Business environment and strategic management

Chapter One: Introduction

General Background Of Research

The large companies, which have been in decline for decades, are now coming back again. More and more companies extend their scale and open subsidiary companies or branch companies at home and osverseas.

It is true that bigger companies have many advantages, they have greater acquisition power and global networks, they can set the industry standards and influence important stakeholders, and they are well-protected from being overtaken (Brane Kalpic, 2008). However, we can also see that bigger is not always the better, some large companies may even fail to deliver the expected shareholder value (Rothenbuecher and Schrottke, 2008). The reason for this phenomenon is the changing business environment.

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The scale of companies is changing, at the same time, we can see that the business environment is changing faster than ever before (Hamel and Prahalad, 1994; Glass, 1996; Conner, 1998). The business environment includes not only external forces but also internal forces (Anderson et al., 1994). The external forces, such as rapid advances in communication mode and technology, cheaper transportation expenses and falling trade barriers can have a great influence on the industrial and market, and therefore bring uncertainty to the companies. While the internal forces, such as finance resources, personnel, technology level are always limited. So the companies should always balance between the limited resources and business environment to make the greatest profit. One means to achieve this goal is to make strategic planning.

However, the actions taken to reduce uncertainty can also lead to non-linearity and unpredictability (Black and Farias, 1997). The business environment is changing so fast that the strategic planning that is suitable for the company today maybe not suitable tomorrow, only because the government consecutive policies or a new technology is developed which can bring down the price of product. Therefore, it is important for companies to scan the business environment frequently and adjust their strategic planning, and then match their internal competencies with external environment. 

Definition Of Business Environment And Strategic Management

Environment is defined as something external to an individual or organization. From this angle, business environment refers to all external factors which will influence the activities of business. However, some experts have used the term “environment” in a broader sense. They defined business environment as external and internal factors that have direct or indirect influence on business or business activities. Business environment consists of all the factors that affect a company’s operations, actions and outcomes. It is comprised of macro environment and micro environment, the former includes legal and political environment, social environment, economic environment and technological environment, and the later includes customers, competitors, stakeholders, suppliers, banks and so on.

Strategy is a action plan designed to achieve a particular goal. It is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a changing environment, to meet the need of markets and to fulfill stakeholder expectation(Johnson G. and Scholes K.,1999)

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The Characteristics Of Strategy Are:

(1) It has a long-term direction.

(2) It defined the scope of an organization’s activities.

(3) It should match activities with environment.

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(4) It bounded rationality and resources scarcity.

(5) It has expectation and values.

(6) It is the basis of company operation, the organization structure and daily operation policies should all based on the strategy.

Strategy planning is determined by the external and internal environment, however, it may be ineffective because the environment can not predict clearly. Therefore, marketers should obtain new information in the business environment continually and make strategic planning that can meet the changing conditions(Wall,1995).

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The process of strategy management is: Strategy formulation(at this stage, marketers should analyze business environment), Strategy implementation, Strategic evaluation.

Chapter Two: The Strategy Of Lenovo

Brief Introduction Of Lenovo

Lenovo Group was founded in 1984, it only had 200,000 RMB which was invested by the Institute of Computing Technology, Chinese Academy of Sciences and 11 technical personnel at the beginning, and had developed into a diversified large enterprise group in the information industry today. It went public in Hong Kong, 1994(stock code 992), and became Hang Seng Index constituent stocks of Hong Kong. In the fiscal year of 2002, the sales of Lenovo reached 20.2 billion Hong Kong dollars, with more than 10,000 employees. In 2003, Lenovo’s market share was 28.99%, and its sales were the largest in China for 9 years since 1996.By the end of March 2004, the sales Lenovo Group were the top for 16 consecutive quarters in Asia-Pacific market (excluding Japan).

In 2003, Lenovo’s Desktop ranked fifth in the world. In the past two decades, China’s Lenovo Group was committed to provide the latest and greatest technology products, to promote the development of China’s information industry. For the future, as IT technology and service providers, Lenovo will adopt a comprehensive customer-oriented principle, to meet the need of families, individuals, SMEs and large enterprises by providing targeted information products and services. In September 2002 “Fortune” magazine published the top 100 Chinese companies, Lenovo Group ranked sixth; by the end of 2003, in “China’s most valuable brand,” “Lenovo” brand ranked fourth, and its brand value reached 26.805 billion RMB; in January 2003, on the eleventh “Best-Managed Companies” selection held by “Asian currency” (Data from www.lenovo.com), Lenovo got the first prize of “Best Managed Company”, “Best Investor relations, ” Best Financial Management “. Lenovo’s vision is “high-tech Lenovo, service Lenovo, service Lenovo.”

The Business Environment Of Lenovo

The Legal And Political Environment

From the current point of view, attitude of governments toward their own information technology are supportive, while many countries believe that the success of information technology can influence the development of their country, therefore, from a global perspective, with the construction of information industry, the demand for personal computers will rise. At the same time, the pace of global economic integration is growing, but with the rise of trade protectionism, some national governments begin to protect their PC manufacturers, protection methods include: tax incentives, preferential purchasing their own brands. Therefore, Lenovo is faced with many disadvantages in entering the market in these countries. In addition, Lenovo is a Chinese company, so some Western countries such as US, they do not want to give government orders to Lenovo, Since Lenovo’s acquisition of IBMPCD the U.S. government carried out numerous reviews on the acquisition process, and the “Mail ” incident, a sales staff of DELL sent a e-mail to a customer from U.S. government: “When customers paid one dollar to buy Lenovo products, he directly supported and financed the Chinese Government “; in March 2006 some U.S. Congressmen raised objections to buy Lenovo computers to the U.S. State Department. From the above examples, we can be seen in the U.S. market, Lenovo faced a lot of political problems that may bring adverse impact.

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The Economic Environment

Boston Consulting Group, the Giant consulting firm in the world, released “World Wealth Report 2006,” in which it claimed that after four years of continuous expansion, in 2005, the growth rate of global wealth achieved 8%, more than 6.2% in 2004, the total assets reached 88.3 trillion U.S. dollars. The international markets of developed countries emerging countries both have a strong growth. The report stated that “the wealth around the world have upside, but unbalanced.” Among them, growth rate of the North American market was the lowest, 4.1%, but the total wealth of this area retained No. 1, and its total assets was up to 33.2 trillion U.S. dollars. While the European market, whose growth rate was the highest, reached 13.2%, and the wealth growth of the rest countries are equally impressive.

Asia’s wealth continued to expand, supported by strong growth in GDP, private banking assets increased from 20% to 25%. And the wealthy investors whose assets increased greatest, inclined to channel financial resources to the private banks. The emerging markets in China, Brazil, Russia, India, the wealth growth rates are higher than the global average. With the rapid development, the asset of China, Brazil, Russia, India are expected to grow at twice the global average rate. At the same time the GDP of above-mentioned four countries ranked 6,15,13,10 in the world. It can be seen that the global economy is still in a rising cycle. Therefore, Lenovo should take the good opportunities offered by the economic development, and pay attention to the emerging markets.

The Social Environment

According to UN statistics, 6.1 billion of the global population is still growing rapidly – an annual increase of 76 million people. United Nations estimates that by 2050 the population of world will increase by about 2.5 billion people, equivalent to the sum of the world’s population in 1950. Since the middle 1990s, population growth, after reached the peak of 82 million per year, has slowed down. It is expected by mid-century, when the birth rate dropped to replacement level or below replacement level, the total population will begin to be stable. The population growth will mostly occur in developing countries. Europe and Japan’s population is now declining, and the downward trend is expected to be doubled by 2010-2025. North America continued to grow at the rate of 1% per year, and the main cause is immigration. Thus, at least until the middle of this world, the world’s population will continue to maintain a growth trend, According to the latest statistics from China Internet hub, as of September 18, 2006, the world’s total Internet users number reached l, 086,250 , 903; the average penetration rate of Internet users reached 16.7%: From 2000 to 2005, the average growth rate of Internet users is about 200%, from this perspective, the global demand for the PC will remain in a state of steady growth.

The Technological Environment

The development trend of PC can be summarized as “four modernizations”.

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Virtualization: With the development of PC processing capabilities, the waste of PC processing power is also getting worse. Virtualization has become an important tool to solve the waste of processing power. Through virtual technology, PC can be virtualized to a number of small units, so that you can make full use of PC processing power and solve more problems in the shortest time.

Safety-oriented: There are an increasing number of consumers to complete a number of electronic transactions through the PC, such as personal customer’s online shopping, online banking, etc. For enterprise customers, enterprise-class ERP, data applications are all dependent on the personal computer Therefore, the security of personal computers is very important.

Appliance-based: Personal computers are considered as mysterious high-tech equipment since its invention. But as PC prices continue to lower and the development of 3C integration, PC will gradually become the hub of the family figures. Therefore, the PC will be more and more a fashionable, easily operated, the family’s computer will also become home appliances like a television and refrigerators.

Reliable technology: With the development of networks, people become dependent more on networks. PC has become the most powerful and most effective information terminals, people also hope that it will run uninterrupted, and be able to provide services to consumers at any time. Therefore, PC reliability is becoming the development directions.

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From PEST analysis above, although some areas is not ideal, a relatively stable political environment, a large number of potential users in emerging countries and emerging technologies for the PC industry has brought enormous opportunities and challenge for the development of Lenovo. In the global perspective, PC industry is still a viable industry.

The Strategy Planning Of Lenovo

After taking the external and internal forces into account, Lenovo decided to implement the multi-brand strategy. By analyzing the current status, Lenovo find that is can not only use a single brand to cover the two different types of customers (relational customer and transactional customers), especially for customers abroad, Lenovo is still a very young brand. At the same time, Lenovo will preserve the Think Brand which have a certain brand influence in the eyes of relational customers, so Lenovo Group implemented multi-brand strategy.

The original six divisions have been integrated into three business groups.

(Data from: www.lenovo.com)

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IT product group includes Lenovo desktops, notebooks, servers and other related businesses, Mobile service includes mobile phones and other mobile communications equipment business, IT service group includes IT services, networking products, software outsourcing business.

Accordingly, the organizational structure of Lenovo has been adjusted correspondingly.

(Data from: the IT channel of Netease)

Since the history and characteristics of Lenovo Brand and Think Brand is different from each other, Lenovo’s brand-building focused on enhancing the reputation of Lenovo brand and raise the brand loyalty of Think Brand.

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First, enhance the reputation of Lenovo brand.

Since Lenovo (Lenovo) brand is a relatively young brand, so the focus of brand building is to enhance the brand reputation, its implementation steps can be summarized as follows:

(A) Customer echo system (ECHO) was established. According to the traditional market practice, computer makers only concerned on how to make product that can meet consumer demand. But recently, with the rapid development of the economy and the concept update of consumers, the market demand for personal computers was promoted to a higher stage. Manufacturers should not simply manufacture and sell computer products, but also provide customers with problem-solving service. Focus on transaction-based customers, Lenovo built customer Echo Systems, they paid attention to the views of different types of customers and product design. The blended customer’s idea into product, and paid attention to the feedback of customer, then blended the feedback of customers into the future design.

(B) Implement strict quality standards. Quality is the foundation of brand’s reputation among customer, if Lenovo products and services are poor quality, the customer won’t have good reputation about the brand. Therefore, as a brand that wants to become well-known, Lenovo should have strict quality standards and strictly implement them. Lenovo inherited the original premise of high-quality standards set by IBM, and established a further strict quality management system which maintained the “quality and reliability” features of Lenovo.

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(C)Technological innovation in quality improvement. In 2005, Lenovo Group invested about 25 billion RMB in R&D, though it still had a very large gap from the industry’s leading companies abroad, it was a great deal of money for Lenovo. Anomaly in the product homogenization PC industry, Lenovo should increase budget on R&D, especially for innovative design of Lenovo brand products, because continuous new products and new technologies can strengthen the influence on the transaction-based customers of Lenovo brand.

(D) Ensure that the product quality can meet consumer expectations. For transactional customers, it is important to ensure that the product quality can meet or even exceed the expectation of consumers. When the Lenovo brand is seen as trustworthy, when the customer mention the merits of Lenovo, the merits can be seen as acceptable and believe. When provide customers with Lenovo products and service, the company not only meet the basic requirements customers, but also provide exceed customer satisfaction.

Second, raise the brand loyalty of Think Brand.

Think Brand has presented in market for many years and have a large number of users, thereby increasing brand loyalty is the most important job for brand building of Think.

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(A) Establish a customer-centric concept and identify core customers.

Since not every relational customer is important to Think brand, and the human resource, material and financial resources are all limited, Lenovo classified customer by their brand and contribution, and tried to identify their core customers. By doing this, enterprise management can concentrate on the relationship with the core customers.

(B)Continuously improve product quality, corporate image and business objectives, and do extensive publicity.

When the customers loyalty of Think brand is based on quality, Think will become the symbol of high-quality products. Lenovo tried to continuously improve the quality of products and build a high-quality image.

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Build brand clubs. Lenovo established brand clubs as a communication platform for customers to communicate with each other. Since ThinkPad notebooks have tremendous influence in the world, the customer loyalty of ThinkPad can become the loyalty of Think.

Chapter Three: Conclusion

From the analysis above, we can find that:

Strategic Enterprise Management has five principles: adapt to environment, overall optimum, full managements, full participation and feedback correction.

First, strategic planning should base on business environment analysis. The world today is changing at a rapid pace, it is very important for companies to scan the business environment more clearly, and make up strategic planning that can match the changes.

Strategy is effective only if it is flexible. The environment is changing, and the strategy which is suitable for companies today may bring threat tomorrow. Marketers can not believe in strategy only but ignore other forces which are always changing. A stern strategy is useless, because the strategy is based on prediction, but in fact, no one can predict future precisely. So strategy should be flexible and change with the real environment.

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Second, the strategy is the highest principle of the company. The overall benefit of company is most important, to realize overall optimum, companies may need to give up small profit in the short term.

Third, strategy should be the principle for the operation of company. All the policies should base on strategy, the organizational structure should suitable for the implement of strategy, the operation policies should promote the realization of strategic objectives. Strategy is the ultimate direction of the organization, and all the activities should in the same direction with the strategy.

Fourth, strategic planning should involve personnel from all the department and more levels, if everyone in the company can know the strategy clearly, it can promote the realization of strategic objectives.

Fifth, strategy should be adjusted frequently according to the feedbacks. If there are plans which are not fit for the company, just change it.

Chapter Four: Reference

[1]Dale E Zand,2009. Strategic renewal: how an organization realigned structure with strategy.Strategy & Leadership,37(3),pp.23.

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[2]Brane Kalpic,2008.Why bigger is not always better: the strategic logic of value creation through M&As.The Journal of Business Strategy,29(6),pp.4.

[3]Peter Mayer, Robert G Vambery,2008.Aligning Global Business Strategy Planning Models With Accelerating Change. Journal of Global Business and Technology,4(1),pp.31-49.

[4]Roger B. Mason,2007.The external environment’s effect on management and strategy; A complexity theory approach. Management Decision,45(1),pp.10.

[5]Stephen M. Millett,2006. Futuring and visioning: complementary approaches to strategic decision making.Strategy & Leadership,3(3),pp.43.

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[6]Mingfang Li, Haiwei Zhou,2005. Knowing the business environment: The use of non-market-based strategies in Chinese local firms.Ivey Business Journal Online,50(11),pp.1.

[7]Ed Pabalan,2007.The Strategy-focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment.The Internal Auditor,59(1),pp.21.

[8]Jeanne M Liedtka,1998.Linking strategic thinking with strategic planning.Strategy & Leadership,26(4),pp.30-36.

[9]Adam Wu, Jorge Costa&Richard Teare,1998.Using environmental scanning for business expansion into China and Eastern Europe: the case of transnational hotel companies. International Journal of Contemporary Hospitality Management,10(7),pp.257.

[11]Lanyon, L E, Abdalla, C W.,1997.An environmental scanning indicator proposed for strategic agribusiness management. Agribusiness,13(6),pp.613-623.

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[12]Mohammad Ala.,1997.Keys to success in today’s business environment.Business Forum,22(1),pp.24-29.

[13]Johnson G. and Scholes K.,1999.Exploring Corporate Strategy,5th, New York :Prentice Hall.

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