HEAD FOR

SUCCESS
Business Studies Grade 12

TERM 1
Topic 5:
Macro environment
Business Strategies

MACRO ENVIRONMENT BUSINESS STRATEGIES

INTRODUCTION:
Devising strategies in response to the business
environments
Businesses devise strategies to address challenges in the
business environment.
A strategy is a plan aimed at achieving a goal.
Strategies therefore describe how a business deals with
challenges.
Each challenge has its own strategy.
To devise a strategy, businesses must be creative.
Creative thinking techniques used to devise strategies,
include:

Brainstorming

Delphi technique

Force field analysis

SCAMPER

MACRO ENVIRONMENT BUSINESS

STRATEGIES
INTRODUCTION:
Devising strategies in response to the business
environments

Brainstormi
ng:

A problem is given to participants and each participant is

given the chance to provide a possible solution.
Brainstorming is used to gather as many ideas from
participants as possible, even ideas that seem impossible
at first.
Usually, a time limit is put on a brainstorming session.
Brainstorming mobilises creativity, because participants
can build on one anothers ideas until the best idea is
found.

Delphi
technique:

The Delphi technique is used to obtain information from

experts who are unable to meet.
A series of questions is developed and sent to all the
participants to answer.
The answers are then gathered and merged.
This process carries on until consensus amongst
participants is reached

Force field

The force field analysis considers all the forces for and all

MACRO ENVIRONMENT BUSINESS

STRATEGIES
INTRODUCTION:
Devising strategies in response to the business environments
SCAMPER:

The SCAMPER technique makes use of a set of questions

to help a person solve a problem:
Substitute people/processes/material/products
Combine people/processes/material/products
Adapt people/processes/material/products
Modify people/processes/material/products
Put to another use people/processes/material/products
Eliminate people/processes/material/products
Reverse/rearrange people/processes/material/products

When strategies are being devised, creative thinking

techniques are used in conjunction with industry analysis
tools.
Industry analysis tools are used to assess a business
position in the market.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Strategy development process comprises four
steps:
Step
1:

Determine the need for a strategy by assessing a business

position in the market.
Use industry analysis:
SWOT-analysis
Porters five forces analysis
PESTLE analysis

Step
2:

Formulate a strategy.
Use creative thinking techniques like brainstorming, Delphi,
force field analysis or SCAMPER.

Step
3:

Implement the strategy.

Step
4:

Evaluate the strategy.

Reasons for strategy evaluation include:
Determining the success of the strategy.
Avoiding making the same mistakes in the future.
Determining the feasibility of a strategy.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
a) SWOT-analysis (Micro-, market- and macro
environment)

SWOT is the abbreviation for strengths, weaknesses,

opportunities and threats.

Strengths and weaknesses are internal.

Opportunities and threats are external.

A SWOT analysis is used to determine a business position in

the business environment.

A business enterprise has full control over strengths and

weaknesses but cannot control opportunities and threats.

Each business environment (micro/market/macro) can be

assessed with a SWOT analysis.

This analysis should be done critically, carefully and honestly.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
a) SWOT-analysis
Strengths:
The elements of the micro
environment is largely
under the control of the
enterprises management.
Qualified managers
MICRO
Motivated employees
ENVIRONME
Skilled employees
NT:
Leadership skills
Opportunities:
Expansion

Weaknesses:
Difficult employees
Lack of vision and mission
Lack of adequate
managerial skills
Poor employee work ethics
High rate of employee
absenteeism
High employee turnover
rate
Threats:
Labour action
Loss of employees due to
HIV/Aids

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
a) SWOT-analysis
Strengths:

MARKET
ENVIRONME
NT:

Weaknesses:

Strategic responses.
Enterprises have no control
The business can find new
over factors like suppliers,
customers.
competitors, regulators,
Change to a better
strategic allies and unions.
supplier.
Negotiate with trade
unions.
Opportunities:
Forming strategic
alliances.
Integration.

Threats:
Competition.
Shortages of supply.
Changes in consumer tastes
and habits

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
a) SWOT-analysis
Strengths:
Lobbying government to
change laws.
Building power
relationship
Opportunities:
MAKROOMGEWIN Government tenders.
G:
Expansion to overseas
markets.
E-commerce.

Weaknesses:
The enterprise has no
control over the elements of
the macro environment.
Threats:

Political changes.
Legislation.
Labour restrictions.
HIV/AIDS.
Interest rates.
Dumping.
Take-overs.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces (Market environment)
This analysis is designed by Prof. Michael Porter, a professor at Harvard
Business School.
This analysis analyses the competitive power / force of the business to be
profitable.
The goal is to determine the profitability of a business / product.
This is done by analysing the strength of the five forces that affect
competition.
It is a type of a force field analysis to determine where the power in a
business situation seat.
It helps the business to understand the power of its current competitive
position as well as the benefits of the position that he considers moving to.
With a clear understanding of where the power lies, the business may
benefit form a position of strength
strengthen a weak position and
prevent wrong actions

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces
1. Strength / power of suppliers
2. Strength / power of buyers / consumers, including
intermediaries
3. Threat of new entrants to the market
4. Power / strength of competitors / level of
competition
5. Threat of substitute product and services

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces
Five forces
Strength A business assesses a suppliers power to force up prices.
/ power These providers may include suppliers of raw materials,
of
stock, equipment, parts, services such as transportation and
suppliers
insurance, labour brokers, etc.
Suppliers use their power to increase power.
Suppliers of scarce goods are usually powerful, because
scarce goods are hard to find if there is only one supplier of
a scarce good and consumers demand this good, suppliers
can demand a high price.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Industry analysis tools:
b) Porters five forces
Five forces
Strength In what lies the power of suppliers?
/ power The extent to which they can increase their prices without
of
resistance.
suppliers The number of suppliers for the same product / service.
The uniqueness of the product / service.
Reliability.
Timeliness of deliveries.
Long-term contracts with businesses.
Cost for business by switching to another provider.
The more powerful suppliers are, the less control can be
exercised over them by business enterprises.
The smaller the choice of suppliers and if the business is
highly dependent on the suppliers assistance, the more
powerful the suppliers are.
Price fixing and cartels by suppliers may make it difficult to
do profitable business. E.g. Pioneer Foods fixing bread prices
together with other millers in the bakery industry, SASOL

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces
Five forces
Strength /
power of
buyers /
consumers
, including
intermedia
ries

A business assesses the power of buyers to force down

prices.
The power of consumers / buyers lies in:
How easy it is for them to enforce prices.
The number of buyers.
The importance of each individual buyer for the
business.
How easy buyers can change to competitors / other
products, etc.
Buyers can also include other stores such as retailers
who buy stock form wholesalers with the intention to
resell it (intermediaries).
The more powerful buyers are, the less control can be
exercised over them by business enterprises.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces
Five forces
Strength / To do business on a profitable basis, businesses should
power of
know who their buyers are and what their needs are.
buyers /
This can be determined through market research.
consumers Businesses must apply the power of consumers to their
, including
benefits, by giving existing customers good deals, to
intermedia
keep them happy through good service delivery
ries
(including after sales services) and the selling of
products of good quality.
This includes the tastes and preferences of consumers
regarding need satisfaction.
The financial position of consumers also plays a role.
Consumer resistance e.g. businesses who apply
unethical practices.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces
Five forces
Threat of A business assesses its position in the market in terms
new
of barriers to entry.
entrants to A business power in the market will depend on how
the market
easy it is for new competitors (entrants) to enter the
market.
Barriers to entry refers to obstacles that a business
faces when it wants to enter a particular market, for
example:
Legislation.
Access to resources.
Amount of capital needed to enter a market.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces
Five forces
Threat of If it is easy to enter a particular market, new
new
competitors can weaken the position of business
entrants to
enterprises that are already operating in that particular
the market
market.
New competitors can in the following cases get quick
and easy entry to the market:
If there are big opportunities for profit in the market.
If it can be done quickly and cheap.
If there are many buyers but only a few businesses who
are delivering the product / service.
Existing businesses have little control over the design /
patent, e.g. the patent is not registered.
There is little competition during the time of intended
entry, etc.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces
Five forces
Threat of Barriers to entry protect businesses that are already
new
doing business in a particular market, because it
entrants to
restricts competitors from entering that market.
the market The following cases makes it difficult for new entrants to
the market:
Access to distribution channels:
New businesses may find it difficult to establish their
own
distribution channels, especially when the options are
controlled
by existing businesses.
Scale savings:
Existing businesses have an advantage over new
entrants when
costs decrease as production increases.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces
Five forces
Threat of Product differentiation:
new
Existing businesses will benefit if their product is
entrants to considered to be
the market
unique, has a good brand or control a specific segment
of the
market.
Government policy:
The government may limit the number of businesses
in a particular
market.
Existing infrastructure of new entrant:
It is difficult to change from one production industry to
another
since the companys total infrastructure will have to
change which

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces
Five forces
Power /
strength of
competitor
s / level of
competitio
n

A business assesses the power of competitors to

influence its own operations.
Competitors are other businesses that provide the same
or similar products / services as your business.
The power of competitors is assessed in terms of:
Consumer loyalty
The number of competitors
Switching costs.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Industry analysis tools:
b) Porters five forces
Five forces
Power /
The power of competitors lies in the number and
strength of
strength of these businesses.
competitor A business that provides a unique product / service has
s / level of
a strong power.
competitio Some financially strong competitors may force other
n
competitors out of the market through the selling of
their products / services at a loss for a long period
(price war).
If there are many competitors in the same industry, the
business has little power over the situation because
consumer behaviour is unpredictable and consumers
may easily change to another business.
A business must compile a competitors profile of each
competitor to enable them to understand their business
practices to gain a competitive advantage.
Entrepreneurs must apply on-going market surveys to
ensure that they know their competitors strengths and
power.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
b) Porters five forces
Five forces
Threat of
substitute
s
(products
and
services)

A business assesses the influence of substitute goods

on its operations.
Substitute goods refers to different goods that serve the
same purpose, for example original medicine versus
generic medicine and glass bottles versus plastic
bottles.
The power of businesses decreases if substitute
products are readily available.
The position of a business weakens if the demand for a
product is influenced by the price change of a substitute
product, for example: the position of a business that
supplies glass bottles will weaken it there is a decrease
in the price of plastic bottles.
The threat is that competitors may improve their
products or supply products of a lower quality at lower

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Industry analysis tools:
b) Porters five forces
Five forces
Threat of
substitute
s
(products
and
services)

A business existing customers become aware of it, and

start to buy products offered by competitors.
If substitution is easy and sustainable, it weakens a
firms market power, even if the business switches over
to these products.
In some cases, the substitute causes a business to lose
their market share completely.
Replacement products and new products due to
improved technology can create additional challenges
for existing businesses. e.g. in the mobile phone and
computer industry.
If the price of an imported product began to rise due to
a weaker Rand, e.g. coffee, more people started to buy
tea produced and manufactured in South Africa.
Through market research, a business can determine
why customers choose substitute products / services
and based on this information, the business must

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
c) PESTLE analysis (Macro environment)

The PESTLE analysis evaluates a business enterprises position in

terms of the following macro environmental factors:
Political factors: labour laws, tax laws

Economical factors: inflation rate, interest rate, exchange rates

Social factors: demography of consumers likes and dislikes of

consumers

Technological factors: availability of technology, technological

changes

Legal factors: consumer laws, laws regarding the formation of

a business.

Environmental factors: climate, natural resources.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Industry analysis tools:
c) PESTLE analysis (Macro environment)

The Pestle analysis helps management to anticipate political,

economical, social, technological, legal and environmental
problems business enterprises cannot control these factors, since
they are from the macro environment.

These variables are used to create a comprehensive summary of

developing current business strategies to deal with external
factors, as well as opportunities that offered by these variables.

Each of these six variables must be analysed to determine the

impact of each on the business, as well as the importance of these
element on the success of the business.

This analysis is further extended and is known as PESTLE.

P = Physical environment, e.g. location, infrastructure, etc.

E = Ethical conduct by the business.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Formulation of strategies:
A strategy can be formulated once the position of
a business has been determined.
When management formulates a strategy, the
following must be borne in mind:

The position of the business in the market.

The challenge that must be addressed.

The resources available to the business.

A strategy is formulated by making use of creative

thinking and problem solving techniques.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Formulation of strategies:
Strategy formulation refers to the process where a
selection of the most appropriate plan of action is
made so that the objectives of the business can be
achieved.
This process is essential to achieve goals and to
handle challenges.
Use creative thinking techniques in formulating
strategies.
This includes the allocation of resources and a
clear explanation to the employees of what is
expected of each, to set the plan in action.

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Formulation of strategies:
A good strategy meets the following criteria:
Ethical:

Adds value:
Practical:
Economical:
Right timing:

A strategy must meet ethical requirements.

Example: if waste management is the problem, it
is not an ethical strategy to dump the waste in a
river.
A strategy must put the business in a better
position than before.
It must be possible to implement the strategy with
the available resources.
A strategy should not put available resources
under pressure.
The right strategy must be devised at the right
time.
Internet trading, for example, is a great strategy
to increase sales, but it would not have been

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Formulation of strategies:
The following steps should be followed in the
formulation of business strategies:

Set objectives
Evaluate the environment
Set goals
Plan strategy according to goals
Analyse performance
Choose a strategy

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Implementation of strategies:
Strategy implementation involves putting into action the
strategy that was formulated during the strategy
formulation process.
Strategies can be implemented by making use of a
strategy implementation process.
A strategy implementation process may comprise the
following steps:
Determine the time frame for rolling out the strategy.
Familiarise employees with the strategy implementation process
in terms of reasons for rolling out the strategy.
Motivate employees to support the strategy
Lead by example

Management can influence the success of the strategy

implementation process

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Implementation of strategies:
Management must carry out the following tasks
during the strategy implementation process:
Top level Organises the strategy roll out process.
managem Establishes policies that support the strategy.
ent
Rewards the achievement of targets relating to the new
strategy.
Middle
Implements strategies in their departments.
level
Allocates resources in the best possible way.
managem
ent
Lower
Implements strategies on the lowest level of an
level
enterprise.
managem Assists employees in implementing the strategy.
ent

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Implementation of strategies:
Some strategies, for example retrenchment strategies, have
the potential to cause panic amongst employees.
If a business has to implement such a strategy, sufficient
counselling must be made available to employees.
Strategy implementation can be held back if it is not rolled out
correctly.
Two key factors are needed to ensure a successful
implementation of the strategy, namely:

Communication with all stakeholders involved in the implementation of the

strategy

Flexibility to change the strategy if the process does not work

Factors that may impede strategy implementation include:

Resistance form employees

Lack of resources

Changes in technology

Economic conditions

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Evaluation of strategies:
The aim of strategy evaluation is to determine whether
the chosen strategy resolved the challenge that was
threatening business operations.
Strategy evaluation is the process of monitoring a
business performance results so that actual results can
be compared to desired results.
The following questions should be asked during the
strategy evaluation process:

Does the strategy address the challenge or problem?

Was the strategy economical?

Does the strategy add value to the business?

Were employees sufficiently prepared before the strategy was

implemented?

MACRO ENVIRONMENT BUSINESS

STRATEGIES
Strategy development
Evaluation of strategies:
The strategy evaluation process comprises the following steps:
Examine the foundation of the business strategy by obtaining
regular feedback on the strategy implementation process.
Determine the results / standards that must be achieved so
that actual performance can be measured against these
standards.
Compare expected performance to actual performance to
detect any deviations from the expected performance.
Determine and analyse causes of these deviations.
Take corrective action to prevent repetition of such deviations.
Once a strategy has been evaluated, management must make
recommendations for improvement so that future strategies
are implemented smoothly.