ACC3009 Analysis for Competitive Advantage 2.2 A closer look at business strategies Thereareahostofexternalfactorsthatinfluenceafirm'schoiceofdirection,strategyand action. These factors, which constitute the external environment, can be divided into three interrelated subcategories: 1. Factors in the remote environment. 2. Factors in the industry environment. 3. Factors in the operating environment. Identifying the key structural features of industries that determine the strength of the competitive forces and hence industry prof i tability is vitally important. Therefore, the goal of a competitive strategy for a business is to f i nd a position in the industry where the companycanbestdefenditselfagainstthesecompetitiveforcesorcaninfluencethemin its favour. What is strategy? Strategy specifi es how an organisation matches its own capabilities with the opportunities in the market =place to accomplish its objectives. (Horngren et al. 2012, p. 467) The business level strategy and value proposition suggests that value propositions have four key elements. The f i rst being cost which relates to the price attached of a given product. The second refers to the quality of the service. For example, what is promised versus what is delivered. Functionality and features are the third component that addresses the performance of the product or service and the satisfaction experienced by the purchaser. Finally, there is the service itself, that encompasses all other elements relevant to the consumer. This week's notes begin with a def i nition for two key generic strategies used in organisations: 1. Product dif f erentiation 2. Cost leadership. external environment - The factors beyond the control of the firm that influence its choice of direction and action, organizational structure, and internal processes. Can be divided into three interrelated subcategories: factors in the remote environment, factors in the industry environment, and factors in the operating environment. The remote environment comprises factors that originate beyond, and usually irrespective of, any single firm's operating situation: (1) economic, (2) social, (3) political, (4) technological, and (5) ecological factors. That environment presents firms with opportunities, threats, and constraints, but rarely does a single firm exert any meaningful reciprocal influence. Economic factors concern the nature and direction of the economy in which a firm operates. Because consumption patterns are affected by the relative affluence of various market segments, each firm must consider economic trends in the segments that affect its industry. On both the national and international level, managers must consider the general availability of credit, the level of disposable income, and the
ACC3009 Analysis for Competitive Advantage propensity of people to spend. Prime interest rates, inflation rates, and trends in the growth of the gross national product are other economic factors they should monitor. The social factors that affect a firm involve the beliefs, values, attitudes, opinions, and lifestyles of persons in the firm's external environment, as developed from cultural, ecological, demographic, religious, educational, and ethnic conditioning. As social attitudes change, so too does the demand for various types of clothing, books, leisure activities, and so on. Like other forces in the remote external environment, social forces are dynamic, with constant change resulting from the efforts