Facebook, Strategic Management Analysis

An environmental scanning refers to the process that systematically uses information about trends, patterns and relationships within an organization’s internal and external environment to determine the future direction of the organization. Through an understanding of the nature and speed of changes in that particular environment, an environmental scan is likely to help identify possible ventures, challenges, and developments that are important to the organization. An organization that could benefit tremendously from strategic planning and especially environmental scanning is Facebook. Facebook is a social network organization that is considered the largest online network in the world (Piskorski, Eisenmann, and Smith, 2013). According to these researchers Facebook reported $1 billion profit in revenue, with 85% of this revenue coming from advertising. However since we are living in an era where technology is constantly upgrading and competition is fierce, it is vital that the managers of Facebook stay abreast of the competition by conducting environmental scanning to determine the trend and weaknesses of the organization to prevent strategic surprises. As competition increases in a particular industry, changes become swifter in the external environment; consequently, information from the external environment contributes important elements to the effectiveness of the long-term plans. In an external analysis of Facebook, three correlated environments are relevant: Natural Physical Environment According to Wheelen and Hunger (2012) the natural environment includes physical resources, wildlife, and climate that are a fundamental part of life on earth. It is obvious that in recent years the regularity and severity of storms, tornados, hurricanes, and other extreme weather events have increased in the United States and worldwide, and this trend is likely to continue. Pine (2011) informed us that increase in natural hazards and the rising of sea-level are expected along the coastal areas, therefore it is necessary to understand the nature of coastal natural, social, and economic environments and their interactions in guaranteeing a sustainable future. In the case of Facebook, extreme weather events could result in loss of Internet service, breakdown in telecommunication infrastructure, lifestyle changes, and regional shift in population. Although the loss of Internet service and breakdown in telecommunication infrastructure due to inclement weather may be perceived as threats to the organization; lifestyle changes and regional shift in population may reveal opportunities for Facebook. A scan of the external environment may lead to the creating of more modern system that is in-tune with the needs of the population. With the movement of people, Facebook media may be used to locate missing relatives and friends. A shift in population could result in an increase in the younger more tech-savy generation who view Facebook as a way of keeping in touch with others. Since mobile phone reception system may experience overcrowding during this time, Facebook could capitalize on this situation to use its â€Å"friends and family† network to keep others informed of storms and inclement weather events. Through an environmental scan, the managers may realize that planning is needed to extend their network to accommodate the movement of the population. A scan may also reveal weaknesses in infrastructure that could be modified ahead of weather-related crises to minimize the length of time consumers are out of service where weather situations are predicted but cannot be prevented. Although these factors may present threats to the stability of the organization, there are areas that may be presented as opportunities. Societal Environment The societal environment according to Wheelen and Hunger (2012) is the social system of human that makes up those general forces that do not directly affect the short-term activities of the organization, but can, and frequently do influence its long-term decision. Wheelen et al. (2012) mentioned that the number of possible strategic factors is very high because each country can be represented by its own exclusive sets of societal forces. Some well-known strategic forces includes: economic forces, sociocultural forces, and political-legal forces. 1 The Economic Forces. The Economic Forces of the environment alludes to the combination of economic systems of the country, the structural framework of economic policies of the government and the organization of the capital market, the type of endowment, business cycles, and the socio-economic infrastructure of the organization. A drift in the economic area can have effect on social media like Facebook. For example, in 2011 Facebook reported $1 billion profit with 85% coming from advertisement. A weak economy will lead to less sales and subsequently advertising. Equally, a drop in interest rate will mean sales of electronic products and services. The economic development of countries like Brazil, Russia, India, and China is having huge effect on the rest of the world, especially in areas of computer software and telecommunications. An increase in income will also likely to lead to an increase in spending for electronic products and investments in social media services. These factors should present opportunities for Facebook. 2 Sociocultural Forces Sociocultural forces encompass a number of variables such as demographic trends. In the United States, the demographic bulge known as the â€Å"baby boomers† has affected the demands of the market in many industries. This group of people according to Wheelen et al. is now in their 50s and 60s but is the largest group in all developed countries. Wheelen et al. contended that sociological variables such as customs and conventions, cost, cultural heritage, and movement of labor have severe effects on the business. The nature of goods and services is determined by the demand of the people which in turn affect the way the business operates. In the case of Facebook, several transformations are needed to attract the baby boomers who are the largest users of advertisements on the web. Since senior are normally worried about their privacy and security, it is important that Facebook institute an environmental scan that ensure the preservation of privacy of senior Facebook page, the failure of which would be a severe threat to the stability of the company. The desire for companionship with baby boomers whose children have already grown and have left the nest have increased so Facebook could provide the type of interaction some of these seniors need. However, there is the need to make the sire more attractive and senior-friendly by step-by-step tutorial for setting up a page and navigating the network. In addition, remembering passwords have become a tremendous burden for some members of the baby boom generation. In order to continue a viable operation, Facebook should institute a system that helps baby boomers to log on to their page by correctly answering a series of questions. This system would present opportunities for the company. 3 Political-Legal Forces According to Wheelen et al. (2012) the political-legal forces are the forces that distribute power and provide constraining and protecting laws and regulations. It may also include the decision made by the courts. The political environment of a country is swayed by the philosophy of political parties, ideology of government or the ruling party; stability of the political system, foreign policy, Defense and military policy, and the image the country and its leaders project outside the country. Some of the more well-known political-legal variables include, antitrust regulation, environmental protection laws, immigration laws, tax laws, Foreign sweat shops, foreign trade regulation and stability of the government. Trends in the political-legal area have important business repercussions, not only on the level of competition within the industry but also on which strategies might be successful. Many business leaders think that there are too much stringent regulations governing businesses in order to conform to society’s environmental concerns. On the other hand, many businesses would like to see more aggressive approach to enforcing anti-trust laws. A number of research and environmental scanning has been done by Facebook to explore the dynamics of its network. An online article by Weigel (2012) described Facebook as a vehicle for organizing and expressing dissent, and one that has been proven to be an effective tool in many protests, causes, uprisings, and conflicts, but they also lead to the possibility of monitoring by the government and exposing activists to surveillance and punishment. According to Streitfeld and Hardy (2013) the Internet was established as a tool of liberation and knowledge but recently a bleak vision emerged when it was revealed that the United States government is using it as a monitoring and tracking device. In addition, threats by Federal Reserve Commission to impose greater supervision on how personal data was being used online resulted in the formation in 1998 of the Online Privacy Alliance (Streitfeld & Hardy). However, except for this factor, political technology have very little impact on the stability of Facebook. 4 Technological Forces Technological forces are described by Wheelen et al. as those forces that generate problem-solving inventions. Changes in technology can also have tremendous impact on businesses since they all depend on technology to operate. Technological environment affects the business in relations to investment in technology, regular application of technology and the effects of technology on markets. Technology is constantly providing new method for communication; therefore the use of technology in our lives is always expanding. Facebook is at the center of technology advancement because as technology advanced so will the methods we use for communicating. The birth of Facebook brought in another era of communication in our lives, and it is obvious that the society will continue to develop new ways to pass on messages to each other. Facebook’s $1 billion profit in 2011 is an indication that technology will continue to advance; therefore this advancement in technology presents opportunities for the organization. The Task (Industry) Environment The task environment according to Wheelen et al. (2012) includes those elements or groups that directly affect a corporation and, consequently are affected by it; these include governments, local communities, suppliers, competitors, customers, creditors, employees/labor unions, special interest groups, and trade associations. In doing an external environmental scan the business manager must assess various industry forces. Wheelen et al. used the Porter’s 5-Forces model to illustrate the forces that make up the Industry environment. The Porter’s 5-forces model is a tool used by corporations to provide an analysis of their competition and to help determine strategy. This five-forces model examines the strength of five specific competitive forces which work together to determine long-term profit and competition within an industry. However, Wheelen et al. (2012) mentioned that a sixth forces has been added to reflect the power of other groups, and the government over the activities of industries. In a scan of an industry, a corporation must examine the importance of each of the six forces to the success of the company: threat of new entrants, rivalry among existing firms, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and bargaining power of other stakeholders. 1. Threat of New Entrants It is clear that new entrant to any industry bring new capacity, competition, and aspiration to gain a position of status in that industry. Therefore new entrants are threats to organizations that are already in the industry. A new entrant to an industry is able to learn from the mistakes of his competitors and improve upon these weaknesses. In the case of Facebook, new entrants will always be considered a threat since technology by nature is subjected to metamorphosis. The position of Facebook in the industry is strong; therefore the barriers to new entrants are high based on the following: (a) Economies of scales: Even though the start-up cost incurred by Zuckerberg was small at the inception, a new entrant to the industry would not be able to enter the market on a small scale and compete against a company like Facebook, and if they enter on a large scale, there is the possibility of reaction from Facebook who would be better equipped to contend against competitors in the industry. This prevents new companies from breaking into this industry quickly. In addition, the investment of large capital presents a significant amount of risk to a new company. (b) Switching cost: Facebook is an established organization, individual have spent a significant amount of time learning to use this network, so they would be somewhat reluctant to change for another media. (c) Government policy: There are already privacy issues arising from the use of social media so the government may be reluctant to give license to another such organization. (d) Access to distribution channels: A new entrant would have to establish its distribution channel in an industry that is already captured by Facebook. According to Piskorski, Eisenmann, and Smith (2013) 85% of Facebook’s revenue came from advertising. (e) Cost disadvantages independent of size: Facebook is already established in the industry, they have access to the expertise, technology, notoriety, and government approval to keep the organization functioning. (f) Product differentiation: Facebook is well-known, and this medium has a strong customer support. In October 2012 Facebook registered its billionth user, becoming the largest online social network in the world (Piskorski, Eisenmann, and Smith, 2013). Recently, the acquisition of Instagram has solidified Facebook in the industry. Essentially, with this force it is not easy for an organization to enter the industry. 2. Threat of Substitute Products or Services Substitute products naturally present competition in the industry because as more substitutes come on the market the demand becomes more flexible since customers have more alternative. In the case of social networking medium, MySpace has been able continue operation as a type of social networking medium but has not been have to hold a position of dominance in the social networking media because Facebook is more advanced and provides more options. Therefore, this substitute does not present a threat to Facebook. According to Piskorski, Eisenmann, and Smith (2013) LinkedIn has become the leader in professional networking; again this is a professional site and not a social networking site, and the site has not been used as a substitute for Facebook. The threat from substitute services is low in this case. 3. Rivalry Among Existing Firms Competition is likely to be high if entry to the industry is easy. Since entry to the social networking industry presents many barriers, it is unlikely that there will be much rivalry in this industry. However, Piskorski, Eisenmann, and Smith (2013) contended that Twitter and Google came into existence as rivals to Facebook although they have not been able to maintain any position of dominance since Facebook has been able to present more features than the other, thus there is a large differentiation between Facebook and its competitors, their strategies are different, and the rate of growth is vastly dissimilar since Facebook has been able to maintain its market position, and has potential for greater gain than its competitors. The strength of this force is also low. 4. Bargaining Power of Buyers In the social networking industry the bargaining power of buyers is important because if users are not inspired they will lose interest. Facebook has ensured the stability of its position in the industry by creating innovative and stimulating programs to keep users enthused. However, there is a vast difference in the service provided by Facebook and its competitors, so substitution is not easily found. This force does not present a threat to Facebook. 5. Bargaining Power of Suppliers Suppliers can influence an industry significantly as they determine price increases. In the case of Facebook, its suppliers include advertisers, game developers like Zynga, Spotify, Netflix, Hulu and the networks it uses to deliver its services. However, since these products are important to the maintenance of Facebook in the position of dominance in the industry, as they offer diversity to a site that could otherwise have been uninter esting. The bargaining power of suppliers in this case is medium.