Strategic Planning and External Analysis Tools
Summary of key concepts and ideas from the lectures, tutorials and readings (500 words) Strategy is a roadmap designed to route the direction of the organization towards achieving its goals. Through an understanding of the organization’s vision and mission and the matching of resources and skills to the environment, the company can formulate and implement strategic plans to achieve long-term sustainable competitive advantage, meet the needs of consumers and satisfy stakeholder’s expectations (Johnson, Scholes and Whittington 2004).
Before formulating a strategy, an organization has to gauge its current position in the market using strategic analysis. This involves the use of internal and external analysis tools to gain both an inside view of an organization and the macro environment. Internal analysis tools are used to identify and evaluate an organization’s strengths and weaknesses in terms of its resources, operational capabilities and core competencies. This gives the organization a picture of what strengths to exploit and develop further, and what weaknesses should be corrected to reduce market liability (Hill and Jones 2012).
Strategic Planning and External Analysis Tools Essay Example
External analysis tools such as Porter’s five forces gives a view of the immediate competitive environment to reveal market opportunities and threats. It allows the organization to identify the market forces, which they have little to no control over, in order to develop contingencies into their strategic plans (Porter 1980). Dynamic capabilities such as SWOT analysis, is a combination of internal and external analysis to reflect an organization’s ability to adapt to volatile markets (Teece 2009).
The strategic analysis process would provide a comprehensive overview of an organization’s competency, which then provides the basis for strategic formulation. A suitable approach to strategy formulation would strongly depend on the size and nature of the organization. One method that can be applied across different industries as well as organizations sizes is Porter’s generic strategy. It involves three different strategy classification; low cost leadership, product differentiation and target market focus (Porter 1980).
Another method is Miles and Snow’s (1978) typology. It suggests that competing organizations are characterized based on their individual view of the competitive environment and how they allocate resources accordingly. The four basic categories are defender, prospector, analyzer, and reactor. Formulated strategies are not always acted upon, but may serve as a learning process towards more efficient strategy formulation. Allio (2005) states “immediately following the formal ratification of the firm’s vision and set of strategies, implementation can begin in earnest”.
However, implementation of a strategy is considered the greatest challenge due to the risk of setbacks such as the lack of communication throughout the organization, unclear planning as well as poor monitoring and controls. Lastly, a key performance index is used to measure the current or future success of a strategy. It should be closely monitored as it measures performance aspects, which are critical towards the success of the organization (Paramenter 2007). Plans never always work out as anticipated, and contingency plans should be established to better prepare for unforeseen events (Steiner 1979).
Therefore, strategy management should be treated with the utmost importance, as it differentiates between the success and failure of the firm. Section 2: Application of key concepts and ideas to the current business news (600 words) Griffin and Kucera (2012) article talks about PayPal’s tie up with Discover to achieve a competitive edge and strengthen its market position. By applying Porter’s five forces (1980) to access their strategic position, majority of forces are posing a challenge for PayPal and Discover. There is high competitive rivalry amongst major credit card companies with Discover trailing after Visa, MasterCard and American Express (Barr 2012). Forecasted to surpass $171. 5 billion in 2012, up from a value of $105. 9 billion in 2011 (Gartner 2012), the burgeoning mobile payment market has attracted a high number of new entrants. Many major companies are creating their own individual systems to compete for a share of the market. One example is the Isis system by the major telecommunication companies (Johnson 2012). Finally, there is a high threat of substitute as consumers might find it more convenient to simply use cash or swipe their plastic card as compared to the new mobile payment method (Passy 2012).
However, one market grabbing force is the low bargaining power of suppliers as the merchants supplying the service would be subjected to lower transaction costs under the PayPal system as compared to their counterparts (Hamblen 2012). Nevertheless, the bargaining power of customers in conjunction to new entrants and substitutes remains high, as there are just too many choices to choose from. Therefore, PayPal and Discover are in an unfavorable position. Welch’s (2012) article talks about how Campbell is innovating its soup products to meet the taste of a new generation.
Through the use of the SWOT analysis (Andrews 1971), majority of factors prove positive. With the threat of a declining domestic soup market and difference in preference of a younger generation, it presents Campbell with an opportunity to innovate and differentiate its products in order to achieve market growth (Schultz 2012). Relying on its strengths to introduce new and innovative products fast, Campbell was able to generate a line of new products to address the needs of the new generation. However, Campbell’s weakness lies in the high selling price of its new line of products, three times the price of a can of normal soup.
This along with the threat of cheaper alternatives by their competitors, such as Healthy Choice, may prove detrimental to Campbell’s success. Nevertheless, Campbell has had previous successes with higher priced products due to their strength to innovate their products towards the needs of the consumers. They also invest millions in target marketing and merchandising to extend its reach to consumers (Todd 2012). Therefore, it is a good strategy. Edwards (2012) article talks about GameStop’s shifted efforts into the refurbishing of Apple products to counter a declining market.
Using the Boston Consulting Group’s Growth Share Matrix (Phadtare 2011), this strategy shows high return potential. With the decline of the gaming industry, sales fell by 25% from last year (Tassi 2012), GameStop’s former ‘Star’ which is the sale of new and used gaming hardware and software, has shifted into a ‘Cash Cow’ due to the decline of market growth. This shift presents an investment opportunity for ‘Question Mark’ to become a ‘Star’, through the conversion from a console game supplier, into the repair and resale of Apple gadgets.
However, with the dwindling interest of consumer to purchase overpriced resale items (Munarriz 2012), GameStop’s ‘Cash Cow’ would eventually shift to a ‘Dog’, providing difficulty in profit generation. There is also a risk that their ‘Question Mark’ would not become a ‘Star’ and just cost large efforts with little return. Nevertheless, Apple products still presents the biggest opportunity due to its large consumer base of over 230 million apple devices. Just by reselling 5 percent of the market, GameStop stands to gain $1 billion of new revenue over the next few years.