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  1. 1.0.1.1.1 2.2.4.1 The Macro Environment
  2. 1.0.1.1.2 2.2.4.2 The Industry Environment
  3. 1.0.1.1.3 2.2.4.3 The External Competitive Environment
  4. 1.0.1.1.4 2.2.4.4 The Organisation’s Internal Environment

Установление отношений между университетом
Обучение персидскому языку (с получением степени бакалавра)
Подписание соглашения об обмене студентами
Подписание Меморандума о взаимопонимании между университетами

Преподавание некоторых тем русского языка персидским ораторам

 

Management is fundamentally a process through which organizational goals are achieved utilizing resources. Resources are viewed as inputs, while the attainment of goals is viewed as the final output of the process. Managerial success is measured by the ratio of outputs to inputs indicating the organization’s productivity, and organizational and management performance.[1]

Organizational productivity or the success of management is entirely based on the performance of the managerial functions of planning, organizing, directing, and controlling. To perform these managerial functions successfully, managers engage in a continuous process of making decisions.[2] To make a decision is to make a judgement concerning what to do in a certain situation after having deliberated on the alternative courses of action available.[3]

“At the heart of strategy lies decision-making”.[4] After a strategic analysis of the organization’s environment, internal capabilities and core competencies, and an investigation of technological shifts, managers must select the preferred course of action.[5] Managers need to examine the data, information, and intelligence before them and examine the possible alternatives and choose amongst them (Wilson, 2006).

Turban et al. (2007:48) define decision-making as “a process of choosing among two or more alternative courses of action for the purpose of attaining a goal or goals.” Simon is of the opinion that managerial decision-making is synonymous with the whole process of management (Turban et al., 2007). Decision-making is viewed as the essence of management (Robbins and Coulter, 2009). The managerial functions of planning, setting goals, organising, and controlling all involve decisionmaking (Turban et al., 2007).

Decision-making is considered to be one of the most significant activities that managers engage in, within all types of organisations and on all levels. Decision-making epitomises the core behaviour of managers and clearly distinguishes managers from other occupations in society (Harrison, 1996; Robbins and Coulter, 2009). 

Managerial decision-making has for many years been considered an art form acquired through experience and by using intuition. Many different individual styles were used in approaching and successfully solving similar types of managerial issues. The individual styles were most often based on creativity, judgement, intuition, and experience instead of systematic quantitative methods (Turban et al., 2007).

Strategy may be regarded as the grand concept, but it is the individual strategic decisions that are important. Strategic decisions include the handful of decisions that drive or shape the organisation’s actions. They are not easily changed once made, and have a large impact upon organisation’s importance (Wilson, 2006).

Strategic decisions deal with the long-term welfare of the entire organisation. Strategic decisions most commonly fall in the sphere of top management. Strategic decisions made by top management constitute the strategy of the total organisation. The strategy is aimed at effectively matching or aligning the organisational capabilities with the environmental opportunities and threats. The decisions are often highly complex and involve a host of dynamic variables, with the pre-eminent characteristic being their significance. It is imperative that they result in a successful outcome (Harrison and Pelletier, 2001).

Strategic decisions result in dozens or even hundreds of further decisions at lower levels of management. Strategic decisions set the overall direction of decisions made by every other individual and unit throughout the organisation. Ineffective decision making at the top levels of management will affect the level of decisions made at the lower levels (Harrison, 1996).

Strategic Decisions can be identified and differentiated from normal decisions if they fulfil the following criteria (Harrison, 1996):

  • The decision must be directed toward defining the organisation’s relationship to its environment.
  • The decision must take the organisation as a whole as the unit of analysis.

 

The decision must encompass all of the major functions performed in the organisation.

  • The decision must provide constrained guidance for all of the administrative and operational activities of the organisation.
  • The decision must be critically important to the long term success of the total organisation.

In its simplest form, strategic decision-making can be considered an instantaneous action, a choice between multiple known alternatives, made by individuals or groups. However, this simple ideal is unable to capture the richness and complexity of the processes that lead up to the point of decision, the vast number of influences that impact on putting the decision into action, and the ultimate performance of the decision (Wilson, 2006; Robbins and Coulter, 2009).

People are aware that decision-making is not a simple process that occurs in linear sequence – a period of thinking followed by a period of acting. Decision-making and the development of alternative courses of action are fashioned in their doing. It is important to understand that factors such as previous experience and “gut-feel” are likely to have as much influence over strategic choices as strategic analysis and planning. It is imperative that valid, well-timed intelligence be provided at this stage to allow the most appropriate and informed decisions be made (Wilson, 2006; Robbins and Coulter, 2009).

Wilson (2006) has identified five different (and sometimes mutually exclusive) perspectives on strategic decision-making:

  • Decision-making as a plan: a decision is a consciously intended course of action. It is a process which is carried out in advance of the action that follows and is developed with a clear purpose,
  • Decision-making as a ploy: a decision from this perspective consists of a set of actions designed to outwit the competition and may not necessarily be the obvious choice,
  • Decision-making as a pattern: not all decisions are taken with a clear planned purpose, and not all decision-makers have access to the full range of knowledge required to plan wholly in advance. Multiple decisions are taken over time and form a pattern. This pattern of emergent behaviour is referred to as the strategy of an organisation. Strategy is therefore characterised as a pattern which emerges from a stream of decisions,
  • Decision-making as a position: the focus of decisions is about trying to achieve a match between the organisation and its environment. The position could be one of alignment where the organisation matches its environment, or one of trying to secure competitive advantage,
  • Decision-making as a perspective: decisions can be characterised as a reflection of how strategists in the organisation see and perceive the world and their organisation.

Wilson (2006) argues that the process of making decisions can appear to be deceptively simple as actions are formulated toward the solution of a particular problem. Wilson (2006) furthers his viewpoint by explaining that the problem with this approach is that there may be discernable actions and there may be observable outcomes, but they need not be wholly related to each other. Problems may thus be solved by factors other than strategic decisions and, sometimes, taking a strategic decision could lead to a completely new set of problems (Wilson, 2006).

Turban et al. (2007) is of the opinion that decisions most commonly follow a four-step process of defining the problem, constructing a model that describes the real world problem, the identification of possible solutions to the modelled problem and evaluation of the solutions, and the final step of comparing, choosing, and recommending a potential solution to the problem. Harrison and Pelletier (2001), and Harrison (1996) identify the components of the strategic decision process model as the functions of decision-making which includes setting managerial objectives, searching for alternatives, comparing and evaluating alternatives, the act of choice, implementing the decision, and finally following up and controlling the decision.

Through the evaluation of alternative solutions, consequences of utilising the alternatives can be predicted, if comparisons are done properly. While this was simple to achieve in the past, in a static environment, various factors have increased the difficulty in evaluating the alternatives (Turban et al., 2007). The reasons are (Turban et al., 2007):

  • technology, information systems, advanced search engines, and globalisation has resulted in more and more alternatives to evaluate,
  • government regulation and the need for compliance, political instability and terrorism, competition, and changing consumer demands has produced more uncertainty, making it more difficult to predict consequences and the future,

further factors include the need for rapid decisions, frequent and unpredictable changes make trial and error learning difficult, and the potential costs of making the wrong decision,

  • environmental complexity is rising, making decision-making a complex task.

These trends and changes have resulted in management requiring sophisticated new tools and techniques to assist them in maintaining competitive advantage through comprehensive decisionmaking.

2.2.5.1 Phases of the decision-making process

Simon originally identified a systematic decision-making process involving three major phases: intelligence, design, and choice. Simon later included an implementation phase, while Turban et al. suggest a fifth phase which includes monitoring and feedback (Turban et al., 2007).

Robbins and Coulter (2009) defined their decision-making process as including the identification of a problem, identification of decision criteria, an allocation of weights to the identified criteria, the development of alternatives, analysis of the alternatives, selection of an alternative and the implementation of the selected alternative. Robbins and DeCenzo (2008) identify the steps within the decision-making process as including identifying the problem, selecting a solution, and evaluating the effectiveness of the solution. They further identify a single problem as a discrepancy between two states, the existing state and the desired state of affairs. Furthermore, once the problem has been defined, decision criteria are to be identified. These decision criteria are factors that are relevant in the decision making process and could eliminate certain courses of action. The criteria are then weighted and the best outcome selected and implemented. The final step in their model includes the evaluation of the results to appraise whether or not their decision corrected the problem (Robbins and DeCenzo, 2008; Robbins and Coulter, 2009). 

Simon’s model is seen to be the most concise and complete characterisation of rational decisionmaking. The model includes a continuous flow of activity originating at the intelligence phase moving through design to choice to implementation while a return to the previous phase is possible (Turban et al., 2007).

 

  • Figure 1 - The Decision-Making Process (Turban et al., 2007:54)

The decision-making process begins with the intelligence phase, during which the decisionmaker examines reality which identifies and defines problems. During the design phase, a model that represents the system is constructed by making assumptions which simplify reality, and identify of all relationships among the variables. The proposed model is validated and criteria evaluated which leads to alternative sources of action. The choice phase includes the selection of a proposed solution to the model, which is then tested to determine its validity (Turban et al., 2007).

A major characteristic of decision-making is the use of a model, on which to analyse the effects of a decision on a model of reality rather than on the real system. Turban et al. (2007:51) define a model as “a simplified representation or abstraction of reality.” Models represent systems or problems utilising different degrees of abstraction. Models are classified based on their degree of abstraction (Turban et al., 2007).

Iconic (scale) models are the least abstract models. They are physical replicas of the system, but on a smaller scale than the original. An iconic model can be either three dimensional, such as a model of a bridge, or two dimensional, like a photograph.

  • Analogue models act like the real system but do not look like it. It is a symbolic representation of reality, and is most often two dimensional charts or diagrams. Examples include blue prints, organisational charts, animations, videos and movies.
  • Mental models are descriptive representations of decision-making situations that people form in their heads and think about. The individual’s thought process works through the different scenarios to consider the feasibility and risks involved in each potential alternative.
  • Mathematical models are utilised due to the complexity of relationships in organised systems which cannot be represented by iconic or analogue models.

The advances in computer technology have increased the use of both iconic and analogue models in conjunction with mathematical modelling. Combined, the models allow for easy manipulation, the compression of time, reduced cost, inclusion of uncertainty factors, enhance learning and training, most commonly through a web interface (Turban et al., 2007).

If the proposed solution is found to be viable, the process moves onto the implementation phase. Successful implementation would result in the solving of the real problem, while failure will lead to a return to the earlier phases of the process (Turban et al., 2007).

While the understanding of the decision-making process and the models that can be generated are critical components of decision-making within the management function, the foundation underlying organisational decision-making is the acquisition and use of information, intelligence and knowledge.

2.2.5.2 Information requirements of Strategic Decision-Making

Organisational decisions, especially those of a strategic nature, have widespread effects on organisational members, processes, and structure. Furthermore, these decisions are concerned with issues that can materially affect the organisations survival prospects, well being, and nature of the organisation. It is thus important to conceive the organisation’s external and internal environments to be a source of information. The organisation should scan the environment in order to make better informed decisions. Acquiring information and intelligence is an imperative in ascertaining environmental change and has huge implications for strategic decision-making (Frishammer, 2003).

Frishammer (2003) conducted a study to provide an insight into management information behaviour when taking strategic decisions. The study aimed to address questions such as the why, what, how, and when of the information-gathering process that underpins strategic decisions. These are discussed below (Frishammer, 2003):

  • Why is information used in strategic decision-making? It was found that the widely accepted purpose of information use was to reduce or remove uncertainty. Uncertainty was further defined as the difference between the information process and the information required to complete a task or as inability to predict accurately what the outcomes of a decision may be. Information was found to be the base off which strategic decisions were made.
  • What kind of information is used in strategic decision-making? Frishammer (2003) explained that information could be classified as either soft or hard. Soft information consisted of images, visions, ideas and cognitive structures. Soft information could also consist of many conceptual schemes in the form of frames of reference or worldviews, with further examples of soft information including gossip and hearsay. Soft information is tied to an individual person, and could be characterised as broad, general and subjective. In contrast, hard information is or could easily be quantified and processed with the assistance of analytical methods and tools. Hard information is generally expressed numerically and defined as numerical information generated, used, or reported in companies’ financial accounting and control systems, calculation systems, cost accounting systems, production control systems, and various statistics. It was further found that strategic decisions depending on the situation would utilise different types of information, but that in most cases one type of information would at least to a limited degree be combined with the other. Most respondents to his study, it was found, started with soft information and then moved onto and utilised hard information as the process unfolded. Soft information further served as the base for interpreting which hard information was valid and relevant and which was not.

How do decision makers obtain information? Previous research had shown that information was obtained through a solicited or unsolicited base. Solicited information included information explicitly sought by managers, and information given to managers through organisational requirements. Most respondents relied heavily on information received on a solicited basis but regarded unsolicited information as very important, even though rarely used.

  • Where do decision-makers obtain information? Decision-makers used different information modes to learn about the environment. A distinction was made between external and internal sources of information. External sources originate outside the boundaries of the organisation, while internal sources were obtained within the organisation. These sources were further divided into personal and impersonal sources. Personal sources refer to direct human contact, which impersonal sources are written/non-verbal in nature. The study found that internal sources of information were preferred over external ones, with subordinates and customers being two of the most important sources.

Frishammer (2003) concluded his study by stating that an exclusive reliance on soft, internal information could endanger the quality of the decision and distance it from reality. He further argued that acquiring information from external sources could be a powerful tool for achieving organisation-environment alignment, but found that respondents believed that external sources are often difficult to reach, less accessible and time consuming to analyse. Lastly, he suggested that an ongoing monitoring of external sources would help decision-makers maximise limited resources and maximise uncertainty. 

  • 3 Intelligence Hierarchy

Change is constant – very little ever stays the same, even in the short term. Probing deeper into any subject matter will reveal some element of change, even if the subject matter seems unchanged at the surface. Individuals transform or grow over time, as do organisations, if their goal is long term survival. Incremental improvement through individual learning can lead to organisational transformation (Liebowitz, 2006a). He (Liebowitz, 2006a) further continues to state that individual transformation is an important component leading to organisational transformation and heightened Organisational Intelligence (Liebowitz, 2006a). Organisational transformation is important to increase the “intelligence” of the organisation (Liebowitz, 2006a).

Liebowitz (2006a:6) refers to Organisational Intelligence as “the collective assemblage of value-added benefits derived from the organisation’s intangible assets (knowledge from employees, management, stakeholders, and customers)”. To increase the IQ of an organisation, one first needs to understand the hierarchy of components that contribute to the intelligence of an organisation (Liebowitz, 2006a).

The concept of an intelligence hierarchy is discussed exhaustively in literature, and while most authors agree about the sequential base of the hierarchy in the form of data as the base, with information as the second layer, and knowledge as the third, there is much debate as to the levels that follow (Post and Anderson, 2003; Haag et al., 2007; Laudon and Laudon, 2003; Laudon and Laudon, 2007; Bali, Wickramasinghe, and Lehaney, 2009). Tobin (1996) for example, identifies the higher level as Wisdom in his hierarchy, while Beckman (1997) proposes a five level hierarchy where Expertise and Capability form the higher levels. For the purpose of this paper, the researcher will utilise the intelligence hierarchy model defined by Liebowitz (2006a).

 

  • Figure 2 - The Intelligence Hierarchy (Liebowitz, 2006a:7)

Liebowitz (2006a:7) explains his hierarchy and how each level builds onto each other as follows:

“Data relates to discerned elements. Once the data is (sic) patterned in some way, it becomes information. Information plus insight and experience becomes knowledge. Knowledge in a specialised area becomes expertise. Expertise morphs into the nirvana state of wisdom after many years of experience and lessons learned.”

 

This research will continue to explore the relationship between the first three levels within this hierarchy, comprised of data, information, and knowledge to arrive at a set of fundamental definitions, and the relationship of each term with each other:

  • Data: Bali et al. (2009:5) is of the opinion that data can be viewed as “a series of discrete events, observations, measurements or facts that can take the form of numbers, words, sounds and/or images”, while Laudon and Laudon (2007:10) define data as “streams of raw facts representing events occurring in organisations or the physical environment before they have been organised and arranged into a form that people can understand and use”. Haag et al. (2007:6) identifies data as “raw facts that describe a particular phenomenon”.

Davenport and Prusak (2000:2) view data as:

“Data is a set of discrete, objective facts about events. In an organisational context, data is usefully described as structured records of transactions”

          Data can thus be viewed as the basis for information and knowledge.

  • Information: The meanings and definitions of the term differ from author to author. Post and Anderson (2003:5) believe information “represents data that has been processed, organised, and integrated to provide more insight” while Laudon and Laudon (2007:10) identify information as “data that have been shaped into a form that is meaningful and useful to human beings”. Haag et al. (2007:6) believes information “is simply data that have a particular meaning within a specific context”, while Bali et al. (2009:5) view information as “data that has been arranged into a meaningful pattern and thus has a recognisable shape; i.e. data that has been endowed with relevance and purpose”.

Davenport and Prusak (2000:3) further believes that “Information is meant to change the way the receiver perceives something, to have an impact on his judgement and behaviour. It must inform, it is data that makes a difference” which identifies the role which individuals play in the provision, creation, and harvesting of information.

Davenport and Prusak (2000) argue that data becomes information when a specific meaning is added to it, and as such value can be added to data in order to create information. These methods are (Davenport and Prusak, 2000:4):

  • Conceptualised – it is known for what purpose the data was gathered; o Categorised – the unit of analysis or key components of the data is known; o Calculated – the data may have undergone mathematical or statistical analysis; o Corrected – errors have been removed from the data;
  • Condensed – the data may have been altered or summarised into a mere concise form.

Information can further be transformed into knowledge.

  • Knowledge: Post and Anderson (2003:5) express the viewpoint that knowledge “represents a higher level of understanding including rules, patterns, and decisions”. Turban et al. (2007:482) defines knowledge as “information that is contextual, relevant, and actionable”, and argues that “humans are also capable of wisdom, where they put knowledge, experience, and analytical skills to work to create new knowledge and adapt to changing situations.” Bali et al. (2009:5) believe that the definition by Davenport and Prusak (1998), while often referenced, is the most valid:

“Knowledge is a fluid mix of framed experiences, values, contextual information, and expert insights that provides a framework for evaluating and incorporating new experiences and information. It originates and is applied in the minds of knowers. In organisations, it is often embedded not only in documents or repositories but also in organisational routine, processes, practices and norms.”

To create wisdom, which is the connection made between one’s own beliefs and information from knowledge, requires human interaction and analysis, while the application of wisdom leads to insight or intelligence which influences continuous innovation. Bali et al. (2009: 5) consider wisdom as “a process by which we are able to discern, or judge, between right or wrong, good and bad. In essence, it embodies more of an understanding of the fundamental principles embodied within the knowledge that are essentially the basis for the knowledge being what it is.” With the abundance of information available, much research has been done to understand how relevant intelligence can best be gathered to assist in strategic decision making. Wisdom is the human ability to learn from experience and adapt to changing conditions (Post and Anderson, 2003).   

 

Strategic Analysis

 

An organisation’s strategic direction can be influenced by global developments outside of management’s control. An organisation is not isolated from the environment in which it operates; its future development, the results it can achieve and the constraints within which it operates, are functions of the business environment (Mellahi et al., 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009; Robbins and Coulter, 2009).

Documented organisational experiences and research suggest that the business environment affects the organisation’s growth and profitability (Hitt et al., 2005). Conditions within the business environment create threats to and opportunities for organisations which could have a major impact on strategic options as well as the decisions made in light of them (Hitt et al., 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009; Robbins and Coulter, 2009).

The business or external environment consists of all the factors inside and outside the organisation which require understanding to form strategic intent, to develop its strategic mission, and allow it to take actions that result in strategic competitiveness and above-average returns (Hitt et al., 2005; Mellahi et al., 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009; Robbins and Coulter, 2009).

Morden (2007:18) define Strategic Analysis as “a process by which the enterprise examines its own internal or corporate characteristics and capabilities; and identifies the most important features of the external environment within which it must operate.” The process is used by organisations to identify and understand variables such as (Morden, 2007):

  • the internal operational and financial strengths and weaknesses of the organisation,
  • the external or environmental constraints, opportunities, and threats facing the organisation,
  • the competitive environment within which the organisation must operate,
  • the political and institutional environments within which the organisation must operate,
  • the nature of the resources, capacity, leadership, willpower, and capability that the organisation possesses, or that are needed so that the organisation may be able to achieve its objectives,

the sources of value addition available to the organisation,

  • organisational sources of comparative or competitive advantage,
  • organisational sources of political advantage,
  • factors which are critical to organisational survival and success,
  • factors which will instead place limits or constraints on the potential achievements of the organisation.

Strategic analysis is used to inform the process of strategy formulation, strategic decision-making, and strategic choice.

Organisations often face external business environments that are highly turbulent, complex, and global which make interpreting them extremely difficult. To cope with the ambiguous and incomplete environment data that is often collected, and to increase their understanding of the business environment, organisations often engage in a process called external environmental analysis (Hitt et al., 2005; Carpenter and Sanders, 2009; Robbins and Coulter, 2009). The process includes four activities (Hitt et al., 2005):

  • scanning which identifies early signals of environmental changes and trends.
  • monitoring including detecting meaning through ongoing observations of environmental changes and trends.
  • forecasting which develops projections of anticipated outcomes based on monitoring changes and trends.
  • assessing, determining the timing and importance of environmental changes and trends for the organisations strategies and their management.

An integrated understanding of the organisation’s external and internal environments is critical to understand the present and predict the future (Hitt et al., 2005).

The external business environment is divided into the external macro environment, the external industry environment, the external competitive environment, and the internal organisation environment.

1.0.1.1.1 2.2.4.1 The Macro Environment

The macro environment of an organisation can provide both opportunities and threats, but cannot easily be changed by the organisation. The goal of the strategic decision-maker is to develop strategies based on what the organisation can do to exploit opportunities and counter threats in the macro environment. Organisations that are skilful at monitoring and analysing the macro environment can perform better than organisations that cannot (Mellahi et al., 2005; Carpenter and Sanders, 2007). Analysing the macro environment is not an easy task due to a number of reasons (Mellahi et al., 2005).

  • The macro environment is highly complex, with a vast number of potentially relevant influences.
  • The macro environment changes over time.
  • International organisations require analysis of multiple macro environments.
  • Too much information could lead to information overload.
  • It is difficult and expensive to monitor manually the macro environment.

The macro environment is composed of factors in the broader society that influence an industry and the organisations within it. These factors broadly include (Pearce and Robinson, 2005; Hitt et al., 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009; Robbins and Coulter, 2009):

  • demographic factors which are concerned with a populations size, age structure, geographic distribution, ethnic mix, and income distribution. Demographic factors are analysed on a global market basis due to their affects across country borders and due to the number of organisations that complete globally.
  • economic factors refer to the nature and direction of the economy in which a organisation competes or may compete. Due to the global economy, nations are interconnected and therefore organisations must scan, monitor, forecast and assess the economies outside their host nation.

political/legal factors define the legal and regulatory parameters in which a organisation must compete. The direction and stability of political factors are major considerations in formulating organisational strategy. Within this arena organisations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding the interactions among organisations and nations.

  • socio-cultural factors involve the beliefs, values, attitudes, opinions, and lifestyles of people within the organisation’s external environment which form the cornerstone of society and drive the other environmental conditions and changes.
  • technological factors involve pervasive and diversified technological changes that affect societies and occur primarily through new product, process, and material innovations, all of which may influence the organisation.
  • ecological factors are a prominent factor in the macro environment which defines the reciprocal relationship between organisations and the environment. Threats to our environment such as pollution, Co2 footprints, and global warming have resulted in society expecting organisations to become greener and environmentally friendly.
  • global factors include relevant new global markets, changes in existing markets, important international political events, and critical cultural and international characteristics of global markets.
1.0.1.1.2 2.2.4.2 The Industry Environment

The industry environment consists of a set of factors that directly influences an organisation and its competitive actions and competitive responses (Hitt et al., 2005). An industry includes a group of organisations that produce products that are close substitutes, and which during the course of competition, could influence one another (Hitt et al., 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009). It is important for an organisation to understand how changes in its external industry environment affect or do not affect the organisation (Mellahi et al., 2005).

The first step in understanding an organisation’s industry environment is to identify the precise market, which can be conducted through the utilisation of a market segmentation analysis and a strategic group analysis (Mellahi et al., 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009):

  • a market segmentation analysis identifies the similarities and differences between groups of people who buy and use an organisation’s goods and services,
  • a strategic group analysis identifies organisations with similar strategies or those competing on a similar basis.

A more comprehensive understanding of an organisation’s industry environment can be gained through a thorough analysis of the industry’s economic and technical characteristics (Mellahi et al., 2005). Porter suggested that managers should understand the rules of competition in their industry so that they become aware of the industry’s attractiveness and identify their organisation’s competitive position within the industry (Mellahi et al., 2005; Pearce and Robinson, 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009; Robbins and Coulter, 2009). To uncover and understand the underlying rules of an industry, Porter, developed the Five Forces Model which is used to analyse an organisation’s competitive position in a specific market segment or similar market segments (Mellahi et al., 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009; Robbins and Coulter, 2009).

The Five Forces Model assumes that industry attractiveness and the organisations competitive position within an industry are influenced by five competitive forces (Hitt et al., 2005; Mellahi et al., 2005; Pearce and Robinson, 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009; Robbins and Coulter, 2009):

  • the entry of new competitors,
  • the threat of substitutes,
  • the bargaining power of buyers,
  • the bargaining power of suppliers,
  • the rivalry amongst existing competitors.

The organisation will further be required to understand the competitive situation within its environment in terms of competitive position, customer profiles, suppliers, creditors, and labour

 

market. These factors could provide many of the challenges that an organisation may endure in its attempts to attract or acquire needed resources to market profitably its goods and services (Pearce and Robinson, 2005; Carpenter and Sanders, 2009; Robbins and Coulter, 2009).

Through an effective industry analysis gained through the study and interpretation of data and information gathered, the organisation will develop the insights required to determine an industry’s attractiveness and the organisation’s potential to earn adequate or superior returns on invested capital.

1.0.1.1.3 2.2.4.3 The External Competitive Environment

The competitive environment is the final part of the external environment in which an organisation is interested. A competitor analysis focuses on each organisation with which the organisation competes. Many organisations are extremely interested in understanding each other’s objectives, strategies, assumptions and capabilities due to the intense rivalry for market share (Hitt et al., 2005; Carpenter and Sanders, 2009).

A competitor analysis will allow an organisation to understand (Hitt et al., 2005; Carpenter and Sanders, 2009; Robbins and Coulter, 2009):

  • what drives the competitor, as shown by its future objectives,
  • what the competitor is doing and can do, as revealed by its current strategy,  what the competitor believes about the industry, as shown by its assumptions,
  • what the competitors capabilities are, as shown by its strengths and weaknesses.

By gaining this information about a competitor and their market activity, the information may be used (Carpenter and Sanders, 2007; Morden, 2007; Carpenter and Sanders, 2009; Robbins and Coulter, 2009):

  • to construct a detailed competition analysis for the sector, segment, or market,
  • to carry out a detailed evaluation of individual competitor activity,  to forecast potential competitor response to market initiatives.

Through the use of a competitive analysis an organisation can identify competitive and marketing initiatives to build on corporate strengths and position itself to gain competitive advantage (Morden, 2007).

1.0.1.1.4 2.2.4.4 The Organisation’s Internal Environment

Organisations realise that in a global landscape; traditional factors such as labour cost and a superior access to financial resources, and raw materials are no longer sufficient to create a competitive advantage (Hitt et al., 2005; Carpenter and Sanders, 2009; Robbins and Coulter, 2009). The following items are driving the new landscape (Hitt et al., 2005; Mellahi et al., 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009; Robbins and Coulter, 2009):

  • resources consist of all the organisation’s assets, capabilities, organisational processes, organisational attributes, information, and knowledge controlled by the organisation that enable it to conceive and implement strategies to improve its efficiency and effectiveness. Resources are inputs used by the organisation to create products and services.
  • capabilities are complex bundles of skills and collective learning, which are exercised through organisational processes, that allow superior coordination of functional activities. Capabilities allow an organisation to integrate different tangible and intangible resources in order to provide products or services to customers that are valued.
  • core competencies include the combination of individual technologies and production skills that underlie an organisation’s production of products and services that critically underpin the organisation’s competitive advantage. Core competencies are those resources and capabilities that form an organisation’s strategic assets and lead to competitive advantage.

Organisations have identified the strong influence resources, capabilities, and core competencies have on strategic competitiveness and realised that above-average returns result only when core competencies of the internal environment are matched to the opportunities identified in the external environment (Hitt et al., 2005; Carpenter and Sanders, 2009; Robbins and Coulter, 2009).

An internal analysis is utilised by an organisation to analyse the quantity and quality of an organisation’s financial, human, and physical resources. It also identifies the strengths and weaknesses of an organisation’s managerial capabilities and its organisational structure and contrasts the organisation’s past successes and traditional concerns with the organisation’s current capabilities in an attempt to identify the organisation’s future capabilities (Pearce and Robinson, 2005; Carpenter and Sanders, 2007; Carpenter and Sanders, 2009; Robbins and Coulter, 2009).

 


                       

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