Literature Review
Strategy is a very common term used in the corporate. It holds a lot of meanings and usefulness to those who are associated with making plans for the organizations. It has proliferated in the corporate world because of a number of players in an industry. Strategic management on the other hand, is a continuous process of planning, monitoring, analyzing and assessment of everything that is relevant for an organization in meeting its goals and objectives. It also involves the analysis of cross-functional business decisions before they are implemented. The different strategic tools help a company to formulate strategies based on the business scenario and the environments. The prescriptive schools of strategy help to design the course of action that may lead to achieve the objectives and deals with strategy formulation. The strategy formulation is a systematic and deterministic approach in the prescriptive schools of strategy. The plans in this school take a lot of time to come up with any decisions before they are implemented. Prescriptive schools give significant guidelines that need to be followed for the effective formulation of strategies. Descriptive schools of strategy have bigger influence of the strategic direction of any company. The strategy formulation in the descriptive model is based on the mental process. Descriptive strategy formation is done using past experience and are more realistic. Mintzberg’s schools of thoughts can be considered as a hybrid model of prescriptive and descriptive model as it includes both the types of thoughts. The report will be taking into considerations different strategic tools, schools of thoughts and business cases of companies who have successfully utilized the tools to gain competitive advantage.
Strategy is all about decision making where the decisions are based on the rational analysis of the company, the customers and the competitors in the industry. The dynamic capability view is a vibrant approach to strategic management. Both the trends of integration and differentiation lead to the emancipation of the dynamic capability view, which is a distinct approach to strategic management. According to Grant, strategy is about achieving success. It is not a detailed plan of instructions but is a unifying theme that provides directions and coherence to the decisions and actions of an individual person in an organization. Strategic management as a community, possesses effective and strong institutions that can foster an identity and promote belongingness. Strategic management has been a multidisciplinary area for research. Strategic management helps to understand the importance of competitive heterogeneity, which compels to employ a bargaining model and the Value-Price-Cost framework that includes the demand and supply side of the value creation. There are important influences of the different stakeholders on the strategy and performance of the firm. Communicative institutionalism is an important strategy for many organizations. The strategy formulation, implementation and evaluation processes are very crucial for the success of any organization as per Daniel (2015). The strategic management defines that there is a high multiplicity in the form and structure of the organization.
Task 1
Strategy forms the basis of all the business operations. There is a huge competition between the companies in any industry and proper strategy helps one to rise above the other one. Sometimes the greatest idea and a great product do not work for a business with the lack of a strategy. The successful business people of the past are believed to be the greatest strategist that made them successful.
Fig. 1
There are typically three important levels of strategy that most of the organizations follow in order to get success in their business. They include the corporate strategy, business strategy and functional strategy.
The first level of the strategy pyramid in the business organizations is the corporate strategy. The corporate strategy helps to outline what types of businesses the organization would engage itself and it will plan and enter the market.
Fig. 2
It is a common mistake to overlook the planning stage for any organizations but this affects in the long run. The corporate strategy helps to direct all the smaller decisions taken by the management in the organization. Formulating corporate strategy is easy for some companies, basically for the small businesses who are planning to enter some specific markets with their products and services. The case is different for the large firms as things are complex there. The corporate strategy needs to be clearly defined by the organization before getting farther into the strategic planning process. The strategic decision-making at this level involves some actions dealing with the objectives of the organization, any acquisition of resources and allocation of available resources and at the same time coordination of strategies of different strategic business units for the optimal performance. The decisions are value-oriented, less concrete than the other two levels and conceptual in nature. Corporate strategy deals with different matters and not just a single aspect of the business.
This level of strategy is thought of as a “step down” from that of the corporate level strategy. The strategies that the companies outline in this level are more specific and they tend to relate to the smaller businesses within the large organization.
Fig. 3
Business level strategy is used by the companies that have various types of businesses and each business is treated as a strategic business unit. The main aim of this level is to identify the discrete product or market segments which the company is serving. Every market or product segment has a distinct environment and so strategic business units are created for each of them. The nature of the market with respect to customers, marketing channels and competition differs considerably foe each of the product groups. The strategies at this level operate in the overall strategies of the company. This strategy helps to set the long-term goals of the firm and takes into consideration the constraints and policies within which the business unit operates. It also assists the unit to clearly define the scope of operations and to decide whether to increase or limit the operations.
Task 2
This strategy deals with the day-to-day strategy of the company that helps to keep it going. In the absence of any daily plan, the management has the chance of being stuck at every step while the competitors will go ahead. This is the level where the organization thinks about the different departments in the business and work as a team to accomplish the goals.
Fig. 4
The name itself suggests that this strategy is related to a single operational activity. The decisions that are taken at this level are often termed as tactical. These are guided by certain overall strategic considerations. The functional strategy deals with restricted plan that provides specific objectives for some specific functions. It helps in the coordination between all of them for the achievement of the strategic business units.
Mintzberg has proposed ten schools of strategy formulation whereas Whittington proposed four strategies. The ten schools of thoughts of Mintzberg are prescriptive, design, planning, positioning, descriptive, entrepreneurial, cognitive, learning, power, cultural, and environmental and configuration schools of thought. The four thoughts of Whittington are classical, processual, evolutionary and systematic. The difference between the two theories is that the Whittington’s four school of thoughts are broader than that of the Mintzberg’s schools. On the other hand, Mintzberg’s schools of thoughts are more specific than that of the Whittington and more descriptive in nature. Whittington schools of thoughts have more sociological approach than the managerial one. Whittington schools of thoughts are prescriptive in nature. Prescriptive strategy model contains lot of assumptions which the descriptive model lacks. Mintzberg’s thoughts are more systematic and meaningful than the Whittington thoughts.
The strategic management in social science discipline mainly takes into consideration the strategic positions, strategic choices and the strategies in action. Strategic position deals with the distinction of the effects on the methods of the external environment, the skills and assets, the desires and the impact of the stakeholders. Strategic choice on the other hand takes into inclusion the proper understanding of the bases for the future system at the business as well as the corporate levels and choices for the creation of the systems in regards to both the methods and the directions for further improvement in the future. Strategic action is concerned about the proper functioning of the systems.
There are various models of strategic management in the social science discipline. The models are Porter’s five forces model, SWOT analysis and PESTLE analysis frameworks that can help in strategic management of the companies. Different tools are used for the macro-analysis, firm and industry level analysis.
Different levels of strategy
PESTLE model is an important tool to make analysis of the macro-environment. It is a very popular tool for the strategic as well as competitive analysis. PESTLE has come from the PEST analysis model. It takes into account the factors that have impacts on the organization as well as on the industry. The factors of PESTLE are political, economic, social, technological, legal and environmental. The political factors are concerned about the political conditions of a country where the company is operating. The economic factors have relation with the economical scenario of the country and the atmosphere of the business landscape (Ho 2014). The rise in unemployment can be a good example of the economic factor to determine the economic condition of the country. Social factors on the other hand define the societal aspects of a country where the business is operating and what impacts they have on the business. Technological factors again depict the significant impacts that the change in technologies has on the market and the organization. Legal factors describe any changes in the legislations of a country and the interference of the government to manage the business environment like any change in the tax policy or enforcement of tariffs. The environmental factors put focus on the aspects that are occurring in the physical environment. All these factors help an organization in the formulation of internationalization strategy when a company is trying to enter a new foreign market. PESTLE analysis helps the organization in this scenario whereas SWOT and Porter’s five forces will not be useful to it. These factors are applied for the marketing planning, product development and business development for an organization. Proper understanding the different scenarios of a country can be done only with the help of PESTLE analysis.
The SWOT analysis is also an important framework used by the managers for effective strategic management. This tool is useful to make analysis about the internal and external factors of the organization and not the country where it is working. This tool is used to evaluate a company, a product segment, making a business plan or formulating a marketing strategy. This framework takes in to account 4 significant factors namely strengths, weakness, opportunities and threats. Strengths and weaknesses are considered as the internal factors and opportunities and threats are considered as external factors. This model defines that the strengths can be the foundations of competitive advantages for the company whereas the weaknesses have the chances to become hindrances in the business operations. The model helps a manager to capitalize on the strengths, rectify the weaknesses, make proper utilization of the opportunities available and deter the potential threats. This tool helps a company to improve considerably.
Porter’s 5 forces is another significant tool used by the companies for efficient strategic management for the analysis of competitive strategy and also making an understanding of the competitive environment of the industry where the company is operating. The five forces are bargaining power of the suppliers, bargaining power of the buyers, threat of substitutes, barriers of the new entrants and rivalry within the industry where the company is operating. The supplier power helps to identify the supplier concentration, threat of forward integration, switching costs of the firm, volume of suppliers available in the industry, differentiation of the inputs and estimating the costs relative to the total purchase in the industry. Buyer power includes the volume of buyers in the industry, price sensitivity, and brand identity, information of the buyer, bargaining leverage, product differentiation and the substitutes that are available in the industry. The threat of substitutes includes inclination of the buyers towards the substitute products, analysis of the switching costs and trade-off of the substitutes. Barriers to entry depict the hindrances that the new companies have to enter into the industry. The factors that come under this are government policies, economies of scale, lack of proper brand identity, expected retaliation, access to the inputs, lack of enough capital for investment and access to distribution. The degree of rivalry is the last and important force among the five forces that help to understand the competition within the industry. This includes the growth of the industry, diversity of the rivals, stakes of the corporate, market share of the competitors, intermittent overcapacity and concentration of the players in the industry. The five factors help a company to understand the control of the suppliers in the supply of raw materials, the power of the buyers or the customers and their switching costs from the company’s products to others, the availability of any substitute products in the market, the intensity of rivalry in the industry and the hindrances of a new company in entering the industry. This framework helps to make an industry analysis whereas the other two were firm and macro-environmental analysis.
It is inferred from the three models that macro-environment analysis of the organization is done by PESTLE factors that help to identify the external environment and the business condition of a nation and identification of the drivers for change. The forces of the Porter’s five forces help a company in analyzing the strategies and the ways it can increase its profits by taking proper measures. Furthermore, the organization may take the help of the industry life cycle that is comprised of five distinct stages namely development, shake-out, growth, maturity and decline. The SWOT on the other hand helps to understand the position of the company in the external and internal contexts. The significant differences between the three strategic tools have been discussed in the report.
Using the models, a hybrid model can be made that may provide benefits to the management of the organizations. The prescriptive and descriptive models can be joined to create a model that will take the micro as well as the macro environment into consideration. Taking two schools of thought can make the hybrid model from the prescriptive and descriptive thoughts of Mintzberg’s thoughts. The model can be made by taking the positioning school and the design school from the prescriptive schools whereas the power school and the cultural school from the descriptive schools of thought. The company can create a model to get the internal as well the external environment analysis using the SWOT analysis of design school. The positioning school helps to maintain the current position in any industry. The power school shall help the company to formulate strategies based on its power like brand image and large amount of capital. The cultural school takes into account the dependence on culture for the formulation of strategies. This helps in employee involvement and gives the company an insight into how to enter into the mergers and acquisitions with other companies. The cultural school avoids the external environment but the design school helps in doing so. Thus, the hybrid model will help a company to formulate its strategic decisions for competitive advantage.
The report takes into consideration the business examples of Tesco and Apple and their strategic tools have been discussed. Tesco has been the largest food retailer in UK. SWOT helps the company to point out the strengths, address and rectify the weaknesses, mitigation of the threats, capitalize on the opportunities and developing the future strategies utilizing the strengths. The Porter’s five forces help the company in understanding the retail industry and the competitors, the power of the buyers and the intensity of rivalry in the UK retail industry. PESTEL on the other hand helps TESCO in analyzing the conditions of the nations where it has gone for internationalization. The company has opened its units in various other countries and the toll helped it to formulate its strategies accordingly based on the political, economic, social, technological, environmental and legal factors. The company was needed to manufacture new products based on the needs of the customers in foreign countries.
Apple on the other hand is a technological giant of the world based on US. PESTLE analysis helped the company a lot when it entered the Chinese market for its business. The political condition of China was not in a good position when it started functioning there. The technological environment of China is very good and the analysis helped Apple to find out the opportunities. Legal system in China is very strict and the businesses need to abide by the rules. Apple was needed to adapt them with the Chinese society and make the Apple products popular in the Chinese market. This tool helped Apple to get success in the Chinese market. SWOT analysis again helped Apple to find out the strengths, weaknesses, opportunities and threats. The strengths of Apple have been the impressive stores all over the world, most profitable company of the world and maintenance of consistency in terms of revenue. The technological innovations have been their all-time strength in the technological industry. The weaknesses that Apple has identified include the prices of the gadgets are very high, over-dependency on the IPhone and the slow expansion of the stores in the Europe and other countries in 2016. Apple has capitalized on several opportunities like increasing popularity of the products, recent signing of agreement with China Mobile as a strategy to launch the iPhone in the Chinese market. The threats that Apple is feared of are the market saturation of the Smartphone due to the presence of lot of rivals, effect of Brexit on the operations and revenue of Apple, challenging economic conditions and exponential growth of the credible rival companies. Porter’s five forces helped Apple to understand the high intensity of rivalry in the technological industry, very low power of the buyers, low bargaining power of the sellers, very low threat of new entrants and low threat of substitute products in the Smartphone industry.
Conclusion
The report has inferred the importance of strategic management in any business scenario. The different strategic business models are included in the report and have been critically analyzed. Each of the tools has given a new strategy based on the environment and business scenario of the companies. The business examples of Apple and Tesco provide valuable information about how these two popular companies in their individual industries have successfully formulated their strategies based on the mentioned strategic tools and gained competitive advantage all over the world. The different levels of strategies that are formulated in the companies have been considered here. It can be deducted from the report that proper utilization of the strategic tools may provide competitive advantages to the companies irrespective of any industry or nation.
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