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  • Subject Code : HI6006
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  • Subject Name : Accounting and Finance

Key Strategy Development Tools

Introduction

The business strategies provide a clear direction and vision for the overall organization. The development of an effective business strategy requires a business firm to conduct an external and internal environmental analysis to identify the internal strengths and weakness and also the external challenges and the opportunities. As such, the businesses are adopting the use of various strategy development tools such as Pestle, five forces and SWOT analysis to explain their significance in strategic-making process of an organization. The overall discussion is carried out in the context of relevant business examples.

Strategy Development Tools Used in Businesses

Tool 1: SWOT Analysis

The strategic tool of SWOT analysis is mainly used for examining the impact of internal and external business environment on the performance of an organization. The framework assesses the potential growth aspect of an organization by undertaking an evaluation of its strengths, weaknesses, opportunities and threats (Anna, 2015). The analysis enables an organization to identify the lack in performance and the areas of strengths, reduce risks and take maximum possible advantage of the opportunities that are present for its future success.

SWOT analysis helps in carrying out strategic planning of an organization and the major benefit is that it helps in building its strengths and developing measures for overcoming the weaknesses and the threats identified. The framework enables in identification of the core competencies and assessing the future growth objectives on the basis of past and present business data.

However, its major limitation is that it can cause the organizations to overlook the strategic objectives as analysis of the strengths, weaknesses, opportunities and threat is largely objectives and thus does not provide any empirical evidence to support the business strategies (Qehaja, 2017).

Industry Examples

The detailed explanation of SWOT analysis can be provided with the use of the organizational examples of McDonald’s:

Strengths

· McDonald’s is the most valuable brand having high brand value irrespective of the higher competition in the fast food industry

· The company has a strong portfolio of products with distinct taste and quality enabling it to maintain its higher competitive position

· McDonald’s is adopting the use of revolutionary technology initiatives s for improving its services through mobile order and payments systems thus achieving higher customer satisfaction

· The quality standards of the company is its strongest point as it enforces complete food safety and quality protocols for its product development

Weaknesses

· McDonald’s adopts the use of international franchising model and this exposes the brand to specific risks such as financial deterioration and low revenue generation.

· The disruption in the supply chain and the lack of employee satisfaction are also some of the weaknesses of the brand

· The slow process of product development is also one of its major weakness which increases the customer waiting time

Opportunities

· The introduction of new and innovative products for providing enhancing vale to customers and improving the competitive position of McDonald’s

· The use of online technologies for online order and mobile payment for higher customer satisfaction

· The global expansion and entering into new markets for increasing customer base and achieving economies of scale

Threats

· The increasing competition in the fast food industry can negatively impact the company’s future performance

· The increasing health consciousness among the consumers can have a negative effect on the demand of McDonald’s fast food products

(Ghanawi, 2012).

Tool 2: PESTEL Analysis

This analysis framework is to examine the effect of external factors such as political, economic, social, technological, legal and environmental on the future growth aspects of an organization. It is a macro environmental tool that scans the external environment and assists the business managers in developing future business strategies on the basis of such analysis. The major benefit of this analysis is that it provides a simple and easy to use framework for examining the future performance of an organization (Williams and Naumann, 2011). It helps to minimize the effect of external potential threats on an organization. The new external opportunities present before the organization can also be identified easily with the use of this analysis.

On the other hand, the major limitation of the analysis is that business mangers’ need to conduct such analysis in a regular manner for making right strategic decisions. It also involves large amount of time for collecting the inflation required to conduct this analysis and this can impact the effectiveness of the decision-making (Parnell, 2013).

Industry Examples

The use of PESTLE analysis as a strategy development tool can be illustrated in the context of example of Apple Corporation as stated below:

  • Political Factors: It determines the influence of government on the various business processes. The manufacturing process of Apple is largely dependent on low cost procurement process in Chain. The political unrest in the countries where it operates its various part of supply chain can negatively impact the performance of the corporation.

  • Economic Factors: It determines the impact of economic conditions of a country on its future growth aspects. The increase in the labor costs in the countries where Apple ahs its manufacturing units can negatively impact Apple performance as it will not be able to achieve cost advantage. In addition to this, the rise in the inflation and interest rates in various countries that are potential market of Apple could also impact its performance in the long-term (Alam, 2015).

  • Social Factors: These factors determine the impact of social environment such as cultural trends, demographics and population characteristics on an organizational performance. The change in the preferences of the consumers with rapid technological advancement is impact the demand of Apple products. The younger people around the world are leading to increased demand of the company products due to their unique deigns and style.

  • Technological Factors: These factors examine the impact of innovations in technology on the business operations. The electronics industry is highly competitive and thus Apple needs to develop new products with the use of latest technologies to stay ahead in competition from its major competitors such as Google and Samsung (Hasan, 2013).

  • Legal Factors: It determines the impact of certain laws on the future growth and development of business operations. The future growth and performance of Apple is largely dependent on specific laws such as intellectual property laws and the relevant regulations related to piracy and litigation.

  • Environmental Factors: The factors determine the effect of surrounding environment on the business activities. The biggest environmental issue faced by Apple is disposal of used electronic devices and the large amount of electronic waste produced that need to dispose properly to overcome the issue of environment pollution (Alam, 2015).

Tool 3: Porter Forces

This strategic development tool is used to examine the competitive nature of an industry on the basis of five forces that determines its competitive intensity. The five forces include rivalry threat, threat of substitutes and new entrants, bargaining power of buyers and suppliers. The major advantage of using this framework is that helps a company in identifying the industry competition. It is helpful for conducting investment planning of a company by identifying the risks related to investing within an industry. However, the major limitation of this analysis tool is that it considers only certain factors for determining the competitive nature of an industry and relatively ignores other factors that can be largely important (Indiatsu, Mwangi and Mandere, 2014).

Industry Examples

The five forces determined by the model and their use in identifying the competitive nature of an industry is illustrated by conducting porter five forces analysis of KFC as follows:

  • Threat of New Entrants: There is a high capital requirement for the new firms entering within the industry in which KFC operates that is fast food industry. The high expenses need to be incurred by a new entrant for making innovative products which requires high research and development costs

  • Threat of Substitutes: Threat of alternative products is very high due to large availability of similar products from other restaurants. Also, the switching cost is very low and thus the customers can easily witch form one brand to another (Parnell, 2013)

  • Bargaining Power of Suppliers: there is large number of supplier’s present within the industry in which KFC conducts its business activities. It implies that the suppliers have less control over prices and thus the barging power of suppliers is relatively weak. The buyers can easily witch from one supplier to another and thus it is a weak force within the industry.

  • Bargaining Power of Buyers: the bargaining power of buyers is very lower due to presence of many firms within the industry offering similar products and thus they can easily switch from one brand to another

  • Competitive Rivalry: The intensity of competition is very high for the fast food industry due to presence of many competing firms within the fast food chain such as McDonald’s and Burger King posing high competition for KFC (Ghanawi, 2012).

Conclusion

The discussion has summarized that strategy development tools such as SWOT analysis, five forces and pestle analysis for determining the future growth strategies of a business. SWOT analysis helps in evaluating both internal and external environmental factors and pestle and porter five forces analysis the external environmental factors impacting the future performance of a company.

References

Alam, S. 2015. A Critical Analysis Of Internal And External Environment Of Apple Inc. International Journal of Economics, Commerce and Management 3(6), pp. 955-966.

Amor, A. 2014. McDonald’s Competitive Strategy. GRIN Verlag.

Anna, A. 2015. Strategic Management Tools and Techniques and Organizational Performance: Findings from the Czech Republic. Journal of Competitiveness 7(3), pp. 19 – 36.

Ghanawi, N. 2012. The Internationalization of KFC. GRIN Verlag.

Hasan, R. 2013. Apple Inc. - An Analysis: PESTEL analysis, Porter’s 5 Forces analysis, SWOT analysis, Comprehensive analysis of financial ratios, and Comprehensive analysis of share performance of Apple Inc.GRIN Verlag.

Indiatsu, C. M., Mwangi, M. S., and Mandere E., N. 2014. The Application of Porter’s Five Forces Model on Organization Performance: A Case of Cooperative Bank of Kenya Ltd. European Journal of Business and Management 6 (16), pp. 75-85.

Parnell, J, 2013. Strategic Management. SAGE.

Qehaja, A. 2017. Strategic management tools and techniques usage: a qualitative review. Acta Universitatis Agriculturaeet Silviculturae Mendelianae Brunensis 65(2), pp. 585–600.

Williams, P., and Naumann, E. 2011. Customer satisfaction and business performance: a firm level analysis. Journal of Services Marketing 25 (1), pp. 20–32.

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