Strategic Management: Tools for Business Analysis

SWOT | PESTELE | PORTER’S

I. SWOT Analysis

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and so a SWOT analysis is a
technique for assessing these four aspects of your business.

SWOT Analysis is a tool that can help you to analyze what your company does best now, and to devise a
successful strategy for the future. SWOT can also uncover areas of the business that are holding you
back, or that your competitors could exploit if you don’t protect yourself.

A SWOT analysis examines both internal and external factors – that is, what's going on inside and
outside your organization. So, some of these factors will be within your control and some will not. In
either case, the wisest action you can take in response will become clearer once you've discovered,
recorded and analyzed as many factors as you can.

Strengths What do you do well? What unique resources can you draw on? What do others see as your
strengths? It is an internal factor of a business in SWOT Analysis that refers to the aspect, which is
considered an asset, the “good” characteristics and needs to be capitalized on. Weaknesses What could
you improve? Where do you have fewer resources than others?

What are others likely to see as weaknesses? It is an internal factor is SWOT Analysis which stops an
organization from performing at its optimum level. They are areas where the business needs to improve
to remain competitive.

Opportunities What opportunities are open to you? What trends could you take advantage of? How can
you turn your strengths into opportunities? It is an external factor in SWOT Analysis tool which are
referring to favorable external factors that could give an organization a competitive advantage.

Threats What threats could harm you? What is your competition doing? What threats do your
weaknesses expose to you? It is an external factor in SWOT Analysis tool which refers to factors that
have the potential to harm an organization.

II. PESTELE ANALYSIS

When a business wants to enter into a new market, launch a new product or both (often when a
business is starting out) there are several different factors that must be considered in order to be
successful. Many of these factors are external to the actual business itself, and often completely out of
the control of those running the company; however, they may have profound effects on the growth of
the business or sale of a product. Often, trying to consider all of these outside topics can seem
overwhelming; however, this is where analysis tools such as PESTLE become useful. PESTLE, and
acronym for Political, Economic, Social, Technological, Legal, Environmental (or Ethical), allows for the
user to compartmentalize these topics, and to review the implications in more focused areas first before
looking at the larger picture. Using PESTLE type analysis tools usually isn’t to purpose solutions right
away, but rather to consider what external factors the company has little control over, which category
they exist in, and how they may impact the growth of your business or product.
The PESTLE system is flexible, with the user free to add or remove letter as needed or as necessary. For
example, PEST (Political, Economic, Social, Technological) may be used if Legal or Environmental do not
need to be considered. Or there is PESTLIED which adds International and Demographic to the analysis.

Political Factors

Political factors have substantial influence on the way firms conduct their operations. In fact, it is the
most influential that significantly affects the entire model. Governments are responsible for
implementing laws and codes that can directly or indirectly affect every aspect of a business. Political
factors are therefore innately intertwined with legal factors. The main difference being that political
factors are trends in attitude toward certain things, while legal factors are defined and must be complied
with. A few examples of political factors that should be considered when conducting a PESTLE analysis
are:

 Taxes.

 How much does a government deem fair to tax?

 What tax incentives and benefits exist based on the vision of a political regime?

 Trade Agreements and Regulations.

 Does the government have free trade deals with other countries (such as NAFTA)?

 Consumer Protection.

 What standards must your products and services meet?

 Competition Regulation.

 Does the government impose regulations to promote competition and restrict monopoly?

 Government Stability.

Economic Factors

The economic environment that a business operates in is arguably the most significant source of
opportunities to capitalize on, as well as challenges and risks that must be addressed. Economic factors
encompass everything to do with growth rates, trade, supply and demand, market trends, competition,
currency fluctuations. Economic forecasting can be used to predict the direction and scope of economic
trends and can be a valuable tool in decision making. Major Economic factors that should always be
taken into consideration are:

 Growth rates and projections.

 Is growth expected in your industry?

 Stock market and investment trends.

 Is your industry hot for investing, or stagnant?

 Are stocks expected to increase or decrease in value?

  Currency fluctuations;

 Are your holdings in the currency of a particular country? Will their value hold?

 Customer preferences;

 Are consumer trends changing? How will this affect demand for your product or service?

 Interest rates;

The set of economic factors that a company might face will vary significantly between industries. It is
the responsibility of a particular company to take into account the economic environment they are
operating in. The performance of the economy has direct effects on the success of a business, and can
have long lasting consequences. Companies, for example, must operate carefully during economic
downturns, so as not to burn through all the resources they possess.

Socio-cultural Factors

This segment of a PESTLE analysis focuses on the socio-cultural factors of a region that can affect an
organization. The influence these factors have can be overt or subtle, but they play an important role
in shaping the way an organization operates. Socio-cultural factors include, but are not limited to:

 Population demographics

 Cultural values & traditions

 Social taboos

 Buying trends

 Popularity of forms of media

 Prevalence of technology

 Education

 Spending & saving attitudes

These factors can provide crucial information about the local populace that an organization can use to
when deciding how to operate. Socio-cultural factors can have some obvious impacts on organizations
such as influencing what products and services they develop, how they advertise and their overall
revenue. These are some of the more overt impacts of socio-cultural factors, however there are more
subtle impacts that they can have. For example, if the area of operation is saturated with an
aging/retired population more resources may need to be allocated to employee operations to provide
employment incentives.

Technological Factors

There are a few different technological factors that need to be considered during a PESTLE analysis.
These topics fall into a few different categories. The first is manufacturing technology. These look at the
technology used by a company to manufacture a product. These considerations are applicable from
small scale to large automated production lines. Some questions that need to be answered are:
  What technology is available to aid in manufacture the product?

 What new technology exists that would make manufacturing better?

 Automation

 Higher quality materials

 Better quality control technology

 Is upgrading affordable? Will it save money or increase profit?

 What technology does the competition use to manufacture its products?

 Does this give them a competitive advantage?

Examples of manufacturing technology are easy to find. There are countless large- scale manufacturing
operations today, with an obvious example being the automotive industry whose advancements in
automation has allowed them to increase production . In the biotech industry there are also many
examples of increased efficiency of manufacturing technology. Looking at alcohol production or bio-
pharmaceuticals, better molecular biology understanding and techniques, improved bioreactors, and
downstream process equipment has allowed for these industries to gain increased production through
these technological advantages. PESTLE analysis of these manufacturing technologies gives the user an
overview of what type of tech is out there and what is the proper fit for their business model or product
development.

Finally, there are also technological considerations that overlap with social, political and economic
factors. Biotechnologies like GMOs have a negative status in many markets, and politically they are
banned in Europe (for GMO crops.) An example of technological/economic factor, is when the the
government increases of decreases spending in a technological sector, health or agricultural research
for example, which will impact the funding available to develop technology in those areas.

Ecologic/Environmental Factors

Environmental awareness is of increasing importance to businesses operating in modern society. We

are living in a world which faces changes in climate and where there are increased frequency
environmental disturbances caused by human activity. Environmental impacts can include issues such
as natural resources limitation, waste management and recycling procedures. There are lots of factors
that are changing in the environment and therefore gathering information about them is a priority step
in PESTLE analysis.

Environmental factors take into consideration ecological and environmental aspects. Ecological factors
consist of all forms of natural resource conservation and its management which includes water, oil and
land. They can also affect the workforce’s health and moral and can cause uncertainty and risk if it is
ignored.

The factors in this tool are determined and influenced by the surrounding environment. For example, in
tourism, farming and agriculture business, environmental aspect holds a crucial value.

Factors of environmental (ecological) analysis could include but are not limited to the following:
  The geographicalal location of the company or organization

 Changes in climate

 Weather offsets

 Concerns in causing pollution;

 Is there a more sustainable alternative to current operations?

 Recycling

 Waste disposal and sustainability;

 What opportunities exist to reduce pollution?

 Whether the company/organization is affecting any endangered species or not

 Whether the organization is open towards the use of renewable energy, ecological or “green”
products.

 Carbon emissions

These factors have become important recently over the years due to the scarcity of raw materials,
increased burning of fossil fuels, pollution level, carbon emissions targets set by the government, etc as
way of doing business as sustainable company. Nowadays consumers are demanding that the products
they are using are sourced out ethically and sustainably. It is necessary that these elements be analyzed
as the importance of corporate sustainability and responsibility (CSR) is growing. Climate change is a
hot topic these days. Discussions are taking place on how to reduce the global warming effect and thus
the operation of businesses needs to be reconstructed so that more space can be given to innovation
and can also lead to development of green business. Ecological and environmental factors not only
engage the organizational behavior and culture but also involve engagement of the employee.

A firm’s decision regarding doing their business must be impacted by environmental factors as the
business in question needs to be environmentally and socially acceptable. In this way, they will also gain
a positive image in the consumer’s eyes. s

Legal Factors

This segment of the PESTLE focuses on the legal factors that an organization can operate within, these
can range from federal to local and includes all laws, rules, regulations and policies. It also includes all
the internal rules, policies and regulations that an organization might have.

 Employment Laws

 Minimum wage rate

 Tax laws

 Laws specific to certain products

These factors are very important as they make up a strict framework that an organization must operate
within, failure to meet legal requirements can lead to severe penalties. These can include fines,
suspension of operations and loss of reputation. Larger organization that operate on a global level must
deal with the multiple legal frameworks that exist over the multiple countries they operate it.

Ethical Factors

Ethics is another factor that needs to be taken into consideration. It is one of the new factors that have
recently came into the forefront when conducting a PESTLE analysis. PESTLE analysis underwent some
changes as ethical concerns can be utilized in the framework of PESTLE while researching about the
market. Ethics can be defined as a “set of moral principles and values that govern the actions and
decisions of an individual or group” (Oxford Learning Labs). Ethical analysis can provide guidelines for an
organization on how to act rightly and in a just manner so that the organization does not have to face
dilemmas regarding ethics, such as public backlash.

The factors of concern in ethics can include the following:

 Whether the practices in sales and advertising are ethical or not;

 Is everyone getting a fair end of the deal?

 Standards with accounting, management, and marketing are acceptable or not

 The attitude of the organization towards counterfeiting and breaking patents

 The recruitment process and the standards of employment are ethical or not (for example
hiring children to do the work is not acceptable).

 Affiliation between corporations and charities

Ethical factors are important as they address responsibilities regarding the corporate and social actions.

These PESTLE factors can be weakness or opportunity for an organization or company depending upon
the situation. Therefore it is crucial that the above factors are identified and analyzed so that any
alterations in the business climate change arises, appropriate actions could be taken so to respond to
factors that could impact the product or service offering in an ever changing business environment.

III. PORTER’S FIVE FORCES MODEL

Porter's Five Forces is a business analysis model that helps to explain why various industries are able to
sustain different levels of profitability. The model was published in Michael E. Porter's book,
Competitive Strategy: Techniques for Analyzing Industries and Competitors in 1979.

The Five Forces model is widely used to analyze the industry structure of a company as well as its
corporate strategy. Porter identified five undeniable forces that play a part in shaping every market and
industry in the world, with some caveats. The Five Forces are frequently used to measure competition
intensity, attractiveness, and profitability of an industry or market.
1. Competition in the Industry

The first of the Five Forces refers to the number of competitors and their ability to undercut a company.
The larger the number of competitors, along with the number of equivalent products and services they
offer, the lesser the power of a company. Suppliers and buyers seek out a company's competition if
they are able to offer a better deal or lower prices. Conversely, when competitive rivalry is low, a
company has greater power to charge higher prices and set the terms of deals to achieve higher sales
and profits.

2. Potential of New Entrants into an Industry

A company's power is also affected by the force of new entrants into its market. The less time and
money it costs for a competitor to enter a company's market and be an effective competitor, the more
an established company's position could be significantly weakened. An industry with strong barriers to
entry is ideal for existing companies within that industry since the company would be able to charge
higher prices and negotiate better terms.

3. Power of Suppliers

The next factor in the Porter model addresses how easily suppliers can drive up the cost of inputs. It is
affected by the number of suppliers of key inputs of a good or service, how unique these inputs are, and
how much it would cost a company to switch to another supplier. The fewer suppliers to an industry,
the more a company would depend on a supplier. As a result, the supplier has more power and can
drive up input costs and push for other advantages in trade. On the other hand, when there are many
suppliers or low switching costs between rival suppliers, a company can keep its input costs lower and
enhance its profits.

4. Power of Customers

The ability that customers have to drive prices lower or their level of power is one of the Five Forces. It
is affected by how many buyers or customers a company has, how significant each customer is, and
how much it would cost a company to find new customers or markets for its output. A smaller and more
powerful client base means that each customer has more power to negotiate for lower prices and
better deals. A company that has many, smaller, independent customers will have an easier time
charging higher prices to increase profitability.

5. Threat of Substitutes

The last of the Five Forces focuses on substitutes. Substitute goods or services that can be used in
place of a company's products or services pose a threat. Companies that produce goods or services for
which there are no close substitutes will have more power to increase prices and lock in favorable
terms. When close substitutes are available, customers will have the option to forgo buying a
company's product, and a company's power can be weakened. Understanding Porter's Five Forces and
how they apply to an industry, can enable a company to adjust its business strategy to better use its
resources to generate higher earnings for its investors.
 CORPORATE SOCIAL RESPONSIBILTY
There is no more powerful institution in society than business... The business of business
should not be about money, it should be about responsibility. It should be about public good,
not private greed. Anita Roddick, Business as Usual
Corporate social responsibility is a form of international private business self-regulation which
aims to contribute to societal goals of a philanthropic, activist, or charitable nature by
engaging in or supporting volunteering or ethically oriented practices.
Corporate Social Responsibility (CSR) describes how a company manages its industry and
takes responsibility for its social impact. Corporate social responsibility encompasses various
characteristics like economic dependence, legal conformity, ethical requirement, and societal
influences
Corporate Social Responsibility is a management concept whereby companies integrate social
and environmental concerns in their business operations and interactions with their
stakeholders. CSR is generally understood as being the way through which a company achieves
a balance of economic, environmental and social imperatives , while at the same time
addressing the expectations of shareholders and stakeholders.
CSR as per World Business Council According to Bowen, CSR was “the obligations of
businessmen to pursue those policies, to make those decisions, or to follow those lines of
action which are desirable in terms of the objectives and values of our society.”
What Are the Benefits of Corporate Social Responsibility?
Embracing CSR increases customer retention and loyalty, increases employee engagement,
improves brand imaging, attracts investment opportunities and top talent, and makes a
difference for bottom- line financials.
Is CSR part of strategic management?
In order to ensure that the welfare of society is always safeguarded, the government places a
greater emphasis on corporate social responsibility within the business sector. Good
corporate social responsibility is only possible in conjunction with strategic management.
CSR as a strategic business tool
it is an integral element of a firm's business and corporate- level differentiation strategy. Even
when not directly tied to a product feature or production process, CSR can be viewed as a
form of reputation building or maintenance.
The Millennium Development Goals – CSR INTERNATIONAL
1. Eradicate extreme poverty and huger
2. Achieve universal primary education
 3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria and other diseases
7. Ensure environmental sustainability
8. Develop a global partnership for development
CSR: COMMUNITY INVOLVEMENT, ECONOMIC GROWTH, ENVIRONMENTAL ACTION
What is community involvement in CSR

 Community involvement is the power to bring positive, measurable change to both

the communities in which you operate and to your business. Community
involvement examples include in-kind and financial donations, employee volunteer
days, enduring nonprofit partnerships, and more.
 Engagement with the local community and authorities.
 Good reputation of business, as many consumers are now environmentally
conscious.
Examples of Community Engagement

 Volunteering at a local food bank, animal shelter or homeless shelter

 Maintaining a community garden
 Participating in a local blood drive
 Helping set up a local farmers market
 Advocating for others
 Creating support groups in your community
 Attending and participating in town hall and city council meetings
 Attending and participating in school board meetings
 Voting in local elections
SAMPLE OF CSR – COMMUNITY INVOLVEMENT IN HOTEL INDUSTRY
Good Hotel
Created by two young Dutch designers, Good Hotel is a floating 148- room property that helps
the long-term unemployed find work through a custom-made training program. After an initial
training phase, candidates are given on-the-job training at Good Hotel (with a full-time salary)
before receiving assistance to find permanent work.
This non-profit pop-up hotel was first launched in Amsterdam in 2015, helping 70 long-term
unemployed locals reintegrate into the job market. Then last November, the 8 million-kilo
floating platform was hauled by a submerged barge across the North Sea to the Royal Victoria
Docks in London—its new home for the next five years.
Continuing its previous mission, Good Hotel London is offering local people from every walk of
life the opportunity to build confidence and develop the kind of work-based skills employers
are looking for. All profits are subsequently reinvested to support each successive intake.
The Magdas Hotel
As the European refugee crisis shows little sign of abating, the Magdas Hotel in Vienna serves
as a beacon of hope. Opened in February 2015, this 88- room boutique property (previously a
retirement home) is staffed almost entirely by refugees—from the cleaning staff through to
the front of house.
The project was made possible thanks to a €1.5m loan from the Catholic charity Caritas and
€60,000 in crowdfunding. Volunteers, companies and local neighborhoods all pitched in during
the planning
and building phase, and much of the furniture was upcycled from the previous residents.
Of the 28 members of staff, 20 arrived in the country as refugees from 14 different nations.
Despite living in Austria for years, many had been unable to find work. Asylum-seekers in
Austria aren’t allowed to work until their application has been approved, and even when it
has, communication issues and a lack of work-based skills often hamper efforts.
To help prepare for an intimidating job market, staff are trained in hospitality and customer
service skills, given German and English language lessons, and receive an industry-standard
wage. As well as employing refugees, the hotel also offers a sanctuary for young asylum-
seekers who have entered the country and are seeking a place to live.
Economic Growth and Responsibility
Economic Responsibility Economic responsibility is the practice of a firm backing all of its
financial decisions in its commitment to do good in the areas listed above. The end goal is not
to simply maximize profits, but make sure the business operations positively impact the
environment, people, and society.
Economic responsibility refers to the practice of making financial decisions based on a
commitment to doing good. Some common examples of economic responsibility include
investing in alternative energy sources, putting more money into education programs and
funding local charities as a way of bolstering their mission.
Benefit of CSR in terms of Economic Aspect
• If an organisation has a good reputation, recruitment and potential investment is often
easier.
• Less employee turnover due to a good reputation can decrease the cost of recruitment.
• Workers are more productive working for a company they are proud of.
 • Food publicity in the media can result in a rise in profit.
• Reducing waste to make money, through redistribution, not using as much energy or
having fewer costs associated with sending waste to landfill
Environment in CSR Environmental CSR is a programme of actions undertaken by a company
to reduce its impact on the planet's ecosystem and increase its environmental sustainability.
Standard environmental CSR activities include Recycling and Waste reduction.
GREEN WASHING in the Hospitality Industry (Lewis, 2021)
Benefit of CSR in terms of Environmental Aspect

 Environmentally friendly, with a green ethos.

 Energy saving
 Waste control
 Recycling
What Does Greenwashing Mean?
Greenwashing is the process of conveying a false impression or providing misleading
information about how a company’s products are environmentally friendly. In the context of
the food and drink industry, this can range from anything like companies claiming to have eco-
friendly packaging, that turn out to be harmful to the environment in some shape or form, or
claiming food items are sustainable, when actually they cause damage and harm to the
environment.
It is a term used to describe businesses that provide misleading or unsubstantiated claims in
regard to their environmental impact.
Examples of Greenwashing : McDonald’s paper straw campaign, Oatly milk greenwashing
claims, Fiji Water marketing
ORGANIZATIONAL ANALYSIS AND COMPETITIVE ADVANTAGE
Business Models
 A business model is a company’s method of making money relevant to its business
environment.
 A business model is the conceptual structure supporting the viability of a business,
including its purpose, its goals and its ongoing plans for achieving them. At its simplest,
a business model is a specification describing how an organization fulfills its purpose
 A business model is a company's core strategy for profitably doing business. Models
generally include information like products or services the business plans to sell, target
markets, and any anticipated expenses
Business models employed by some companies as follows:
 Customer solutions model.
 Profit pyramid model.
 Advertising model.
 Switchboard model.
 Time model.
 Profit multiplier model.
 De facto industry standard model.
Customer solutions model
A dyadic relationship where the Organisation engages with a Customer about a problem
that the Customer faces, and provides an integrated solution to that problem
Customer modeling is the process of predicting and forecasting behavioral aspects of
customers' future perspectives. The process includes identification of marketing and
campaigning targets and optimizing predictive analysis
Profit pyramid model
A profit model refers to a company's plan that aims to make the business profitable and
viable. It lays out what the company plans to manufacture or provide, how sales will be
generated, and all the expenses that the business will incur in a bid to make the model
viable
It caters to the variations in customer preferences, and helps companies develop a range of
products & services, which help, build a firewall against competition and maintain good
margins.
Advertising model
The strategic use of advertising mediums is known as an advertising model. The goal behind
using such a model is to reach a specific audience. These act as blueprints to help
advertisers create persuasive ads, be it Print, Digital, or TV.
Switchboard model
This model involves a firm who acts as an intermediary to connect multiple sellers and
buyers. Financial planners juggle a wide range of products for sale to multiple customers
with different needs
Time model
A time series model, also called a signal model, is a dynamic system that is identified to fit
a given signal or time series data. The time series can be multivariate, which leads to
multivariate models.
Example: A time series is a group of observations on a single entity over time —the daily
closing prices over one year for a single financial security, or a single patient's heart rate
measured every minute over a one-hour procedure
Profit multiplier model
The profit multiplier is a business valuation method that looks at the profits that a
company makes over a period of time.
First, you determine the company's profit or their gross income minus expenses. Once you
arrive at an annual profit, you multiply that amount by a multiplier that you determine
De facto industry standard model
standards that are widely adopted by an industry and its consumers. Such standards are
also referred to as market-driven standards. They are established when a significant
portion of an industry likes them enough to use them collectively.
A de facto standard is a custom or convention that has achieved a dominant position by
public acceptance or market forces (for example, by early entrance to the market)
Value Chain Analysis – (VCA)
- The value chain framework is made up of five primary activities -- inbound operations,
operations, outbound logistics, marketing and sales, service -- and four secondary
activities -- procurement and purchasing, human resource management, technological
development and company infrastructure.
 PRIMARY ACTIVITIES
Inbound operations The internal handling and management of resources coming from
outside sources
- such as external vendors and other supply chain sources. These outside resources flowing
in are called "inputs" and may include raw materials.
Operations - Activities and processes that transform inputs into "outputs" -- the product or
service being sold by the business that flow out to customers. These "outputs" are the core
products that can be sold for a higher price than the cost of materials and production to
create a profit.
Outbound logistics - The delivery of outputs to customers. Processes involve systems for
storage, collection and distribution to customers. This includes managing a company's
internal systems and external systems from customer organizations.
Marketing and sales - Activities such as advertising and brand-building, which seek to
increase visibility, reach a marketing audience and communicate why a consumer should
purchase a product or service.
Service - Activities such as customer service and product support, which reinforce a long-
term relationship with the customers who have purchased a product or service.
SECONDARY ACTIVITIES
Procurement and purchasing - Finding new external vendors, maintaining vendor
relationships, and negotiating prices and other activities related to bringing in the
necessary materials and resources used to build a product or service.
Human resource management - The management of human capital. This includes
functions such as hiring, training, building and maintaining an organizational culture; and
maintaining positive employee relationships.
Technology development - Activities such as research and development, IT management
and cybersecurity that build and maintain an organization's use of technology.
Company infrastructure - Necessary company activities such as legal, general
management, administrative, accounting, finance, public relations and quality assurance.
Benefits of value chains
The value chain framework helps organizations understand and evaluate sources of
positive and negative cost efficiency. Conducting a value chain analysis can help businesses in
the following ways:
- Support decisions for various business activities.
 - Diagnose points of ineffectiveness for corrective action.
- Understand linkages and dependencies between different activities and areas in the
business. For example, issues in human resources management and technology can
permeate nearly all business activities.
- Optimize activities to maximize output and minimize organizational expenses.
- Potentially create a cost advantage over competitors.
- Understand core competencies and areas of improvement.
STRATEGIC MANAGEMENT
THE ORIGIN OF STRATEGIC MANAGEMENT
The increasing importance of strategic management may be a result of several trends.
Increasing competition in most industries has made it difficult for some companies to compete.
Modern and cheaper transportation and communication have led to increasing global trade and
awareness. Technological development has led to accelerated changes in the global economy.
Regardless of the reasons, the past two decades have seen a surge in interest in strategic
management
Three Perspectives on Strategic Management
 As the field of strategic management began to emerge in the latter part of the 20th century,
scholars borrowed heavily from the field of economics. For some time, economists had been
actively studying topics associated with the competitiveness of industries
These topics included industry concentration, diversification, product differentiation, and
market power. However, much of the economics research at that time focused on industries,
and some of it even assumed that individual firm differences did not matter.
The traditional process for developing strategy consists of analyzing the internal and
external environments of the company to arrive at organizational strengths, weaknesses,
opportunities, and threats (SWOT). The results from this “ situation analysis, ”as this process is
sometimes called, are the basis for developing missions, goals, and strategies.
The Strategic Management Process

There is a more fundamental conclusion to be drawn from the foregoing analysis: the
strategy of a fi rm cannot be predicted, nor is it predestined; the strategic decisions made by
managers cannot be assumed to be the product of deterministic forces in their environments.
On the contrary, the very nature of the concept of strategy assumes a human agent who can
take actions that attempt to distinguish one ’ s firm from the competitors.
THE PRINCIPLE OF ENACTMENT
The principle of enactment assumes that organizations do not have to submit to existing
forces in the environment; they can, in part, create their environments through strategic
alliances with stakeholders, investments in leading technologies, advertising, political lobbying,
and a variety of other activities.
 For example, a small restaurant fi rm may have a difficult time influencing national
government agencies and administrators. However, smaller organizations often band together
into trade groups, such as the National Restaurant Association, to influence government policy
on pressing issues like minimum wage, immigration policy, and health - care costs. Also, they
may form alliances with other entities.
DELIBERATE STRATEGY VERSUS EMERGENT STRATEGY
The traditional school of thought concerning strategy formulation also supported the view
that managers respond to the forces discussed thus far by making decisions that are consistent
with a preconceived strategy. In other words, strategy is deliberate.
Deliberate strategy implies that managers plan to pursue an intended strategic course. In
some cases, however, strategy simply emerges from a stream of decisions. Managers learn as
they go. An emergent strategy is one that was not planned or intended. According to this
perspective, managers learn what will work through a process of trial and error
EFFECTIVE STRATEGIC PLANNING
In summary, scholars have determined that both adaptation and enactment are important
to organizations. They should adapt to environmental forces when the costs of enacting
(influencing) the environment exceed the benefits.
However, they should be proactive in creating their own opportunities. In addition,
organizations should engage in deliberate strategic planning processes, but they should also be
willing to make mistakes and learn from them as they chart a strategic course.
In other words, strategy should be both deliberate and emergent, and firms should both
adapt to and enact their environments, with the situation determining which option to choose
The strategic management process
 SWOT ANALYSIS

Strategic Direction
Strategic direction pertains to the longer - term goals and objectives of the organization. At
a more fundamental level, strategic direction defines the purposes for which a company exists
and operates. This direction is often contained in mission and vision statements.
An organization ’ s mission is its current purpose and scope of operation, while its vision is a
forward - looking statement of what it wants to be in the future. Unlike shorter - term goals and
strategies, mission and vision statements are an enduring part of planning processes within the
company.
For example, the philosophy, vision, mission, and guiding principles of Shangri - La Hotels
and Resorts are:
Our Philosophy : Shangri - La hospitality from caring people
Our Vision: The first choice for customers, employees, shareholders, and business partners
Our Mission: Delighting customers each time
Our Guiding Principles (Core Values):
We will ensure leadership drives for results.
We will make customer loyalty a key driver of our business.
We will enable decision making at customer contact point.
We will demonstrate honesty, care, and integrity in all our relationships. (SAMPLE ONLY)
 Characteristics of Strategic Thinking

THE ENVIRONMENT AND EXTERNAL STAKEHOLDERS

The staffing challenges faced by the hospitality industry in Khartoum illustrate the complex
connection between political, religious, and cultural factors. Successful organizations stay
abreast of changes in their external environments to anticipate concerns, predict trends, and
generate ideas.
The external environment can be divided into the broad and operating environments. The
operating environment is different for each fi rm, although similarities may exist among fi rms
in the same industries.
The operating environment is different for each fi rm, although similarities may exist among
fi rms in the same industries. The broad environment is not fi rm specifi c or industry specifi c.
In other words, the major trends and infl uences that occur in the broad environment impact
many fi rms and industries, although the type and level of infl uence may be different from one
industry to the next.
The organization, its primary stakeholders, and the broad environment
 IMPORTANT FORCES IN THE BROAD ENVIRONMENT AND HOW SOME ORGANIZATIONS
RESPOND TO THEM
Scanning: General indicators—Looking for early warning signals from many trends.
Monitoring: Following specific indicators—An ongoing observation of key important trends
Projecting: Forecasting the impact of key trends on the organization based on monitored
specific changes over time.
Adapting: Determining what requires change in the organization based on an assessment of the
timing, influence, and importance of specific trends. The key question is how the trends will
affect firm strategy

The broad environment forms the context in which the fi rm and its operating environment
exist. The key elements in the broad environment, as it relates to a business organization and
its operating environment, are:
1.Sociocultural influences
2. Global economic influences
3. Political influences
4. Technological influences
The Sociocultural Context
• Society is composed of the individuals who make up a particular geographic region.
Some sociocultural trends are applicable to the citizens of an entire country.
• For example, a few of the major social issues currently facing the United States are:
Role of government in health care and elder care
Terrorism and levels of violent crime
Security of travel and public places
Global warming
War and role of the military
Declining quality of education
Financial market failures
Quality and health levels of various imported and manufactured food products
 Pollution and disposal of toxic and nontoxic waste
ANALYSIS OF SOCIETAL TRENDS
The value of watching social trends is that it helps fi rms to understand preferences, strengthen
ties with existing customers, and create innovative products.
Rising popularity of green hotels and restaurant menus with organic foods
Hospitality firms that pay attention to social trends are able to:
Recognize opportunities
Identify unique generational and cultural differences
Enhance corporate reputation
Avoid unwanted legislation
GENERATIONAL AND CULTURAL AWARENESS
Culture is defined as an evolving set of shared beliefs, values, and attitudes that help shape how
a social group thinks, sees, acts, and reacts to various events and situations.
A generation may shape its identity or distinctive beliefs and views as a result of social, political,
and economic events that occur during the preadult years.
SOCIAL RESPONSIBILITY
Correct assessment of social trends can help businesses avoid restrictive legislation, which can
be a threat to organizational success.
Legislative activity is often generated in response to a public outcry against the actions of firms
or industries.
A socially responsible firm not only refrains from acting unethically, but also voluntarily seeks to
improve society.
The Economic Context

FORCE Potential Influences

Economic Growth Consumer demand, cost of factors of production, availability of factors
of production (especially labor and scarce resources)
Interest Rates Cost of capital for new projects, cost of refinancing existing debt,
consumer demand (due to customer ability to finance purchases)
Inflation Interest rates, cost of factors of production, optimism or pessimism of
stakeholders
Exchange Rates Ability to profitably remove profits from foreign ventures, government
policies toward business
Trade Deficits Government policies, incentives, trade barriers
The Political Context
• Political forces, both at home and abroad, are among the most significant determinants
of organizational success. Governments provide and enforce the rules by which
organizations operate. These rules include laws, regulations, and policies.
• Some countries have established independent entities to counsel them on government
policy. For example, the Australian government uses task forces to help devise policy.
They are independent of both business and government.
• Some organizations find themselves in a situation in which they are almost entirely
dependent on government regulators for their health and survival. In many countries,
tight regulatory controls are found in a wide variety of industries. In countries such as
China or Cuba, the government has significant control over the actions of fi rms. In the
United States, utilities are a good example of a highly regulated environment; however,
hospitality fi rms tend to be less regulated than fi rms in other businesses are.
The Technological Context
• Technology refers to human knowledge about products and services and the way they
are made and delivered. This is a broad definition of technology. Typically, technology is
defined in terms of such things as machinery, computers, and information systems.
However, technologies don ’ t have to be technically sophisticated.
• Technological change creates new products, processes, and services, and, in some cases,
entire new industries. It also can change the way society behaves and what society
expects.
• Notebook computers, compact discs and MP3 players, direct satellite systems, and
cellular telephones are technological innovations that have experienced extraordinary
growth in the last decade, leaving formerly well - established industries stunned,
creating whole industries, and influencing the way many people approach work and
leisure
Technological change is difficult, but not impossible, to predict. An understanding of the three
characteristics of innovation can help an organization develop a plan for monitoring
technological change. They are:
-Innovations often emerge from existing technologies.
-A dominant design will eventually be widely adopted.
-Radical innovations often come from outside of the industry group.
DEALING WITH TECHNOLOGICAL CHANGE
-Monitor trends by surfing the Web, studying journals, and staying current with the latest
reports.
-Solicit the opinion of experts outside of the organization. This is a more formal method of
technological forecasting, and these experts may be interviewed directly or contacted as part of
a formal survey, such as a Delphi study.
-Develop scenarios of alternative technological futures, which capture different rates of
innovation and different emerging technologies. Scenarios allow an organization to conduct “
what - if ”analyses and to develop alternative plans for responding to new innovations.

MANAGING THE OPERATING ENVIRONMENT

The operating environment may seem overwhelming to many managers. Powerful customers
or suppliers can limit organizational success and profitability. Powerful competitors can make it
difficult to remain competitive. Substitute products put pressure on prices and other product
features.
When entry barriers are low, new competitors enter the industry on a regular basis. Finally,
external stakeholders can be powerful and difficult to deal with, based not only on When entry
barriers are low, new competitors enter the industry on a regular basis. Finally, external
stakeholders can be powerful and difficult to deal with, based not only on
Economic Actions
 Firms may take a variety of economic actions to offset forces in the operating
environment.
 For example, if entry barriers are low, companies may work to erect new entry barriers
that prevent other firms from entering, thus preserving or stabilizing industry
profitability.
 Although a difficult task, the erection of entry barriers can be accomplished through
actions such as increasing advertising to create product differentiation or by
constructing larger facilities to achieve economies of scale
Competitive Tactics
 Industry rivals apply a variety of competitive tactics in order to win market share,
increase revenues, and increase profits at the expense of rivals.
 Competitive tactics include advertising, new - product launches, cost - reduction efforts,
new service methods, and quality improvements, to name a few.
 Typically, a particular industry can be characterized by the dominance of one or more of
these tools. For example, the chain restaurant industry is characterized by high levels of
advertising as a competitive weapon.
Competitive Tactics
• the entrance of international competitors into national and regional hospitality markets
has placed an increasing emphasis on product differentiation through high levels of
quality. Other common competitive tactics include providing high levels of customer
service and achieving economies of scale (which can lead to lower costs, thus allowing
lower prices to customers)
• Competitive benchmarking is a popular technique for keeping up with competitors.
Benchmarking is a tool for assessing the best practices of direct competitors and fi rms
in similar industries, then using the resulting stretch objectives as design criteria for
attempting to change organizational performance.
• While benchmarking may help a company improve elements of its operations, it will not
help a fi rm gain competitive advantage. Benchmarking is a little like shooting at a
moving target. While a fi rm is shooting, the target is moving. If an organization
benchmarks against an industry leader, that leader will probably have moved on by the
time the benchmark is achieved.
Political Strategies
 Political strategies include all organizational activities that have as one of their
objectives the creation of a friendlier political climate for the organization.
 Many large organizations hire lobbyists to represent their views to political leaders.
While lobbying can be part of a political strategy, it is only a small part of the bigger
political picture. Companies may donate to political causes or parties, special - interest
groups, or charities.
 Organizations may partner for political reasons; however, many other types of
partnerships exist. Often fi rms partner to obtain complementary technologies or
knowledge.