Strategic Environment
This Blog is explains about literature review on strategic environment. All organisations face
an external business environment that frequently changes. Sometimes these changes are
minors like as minor modification to regulation or a new firm entering the market as a 'small
player'. At same times, however, changes in the environment may have important cost for an
organisation as example new technologies, changing consumer experience, or a fusion
between two large competitors also case study of CRS in Airlines. Changes in the business
environment create both opportunities and threats to an organisation's strategic development,
and the organisation cannot risk remaining inactive, Relating Example of SCI and Loewen
firms. It must be scrutinizing its environment continually in order to build the business,
develop strategic potential that move the organisation forward, improve the ways in which it
creates products and develops new and existing markets with a view to contributing its
customer’s better service.
Johnson et al (2009) state that strategic management is underlines the importance of
managers with regards to strategy. The strategic management role is different in nature from
other aspects of nature. There are three elements of strategic management in linear sequence
Understanding the strategic position, Strategic choices, and Strategy in action. Understanding
the strategic position is concerned with identifying the impact on strategy of the external
environment.
Johnson et al (2009) explains the Strategic environment: the organisation exists in the
framework of the Political, economical, social, technological, environmental, and legal.
Daft(1989) defines that external organisational environment included all elements which are
exists outside of the organisation and have potential to part of the organisation How this are
affects on the organisation and including considerate of historical and environmental effects.
And expected or possible changes in environmental variables .This variables giving
opportunities and others will exert pressure on organisation. Daft (1995) is also imply the
environment is giving survivalist in private sector, satisfied customers which keeping
organisation in to the business. In public sector government, clients patients or student are
playing important role in organisation. Environment is one of the sources of threats. (Daft
1995)
Knowles (1996) and Johnson et al (2009) described that the organization is consist layers of
macro environment, Industry and sector, and competitors and markets. Macro environment
made up of layers of Competitors, Industry and sector, Macro environment. These are the
essential layers for organization. Macro environment is highest layer for organization. It can
make nativity or execution for entire organization. Macro environment is exerting forces
outside the sphere of influence and controlling forces which are coming in. It is helping to
expand or contract in the market. Industry and sector is one of the layers for organization.
This is next layer of the broad environment. This is made up for producing the same products
and services. It also involves five forces framework to identify particular sector or industry
and potential forces comes from competitors. Knowles (1996); Johnson et al (2009), and
Campbell et al (2001) Gray and Smeltzer (1989) are explained Competitors and markets are
the most very next layer of the organisation. Every industry or sectors have different
qualities, challenging on different bases, and some of the closer to the sectors. These types of
strategic groups are helping to recognize market place, customer expectation, customer’s
needs, what are the basic requirements. Importance of competitors and markets of which can
be understood by concept of market segments and critical success factors (Campbell et al
2001 and Kirk 1996).
Thompson (2001) Teare and Olsen (1992) and Johnson et al (2009) described that Macro
environment is based upon PESTEL, Key driver and Scenario. PESTEL analysis is a
framework. P-stands for Political, It is directly affects on organizational operates. Political
changes in environment are important in past years it will affects organization in future to
achieve goals in future. Many of organizations government regulation is a central aspect of
the task environment. Frank, M.and Pine, R. (1995) is also explains that E stands for
Economic. It is affecting how successful and profitable at any time because they affect on
both capital and cost. Timings and success of strategies are depending upon economic. When
economic increases then demands of goods and services are exiting more at that time
economy decreases then demands also depressed. S-stands for social is affecting under labour
or organizational members. Social believes, thoughts, Values are mixing and expressing in
staff members. This social is developing to learn internal, external problems with group of
peoples. Hollriegel et al (1999) T- Stands for technological It signifies to create chasing
advantage. Whenever external technology used or maintained by government support and
polices. Technology is providing new innovation in both manufacturing and services.
Waiguchu et al (1999) indicates that L stands for Legal is affecting in various organization
department especially in human resource department in favour of labour laws, wages laws.
Financial dept is undertaken in legal (Waiguchu et al 1999).
Johnson et al (2009) highlights that key drivers are environmental factor which is influenced
with success or failure of organizational strategies. Scenario is term which is based upon key
drivers. Scenario is fully detailed and making views for future business environment for
organization (Thompson 2001).
Knowles (1996) as worldwide growth in passenger aviation progressed in past 20 years,
ticket sales through travel agencies and it is becoming as an important element of the channel
distribution .Now airline industries are extending computer systems which are needed in
order to keep record and track of the massive inventory of available seats. CRS are
developing to handle internal airline reservations systems and it is today’s powerful tool and
acting as competitive weapon in airline industry. American airline realized the potential of
CRS technology and beginning marketing in the way of deregulation of capturing a large
market.
One of the strategic competitive issues dealing with the international travel and tourism
industry is the emergence of few leading airline computer reservation systems. Such systems
are controlling, selling, and distributing a wide collection of travel related services. These
reservation systems are originally developed by the major carriers in the USA for internal
ticketing. Now days they are emerged to become one of the most powerful strategic tools of
the travel, tourism, and hospitality industries with wide range of sales and distribution
applications. Computer reservation systems developed by major carriers dominate the CSR
industry and giving incredible advantage over their competitors.
There is four styles can be identified in multinational CRS development: Johnson et al
(2009) and Knowles (1996) states that commercial and regulatory pressures, Globalization,
Point of sale distribution, the expansion of travel related sales. Five aspects of CRS can
identified which are creating commercial and regulatory pressures. In commercial and
regulatory pressures display bias is one of the practices of programming of the CRS to give
superior position on display screen in favour of anti competitive. The halo effect of display
bias is tendency for travel agent to book flights on CRS hosts airline rather than competing
carriers.
Knowles (1996) given Code sharing is another strategy which involves combination of
national airlines and regional airlines. Small airlines are using code letters of bigger partners
and linking up their flight schedules. In respect of ownership of CRS is not requires code
sharing agreements. But this agreement generates advantages for both national airlines and
regional airlines. Commission ignore is giving extra paid to encourage travel agents to sell
particular airlines seats rather than those who are not giving profitable carrier. This type of
incentive are producing base rate and waged to travel agent by airlines in return for an
increase in market share. Market intelligence is providing by CRS and enables to allow tack
travel partners, market segments, and travel agent productivity.CRS is not only create new
marketing programmes but they can use that elusive information to create critical strategic
decisions, prepared with numerical support. The importance of this information is based
upon strategies creates a new pressures to the competitive structure of the airline industry
particularly for new entrants.
The central issue for the CRS trader is formulating their competitive strategy which is
relating to the individual system to the environment. The states of challenge in particular
industry which can be relate to PESTEL framework.
Political and Legal: Knowles (1996) and Gordon (1990) highlighted Government financial
assistance in that airlines are facing more and more competitive environments, some of the
cost cutting, Which is not is able to provide a way for the airline to raise or even to survive in
the industry, At these times, governments might be attracting to provide financial supports to
airlines, since airlines are very essential in tourism and part of the economic growth in some
countries. Employment law and taxation policy certain employments laws are affecting the
working hours of staff so restrict the flexibility of staff management. Income taxes and
corporate taxes are also account for a very good percentage of expenses.
Economic: Knowles (1996) explains the declining in business within the Europe’s airlines is
related to economic growth of European countries. This declining issue is mostly
significantly collision on the CRS traders to develop their move towards their product
development. On wider basis the economy of the world is on different stages of the business
cycle in that USA, Canada and Australia are well return from economic downturn but UK,
Italy, Japan are experiencing much of recession.GDP, inflation rates, exchange rates and oil
prices, demand in travel and also hotel accommodation which is helping to CRS traders to
resolve their competitive strategy.
Social-cultural: Knowles (1996) described that Catering and communication in that
Communication is important in airlines. Some passengers might not be able to communicate
correctly if the crew does not speak their language also, catering services is the reason some
passengers chosen in the airlines. Income distribution and lifestyle changes: Airlines are
using e-ticketing which may be considered a competitive advantage since it reduces costs and
improves profit.
Environmental: Knowles (1996) revealed that the changes in European Union policy in 1990
was directly affected on travel booking management CRS in Europe. In Europe development
projects are financially practicable for the airline investors before the agreement is made. But
these projects are not beneficial for many of the investors will not be funded by CRS partner
airlines but also funded by national distribution companies. Airlines don’t have capability to
or not have position to fund system development that is different to cover costs. The core
services will continue only because of the funded by the CRS traders but subsidiary services
will not work until up to national distribution companies are different to sufficient to develop
the appropriate travel management products. This type of situation for CRS as corporate
booking tool is likely to diminish the demand and like to affects on business of the CRS. Now
CRS is moving towards variance with the initial objectives for the European CRS and depend
upon travel agents with total travel management systems. The various markets are also trying
to develop specifically different move towards to the CRS circulation.
Technological: Knowles (1996) and Johnson et al (2009) is argues and acknowledging that
CRS traders are modifying US systems in Europe countries. But some of the other agencies
are developing their back office systems with special specifications this factor is affecting on
selling of CRS vendors. Selling of CRS is falling down. In flight reservation services are
depending upon new invention of communication links. Advantages from these systems are
travellers will connect through phone, fax, and sending data services. Traveller can do book
or change tickets and hotel rooms from their seats. The industries are looking for introduction
of bar-code directories which is connected to the CRS it helps to travel agent to bar code any
hotel list in publication and details or booking details on the computer screen. This approach
will save time for the travel agents (Johnson et al 2009).
This case study demonstrate how CRS, after evaluating its business operation and
performance, moved its business forward by choosing appropriate threats of strategy. It
reveals the connection between CRS’s own strategies and the defining matrix of strategies
developed by Ansoff.
Industry and sector is one of the layers for organization. It is made up of competitive forces
and industry life cycle. Johnson et al (2009) is suggested Competitive forces or Porters five
forces frame work is developed because for potential profit of different industries. It can be
giving useful starting for strategic analysis where profit criteria may not apply in public
sector. If five forces are active in high nature, then industries are not attractive to compete in
because there is so much of competition and pressure to achieve profits Buyers- Buyers are
trying to purchase high qualities goods in highly constant prices as well as looking for new
alternative for same good. Suppliers-Suppliers are often increasing value of goods or
reducing quality of goods before losing customers. Suppliers and buyers are playing in their
competitive environment. Substitute- Competitors are producing substitute goods and
services. Competitors are producing substitute goods to debate opposite competitor’s goods.
(Daft 1997) Competitors-Competitors are producing many strategies such as price cutting,
advertising, and discounts. These strategies are helping to improve relation between buyers
and position in industry or organization. New entrants- New entrants are competing with new
existing firms. They are reducing per unit cost of goods and services as refer to economies of
scales (Hollriegel et al 1999).
Hollriegel et al (1999) showed Service Corporation International and the Loewen Group are
presently combined with their 20 percent share in the industry. These firms are traditionally
split and run by local families. Now these firms are rapidly buying burial homes. Firms are
thinking about market for their grow services. SCI is operating large number of homes is
various leading countries. Loewen is also controlling highest number of the funeral homes
across the United States. Normally funeral industries are providing basic services which
every individual is looking for those services, in especially in the recession period. Customers
are never shop for prices. Huczynski, A. And Buchanan, (2006) observes SCI, and Loewen
are two firms know that Customers or family members are making funeral arrangement in
daze part, and often choosing particular home because of the familiar name. Consumer is
often chosen expensive burial vaults the increases profit margins for the funeral homes.
Barriers for new competitors is in United States and Canada about funeral homes which are
locally owned and independently. Another barrier is heritage and tradition is providing
funeral home with new business. SCI often drives local owners outside the markets.
Preplanning sales and pre requirement insurance policies to healthy people result in funeral
arrangements that perform family members to a path of action.
Johnson et al (2009), Knowles (1996) are both explain Competitors and markets are the
nearest layer of the organisation. This consists of strategic groups, market segment,
identifying strategic customers. Many of the industry contain wide range of companies each
having different capability and different bases .Competitor differences can identify only from
strategic groups. Strategic groups are defined as industry or sector which is comes from
organisation with similar strategic characteristic following similar strategies or competing on
similar bases. Market segment is the factor is related to the Group of customers and their
needs in other parts of the market. The group of the customers who have similar needs in one
particular market which is different from others customers from different markets. In market
segments there are some issues are like customer’s needs, relative market shape, and
identifying market segments. Identifying strategic customers is the term defines as a customer
is who have most power on purchasing goods and services. And most of the strategy is
applying strategic customers (Hollriegel et al 1999 and Luthans 2005).
The conclusions of this paper PESTEL analysis looks at the external business environment
and is an appropriate strategic tool for understanding the environment in which business
operates, allowing to take the advantage of the opportunities and reducing the threats faced
by company’s business activities. The primary purpose of this paper .When strategic planning
is done correctly, it provides a solid plan for your company to grow into the future. With a
PESTEL analysis, the company can see a longer possibility of time, and be able to clarify
strategic opportunities and forces that the company faces. By looking to the outside
environment to see the potential forces of change threatening on the possibility, firms can
take the strategic planning process out of the amphitheatre of today and make into the scope
of tomorrow.
