Main Tools Of Strategy Development In Business

Tools

An organization defines its directions, strategies, and decision making through strategic planning. There are various tools and techniques that are used in the strategic planning such as PESTLE, SWOT, Porter’s five-factor analysis, Ansoff’s matrix, generic strategies and Ghemawat’s AAA model (Anna, 2015). This report describes the main tools of strategy development with their importance and process of work.

PESTLE Analysis

Pestle analysis is a tool or framework used by the organizations to monitor and analyze the external environmental factors that may impact the current and future strategies of an organization.

PESTLE stands for

P= Political

E= Economic

S= Social

T= technological

L= Legal

E= Environmental

Political

These factors are about the level and practices of government intervention in the economy. This may contain political instability or stability in the foreign market, government policies, tax policies, labor law, trade restrictions, foreign trade policies and related laws.

These laws and policies affect the functions and activities of an organization as an organization needs to respond to the government and political environment of the economy in which it operates.

Economic

Economic factors can be defined as the matrices that can define the health of an economic region. An organization is required to compare the current rate of unemployment, inflation, international trade and economic growth (Rastogi & Trivedi, 2016).

Social

Social factors are used to access the mental state of the consumers and individuals in the given industry. These are also considered as demographic factors which include social indicators such as GDP, exchange rates, attrition rate and many more.

Technological

This step includes recognizing the possible technological changes that are easily available. Technological advancements can save a service or product to become technologically obsolete. The most common technological factors are:

• New innovations and discoveries
• The rate of innovation and technological advances
• New technology based platforms

Legal

These factors overview such legal elements that are required to follow by the organization to maintain its existence and fair work. Analysis of legal elements can help in avoiding the legal pitfalls which can create major harms for an organization.

Environmental 

Both government and consumers penalize organizations for carrying out any activities that may have an adverse effect on the environment. Governments of all nations levy huge penalties on firms for increasing pollution. The main environmental factors that are analyzed in environmental factors are:

• Laws of environmental protection
• Laws of disposal waste
• The attitude of the competing forms towards the environment(Ho, 2014)

Example

The pestle analysis of Walmart indicates that the organization has more opportunities in comparison to threats in its external environment. The company is required to take proactive actions to deal with the threats. However, the efforts made by Walmart tend to focus on the opportunities emerging in the retail business environment.

PESTLE Analysis

It is a strategic planning framework which is used to find out the strengths, weaknesses, opportunities, and threats involve in a business or in a project to be commenced by an organization. It also involves the specification of the business objective and identification of external and internal factors that are either supportive or adverse for obtaining that objective or goal. The SWOT analysis works as per the below-mentioned process.

Strengths

• Positive internal attributes to an organization in either tangible or intangible.
• Such attributes are controllable by the organization(Ommani, 2011).

Weaknesses

• These are the areas which are required to be improved by the management
• These factors can also be controlled by the organization.
• These are the activities and functions that are affecting the organization in an adverse manner.

Opportunities

• These are external attractive factors that provide chances to grow and develop the business to an organization.
• These cannot be controlled by an organization but advantages can be taken

Threats

• These are external factors that can create risk in managing the operations of an organization and thus to achieve the mission and objectives.
• Such factors may be deal by having contingency plans that can help in occurring the same(Gurel & Tat, 2017).

Example

The SWOT analysis of Nestle shows that the brand strategy of Nestle is the result of making the investment in the strengths to make them stronger to support the organization in long run. The main opportunities that can be utilized by the company include rising aging population, growing demand for dairy products and the expansion of R&D initiatives.

The Ansoff’s Matrix is a tool of business analysis and planning that is related to the identification of growth opportunities of an organization. It can help the analyst to consider the suggestions of growing the business with the help of new or existing products and in the new or existing target market. All the growth options are drawn on both external and internal investigations, influences and analysis and then implemented with the planned strategy.

This matrix presents four alternative strategies for growth in form of a 2*2 table.

 

(Anon., 2018)

One dimension of the table reflects markets (new and existing) and another dimension reflects products (new and existing) offered by the organization.

The matrix shown above offers a structured process to access the possible strategies for growth. As a part of this tool, an organization needs to consider the potential technological advancements that can affect the existence of the existing products and the commencement of new products.

The sequence of the above-mentioned strategies can be described as below:

Market Penetration

Organization focus on the selling of existing products and services in the existing market to maintain or to increase the market share.

Market Development

The organization focuses on the development of a new market with the existing products and services. The management can adopt new strategies as per the requirements of the new market.

Product Development

In this segment, an organization tends to focus on the expansion of products and services in the existing market.

Diversification

In this segment, the organization is supposed to enter into the new market with the new product. This segment includes the highest risk factor and needs the highest amount of investment as compared to the other mentioned segments.

Political

This framework does not present final decision to the organization that whether it should enter into a new market or to develop new products as well. But it provides an outline of the available alternative methods which can help the management to achieve the targets and growth objectives (Gianos, 2013).

Example

For example, Starbucks provides a range of products targeting new/existing market as well as new/existing products. However, the company is using product differentiation strategy Via Readybrew. But the target market is the same for the new product.

The relative position of the firm in the market determines the level of profitability of the firm. The basic fundamentals of the high profitability in maintainable competitive advantage in the long run.

There are mainly two types of competitive advantages named as differentiation or low cost. These two competitive advantages are combined with each other which leads to the formulation of three generic strategies. Such strategies are known as differentiation, Focus, and Cost leadership. The focus strategy is the combination of two variants including differentiation focus and costs focus.

 

(Anon., 2016)

Cost Leadership

In this strategy, an organization aims to become the lowest cost manufacturer in the market. The bases of such cost advantages may include access to raw material economies of scale, proprietary technologies and other factors.

Differentiation

In this strategy, an organization seeks to become unique in the market along with some majorly used dimensions used by the buyers. This strategy selects more than one attributes that are perceived as important by many buyers in the industry.

Focus

Focus strategy tends to select a particular segment or a group of sections in the market and formulates the strategies in order to serve them effectively. This strategy mainly has two variants:

• In a cost focus strategy, a firm seeks for the cost advantage in the target section.
• In the differentiation focus strategy, a firm seeks for differentiation in the target section(Tanwar, 2013).

Example

For example, Honda focuses on the cost leadership and differentiation strategies of this model. As the company mainly emphasis on differentiation, it is making continuous efforts to manufacture eco-friendly cars and bikes.  

Conclusion

On the basis of above discussion, it can be concluded that various tools are used with the different approaches and provide results about the different aspects that can be analyzed by an organization to plan the strategies either for the commencement of any new business or to achieve growth in the existing business.

References

Anna, A., 2015. Strategic Management Tools and Techniques Strategic Management Tools and Techniques from the Czech Republic. Journal of Competitiveness, 7(3), pp. 19-36.

Anon., 2016. Porter’s Generic Competitive Strategies (ways of competing). [Online]
Available at: https://www.ifm.eng.cam.ac.uk/research/dstools/porters-generic-competitive-strategies/
[Accessed 22 August 2018].

Anon., 2018. Introduction to the Ansoff Matrix. [Online]
Available at: https://www.free-management-ebooks.com/faqst/ansoff-01.htm
[Accessed 22 August 2018].

Gianos, J. F., 2013. A Brief Introduction to Ansoffian Theory and the Optimal Strategic Performance-positioning Matrix on Small Business (OSPP). Journal of Management Research, 5(2), pp. 107-118.

Gurel, E. & Tat, M., 2017. SWOT ANALYSIS: A THEORETICAL REVIEW. The Journal of International Social Research, 10(51), pp. 994-1006.

Ho, J. K. K., 2014. Formulation of a Systemic PEST Analysis for Strategic Analysis. EUROPEAN ACADEMIC RESEARCH, 2(5), pp. 6478-6492.

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, 5(22), pp. 9448-9454.

Rastogi, N. & Trivedi, M. K., 2016. PESTLE TECHNIQUE – A TOOL TO IDENTIFY EXTERNAL RISKS IN CONSTRUCTION PROJECTS. International Research Journal of Engineering and Technology, 3(1), pp. 384-388.

Tanwar, R., 2013. Porter’s Generic Competitive Strategies. IOSR Journal of Business and Management, 15(1), pp. 11-17