The objective of this essay is to evaluate four strategy development tools and their role in businesses while forming strategies. This essay will take examples of different companies to understand how they use these tools while developing strategic policies in order to generate a competitive advantage in the industry.
The SWOT analysis is a popular strategy development tool which is used by corporations across the globe. This tool evaluates strengths, weaknesses, opportunities and threats of a company. Both internal and external factors that influence businesses are evaluated through this tool which helps corporations in increasing their organisational performance (Bull et al., 2016). Based on the existing opportunities, the corporation can leverage its strengths to form business strategies which assist in achieving effectiveness in the market. For example, BHP Billiton is an Anglo-Australian corporation which operates in mining, metal and petroleum industry. The senior level management of BHP uses SWOT analysis to form business strategies. Strengths of the company include a diverse range of revenue streams, strong position in the market, well-established brand image, strong international presence, effective corporate social responsibility model, and highly skilled workforce.
Weaknesses of the company include intervention of the government in the operations and negative reputation due to accidents in the workplace. Opportunities of the corporation include association with other leading brands, acquiring the smaller enterprises, and expansion of the business in other sectors such as coal and copper sector (Bellis, 2016). Threats faced by the enterprise include intense competition in the industry and reduction in foreign demand with the popularity of in-house production. The corporation should invest in improving its marketing strategy to create a positive brand image and associate with other established brands to diversify its business in other streams.
The PESTEL analysis is referred to a strategy development tool which is used by the top-level management to evaluate key external factors which influence the operations of an organisation. These factors include political, social, economic, technological, legal and environmental. Based on comparison between these factors, the company can become aware regarding potential opportunities and threats in the industry and the management can strategically prepare them changing the business as per these factors to gain a competitive advantage (Rastogi and Trivedi, 2016). For example, Wesfarmers Limited is an Australia based conglomerate company which is currently the biggest organisation in terms of revenue in the country. The political environment in Australia is stable which the biggest market is for the company which is suitable for the growth of the enterprise. The stable growth in the economy of Australia is also beneficial for Wesfarmers for development; however, the increased wage costs create challenges for the company.
The social perspective of customers towards unhealthy food is changing, and they prefer to pay higher costs for products which are manufactured sustainably. It creates challenges for Wesfarmers since Woolworths is its biggest competitor which is offering healthy and fresh food products to its customers, whereas, Coles (Wesfarmers’ owned brand) did not offer any healthy options to customers. Wesfarmers is serious about using technological advancements to improve its operations in different countries. For example, the company uses drone technology to improve safety in CSBP which is a fertilizer and chemical company (Wesfarmers, 2018a). Wesfarmers has implemented as sustainability policy in the organisation to ethically source its materials and protecting environmental resources. In 2018, the corporation reduced 6 percent of its carbon emissions by using energy efficiency projects (Wesfarmers, 2018b). Compliance with legal regulations such as employment laws, trade policies, mandatory reporting requirements and taxation laws are important for the company to ensure that it avoids legal consequences.
The RBV model is a popular tool which is applied by the senior management for analyses and interpretation of key resources of the enterprise. This evaluation is conduct to find those resources which enable the company in generating a competitive advantage. These resources are customised by the corporation as per its requirements, and due to an extended learning curve, it becomes difficult for competitors to imitate these resources (Ferlie et al., 2016). The VRIO model is used by corporations while implementing this model to find those resources which provide a competitive advantage to the enterprise. VRIO is an acronym for valuable, rare, inimitable and organised. Those resources which pass these criteria assist the corporations in generating a competitive advantage in the industry and sustain their future growth in the market. For example, Honda is a global brand which operates in the automotive industry, and it is one of the biggest engine manufacturers.
Its business strategy focused on building petrol based engines and its operations were started by building clip-on engines for bicycles. The corporation started to expand its operations by manufacturing scooter and motorcycle engines and establishing its operations in developing markets. Due to this extended learning curve, the corporation used this resource to expand its operations. It started manufacturing engines for scooters, automobiles, motorcycles, marine engines, jet place and garden equipment’s engines (Honda, 2018). These resources are valuable since they increase profitable of the company and the capabilities of the company are extremely rare due to long learning curve. The company has effectively organised these resources by establishing different plants and providing engines to major corporations across the globe. Due to these factors, this resource passes on the VRIO model based on which the management of the company relies on RBV model to gain a competitive advantage in the industry.
Michael Porter developed the five forces framework which is a valuable tool that is used by corporations to evaluate the competitive environment in a particular industry. As per Porter, there are five key forces which influence the profitability of a company by increasing or decreasing competition in the market (Greiner and Julian, 2017). The five forces include competitive intensity, bargaining power of customers, bargaining power of suppliers, threat of new entrants and threat of substitution. The top-level management uses this model to determine the attractiveness of the industry in which they operate or want to expand their operations. For example, Qantas Airways is a learning airline company which operates in aviation, travel and tourism industry. The bargaining power of customers is considerably high in the industry because there are no switching costs and customers can easily compare between prices of different airlines through online services.
The bargaining power of suppliers is high because there are only two suppliers, Airbus and Boeing, and they can increase the prices of aircraft. The threat of substitute is low because alternative options include traveling by bus or train which are not as efficient or comfortable as flight (Sarina and Wright, 2015). The threat of new entrants is low due to high entry barriers such as high initial investment, competition from well-established brands, complex operations, low profitability in the beginning and others. The competitive intensity is high in the industry because there are many competitors who offer competitive prices to customers and a comfortable journey such as United Airline, Singapore Airline and others.
In conclusion, evaluation of strategy development tools assists companies in developing business strategies which are focused on achieving effectiveness in their respective industry. The management can evaluate both internal and external elements through these tools to ensure that they are able to change their policies as per market and sustain their business in the competitive business environment.
References
Bellis, J.F. (2016) Emerging Issues in Sustainable Development. New York: Springer.
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.
Ferlie, E., Crilly, T., Jashapara, A., Trenholm, S., Peckham, A. and Currie, G. (2016) Strategic management in the healthcare sector: the debate about the resource-based view flourishes in response to recent commentaries. International journal of health policy and management, 5(2), p.145.
Greiner, M. and Julian, S.D. (2017) An Empirical Test of the Five Forces Model. In Academy of Management Proceedings(Vol. 2017, No. 1, p. 11870). Briarcliff Manor, NY 10510: Academy of Management.
Honda. (2018) The “Joy of Manufacturing”. [Online] Available from: https://world.honda.com/history/limitlessdreams/joyofmanufacturing/ [Accessed on 9th December 2018].
Rastogi, N.I. and Trivedi, M.K. (2016) PESTLE technique–a tool to identify external risks in construction projects. International Research Journal of Engineering and Technology (IRJET), 3(1), pp.384-388.
Sarina, T. and Wright, C.F. (2015) Mutual gains or mutual losses? Organisational fragmentation and employment relations outcomes at Qantas Group. Journal of Industrial Relations, 57(5), pp.686-706.
Wesfarmers. (2018a) Smart technology improves safety at CSBP. [Online] Available from: https://2016.sustainability.wesfarmers.com.au/case-studies/people/smart-technology-improves-safety-at-csbp/ [Accessed on 9th December 2018].
Wesfarmers. (2018b) 2018 Wesfarmers Sustainability Report Released. [Online] Available from: https://www.wesfarmers.com.au/util/news-media/article/2018/09/16/2018-wesfarmers-sustainability-report-released [Accessed on 9th December 2018].
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