The essence of strategic management

The purpose of this study is to identify and critically evaluate chosen external analysis. I have chosen the method of Porter’s five forces in the sector of mobile telecommunications technologies- Sony Ericsson

The essence of strategic management

Management is a set of activities (including planning and decision making, organization, leadership such as directing and controlling people) aimed at the organizational resources (HR, financial, material and information) and used with the intention of achieving the objectives of the organization in an efficient and effective way.

Managing organizations comes down to making permanent management decisions, some of which becomes routine. Part is derived from the changes taking place in the vicinity and inside the organization. In literature the decision making process is associated with the process of solving problems. “But the essence of strategy is in the activities-choosing to perform activities differently or to perform different activities than rivals” (

The concept of strategy comes from the Greek “strategos”-strategist- the leader, leader, manager, master (from “stratos” – army and “agein” – lead). Then, it is to command the army, battle planning and skilful art of war. Strategic management is also regarded as way of acting and based on identification of critical (strategic) factors also based on examination and determination of the interdependence and the impact on the future of the company. Strategic management is a complex process, which is subject to evolution and as a major factor if it comes to company success. Important function is also matching concept of development to the forecast, taking into account changing situations, which create market conditions and the environment.

The essence of strategy is to create a unique company, allowing both the employees and the environment clearly differentiate the business from competitors. Clearly specify the identity of the company, regardless of whether it is a cafe, hotel, warehouse or hairdresser. The strategy gives us the otherness, which stands out. The company must be perceived by the environment differently than other companies in the industry, something needs to stands out in a manner comprehensible to clients. Sense of uniqueness must also have employees and not just the business owner. This strategy must be present in every action the company, in its daily life, must be consciously implemented and applied by each employee.

External analysis of business environment.

“The decision and performance of a firm are affected not just by its internal organisations and aims; they are also affected by the external environment in which the firm operates”

Strategic analysis is a diagnostics of company for strategy formulation.

Full strategic analysis includes

– External business analysis of the environment

– Analysis of the company.

Analysis of external business environment is very important as it sets the framework for its operation and is carried out at different levels.

“It is normal to identify various dimensions such as political, economical, socio-cultural and technological. The division of the factors affecting a firm (…) is commonly known as a PEST analysis. The PEST framework is widely used by organisations to audit their business environment and to help them establish a strategic approach to their business activities”

These conditions must be well-know and anticipate.

So there is need looking into the condition of the economy where the most important indicators are: the growth rate and the repayment of capital, interest rate, exchange rates, inflation rates, the rate of consumption, unemployment, debt, demographic changes, which affecting tastes and preferences, or affecting the availability of labour.

Very large impact on the creation of opportunities and threats for companies has legal and political factors (removal of prohibitions, restrictions, customs barriers, legal barriers).

Factors that affect the development of business are changes in the market environment and competition. This may create opportunities for market expansion and the risks for companies operating only on domestic markets.

If it comes to analysing competitive environment there is need to considering come closely factors that are likely to influence the competitive advantage of the organisation.

The purpose of this is to identify current and future relations between the firm and the companies and other organizations collaborating or competing with each other.

Well known and widely used method of industry and competitors analysis is the method of Professor Michael Porter called Porter’s Five Forces Model of Competition.

This assessment will give an answer to the question of how competitors behave, what they had achieved and what factors influenced the success of some and the failure of others?

An important stage of strategic analysis is to analyze the inner or internal analysis of the potential viability and business development in the long term.

Analysis of their potential (technical, trade, activity, creativity to the environment) with emphasis on strengths.

Strategic planning is the consideration of strategic options regarding the pace and direction of growth of the company, how to fight the competitive allocation of funds for various projects and markets.

Strategic planning includes

– To consider strategic options,

– Choice of ends and means of implementation strategies

Strategic planning corresponds to the logic of planning, according to which first set out the objectives, assesses the future, choose the best strategies and draw up a plan.

Strategic planning, (…), is defined as the process of addressing the following questions:

• Where are we?
• What do we have to work with?
• Where do we want to be?
• How do we get there?

This process is undertaken by states, organizations, programs, and sub-programs

The answer to the first question concerns the mission of the company. It is about the content of the business, geographical scope, and assortments of activities and specific objectives.

The second question boils down to an analysis of internal and external conditions for the operation of current and future.

The third question involves the development of strategic alternatives.

The final stage of the strategic management model is to implement the strategy.

Implementing the strategy is:

– Adaptation of organizational structure and procedures for strategy

– Information processes, decision-making

– Strategy Control

The process of selecting the strategy is very difficult and requires the inclusion of different criteria, and above all a system of values recognized by management as particularly important for the company.

In a properly functioning organization role, mission and objectives of the company should be set properly and a strategic plan drawn up. Strategic plan should address the question of the organization where it is going, who are the customers, what are the real capabilities of managers and what is the most effective strategy.

About Sony Ericsson Mobile Communications

Sony Ericsson Mobile Communications established in October 2001. It is the joint venture between Swedish Telefonaktiebolaget LM Ericsson and Japanese Sony Corporation with headquarter in UK- London. It is relatively new company and the stated reason for venture s to combine Sony’s electronic expertise with Ericsson’s technological leadership in the communication sector.

Sony Ericsson products have been catching the attention of journalists, consumers and analysts, winning awards for their combination of technological innovation and attractive design.

SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues.

Strengths

-combination of high research and production of two highly regarded companies (Sony and Ericsson),

– large financial background,

– rapidly increasing market share of mobile telecommunications technology,

– use of technological facilities of both companies,

-experienced managers,

– high possibility of product innovation,

-good reputation of the brand within customers,

-high quality of products.

Weaknesses

– strong competition in the market of mobile telecommunication technology,

– cost of new products is higher than its main competitors,

– relatively narrow range of products (telephones, modem cards, M2M technology, head sets)

– weak distribution channels (low number of shops, customers are mainly large companies in the mobile networks such as o2, orange)

– potential of organizational problems due to the cooperation of the two companies

Opportunities

– appearance of new clients interested in mobile technologies,

– high demand for mobile technology in Asian markets,

– enrichment products with additional features to meet the growing needs of customers.

Threats

– continuous development of its main competitors,

– changing needs and tastes of customers,

– increase in sales of substitutable products, local competitor in India and China market . the position of those competitors is very strong as it is supported by local government.

– possibility of a strong cyclical fluctuations in the market (eg, recession).

PEST

As a start point of analysing Sony Ericsson, I would like to use PEST analysis. “There the political, economic, social and technological factors shaping a business so as to devise future business strategy”.

Political

In connection with the operation of the market, which is very shaky in terms of interest to customers, the company has placed strong emphasis on building its image as a responsible company, and socially engaged (charities, other events not associated with the technical image).

Economical

The increasing number of people with relatively high incomes results in greater demand for products using advanced technology. Nowadays the ability to satisfy the basic needs have changing the structure of expenditure. An increasing proportion of the expenditure is spent on modern devices including mobile phones, laptops, mp3 etc (especially when the mobile phone is essential to everyday life). In addition, changing situation in the global economy, mainly depending on the direction of changes in demand for products that have advanced technology will grow or diminish. Fluctuations in the dollar affect the profit of the batch, as prices at the producer cell phones are fixed in dollars.

Social

Constantly growing population of Africa and Asia created a growing number of wireless telephony interested because of the underdeveloped telecommunications infrastructure in those parts of the world.

As BBC writes: “Global demand for mobile phones remains strong, despite economic uncertainty in rich nations and rising food prices in poorer countries. The growth was driven by rising demand in markets such as Africa and Asia”

Another aspect is dynamic increase in demand for mobile technology among young people and the slow change in habits in older people makes the interest in this form of communication. Increase in the number of educated people results in increased demand for mobile and wireless technologies in that group as well.

Technological

Technical and technological changes on the mobile phone market are occurring at a very fast pace. What is more strong competition is the result of the need for large spending on research and development to keep pace with competitors. High-tech sector as a whole is bound by patents, licenses, agreements on the use of specific technologies.

Sony Ericsson PEST Conclusions

The company is strongly associated with external business environment and any changes in it will have a major impact on the company. Particularly large impact on the business environment has economic and demographic factors on which the company is most dependent. The next largest impact is the technological environment. Political environment has almost no impact on the company because as it operates on the global market. The greatest opportunities are in social and economic environment, and it is on those areas company should pay the greatest attention.

Michael Porter Five Forces based on Sony Ericsson.

Sony-Ericsson is new company on the market and therefore has to assess the situation in the sector, which is shaped by five factors:

The bargaining power of suppliers.

The sector of the suppliers is spread because there are many manufacturers of components for mobile devices (eg screens). In addition, potential suppliers are scattered geographically – for example, batteries for mobile phones are manufactured in Korea, China, Taiwan, as well as in Ireland and Germany.

The quality of products purchased from a supplier depends on the quality of the final product. However, individual suppliers provide a fairly simple products whose quality can easily be inspected and possibly replaced by products from other suppliers (eg, casing of mobile phones are in the form of simple extrusions of plastic).

Due to the patents and licenses held by the receiver it is impossible to manufacture the final product. Large number of competitors among vendors make that build larger components of equipment running at a loss.

The product that is delivered by the suppliers is relatively simple, and its unit price is not too high and therefore did not constitute a substantial part of the cost of the final product. The main part of the cost of expenditure incurred on research and development.

Offer of the suppliers is exclusively directed to the sector of buyers because of the specificity of the final products for example mobile phone screens do not apply to any other devices.

The bargaining power of buyers.

There is a lot of buyers mainly networks such as O2, Orange, 3 and wholesalers. The single buyer purchases a small quantity compared with the overall production.

There are also opportunities to purchase from another supplier (similar deals).

Buyers achieve a small profit on purchase of the product. Mobile networks may offer very cheep deals. For example Virgin Mobile is offering :

“The Virgin tariff costs £8.50 a month for 18 months, and includes a new free of charge phone Sonny Ericsson Satio, 100 free minutes and 100 texts a month”

That creates pressure to reduce costs , which may cause the search for cheaper suppliers.

Buyers are well orientated in the price of products, but the quality and capabilities can significantly vary, which makes decisions about the selection of the product more difficult. In addition, the market is unpredictable and follows the trends.

The buyer is purchasing finished product for resale, therefore the quality is very important.

The threat of potential new entrants.

It is impossible to manufacture in small scale, due to the high cost of developing a new product (fixed costs).

Due to exclusive agreements is very difficult to take over the existing distribution network, which means the need to build their own.

Due to the high level of technology used to produce mobile phones it is necessary to offer products with the technology at least as modern as the existing market if not better.

In each country there is a need to obtain approval or other appropriate authorizations in order to enter the mobile phone market.

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