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Key Topics
Requirement
Write an essay of explaining what the main strategy development tools are and how they are used in business.
Your essay must contain a comprehensive discussion of at least 3 of the following: PESTEL, Five Forces, Resource-Based View, PROFIT, Input/Output, SWOT Analysis(you may include Cross Impact Analysis) with reference to academic journals and practical examples from industry.
Solution
Introduction:
The essay presents analysis of different strategy developing tools for the business organizations. The strategy is the action plan which is designed by the organizations to achieve the strategic objectives and business goals for the long run. The business organizations can plan for the actions to achieve the strategic goals and objectives in the long run after they have analysed the internal and external business environment. There are certain factors in the internal and external business environment of the business which impact the overall business of the organizations. It is important for the business organizations to decide for the suitable strategies based on the micro and macroeconomic factors of the business. Three most strategic tools have been discussed here in this essay and they are PESTLE, Five Forces and SWOT analysis.
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Body:
PESTLE:
The PESTLE is a strategic framework which explains the factors in the macro-environment or the external environmental factors of business. The market research is needed to frame the suitable strategies for each individual industry. The political, economic, social, technological, legal and environmental factors are important to be analysed before any strategies are formulated. For example, McDonald’s Australia before framing any strategies for its target segment it has to analyse these factors in respect to the Australia or any country in which it wants to operate or expand the business. These factors are to be analysed to identify the potential strategic risks for the formulation of required strategies.
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Political: These are the governmental intervenes or the policies and regulation which are meant for the development of business in a country. They include the taxation policies or the ones which regulate the entry and exit of any business in any industrial sector. For example, McDonald’s Australia has to identify the various political factors which impact the growth, development and expansion of its business. The stability in the political factors also impacts the business in any industrial sector.
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Economic: The economic factors like inflation or deflation impact the business. The growth in the economy, rates of interests, rate of exchange, inflation and deflation are found to be impacting the business of the organizations in every industrial sector. In international business if any organization is engaged in export and import services then the changes in the rate of exchange might impact the business.
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Social: The tastes and preferences of the customers, lifestyle, standard of living, cost of living, affordability, age, income, career, education etc. are the major social factors which impact the buying behaviours of the customers and the business of the companies in varied industrial sectors. For example, McDonald’s come up with types of dishes at different prices after it has analysed the various demographic factors of the target segment.
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Technological: The technological factor has become one of the most important factors to achieve the competitive advantages. In every sector like hospitality, healthcare, retail, food and beverages, tourism etc the role of technology is very significant. In Australia the technology has been developed in the last few decades at a faster pace. Apple Inc. is one such company which is always innovative in its approaches. The changes in the technologies might impact the entry or barriers to entry to any emerging market.
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Legal: The legal factors, legislations, legal norms and other legal factors of any country impact the business. The business organizations have to abide by the different legal factors which are important for conducting the business. For example, in construction industry the labour laws have to be abided by.
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Environmental factors: The responsiveness to the different environmental factors is a primary requirement for any organization in the modern scenario. For example, KFC has to abide by the environmental norms and animal protection laws. The processes and procedures have to be environment-friendly and must be safe. The employees must be provided with safe and healthy working environment (Sammut-Bonnici & Galea, 2017).
Five Forces Analysis:
Michael Porter has come up with Five Forces analysis of the external business environment where the key forces have been recognized and analysed. The five forces are threats of the new entrants, bargaining power of buyers, bargaining power of the suppliers, availability of substitutes and competitive rivalry.
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Threats of the new entrants: In any market there is always a threat or risk of new entrants who could be the potential competitors of the existing companies. The new entrants could bring in some new technologies or new strategies which could affect the profitability of the existing companies.
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Bargaining power of buyers: The buyers can exert bargaining power to the companies. The buyers demand for higher quality of the products and more attributes which add value to their purchases. The companies in every industry are competing with each other to retain their customers by providing higher quality deliverables at reasonable prices with value additions. The attributes of different situations of the market impact the buyers’ power.
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Bargaining power of suppliers: The suppliers can also exert some pressure on the different industries by declining the quality of the inputs or by increasing the prices of the supplies. If the bargaining power of the suppliers is higher, the profitability of the companies will get affected. If the suppliers of McDonald’s offer higher prices of the inputs then the company would be compelled to increase the prices to combat the cost increase. This strategy might affect the demand of the customers as the customers can switch to any other company providing similar products. In this case the company might suffer from lower profitability.
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Availability of substitutes: In any industry there can be multiple firms providing similar products or services. In the banking industry all the banks provide almost similar services to the customers. The companies can provide serve the market with similar products but with a difference in technological resources. Substitution keeps the prices competitive (Indiatsy, Mwangi, & Mandere, 2014).
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Competitive rivalry: Competitors are the biggest threats in the market. Every company has to analyse the needs of their competitors so they could achieve competitive advantages (Arons & Waalewijn, 1999). The competition leads the companies to lower the prices and keep the quality higher. They also try to come up with advanced technology and better value additions to their deliverables so that they retain their customers.
SWOT Analysis:
The SWOT analysis is strategic tool which is used for the analysis of the internal environment of the business. The strengths, weaknesses, opportunities and threats of the companies have to be analysed while framing the suitable strategies.
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Strengths: The strengths of the companies in any industrial sector are the core competencies, relationship with the customers, quality of the deliverables, service excellence, long-term staff tenure etc. The companies have to identify the strengths through the analysis. For example, the strengths of Apple Inc. are its innovative products and high quality technologies or differentiated products.
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Weaknesses: The weaknesses are the areas which hinder the growth or development of the business. The weaknesses must be identified and countered with strengths. The weakness of Apple Inc. is its price which is much higher in the competitive business environment.
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Opportunities: There can be many scopes of opportunities of a company in the external landscape which they have to identify and avail of. To enjoy economies of scale a company can frame market growth strategies or can plan for availing of the market entry strategies.
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Threats: The existing and potential competitors are always the threats to the business organizations. The changes in the environmental factors, technology, regulations etc. can impact the profitability of the business (Ommani, 2011).
Conclusion:
In the conclusion it can be said that in every industrial sector the external and internal factors of the business environment have to be analysed so that the suitable and workable strategies could be formulated to achieve the competitive advantage and strategic goals and objectives. The strategy formulation depends on the resources and information obtained from different strategic tools or frameworks.
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Arons, h. d., & Waalewijn, P. (1999). A Knowledge Base Representing Porter's Five Forces Model. A Knowledge Base Representing Porter's Five Forces Model, 1-6.
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Indiatsy, C. M., Mwangi, M. S., & Mandere, E. N. (2014). The Application of Porter’s Five Forces Model on Organization Performance: A Case of Cooperative Bank of Kenya Ltd. European Journal of Business and Management Vol.6, No.16, 1-12.
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Ommani, A. R. (2011). Strengths, weaknesses, opportunities and threats (SWOT) analysis for farming system businesses management: Case of wheat farmers of Shadervan District, Shoushtar Township, Iran. African Journal of Business Management Vol. 5(22), 9448-9454,.
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Sammut-Bonnici, T., & Galea, D. (2017). PEST analysis. Chapter • January 2015, 1-8.
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