Meaning and Importance of Strategy

Published: 2019-11-11 08:30:00
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A strategy is an art used in organizations during planning for the available resources in the most efficient as well as effective way. Methods chosen have to bring about the desired future of the organization. The strategy has been equated with planning in some of the organizations. In this perspective, information has to be gathered and critically analyzed and then predictions will be made. Top managers will then be required to have a reflection on the work carried out by the planning department upon which they will make appropriate decisions on what is the best course of the organization (Bischoff, 2011). Other corporations have a less structured view, for them, the strategy is more about management process; key strategic issues here are to have a system of the directorate which will facilitate the organization to be able to respond to the unpredictable environment. The strategy has led to the increase of destructive competitions that have damaged the profitability of many of the organizations. Managers are struggling to make improvements on all fronts, moving away from competitive positions considered viable in the organization (Brocke, & Rosemann 2014). The essence of a strategy is to make a choice of a unique situation that is rooted in the activities which are difficult to match.

Strategic Analysis Framework

All organizations are expected to have an identification of external factors existing within their environment which could have impacts on operations carried out by the organization. The organization can not control most of these factors, but there is a need to have a clear understanding of their implications (Cadle, et al., 2014). A popular tool used in the identification of the external factors is PESTLE analysis. This helps in consideration of political, economic, technological, legal as well as environmental issues. Identification process of these elements involves a variety of different disciplines in the organization so as to have a clear picture of these factors. As organizations are becoming more globalized, expanding their already existing borders. PESTLE ensures these factors are given an apparent consideration as well the impacts that may result from them. The importance of these factors may vary in different industries. However, it is authoritative in any of the strategies a given company may want to develop, and they should carry out the PESTLE analysis, as it is a detailed version of the SWOT analysis (Canzer, 2016). It gives a good view of the business environment that anyone could be interested in keeping track while coming up with a given idea.

All the aspects of this framework are imperative for any organization a business may be in. This framework is more than a company should do an understanding of a given market as it is a representation of one of the vertebras of the roots strategic management, which provides a definition of what. It also accounts for the goals of the organization and some of the strategies attached to them. It is appropriate for one to have an understanding of each of the factors represented by the letters used in PESTEL.

Political factors; these factors shows the influence a given government may have on a given industry. For instance, a government may impose a new tax which may make an organization to change its entire structure of revenue generation. Some of the political factors include policies of tax, Fiscal policies as well as trade tariffs which may be levied by a government around a financial year and may at the end affect the environment of business by a great deal.

Economic factors determine the implementation of the budget directly affects companies, and are associated with substantial effects. These effects may last for an extended period. The rise in the level of inflation rates affects the techniques used in the pricing of products and services by organizations (Chen, Jessel, Fu, Yu, & Pittock, 2013). In addition to that, it will also affect the purchasing power of consumers as well as models of supply and demand of that economy. Inflation rates, patterns of economic growth and interest rates are some of the economic factors.

Social factors help in analyzing the social environment existing in the market. It estimates determinants such as the trends of culture, analysis of the existing population.

Technological factors relate to innovations made in technology which may have an effect on how the organization operates; it may also refer to the level of development as well as technological awareness possessed by the industry.

Legal factors have an effect on both external and internal environment of the business. Some laws affect the environment in which a business operates in a given Republic while there are also some of the policies that organizations preserve for themselves.

Environmental factors are determined by the surrounding of the business organization. These aspects of PESTEL are paramount in certain organizations. Many templates are existing for companies to carry out their PESTLE analysis.

Analysis and evaluations of the external environment of a Strategic Business Unit

The external environment of any business organization mainly made up of all the groups existing outside the boundaries of that business, but their influence is very significant in the growth and survival of the firm (Cherunilam, 2014). The business has microscopic control over its external environment; it is only required to keep on monitoring it as it adapts to the changes made. A reactive response can easily lead to a very significant different result. Some of the common external factors affecting an organization are as follows.

The Threat of New Entrants. An industry alleged to be more profitable will tend to attract new entrants. This new entrant may include firms whose interests are investing in that industry in order to share the prospects of growth (Gane, 2015). New entrants may supplement the capacity of the already existing products, and in most cases, they have the desire of making massive investments as well as securing of substantial shares of the market. New entrants may affect the level of returns and revenue generated by the firms in the industry.

Rivalry among the competitors. This situation keeps changing with actions as well as reactions carried out by constituent companies. The desire to be the leader in shares of the market affects competitors existing in that industry.

Bargaining power of potential buyers. This constitutes the skills of the consumers to force a reduction of prices in that industry. This may affect the level of generating revenue in the industry.

How the Organization has shaped its strategy to date

The organization has ensured structural change is part of their track to better execution of their plans. It has been thought of like a capstone rather than the cornerstone used in transforming the organization. The organization has also given more focus on improvement of the execution rather than searching for appropriate ways to strip out their costs (Gottschalk, 2011). This has helped in the determination of the main reasons leading to the shortfall in performance. The company has to come up with a new system of administration that will be keen on the establishment of accountability as well as in making connections between reward and also in performance (Jalan, 2014). The organization also needs to ensure that any crucial information pertaining competition has to get to the administration fir appropriate action to be taken. The best way of ensuring relevant information is reaching the headquarters of the organization by providing correct decisions are made further down the business.

How to create value in an organization

Porters value chain

The value chain is a set of activities carried out by a group with the aim of creating value for its potential customers. Porter came up with a value chain which can be adopted by companies in the examination of all their activities to see how they relate to each other. Value chain analysis gives a description of the activities carried out within the organization and also relates them to the analysis of the competitive strengths of the business (Kannegiesser, 2014). It gives an evaluation of the value added by each of the activities carried out in the organization. The idea was built upon the insight that a business organization is a compilation of machinery, money, people as well as equipment. For it to be able to produce something that can be admired by their customers they will have to organize themselves accordingly. The manner in which activities in the value chain are performed will determine costs, and it will at the end have an effect on profits generated. Porters value chain helps in determination and understanding of the sources of value in the company (McDonough, Allen, & Wettergreen, 2013). Porters value chain has more focus on systems rather than being keen on types of accounting costs as well as associated departments. It also shows how inputs can be changed into outputs which can be consumed by their customers.

Porter distinguishes primary activities and supports activities. Using his views Porter gave a description of chain activities which are considered very common in most of the business institutions (Meier, 2013). Primary Activities are directly related to the physical creation, sales, support as well as maintenance of products and services. They include inbound logistics where all processes that are related to receiving, distribution, as well as storage of inputs, are done internally, for a business to create value it has to be smart in the way it relates with its suppliers. There is also marketing and sales. These are some of the processes used in persuading clients to make purchases from your organization instead of your competitors. The agency will be required to offer more benefits and communicate appropriately to gain value.

Support Activities are meant to give support to primary activities. For instance, procurement will support some of the operations with certain activities. It may find vendors and negotiate for best prices. There is also Human resource management (Model Law on Competition: 2013). This is how well a company may be organized in recruiting, hiring, training, motivating, rewarding as well retaining its workers. People are a primary source of value; business is able to create a good image using its HR practices.

Core Competencies

Core competencies are the major strategic advantages of a given business. They may include a combination of collective knowledge as well technical capacities which may allow a business to remain competitive in a given market. A core competency should be able to allow a company to expand into upcoming markets and also provide substantial value to its customers. It needs to be hard to be replicated by its competitors. Once an organization has identified its core competencies, the inward investment will have to direct the group towards the maintenance of those skills in the respective areas by ensuring they remain unique within that industry (Nelson, 2015). Considerations will have to be given as to whether the operations will have to be outsourced.

Generation of value in business is an important tool for innovation. However, it has never been understood. Value is what can cause individuals to trade with an organization. It can influence someone to give out her money for she will receive what she wants. An organization will have to work hard in getting to understand what value means to their customers to be able to generate and also provide it. The value in an organization can be created by building. A new value, making improvements on the existing values or creation of better values. Creation of better values is maybe easier as it will only requir...


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