HI6006: Competitive Strategy: Key Strategy Development Tools
Introduction
Different organizations use several strategic management tools (Strategy Development Tools) to shape effective business strategies. Depending on the nature of the business, company management always uses the right strategy management or strategy development tool. Different strategic management tools are essential in terms of strategic outcomes for an organization. In the competitive market, the administration of the business has to navigate the current business environment through these strategic tools. Apart from it, it can be said that these strategic development tools offer or provide some key strategic options for corporations. In this particular study, the emphasis is on three different strategy development tools, such as PESTLE, Ansoff, and Five Forces. Each strategy development tool will be elaborated separately, along with some valuable insights and examples. These insights and values can help to understand or justify the significance of these strategy development tools. These three tools have been selected or considered for elaboration due to their relevance (Alexanda, Nto and Nwadighoha, 2017).
Five Forces Analysis
Porter Five Forces Analysis is one of the critical strategy development tools for the corporation. It is an incredible strategy tool that helps managers to navigate the competitive environment. Corporations have to derive several insights regarding the competitive market, and accordingly make effective competitive decisions. The ultimate purpose of using this strategy development tool is to set the foundation for gaining and sustaining a competitive advantage. There are five main components of the strategy development tools. These components or elements are the bargaining power of buyers, bargaining power of suppliers, threats of substitutes, threats of new entrants, and competitive rivalry. Each component of this strategy development model can be measured as a strong, moderate, and low force. These high, moderate, and low forces go in favor of or against the corporations, and it sets the ground for making an effective competitive strategy. These can be external business elements or factors, which can be related to the internal business climate and make strategies accordingly. The illustration of these five elements along with some examples is the following:
Bargaining Power of Buyers:
The bargaining power refers to the power of buyers or customers in arguing with the company regarding price, quality, and many other factors. When assessing the market, the company can reveal that bargaining power is quite high due to the availability of substitutes. For example, Wal-Mart, a prominent retail chain, contains high bargaining lower due to the availability of other alternatives and low switching costs (Moovweb.com, 2018).
Bargaining Power of Suppliers:
The bargaining power of suppliers can be high or strong due to a concentrated supplier strategy. The bargaining power of the supplier will be low if the company can have different options in terms of suppliers.
Threats of Substitutes:
The threats of substitutes can also be high or low, as it depends on the availability of substructures. If the market is full of alternatives or companies with imitating capabilities, it seems a substantial threat for the company (Dobbs, 2012).
Threats of New Entrants:
The threats of new entrants can also be high, moderate, or low, as it depends on the number of new companies coming into the market. For instance, the mobile phone industry is evolving or growing, as current mobile phone companies can face threats of new entrants in the form of Chinese mobile companies (Tucker, 2019).
Competitive Rivalry:
Competitive rivalry is a condition in which multiple competitors exist in the same market with the same products or services. Price and product war are one in intense competition, and competitive strategies are needed in this competitive landscape. For example, for Starbucks, the competition is limited in the coffee industry due to the low number of competitors. On the other hand, competitive rivalry is high for Toyota, as many competitors such as Nissan, Honda, and many others exist (Tucker, 2019).
Ansoff Analysis
Ansoff matrix or analysis is one of the incredible strategy development tools, especially for the firm that intends to expand the business. Four main strategies which have been offered by this strategy development tool are market penetration, market development, diversification, and product development. If the company aims to expand in the existing or current market, market penetration, and product development are prominent strategies. On the other hand, if the company seeks to enter other markets, market development and diversification are key strategies. The illustration of these strategic choices or options is the following.
Product Development:
In this strategic option, company management can decide to expand in the current market. However, it can be done by developing new products to meet new demands of people. It is an effective strategy for the company to strengthen its position in the competitive market. For instance, Wal-Mart has expanded its stores in the whole United States to meet the growing demand of customers (Taylor, 2012).
Market Penetration:
The second strategy option is market development, as the company management can hit those areas, which are undine yet by the company. Based on the current needs and demands from customers and strong financial condition, the company can be in a better position to hit new geographical locations (Taylor, 2012).
Market Development:
When the company intends to expand in the other market, it can be referred to as market development. Market development is a key strategic option for the company, as the company can find a potential market that can bring adequate returns. Even in the market development process, the company can carry the same products or services. For example, Samsung, one of the top technology companies, has contained market development with the same products. The company is expanded in many countries with its standard products, especially mobile phones (Kharpal, 2020).
Diversification:
Offering new products or services in the new market refers to diversification. It looks the business diversification, as new products or services are to be sold in the new regions to meet the demands of local people. If the company is capable of making products for customers in other countries, it must initiate diversification (Kharpal, 2020).
PESTEL Analysis
Pestle is a strategic management or analysis tool, which can help to uncover the general environment of the business. When the company intends to enter into the new market, it has to examine several factors such as political, economic, social, technological, legal, and environmental.
Political:
The company has to examine the political system or structure, as it must be favorable or suitable for the corporation to exist and expand. Typically, political support for the business and stability of a whole political system seems favorable. For example, German is the best business destination for any business because of stable political stability (Alexanda, Nto and Nwadighoha, 2017).
Economical:
One of the main components of pestle analysis is economical. For instance, if the country is growing in terms of gross domestic product and first direct investment, it seems favorable for the firm which is intending to enter. Doing business in sluggish economic conditions is a significant risk. For example, in this Coronavirus epidemic, entering or doing business in India can be a considerable risk, as the economy has been collapsed (Alexanda, Nto and Nwadighoha, 2017).
Social:
The most important thing for the company is to navigate society to assess the awareness of people. The business can be successful if it integrates with local culture, norms, and values. Cultural integration is critical to get all things in favor of the company. In short, the business should show social responsibility when operating in a particular country (Nissanusa.com, 2020).
Technological:
If a technology firm is looking to enter the market where people are tech-savvy, it can lead to incredible benefits. For instance, when a company intends to expand in the United States, it has to use advanced technological tools to interact with employees, customers, and all other stakeholders. Technological development is imperative to be lucrative and relevant.
Legal:
In different countries, business regulations can be strict or flexible, as it depends on the legal structure. The company can integrate with local rules and regulations to be relevant and lucrative. For example, Nissan has integrated with local rules and regulations incredibly to enable business sustainability (Nissanusa.com, 2020).
Environmental:
Environmental sustainability is one of the main strategies for the company to contain sustainable growth. The best thing that the company can do is to align with environmental strategies, which have been developed by countries. For example, Toyota Company is using incredible sustainable business strategies to contribute to the favorable environmental impact. Every country may have carbon emission targets, and it must be met by companies, especially manufacturing or production companies (Alexanda, Nto and Nwadighoha, 2017).
Conclusion
In the end, it is to conclude that strategy development tools are always workable, as these set the foundation or ground to make effective business decisions. For different business dimensions, various strategy development tools have been elaborated, along with some examples and insights. For the competitive environment, five forces analysis is illustrated with some key examples. For business expansion, the Ansoff matrix is embellished with some key examples. Finally, for the general business environment, pestle analysis has been described with each component and example. The company management has to stimulate its capability to use these useful strategy development tools and set the right direction for the business. In this contemporary landscape, the company management has trio use these strategy development tools to gain and sustain the competitive advantage. Based on the information and strategic options, the company will be in a better position to accelerate its competitive capability and get an edge over other rival.
References
Alexanda, K.O.U., Nto, C.P.O. and Nwadighoha, E.E. (2017) ‘Environmental Forces as Catalysts in Electronic-Marketing, The 21st Century Trends in Nigeria’, Kuwait Chapter of the Arabian Journal of Business and Management Review, vol. 6, no. 6, pp. 43-53.
Dobbs, M.E. (2012) ‘Porter’s Five Forces in Practice: Templates for Firm and Case Analysis’, Competition Forum, vol. 10, no. 1, pp. 22-33.
Kharpal, A. (2020) Samsung looks to 5G to boost its business in 2020, 30 January, [Online], Available: https://www.cnbc.com/2020/01/30/samsung-looks-to-5g-to-boost-its-business-in-2020.html.
Moovweb.com (2018) How Walmart is Growing Conversion Rates 3x Faster than Amazon, 24 January, [Online], Available: https://www.moovweb.com/walmart-growing-conversion-rates-faster-than-amazon/.
Nissanusa.com (2020) Privacy Policy, 1 January, [Online], Available: https://www.nissanusa.com/privacy.html.
Taylor, E.C. (2012) ‘Competitive Improvement Planning: Using Ansoff’s Matrix with Abell’s Model to Inform the Strategic Management Process’, Allied Academies International Conference. Academy of Strategic Management. Proceedings, vol. 11, no. 1, pp. 21-27.
Tucker, I. (2019) Why you should worry if you have a Chinese smartphone, 26 October, [Online], Available: https://www.theguardian.com/technology/2019/oct/26/china-technology-social-management-internet-social-credit-system.
