. Explicit knowledge is information that has been disseminated more widely.
Dissemination can be assisted by:
 A well designed intranet with clear files and a search facility
 Periodic briefing reports with a digest of the most significant information
 Periodic seminars to brief management
 Annual management development sessions at an internal or external business school to introduce and discuss new
environmental issues
External Environment Analysis – PESTEL Analysis
A PESTEL analysis is a framework or tool used by marketers to analyse and monitor the macro-environmental
(external environment) factors that have an impact on an organisation. The result of which is used to identify threats
and weaknesses which is used in a SWOT analysis.
External Environment Analysis – Porter’s Five Forces
Porter's five forces include three forces from 'horizontal' competition- the threat of substitute products or services,
the threat of established rivals, and the threat of new entrants and two others from 'vertical' competition- the
bargaining power of suppliers and the bargaining power of customers.
External Environment Analysis – Competitor Analysis
Competitor analysis in strategic management is an assessment of the strengths and weaknesses of current and potential
competitors. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats.
Internal Environment Analysis – Porter’s Value Chain
A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a
valuable product or service for the market.
Primary
Comment
activity
Inbound Receiving, handling and storing inputs to the production system (i.e.
logistics warehousing, transport, inventory control etc.)
Convert resource inputs into a final product. Resource inputs are not only
Operations
materials. 'People' are a 'resource', especially in service industries.
Outbound Storing the product and its distribution to customers: packaging,
logistics warehousing, testing etc.
Marketing and Informing customers about the product, persuading them to buy it, and
sales enabling them to do so: advertising, promotion etc.
Installing products, repairing them, upgrading them, providing spare
Service
parts and so forth.

Support
Comment
activity
Acquire the resource inputs to the primary activities (e.g. purchase of
Procurement
materials, subcomponents, equipment).
Human resource
Recruiting, training, developing and rewarding people
management
Technology
Product design, improving processes and/or resource utilisation
development
Firm Planning, finance, quality control: Porter believes these are crucially
infrastructure important to an organisation's strategic capability in all primary activities
Internal Environment Analysis – The Product Life Cycle
A product demonstrates different characteristics of profit and investment over time. Analysing it enables a business to examine its
portfolio of goods and services as a whole.
Stage in life
Comments
cycle
 A new product takes time to find acceptance by would-be purchasers and
there is a slow growth in sales.
Introduction  Unit costs are high because of low output and expensive sales promotion.
 There may be early teething troubles with production technology.
 The product for the time being is a loss-maker.
 If the new product gains market acceptance, sales will eventually rise more
Growth sharply and the product will start to make profits.
 Competitors are attracted and as sales and production rise, unit costs fall.
 The rate of sales growth slows down and the product reaches a period of
maturity which is probably the longest period of a successful product's life.
Maturity
 Most products on the market will be at the mature stage of their life.
 Profits are good.
 Eventually, sales will begin to decline so that there is over-capacity of
production in the industry.
 Severe competition occurs, profits fall and some producers leave the
market.
 The remaining producers seek means of prolonging the product life by
Decline
modifying it and searching for new market segments.
 Many producers are reluctant to leave the market, although some inevitably
do because of falling profits.
 Some producers may continue even where there are losses, perhaps to
Internal Environment Analysis – BCG Matrix
The BCG model is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio
of a business unit. To ensure long term value creation, a company should have a portfolio of products that contains both high growth products in
need of cash inputs and low growth products that generate a lot of cash. It has 2 dimensions: market share and market growth. The basic idea
behind it is that the bigger the product share a product has or the faster the product market grows the better it is for the company.
Placing product in the BCG matrix results in four categories in a portfolio of a company.
1. Stars (High growth, high market share)
 Use large amount of cash and are leaders in the business.
 Generate large amount of cash as well.
 In future this will be a cash cow if market share kept.
2. Cash cows (low growth, high market share)
 Profit and cash generation should be high and because of the low growth, investments needed
should be low.
 Foundation of a company.
3. Dogs ( Low growth, low market share)
 Avoid and minimize the number of dogs in a company
 Beware of expensive turn around plans.
 Deliver cash otherwise liquidate
4. Question mark (High growth, low market share)
 Have the worst cash characteristics of all
 If nothing is done to change the market share, question will simply absorb great amount of
cash
 Either invest heavily or sell off or invest nothing and generate whatever cash it can.
Corporate appraisal- SWOT Analysis

 Corporate appraisal brings together the results of the external and

internal analyses so that the business can assess its strengths,
weaknesses, opportunities and threats (SWOT analysis).

 SWOT is an acronym used to describe the particular Strengths,

Weaknesses, Opportunities, and Threats that are strategic factors for
a specific company. A SWOT should represent an organizations
core competencies while also identifying opportunities it can not
currently use to its advantage due to a gap in resources.

 Strengths and weaknesses are often internal to your organization,

while opportunities and threats generally relate to external factors.
For this reason, SWOT is sometimes called Internal-External
Analysis and the SWOT Matrix is sometimes called an IE Matrix.
Corporate appraisal- SWOT Analysis

Strengths (S) Weakness (W)

What advantages does your organization have? What could you improve?
What do you do better than anyone else? What should you avoid?
What unique or lowest-cost resources can you draw upon What are people in your market likely to see as weaknesses?
that others can't? What factors lose you sales?
What do people in your market see as your strengths?
What factors mean that you "get the sale"?
What is your organization’s unique selling proposition.

Opportunities (O) Threats (T)

What good opportunities can you spot?
What interesting trends are you aware of?
Useful opportunities can come from such things.
Changes in technology and markets on both a broad and
narrow scale
Changes in government policy related to your field.
Changes in social patterns, population profiles, lifestyle
changes, and so on.
Local events.
What obstacles do you face?
What are your competitors doing?
Are quality standards or specifications for your job, products
or services changing?
Is changing technology threatening your position?
Do you have bad debt or cash-flow problems?
Could any of your weaknesses seriously threaten your
business?
GAP Analysis
A comparison between an entity's desired future performance level (expressed in terms of profit) and the expected performance of
projects both planned and underway. Differences are classified in a way which aids the understanding of performance, and which
facilitates improvement.
The gap is not between the current position of the business and the desired future position. It is the gap between the position
forecast if the business continues with current activities, and the desired future position as set out in the strategic objectives.
Gap analysis is based on two questions.
1. What are the business's objectives?
2. What would the business be expected to achieve if it 'did nothing' – it did not develop any new strategies, but simply carried on
in the current way with the same products and selling to the same markets?
This difference is the gap. New strategies should close this gap, so that the business can expect to achieve its objectives.

 The business estimates the effects on the gap

of any projects or strategies in the pipeline.
Some of the gap might be filled by a new
project already underway
 Then, if a gap remains, new strategies have to
be developed to close it