Strategic Planning and External Analysis Tools

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Section 1: 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). 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...
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