Many companies are actively engaged in the planning of operational strategies and attain competitive strengths, these days. Strategic planning is an entity's most efficient way of helping with resource allocation to achieve the operational and business goals. As Johnson et al. (2009) have stated, the strategy is the long-term orientation and scope of an organization that achieves benefits by configuring its own resources and capabilities in a changing environment. Strategic planning is a tool for strategic management. Strategic planning can be said to be an integral component of strategic management. In fact, the successful strategic management is dependent on strategic planning. Strategic management is an ongoing development, implementation and assessment process that helps a business or operational unit to achieve its objectives and goals.
Strategic planning helps companies to be more farsighted and act before the occurrence of a negative outcome rather than being reactive of the negative or a disappointing outcome in defining their own future and attaining their objectives. The management encourages companies to take action instead of simply reacting, thereby exerting control over their own destiny (David 2003). Strategic planning comprises of identifying, evaluating, and taking action to create and maintain competitive advantages for a company. The strategic management process represents a sequence of analyzes and decisions that increase the chance of a company choosing a strategy which leads to competitive advantages. The three popular strategic planning models namely, Ansoff Matrix s, PESTLE Analysis and Porter’s Five Forces Framework will be explained further with the use of a business example.
1.Porter’s Five Force Model
A strategic approach should be based on an understanding of and improvements in market structures. The five-force model of Porter (existent market competition, threats of new entrants, suppliers’ power to supply, power of the buyers (buyers) customers and availability of alternative products and services) is based on the perception that the external environment of the companies should be included in the organizational strategy (Porter 1979). The following case study on AUX air-conditioning, China’s leading air-conditioning brand, explains how the business uses the Porter’s Five Force Model (Zhang 2017).
AUX air-conditioning brand has been founded by AUX Air-conditioning Co., Ltd and has become a leading Chinese air-conditioning brand. AUX air-conditioning was created in 1994 and within 22 years it emerged as the leader amongst the China’s air-conditioning brands. Porter’s Five Force Model helped the company by:
Intensity of Rivalry within the Industry
It helps the company understand who the major competitors in the market are – Haier, Midea, and Gree. It also helps the company to understand the advantages that the multinational or national competitors have and how they can understand and work to develop their competitive edge for becoming the market leader.
Threat of Substitute Products or Services
Through the analysis of substitute products, the company was able to understand that the threat of substitutes came from innovative R&D capacity of a company, and the functions and services that a product gives in a said price.
Threat of New Entrants
The company was able to deduce the fact that even though the low economies of scale are policies developments for encouraging the new entrants are good they would still face the financial and technical constraints which would not hinder the AUX’s status in the market.
Power of Buyer
Understanding the consumer dynamics is important for a company to provide the best services and the best possible price. This had helped the company to understand that for making appropriate changes in the pricing strategies to gain maximum profit.
Power of Supplier
Having good understanding of their power over the suppliers and materials, the company was able to take decisions to maximize its profits.
Ansoff Matrix is a strategic planning tool which analysis the company’s strategies for product and market expansion. It provides strategic explanation for achieving the competitive edge and increase the market share. It helps in judging the companies strategies used for growth in terms of product and market. The four factors for making Ansoff Matrix are market penetration, diversification, product development and market development (Hussain, Khattak, Rizwan and Latif, 2013).
The example of Coca-Cola, which has a diversified product portfolio and has market in almost all the countries of the world, would aid in providing a deeper understanding of the Ansoff Matrix (Oakley, 2015).
This strategy is useful for increasing the market share by selling the existing products i.e. finding more customers to use the existing products in the same market which is achieved by mainly actively promoting the product. The Coca- Cola’s promotion strategy of creating advertisements which respect to the important festivals has helped the company to boost sales in different countries.
This strategy is used for finding new market for the already existing product. The Coca-Cola’s Coke Zero is the best example for this. It is identical to Diet Coke but did not have enough market amongst the men because of its appeal however, with a shiny-black appearance and change in the advertisement campaign promoting masculinity of the product; it became a popular product amongst the men as well.
This involves developing new products for the existing market. Over the years, Coca-cola has developed Diet Coke, Coke Zero, Cherry Coke, Vanilla Coke, and many more to boost sales of their company as a whole.
This strategy involves development of new portfolio of related products for new market. Coca-Cola’s new focus on the health drinks (Coke Zero, Fuse Tea, and Vitamin Water) for catering the health conscious market can be an example of this strategy.
3. PESTLE Analysis
A key tool for corporate strategy and planning is PESTLE analysis. It is a way to evaluate the business environment and the possible impact on the company's results. The acronym PESTLE reflects six external factors that affect your business: politics or government, economic, social or society, technology, legislation or laws and the environment. All these factors can influence the business profoundly and have varying implications (Tan et al. 2012).
PepsiCo is the world's second-largest beverage firm. They must therefore understand each and every country's market to keep up with their PESTLE circumstances (Meyer 2017).
Government of a country is an external factor that may impact functioning of PEPSICO. The company must change or modify its products or marketing strategies according to the ruling government.
The economic conditions of the country provide the opportunities for expansion and growth to the company.
Social cultures and trends have direct impact on sales of the company’s products; hence they should be understood so that company is able to diversify its products and marketing strategies to attract more customers.
The company’s dependency on the technology can have impact on its business and the company should regularly update its technology for obtaining a competitive edge.
Any changes in the legislations of a country would impact the company’s operations; hence the company should regularly check the any changes in the legislations. And the company should also focus on making the innovative products as per the legislations.
The company is able to identify the steps that can be taken for reducing the risk exposure due to ecological and environmental factors such as climate change. And they should implement the strategies to attract and retain the consumers, such as water management, waste disposal management, recycling. Such activities will help the company to boost its brand value and equity.
The conclusions can be drawn that strategic planning is a critical element for an organisation, as it provides a sense of direction and defines measurable objectives. Strategic planning is an instrument that is helpful to guide daily decision-making and to evaluate progress and need for changing approaches in the future. ANSOFF Matrix is an important tool for strategic planning as it helps the managers understand the potential growth and formulate beneficial strategies for their organization for penetrating new markets, developing new products, diversifying its portfolio and targeting potential new markets.
PESTLE's research will assist the management of any business to recognize significant changes in political, financial, cultural, technical, environmental and legal variables irrespective of the fact whether the business is a start-up company or an existing organisation. It helps organizations to develop their businesses through strategic planning. The Five Forces Analysis by Porter is an important tool for understanding competition forces inside the business sector. It is also important in helping the organization adapt its approaches to its competitive environment and increase future profitability. Hence, in order to gain a competitive advantage, or expand the business scope for meeting its goals and objectives, the company should undertake strategic planning judiciously.
David, F.R. 2003. Strategic Management-Concepts and Cases, (9th Edition), USA: Pearson Education.
Hussain, S., J. Khattak, A. Rizwan and M. A. Latif. 2016. ANSOFF Matrix, environment, and growth – an interactive triangle. Management and Administrative Sciences Review, 2(2), 196-206.
Johnson, G., Whittington, R. and Scholes, K., 2009. Exploring corporate strategy with mystrategylab. Financial Times/Prentice Hall.
Meyer, P. 2017. PepsiCo PESTEL/PESTLE Analysis & Recommendations. [ Online]. Available at http://panmore.com/pepsico-pestel-pestle-analysis-recommendations. Accessed on 3rd December 2019.
Porter, M.A., 1979. How Competitive Forces Shape Strategy. Harvard Business Review, March-April, 137-145.
Tan, J., Chua, W.L., Chow, C.K., Chong, M.C. and Chew, B.C., 2012. PESTLE Analysis on Toyota Hybrid Vehicles. [Online]. Available at https://s3.amazonaws.com/academia.edu.documents/35624156/PESTLE_Analysis_on_Toyota_Hybrid_Vehicles_Full_Paper.pdf?response-content-disposition=inline%3B%20filename%3DPESTLE_Analysis_on_Toyota_ Hybrid_Vehicle.pdf&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIWOWYYGZ2Y53UL3A%2F20191203%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20191203T171201Z&X-Amz-Expires=3600&X-Amz-SignedHeaders=host&X-Amz-Signature=141d503270140368c8aa0f8dd5725b5ffa584dda509585ab3d77ab93db79db55. Accessed on 3rd December 2019.
Oakley, T. 2015. Coca-Cola: Ansoff Matrix. [Online]. Available at https://themarketingagenda.com/2015/03/28/coca-cola-ansoff-matrix/. Accessed on 3rd December 2019
Zhang, D., 2017. Porter’s Five Forces Analysis and Value Chain Analysis of AUX Air-conditioning Co., Ltd. DEStech Transactions on Social Science, Education and Human Science, (3rd International Conference on Social Science and Technology Education).
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