The Implications of Various Environmental Forces on Strategic Planning & Decision Making

Managers need to be aware of –

various environmental issues of business that affect the strategic planning and decision making in this highly uncertain business world and must be able to understand all the controllable and uncontrollable parameters while planning and decision making (Bhushan and Rai, 2004). Technological Advancement, Institutional Governance, Ethics, Globalization, Knowledge Management System, Culture and Diversity, Changes in Leadership and Management Style and the like have profound impact on strategic planning and decision making. In order to effective and efficient and to think, plan and make decision strategically, management need to have a clear understanding of these forces, the implications of these forces on business and on them and on employees, the way to handle and deal with the situations and then plan and make decision accordingly.

A number of scholars have produces various theories, concepts and models to enable managers to plan and make decision strategically (Ferrell and Hartline, 2007). Porter’s Five Forces Model is a very popular and comprehensive one that helps managers make their decisions strategically in such uncertain and turbulent business environment. The five forces model provided by Porter (1980) provides an indication of the attractiveness of an industry, which is determined understanding its five dimensions, which are rivalry, new entry, buyers, suppliers and substitutes. The profitability aspect for a company becomes higher when the forces are weaker and vice versa. Managers can understand the potential opportunities, competitions, customers’ position and the like from the model and subsequently make their decisions. Understanding of these dimensions is highly important for managers as any misjudgment can cause wrong planning and decision making from their side and cause a significant loss for the company.

Again, strategic fit is the outcome of an organization’s strategic decision and planning, which is subject to a rigorous analysis of the organization’s strengths and weaknesses and opportunities and threats that help the organization formulate, implement and evaluate its strategies. The SWOT analysis plays an important role in understanding an organization’s strategic fit (Segil, 2004). The SWOT analysis analyzes and provides the indispensable information, which is derived from the strategic capacity analysis and environmental analysis of an organization. The strategic capacity provides viewpoint based on strengths and weaknesses from analysis of the company’s resources and competences that give information on the company’s survival and progress. The environmental analysis provides perspectives on the opportunities and threats existed surrounding the industry itself and give management an indication of how to deal with situation and thereby plan and make decision strategically accordingly to reduce the probability of risks in decision making (Stapleton and Thomas, 1997).

Another important model in strategic decision making is BCG matrix. BCG matrix is developed by Boston Consulting Group, which focuses on product portfolio planning. The matrix helps analyze an organization’s product portfolio on the basis of two dimensions: Industry growth rate and relevant market share (Henry, 2008). Stone states that (2001), each product can be plotted and placed in the matrix based on its market share and growth rate into four cells, which are called Stars, Question Marks, Cash Cow and Dogs. Stars are the products which have simultaneously high market share and high growth rate that helps produce higher amounts of cash for the company. Question Marks have low market share with high growth rate, which generate little income corresponding to the resources spend. The products fall in Cash Cows cell have high market share with a slow growth rate. Due to the high market share, these products generate more and more cash for the business, which can then be invested in Stars and Question Marks. Dogs are products with low market share and low growth rate and do not generate income for the organization, which is not beneficial for the company in general. Managers of an organization with diversified product portfolio can thereby make their planning and decision making strategically locating their products in different dimensions of BCG matrix and decide which products are profitable for the company and how to carry on with the others. There are other theories, concepts and models such as –

Just in Time for inventory management, PEST (political, economic, sociocultural, technological factors) analysis, Total Quality Management, Knowledge Management, Customer Orientation and the like that help and enable managers to take control of the parameters of various environmental forces and reduce the risks of making wrong planning and decision making (Church et al., 1996).

A huge number of problems are faced by managers every day in this complex and fast-changing business environment and they have to think, act, plan and make decisions in order to resolve these problems. It is not so easy to make too many decisions quickly and in a short period of time and too many strange and unfamiliar problems introduce a new element into management, forcing executives, already nervous in an unpredictable environment, to make more and more sound decisions at a quicker pace (Toffler, 1980). These models, theories and concepts are developed by scholars and researchers to mitigate those problems. The only thing managers have to do is to think and act strategically.

References:

• Bhushan, N. and Rai, K. (2004), Strategic Decision Making, Springer London Ltd., England.
• Church, A. H., Seigal, W., Javitch, M., Waclawski, J., Burke, W. W. (1996), “Managing Organizational Change: What You Don’t Know Might Hurt You”, Career Development International, Vol. 1, No. 2, pp. 25-30.
• Ferrell, O. C. and Hartline, Michael D. (2007), Marketing Strategy, Thompson South- Western.
• Henry, A. (2008), Understanding Strategic Management, Oxford University Press, Oxford.
• Porter, M.E. (1980) Competitive Strategy, Free Press, New York.
• Segil, L. (2004), Measuring the value of partnering: how to use metrics to plan, develop, and implement successful alliances, Amacom, New York.
• Stapleton, J. and Thomas, M. J. (1997), How to prepare a marketing plan: a guide to reaching the consumer market, Gower Publishing Ltd., Aldershot.
• Stone P. (2001), Make marketing work for you: boost your profits with proven marketing techniques, How To Books Ltd., Oxford.
• Toffler, A. (1980), The Third Wave, Bantam, New York, NY.


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