Organisations and strategy

Strategy is the thing that every year organizations spend on millions of pounds.

There are several definitions of strategy:

 

Mintzberg (1972) defines strategy as ‘a pattern in a stream of decision’.

Chandler (1963) defines strategy as ‘the determination of the long run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals’.

Johnson and Scholes (2011) claim that strategy is the long-term direction of an organisation.

According to Chandler’s definition, it is formal and rational. He gives a clue of the steps an organisation has to do. In other words there is a planning approach. However, Mintzberg’s definition is more restrained and based on learning approach. 

	Planning	Learning
Approach	Prescriptive	Descriptive
Content	Analytical tools	Limited use of tools
Nature of processes	Formalised, systematic, top down	Adaptive, top down and bottom up
Outcomes	Lots of planning and assumption that plans are achieved	Plans made but it is accepted that not all are achieved, some may emerge
Context	Stable environment, assumes the future can be predicted	Future unpredictable, complex, dynamic

PESTLE analysis is a strategic framework for understanding external influences on an organisation. Businesses could increase its opportuninties and drop the threats by knowledge of these external factors of influence.

PESTLE analysis helps to identify what are Political, Economic, Sociological, Technological, Legal and Environmental factors have impact on business.

          ·        Political factors

       - Government policies
- Trading policies
- Wars and conflicts
- Corruption

·        Economic factors
- Inflation
- Industry growth

·        Sociological factors
- Demographics
- Consumer attitudes and opinions
- Cultural Taboos

·        Technological factors
- Research and Innovation
- Information and communications

·        Legal factors
- Legislation
- Health and safety regulations

·        Environmental factors
- Environmental regulations
- Ecological regulations

Porter's Generic strategies

There are three strategies such as Cost Leadership, Differentiation and Focus. These strategies used by businesses for achieving competitive advantage.

      1.     Cost Leadership

The target of this strategy is to become a lowest cost producer in industry. It targets a broad scope. Likely aspects are high level of productivety and capasity utilisation. Eg. Wal-Mart.

      2.     Differentiation

This strategy aimed to differentiate its product to compete more successfull. Firms create unique resources to sutisfy customers needs. Companies that have thriving differentietion strategy such as BMW Group Automobiles which upgrades car because of personal desires of customer that may be anything, Nike which gives opportunity to its customer to make their own sneakers by choosing colour and unique inscription.

3.    Focus 

Focus strategy concentrates either on market segment with narrow scope or on mass market with broad scope. With regards to narrow scope, firms operate on certain niche of market.  The choice of focusing on low prices or differentiation depends on demand of this segment, eg. PepsiCo has a strong competitive position in the beverages segment. According to broad scope, there is the same situation but firm’s choice based on needs of mass market. For example Apple inc. aims the mass market by iPods and iPhones, simultaneously it diversifies this with design and branding. 

SWOT analysis & Porter's 5 forces

In this blog I would like to discuss SWOT analysis and Porter’s five forces. These are two significant methods that valuable to analyse and develop business strategy.

With regards to SWOT, it is a guidance, which gives opportunity to identify positive and negative positions INside your organisation and OUTside of it. Evaluation of the Strengths, Weaknesses, Opportunities, and Threats can be carried out not only for organisations but for a product, place, industry or person too. Also it could be effective at any stage of effort. SWOT analysis may be used to the following things: the first one is investigation of possible solutions to problems, secondly to do any decision-making when objective has been defined.  

This video involves a simple explanation of SWOT that gives a chance to better understand the idea.   

To give a practical example I have done the SWOT analysis to Apple Inc.

Internal		External
Strengths	Weaknesses	Opportunities	Threats
1.     Customer loyalty       2.     Brand awareness and reputation       3.     Successful marketing and advertising campaign	1.     Declining market share 2.     High price 3.     Changes in management	1.     High demand of IPhone 5 and IPad mini 2.     Growth of tablet and smartphone market	1.     Rapid technological changes 2.     Price pressure from Samsung 3.     Tax increases

According to Porter, the competitiveness of an industry is based on 5 factors. It does not enough to look only at direct competitors. There is an importance to consider four other factors, such as Threat of substitute products or services, Bargaining power of suppliers, Bargaining power of customers and Threat of new entrants. The level of certain industry identifies through the consideration all of these points. 

Example: Airline Industry.

1. Threat of New Entrants.
    This aspect has a low threat. There are low switching costs between brands; consumers tend to choose well-known companies.

2. Power of Suppliers.

    Currently, there are two manufactures Boeing and Airbus. Moreover, most firms have long-term contracts with their providers. So it has a high threat.

3. Power of Buyers.

    Firms usually occupy the certain niche of market, e.g. British Airways (it is a high price, service and refreshments during flights), but EasyJet (low price, no business class). So, each company has loyal customers. However, often purchase affected by time of traveling and name of airline does not make sense. There is a medium level of threat.

4. Threat of Substitutes

   This industry has a medium level because of existing alternatives such as car, train, and bus. However, planes stay the fastest way to achieve a destination.

 5. Rivalry among Existing Players

     The rivalry of existing firms is high because customers have a great amount of choice. The number of competitors stays the same during a long time.