MNG4801 EXAM QUESTION CANDIDATES

EXAM QUESTION CANDIDATES SHORT QUESTIONS Explain the PESTLE/G method for macro-environmental analysis While changes in the broad (macro) environment may affect a cross-section of industries, some factors (PESTLE/G) are more important than others as drivers of change in different industries. When analysing the broad environment, managers are required to go beyond a mere description of change in the environment to an assessment of the forces driving it in order to prioritise it so that the organisation can focus its resources on the most strategically important issues. The PESTLE/G factors mentioned, are as follows:  Political-legal factors - From a business perspective, the extent of political stability and a government's ability to ensure a stable business environment are possibly the two main political considerations for business.  Economic factors - Economic factors that are important from a business perspective are the growth rate of the economy, the level of interest rates, the currency exchange rates and inflation.  Sociocultural factors - Sociocultural factors and forces refer to existing and changing social values, beliefs, attitudes, traditions and lifestyles in a society that could affect the preference and demand for certain products and services over time.  Technological factors - Technological change has become a main driving force in the global economy over the past few decades and continues unabated.  Legal, linked to political - The most important legal considerations from a business perspective are the appropriateness of a country's legal system, the effectiveness of law enforcement and whether the country adheres to the rule of law.  Ecological - Concerns about the natural environment have increased dramatically in recent years. Preservation of the ecology worldwide is threatened by continuous pollution.  Global - Global (G) factors can be included to the PESTLE framework to yield PESTLE/G. 12 Global trends have been identified which have the potential to significantly affect and challenge leaders in the next 30 years: 1) Increasing population 2) Increasing urbanisation 3) The spread of infectious disease 4) Natural resource crises 5) Environmental degradation 6) Economic integration 7) Knowledge dissemination 8) Information technology 9) Biotechnology 10) Nanotechnology 11) Increasing conflict 12) Governance Critically distinguish between the levels of strategy in organisations. Strategic management and decision making occur at different hierarchical levels in an organisation. The organisational structure of a multi-business organisation or corporation differs from that of a single business organisation. Corporate entities have four levels of strategy, with corporate strategy at the corporate level, business level strategies at the business unit level and tactical or functional strategies at lower levels. Single business organisations have no corporate level strategies. The levels of strategy in both corporations and single businesses must be aligned, and organisational members at all levels in the organisation should understand the overall strategy of their organisation as well as its implications at their respective levels. Levels of strategy and decision-making roles in multi-business and single business organisations: Level of strategy Corporate entity Single business entity Corporate level strategy CEO, board of directors and corporate staff No corporate strategy exists Business level strategy Divisional managers and staff of separate business units Executive manager and senior staff of single business Functional level strategy Functional level managers and staff in each Functional managers and staff for each functional area in a business unit functional area in the single business Operational strategy Frontline managers in operations departments Frontline managers in operations departments Differentiate between the different types of business level strategies Business-level, or competitive, strategies consider how to compete successfully in the various markets. These strategies focus on how to position a company within an industry in such a way that it has competitive advantage. There are many variations in business-level strategies, but if one strips away the detail to get to the real substance, the biggest and most significant differences among competitive strategies are reduced to the following:  Whether an organisation’s target market is broad or narrow  Whether an organisation is pursuing a competitive advantage linked to low cost or product differentiation  A combination of the above Four distinct generic competitive strategy approaches stand out: 1) Cost leadership strategy. This strategy involves becoming the lowest cost organisation in a domain of activity by a significant margin. The strategy will normally target a broad spectrum of buyers. It is important to note that cost leadership does not necessarily imply low price – in fact, having low production cost and low price will result in average returns, and no real competitive advantage. 2) A differentiation strategy. This strategy involves uniqueness along some dimension that is sufficiently valued by consumers to allow a price premium. This strategy may focus on either a broad section of buyers or a narrow buyer segment. 3) A focus strategy. This strategy involves targeting a narrow segment or domain of activity and tailors its products or services to the needs of that specific segment to the exclusion of others. 4) A best cost provider strategy. This hybrid strategy involves giving customers more value for their money by offering upscale product attributes at a lower production cost than rivals. These strategies relate to the organisation’s deliberate decisions on how to meet its customers’ needs, how to counter the competitive efforts of its rivals, how to cope with the existing market conditions, and how to sustain or build its competitive advantage. Advantages and disadvantages of each business level strategy (THEY MAY ASK FOR EXAMPLE, NAME THE ADVANTAGES AND DISADVANTAGES OF COST LEADERSHIP STRATEGY)  Cost leadership strategy The advantages of cost leadership strategies include the following:  an increase in competitiveness and market share through sustainable cost advantages  protection for the organisation against competition as a result of its durable cost advantage  protection against powerful suppliers because of large-scale purchases and resultant discounts  protection against the power of buyers because of the low-cost advantage and competitive pricing possibilities  durable cost advantages serving as barriers to imitation, barriers to the threat of substitute products and barriers to the threat of new entrants to the market, which should be evident from analysis of the organisation's competitors The potential disadvantages of cost leadership strategies include the following:  not keeping up with changes in the external environment, for example, where core competencies relate to and are sensitive to changes in technology which are not recognised  not being aware of changing consumer needs and preferences with regard to products and services in the lowcost market sector that could seriously affect competitive market position  not being aware of industry dynamics, changing industry competitive forces, and the actions of competitors as far as imitating, or even worse, improving on an organisation's low-cost core competencies, is concerned − the so-called "curse of complacency".  Differentiation strategy The advantages of differentiation strategies include the following:  They could safeguard an organisation against competition as a result of brand loyalty.  They could enhance profit margins by slightly higher pricing than their competitors.  Powerful suppliers are rarely a problem.  Differentiators are unlikely to experience problems with powerful buyers.  Threats of substitute products really depend on competitors' products to meet or exceed customer needs before customers would be willing to switch products.  Effective differentiation and brand loyalty could act as barriers to entry. The disadvantages of differentiation strategies relate to the organisation's inability to maintain uniqueness from a customer perspective − not fully responding to the durability challenge of competitive advantage. Another danger stems from the design or physical features of a product, which are much easier to imitate than uniqueness, which stems from intangible sources like innovation, quality of service, reliability, brand and prestige.  Focus low-cost leadership and differentiation strategies The advantages of focus strategies include the following:  protection from competitive rivals owing to the uniqueness of product(s) or service(s)  power over buyers because of significant uniqueness and exclusivity  passing supplier price increases on to customers  customer loyalty as a protection against substitute products as well as new entrants The disadvantages of focus strategies include the following:  high production costs, basically because of the inability to realise economies of scale  not being aware of changing technology and consumer preferences  not being able to effectively ward off an attack by rival differentiators