Key Strategy Development Tools for Business

Introduction

Strategy development is fundamental to designing and managing a business. It is also known as strategic planning, which sets specific goals and objectives to be able to change in the dynamic market. So, it can be defined as ‘The direction an organization takes with the aim of achieving future business success’. Therefore, strategy development is the process of analysing, identifying and selecting the best alternative and determining how resources will be allocated across the organization to achieve objectives. Strategic management allows for identifying the position of companies in their external environment and evaluating their internal resources and capabilities in order to find the optimal methods of ensuring their growth and business success (Omolade and Tony, 2014). There are various of tools and techniques that can be applied to develop or set strategic planning in the organization. SWOT analysis, PESTEL analysis, Five Forces, Resource-Based view, PROFIT, Input/Output, Generic Strategies etc. are some examples of strategy development tools. Traditional approaches to strategic management are based on external environment evaluations performed with the use of such framework as SWOT, Porter’s Five Forces and PESTLE analysis (Moran, 2016). However, at present’s complex and explosive environment, it is very difficult to plan for every business organization and formulation of strategy must be more dynamic and flexile process which indicates strategically thinking way about the environment in which business operates. The three key strategy development tools (SWOT, PELTLE and Five Forces) can be described as follows:

SWOT Analysis:

A SWOT analysis is a high level of model and a strong tool to evaluate project or company, which represents a mix of internal and external factors. It is a technique to determine and define the Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is directly affected by the environmental factors. Strengths and Weaknesses are considered internal factors, and Opportunities and Threats are considered external factors.

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Strengths: The first element of SWOT analysis is Strengths. This element addresses things that a company or project does very well. Strengths belongs to various of internal resources, which leads a company towards success. This could be tangible or intangible such as, well trained and skilled staffs, extra qualities that separate from competitors, intellectual property, high technology, enough capital, strong leadership, company’s brand, trade mark etc.

Weaknesses: Weaknesses are another element of SWOT analysis, which deals different things that company lacks. For example, resource limitation, high holding cost or over stocking, poor record keeping, unclear selling proposition, unsatisfied staffs, negative relation to other companies, lack of clearly define goals etc.

Opportunities: The next element of SWOT analysis is Opportunities, which are a combination of various circumstances at a specific time period, that brings a positive outcome. Opportunities can not be produced as when desire because they are affected by the external factors; however, they benefit those who can take advantage of them. For example, A sporting event like ‘World Cup Football’ would be an opportunity for a juice producer company to advertise and sponsor players.

Threats: The final element of SWOT analysis is Threats, it causes negative impact or damage the business organization or product. Threats are negative external factors so they do not benefit any company; however, threats are like an opportunity, where we cannot change their frequency, but we can deal with them. Emerging competitors, changing environment, customers’ attitudes and negative media coverage are some examples of threats in business.

PESTEL Analysis:

This concept is used as a tool by different organizations to track the environment. It is also known as PEST analysis, and it is an instrument for business analysis which is expanded from denotes P for Political, E for Economic, S for Social, T for Technological, E for Environment and L for Legal. PESTEL analysis describes a framework of external or macro-economical factors used in the environmental scanning ingredient of strategic management. PESTEL analysis is a part of external environmental analysis, which gives an overview of different environmental factors when conducting a strategic analysis or doing market research. For example, a big brand companies like, Red bull or Coca Cola need to understand each country’s market and competitors in order to keep in line with their PESTEL situations. The elements of PESTEL analysis are as follows:

P: Political: These factors is an activity related to the government policy or intervenes in the economy. A government may influence a certain organization or overall economy of a country. For example, a government may introduce a new law or tax due to which overall revenue generating capacity of business might change. Political factors include Fiscal policy, Tax policy, Trade restrictions, Environmental law, Labour law, Political stability etc.

E: Economical: These factors are related to an economy’s performance that directly affect an organization and make long term effects. For example, a rise in interest rates cut back on spending on both customers and business. Economic factors include interest rates, inflation rate, economic growth patterns, foreign exchange rates etc.

S: Social: These factors are scrutinizing the factors within the social environment of the market. Family, Friends, Cultural trends, Population analysis, Demographics, Media etc. are the determinants of social factors. These can affect interest, opinions and attitudes of customers, and it can impact sales and revenue earned.

T: Technological: These factors are related to innovations of technology, and it may affect the operations of the industry and market. For example, the development of IT, business organization can understand customer behaviour, and can develop marking strategies.

E: Environmental: Any organization and business institutions are operating under its specific environment, and it can affect the business performance. Environmental analysis will help the organization to understand activities both inside and outside. Climate, environmental offsets, geographical location etc. are examples of these factors.

L: Legal: These factors are related to external factors, which refer to how the law affects the operation of business and customers behaviour. Profit margin, market viability, product transportation etc. may influenced by legal factors.

Porter’s Five Forces:

Michael Porter developed the five forces model in 1980, which is a powerful competitive analysis tool that identifies and analysis different five forces that helps every industry to determine their strengths and weaknesses. This model can be applied different sector of the economy to analyse the level of competition within the organization and helps a company to increase long-term profitability. The five forces are used to understand competition intensity and ability to make a sustained profit. The components of Five Forces are as follows:

Bargaining power of suppliers: The suppliers can influence the prices.  When there are few suppliers or relatively small, they can increase the prices. Suppliers can be powerful when there are no alternative products, and the suppliers can put pressure on companies by raising their prices, reducing the availability of their products or services, or decreasing their quality.

Bargaining power of customers: It is the ability to affect the price and quality of product and services by customers. When the number of customers of a product or services is low, they have more power to affect the price. When the supplying industry controlled with high fixed costs and consist of several small operators, customer bargaining power is high.

Threat of new entrants: New entrants will decrease net profit of other businesses in the industry. High initial investment cost, shortage of important resources, legislation and government policy and brand loyalty can make difficult to enter new businesses into an industry. When the barriers to entry into a market industry is high, a new business cannot enter the market easily.

Threat of substitutes: When there are enough substitute products, buyers determine the prices of product. Substitute products use different technology to get some economic benefit. For example, tap water is substitute for Coke, but Pepsi is a product that uses the same technology to compete with Coke.

Competitive rivalry: If there is high competition, business firm cannot control the prices of the goods and services. In contrast, in the monopoly market business can control the price of goods and services. An organization most be aware of its competitor’s pricing model and marketing strategies.

Conclusion:

Throughout the previous sections, we can conclude that strategic tools are very important in the development of business organization. SWOT, PESTEL or Porter’s Five Forces are the tools by which any business organization can make an effective strategic plan. These are support mechanisms in management decision-making, so the management should understand the different tools uses in strategy development as an important implication in decision making. Strategy development tools helps to develop skills in every sector. A good marketing strategy helps to define a business organization’s vision, mission and business development training. Strategy tools develop any business and it focuses on implementation of the strategic business plan, which is a critical factor that affects the performance of managers, influences the performance of workers and attractiveness of the organization to potential investors and eventually the success on the organization. Therefore, analysis of strategic development tools is essential for strategic planning, which build an action roadmap to guide the business, and determines the long-term success of every business organization.

References

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