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EXAM QUESTION CANDIDATESSHORT 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
Divisional managers and staff of separate Executive manager and senior staff of single
Business level strategy
business units 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
Frontline managers in operations Frontline managers in operations
Operational strategy
departments 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 low-
cost 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
Best-cost provider strategy:
The advantages of a best-cost provider strategy are seen to essentially stem from the implications of Porter's five
forces model for industry analysis. To recap, the five forces are threats from competitors, powerful suppliers,
powerful buyers, and the threat of substitute products and new entrants. An organisation that is a cost leader is
protected from industry competitors by its cost advantage, and is relatively safe as long as it can maintain this
advantage because low prices are important for consumers. Differentiation strategies will be successful when the
variety of products offered meets customer needs better than those of competitors in a sustainable way. As
stated above, the distinguishing feature of a best-cost provider strategy is that it uniquely combines low cost and
differentiation, while maintaining quality and providing good value at a reasonable price compared to
competitors.
The disadvantages of a hybrid best-cost provider could result from not being aware of a changing competitive
industry environment, and the risk that the cost leadership and/or differentiation features that underlie this
strategy do not measure up to market expectations, leaving this strategy "stuck in the middle", and therefore
uncompetitive.
Critically discuss the importance, benefits and risks of strategy.
Importance and benefits of strategy:
Strategy is a coherent narrative about the future direction of an organisation. It combines the views and thinking of
many members of the organisation and communicates the outcome back to the organisation so that everyone
follows the same strategy. It provides members of the organisation with a framework to guide their decision-making.
It provides an actionable blueprint for achieving its aspirations. More specifically, the importance of strategy and,
hence, strategic management is confirmed in the following broad terms:
It provides for cohesive strategic thinking and an innovative and future-oriented decision framework for the
organisation.
It pools the contributions by organisational members, thereby facilitating the communication of strategy to all.
It is the verbalisation of the organisation's aspirations and serves as a source of motivation for everyone in the
organisation.
Risks of strategy
Despite its acclaimed benefits, strategic management also deals with risks of a strategic nature. Even though there
are different perspectives on risk, strategic risk can be defined as “an array of external events and trends that can
devastate a company's growth trajectory and shareholder value”. Strategic risk fall into seven major categories:
1) Industry risk
2) Technology risk
3) Brand risk
4) Competitor risk
5) Customer risk
6) Project risk
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