HI6006 | Use of Strategy Development Tools in Business
Write an essay explaining what the main strategy development tools are and how they are used in business.
Answer:
The strategy development tools are used to identify and review the information relevant to a business. It analyses the present scenario of the business environment and maps out it’s future. The tools ensure future success and profits of the organizations. It provides direction and defines scope over the long term. The strategic tools analyses the market, analyze opportunities for the specific business strategy. The main strategy development tools are:
The PESTLE analysis is used by the business to reduce threats. The firms can gain a valuable advantage by examining factors like political, economic, social, technological, legal and environmental (Dockalikova & Klozikova, 2014). The analysis is useful to the business in the idea phase, product launching, development and other factors to increase success. It is used to evaluate the outside factors which affect business. Out of all the factors, political factors determine the current direction of the political parties (Porter & Heppelmann, 2014). It defines the international trade tariffs, restrictions and visa requirements. The economic factors deter
mine the impact of the stock market, taxes, inflation, interest rates, and other economic metrics. The social factors concede the change in lifestyles, demographics, ethics, and values. It also includes the cultural norms, consumer preferences and gender distribution. The technological factors appraise the current technology of the company and evaluate whether it’s up to date or not. The legal factors anticipate new laws and regulations which can impact the operations of the business. It covers the consumer protection laws and licensing regulations. Finally, the environmental factors identify and consider the factors related to the environment (Lamas Leite, De Brito Mello, Longo & Cruz, 2017).
The Porter’s five forces framework defines the intensity of competition for a business. It is a power to understand the competitiveness of the business environment. It evaluates the forces which can affect profitability (Afonina, 2015). This framework identifies the five forces to act on a business. Out of them, the bargaining power of suppliers states the power required to assign prices and other conditions associated with the suppliers. For instance, the suppliers of Walmart have very restricted bargaining power, however, the sellers for a top chef needs very exact and occasional ingredient. The bargaining power of buyers is the same as the bargaining power of suppliers. For instance, if the commodity is sold then the buyers have huge bargaining power because if the required thing is not provided to the buyers then they can get the same product at somewhere else. The threat of new entrants helps a business to know about the entry barriers of the industry. The threat of substitute products mentions the capability of customers to make a decision in favor of the different product rather than that of the company in order to solve the same problem (Dobbs, 2014). For instance, Coca-Cola practices five force analysis to expand it’s operations. The threat of new entrants helps the company to know about the potential competitors. The threat of substitute products evaluates the pressure on the company to produce unique products. The bargaining power of buyers has no pressure on the company. The suppliers are not concentrated on the bargaining power of suppliers so the company has low pressure (Parnell, Long & Lester, 2015). The rivalry among the existing firms is high and helps Coca-Cola to know more about the competitors and their range of products. So, the company can launch products after evaluating the prevailing conditions in the market.
The SWOT analysis is a tool for verifying inner strengths and weaknesses of the business along with the outside opportunities and threats. It is an organized list of business’s strengthens, weaknesses, opportunities, and threats. Such information can be utilized for the business planning in order to achieve goals. The strengths and weaknesses are internal to a business whereas the opportunities and threats are external to a business (Bull, et. al. 2016). The internal factors are controllable but the external forces are uncontrollable and act upon the situation. The strengths are positive aspects internal to the organization which is within the control. The aspect of weaknesses is also used by the businesses that obstruct the ability to meet organizational objectives. The opportunities are used by a business in order to develop or achieve something. The threats are beyond the control of an organization and can place the project at risk. A business takes all the measures to escape from risks. A business uses SWOT analysis to capture ideas relevant to the current business situation. A business highlights the important issues and ranks them in order of importance before conducting a SWOT analysis (Madhavaram, Hunt & Bicen, 2017). It is used as a business guide to improving a business. For instance, Coles makes use of SWOT analysis in order to compete successfully with the competitors like Woolworths, Aldi and more. It helps to know it’s current situation in the marketplace. An example can also be taken from the hotel industry; Hilton uses SWOT analysis in order to determine the threat and weaknesses of the competitors. Such analysis helps Hilton to develop efficiency where other hotels are lacking.
The Ansoff Matrix can be used for both developing new products and opening up new markets. It can be used by the businesses to analyze the potential risks of each option in formulating the suitable plan. It is an appropriate strategic tool to take decision at corporate level. It helps a company to decide market growth and product growth strategies. It is basically a marketing planning model which assists a business in determining growth strategy for product and market. The matrix suggests growth strategies which help in setting the direction for the business strategy. It undertakes four strategies such as market development, market penetration, diversification and product development. The market penetration is basically a growth strategy where the focus of the business is on selling current products in existing markets (Filippov, 2017). The telecom industry is the perfect example of market penetration. Most of the telecom products already exists in the market and should cater to that market. A business sells current products to different markets in the market development, For instance, leading brands like Puma, Adidas and Reebok entered in the international market for expansion. The product development strategy is used for introducing new products into the existing products. It is used by the businesses to be differentiated in terms of products and to remain competitive. In this case market penetration strategy do not works longer. The new products are introduced in the new markets as per the diversification policy. This strategy inherent more risks as the businesses have no experience in the industry (Morgan & Strong, 2015). For instance, Coca-Cola makes use of market penetration annually by the creation of a link between Coca-Cola and Christmas. It is an effort for increasing market share within the existing industries. Samsung is also perfect example for this strategy as Samsung initiated as trading company, later expanded into securities, insurance and retail. At present, the company mainly known for the electronics division and has market presence in a diversified business such as cameras, appliances, home automation and music services.
The PESTLE analysis is used by the business to reduce threats. The firms can gain a valuable advantage by examining factors like political, economic, social, technological, legal and environmental (Dockalikova & Klozikova, 2014). The analysis is useful to the business in the idea phase, product launching, development and other factors to increase success. It is used to evaluate the outside factors which affect business. Out of all the factors, political factors determine the current direction of the political parties (Porter & Heppelmann, 2014). It defines the international trade tariffs, restrictions and visa requirements. The economic factors deter
mine the impact of the stock market, taxes, inflation, interest rates, and other economic metrics. The social factors concede the change in lifestyles, demographics, ethics, and values. It also includes the cultural norms, consumer preferences and gender distribution. The technological factors appraise the current technology of the company and evaluate whether it’s up to date or not. The legal factors anticipate new laws and regulations which can impact the operations of the business. It covers the consumer protection laws and licensing regulations. Finally, the environmental factors identify and consider the factors related to the environment (Lamas Leite, De Brito Mello, Longo & Cruz, 2017).
The Porter’s five forces framework defines the intensity of competition for a business. It is a power to understand the competitiveness of the business environment. It evaluates the forces which can affect profitability (Afonina, 2015). This framework identifies the five forces to act on a business. Out of them, the bargaining power of suppliers states the power required to assign prices and other conditions associated with the suppliers. For instance, the suppliers of Walmart have very restricted bargaining power, however, the sellers for a top chef needs very exact and occasional ingredient. The bargaining power of buyers is the same as the bargaining power of suppliers. For instance, if the commodity is sold then the buyers have huge bargaining power because if the required thing is not provided to the buyers then they can get the same product at somewhere else. The threat of new entrants helps a business to know about the entry barriers of the industry. The threat of substitute products mentions the capability of customers to make a decision in favor of the different product rather than that of the company in order to solve the same problem (Dobbs, 2014). For instance, Coca-Cola practices five force analysis to expand it’s operations. The threat of new entrants helps the company to know about the potential competitors. The threat of substitute products evaluates the pressure on the company to produce unique products. The bargaining power of buyers has no pressure on the company. The suppliers are not concentrated on the bargaining power of suppliers so the company has low pressure (Parnell, Long & Lester, 2015). The rivalry among the existing firms is high and helps Coca-Cola to know more about the competitors and their range of products. So, the company can launch products after evaluating the prevailing conditions in the market.
The SWOT analysis is a tool for verifying inner strengths and weaknesses of the business along with the outside opportunities and threats. It is an organized list of business’s strengthens, weaknesses, opportunities, and threats. Such information can be utilized for the business planning in order to achieve goals. The strengths and weaknesses are internal to a business whereas the opportunities and threats are external to a business (Bull, et. al. 2016). The internal factors are controllable but the external forces are uncontrollable and act upon the situation. The strengths are positive aspects internal to the organization which is within the control. The aspect of weaknesses is also used by the businesses that obstruct the ability to meet organizational objectives. The opportunities are used by a business in order to develop or achieve something. The threats are beyond the control of an organization and can place the project at risk. A business takes all the measures to escape from risks. A business uses SWOT analysis to capture ideas relevant to the current business situation. A business highlights the important issues and ranks them in order of importance before conducting a SWOT analysis (Madhavaram, Hunt & Bicen, 2017). It is used as a business guide to improving a business. For instance, Coles makes use of SWOT analysis in order to compete successfully with the competitors like Woolworths, Aldi and more. It helps to know it’s current situation in the marketplace. An example can also be taken from the hotel industry; Hilton uses SWOT analysis in order to determine the threat and weaknesses of the competitors. Such analysis helps Hilton to develop efficiency where other hotels are lacking.
The Ansoff Matrix can be used for both developing new products and opening up new markets. It can be used by the businesses to analyze the potential risks of each option in formulating the suitable plan. It is an appropriate strategic tool to take decision at corporate level. It helps a company to decide market growth and product growth strategies. It is basically a marketing planning model which assists a business in determining growth strategy for product and market. The matrix suggests growth strategies which help in setting the direction for the business strategy. It undertakes four strategies such as market development, market penetration, diversification and product development. The market penetration is basically a growth strategy where the focus of the business is on selling current products in existing markets (Filippov, 2017). The telecom industry is the perfect example of market penetration. Most of the telecom products already exists in the market and should cater to that market. A business sells current products to different markets in the market development, For instance, leading brands like Puma, Adidas and Reebok entered in the international market for expansion. The product development strategy is used for introducing new products into the existing products. It is used by the businesses to be differentiated in terms of products and to remain competitive. In this case market penetration strategy do not works longer. The new products are introduced in the new markets as per the diversification policy. This strategy inherent more risks as the businesses have no experience in the industry (Morgan & Strong, 2015). For instance, Coca-Cola makes use of market penetration annually by the creation of a link between Coca-Cola and Christmas. It is an effort for increasing market share within the existing industries. Samsung is also perfect example for this strategy as Samsung initiated as trading company, later expanded into securities, insurance and retail. At present, the company mainly known for the electronics division and has market presence in a diversified business such as cameras, appliances, home automation and music services.
References
Afonina, A., 2015. Strategic management tools and techniques and organizational performance: findings from the Czech Republic. Journal of Competitiveness, 7(3).
Bull, J.W., Jobstvogt, N., Böhnke-Henrichs, A., Mascarenhas, A., Sitas, N., Baulcomb, C., Lambini, C.K., Rawlins, M., Baral, H., Zähringer, J. and Carter-Silk, E., 2016. Strengths, Weaknesses, Opportunities and Threats: A SWOT analysis of the ecosystem services framework. Ecosystem Services, 17, pp.99-111.
Dockalikova, I. and Klozikova, J., 2014, November. MCDM Methods in Practice: Determining the Significance of PESTEL Analysis Criteria. In European Conference on Management, Leadership & Governance (p. 418). Academic Conferences International Limited.
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.
Filippov, D.V., 2017. Positioning of the Organization in the Target Markets Using the Modified Three Dimensional Matrix Model on the Example of Transport Education Market of the Republic of Sakha (Yakutia) of the Russian Federation. Advanced Science Letters, 23(10), pp.9861-9865.
Lamas Leite, J.G., De Brito Mello, L.C.B., Longo, O.C. and Cruz, E.P., 2017. Using Analytic Hierarchy Process to Optimize PESTEL Scenario Analysis Tool in Huge Construction Projects. In Applied Mechanics and Materials(Vol. 865, pp. 707-712). Trans Tech Publications.
Madhavaram, S., Hunt, S.D. and Bicen, P., 2017, May. The FREE (Firm Resources and External Environment) Framework as an Alternative to SWOT: An Abstract. In Academy of Marketing Science Annual Conference (pp. 49-49). Springer, Cham.
Morgan, R.E. and Strong, C.A., 2015. Competitive Strategy and Market Orientation: The Relationship and its Implications. In Proceedings of the 1998 Academy of Marketing Science (AMS) Annual Conference (pp. 232-232). Springer, Cham.
Parnell, J.A., Long, Z. and Lester, D., 2015. Competitive strategy, capabilities and uncertainty in small and medium sized enterprises (SMEs) in China and the United States. Management Decision, 53(2), pp.402-431.
Porter, M.E. and Heppelmann, J.E., 2014. How smart, connected products are transforming competition. Harvard business review, 92(11), pp.64-88.
Bull, J.W., Jobstvogt, N., Böhnke-Henrichs, A., Mascarenhas, A., Sitas, N., Baulcomb, C., Lambini, C.K., Rawlins, M., Baral, H., Zähringer, J. and Carter-Silk, E., 2016. Strengths, Weaknesses, Opportunities and Threats: A SWOT analysis of the ecosystem services framework. Ecosystem Services, 17, pp.99-111.
Dockalikova, I. and Klozikova, J., 2014, November. MCDM Methods in Practice: Determining the Significance of PESTEL Analysis Criteria. In European Conference on Management, Leadership & Governance (p. 418). Academic Conferences International Limited.
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.
Filippov, D.V., 2017. Positioning of the Organization in the Target Markets Using the Modified Three Dimensional Matrix Model on the Example of Transport Education Market of the Republic of Sakha (Yakutia) of the Russian Federation. Advanced Science Letters, 23(10), pp.9861-9865.
Lamas Leite, J.G., De Brito Mello, L.C.B., Longo, O.C. and Cruz, E.P., 2017. Using Analytic Hierarchy Process to Optimize PESTEL Scenario Analysis Tool in Huge Construction Projects. In Applied Mechanics and Materials(Vol. 865, pp. 707-712). Trans Tech Publications.
Madhavaram, S., Hunt, S.D. and Bicen, P., 2017, May. The FREE (Firm Resources and External Environment) Framework as an Alternative to SWOT: An Abstract. In Academy of Marketing Science Annual Conference (pp. 49-49). Springer, Cham.
Morgan, R.E. and Strong, C.A., 2015. Competitive Strategy and Market Orientation: The Relationship and its Implications. In Proceedings of the 1998 Academy of Marketing Science (AMS) Annual Conference (pp. 232-232). Springer, Cham.
Parnell, J.A., Long, Z. and Lester, D., 2015. Competitive strategy, capabilities and uncertainty in small and medium sized enterprises (SMEs) in China and the United States. Management Decision, 53(2), pp.402-431.
Porter, M.E. and Heppelmann, J.E., 2014. How smart, connected products are transforming competition. Harvard business review, 92(11), pp.64-88.
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