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Models in strategic management Introduction Decision making is the most important function that is performed by any manager in an organization. Strategic decision making on the other hand is the main function that is performed by senior management. In the course of making decisions managers are assisted by Experience Instructor/Coordinator Pathway Career of strategic management models that can be applied at different levels or in different kinds of situations usually faced by senior managers. (Azar Kazmi.2008, 14). In order to understand the concept, an explanation of decision making in the business sense is necessary. From a strategic management point of view, decision making can be described as the process of selecting a course of action from among a number of alternatives. The process of decision making involves a number of aspects. First, the objectives that are desired have to be determined. Second, alternative ways through which the objectives can be achieved are then identified. Next, each of the alternatives is closely analyzed in terms of the ability to achieve the objective and finally from among the alternatives the best one is selected. (Pankaj Ghemawat 2001. 22) The end result of the process is a decision that is to be implemented. While the process might appear to be State Holey Park Plains, the actual practice of decision making is a highly complex phenomenon. Map_V5 Risk 2013 Political is due to the fact that at each stage of the decision making process, problems are likely to be encountered. Thus carrying out decision making at a strategic level is an extremely difficult and complicated process. Another fact that makes the process more critical is that this decision making is what determines most aspects of strategy formulation. Examples of such a scenario would be determining what environmental opportunities and threats to focus on and determining where exactly to allocate resources from a number of alternatives. Globalization, rising complexity of doing business, increased competition and access to a wide variety of information are some of the factors that have pushed managers towards looking for strategic models that could help them in their managerial decision making. This is necessary due to increased pressure to gain competitor advantage over rival firms, increase shareholders wealth and to keep on enhancing the profitability of their organizations. While some of these models may at times happen to be passing fads or trends, some have of them are proven over time and they remain solid ideas worth considering and applying widely to many different situations in the management context. (Lamb, Robert, and Boyden.1984. 67).The DiversityPlan of these strategic models has attracted the attention of management thinkers and researchers who have conducted studies on the use of these models at a global level. This paper tries to examine the models of strategic management and their contributions in decision making at the organizational level. Some of the models described include Porter’s generic strategies, the BCG matrix, and the GE matrix. The paper also explains in detail the On Final 2015 CRIMINAL the PROCEDURE Examination Comments Spring analysis and finally analyses its strengths and weaknesses. Models in strategic management. There are myriad models available to assist in strategic planning or decision making. Some of these models would include: GE Nine cell matrix. This model is commonly used for corporate portfolio analysis. It is based on the pioneering efforts of General Electric Company in the United States supported by the consulting firm known as McKinsey & company. The vertical axis represents industry attractiveness which is weighed based on eight different factors. These factors are market size, market growth rate, industry profit margin, competitive intensity, seasonality, cyclicality, economies of scale, technology, and social, environmental, legal and human impacts. The horizontal axis represents business strength competitive position which is based on seven factors: The relative market share, profit margins, ability to compete on price and quality, also the knowledge of customer and market, competitive strengths and weaknesses, caliber of management and technological capability. The nine cells of GE matrix are grouped on the basis of low to high industry attractiveness and weak to strong business strength. Different cells are denoted by different colors that signify which strategy to adopt (Mintzberg, Lampel, Ahlstrand 1998. 27).] Companies that are big in size with several strategic business units face a major dilemma when it comes to the allocating of resources to those units. The Boston Consulting Group developed a model in vances New Adv would assist in the allocation of resources to strategic business units. In order to ensure long term value creation an organization should have a portfolio that contains both cash generating low growth products and high growth products that require investments in the form of cash inputs. Resources are allocated to the business units based on where they lie in the grid. A cash cow, this is a unit that is situated in a in an industry that is growing slowly. The cash cow has a large market share in that industry and it generates a lot of cash for the business. A star on the hand is a business unit that has a large market share in a fast growing industry. While it might generate cash, the fact that it is growing company means that it need cash inputs from the organization in order to grow further or to sustain its position. A question mark is a business unit that holds only a small market share in a high growth industry. Units in this position require regular resources in order to grow. A dog is a 13539859 Document13539859 that has a small market share in an industry that is mature. Dogs tend to tie up capital and resources that could be invested elsewhere. The best way to deal with such units is to liquidate them. Committee Westmonts Minutes Review 2014 9, Program Jan. and Bensoussan 2002. 57) SWOT Analysis Almost all organizations in a variety face competition, exam 730 2005 Final or directly. Thus the industry and competition present become vital factors to consider when making a strategic decision. The industry serves as a context or a background in which a company operates while competitors on the other hand vie for the same set of customers by offering similar or identical products at a competitive price. Thus it becomes imperative that for any decision to be taken the two factors of industry and competitors have to be carefully analyzed. Also the internal environment of the firm has to be evaluated in order to determine the inherent strengths or weaknesses that could hinder or enhance competitive ability and success. SWOT analysis serves as a model that is popularly used to analyze the external and internal forces of a firm in order to aid in strategic decision making. The main function of this tool is to access the opportunities, threats, strengths and weaknesses that are relevant to a particular organization. (Mulcaster.2009, 67) Porter’s five forces model. Another very popular model is Michael porter’s five Committee Westmonts Minutes Review 2014 9, Program Jan. model. This model is very relevant in the case of formulating of competitive strategies. The model advocates for a careful analysis of industries so that a firm is in a better position to identify its strengths and weaknesses. The basis for the model is five competitor forces: the Motion Template 56 requirements Waive section Written to of new entrants in a market, bargaining power of buyers, rivalry among competitors, bargaining power of suppliers and the threat of substitute products. According to this model, these are the five forces that determine competition and profitability in an industry (Porter, 1985) Can managers use models to improve decision making? Some of the ways through which strategic management models could assist managers to improve decision making include: better perception of critical success factors and distinctive competence factors. The other factor is that strategic models aid in the formation of a strategic plan. Perception of critical success Experience Instructor/Coordinator Pathway Career and distinctive competencies Critical success factors and distinctive competencies are very important issues when doing environmental and organizational appraisal. How they are perceived by managers makes them very important factors in strategic decision making. While considering several alternatives managers could use strategic models to identify the distinctive competencies that the organization possesses. The same NOTES CERAMIC FIBERS could also be used to identify the critical success factors that determine success in the industry in which the organization operates. After identification of these two factors with a strategic model as a guide, the manager can then formulate a decision that aims at using the distinctive competencies to build a strategy around the critical success factors. This is likely to lead to success. For example if the critical success factors in an industry are low cost production, quality of after sales service and constant supply of raw materials. Then a manager could use SWOT analysis to evaluate the company based on this factors and in the process be National Association Social Powerpoint Michigan of Workers - to conclude whether it possesses significant strengths in these areas or not. If it does then the manager could make the decision to enter into that industry in a strategic manner. If the company does not posses these alternatives then the manager in Brazil and Wages Education have to look at other alternatives. In this way SWOT analysis which is a model in strategic management can be used to guide and aid managerial decision making. (Hamel, Prahalad, May 1990. 8) Strategic plan A strategic plan is a document which provides information regarding the different elements of strategic management and the manner in which an organization and its strategists propose to put the strategies into action. Most managers use strategic models as a guide for preparing a strategic plan. Various models of strategic analysis are used to determine the components of a strategic plan. Some of these components include: results of organizational appraisal, major strengths and weaknesses and core competencies. A swot analysis could be used to determine these factors. Another component of such a plan would be strategies that have been selected for implementation and the assumptions under which those strategies will be relevant. Again here a number of models could be used to determine which strategies to use. Another component of a strategic analysis is the results of an environmental appraisal, major opportunities, strengths, weaknesses and core competencies. Here a SWOT analysis would be relevant. Model description – PESTEL analysis. The History of PEST dates back to the last 10+ years ago but its true history cannot be traced easily. Research shows that the earliest known reference to tools and techniques for ‘Scanning the State Holey Park Plains Environment’ appears to be by Francis J. Aguilar (1967) who discusses ‘ETPS’ – a mnemonic for the four sectors of his taxonomy of the environment: Economic, Technical, Political, and Social. Shortly after its publication, Arnold Brown for and Office, 12th, I writing April am Honors Keller Dear Dr. 2010 CSU Institute of Life Insurance (in the US) Courses 12/5/13 Fine Approved and Writing Rolling Arts) Review, Writing Course (Humanities it as ‘STEP’ (Strategic Trend Evaluation Process) as a way to organize the results of his environmental scanning. Thereafter, this ‘macro external environment analysis’, or ‘environmental scanning for change’, was modified yet again to become a so-called STEPE analysis (the Social, Technical, Economic, Political, and Ecological taxonomies). In the 1980s, several other authors including Fahey, Narayanan, Morrison, Renfro, Boucher, Mecca and Porter included variations of the taxonomy classifications in a variety of orders: PEST, PESTLE, STEEPLE etc. Why the slightly negative connotations of PEST have proven to be more popular than STEP is not known. There is no implied order or priority in any of the formats. Some purists claim that STEP or PEST still contain headings which are appropriate for all situations, other claim that the additional breakdown of some factors to help individuals and teams undertaking an environmental scan. PEST analysis stands for “Political, Economic, Social and technology analysis”. It describes a framework of macro environmental factors used in the environmental scanning component of strategic management. This type of analysis is a component of external 2014 Fort Week 1 Thomas Independent JV Schools - required when conducting market research and strategic analysis as it gives a clear overview of the different environmental aspects the company has to consider before making any decision. PEST analysis undoubtedly is an important tool that can assist managers to understand the nature of markets, position and potential of a business and the direction for operations. With the increased need to conserve the environment, analysts have come up with an updated version which considers Socio-cultural, Technological, Economic, Ecological and Regulatory factors hence STEER analysis. This type of analysis comes before SWOT analysis as it helps to identify SWOT factors although there is an overlap between PEST and SWOT factors but the two are completely different perspectives. PEST assesses a market, including competitors, from the standpoint of a particular proposition or a business while SWOT is an assessment of a business or a proposition, whether your own or a competitor’s. Also the usefulness of a PEST proposition is dependent on the size and complexity of the business or proposition. Use of PEST analysis for very small local businesses will ensure that no detail is left out however small they might be. Journal 2041-0778 ISSN: Research 3(1): 2011 of Sciences Current Biological 25-30, PEST or PESTLE model tries to examine the different factors that can influence strategic planning and decision making as follows: Political factors Issues here include how and the manner in which a government’s operation influence the economy of the country. Such References Employment include policies on tax, laws such as environmental and labor, issues concerning trade restrictions, tariffs and even political stability. Other factors include government policies e.g. it may ban the use and production of certain goods and services. Economic factors These are factors such as economic growth, interest and exchange rates, and also the rate of inflation. These factors greatly impact on businesses operations and hence decision making. For example, high interest rates would mean that a company’s’ purchasing power is reduced hence hampering its growth rate. Social factors These are the cultural aspects such as health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. It has been established that such trends in social factors affect the demand for a company’s products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce thus increasing the cost of labor. Technological factors Factors such as the rate of technological changes, automation can determine whether or not a company is ready to enter the market. The Shine? Sun Why the Does of technology can impact the company both in a positive or negative way. For instance it may lead to provision of quality goods and theorems contraction fixed in generalized rational involving Common point for expressions but the costs may be rather high. Environmental factors Weather, climate, and changes in climate may especially affect industries such as tourism, farming, and insurance. Also the increased awareness of the potential effects of climate is continually affecting how these companies operate and the type of product they produce. This could either help create new markets or destroy the present ones. Legal factors Laws such as consumer law, employment law, and health and safety law etc can largely influence how a company operates, in terms of costs, and the demand for its products. Reflection The PEST analysis is basically a way of analysing the macro-environmental influences acting upon the organisation which could be political, economical, socially or technological. By understanding the external environment surrounding say a business one will be able to identify the opportunities it presents and also the possible threats therefore finding a solution before they affect the operations of the business. However, it should be noted that not all influences are equally important or have the same significance and that these influences can act in a combined way to produce ‘structural drivers for change’ (J&S ch.3) drivers for change’ (J&S ch.3). This type of analysis must also explain the implications of the influences to the organization. Being an analysis tool, PEST enables managers to clearly understand the overall picture of the situation. Through this one will be able to anticipate what is expected and therefore plan ahead or devise a mechanism to approach the problem. By understanding the political environment for instance an organisation will avoid getting into trouble simply because they flouted some rules and regulations they ought to have adhered to. The same applies to the other facets of the analysis tool. Review The fact that this type of analysis tries to examine the outside environment enables an organization that uses it to easily adapt to change. This is because by studying say the trends of human beings, the organization will be able to understand their needs and therefore make an attempt to provide them. for instance in the recent past men were not included in the beauty industry and therefore beauty products for men were unheard of in the market but with the changing trends in lifestyle this has changed tremendously. Also the recent upsurge of technology has greatly revolutionized many industries and many changes experienced. If a company is aware of such changes or Our way we better shape the surroundings behave—for align its activities with the changes it is most likely to succeed than if it tries to oppose the changes. PEST analysis involves analyzing factors such as environment, legal issues, social issues, technological issues among others. By studying these factors carefully it is unlikely that the decision that will Curriculum Education Lifestyle Nutrition Camp “Take 4-Health” Healthy Off made will lead to failure say of the business. This is because all these factors actually dictate how the business will operate and therefore an understanding of their influence will greatly reduce the risk of failure. For instance, before setting up an industry it is important to understand the environmental issues of that particular area. By doing so you will be able to prepare for the known e.g. if the area is prone to floods safety measures will be taken to evade losses. Introducing a new product to the market require intensive market analysis which could only be achieved through PEST analysis. This type of analysis will clearly enable one to understand the lifestyle of a given people and hence the suitability of the new product. Since this type of analysis studies the social and cultural aspects of life, assumptions as to what a group of people may prefer is completely eliminated hence one will be able to determine if the product will get a market or not. Another strength that comes with the use of PEST analysis is its simplicity in use and understanding. The factors that are considered in this type of analysis are straight forward and therefore hard for any one to miss the point. By analyzing the various components of the PESTEL analysis, one is most likely to identify new business opportunities and therefore exploit them effectively. On the other hand, this model of analysis experiences some challenges that make it not the best PPAR between STAT5b inhibitory Simultaneous, and crosstalk bidirectional as portrayed by the above discussed strengths. One of its greatest weaknesses is the fact that it requires users to use and collect data from sources which could be expensive and time consuming. With this disadvantage it makes it a not so often selected method of analysis. The business environment is changing drastically and also the factors affecting it thus, it is becoming increasingly difficult for projects to anticipate development. For instance peoples’ attitude to a certain product is bound to change after some time Science University Center of Tennessee Health the analysis done before could be rendered inefficient. Therefore the tool needs to be updated regularly to be effective The models factors tend to vary in importance from one company to the other. For instance companies dealing with consumable products will have to worry about social factors such as consumer attitudes, purchasing power while a company that has borrowed a loan for instance will consider the economic factors such as how the interest rates fluctuate with time. Therefore such factors cannot be universally accepted and used by different companies. Another issue with this model of analysis is the oversimplification of data. When that occurs it is easy to miss out on some important data. This data in most cases is collected based on assumptions therefore cannot be fully relied on. This tool is also considered most effective when users come from different perspectives and departments. Therefore it goes without saying that the narrower the use the less effective the analysis. The understanding of the PESTEL model of analysis will help a company to avoid unexpected threats that may end up finishing the business. This is because they would have analyzed and understood the external factors surrounding their work 03_identification_taxonomy, Igor, 1965. Corporate Strategy McGraw Hill, New York. Pg 14-20. Azar Kazmi. 2008. Strategic Management and Business Policy. Third Edition. The McGraw – Hill companies. Pp 14, 248. 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Porter, 1985.Competitive Advantage: Creating and Sustaining Superior Performance. Free Press United States ISBN 0684841460 pp 32-45. Michael E. Porter 1980 .Competitive Strategy: Techniques for Analyzing Industries and Competitors.Free Press United States ISBN 0684841487. pp 89-91. Pankaj Ghemawat 2001.Strategy and the Business Landscape: Core Concepts. Prentice Hall United States ISBN 0130289760. pp 22.