Analysis of Three Foundational Strategy Development Tools

In this era of globalisation, booming organizations from different sectors have recognized the importance of strategic planning in achieving desired business goals. Companies clearly have a competitive advantage when they can develop an effective strategic plan. PESTEL, Five forces, Generic Strategies, Input-Output Model, PROFIT, SWOT analysis, Ansoff Matrix, VRIO analysis, Competitive Profile Matrix, Resource based view are some of the popular and effective strategy development tools. In this report, we attempt to analyse three foundational strategy development tools namely PESTEL, Five forces, and Generic strategies. Moreover, we will discuss about the practical implementation of those tools in organisations.

PESTEL

PESTEL is an analytical tool used to identify the key factors of change in the strategic environment. This model discusses six factors: Political, Economic, Social, Technological, Environmental and Legal elements. PESTEL is used to identify any changes in external environment. Organisations can use those indications to get a competitive advantage from their competitors and creates differentiation. This model investigates the threats and opportunities of business in a time efficient and cost effective way. However, focusing on only external factors doesn’t depict the full picture of the business. The factors of this model change quickly that makes it difficult to predict the future of the business.

PESTEL analysis of Qantas Airways Limited: Qantas Airways Limited is operating its business in several countries. Thus external environment factors play a significant role to determine the elements that can affect the long term profitability of Qantas in a country. Rules and regulations, security measures, and restrictions applied for the industry varies countries to countries. Antitrust laws, taxation laws, industries chosen for deregulation are areas which policies can affect the operation and profitability of any firms. Most of the time firms develop a political strategy to influence government policies and actions that might affect them.

Porter’s Five Forces

Michael Porter’s Five Forces framework is an in-depth evaluation of determining the competition and profitability in an industry. The five forces analyse the threats and profitability through investing factors: the bargaining power of suppliers, the bargaining power of buyers, competitive rivalry, threat of new entrants, threat of substitute products. This model broadened the supply demand analysis of individual market in many aspects. This model is much more compatible with other analytical tools and using this model is easier than others. However, the practical application of the five forces framework has been more challenging as many people understand the framework and its use in a shallow way which leads to misanalysis and poor decision making. This model inclines to qualitative evaluation of the strategic position of a firm and that restricts the ability to determine the factors within each force weight.

Five Forces analysis of Apple: Apple Inc. is one of the most successful companies in the world. This model gives us insights about the external factors that influencing the company’s growth. Apple has access to many suppliers and develops a workable supply chain globally. Handful of big firms like Apple and Samsung in contrast a large number of supplier’s limits the power of suppliers imposing their demand on the company. As a result, Apple experiences a weak force of the bargaining power of suppliers. Customers can easily change brands with a low switching cost or no cost. They can also gather information about competing products and shift from one to another. It gives them a strong force to the bargaining power. Apple faces huge competitive forces from Samsung and other strong market competitors. In terms of product differentiation Apple’s competitors have similar products in the market. Competitors like Samsung, Google, and LG spends a major amount on research and development and marketing sections. Therefore, the competitive force within the industry is strong. The threat of substitute products is low as the capabilities of potential substitutes are limited. For example, using of landline telephones instead of iPhones.

The huge capital investment to establish a company within the industry along with the additional cost of brand recognition creates barrier for new entrants. However, there are large firm like Samsung or Google have potentials to compete with Apple. Apple must continue to strengthening its competitive advantage through innovation, new product development, and brand loyalty.

Generic Strategies

Michael Porter develops three interconnected concepts, cost leadership, differentiation, and focus, for achieving above average performance in an industry. Companies can get a competitive advantage from their competitors by lowering the cost or differentiating their products. It’s a way of positioning a firm within an industry. To develop a sustainable competitive advantage, firms posse’s generic strategies along with other activities. Porter argues that superior performance can be achieved by the development of an overall cost leadership, differentiation, or focus approach to industry competition. This model facilitates firms to implement strategic to become a cost leader. On the other hand, firms often fail to go with all traits involved in the generic strategies to establish an effective strategy.

Generic Strategies analysis of Zara: Zara is a multinational fashion firm with high recognition in market. To maintain the market leadership position in an increasing competition industry is quite challenging, Zara has adopted a strategies combination of cost leadership, differentiation and focus to stay on top. Cost leadership allows a competitive advantage by lowering the charging price and reducing the cost. Zara use this generic strategy as a major tool for different market around the world by efficient value chain management. The focus point of this feature is to preserve the market leadership by beating competitor’s price. Zara is able to do that as it has efficient supply chain management, logistics and a range of suppliers around the world.

To achieve competitive advantage, firms must have some kind of uniqueness in its industry. In this feature customers consider attributes of the products more than the price. It is also a most commonly used generic strategy of different companies to create competitive advantage. Zara uses differentiation along with cost leadership to achieve its goals. Zara studies the changing interest of its customers to differentiate its products from competitors. Zara also builds a sense of individuality to its customers through its journey. Its effective designer’s team, management, innovation and research and development helps to offer a wide range of products that can match the unique taste of customers.

This strategy aims to narrow the competitive scope within an industry. It selects a segment or a group of segment in the industry and focus on it by tailoring the strategy to serve a particular market. It has two variants: Cost focus and differentiation focus. Zara adopts both focus strategy by offering the best value in a low cost.

Conclusion

To sum up, those analytical models are important tools to understand organizational environment and implements more effective strategies. Organizations can use different business strategies for achieving competitive advantage. In this competitive marketplace business strategies have an important role to attain company’s goals and objectives. With the help of different strategic model, successful companies assess the current position, analyse and prepare for the future.

References

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