Tools for Effective Strategy Development

The essay is going to discuss effective strategy development procedure in order to assure long-term success for a certain organisation. There are specific activities and factors practiced by managers, which work together to form a process that leads an organisation towards its goal. Strategy development tools are an integral part of managerial practice as it directly contributes to the organisations’ profit and accomplishment. These tools help the managers to take significant business decisions as well as enable them to frame effective business strategy for the firms. Several strategic models and frameworks have been developed based on years of experience and learning; hence, with the purpose of guiding the organisations to attain their objectives, this essay will focus on four major strategic development tools and its function. As described in an article of Wirtz et al. (2016), these tools are designed to cooperate with the managers to frame and practice their strategic ideas both in predictable and unusual situations confronting an organisation.

It is difficult to define strategy, as it does not carry a single definition. However, Management is able to make essential alterations in both business strategy and operations by accessing necessary information and they should have the potential to understand the ways to make best use of the resources. Strategic tools are framed by evaluating some essential aspects of business operations. Before defining any business strategy, external environment and internal capability of the firm should be analysed and after that management can implement the strategies whatever have been framed (Achtenhagen, Melin and Naldi 2013). The purpose of this essay is to elaborate four strategic development tools as follows, in order to make the development process easier and enable the managers to be more productive. 

The most trusted and one of the widely used strategic development tools, is porter’s five forces model, which deals with competitive position of a certain organisation in the market. Following the theory of Michael Porter, management should recognise the areas of competition to understand the position of their company and react accordingly. Moreover, his theory suggests that several influencing aspects work behind while framing business strategies. Besides, according to Nagle and Müller (2017), the responsible management behind strategy analysis explores this model to understand new scopes that are related to profitable product and service. Realising the centre of power, the model is used to identify strength of an organisation as well as areas of improvement. Briefly, a detail reading of Jarzabkowski and Kaplan (2015), the model of five forces delivers a perception of industry rivalry and helps the organisations to recognise the opportunities recovering the threat of competitors. The five forces are, 1) it is easy for suppliers to increase the price of the product. The power of suppliers is driven by specific factors. The number of suppliers, the unique characteristics of their service, strength and size; all these aspects influence the suppliers to increase the price. It can happen if buyers are frequently switching from one supplier to another, as well. 2) Buyers hold the power to bargain and drive down the prices of the products of their choice.  Again, various factors can be found which determine the intensity of their power, such as, number of buyers and significance of them to the suppliers. It will be expensive if the buyer is switching frequently among suppliers. The buyers will be powerful and able to operate business in their own terms if they have very few competitors (Hesping and Schiele 2015). 3) Threat of new competitors can trouble the existing company’s market position if the business is profitable. 4) The fourth one is the threat of substitution. When there are similar or better substitute products exist in the market, buyers tend to switch between products to find out the best suitable one according to their requirement. This, not only reduces the power of suppliers but also the price of the service is increased in this course. 5) The rivalry is determined by the capability and number of business organisations dealing with same service. 

Porter’s Five Forces Model

Before framing and implementing strategies, it is essential to evaluate external factors, which are controlling the business environment. The journal Ho (2014), delivers perception of this analysis model where it has been stated that PEST analysis can be used as an effective tool to identify external factors in the favour of a certain organisation. PEST refers to political, economic, socio-cultural and technological factors, which consistently influence the growth or decline of the market. By evaluating these areas, managers can predict the future of a particular business industry. Political environment is controlled by rules of government, tax and trade policies and political scenario. Economic factors include the monetary resources and growth of the buyers along with interest rates and economic trends of the market. Social factors deal with customer behaviour and population growth. Finally, the dynamic nature of business environment has been influenced by advanced technology mostly. Moreover, this factor initiates effective business decisions and encourages innovation within an industry.

SWOT model is commonly used for its versatile capability of performing internal analysis of a company, business unit or product. According to Bull et al. (2016), this framework helps to understand market opportunity and threat of a certain organisation or product based on its strength and weakness. This strategic framework helps a company or a product to realise the worth based on its resources and gaps. Hence, the purpose of this analysis can be divided into two parts. 1) It assists the company to decide goals for future and 2) make the managers realise the facts depending on which strategies can be framed to attain the goals. SWOT stands for Strength, Weakness, Opportunity and Threats. Strength refers to positive capabilities of a business organisation, which enable them to give extra ordinary performance. On the other hand, weakness refers to all the limitations, which are present within the system and restricts the organisation from performing. Based on company’s strength that can be its resources or efficient managerial operations and weakness, which can be associated with poor customer service or several systematic gaps; this analysis suggests opportunities and market threats,  which the company may face while operating business based on its strength and weakness. The relationship of strength and weakness with opportunities and threat suggest the ways by which development can be done to access opportunities and recover the threat of the competitors. The agenda of this analysis is to suggest strategies to develop a better position in the competitive business environment. 

PEST Analysis

Trait of a successful leader is to practice innovation to increase the amount of profit under any circumstances. Business process is meant to be evolved, even when system is working well and making profit. A consistent process of creative innovation within the system helps the business to create impact over new customers and help to achieve a sustainable position in the market. In a scenario of changed model of business or launching new product or company in the market, managers consider Ansoff matrix tool of analysis to find out strategies to introduce such diversification. It exposes the ‘risk of growth’ to the managers and leading officials of a certain organisation. There are four aspects, which are associated with risk, such as, product development, market development, market penetration and diversification. For instance, suppose a car company had launched a car, which is holding a saturated status at this point. In order to boost the sale of that particular car, company often try to launch it after a little modification in those territories, which have not been explored yet. In the language of business, it is called market penetration. As described in Hussain et al. (2013), after targeting the desired market, through a PESTEL analysis opportunities and threats have been identified. According to that, the company decides in which way they should prepare themselves in order to reach their target market. Product development deals with changing the specifications, which will appeal the new target market. Diversification is about launching new products considering the market trend. This tool suggests strategies to gain competitive edge in the market by modifying products and marketing strategy. 

Therefore, conclusion can be drawn by stating that strategy is not some possession of the company, it is a dynamic set of principles, which are practiced and implemented in order to achieve organizational goals. Hence, tools can be considered as a part of development rather than a solution. These strategic development tools are adopted to work towards vision and mission statements set by the foundation. Development of an organisation depends on the choice of strategy development tools and strategic practices. The utility of these tools is significant, as it enables the managers to take effective steps rationally. The framework focuses on the practice of implementing and revising the strategies according to the requirement of an organisation.  It can be expected that the strategic development tools, described in this essay, are capable of guiding business firms in terms of understanding the requirement and achieving organizational objectives by implementing accurate strategy. 

References

Achtenhagen, L., Melin, L. and Naldi, L., 2013. Dynamics of business models–strategizing, critical capabilities and activities for sustained value creation. Long range planning, 46(6), pp.427-442.

Bull, J.W., Jobstvogt, N., Böhnke-Henrichs, A., Mascarenhas, A., Sitas, N., Baulcomb, C., Lambini, C.K., Rawlins, M., Baral, H., Zähringer, J. and Carter-Silk, E., 2016. Strengths, Weaknesses, Opportunities and Threats: A SWOT analysis of the ecosystem services framework. Ecosystem Services, 17, pp.99-111.

Hesping, F.H. and Schiele, H., 2015. Purchasing strategy development: A multi-level review. Journal of purchasing and supply management, 21(2), pp.138-150.

Ho, J.K.K., 2014. Formulation of a systemic PEST analysis for strategic analysis. European academic research, 2(5), pp.6478-6492.

Hussain, S., Khattak, J., Rizwan, A. and Latif, M.A., 2013. ANSOFF matrix, environment, and growth-an interactive triangle. Management and Administrative Sciences Review, 2(2), pp.196-206.

Jarzabkowski, P. and Kaplan, S., 2015. Strategy tools?in?use: A framework for understanding “technologies of rationality” in practice. Strategic Management Journal, 36(4), pp.537-558.

Nagle, T.T. and Müller, G., 2017. The strategy and tactics of pricing: A guide to growing more profitably. Routledge.

Wirtz, B.W., Pistoia, A., Ullrich, S. and Göttel, V., 2016. Business models: Origin, development and future research perspectives. Long range planning, 49(1), pp.36-54.