Babafemi (2015) has provided that the organisations are now increasing their focus on the aspect of strategic planning. The reason for this is that organisations have started to realise that strategic planning can help with the performance of the company. Strategic planning in business has been provided to be helpful in prediction of the changes in the environment which can allow the organisations to then act accordingly and achieve better performance. Another researcher, Anna (2015) said that a positive relationship existed between these tools and organisational performance. This essay, therefore, aims to discuss different key strategy development tools. The tools which would be discussed in this essay include PESTLE, Porter’s five forces and SWOT. In addition to discussing the different mentioned tools, this study would also present their respective application in businesses. Lastly, a conclusion would be provided at the end summarising the main key points.
A business organisation has different encounter various changes in the environment which are required to be addressed (Rastogi & Trivide, 2016). These changes occur at a constant pace and affect the organisation in cases that these issues are not identified and addressed. These risks have been divided into different categories such as internal and external risks. The internal risks are those which are specific to the company. The risks which are beyond the organisation’s control are classified as external risks and the tools used to analyse them are PESTLE and Porter’s five force (Rastogi & Trivedi, 2016).
The PESTLE technique, as provided before, is a strategic tool used for the analysis of the external risks of a business organisation. PESTLE is an acronym composed of six different elements (factors). These include political (P), economic (E) and Social (S). The remaining three components are technological (T), legal (L) and environmental (E) (Cadle, Paul & Turner, 2014). The political factors are those which determine the level of the influence that government can have on the industry or economy. These factors are generally limited to the organisation’s home country however this is limited nowadays as some changes have effects across the borders as well (Cade, Paul & Turner, 2014). The economic factors are associated with the economic conditions which might also be limited to operating country but the effect of the global changes can be seen in this as well. This includes the extent of growth in that economy and even the confidence in the potential of the market (Rastogi & Trivedi, 2016).
For the social factors, it considers those events which affect the community and the market socially. These include expectations of the different communities, norms, and dynamics of the population and so on (Cade, Paul & Turner, 2014). Technological factors are those which are concerned with technology and innovations. It also refers to the market’s automation, development and research potential of the industry. Failure to access and utilise the technology can affect the business, therefore these factors are important to be considered. In addition, the factors associated with laws are also required to be considered as these can have a major impact on the operations of the businesses. This is because the organisation would require complying with the different laws and regulations imposed by the government. Finally, the last factor includes environmental factors which include things like weather, climate, ground conditions, geographical locations and so on, and can affect the business (Rastogi & Trivedi, 2016).
Considering the business applications of PESTLE as a key strategic development tool, it helps the businesses in identifying the opportunities and also warns of those factors which might affect the businesses. In addition, it also reveals the potential of change in the environment of a business which allows the organisations to develop plans and strategize to work with the change. Moreover, having these key factors identified can help the organisation to evaluate whether starting a project would be beneficial or not (Rastogi & Trivedi, 2016).
In addition to PESTLE, Porter’s five forces tool is also used for the evaluation of the external business environment of the organisation. However, this tool specifically evaluates the business industry within which the company would operate. In this, the tool would identify the pressures which the organisation/business can face. It was provided by Michael Porter and includes five forces which are the potential sources within the industry of the business. These forces include the buyers’ and suppliers’ bargaining powers, industry competitors, substitutes & new entrants (Mathooko & Ogutu, 2015).
The bargaining power of the buyers is concerned with the pressure that the buyers can put on the business. This depends on the easiness of the buyers to influences the prices of the products. It also depends on the number of buyers which are connected with the business. If the number of buyers is high then the bargaining power of the buyers will be less. However, the cost of switching to another business is low then the power is with the buyers. Similarly, when the suppliers of the business are low in number, the business would have fewer suppliers to choose from, this means that the bargaining power of the supplier is more and they can increase the prices. However, the business won’t have much freedom to switch to other suppliers (Dobbs, 2014).
Industry competitors look at the competitors in terms of strengths and numbers. In the case of a high competitors, the rivalry is high which could result in competitive pricing and it can affect the new businesses (Mathooko & Ogutu, 2015). In addition, with more competitors, both buyers and suppliers can go to other businesses to get better deals. Another force is the substitutes which consider the likelihood of the customers to find a substitute for what is being offered by the business organisation. So, when a substitute which is cheap and easy to provide can threaten the profits. The last force is the new entrants which consider the ability of the people in entering the market. If it is easy for others to enter the market, they can weaken the position of the business (Mathooko & Ogutu, 2015).
The business application of this tool is that it helps with the identification of the factors which can potentially impact the organisation, in both positive and negative ways. In addition, the use of this tool will help businesses in understanding where the strength lies. This would help in making better decisions such as the launching of products or services in the market. It would also help in avoiding mistakes and improving on the businesses (Dobbs, 2014).
The SWOT tool is used for the purpose of strategic planning and management. The factors which it considers are present internally. SWOT, like PESTLE, is also an acronym. The four components it includes are strengths & weaknesses, which are considered as internal factors associated with the organisation; and opportunities & threats that are considered as external factors associated with the environment (Gürel & Tat, 2017). This analysis is done on 2x2 matrixes. In SWOT, the strengths are those characteristics and traits which add value to the business and make it better. These are those factors which can be considered as advantageous to others (Gürel & Tat, 2017).
The business application of SWOT analysis lies in its ability to help in the strategic planning for the business with the evaluation of strengths & weaknesses, and opportunities & threats linked with the business. This allows the business to develop strategies and take steps to match the capabilities and resources of the organisation with the needs of the competitive environment (The State of Queensland, 2016). The weaknesses are those characteristics which put the business at a disadvantage to the others and can impact the performance of the organisation negatively (Gürel & Tat, 2017).
The third component of SWOT, opportunities, are those scenarios or situations which can help the business achieve the organisational goals. In addition, this would result in positive results for the business and better performance (The State of Queensland, 2016). The threats are the last component of SWOT, which considers those factors which affect the business and can put it at a situation which is rather disadvantageous. It, therefore, offers negative value for the business (Gürel & Tat, 2017).
SWOT analysis has great business applications as it allows the businesses to evaluate different business opportunities and responding to the different trends. In addition, it can help the business in the implementation of the new technologies while also allowing it to make organisational changes to stay competitive in the market (The State of Queensland, 2016).
This study discussed the different key strategic development tools which can be used by the businesses to improve their performance. Three tools were discussed in the study, PESTLE and Porter’s five forces, and also SWOT analysis. The PESTLE tool has uses in the analysis of external environment which can affect the business while Porter’s five forces tool has similar use as it also analyses the external environment, it is specific for the businesses or the industry. Finally, the SWOT tool is used to analyse both internal and external factors associated with the organisation. Effective application of the tools can be highly useful for businesses in terms of improved performance.
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Cadle, J., Paul, D., & Turner, P. (2014). Business analysis techniques. Chartered Institute for IT.
E. Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32–45.
Gürel, E. & Tat, M. (2017). SWOT analysis: a theoretical review. The Journal of International Social Research, 10(51).
Mathooko, F. M., & Ogutu, M. (2015). Porter’s five competitive forces framework and other factors that influence the choice of response strategies adopted by public universities in Kenya. International Journal of Educational Management, 29(3), 334–354
Rastogi, N. & Trivedi, M. K. (2016). Pestle technique – a tool to identify external risks in construction projects. International Research Journal of Engineering and Technology (IRJET), 3(1).
The State of Queensland. (2016). Uses of SWOT analysis. Retrieved from https://www.business.qld.gov.au/starting-business/planning/market-customer-research/swot-analysis/uses
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