January 14, 2020 121
January 14, 2020 121
The remote environment consists of forces that are not in the company’s direct operating environment. Normally, the remote environment is not affected by the operating environmental forces of a single company.
A multinational company has its headquarters in the USA does not get affected by the competition faced by its subsidiary company in Nigeria. However, a change in the legislature that affects the industry as a whole in which the said company operates for example ban on certain raw material may substantially affect its business.
The business environment has several characteristics and each of these characteristics is to be clearly understood by strategy managers.
Around the business world, changes are either fast or slow. The changes occur continuously. In the present business scenario, these are more frequent and rapid changes. Changes may occur in any scope of the environment and consequently affect other factors. The dynamism of the environment brings in many threats as well as opportunities for an organization. Hence, organizations should be more alert to changes and be more adaptable. This is necessary for their survival.
Since the environment has a direct effect on companies organizations have to formulate their objectives keeping the environment in focus. Hence, the formulation of policies should essentially be in true with these objectives. A strategy that is adopted by a company may fail miserably if environmental factors are not correctly perceived and addressed while formulating the strategies.
The environment within a company can be controlled to some extent whereas the environment outside an organization is not under our control and hence has to be assessed. The environment can only be partially influenced by one company since there are other companies in an environment. These companies have varying interests that may clash with the interest of the company attempting to influence the environment.
The environment has many dimensions for a particular business. The events, conditions, and influences arise from various sources that are present in the environment. All these factors interact with each other to produce changes in the business environment. An example is the leakage of poisonous gases from the crude oil-producing state in Nigeria, which caused a long legal battle affecting the business of the company and led to the closing down of some plants.
It is quite difficult to understand the interactions of all the factors present environment. However, strategy managers try to comprehend the various factors and their influences.
When a change is triggered off in a business environment, it may influence some factors and may not influence others. Change in the environment is perceived by different people in different ways. For some companies, amendment of law may be useful while for others it may prove to be fatal.
Opportunities present in an environment may be a threat to some companies. The dimensions available to define an environment are multitudinous and often strategy managers find it difficult to identify all the factors.
The environment affects current strategies as well as the decisions on the future course of strategies. The various influences of the environment may be summarized as follows.
Certain companies have inherent strengths that they build over the year’s viz research and development based information, trained manpower, distribution network, widespread infrastructure, etc which enable them to be highly competitive and to create a niche for the company in a highly competitive environment due to these core competencies.
Some companies have inherent weaknesses, limitation or constraints which prove to be strategically disadvantageous. Some companies may depend solely on a single source for raw materials or they may be doing only seasonal business and if a season is not favorable; their profits run into rough weather.
An event in the environment that may be favorable to a company may be suitably exploited by it for the overall benefit of the organization. A business opportunity may arrive due to changes in tax structure, natural or climatic changes, changes in the competitor’s product designs, change in some regulation, etc.
Some events in an environment may create situations where the profit company may be reduced or its very existence may be threatened. The emergence of stiff competition, obsolescence due to new products and design brain drain of technical experts due to lucrative offers from competitors, etc are some of the examples of threats
Several economic factors present in the environment affect the demand-supply, services price availability, etc of products. The economic state of a company can be affected by various factors of the environment and these factors also drive the companies to change their strategies.
While studying the environment a company would like to have information on certain specific aspects of the environment relevant to the company.
Some of these factors can be summarized as follows.
Each of the above factors can be either helpful or may create hindrances in accomplishing their company’s objectives depending on the situation such as the use of the intonation to study the behavior of markets and frame their strategies accordingly. Some well-known conclusions are also used to frame policies and strategies.
Some factors like recession which lead to retrenchments resulting in poor sales, lowered interest rates leading to lowered fund requirements for investments and similar other axioms of business are deployed for framing strategies.
The marketplace environment where the product is sold to the consumer has a great impact on a company. In a market, some competitors offer better services to gain an edge. The competition may even turn out to be unhealthy when customers are carried away by untrue stories about a product or the company.
In the case of the manufacture of control panels, generators, transformers, switch gears, etc., competition may not be as severe as in the case of consumer products. Here, the market environment may be governed by a service lifecycle cost, image, etc. Some sectors may be protected by the government viz petrol, cooking gas power equipment, electricity water, etc although in recent years these fields are also being opened up for competition.
Rapidly changing business environment both at the national and international levels caused the different markets to react accordingly.
Companies have also geared up themselves and have brought in new systems, strategies, policies, etc to meet new challenges. Today, companies spend a sizeable amount of money to understand the market environment which directly or indirectly affects them.
Executives of companies visit markets to get firsthand information about their products and products of competitors. In earlier times, the edible oil companies rarely cared about their consumers but today, companies making different brands of oil conduct surveys to get data consumer satisfaction. The same is the case with the automobile industry wherein companies having unsold stocks resort to various methods of sales promotion. Even in the case of personal computers, companies are trying to reach out to homes of people to dramatically expand their markets.
It has now become a practice for companies to study the competitor’s profile and benchmark their operations for improvements.
It is not an easy task to gather all the required data. However, executives make continued efforts to get more accurate details relating to these factors. A company ranks these factors to give more weight to the more important factors.
The customer profile also has to be worked out in a similar way of gathering all the vital information. The profile for the most prospective customers would necessitate knowing their complete details viz geographic, demographic, and psychographic aspects and their buying behavior.
Now let us discuss each of these dimensions of the customer profile.
1. Geographic Location: Strategic managers need to know their customers’ geographic locations. Since each location has its own culture, environment, and background. It becomes easy to assess the customer’s preferences.
For example, a person longing in Africa has a different pattern of preferences compared to China. The food habits, festivals living styles dressing hobbies, etc vary from region to region and companies operating in different states must be able to match their products and services to their customer’s delight.
Political leaders make themselves more acceptable to the masses belonging to a particular state by wearing local outfits and using the local language. Similarly, companies make use or festival seasons to persuade their customers with hoardings of new arrivals and discount sales.
2. Demographic Characteristics: The demographic information refers to information on age, sex, marital status, income, etc which is comparatively easier for collection and processing. This information helps to create customer groups and segments for which separate strategies may be worked out by business managers. The product designs, their features, and prices vary according to the buying capacity of the customers. This is the reason why a single company offers different varieties of detergents, cars, magazines, etc with different features and prices.
3. Psychographic Aspect: The personality, lifestyle, tastes, and social movements of customers are some of the factors which influence their selection and preference of products. Certain classes of clothing, vehicles, toys, furnishings, etc are owned only by a definite class of people.
4. Buyer Behavior: There exists a definite buying behavior that is based on several indices viz usage rate, benefits desired, preference for price-quality, service, life, life cycle cost, ownership cost, etc. Today, buyers have more awareness about their rights and demand very good product performance. This poses a challenge for manufacturers. Buyers have also joined hands and have legal forums where their grievances regarding products are being heard. Strategy managers have to consider these factors while making their strategies.
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