STRATEGIC IMPLICATIONS OF ENVIRONMENTAL FACTORS ON
BUSINESS OPERATIONS
ARIZONA STATE UNIVERSITY
WPC 480 - STRATEGIC MANAGEMENT
WEEK 4
A. Learning Outcomes:
The orientation of learning outcomes at the ninth meeting is that students are able to
analyze the external and internal environment of the company and can compile an assessment
instrument.
B. Material:
1. External Environment of the Company:
The Strategy Management process generally includes strategy formulation, situation
analysis, performance evaluation and strategy implementation (Robbins. 2013). What is
meant by environment in the business sense is not limited to the notion of "environment" in
ecological terms, but includes all external aspects of the company that affect the activities of
the Organization. Porter (1996) states that the business environment has three broad concepts,
as follows:
a. Objective factors: realities that can be measured and defined
b. Subjective factors: specific characteristics depend on the interpretation and perception
of the individual.
c. The environment is created and defined by the individual.
Environmental analysis is very important for the sustainability of the Company as stated
by David, Fred R. (2002):
a. Fundamentally, the rules of the business environment affect business activities, such as
labor, technology and markets.
b. Operational activities, such as new product launches, staff recruitment require the
identification of environmental factors, in order to provide certainty about the success of
a business.
c. The advantages of a good organization will affect the environment
d. A strategic plan should take into account possible changes in the business environment.
This external analysis will be divided or grouped into 2 (two), namely Business
Environment Analysis and Competitor Strength Structure Analysis.
a. Business Environment Analysis:
David, Fred R. (2002) formulates the Business environment as LE PEST C, namely
Political, Economic, Legal, Ecological, Social and Technology and Competitive.
1) Legal: matters of policy, legislation and other legal regulations that limit the movement
of the organization.
2) Ecology: related to the environment, such as environmentally friendly products, for
example: green hotels, namely hotels that apply the concept of environmentally
friendly, greening, limiting the use of chemicals and wastewater treatment.
3) Political: political situation that affects business processes, foreign investment
restrictions, tax policies etc.
4) Economics: the effect of fluctuations in the exchange rate, interest rates.
5) Social changes in people's behavior will affect business growth, for example: awareness
of the travel needs of the Indonesian people after the Saturday work holiday policy,
making tourist attractions flooded with the arrival of Wisnus (Archipelago Tourists).
6) Technology: adjusting technology that is environmentally friendly, for example cars
with gas fuel, electricity, etc.
7) Competitive: changes in market segments, the advantages of the 4Ps (Price, Product,
Place and Promotion) will determine the position of the organization among
competitors.
The external environment according to "Pearce and Robinson (2003)" is divided into
three categories:
1) Remote environment
2) Industry environment or competitive forces
3) The operating environment is a combination of raw material providers and consumers.
Policy makers within a company or organization need to monitor or observe the external
environment such as socio-cultural, economic, technological, market, government, industrial
raw materials, human and financial resources and conduct analysis to immediately respond to
these changes quickly and appropriately.
Hitt et, al. (2002) categorize the benefits of environmental analysis into two:
1) As information, the uncertainty of the environment will result in changes and
complexity of the Organization's environment. Rapid changes are referred to as
dynamic environments, while minimal or slow changes are called stable, for example
between changes in communication technology and the petroleum industry.
2) As a scarce resource: The organization is highly dependent on the existence or
availability of these resources.
b. Competition power structure analysis:
The five forces of competition proposed by Porter (1996):
1) Competition between competitors: i.e. competition from the same product, the higher the
competition indicates the higher the profitability of the industry. Things that affect the
intensity of competition include:
a) Industrial growth
b) Fixed and storage cost
c) Differences
d) Brand Identity
e) Swiching cost
f) Concentrate and balance
g) Informational complexity
h) Diversity of competitors
i) Exit barriers
2) The threat of new entrants: the decision to enter a particular business because it offers
high returns. Accord group's business hotel concept, by building small-scale hotels, the
number of rooms is around 100 to 150 with competitive prices.
3) Threat of Substitute goods In addition to hotels, in tourist destination areas many houses
are commercialized as lodging, this is a threat to the hotel business.
4) Bargaining power of buyers/consumers: bargaining power of buyers becomes low if there
are many substitute goods
5) Bargaining power of suppliers: becomes high when they are the sole provider of raw
materials.
6) Clusters and the latest competitive concepts: The borderless world allows companies to
obtain resources (information, technology, capital, goods) from all over the world, but
there are still certain regions or countries that are the best location for a business, e.g. the
holywood movie industry, or the local pottery industry in Kasongan, etc. Alfred Marshall,
an economist, stated that this is a trend.
Globally this is influenced by :
a. Increased productivity of companies in a given region
b. Clusters will drive the direction and pace of innovation
c. Stimulus to create the formation of new business forms that will strengthen the cluster
itself.
In Indonesia, the island of Java can be said to be the largest cluster among other islands,
both large and medium industries and small and household industries.
2. Internal Environment:
No company is exactly the same, as each has different assets, experience, capabilities
and culture.
In the RBV model that emphasizes the characteristics within the company (Internal) on
the resources owned. Resources can be classified into three groups (Porter, 1996):
a. Tangible assets: Production facilities, financial resources, raw materials, real estate, and
computers.
b. Intangible assets: brand, reputation, organizational morale/culture, patents, accumulated
experience.
c. Organizational capability: the ability or expertise to manage. Resources become valuable
when :
d. Adding value: resources can be used to neutralize external factors.
e. Rare: competitors do not have these resources.
f. Hard to imitate: competitors can only duplicate by substitution or alternative.
g. The ability to exploit, for example, Korean brands of communication devices rival
American products.
According to (Porter, 1996) RBV identifies that some characteristics called isolation
mechanisms that bias make resources difficult to imitate and become valuable, as follows:
a. Competitive superiority: the extent to which resources can fulfill customer needs better
than competitors, for example: location and service.
b. Scarcity of a resource: whether the resource is relatively limited.
c. Ease of imitation: several factors that make products difficult to imitate:
1) Physical uniqueness, having a distinctive physical product.
2) Path: raw materials are not obtained instantly or flow through the process, requiring
large costs to replicate.
3) Causal ambiguity: a situation where it is difficult for competitors to understand how
the company combines available resources with competitive advantages.
4) Economic deterrence: a situation that requires a large investment to emulate the
resources possessed.
d. Appro riability: Companies that control resources are more valuable than resources that
are easy to buy or sell.
e. Durability: The more enduring a resource is to depression, the more valuable it is.
f. Substitutability: whether there are other options/alternatives to the resources you have.
3. Value Chain Analysis:
The process carried out by a company when providing value to the products or services
produced (Porter, 1996). It is said to be successful if the value generated exceeds the overall
funds that have been spent in order to get a product or service, this is the key to analyzing the
competitive position. Michel Porter divides it into two categories:
a. Main activities:
1) Inbound Logistics: involves material facilities, starting from the location, system or
management of material flow (input).
2) Operation: effective and efficient operational design/flow
3) Outbound Logistics: shipping process, finished product storage and material
procurement.
4) Marketing and Sales: Competent sales force, innovative advertising, proper distribution
channels/market segmentation and pricing strategy.
5) Service: appropriate guarantee/warranty, quick response, ability to provide replacement
materials, easy procedures.
b. Support activities:
1) Corporate Infrastructure: general management activities, involving planning,
accounting, finance, legal and governmental matters (General Administration).
2) SD management: from recruitment to the compensation system and the quality of the
work environment as well as the relationship with the union.
3) Technological development: appropriate investment in research and development.
4) Procurement: proper collaboration with suppliers, analysis of alternative inputs,
minimizing dependency on suppliers.
ANALYSIS SWOT : Strengths, Weakness, Opportunities and Threats. From two
analyses, namely Internal and External, a SWOT formulation is made to recognize and know
exactly the position of the company. Each aspect is then given a score and weight, then
translated into a positioning chart, the vertical axis (x) is the external aspect and the horizontal
axis (y) is the internal aspect, the coordinates of the two aspects will show the position of a
company. SWOT analysis has several weaknesses/limitations, including (Porter, 1996):
a. Strength is not always superior.
b. External analysis is too narrow
c. Static/non-dynamic tertiary analysis
d. Emphasis on one-dimensional strategies
4. Qualitative Approach SWOT Matrix:
Developed by Kearns, it features eight boxes, of which the top two are external factors,
the left two are internal factors and the remaining four are strategic issue boxes.
As developed by Kearns, the qualitative approach of the SWOT matrix also has eight
boxes, of which the two boxes on the top are external factors (Opportunities and Challenges),
the two boxes on the left are internal factors (Strengths and Weaknesses).
and the other four boxes are strategic issues generated by the intersection of internal and
external factors (Allison, Miçhael, Kaye. Jude, 2005).
Description:
Cell A: Com_Qarative Advantages
Cell A is a confluence of two elements of strength and opportunity that will
provide various possibilities for the organization to grow faster.
Cell B: Mobilization
is the interaction between threats and strengths. Efforts must be made to mobilize
resources as organizational strengths to weaken external threats, turning these threats
into opportunities.
Cell C: Divestment/Investment
It is the interaction between weaknesses and external opportunities. This condition
provides an option to an uncertain situation. The opportunities available are very
convincing but cannot be utilized because there are not enough strengths to change
them. The choice of decision, taken is to release the existing opportunities to be utilized
by the company other organizations or force the opportunity (investment).
Cell D: Damage Control
Is a state that is the weakest of all cells because it is a meeting between
weaknesses and external threats, and if the decision is wrong it can result in a major
disaster for the organization. The strategy that must be taken is Damage Control
(controlling losses) so that it does not turn out to be more severe than expected.
Qualitative SWOT data can be developed quantitatively through the calculation of
SWOT Analysis by Pearce and Robinson (2008) so that it can be understood exactly where
the actual position of the organization is. There are three stages in the calculation, including:
a. Calculating the score (a) and weight (b) of the factor points and summing up the total of
the multiplication of scores and weights (c=axb) on each factor S-W-O-T1 Calculating
the score (a) is done by making each factor point freely (the assessment of a factor point
should not be influenced or affect the assessment of other factor points). The choice of
score range will determine the accuracy of the assessment, but the more commonly used
score is from 1 to 2. 10, assuming that 1 is the lowest score and 10 is the highest score.
The calculation of weight (b), each factor point is carried out in an interdependent
manner, which means that the assessment of one factor point is by comparing its level
of importance with other factor points. So the calculation formulation is the value that
has been obtained (the value range is the same as the number of factor points) divided
by the number of factor points.
b. Calculate the subtraction between the total amount of factor S and factor O and T (e);
The number obtained (d = x) then becomes the value or point on the X axis, while the
number obtained (e = y) then becomes the value or point on the Y axis;
c. Find the position of the organization indicated by the point (x,y) in the SWOT quadrant.
Quadrant I (positive, positive):
Quadrant I position indicates that the organization is strong and has opportunities,
the strategy recommendation given is Progressive, which means that an organization is
in prime condition so it is possible to continue to enlarge growth, expand, and achieve
maximum progress.
Quadrant II (positive, negative):
Quadrant II position indicates that the organization is strong but faces great
challenges. The strategic recommendation given is Diversification Strategy, which
means that an organization is in a steady condition but faces some tough challenges so it
is estimated that the wheels of the organization will have difficulty continuing to turn if
it only relies on the previous strategy. Therefore, the organization is advised to
immediately increase the variety of tactical strategies.
Quadrant Ill (negative, positive):
The position of quadrant III signifies an organization that is weak but very likely.
The recommended strategy is Change Strategy, which means that the organization is
advised to change the old strategy. Because, the old strategy is feared to be It is difficult
to capture opportunities that exist as well as to improve organizational performance.
Quadrant IV (negative, negative):
Quadrant IV position indicates a weak organization in the face of a major
challenge. The recommended strategy is a Survival Strategy, meaning that the internal
condition of the organization is in a dilemmatic choice. So that the organization is
advised to use a survival strategy and control internal performance so as not to be
further mired. This strategy can be maintained while continuing to try to improve.
C. Exercise:
As a learning evaluation, students are asked to be able to:
1. Describe the external environment of the company!
2. Describe the internal environment of the company!
3. Explain SWOT Analysis!
SITUATION ANALYSIS
A. Learning Outcomes:
The orientation of learning outcomes at the tenth meeting is that students are able to
analyze the situation/condition/position of the company and are able to formulate the right
strategy.
B. Material:
1. Factors for Evaluating Organizational Achievement:
In general, companies try to achieve their goals and objectives with intense competition.
The achievable goals and objectives of the company can be known by the sum of all profits,
returns on investment capital, and the size of the market controlled by. Success in achieving
its goals and objectives can only be if the company has an advantage in competition.
Cultivating excellence must be carried out in competition by the company in a
sustainable and appropriate manner, by planning a mature strategy as well as implementing
what has been planned (Evans, Stonehouse, G., & Campbell, 2012). It can all be done by
analyzing and starting with identifying, strengthening the organization and improving
leadership capabilities. All of these activities are in the stabilization of strategic management,
which is mainly at the top and middle leadership levels in the company. so that in order to
build excellence in competition, companies must understand the role of strategy and strategic
management on how to increase excellence in conducting sustainable competition.
2. Strategic Assessment of the Company:
Performance measurement is the basis for strategic assessment, which relates to both
financial and strategic performance. Financial goals and objectives form the basis for financial
measurement and should be communicated as management targets for financial performance.
Financial goals and objectives generally relate to revenue growth, profitability and return on
investment (ROI). Strategic goals and objectives relate to the company's marketing position
and strength in competition (Bromiley, 2009).
Strategic goals and objectives are used to Operationalize the strategic vision mission, so
that it is expected to help provide direction on how a company organization can be directed in
taking action according to the company's vision mission. The direction must be stated in
detail, including the stages of the time frame, so that it can conduct an assessment and
evaluation. In conducting an assessment, there must be a specific measure, so that it can
determine that the company's organization is on the right track (Bromiley, 2009). The goals
and objectives include two categories, namely financial or financial and non-financial. the
criteria of the goal or target must meet the criteria:
a) measurable, b) realistic, directed at achieving needs or expectations, c) enforceable,
d) realistic, and e) timely. Thus, it is hoped that the company organization can
concentrate on running its business activities in accordance with the strategy that has
been decided.
A company's financial goals and objectives are lagging indicators that give an idea of
the results of past provisions that can be seen from the organization's activities. Reliable and
trustworthy predictors of a company's success in the marketplace and future financial
performance are strategic goals and objectives.
In order to understand the interrelationship between strategy and performance,
companies must study the conceptual framework as illustrated in the figure above. From this
figure there are three main interrelated components. The first link is between the company's
goals and Leadership and Strategy. The second interrelationship illustrates the organizational
environment as it relates to the interrelated components of Process, Structure, System, People,
and Culture. The third interrelated relationship is the formulation of company performance
with two philosophies different from the implementation of control. This conceptual
framework is expected to help identify actual and potential challenges, as well as a description
of the obstacles faced in an effort to successfully implement a chosen strategy (Bromiley,
2009).
In overcoming doubts about the success of the financial control system when measuring
a company's inability to execute its strategy, two Harvard Business School professors, Robert
Kaplan and David Norton, then developed key performance indicators with four categories,
namely "financial, customer, internal business processes, and growth and learning". The
performance indicators are poured into a concept known as the "Balanced Scorecard". The
Balanced Scorecard is a management tool that can clarify an organization's vision and
strategy, and translate them into actions, or activities. The Balanced Scorecard is also known
as a way of creating concentration on the efforts of the company in carrying out the strategy
that has been decided (Kaplan, Robert, Kaplan, & Norton, 2001).
The use of the Balanced Scorecard performance measurement system emphasizes the
balance between strategic goals and objectives, to achieve optimal results. Hence, the
balanced scorecard includes both financial and strategic performance goals, covering three
areas, namely: 1) external customer-related, 2) internal business processes, and 3) internal
learning and growth activities. External customer-related goals include customer satisfaction,
brand loyalty and delivery timeliness. In internal business processes, which need to emphasize
the company's interests in order to retain and attract new customers. Activities in internal
learning and growth need to emphasize their relationship with human resources, information
technology and organizational quality (Kaplan, Robert, Kaplan, & Norton, 2001).
The success of a company's business can be seen in terms of quantity and/or quality. In
terms of quantity, it is generally related to financial and non-financial matters. While the
success seen from the qualitative side, generally related to non-financial, such as reputation,
patents, and speed in developing products. Business success is used by a company in order to
know about the development of business success in the company.
Business success from the financial side (financial) of a company criteria include :
a. Growth in sales (sals growth)
b. Ratio of capital to profit (Return on Invested Capita)
c. Return on Equity and Return on Assets ratio
d. Ratio of profit to sales (Return on Sales)
e. Sales per employee
f. Product inventory turnover (Inventory Turnover)
g. Account Receivable Turnover and Debt Ratio
h. Cost Reduction
Success business from side The non-financial side of the company with its criteria,
among others:
a. Customer satisfaction
b. Customer complaints
c. Customer retention
d. Return of a product (Product Return)
e. Product quality
f. Patents
g. Reputation
h. Products that have just entered the market (New Product Released)
i. Speed in product development Employee turnover
The criteria for strategic assessment of the success of a company's business described
above are not all always used by a company. The criteria used by a company depends on the
criteria factors used to achieve the target objectives that have become the company's strategic
decision. For example PT lndofood Sukses Makmur Tbk, has succeeded in increasing the
company's net profit to double, in 2008 it was Rp. 1.03 and in 2009 to Rp, 2.075 trillion.
A company's success from time to time must always be evaluated, especially those
related to the company's position in competition. Competition to achieve success in the
company's business must be improved and maintained, so that it becomes a sustainable
business success.
3. Observing External and Internal Factors in Strategy Formulation:
a. Analysis Strategic: An Inquiry Assessment of the External Environment:
1) Strategic Decision:
A manager should be able to direct all his subordinates for the achievement of the goals
and objectives of the unit or organization he leads (Rabin & Miller, 2000). To direct the
activities of the organization he leads, a manager must be able to make or determine the right
decision. Therefore, the manager is also called the person in charge and the decision maker of
the organization he leads.
In making a decision, managers must be able to make choices and analyze appropriately
so that they can get good decision results. A manager in making a decision must pay attention
to the possibilities that will be faced and can affect the course of the organization, as well as
the various obstacles that will be faced, as well as the risks that may occur. The decisions that
are made must be able to be directed and can direct the actions or activities carried out in
order to achieve or realize the achievement of the desired goal stages, taking into account the
coordination required.
Decisions made by a manager can be decisions to carry out actions or actions, or
decisions to direct implementers about what should and should not be implemented and to
improve what decisions have been implemented (Barney & Hesterly, 2010). The process of
making decisions includes the process of selecting and identifying the series of activities
needed in order to face or solve a problems, and as a basis for determining the activities to be
carried out in order to achieve success in utilizing the opportunities obtained. Thus, decisions
made by a manager can provide a framework for directing organizational members as
subordinates to take appropriate action.
A strategic decision is a decision related to something that will be achieved by the
organization it leads for the long term of the organization, and the actions that will be
implemented so that long-term goals are achieved. Because of the importance of a strategic
decision for an organization for the future and in the long term, strategic decisions need to
consider the influence of an uncertain environment in the long term.
Because the role of strategic decisions is increasingly important, especially for an
organization that continues to grow and develop, and is increasingly complex, the role of
skills is increasingly important in strategic leadership. If managers do not have the rigor to
When making a decision, because it does not pay attention to environmental factors that have
a very large influence on the course of organizational activities, of course, the organization
will face obstacles and difficulties in carrying out activities to achieve organizational goals.
This is because strategic decisions taken must consider the risks of decisions to the
environment and the performance results that the organization can achieve in the future.
2) Strategic Decision Formulation Process:
Strategic decisions are the stages of the implementation process of strategic
management. While strategic management is a series of processes when making strategic
decisions (Barney & Hesterly, 2010). In the process of formulating a strategic decision, it is
not enough just to study the resources owned by the company and its capabilities, but it
requires a consideration of the opportunities that exist at the present time and in future
developments that will be faced by all business organizations or companies with uncertainty.
Such conditions are faced because the environment is always changing and will continue to be
complex. The changes in environmental conditions will be even greater and more complicated
if a company enters and operates in a global market, especially because of the influence
caused by changes or advances in technology and markets.
Strategies formulated in strategic decisions are long-term strategic decisions that affect
the overall direction of the company, such as capital investment or capital and new product
innovation. Determining a strategic decision in the long term needs to be carried out with a
thorough process, in order to determine the choice in order to obtain the right and appropriate
strategic decision, the process of formulating strategic decisions begins with Observation and
Assessment of the Environment, which is monitoring, evaluating and researching primary and
secondary information, both related to the external and internal environment, then analyzing
and anticipating the opportunities and threats that will be faced as a result of the influence of
the external environment, as well as the possibility of the existence of strengths and
weaknesses possessed from the internal environment, especially those related to the internal
environment embossed Retrieved from sources resources company's organizational resources
(Barney & Hesterly, 2010).
At the time of the Strategic Decision Formulation Process begins with conducting a
Business Opportunity Assessment that will be faced, which is based on the results of an
analysis of the investigation and assessment of the external fields of the company and
industry. After obtaining the results of the assessment of business opportunities the process
continues by conducting an assessment or analysis of internal capabilities, in order to take
advantage of the business opportunities that exist in the company. Opportunity utilization The
business is only possible if the Analysis and Assessment of the Internal Fields, Competencies,
and Capabilities of the Company has a positive result (Barney & Hesterly, 2010).
3) Assessment and investigation of the External Environment:
Most organizations will face an external environment with conditions that are very
uncertain or turbulent, complex and have a global influence. To determine the direction of the
company's future course, managers must be able to examine these external environmental
factors, considering more carefully, more difficult and in-depth. The external environment
consists of dimensions that exist in the wider community, which directly affect existing
industries and companies (Witcher, B. J., & Chau, 2010).
The identification of threats and opportunities is an important objective in
environmental assessment in general (Amason, 2011). An opportunity is a condition that
exists in the general or macro environment that, if effectively cultivated or exploited can help
the company to achieve excellence in competition. Meanwhile, threats are circumstances that
exist in the general or macro environment that can hinder the company's efforts to achieve its
competitive strategy advantage.
In order to be able to observe the state of the external environment, strategic managers
must be able to understand many factors or variables of the external environment that affect
the internal state of the company in order to achieve a strategic advantage in competing.
Things that can affect the course of operational activities in companies in the industry,
including (Amason, 2011):
a) Economic factors include inflation rate, interest rate, unemployment, currency market
value, disposable income, and price and wage controls.
b) Technological factors, including new products, internet availibility, patent protection,
new technology development, transfer from lab to market, focused technological effort,
telecommunications infrastructure, total industry spending for R&D, and productivity
improvement through automation.
c) Political and legal factors, including antitrust regulations (KPPU), tax regulations,
stability in government, outsourcing regulations, foreign trade regulations, immigration,
and global warming provisions.
d) Socio-cultural factors, including Career Expectations, Lifestyle Changes, Life
Expectancies, Pension Plans, Health Care, Age Distribution of the Population, Birth
Rate, Education, Population Growth and Regional Displacement.
To analyze the external environment of the company, the strategic manager must first
determine the industry the company is in. Thus, it can determine, how the company's ability to
implement its strategy successfully. After knowing what industry the company operates in,
the manager can study the characteristics of the industry and its development trends.
Environment The external environment of a business organization, basically has
environmental components, namely the macro or general environment, the industry
environment and the strategic group environment or competitor environment.
. The external environment of the company consists of a set of factors that directly affect the
course of the company's activities or operations and the company's competitive actions, as
well as competitive response actions. identification of the influential external environment,
where a company competes is a logically very useful starting point for the analysis of the
external context (Amason, 2011). Environmental analysis and assessment The external
environment of a company must be carried out in detail and in depth. The company's external
environment that is studied and analyzed includes General or Macro Environmental Analysis,
Analysis in the Industrial Environment, and Analysis in Competition. The company's macro
general environment is composed of dimensions in the broader environment, which can affect
the industry and the companies in the industry.
We can categorize these dimensions into 7 (seven) segments or factors, namely
Economic, political, Legal, Demographic, Social, Cultural, Technological, Global, and
Physical. These seven segments can influence the operations of a company. By examining the
fundamental characteristics of a company in an industrial environment, it will be possible to
understand the relevant factors of the external context, for measuring the performance of a
company at a certain time. In order to achieve success, it is necessary to formulate an
effective and efficient strategy by utilizing business opportunities, in this case created by the
external environment.
4) Industry Environment Analysis:
An industry is a group of companies that can produce the same goods and services. In
the analysis of the industrial environment, it is necessary to assess the interested groups of
companies in an industry, including customers and suppliers (Alma, 2014). In addition, we
also need to examine the three main players who play a role in the industry. The three main
players are the company, competitors, and customers.
In the strategic analysis of the industrial environment, business units are analyzed by
looking at the markets they serve and the technologies they analyze. Therefore, from a
technological or supply perspective, an industry is formulated as a group of companies that
find it easy to change their production facilities, in order to produce other products.
Meanwhile, from a market or demand perspective, if customers consider the products of two
companies to be substitutes for each other, then the two companies compete in the same
market. According to Porter, analytical techniques that can help to formulate the members of
the market are Companies in related industries for assessing the competitive environment of
an organization are called Strategic Group Analysis (Williamson et al, 2004 in Alma, 2014).
Industrial environment analysis, popularized by Michael Porter, outlines an in-depth
examination of the key factors in a competitive industry. Joe Bain, a member of the Harvard
Economics Department, emphasized his views on industrial organizations, known as
Industrial Organization (I/O) Economics. In this view, the focus of his approach is the
structure, behavior, and performance approach. This approach emphasizes the relationship
between industry structure and performance, where the choice of key variables of the decision
for industry performance is profitability, efficiency, and innovation. In addition, there are 3
(three) barriers to entry, namely absolute cost advantage, the significance of product
differentiation, and economies of scale. With these studies, Industrial Organization (I/O)
Economics posits that there are structural reasons why some industries may be more profitable
than others with other industries.
In addition to Porter's (1996) industrial structure strength approach, the Value Net
Model was developed. This model is useful for assessing the opportunities that exist as a
result of cooperative relationships among all possible exchange partners, as well as among
competitors. In this case the Value Net Model helps managers to get alternative or Win-Lose
Business options. The points in the Value Net model have a fairly critical role, which Com
lementorg is a participant of consumers who buy complementary products or services can
have an influence on the level of business success or failure. Complementors can be
formulated as a reflection of the image of competitors including new entrants, substitute
products as opposed to existing ones as well as from the demand side which illustrates the
increase in buyers' willingness to pay for a product, and from the supply side there is a
decrease in the price required by suppliers for their inputs.
5) Competitor Environment Analysis:
The competitor environment is part of the external environment that needs to be studied.
Competitor environment analysis focuses on each competing company faced by a company,
which competes directly (Pearce et, al., 2013). Indeed, a great challenger or competitor will be
able to create efforts to fulfill his desires, so companies always try to understand their
competitors. the components of information needed for efforts to understand their
competitors, including goals for the future, current strategies and action responses carried out.
How companies collect and interpret information about their competitors is called
assessing and analyzing competitors.
In analyzing competitors, companies must look for related information, namely (Pearce
et, al., 2013):
a) What is the drive from competitors to achieve its future goals
b) What form of strategy the competitors are executing.
c) What is the image that competitors believe the industry has
d) What are the capabilities of competitors demonstrated through their strengths and
weaknesses?
Information about these four dimensions can help companies prepare an anticipated
response to competitors. Analysis of competitors can help us to understand, interpret and
predict the actions and reactions or responses of competitors. Understanding the actions of
competitors will clearly contribute to improving a company's ability to compete successfully
in the industry.
Critical to effective competitor analysis is the ability to collect data and information, so
as to help the company understand the intentions of competitors and the strategic implications
that can result. The use of data and information can be combined to form competitor
intelligence. lnteligence competitors is a set of data and information collected by the
company, used to better understand competitors' goals, strategies, assumptions, and
capabilities (Pearce et al., 2013).
An understanding of the company's competitive environment is an attempt to
complement the insights provided by the assessment of the general macro and industry
environments. The analysis of the general macro environment focuses on trends, while the
analysis of the industry emphasizes matters and circumstances that affect the potential profit
level of a company in an industry. Competitor analysis also focuses on forecasts or
predictions of competitors' actions, responses, and intentions.
b. Strategic Analysis: Analyzing and Assessing the Internal Company Field:
1) Analysis Internal and Advantages Strategic Competitiveness:
In an effort to be able to gain a competitive advantage in the long term, companies
where strategic managers must have a global mindset so that they can knowing the
resources and capabilities that can adapt to the unique social culture that exists in a
country (Pearce et, al., 2013). In addition, strategic managers must be responsive to
changes in competitive conditions.
Analyzing the internal organization of the company requires the activity of
evaluating the company's resource portfolio and a group of heterogeneous resources and
manager capabilities that can be formed. With this perspective, there will be some
companies that have resources and capabilities that other companies do not have. If the
company faces this condition, it will encourage the formation of capabilities that can
develop the company's core competencies or competitive advantages.
2) Analysis on Strategic Resources
In carrying out its business activities, every company can run if the company has
resources. The resources of a company are inputs to operate the company. Company
resources can be divided into two, namely tangible resources and intangible resources.
Tangible resources are assets/resources that are visible and quantifiable, such as
production equipment and manufacturing facilities. Meanwhile, intangible resources are
assets or resources that are rooted in the history of the company's journey, which can
continue to accumulate over time, such as knowledge and capabilities of human resources
(HR), ideas, and innovation capabilities, as well as reputation and brand image (Pearce et,
al., 2013).
An organization's strategic resources consist of physical assets, financial position,
markets and brands. In addition, strategic resources also include physical knowledge,
employee capabilities, processes, competencies, skills, and aspects of organizational
culture. All of the company's strategic resources are assets that can continue to be
developed by the company's strategic managers (Pearce et, al., 2013).
Besides physical assets, the next resource is a picture of the financial condition of
the company. The financial picture of the company can be studied whether it has a
financial advantage (Kusnandi, 2000). The company's financial excellence can be seen
from the strong state of the balance sheet, the good cash flow and the strong financial
track record. The study of these finances will determine the size of the company's
competitive preparation, which can also illustrate a company's marketing success and the
ability of the company to invest in the future. A widely used tool in analyzing a
company's financial resources is financial ratio analysis. This analysis tool can provide an
overview of the financial condition of a company at the present time and the previous
year. There are several financial analysis tools from Financial Ratio Analysis, namely
Profit Ratio Analysis, Liquidity Ratio, Leverage Ratio, and Activity Ratio.
Profit Ratio is a tool to measure how the company's financial resources are
allocated. This ratio includes Gross Profit Margin (GP), Net Profit Margin, Return on
Asset (ROA), Return on Equity (ROE). Liquidity Ratio is to focus on how cash flow
results, which also measures the company's ability to meet its financial obligations. This
ratio includes Current Ratio, Quick Ratio, and Inventory to net working capital. Leverage
ratios describe efforts to improve the company's finances. This ratio includes Debt-to-
Assets Ratio, Debt-to-Equity Ratio, and Long-term debt-to-Equity Ratio. Meanwhile, the
Activity Ratio is useful for measuring productivity and efficiency. These ratios include
Inventory turnover, fixed-assets turnover and average Collection Period.
In addition to Ratio analysis, in analyzing the financial resources of a company or
business unit, there is also an analysis tool with the Du Pont Formula. This analysis can
be done to examine the company's Return on Assets (ROA), which can be directly linked
to the accounting variables to measure company performance (Kusnandi, 2000).
3) Capability Analysis:
Capability gives a picture of the ability of the company when utilizing its resources,
both tangible and intangible, to produce both goods and services. Capability will exist if
the resources have been integrated according to its purpose in order to carry out certain
desired tasks (Pearce et, al., 2013). So capabilities show the ability of a company to
utilize or exploit its resources.
Capabilities are owned by individuals who are attached to the roles and routines of
a company. Capabilities have an important role in creating excellence in competition, so
capabilities need to be emphasized on development so that they can carry out their
activities, and can exchange information and knowledge through the company's human
capital (Pearce et, al., 2013). So the important basis of capabilities lies in the uniqueness,
skills and knowledge of employees and company leaders and functional expertise. The
knowledge possessed by human capital is one of the significant organizational capabilities
that can later become the root of competitive advantage. There are several companies that
strive to keep their capabilities good in running their business, such as Carrefour
Indonesia and the Philippines lndocement, which deals with the capabilities associated
with being able to manage its logistics well.
4) Core Competency Analysis:
Competence is an integration of functions and coordination of capabilities. Core
Competencies are formulated as capabilities in serving the sources of competitive
advantage of a company, which can exceed its opponents. So that core competencies can
indicate world-class capabilities, which may be achieved by a company in an effort to
build its competitive advantage (Pearce et, al., 2013). Therefore, building core
competencies is key in developing a company's long-term strategic advantage.
We need to realize that the Core Competence of the company must be focused on
creating value that can be accepted as a change needed by customers. So the company
must create value for customers through innovation, where value is measured by
performance characteristics, products and services attributes certain, which customers
have a willingness to pay for Efforts to build core competition
There are two tools that can help companies to identify, and build core
competencies. The first, is the VRINE Model which achieves performance through: 1)
Can be valuable, 2) Rarely no competitors have it, 3) Difficult to imitate, 4) Cannot be
substituted, 5) Can be processed. The second is Value Chain Analysis. Companies use
this tool to select competencies to create value that must be maintained or maintained, as
well as to be improved and developed. For this effort the company can do it by
outsourcing.
c. Strategy Formulation:
1) Strategy Formulation Process:
How the company tries to achieve the position it is aiming for, the company must be
able to learn that there is a gap or gap in capability, so that a bridge is needed to overcome the
capability gap. In order to overcome the distance or gap This requires efforts to develop
expertise or skills known as skills, which are focused on strategic emphasis (Pearce et, al.,
2013).
a) Basic Basic Strategy:
In order to direct the strategy set to be implemented by the company, it must understand
the role of Basic Strategies or better known as Grand Strategies. Basic Strategies are referred
to as Master Strategies that provide basic direction for strategic action (Pearce et, al., 2013).
The Basic Strategy lnduk becomes the basis for coordinating efforts and at the same time to
maintain direction for achieving goals in the long term.
(1) Market Development Strategy
The market development strategy is used to be able to run it as a Coordination
considerations can be made, so that there are fewer costs and less risk. Market
development strategies emphasize the marketing of products that have been runs, taking
into account that it already has skills and expertise when operating marketing for both old
and new consumers (Kusnandi, 2000). So it must increase the number of distribution
channels, company branches, and change and improve advertising and promotion
programs.
Market Development Strategy basically follows the emphasis of development in
concentrated growth, as done by PT Kalbe Farma, which continues to strive to develop its
product market abroad, in addition to continuing to expand its market in the country. As
stated by Mr. Dodi Rudiana Permana, Brand Manager of PT Kalbe Farma Tbk, his
company continues to increase its market share of adult multivitamin products in 2011.
(Source: Bisnis Indonesia Daily, March 2011).
(2) Product Development Strategy:
Product development strategies are used by companies in order to renew existing
products or to create new products that are still related to existing products (Kusnandi,
2000). The idea of a product development strategy is chosen to be carried out with the
aim that customers get satisfaction, as well as carrying out product development, as an
effort to explore the effects of the product cycle and is known as the product life circle.
The product development strategy in carrying it out is emphasized in order to
increase the attractiveness of the product and also to maintain the good name of the brand
and company, and can add a good experience to consumers. Product Development
Strategy basically follows a focus that concentrates on development and growth, as an
example that has been carried out by the Nokia company on cellular phone products. By
implementing this strategy, the company can penetrate the market by incorporating the
idea of modifying a product into an existing item, and developing a new product that is
still related to the existing product.
(3) Innovation Strategy:
A company is very concerned about innovation strategies because industries that do
not implement innovation can pose a risk to the company (Kusnandi, 2000). Concentrated
on emphasizing development and growth, innovation strategies can be implemented if
they focus on the current market. This innovation strategy continues to be developed by
automotive companies such as Toyota and electronic companies such as Sony. By
carrying out this innovation strategy, the two companies always maintain the company's
brand image.
(4) Strategy Development Concentrated:
The Concentrated Development Strategy is intended to improve the company's
performance because of the ability to assess what the market needs, knowledge of buyer
behavior, effectiveness of advertising, consumer sensitivity and advertising. A company
in implementing a concentrated growth strategy successfully, if the development of skills
or skills support and the existence of business competence in achieving competition.
(5) Horizontal Integration Strategy:
A company will pursue a Horizontal Integration Strategy, if in executing its long-
term strategy, it acquires one or more companies operating in the production-marketing
chain at the same level. With this kind of acquisition, it can eliminate competitors-
existing competitors and gives the company the opportunity to have direct access to new
markets. One example in reality is that PT Unilever Indonesia has acquired a company
that produces and markets Cap Bangau soy sauce products, as well as a company that
produces and markets Sariwangi tea products.
(6) Vertical Integration Strategy:
The basis for choosing this strategy is more for reasons that are not clear. The main
backward reason for vertical integration is to accommodate the desire, increase the
dependence of supply, and the quality of raw materials used as inputs to production. The
desire for backward vertical integration is greater if the number of suppliers is not large,
while competitors who need the same supply are many (Kusnandi, 2000). So that by
using this strategy the company may be able to control costs will be greater, and therefore
the company will get a profit margin by expanding the system its marketing production
system.
Whereas a forward vertical integration strategy is preferred, when greater benefits
can be emphasized on stable production. This happens because the company will increase
its ability to forecast the demand for outputs through forward integration with the next
level or stage of the marketing production chain, but it can still be a risk that adds to the
burden of its strategic managers, which consequently requires greater competence.
(7) Concentrated Versification:
Taking action to change the business is a rationalization, where the company is
aware of the dynamics and challenges. Concentrated verification is an action where the
company revisits the business (Kusnandi, 2000) Clearly, the company's actions are
reactive to the progress of changes in external factors. However, in the process of
diversification, the company needs to examine and review the relevance of the initial
business, this relates to the spirit and ability of the company to make changes. In addition,
the company needs to consider the availability of supporting resources, such as the
technological equipment used, so that not result in large cost expenditures.
(8) Conglomerate Diversification:
Conglomerate diversification means that companies collaborate between existing
products or business units. This is done as a form of product change, but with attention to
optimizing existing resources and minimizing operational costs. Thus, the company still
gets a large profit from little development product that is cost-effective (Kusnandi, 2000).
(9) Turnaround Strategy:
The meaning of this strategy is to strengthen what is the main business unit or
improve the fundamental quality of the company. So that the company can prevent
greater losses from external factors. Operationally, this strategy utilizes existing
resources, including human resources. The company really optimizes what it has, to be
able to reduce losses and greater expenses. This strategy sees internal optimization as a
form of management rationalization against competition.
(10) Divestment Strategy:
Business not always profitable, so when there are setbacks and decline in profits,
and has even touched the level of bankruptcy, then the company can take action to stop
the business investing in or selling businesses that are seen as helping to make up for the
losses incurred.
(11) Liquidation Strategy:
This strategy is the last action taken, when the company is no longer able to
maintain its existence, then selling all assets is an option. When executing the liquidity
strategy, the owners and strategic managers of unsuccessful companies must not
understand the consequences of making decisions that will cause difficulties for their
employees and themselves. Liquidity strategies generally seem unattractive when
compared to other basic parent strategies.
(12) Bankruptcy Strategy:
Bankruptcy strategy is the act of transferring all of the company's assets due to the
inability of management to cover all losses (Kusnandi, 2000). The occurrence of this risk
Because, the amount of debt as a business investment needs, but the realization of the
business does not support the maximum. In the end, there was a significant decline in
profits and the company continued to experience losses, so that at a certain point, the
company consciously could no longer pay all its obligations to investors.
The above conditions are unavoidable, so companies tend to negotiate with the
owners of capital to be given relief in terms of payment, and given the opportunity to
conduct more profitable business operations. But in reality, many of the investors are
pessimistic about the possibility of a change for the better, so the most logical solution is
to implement bankruptcy, and recalculate all assets to be able to cover all assets all
liabilities of the company.
Under certain conditions, the company tried to offer a new proposal, which offered
an agreement on a solution that would ease the burden on the company, in this case
related to the payment contract that was due. Because at that time, top management saw
an opportunity to minimize losses, as long as the company could be run for a certain
amount of time.
(13) Joint Venture Strategy:
The concept of a joint business is based on several fundamental reasons, for
example (David, Fred R., 2002):
(a) The companies merged because they saw the advantages and disadvantages of each
other, and at the same time, there were opportunities that could be maximized with
these advantages. So the merger contract between the two companies took place,
with the main decisions being orientation opportunities at the future.
(b) The company joins because it is involved in problems or there is a risk that causes
bankruptcy, so the best choice is to merge, thus the existence of the company is
saved, and shareholders are able to buy shareholders and shareholders continue to
benefit.
(c) In other cases, companies merge due to binding regulations, which cannot be done
independently.
(14) Strategic Alliance Strategy:
What needs to be understood in this strategy is that there is no consolidation of
ownership, as in a joint venture. In circumstances where companies need to take actions
that have more impact on the market, companies need to agree on policies or strategies, in
order to maintain market share. However Nevertheless, still will losses will still occur,
but they will be minimal.
For example, many automotive companies in Indonesia have maintained 4-stroke
technology as the main automotive business for several years. It is assumed that the
importance of the profits earned is greater than the minimal operating costs. So that
electric automotive innovation is not raised as an innovation.
C. Exercise:
As a learning evaluation, students are asked to be able to:
1. Describe the factors of the external environment of a business!
2. Describe the factors of the internal business environment!
3. Explain stages formulation/ business strategy formulation!
