Strategic Analysis in restaurants
In the models reviewed, in almost the generality, the diagnosis after the formulation of the mission is located; in the designed model it is in first place and this is because in security and protection organizations it is essential to know the events of the macro and micro environment and their manner of manifestation, which will allow knowing how they can influence values of the members of the organization and in the potentialities necessary to fulfill the mission and achieve the vision and in relation to it establish the necessary values to face such events without negatively impacting the belief system and basic values of the members of the organization.
Likewise, if the position is known from the beginning Intelligence The organization can guarantee the proactivity necessary to avoid possible surprises. He Insights It is carried out with the objective of establishing the position in which the organization finds itself, that is, its internal capacities and the facts or events that it will have to face, which facilitates establishing the intensity of the effects of said impacts. The following steps are carried out at this stage:
The strategic diagnosis has three levels; the diagnosis of the macro or global environment, the micro environment and, finally, the internal diagnosis of the organization.
In all the models studied, the diagnosis step is present and is one of the essential inasmuch as it fosters knowledge of threats, opportunities, strengths and weaknesses, and for this the use of internal and external factors evaluation matrices has been standardized. SWOT, however, in studies carried out shows that the variables and procedures of these matrices are not sufficient to define a reliable strategic position. Based on the foregoing, other variables are put to your consideration, which in our opinion improves the objectivity of the diagnosis.
The forces of both the macro and microenvironment and the internal factors are manifested differently for the different organizations, that is, what is a threat to one, for another it can be an opportunity, hence the first variable is defined as the form of manifestation of that external force or internal factor, it does not matter if a priori you think it is a threat or weakness, then the impact that this form of manifestation has for the organization is evaluated and then the response capacity to take advantage of mitigating said impact; When these three elements are known, you are in a position to determine whether you are in the presence of a threat, opportunity, strength or weakness (the procedure is explained in detail when discussing the impact effects evaluation matrix).
In order to achieve a better determination of these factors, it is proposed to diagnose the macro, microenvironment and internal.
Diagnosis of the macroenvironment
All organizations can be affected, to a lesser or greater degree, by the forces of the macroenvironment, that is, the political, legal, economic, technological and social forces.
Companies will always occasionally try to influence legislation or, through R&D, set new technological directions or changes to strengthen their strategic position or discover new opportunities.
The forces of the macroenvironment are generally not under the direct control of companies, therefore, the purpose of the strategic direction is to facilitate the organization to act effectively in the face of threats and restrictions in the environment and to take advantage of the opportunities that emanate from it. . To achieve this purpose, strategic leaders must identify and analyze the way in which these macroenvironmental forces are manifested in relation to the company.
El Insights it must be done for both the current and future macroenvironment. For him Insights From the current macro environment, what is happening now and for the future is valued, we must go to forecasts and scenarios.
The forecasts are currently valid. They can show the main trends and are useful with a certain reservation. However, although the strategic direction uses them, this should not be based only on forecasts, but also on future scenarios to make a forecast of what could happen in the future.
Techniques for forecasting
• Historical analysis.
• Moving averages.
• All techniques with experts.
• Linear regression.
1. Political-legal forces. They are generally given by tendencies of laws, regulations, governmental dispositions etc, an example of this is the set of laws and regulations of the United States government against our country.
2. Economic forces. They have a significant impact on the operations of a company.
a) Gross Domestic Product. It refers to the total annual value of production of goods and services of a nation. A sustained moderate growth of the Gross Domestic Product, generally, produces a healthy economy in which businesses find an increasing demand for their productions due to the growth of consumer expenses, opportunities will abound both for established businesses and for new ones ; A decrease in Gross Domestic Product normally reflects the reduction in consumer expenses and, therefore, lowers the demand for productions. When the Gross Domestic Product decreases in two consecutive quarters, the national economy is considered in recession. During these periods, competition increases dramatically, profitability suffers and businesses lose growth rates, although for some companies these situations offer opportunities.
b) Interest rates. Short or long term interest rates significantly affect the demand for products and / or services. Short-term interest rates, for example, are beneficial to loan providers, while long-term loans are beneficial to other businesses. Interest rate levels greatly affect the strategic strategic. High rates normally discourage business plans to obtain credits in order to carry out technological transformations, while low interest rates are more contributory to obtain capital from expenses in mergers and acquisitions, although some companies and entire countries receive strong threats of this.
c) Inflation rates. High inflation rates are generally restrictions for companies, they stimulate the variation of costs in business. Increasing inflation rates will restrict business growth plans. Of course, inflation may offer opportunities for some companies, for example, oil companies benefit during periods of inflation if prices rise faster than the cost of exploration.
d) Dollar value. With the dollarization process that has taken place in many countries of the world as a consequence of the application of neoliberal policy, evidently it has become a key factor in the analysis of the economic forces of the macroenvironment. When the value of the dollar grows with respect to other currencies, companies have to face the threat of receiving lower profits than planned, the opposite occurring if the value of the national currency is above the dollar.
3. Technological forces. Technological forces include scientific development and innovation that provide opportunities, threats, or constraints for companies. The rate of technology change varies considerably from one sector to another. In electronics, change is fast and constant, but in furniture making, change is slower and more gradual. Changes in technology can affect a firm's operations and its products and services. Recent advances in robotics, computing, lasers, satellites, fiber optics, and other related areas have provided significant opportunities for development of production or services in disparate organizations. Advances in computing, for example, have helped perform many tasks at low cost and high levels of customer satisfaction. From another perspective, technological changes can decimate entire businesses or sectors, from changing demand for one product to another.
4. Social forces. Social forces include traditions, values, social trends, consumer psychology, and social expectations that have endured for decades and even centuries. Values refer to the concepts that society holds in high esteem, both these and social trends can present themselves as threats, opportunities or restrictions, for example, demographic changes, social expectations, etc.
Although the forces of the macroenvironment influence the operations of all companies in general, a more specific group of forces directly influence and powerfully affect the strategic planning of the organization's activities. For the analysis of the micro-environment of the company, the five forces proposed by Professor Michael Porter of Harvard University will be used.
- Threat of the entry of new competitors.
- Rivalry between existing competitors.
- Threat of substitute products or services.
- Bargaining power of customers.
- Bargaining power of suppliers.
These forces may be more intense in organizations where the return on investment is slow and low. The key to effective competition lies in finding a strategic position for the organization where it can influence these five forces, and thus take full advantage of its opportunities and defend itself from its threats, especially when the internal position is dominated by weaknesses. To properly formulate strategies requires knowledge and analysis of these five forces, so knowledge of each is necessary.
1. Threats of entry of new competitors. When a new competitor enters a market, its productive capacity expands. Although the market is growing rapidly a new entry intensifies the fight for market share; For this reason, offering low prices and increasing the profitability of the company is a great challenge. The probability that new firms enter a market rests on two essential factors; barriers to entry and expected backlash from competitors.
a) Entry barriers. High barriers and clear backlash expectations reduce the threat of new companies entering the market. 8 barriers are known that constitute obstacles to enter a market.
- Economy of scale. It refers to the reduction in the cost per unit of a product or service (or an operation, a function to produce a product or service) that occurs with the growth of the absolute volume of production in a given period of time. Considerable economies of scale prevent new entries by forcing to produce on a large scale, at the risk of a strong reaction from competitors, or to produce on a small scale with its consequent disadvantages of cost growth.
- Product differentiation. When a firm is established in a market, it generally enjoys strong brands, achieving customer identification and loyalty, based on the differences in its products, so new entrants must use large sums of money and time to overcome that barrier. .
- Capital demand. The need to invest large financial capital to compete is a third barrier to entry since large sums of money are needed to produce the goods or services, R&D, advertising, credits and inventories in order to enter a market.
- Alternative costs. It refers to the costs that clients incur if they alternate their purchases from one firm to another. Changing from an established supplier to a new one implies that the buyer will have to train employees, acquire auxiliary equipment and the need to obtain technological help, therefore many clients are reluctant to alternate, unless the new supplier offers advantages related to the cost.
- Access to distribution channels. To enter the established distribution channels employed by owned firms, a new firm must seduce distributors by taking advantage of price drops, cooperative promotion, or sales promotion. Each of these actions, of course, reduces profits. Existing competitors always have a distribution channel based on a long stay or even exclusive, which means that a new entrant must create a new distribution channel for himself.
- Disadvantages of costs regardless of scale. Established firms must possess cost advantages that cannot be overcome by new entrants, regardless of the size of their economy of scale. These benefits include the right to ownership of the product technology, geographic location, and the learning or experience curve.
- Government policy. Governments can control entry to certain sectors with license requirements or other regulations.
b) Kickback Expectations. The new entry may also be halted if the expectation of the incoming new firm prompts competitors to respond vigorously. These expectations are reasonable if the sector has a history of vigorous kickbacks to new entrants or if market growth is slow. Kickbacks can be expected if established firms are sector committed and have set specialized securities that are not transferable to other sectors, or if the firm has sufficient liquidity or production capacity to meet the needs of clients in the future.
2. Intensity in the rivalry of existing competitors in the sector. Entry can be slowed when one or more of the firms in one sector sees the opportunity to improve or increase their position or feels competitive pressure from others. It manifests itself in the form of price cuts, promotional battles, introduction of new products or modification of these, increase or improvement of customer service or guarantees thereof. The intensity of the competitors depends on a number of interactive factors.
- Numerous equal or balanced competitors. One factor is the number of companies in the sector and how balanced they are in terms of size and power. In sectors that are dominated by one or a few firms, the intensity of competition is less since the dominant firm always acts as the price leader, but the sector that contains few firms and is equivalent in size and power is more prone to high competition. As each firm will fight for dominance, competition is also likely to be intense in sectors with large numbers of signatures, provided that some of those firms believe they can make moves without being noticed by competitors.
- Slow market growth. Firms in a slowly growing market are more likely to face high competition than firms located in a fast growing sector. In the slow growing sector, the increase in market share of one firm depends on being taken away from another.
- High fixed or storage costs. Companies with high fixed costs are under pressure to operate at levels close to the ability to spread total fixed costs over more production units. This pressure often leads to price cuts, for that reason the competition intensifies. This is also true for firms that have high storage costs since profits tend to be low.
- Absence of differentiation or alternative costs. When the products are differentiated, the competition is less intense because the buyers have preferences and loyalty to private sellers. Alternate costs have the same effect, but when products or services are less differentiated purchasing decisions are taken into account in relation to price and service, resulting in greater competition.
- Growth capacity in large proportions. If economies of scale stipulate that production capacity should be added only in large increments, then capacity additions will lead the company to overcapacity in the sector and thus lead to price drops.
- Various competitors. Companies that are diverse in origin, culture and strategies will always have different goals and strategies to compete. Those differences mean that competitors will find it difficult to agree on the rules of the game. Companies with foreign competitors are particularly competitive.
- High strategic risks. The rivalry will be volatile, if firms take high risks to succeed in a particular market.
- High exit barriers. Exit barriers can be economic, strategic or emotional factors that keep companies in a sector, even if they have a slow return on investment or even losses. Examples of exit barriers are the fixed values that do not have alternative uses, work agreements, strategic cooperations between strategic Units of activities of the same company, which prevents departure due to pride or pressure to reduce adverse economic effects in a geographic region .
3. Pressure of substitute products. Firms in one sector must be in competition with other firms in other sectors that manufacture substitute products, which are alternative products that meet similar customer needs, but differ in specific characteristics. Substitutes cap the prices that firms can guard.
4. Bargaining power of the buyers. Buyers of the productions of a sector can lower the profits of that sector, by negotiating for high quality or more services, putting one company in front of the others. Buyers are powerful in the following circumstances.
- Buyers are focused on buying large volumes relative to total sector sales. If a group of buyers acquires a substantial proportion of a sector's sales, then they will wield considerable power over prices.
- The products that customers purchase represent a significant percentage of the buyers' costs. If the products represent a large portion of the buyers' costs, then the price is an important issue for the buyers, therefore, they will buy at a favorable price and make selective purchases.
- The products that customers buy are standard or undifferentiated, in such cases, buyers are likely to pit a seller against others.
- Buyers face alternative costs. Alternative costs tie buyers to a seller.
- Buyers make low profits. Low profits put pressure on buyers to lower purchasing costs.
- Buyers can go into backward integration (they become their own suppliers).
- The products of the sector are not important for the quality of the products or services of the buyers. When the quality of buyers' products is greatly affected by the inputs they buy or purchase, buyers are less likely to have power over the suppliers.
- Buyers have all the information. The more information buyers have about demand, current market prices, and supplier costs, the greater their purchasing power.
5. Bargaining power of the providers. Suppliers can reduce a company's profits, preventing it from recovering cost increases by keeping prices stable. The conditions that make providers powerful are:
- If the supply sector is dominated by few companies and is more concentrated than the industry to which it sells its products. Selling to fragmented buyers means that concentrated suppliers will be able to exercise considerable control over prices, quality, and terms of sale.
- When there are no substitute products. If buyers do not have alternative sources of supply, they are weak relative to existing suppliers.
- The buyer is not a major customer of the providers. If a particular company does not represent a significant percentage of the supplier's sales, then the supplier has considerable power. If the industry is an important client, the capital of the supplier will be closely related to that industry, which will make the supplier offer reasonable prices, advice in important areas such as R&D, etc.
- When the supplier's products are important inputs to the buyer's business. If the product is a key element in differentiation, quality, etc., the supplier has great power.
- When the provider's products are differentiated or have been erected over alternative costs. Differentiated products or alternative costs reduce the buyer's ability to confront one supplier with others.
- Providers face threats or are integrated forward. (you can convert your own clients). If the supplier has the ability and resources to carry out his own production, distribution channels and to market his outputs will gain considerable power over the buyers.
As can be seen, at one extreme, a company can operate with profits in a sector with high entry barriers, low intensity of competition, among a group of firms, where there are no substitute products, weak buyers and weak suppliers. On the other hand, a company doing business with low entry barriers, intense competition, various substitute products and powerful buyers or under strong pressure can also achieve adequate profit. The key, of course, is in the study, analysis and understanding of the sector to establish the strategic position and consequently to draw up the appropriate strategies to take full advantage of the opportunities, reduce the impacts of threats and mitigate the weaknesses that allow maintain competitive advantages.