This essay aims to discuss various types of Strategy Development Tools that help the business to identify and consider all the potential internal as well as external impacts on the business. Strategy analysis is the process of researching the external business environments within which the organizations operates and the internal atmosphere of the business itself. This is the reason why the strategy development tools are important. For effective strategy analysis help the companies to facilitate, research, analyze and map their abilities so that these organizations can achieve future envisioned status. These tools help the organizations understand their processes, technology, people’s capabilities thus develop their business (Malysheva et al. 2016).
This particular tool is useful to the external environment of the business in which it exists. It is useful for judging the political, economic, social, technological, environmental and legal atmospheres of the business. This toll is mainly used for evaluating the market growth of the region in one hand and disclose the position, direction and potential of the market. The political factors include the regulations and policies of the government of that particular market. These regulations include employment laws, tax policies, import export facilities and environmental regulations. These factors actually affect the business of the international firms as well as the domestic SMEs. The firms can only operate when the country has political stability and trade restrictions.
The economic factors include the purchasing power and cost of capital of any organization. The economic factors include the interest rates, economic growth, and purchasing power of the customers, inflation, currency exchange rates, demand and supply, and recession in the market. The economic factors if the market decides what type of businesses will be taking interests to enter the market. This factor is also closely related with the global economy as due to globalization, the exchange rates, GDP growth and other monitory policies of a country depend upon the rise and fall of the international economy which affect the inner workings of the companies also.
The social factors include the potential size of the market, the needs and demands of the customers, their lifestyle and buying capacity matching with the product and service e of the companies. In addition to this, the age demographics, population growth and health awareness are also the factors involving the social factors affecting the business of a market. In this social media era the business organizations are reaching the customers and identifying their needs on the basis of the gaining popularity in the social media.
The technological factors involve the support of the governments of the countries to develop the technological support to business in the market. Technological support of the government aims to introduce automation, investment incentives and other technological advancement so that both the companies as well as the potential customers can identify their needs and buy products more easily than before. These advancements influence the barriers to entry a new market and the buyer’s decisions effectively. The more markets are technologically advanced, the more the government can attract the companies to do business in the market. With globalization and 4thindustrial revolution, most of the international business organizations are making themselves digitized to reach more customer bases within limited time.
In PESTLE analysis the legal factors include the legal system of the market where the business is operating. These legalities create issues in the independence of the businesses as well as the behaviors of the customers (Klettner, Clarke and Boersma 2014). Product transportation, viability of the markets and profit margins depend upon legal factors of the country. The laws include, consumer laws, copyright laws, health and security laws., import export laws, employment laws and fraud law. These laws play a big role in the operations of the business and their profits from the market.
The environmental factors mainly refer to the ecological factors and this aspect is growing immense popularity because of climate change, weather change, pollution, availability of the non-renewable goods and global warming, many countries are prohibiting usage of toxic elements in the production process of the firms (Yunna and Yisheng 2014). This is the reason why they are issuing some legislation aiming to protect the environment of the region. This also relates to the availability of the renewable materials used for production, workplace efficiency, and existence of required biological species.
These factors of PESTLE directly affect the business of a certain market starting from the entry to the market to successful operation in that market catering all the needs of the stakeholders associated with them. Before entering a new country, therefore, the business judge how the situation of that market is or how they can utilize the demand of that particular market in their profit-making processes.
SWOT analysis or SWOT matrix is mainly the technique to identify the strengths, weaknesses, opportunities and threats of the internal setting of the business organizations. SWOT actually aims to specify the goals of the project or business ventures and identify internal as well as external factors whether they are favorable or unfavorable to achieve those goals. The business leaders use sword for identifying their competitive advantages by questioning some of the factors to generate meaningful information (Aarons et al. 2015). Strength and weaknesses are internally related where does opportunities and threats are focused on the environmental placements.
Strengths of the organizations depend on the characteristics of the business which give them advantage over the others. The weaknesses on the other hand are the characteristics which place the business at disadvantages in comparison to others. The opportunities at the elements presented in the environment which those business organizations can exploit in gaining competitive advantage. Threats on the other hand are the elements presented in the environment which can cause trouble to that business. Proper identification of SWOT is very much important for the business organizations because these can inform them the gaps and help to take necessary steps in the planning process for achieving the objectives effectively (Leiber, Stensaker and Harvey 2018).
SWOT can help the planners or decision makers to identify the gap so that they can consider the objective to be attainable. In case those objectives and not attainable in applying in the organizational settings then they need to change those objectives and make a set supported by the SWOT matrix. There are mainly four usage of SWOT in the business context. These are strategy building, corporate planning, marketing and converting and matching. In the business world, SWOT is mainly used to explore the solution of problems, identifying barriers which may limit the growth, revealing possibilities and choosing the best direction (Peng and Vlas 2017). Through this tool, the organizations produce practical as well as efficient results and maximize their potential.
Porter’s five forces analysis aims to identify the power lying in the situation of the business. These five forces determine comparative intensity as well as the attractiveness of the market. Porter’s five forces is useful in understanding strengths of the competitive position of the organization in one hand and also the strength which it is aimed to reach in future. This strategic tool helps the business to understand whether the new products or services can be put in should profitable in the new market. As this tool identifies the strength of the organization it can improve the weaknesses and helps the business to avoid making mistakes. Porter’s five forces are supplier power, buyer power, threat of substitution, threat of new entries and competitive rivalry. The first four forces directly contribute to the rivalry among the companies.
There are some factors in each of the forces which determine the strength of the company to survive in the competition. Threat of new entry the factors are switching costs, learning curve, economics of scale, patents and capital requirements. The second force is buyer power which includes the buyer information, volume, and price, sensitivity, switching costs and bargaining leverage (Darkow 2015). Similarly, in the supplier power the factors are the supplier concentration cost relative selling price and importance of volume. Threat of substitution includes the switching cost of the buyers, propensity to the substitution and product differentiation. Competitive rivalry includes industry growth rate differentiation size of the competitors’ number of the competitors and exit barriers. The supplier Power Analysis shows how easy the suppliers can drive up the prices. These drivers depend upon the number of suppliers in each essential input, the uniqueness of products and services, the cost of switching from one supplier to the other and the strength and size of the suppliers.
On the contrary the buyer Power drives the prices down (Porter and Heppelmann 2014). It depends on the number of buyer present in the market, the importance of individual buyers for the organization and the cost of the buyers for switching from one supplier to the other. The rate of substitution increases when the close substitute of the products exists in the market. This enhances the customers benefit to switch to the alternatives when the price increases. This however reduces the power of suppliers and attractiveness of market (Dobbs 2014).
The threat of new entry implies the decrease of profitability when the new companies enter the market. The policies of the Government and other business factors will remain in support of business then the competitors increase in the market. There are some barriers to entry such as patents capital requirements government policies economies of scale and profitability this reduce the threat of entrants and the Business can operate successfully like before (Mathooko and Ogutu 2015). The competitive rivalry is another factor which reduces profitability. This also depends upon the size and capability of the competitors in the similar market many competitors can offer and differentiated products or services which can reduce the market attractiveness.
The PROFIT or VRHN analysis helps the company to beat the competitors and gain competitive advantages in the highly competitive international market scenario. This analysis can help the firms in assessing everything which they mark to differentiate themselves from their competitors. VRHN stands for valuable, Rare, hard to imitate and non-substitutable factors (Marttunen, Lienert and Belton 2017). The valuable factor undermines all the necessary and important resources of the company based on which it does the business. For example, the human resources, firm infrastructure, procurement and technological equipment are the valuable resources for the company. Through these factors the companies show their possessions and differentiate themselves from their competitors and gain more competitive advantage. The second factor is rarity that defines that the product and service that the company provides to its customer must be rare. They must have rare combinations for making them unique and attractive to the new customers as well as the existing customers. This will create differentiation in their offerings of the company.
Along with the products’ quality, the packaging in many cases has proved to be rare which are capable to attract the new customers so that they can easily switch from other substitutes. The products and services which the company will provide to its customers must be hard to imitate. This may be through patent or copyright (Afonina 2015). The products or services must be prevented from imitation or piracy this will eventually reduce the profitability of the products and the company will not be able to survive in this highly competitive market. The last factor is the non-substitutability which gives the firms uniqueness and helps to differentiate themselves from the other competitors in the aspects of operations, management, production process, marketing and customer satisfaction. This tool helps the business organizations to understand the importance of innovation in their products or services so that they can gain profit.
Therefore, it can be concluded that the companies operating in the competitive market need to have proper tools and techniques so that they can understand the environment where they are doing their business. The SWOT and PESTLE analysis help the business to understand the external and internal business situation of the organizations. On the other hand, the Porter’s Five Force analysis and PROFIT help them to enhance the quality of their products and services so that the external factors and most importantly the competitors cannot affect their business.
References:
Aarons, G.A., Ehrhart, M.G., Farahnak, L.R. and Hurlburt, M.S., 2015. Leadership and organizational change for implementation (LOCI): a randomized mixed method pilot study of a leadership and organization development intervention for evidence-based practice implementation. Implementation Science, 10(1), p.11.
Afonina, A., 2015. Strategic management tools and techniques and organizational performance: findings from the Czech Republic. Journal of Competitiveness, 7(3).
Darkow, I.L., 2015. The involvement of middle management in strategy development—Development and implementation of a foresight-based approach. Technological Forecasting and Social Change, 101, pp.10-24.
Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), pp.145-165.
Leiber, T., Stensaker, B. and Harvey, L.C., 2018. Bridging theory and practice of impact evaluation of quality management in higher education institutions: a SWOT analysis. European Journal of Higher Education, pp.1-15.
Malysheva, T.V., Shinkevich, A.I., Kharisova, G.M., Nuretdinova, Y.V., Khasyanov, O.R., Nuretdinov, I.G., Zaitseva, N.A. and Kudryavtseva, S.S., 2016. The sustainable development of competitive enterprises through the implementation of innovative development strategy. International Journal of Economics and Financial Issues, 6(1), pp.185-191.
Marttunen, M., Lienert, J. and Belton, V., 2017. Structuring problems for Multi-Criteria Decision Analysis in practice: A literature review of method combinations. European Journal of Operational Research, 263(1), pp.1-17.
Mathooko, F.M. and Ogutu, M., 2015. Porter’s five competitive forces framework and other factors that influence the choice of response strategies adopted by public universities in Kenya. International Journal of Educational Management, 29(3), pp.334-354.
Peng, M.W. and Vlas, C.O., 2017. Diffusion of a twentieth-century innovation. Academy of Strategic Management Journal, 16(1).
Porter, M.E. and Heppelmann, J.E., 2014. How smart, connected products are transforming competition. Harvard business review, 92(11), pp.64-88.
Yunna, W. and Yisheng, Y., 2014. The competition situation analysis of shale gas industry in China: Applying Porter’s five forces and scenario model. Renewable and Sustainable Energy Reviews, 40, pp.798-805.
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