ERM in the Global Business Environment PDF

ERM in the Global Business Environment (SBRM6070 MSc.) Strategy Formulation and ERM Facilitator: Dr. Tamara Silvera Mona School of Business and Management  Contents 1. Recap Questions 2. Where / What Do We Want to Be? Strategic Vision and Mission Customer...

ERM in the Global Business Environment (SBRM6070 MSc.) Strategy Formulation and ERM Facilitator: Dr. Tamara Silvera Mona School of Business and Management  Contents 1. Recap Questions 2. Where / What Do We Want to Be? Strategic Vision and Mission Customer Value Proposition 3. Were Are We Now?  Internal Environment  Resource Based View  Key Internal Forces  External Environment  Macroeconomic Analysis – PESTEL  Competitor Analysis  Industry Analysis - Porter’s Five Forces 2  Recap Question(s) 1) What are the 3 stages of the strategic management process and how do they differ?  Strategic Management Process: Strategy Evaluation Strategy Formulation (Strategy Formulation Stage) Strategy Implementation Identifies ‘where the company is headed, the targeted strategic and financial outcomes, and the competitive moves and internal action approaches to be used in achieving the desired business results.’ 1. Where / What Do We Want to Be? 2. Where Are We Now? 3. How are we going to get there (Lecture 3) 4  Where / What Do We Want to Be?  Strategic Vision  Short, concise statement (developed with cross-section of management’s input) that  Reveals the type of business that firms operates in, and  Answers the question, Who / What do we want to become?  Framework for strategic planning  Strategic Mission  Outlines the company’s future direction….“What the company wants to be and whom it wants to serve.”…..Helps to Differentiate company from rivals  Answers the question What is our business? 5  Where / What Do We Want to Be?  Importance of Vision and Mission Statements  To make sure all employees/managers understand the firm’s purpose or reason for being.  To provide a basis for prioritization of key internal and external factors utilized to formulate feasible strategies.  To provide a basis for the allocation of resources.  To provide a basis for organizing work, departments, activities, and segments around a common purpose.  Customer Value Proposition  Compelling statement that explains what benefit company provides to its target market, and how it delivers better than rivals 10 Benefits of Having a Clear Mission and Vision 1. Achieve clarity of purpose among all managers 6. Promote a sense of shared expectations among and employees. all managers and employees. 2. Provide a basis for all other strategic planning 7. Project a sense of worth and intent to all objectives. stakeholders. 3. Provide direction. 8. Project an organized, motivated organization worthy of support. 4. Provide a focal point for all stakeholders. 9. Achieve higher organizational performance. 5. Resolve divergent views among managers 10. Achieve synergy among all managers and 6 employees.  Learning in Action Review and critique the Mission Statement of Salada Foods Jamaica against the Characteristics and Components of a Mission Statement? About Us - Salada Foods Jamaica Components and Characteristics of an Effective Mission Statement Characteristics Components 1.Broad in scope (does not include specific Customers – Who are the firm’s customers? objectives/targets) Products/Services – What are the firm’s major 2. Fewer than 150 words in length. products or services? 3. Inspiring Markets – Geographically, where does the firm 4. Identifies the utility of a firm’s products. compete? 5.Reveals that the firm is socially responsible. Technology – Is the firm technologically current? 6. Reveals that the firm is environmentally Survival, Growth, Profitability – Is the firm responsible. committed to growth and financial soundness? 7. Includes 9 components (see components list). Philosophy – What are the basic beliefs, values, 8. Reconciliatory aspirations, and ethical priorities of the firm? 9. Enduring Self-concept (distinctive competence)- What is the firm’s major competitive advantage? Public Image – Is the firm responsive to social, community, and environmental concerns? Employees – Are employees a valuable asset to the firm?  Where are we Now ? SWOT analysis - most widely used strategic planning matrix. Strengths & Weaknesses - internal to the firm. Identified through internal audit. Distinctive Competitive Weakness Strengths Competencies Advantage Opportunities & Threats – external to the firm (competitors, industry, global factors). Identified through macro, industry and competitor analysis. Where Are We Now? (Internal Environment Current Performance Level  “The stronger a company’s financial performance and market position, the more likely it has a well-executed strategy.”  Generic strategy, Competitive scope within the industry, Collaborative partnerships and strategic alliances with others 9  Where Are We Now? (Internal Environment) The Resource-Based View (RBV) of the Firm Sustained competitive advantage and Organizational performance will primarily be determined by internal resources. Firm Resources – “all assets, capabilities, organizational processes, firm attributes, knowledge etc. controlled by a firm” – Barney 1991- (physical, human, organizational)  For a resource to be potential source of competitive advantage it must be 1) Valuable, 2) Rare 3)Inimitable 4) not Substitutable  Effective use of resources helps the firm to exploit opportunities and neutralize threats.  24 Where Are We Now? (Internal Environment Core competence (“..proficiently performed internal activity that is central to a company’s strategy and competitiveness. E.g., product innovation”) Distinctive competence (“..competitively valuable activity that a company performs better than its rivals. E.g., Toyota, low-cost, high quality manufacturer of motor vehicles  …Strength that cannot be easily matched or imitated by competitors Building competitive advantages involves taking advantage of distinctive competencies Insight – What are some of the strengths and weaknesses in your own organization? Do you see your firm’s strengths as core or distinctive competencies? 11 Where Are We Now? (Internal Environment Integrating Strategy and Culture  Organizational culture is “a pattern of behavior that has been developed by an organization as it learns to cope with its problem of external adaptation and internal integration and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel.”  If strategies can capitalize on cultural strengths, such as a strong work ethic or highly ethical beliefs, then management often can swiftly and easily implement changes. 12 Where Are We Now? (Internal Environment Key Internal Forces Management Planning, Organizing, Motivating, Staffing, Controlling Marketing Defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services Finance & Accounting Investment, Financing, Financial health, Reporting Production & Operations Transforming inputs into goods and services Management Information Systems Collects, codes, stores, synthesizes, and presenting (Business Intelligence. Data) Value Chain Analysis identify where low-cost advantages or disadvantages exist along the value chain from raw material to customer service activities Enterprise Risk Management Framework for managing and controlling internal and external risks 13  Where are we Now ? (External Environment). SWOT analysis - most widely used strategic planning matrix. Strengths & Weaknesses - internal to the firm. Identified through internal audit. Opportunities & Threats – external to the firm (competitors, industry, global factors). Identified through macro, industry and competitor analysis.  Focuses on identifying and evaluating trends and events beyond the control of a single firm  Macroeconomic environment (PESTEL)  Industry Competition Analysis  Competitive Intelligence Programs  Porter’s Five Forces Model  Macroeconomic Analysis - PESTEL Provides an understanding of  the external forces to maximize the opportunities and minimize the threats to a firm  the “big picture” / external pressures of the environment in which the business is operating and the possible constraints on its strategy….in order to guide strategic decision-making.  Useful tool for understanding risks associated with market (the need for a product or service) growth or decline, and as such the position, potential and direction for an individual business or organization Other Acronyms – PEST, SLEPT, STEEP etc. 15  PESTEL Political Economic Sociological Technological Environmental Legal/Regulatory Extent to which Determinants of Culture and its Potential What are the Are there any current a government an economy’s determinants’ technological environmental legislations that may influence performance. impact on the innovations that concerns for this regulate the industry the economy GDP growth rates market may affect the industry/market? or can there be any or a certain operations of the change in the industry Demographics: industry/market Environmental legislations for the Inflation favorably or industry age distribution protection laws Government unfavorably Fiscal & Monetary ethnic mix stability Waste disposal Trade regulations policies education level Adoption of new laws income technologies Business related distribution Employment laws Exchange Rate policies and Global philosophies Research warming/Green Anti-trust laws Unemployment Attitude towards initiatives work, issues levels Tax policy, Fiscal holidays/special Taxation policy policy, Trade occasions Life Scientific workers Energy tariffs expectancy (e.g. engineers) consumption per 1000 of Data protection population laws Security condition Cyber security 16  Industry Competition Analysis Competitive Intelligence Programs  Identifying rival firms and determining their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies.  Ethical collection and analyzing of data on competitors.  Provide a general understanding of an industry and its competitors Identify areas in which competitors are vulnerable and to assess the impact strategic actions would have on competitors Identify potential moves that a competitor might make that would endanger a firm's position in the market 17  Porter’s Five Forces Model Porter’s five forces model - forces Threat of Substitutes that directly and indirectly the nature of competitiveness in an industry.  Analysis designed to be used at the line-of-business industry level, not at the industry group or Rivalry industry sector level Bargaining Bargaining among power of power of  E.g., diversified companies, select suppliers competing consumers firms the industries (lines of business) in which the company competes, and develop industry-specific five forces analysis for each line of business Threat of new entrants “…different industries can sustain different levels of profitability; part of this difference is explained by industry structure.” 15  Porter’s Five Forces Model The overall industry attractiveness does not imply that every firm in the industry will return the same profitability.  Firm uses the model to better understand the industry in which it operates (uncover opportunities, cause of profitability, differences in consumers, suppliers, substitutes, potential entrants,, etc.)  Develop distinct strategy (stake out a position), consistent with core competencies, business model or network  Result: Achieve a profit above the industry average (achieve competitive edge over rivals) over the long-term 19  Porter’s Five Forces Model Strategy options:  Position the company where forces are weakest  Exploit changes in the forces (Internet, illegal music downloading & Apple's iTunes & iPod)  Reshape the forces in the company's favour (Strategies to Reduce Impact…) 20  Porter’s Five Forces Model Threat of Substitute Products: from outside the industry; offer similar benefits to consumers as products/services produced within the industry This threat is high when:  The price of substitute is lower, quality and performance capabilities are higher or equal  few switching cost exist Costs (retraining, retooling and redesigning, etc.) incurred when customer switches to a different type of product or service  Increase switching costs, Customer survey, Differentiate, Expand offerings, Enter substitute market 21  Porter’s Five Forces Model Bargaining Power of Suppliers: Powerful suppliers impacts firm’s profit if they charge higher prices, especially for unique resources Power is high when: - industry dominated by a few large companies - supplier goods are critical to buyers’ success in the marketplace - high switching cost to move from one supplier to another  Supply chain management, Partnering, Standardize parts specifications, Take over a supplier 22  Porter’s Five Forces Model Bargaining Power of Buyers: Amount of pressure customers can place on a business….Affects firm’s margins and volume  Buyer power is high when: - they purchase a large portion of industry output - switching cost is low - industry’s product undifferentiated or standardized  Partnering, Supply chain management, Increase customer loyalty, Move purchasing decisions away from price, Drop powerful intermediaries, Increase incentives and value added 23  Porter’s Five Forces Model Threat of New Entrants:…The easier it is for new companies to enter the industry, the more cutthroat competition there will be Some barriers to entry are: - Economies of scale - Capital requirements - Access to distribution channels - Government policy (regulations/restrictions)  Develop Brand Loyalty, Patents, Partner with Distributor/Supplier 24  Porter’s Five Forces Model Rivalry among competing firms: The intensity of competition between existing firms in an industry…Highly competitive = low returns/profits . Rivalry is strong when:  There are many competitors in the industry  Exit barriers are high (e.g. specialized assets, labour agreements, government and social restrictions etc.)  Little / no differentiation  Very low switching costs  Mature industry with little growth  High fixed costs Buy out competitors, Differentiate firm’s products/services, Focus on different segment(s), Avoid price competition, Innovate 25