Chapter 18

Strategy and the changing environment

The purpose of strategy is to provide the future direction and objectives of the
organisation and to identify and gather the resources necessary to achieve these
objectives.
A simplified and popular perspective of strategy views it as a series of chronological
phases: strategic analysis, identification and selection of strategic choices and, finally,
implementation. For many managers this begins with a consideration of the following
questions:
● Where are we now?
● What is the situation we face?
● Where do we wish to be?
● Which factors in our environment may pose challenges or opportunities for us in the
future?
Managers need to be keenly aware of their organisation’s internal environment (where
its strengths and weaknesses may lie), and also be able to diagnose their external
environment. It can be argued that the successful strategies are those that best match
the organisation’s resources to the pressures and forces of the environment. In short,
the organisation is seeking a strategic fit between the internal and external
environments.
Environmental analysis is the process of scanning the environment to identify
changes or trends that have the potential to generate opportunities and threats to the
organisation’s current or future intended strategies. The form and means by which this
environmental scanning may be operationalised within an organisation will vary from
firm to firm and can be undertaken informally or using quite sophisticated analytical
tools and techniques that may require significant employment of an organisation’s
resources.
An example of such informal scanning is where a local independent music store sends
out a staff member from its small team at the beginning of each week to check up on
the prices the large music chain retailers within the town are charging for popular
CD albums. This ensures that the small independent record shop is able to price its
products competitively and react quickly to any price changes or promotional activities
by its competitors.
Many larger organisations, however, may prefer a more systematic and formal means
for scanning and analysing the environment. In broad terms, these more deliberate
approaches to environmental analysis tend to focus on the firm’s societal and task
environments. As discussed in Chapter 1, the societal and general environment (often
termed the ‘macroenvironment’) is typically analysed through the lens of PESTLE
analysis, which focuses attention on political, economic, socio-cultural, technological,
legal and environmental and/or ethical issues. A further development of this approach is
the concept of LoNGPEST/LoNGPESTLE analysis, which formally incorporates the
spatial dimension into any analysis of an organisation’s external environment. The basic
argument is that any examination of the macroenvironmental influences on the firm
needs to recognise that these can operate at all spatial levels: local (Lo), national (N),
global (G). Hence the acronym LoNGPEST(LE). To take one example, a local business
may be subject to political changes in its immediate vicinity (e.g. new by-laws on
trading) and/or at the national level (e.g. changes to employment regulations) and/or at
the global level (e.g. new agreed global standards on greenhouse gas emissions). The
same approach can be adopted for all the other influences in an organisation’s general
environment. At this point for the organisation a distinction can be drawn between
environmental scanning and environmental analysis. The process of scanning is the
identification of trends and changes, while analysis is the consideration of which trends
and environmental changes will, or are likely to, impact on the organisation in terms of
presenting new challenges and also opportunities. For example, a period of relatively
high or rising interest rates may be of general concern, but it is how increases in interest
rates may directly affect a firm’s borrowing capacity, expansion or plans for further
investment that is really of relevance to the organisation.
Organisations can also analyse their task or competitive environment (frequently
termed the microenvironment). Analysis of this kind focuses attention on external
factors that are most proximal to the organisation, typically residing at the industry level.
A number of models and frameworks have been designed that explore how industry-
level factors influence organisational performance, with the best known being Harvard
professor Michael Porter’s five-forces model, discussed in detail in Chapter 15.
You will recall that Porter argued that average industry profitability and therefore
organisational performance was predominantly determined by five key industry
characteristics: ● the intensity of incumbent rivalry; ● the threat of new entrants; ● the
threat of substitutes; ● the power of buyers; ● the power of suppliers.

The Delphi method

The Delphi method, also known as the estimate-talk-estimate technique (ETE), is a

systematic and qualitative method of forecasting by collecting opinions from a group of
experts through several rounds of questions. The Delphi method relies on experts who
are knowledgeable about a certain topic so they can forecast the outcome of future
scenarios, predict the likelihood of an event, or reach consensus about a particular
topic.

The Delphi method consists of several rounds of written questionnaires that allow
experts to give their opinions. After the experts answer each round of
questionnaires, the facilitator collects all the answers and hands out a summary report
of the answers to each expert. Then, the experts review the summary report and either
agree or disagree with the other experts’ answers.

The experts then fill out another questionnaire that gives them the opportunity to provide
updated opinions based on what they understand from the summary report. The Delphi
method becomes complete when a consensus of forecasts is achieved.

Cross-impact matrices

The cross-impact matrix provides a more complex means of assessing and forecasting
environmental change than some of the other methods previously described. Under
this approach, analysts identify a set of events that is forecast to occur within a given
time period, and specify not only the expected timing of each event but also its
probability of occurrence. Arranging these events in anticipated chronological order in
rows and columns of a matrix (see Figure 18.3) permits attention to be focused on the
interaction between the events and, in particular, on the extent to which one may
influence the timing or likely occurrence of another.

SWOT or TOWS analysis

A SWOT (strengths, weaknesses, opportunities and threats) analysis looks at internal

and external factors that can affect your business. Internal factors are your strengths
and weaknesses. External factors are the threats and opportunities. If an issue or
situation would exist even if your business didn't (such as changes in technology or a
major flood), it is an external issue
What is a TOWS Analysis?
A TOWS analysis is very similar to SWOT. However, there is a key difference
between the two, other than a reshuffling of a few letters!
While SWOT analysis, puts the emphasis on the internal environment (your
strengths and weaknesses), TOWS forces you to look at your external
environment first (your threats and opportunities).
What Is a BCG Growth-Share Matrix?

The Boston Consulting Group (BCG) growth-share matrix is a planning tool that uses
graphical representations of a company’s products and services in an effort to help the
company decide what it should keep, sell, or invest more in.

The matrix plots a company’s offerings in a four-square matrix, with the y-axis
representing the rate of market growth and the x-axis representing market share. It was
introduced by the Boston Consulting Group in 1970.1

KEY TAKEAWAYS

 The BCG growth-share matrix is a tool used internally by management to

assess the current state of value of a firm's units or product lines.
 BCG stands for the Boston Consulting Group, a well-respected management
consulting firm.
 The growth-share matrix aids the company in deciding which products or units to
either keep, sell, or invest more in.
 The BCG growth-share matrix contains four distinct categories: "dogs," "cash
cows," "stars," and “question marks.”
 The matrix helps companies decide how to prioritize their various business
activities.

Understanding a BCG Growth-Share Matrix

The BCG growth-share matrix breaks down products into four categories, known
heuristically as "dogs," "cash cows," "stars," and “question marks.” Each category
quadrant has its own set of unique characteristics.2

Dogs (or Pets)

If a company’s product has a low market share and is at a low rate of growth, it is
considered a “dog” and should be sold, liquidated, or repositioned. Dogs, found in the
lower right quadrant of the grid, don't generate much cash for the company since they
have low market share and little to no growth. Because of this, dogs can turn out to be
cash traps, tying up company funds for long periods of time. For this reason, they are
prime candidates for divestiture.2

Cash Cows
Products that are in low-growth areas but for which the company has a relatively large
market share are considered “cash cows,” and the company should thus milk the cash
cow for as long as it can. Cash cows, seen in the lower left quadrant, are typically
leading products in markets that are mature

Stars
Products that are in high growth markets and that make up a sizable portion of that
market are considered “stars” and should be invested in more. In the upper left
quadrant are stars, which generate high income but also consume large amounts of
company cash. If a star can remain a market leader, it eventually becomes a cash
cow when the market's overall growth rate declines.2

Question Marks
Questionable opportunities are those in high growth rate markets but in which the
company does not maintain a large market share. Question marks are in the upper
right portion of the grid. They typically grow fast but consume large amounts of
company resources. Products in this quadrant should be analyzed frequently and
closely to see if they are worth maintaining

Boiling frog theory

Apparently, the expression originates from a fable about a frog that gets put into
boiling water.

Upon encountering the hot water, the frog would, by reflex, jump out and save
itself from dying.
If on the other hand the frog is placed in cold or tepid water that gradually gets
heated up, it will fail to perceive the danger and hence get cooked to death.

From the research I have done, this is because the frog uses up all of its energy
when trying to adjust to the ever-changing temperature of the water.

When the water then starts boiling, the energy depletion is such, that he/she
simply does not have enough energy to jump out from the pot.

Chapter 9
The ethical and ecological environment of business
business ethics refers to the standards for morally right and wrong conduct in
business. Law partially defines the conduct, but “legal” and “ethical” aren’t necessarily
the same. Business ethics enhances the law by outlining acceptable behaviors beyond
government control.
Business ethics is the study of how a business should act in the face of ethical
dilemmas and controversial situations. This can include a number of different situations,
including how a business is governed, how stocks are traded, a business' role in social

issues, and more.

Corporate Social Responsibility (CSR) is the idea that a company should play a
positive role in the community and consider the environmental and social impact of
business decisions. It is closely linked to sustainability − creating economic, social, and
environmental value – and ESG, which stands for Environmental, Social, and
Governance. All three focus on non-financial factors that companies, large and small,
should consider when making business decisions. Corporate social responsibility (CSR)
is the idea that organisations should be held accountable for the effects of their actions
on people, their communities and the environment. ● CSR has become an important
consideration for modern businesses, alongside traditional concerns with profitability
and growth.
triple bottom line
The TBL is an accounting framework that incorporates three dimensions of
performance: social, environmental and financial. This differs from traditional reporting
frameworks as it includes ecological (or environmental) and social measures that can
be difficult to assign appropriate means of measurement. The TBL dimensions are also
commonly called the three Ps: people, planet and profits. We will refer to these as the
3Ps.

The three P's

Although there is no single established way to measure each bottom line, common
methods do appear in each.

 Profit. Organizations mostly depend on financial performance to gauge

performance. Profits tend to focus on aspects of a business that generate revenue,
such as business decisions made, strategic planning, or performance and cost
reduction methods.

 People. This measures an organization's social impact. This bottom line should help
measure the organization's commitment to people. This includes all stakeholders,
employees, individuals throughout the supply chain, customers, the organization's
surrounding community and future generations. Methods to help measure this
bottom line include advancing human rights; volunteering; donating to the global
poor or hungry; promoting diversity, race and gender equity; and improving life
expectancies.

 Planet. This measures an organization's environmental impact. Companies have

contributed to poor air quality and pollution, affecting the environment and climate
change at staggering rates. This bottom line should help measure and improve an
organization's commitment to reducing its environmental footprint. Methods to help
measure this bottom line include reducing carbon footprints by cutting down on
energy consumption, reducing consumption and reliance on fossil fuels, improving
waste management, streamlining shipment practices and using ethically sourced
materials.
Why is triple bottom line important?

Triple bottom line is important because it affects everyone. It does not just focus on
business and corporate leaders, but also social communities and the business's impact
on the planet. This accounting framework provides:

 A more sustainable future that considers both social and environmental

sustainability.

 Methods to set goals and measure and improve sustainable systems.

 New ways to generate profit, such as attracting new customers who want to lessen
their impact on the environment.

 A healthier work environment that focuses not only on employees, but the
organization's standing in its surrounding social environment.

Definition of economic sustainability

Economic sustainability refers to practices designed to create the long-term economic
development of a company or nation while also managing the environmental, social,
and cultural aspects of its activities. It is about balancing economic growth and
generating profit with the impact on the environment and people.

 Economic sustainability is important for a business because it cannot achieve

long term growth if it exhausts natural or human resources. Business today can
no longer harm the environment or their communities to deliver ongoing
economic growth, because to continue to do so creates conditions that
destabilize the context in which the business operates.

 Businesses are increasingly embracing the health of the environment and

people as part of their money-making strategies. In addition to the benefit to the
long-term future of the planet, economic sustainability delivers many
advantages to business. For example, it helps them assess their operations to
monitor things like energy waste, which leads to savings. And by enacting better
social practices, companies avoid turnover and have a more productive staff.
Being an economically sustainable business can help win contracts from clients
and governments, and can increase customer loyalty.