Professional Documents
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STUDENT ID
DATE
HOLMES COLLEGE
Table of Contents
Introduction: .................................................................................................................................... 3
Conclusion: ................................................................................................................................... 10
References: .................................................................................................................................... 11
Introduction:
Business strategy is dependent on the scope of business’ activities and without a proper business
strategy the desired objectives can’t be achieved. Business strategies are of two type; generic
strategies are concerned with the growth (expansion), internationalisation (globalisation) and
retrenchment whereas competitive strategies are competitor specific and aims at outsmarting rivals
either through lower prices (economies of scale) or product/service differentiation. Business
strategic tools help the organisation to analyse the market dynamics for their product and services
in order to have business growth, competitive position and strong financial performance. With the
help of business strategy tools, the organisations can change its strategic plans and approaches to
adjust to changing market dynamics. Business strategy tools help the firm to evaluate its strengths,
vulnerabilities, resources, opportunities and capabilities. Moreover, with the help of strategy tools,
any firm can have a reflection of competitors and market. Business strategy tools ultimately shape
the short and long term business strategy of a business to achieve its vision, prioritize objectives
and optimize financial growth.
Example
For instance, the chances of new entrants in airline industry are low to medium due to huge upfront
investment to buy aircrafts, manage operations, acquire licenses, distribution channels and access
flight routes. Therefore, the new entrant would have a competitive disadvantage over existing
players. However, factors like liberalisation of airline industry market, leasing options and
financing from banks, investors and manufacturers can attract new entrants.
1- Limited suppliers
Example
For instance, the bargaining power of suppliers in airline industry is very high which is dependent
on aircraft manufacturers (Boeing and Airbus), fuel (global market, geopolitics), and spare parts.
So, the suppliers have substantial bargaining power on the prices charged.
The market of outputs determines the customer loyalty to a brand or product. However, this
sensitivity is largely affected by price changes. The bargaining power of the customers can be
minimized if the products/services offered is differentiated and firm implement loyalty programs.
However, reduced trade barriers and internet has empowered customers.
Powers of Buyers
1- Less number of customer for any product/service
2- Product/service substitutes
Example
For instance, customers have more bargaining power in airline industry as they seek price
comparisons before travelling. Moreover, almost all carriers offer same services and therefore,
brand loyalty isn’t high. However, various flyer programs have been launched to attract and reward
loyal and regular customers.
If the substitutes of products/services are more then the client can easily switch to other
alternatives. Customers are more likely to switch brand if the prices increase and thus can affect
the profitability of the industry. For instance, Gloria Jeans and Starbucks both offers coffee and
customers would easily switch as they fulfil similar need.
Example
For instance, the threat of substitute is medium to high for airline industry as customers have
various other travelling options which offer competitive prices as well. Trains, buses, cars and
hyperloops are alternatives for the travelling customers.
The number of existing competitors is dependent on market dynamics and industry’s growing
capacity and capability. Moreover, factors like size and power determines the concentration ratio
of an industry. The rivalry is likely to be fierce and intense if the size and power of competitors
are alike and then they engage in price wars and advertising campaigns. Despite, low profit
margins, if the barriers are high, companies are comfortable to remain in the industry.
Example
For instance, the airline industry of America and Australia is competitive due to high barriers, tight
regulations, easy entry of low cost carriers and similar size of competitors.
The ultimate aim of Porter’s Five Forces is to understand and analyse the factors which results in
high profits and low profits.
PESTLE ANALYSIS:
PESTLE analysis is simple, perceptive tool to understand the external factors associated with the
business environment. PESTLE analysis is helpful in identifying advantageous areas for any
business and taking decisions accordingly. Political, economic, socio-cultural, technological, legal
and environmental factors should be analysed before undertaking any business decision or
applying any business strategy.
PESTLE analysis is an analytical tool to understand external influences on any business and
industry along with a tool for strategic business planning. Moreover, PESTLE analysis gives a
complete overview of macro-environment factors which influence the business organisation but
are not directly controllable.
SWOT Analysis:
SWOT analysis is one of the simplest business strategy tools that gives insights on the strengths,
weaknesses, opportunities and threats of any business organisation. SWOT matrix is a business
framework is helpful in accessing the factors that have direct impact on the performance of the
organisation. It is a two-dimensional matrix which aims at identifying favourable/helpful and
unfavourable/harmful aspects.
Strengths drive the growth and innovation. Business organisations must function in such a way
that they avoid working against the strengths of the competitors. Whereas, weaknesses must be
addressed to maximize the strengths of the business organisation. Moreover, opportunities can be
internal as well external and helps the organisation to gain control and power in the market or
industry. Whereas, threats are the risks associated with organisation which can be internal as well
external. Risks and uncertainties hold back the organisation. Business organisations have to
undertake extra costs, face challenges and delays if they neglect the threats.
Conclusion:
Business strategy tools are essential to outline business strategy, decisions and plans. Without
applying business strategy tools, organisation may overlook the threats and weaknesses in the
industry or market which may be harmful for its growth, profitability and competitiveness. SWOT
and PESTLE analysis gives an insight on internal and external factors respectively. The
understanding of internal and external factors makes the decision making process simpler and
easy. Both analytical tools are helpful in having comprehensive evaluation of the market and
industry. Similarly, Proter’s five forces and Ghemawat’s AAA model are helpful in identifying
the advantageous areas for the business organisation which can enhance the sustainability of the
organisation.
References:
Carton, R., & Hofer, C. (2006). Measuring Organizational Performance: Metrics for
Entrepreneurship and Strategic Management Research. Great Britain: Edward Elgar
Publishing.
Gunn, R., & Williams, W. (2007). Strategic tools: an empirical investigation into strategy
in practice in the UK. Strategic Change Journal, 16, 201-216. DOI: 10.1002/jsc.799
Gomer, Justin and Jackson Hille. “An Essential Guide to SWOT Analysis.”
http://formswift.com/swot-analysis-guide
Indiatsu, C. M., Mwangi, M. S., & 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), 75-85, from http://www.iiste.org/
Journals/index.php/EJBM/article/view/13364
Williams, P., & Naumann, E. (2011). Customer satisfaction and business performance: a
firm level analysis. Journal of Services Marketing, 25 (1), 20–32. DOI:
http://dx.doi.org/10.1108 /08876041111107032