HI6006 STRATEGY DEVELOPMENTS TOOLS
Strategic management is an important aspect in order to analyse the business performance. It means a company can create the structure for planning and monitoring the business objectives by using strategic management tools. In this context, the company can use strategic tools like- PESTEL, Porter Five forces of the strategic development, Profit and SWOT analysis. These tools help to illustrate the internal as well as an external environment of the business which influences the strategic planning and management of the company.
Development of Strategy by using PESTEL
PESTEL analysis is one of the effective tools to illustrate the critical factors of the business. It involves mainly the external factors of the business environment. These factors imply a competitive analysis, which helps the business to understand the current scenario. The factors show the possible opportunities and threats respectively. These factors are mentioned below.
Political factors: Political factors mention the political scenario of a country. The changes in various laws, such as educational laws, business laws etc. It implies the state of the government stability and administrative overview of the country. For example, TESCO plc makes some changes in the operational process according to the present political aspect identified by PESTLE analysis (Otoo et al. 2015).
Economical factors: Economical factors such as Inflation, taxation, GDP, stock market scenario and others are those, which address the nature of the economy of the country. For example companies like Coca-Cola' can make strategic decisions by PESTEL analysis in order to combat against high inflation rate in the UK economy.
Social factors: Considering all the purposes of the customer’s life trends, choices, buying habits, lifestyle perspective of customers are focused in this area. For example, in India, the dairy products, which are produced in Australia or America, are not allowed to import. Thus, if a dairy company plans to make expansion in India, it would require making PESTEL analysis before making such decisions (Alatalo et al. 2018).
Technological factors: Since every type of company uses technology to sell or promote their products, hence the technological factors play a crucial role in business strategies. For example, tech-based companies in the UK pay special attention in the technological advancement of the area of operation.
Environmental factors: Environmental factors including the climate, weather, population of a country are also responsible for the business growth. For example, the tea plants have to situate near the tea garden to cut the carriage cost. It helps to reduce the cost of the production, which pays great impact on business strategies (Warner and Sullivan, 2017).
Legal factors: This section is quite similar with the political factors however; it includes the consumer laws, health laws, patent laws and more. For example, some companies are required to implement the law which is states not to use the product name or tagline by other companies. Thus, companies are to focus on the legal issues that could be faced while operating the business activities by using the PESTEL analysis.
Porter Five Forces and Strategy Development
Threats in New Entry of Business - Industries like automobile or health insurance are not promoted the homogeneous products so they sustain their position in the market favourably. When the barriers of new entries are low then the companies face more advantages to sustain in the market easily (Herrmann and Herrmann-Nehdi, 2015). For an example companies like TESCO can identify the threats of the new entry for increase in the retail stores in UK through the Porter Five Force model.
Power of Buyers: Bargaining power of buyers addresses whether the buyers have the ability to influence the market price of the products of a business. When the consumers buy products in low quantities, the power of bargaining is low. On the other hand, if the consumers buy large quantities of products the demand for the products is high. It helps to generate more profit for the business. TESCO PLC can use this tool to identify the power of its customers in order to make strategies for future.
Power of Suppliers: It illustrates the situation in the market where the suppliers can influence the prices of the product. If there are a lot of suppliers in a market then the buyers have the sufficient options to switch off. However when there are a few suppliers in the market then the buyers have not much option to choose and eventually, the supplier can push the prices up for more become powerful (Otoo et al.2015).
Threats of Substitutes: Threats of substitutes also play a crucial role in accordance to develop the business strategies. If the number of substitutions in the market is increased then the buyers can get more power to choose different products according to their needs. In contrary, if the business can make product differentiation strategies then it can increase the ability of the buyers in the market.
Competitive Rivalry: In a highly competitive industry, a company can control very little to choose the goods and services or changing the price of the products. However, in contrary, if the industry plays the monopolistic role then the company have full control to make changes (Broman, et al. 2017).
The above analysis states that companies like TESCO PLC can use Porters Five forces as an important tool to examine the competitive advantage in the market. This kind of analysis would be effective ofr the company to make strategic decisions for getting competitive advantage.
Profit as a tool of strategy development
According to Wheelen, et al. (2017), profit defines the financial performance of a company for a particular accounting year. In this regard, it is to be added that the strategic decision-making can be made by using this quantitative outcome of the performance of a company. If a company makes a loss, it would require analysing the reasons for the inefficiencies in the operations. Profit can also evaluate the operational performances, which define the most optimum business strategies in accordance to achieve the organisational goals (Herrmann and Herrmann-Nehdi, 2015). In order to generate the business strategies to achieve the maximum profitability of a business, all the factors such as sales, expenses, and cost of raw materials have to be determined on a daily basis. If a business can make a profit, it indicates that the organisation can reinvest the money to make further progression in business. On the other hand, if a business faces the loss that indicates the company can minimize the controllable cost to maximize the profit (Joyce and Paquin, 2016).
Companies like ASDA can make strategic planning by considering the profit. If the company earns profit at a higher rate, it can make significant amount of advertisement expenditure to sale its products. However, a low profitability would result in cut in the controllable costs and therefore, it can be stated that profit also helps a company to make strategic plans.
In order to get the scenario of internal activities in a business, one can imply the SWOT analysis to know about the strengths, weaknesses, opportunities and threats in a company.
Strengths: The business strategies are to be developed by considering the pros and cons of an organisation. Through the SWOT analysis, the managers of an organisation can identify the strengths of the company based on which it can enter into a new market. In this regard, it can be noted that the internal strengths help the managers to make strategic plans for futures (Broman et al.2017).
Weaknesses: Defining the weaknesses of a company can illustrate the overall area of activities where the possible changes can help to bring more profit. SWOT analysis helps to identify the weaknesses in the internal process of the organisation and based on such weaknesses, a company can develop strategies for future operations.
Opportunities: SWOT analysis explains the external opportunities, such as favourable government decisions, fall in interest rates and decreasing tax rates can facilitate a company to grow in the marketplace. In addition to that, an increasing trend in demand of the products of an industry can also be considered as an opportunity for a business and this kind of opportunities could help the manager to take strategic decisions (Ojasalo 2015).
Threats: External factors such as excessive competition in the market, chronic inflation in the economy can be identified as threats for a company, which could affect the company’s performance in future. In order to mitigate the negative impacts of such threats managers are to make strategic plans. Thus it can be evident that the SWOT analysis helps the organisations to absorb the negative impact from external factors (Herrmann and Herrmann-Nehdi, 2015).
Retail companies like TESCO Ltd. has a high volume of product capacity and also the good brand value, which indicate the strengths of the company. Opportunity of TESCO Ltd is to extend the business in all over the world through increase the business chain. The threats of TESCO Ltd are change in the structure orientation in the UK market and the decreasing revenue trend of retail business in the UK economy. Thus, it can be stated that SWOT analysis helps in identifying strengths, weaknesses, opportunities and threats, which helps in making strategis decisions.
Strategies are stated to define the internal as well as external performances in accordance to the business development. The strategic decision-making depends upon some factors which include, PESTEL analysis, Profit, SWOT analysis and Porter's' five forces of developing business strategies. In this regard, it is also to be concluded that the strategy development depends upon internal and external factors and therefore the managers of a business entity are to consider both factors in order to make strategic decisions.