Strategy Development Tools are extremely important for the purpose of modern day businesses in order for them to ensure that they can maintain a competitive advantage in case of the market. This study looks primarily into the three strategy development and analysis tools which are the Porter’s Five Forces Analysis, PESTLE Analysis and the Ansoff Matrix. The study seeks to define these tools of analysis and then enumerate how they help in order for strategy development.
Porter’s Five Forces Model
The Porter’s Five Forces Analysis is a tool for strategy development which helps organisations in order to effectively and efficiently gauges their market competitiveness items of the elements that govern the business. As per the views of Takata (2016), the strategic tool of Porter’s five forces gives a distinct overview of the company and the relationship dynamics of the organisation with relation to its competitors, suppliers, customers, new product entries and possible product substitutes.
The combination of the elements of the bargaining power of the supplier, the bargaining power of buyers, threat of entry and the threat of substitutes defines the industry rivalry or rate of industry competition for an organisation. Primarily, the study of Aithal et al. (2016), reveals, the element of bargaining power with respect to suppliers defines an organisation’s dependability on the supply chain of the company. If the numbers of suppliers are higher the dependability is lower and if the suppliers are limited to business is heavily dependent.
The bargaining power of the buyers, defines the amount of power with which the customers of a company control its governance and processes. Further, as per the study of Safa et al. (2015), the threat of new entry defines the ability of a company to hold off against new competitors in terms of technology, products and processes. Subsequently the threat of substitutability defines the rate at which the products of an organisation can be substituted by other products of the same industry or of similar nature.
Use in Business Strategy Development
In terms of business strategy development the analysis of Porter’s five forces helps a company to effectively gain insight in terms of its functioning and the rate of competitiveness that it holds. As per the views of Mathooko and Ogutu (2015), Porter’s Five Forces Analysis helps an orgnisation in order to understand the areas where it is effectively lacking in terms of competitive ability. The Porter’s Five Forces Analysis helps organisations in order to develop an efficient strategic analysis of their current business environment in terms of the external forces and their inner competencies.
Rothaermel (2017), argues that the Porter’s Five Forces Analysis is able to help organisations in order to develop a portfolio for their strengths and weaknesses. Further, it allows organisations in order to ensure that they can focus on their core competencies and further seek to neutralise the threats in the environment by developing better policies of governance in terms of the company. Nouri and Soltani (2017), states that the development of core competencies helps organisations in order to stop depending upon their suppliers and buyers and effectively helps in developing the potential for driving the market.
For instance, it can be understood that the business of Tesco PLC has integrated its supply chain effectively and now has a higher bargaining power over its suppliers. Thus it is able to yield a competitive advantage in the market.
The PESTLE analysis is an external environmental analysis tool for an organisation and it helps in gauging the positive and negative factors in the light of an organisation. Rastogi and Trivedi (2016), states that the purpose of a PESTLE analysis is to effectively understand the various different influences of the external environment on the organisation itself. The PESTLE analysis defines six different elements of an organisation’s external environment, Political, Economical, Social, Legal, Technological and Environmental factors.
Christodoulou and Cullinane (2019), states that the political factors are defined as the business’s political environment in the prevailing country and the other countries in which it may function. For instance for UK based businesses BREXIT is a political factor. The Economical factors are the different rates of inflation and GDP in different countries, economic trends of the industry of a specific business and the financial and economic factors which may affect the prospects of a business. Fozer e al. (2017), argues that the social factors of the PESTLE analysis refer to the aspect of the social demographic trends in the market of a business, such as tastes and preferences of the consumers, the trends in case of social media, the propensity of customers to prefer one commodity or service over another and so on.
The Technological factors of the external environment of a business refer to the various different technological advancements in the processes and the breakthroughs in new technology that may have overcome the industry. Atighechian et al. (2016), states, legal factors of the PESTLE analysis refer to the factors of the law in different countries where a business functions. Some prominent laws in case of the UK are the Data Protection Act 2015 (c.14) and the Health And Safety at Work Act 1975 (c.23). Furthermore, the Environmental factor for the tool refers to the issues which pertain to the business surroundings. One of the major environmental issues at present for businesses are the UN SDGs and the growing focus on environmental preservation.
Use in Business Strategy Development
In terms of business strategy development, PESTLE Analysis helps an orgnisation in order to become more aware of its surroundings. As opined by Shenoy and Aithal (2016), greater awareness in the case of surroundings helps a business in order to develop a strategy which is suitable in terms of capitalising on the greater opportunities present in the external environment while minimizing the threats which are present in the environment.
A PESTLE analysis helps a company in order to acknowledge the market potential and further pushes an orgnisation to capitalise on the market advantages that are present. The analysis also makes organisations of their environmental threats and allows them to develop strategies in order to effectively mitigate the same.
In case of the Ansoff Matrix is a strategic management tool which shows the available routes of expansion for a business in terms of products against markets. As per the views of Yin (2016), an Ansoff matrix helps in understanding the area where an orgnisation should effectively expand their business by streamlining a defining the potential areas of expansion and investment accurately. The matrix primarily enumerates four different strategies which are that of market penetration, product development, market development and diversification.
Loredana (2016), defines the market penetration strategy as the one which makes use of the existing products to integrate them into the current markets in a new way. This strategy essentially makes use of the products which exist and the existing markets in order to create a separate utility for a product. For instance, the use of vinegar can be considered in cleansing and for cooking. The second strategy enumerated in the Matrix is that of Product Development. This strategy is dedicated to the creation of new products for existing markets.
Shaw (2016), states that the market development strategy is an effective strategy for businesses as it aims at penetration of new markets with the help of existing products. This helps companies in order to ensure that they can gain a competitive advantage by staying ahead of their adversaries. Finally, the fourth strategy is that of diversification. In this strategy of business, a company effectively diversifies its expansion by entering new markets with new products.
Use in Business Strategy Development
This essay looks into the strategic developmental tools of the PESTLE Analysis, the Porter’s Five Forces Model and the Ansoff matrix. It helps in defining the three models distinctly and gives an overview into the area of analyses that the models provided alongside the elements included in them. Further the essay defines the use of these strategic development models in terms of organisations. It also sheds light on the efficiency of the models and the specific areas such as the external environment, business expansion and stakeholder analysis, that the models look into. It also helps in understanding the usefulness of the models for business strategy development effectively.
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Strategy Development Tools