Scope and direction of an organization over the long term
Strategy is the Scope and Direction of an organization over the long term: – Which achieves advantages for the organization through its configuration of resources “Challenging Business Environment”, to meet the needs of market and Stakeholders expectations.
Definition: – Business Strategy is a long term plan of action designed to achieve a particular goal or set of goals or objectives
A course of action including the specification of resources required, to achieve a specific objective
Strategic management or business strategy is a level of managerial activity under setting goals and over Tactics. It provides overall direction to the business enterprise and is related to the field of organizational studies.
Strategic management or business strategy includes
Evaluation:- Evaluation is divided into 3 parts
It is important to conduct a SWOT analysis to find out the Strengths, Weaknesses, Opportunities and Threats. SWOT analysis may require taking certain precautions needed.
Strategies exist at different levels in any organization.
- Corporate Strategy
- Business unit strategy
- Operational strategy
It is concerned with the overall purpose and scope of the business to meet stake holder’s expectations. This is the crucial level since it is heavily influenced by the investors in the business and acts to guide strategic decision making.
Example of corporate strategy:-
Let’s take an example of GE.
To make this clear, GE’s corporate strategy is of inter – relating business units. Consumer electrics, submarines, locomotives, light bulbs etc share some synergies and each part is a separate business unit. This is what corporate strategy about.
This is concerned more with how a business competes successfully in a business market. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc.
Example of Business strategy:-
For example, here I am taking Tesco supermarket’s business strategy.
Tesco is a UK’s largest retailer and one of the top supermarket operators in the world plans to open a thousand strong chains of discount stores in the US. This expansion plan and strategy places it directly against the competitor retail giant Wal – Mart. The US retail market is most competitive in the world. This is a fact well known to British retailers Sainsbury’s and marks & Spencer which failed to attract US customers.
Tesco’s Business Strategy in the US – Healthy food, no waiting:-
Fresh & Easy stores: –
Tesco Started operations in the US by opening its Fresh & Easy stores in Las Vegas, Los angels, San Diego and Phoenix. By 2010 Tesco plans to open 200 more outlets to expand the retail network. Tesco’s basic US stores will be similar to Europeans Discounters ASDA and LIDL though Tesco stores will be 75% smaller than most American super markets. Fresh & Easy stores are about 10000 square feet are one third the size of a typical super market, but four times that of a convenience store. Tesco is adopting a hard – discount model in the US. Tesco’s convenience stores modeled on the Tesco Express blueprint target US Grocers 7-Eleven and locallyrun stores.
This case study covers the following issues.
- Asses Tesco’s globalization strategies
- Examine and analyze the entry and expansion strategies of Tesco in US
- Study how Tesco localized its retail practices in US
- Understand Tesco’s efforts to integrate its global best practices with local Strategies in US.
Operational strategy is concerned with how each part of the business is organized to the deliver the corporate and business – level strategic direction. Operational strategy focuses on resources, processes, people etc.
Here I am giving the example of Ryan air, which is a biggest low – cost European air line.
Ryanair was the first low budget airline in Europe, modeled after the successful U.S. low cost carrier, Southwest airlines. Ryanair is one of the oldest and most successful low cost airlines of Europe. This case study on Ryanair highlights its low fares business model, its business strategies and operations. The case further incorporates the history and business description of Ryanair, its operations and challenges as a budget airline. Features and benefits of the low cost business model are also discussed.
Ryanair won, the ‘Southwest’ of European Airlines in 2007. A year earlier, Ryanair hedged fuel and a performance to envy. Ryan air’s passenger Grown in Millions.
History of Ryanair:-
- Ryan air’s initial efforts as a low – cost carrier
- 1990 – Restructuring at Ryanair
- The growth of Ryanair
Analyzing the low – cost business model
- Ryanair low fares strategy and standardized Operational model
- Advantages of using secondary or airports located outside city
- Low wage bills
- Ryanair.com and online bookings of tickets
- The easy jet challenge
- Ryanair – failed merger bid and other controversies
- Ryanair/Aerlingus merger failure
- Ryanair and EU
- Some low – fare carriers around the world
Exhibit 1: Features and benefits of low fares business model
Exhibit 2: Oil prices comparison, 1994 – 2009
Exhibit 3: List of approved and prohibited merges by the EU in the airline industry
Exhibit 4: Comparative performance data of some major European LFA
Exhibit 5: Map of the European Union
Introduction to Ryanair: The ‘southwest’ of European airlines in 2007
Ryanair, Europe’s biggest low – fares airline (LFA) reported its third quarter results for 2007 with net profits dropping 27 percent compared to a net profit of 48 million a year earlier. Ryanair cited poor market conditions, fuel costs and concerns on recession in the UK and many other European economies for its current performance and not so strong future profit expectations. With average winter fares dropping almost 5 percent it’s underlying net profit in the three moths to end December fell to 35 million Euros. Ryanair net profit figure excluded a one – off gain of 12.1 million Euros arising from the disposal of 5 Boeing 737- 800 aircraft.
History of Ryanair
Ryanair was set up in 1985 and is one of the oldest and most successful low – cost airlines of Europe. In fact, Ryanair was one of the first independent airlines in Ireland. Ryanair transformed the Irish air services market where other airlines like Avair failed to compete with the more powerful national carrier Aerlingus.
Ryan air’s initial efforts as a low – cost carrier
Ryan air began by offering low – cost no – frills services between Ireland and London. Ryan brothers – Catlan, Declan and Shane Ryan were the founding share holders of Ryanair. Ryanair was set up with a share capital of just £1, and a staff of 25. Tony Ryan, their father and the chairmen of Guinness Peat Aviation (GPA), an aircraft leasing company lent Ryanair its first airplane, a fifteen – seater turbo prop commuter plane. Ryan air’s first cabin crew recruits had to be less than 5ft 2ins. tall so as to be able to operate in the tiny cabin of aircraft
Strategic analysis is all about the analyzing strength of business position and understanding the important external factors that may influence that position. The process of strategic analysis can be assisted by a number of tools, including:
Scenario Planning: – This technique that builds various plausible views of possible futures for a business.
Scenario Planning or scenario thinking is a strategic planning tool used to make flexible long term plans. It is a method for learning about the future by understanding the nature and impact of the most uncertain and important driving forces affecting our world.
Many of the regular methods for strategy development assume that the world in three to ten years time will not significantly differ from that of today and that an organization will have a large impact on its environment.
Although the method is most widely used as a strategic management tool, it can also be used for enabling other types of group discussion about a common future. The thought process involved in getting to the scenarios have the dual purpose of increasing knowledge of the environment in which you operate and widening the participant’s perception of appropriate action plans can be considered.
Pest analysis: – This is a technique for understanding business environment.
Pest analysis stands for “Political, Economic, social and Technological analysis” and describes as a frame work of macro environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT. Inserting Environmental factors expanded it to PESTLE or PESTEL, which is popular in the UK. The growing importance of environmental or ecological factors in the first decade of the 21st century have given rise to green business and encouraged widespread use of an updated version of the PEST framework.
Political factors are how and to what degree a government intervenes in the economy. Specially, political factors include areas such as tax policy, labor law, environmental law, trade restrictions, traffics, and political stability.
Economic factors include economic growth, interest rates, exchange rates and inflation rate.
Social factors include the crucial aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety.
Technological factors include ecological and environmental aspects.
Environmental factors include weather, climate and climate change, which may affect industries such as tourism, farming, and insurance.
Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law.
Market segmentation: – A technique which seeks to identify similarities and differences between groups of customers or users.
A market segment is a group of people or organizations sharing one or more characteristics that cause them to have similar product and/or service needs. The purpose for segmenting a market is to allow your marketing program to focus on the subset of prospects that are most likely to purchase your offering. When numerous variables are combined to give an in – depth understanding of a segment, this is referred to as depth segmentation. When enough information is combined to create a clear picture of a typical member of a segment, this is referred to as a buyer profile. A statistical technique commonly used in determining a profile is cluster analysis.
Once a market segment has been identified and targeted, the segment is then subject to positioning. Positioning involves ascertaining how a product is perceived in the minds of consumers.
Five forces analysis: – A technique for identifying the forces which affect the level of competition in an industry.
This analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. Five force analyses looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.
Threat of entry: – Economies of scale. Ex: – the benefits associated with bulk purchasing
- 2) The high or low cost of entry
- Cost advantages not related to the size of the company
- Government action
The power of buyers:-
- This is high where there a few, large players in a market
- Cost of switching between suppliers is low
The power of suppliers:-
Where the switching costs are high
Power is high where the brand is powerful
Customers are fragmented
The threat of substitutes:-
Where there is generic substitution
Where there is product – for – product substitution
This is most likely to be high where entry is likely
Competitor analysis: – a wide range of techniques and analysis that seeks to summarize a businesses overall competitive position. Competitor analysis is an important part of the strategic planning process. Competitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis has several important roles in strategic planning.
- To help management understand their competitive advantages or disadvantages relative to competitors.
- To generate understanding of competitors past, present and future strategies.
- To provide an informed basis to develop strategies to achieve competitive advantage in the future
- To help forecast the returns that may be made from future investments
Competitor analysis is an essential component of corporate strategy; it is argued that most firms do not conduct this type of analysis systematically enough. Instead, many enterprises operate on what is called informal impressions. A common technique is to create detailed profiles on each of your major competitors. These profiles give an in – depth description of the competitor’s background, finances, products, markets, facilities, personnel and strategies.
Directional policy matrix: – A technique which summarizes the competitive strength of a businesses operation in specific markets.
This matrix measures the health of the market and your strength to pursue it. The result indicates the direction for future investment. The recommendation may be to invest, grow, harvest or divest. Most businesses have more than one product and operate in several markets. One effective approach to ensuring that objectivity has an input into such prioritization is the directional policy matrix (DPM).
Critical success factor analysis: – A technique to identify those areas in which a business must outperform the competition in order to succeed. Critical success factors are the critical factors or activities required for ensuring the success your business. The term was initially used in the world of data analysis, and business analysis. Critical success Factor is the term of an element that is necessary for an organization or project to achieve its mission. It is a critical factor or activity required for ensuring the success of your business. A critical success factor is not a key performance indicator. CSF’s are elements that are vital for a strategy to be successful. KPI’s are measures that quantify management objectives and enable the measurement of strategic performance.
The term was initially used in the world of data analysis, and business analysis. Critical success factors (CSF’s) are tailored to a firm’s or manager’s particular situation as different situations to different critical success factors. Five key sources of CSF’s
- The industry
- Competitive strategy and industry position
- Environmental factors
- Temporal factors
- Managerial position
SWOT analysis: – This is a useful summary technique for summarizing the key issues arising from an assessment of a business “internal” position and external environmental influences.
SWOT analysis is a strategic planning method used to evaluate the strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project identifying the internal and external factors that are the favorable and unfavorable to a convention at Stanford University in the 1960s and 1970s using data from fortune 500 companies.
A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. An example of a strategic planning technique that incorporates an objective – driven SWOT analysis is ‘Strategic Creative Analysis (SCAN)’. Strategic planning, including SWOT and SCAN analysis, has been the subject of much research.
Strengths: – attributes of the person or company that are helpful to achieving the objective.
Weakness: – Attributes of the person or company that are harmful to achieving the objective
Opportunities: – External conditions that are helpful to achieving the objective.
Threats: – External conditions which could do damage to the objective.
Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.
The SWOT analysis is often used in academia to highlight and identify strengths, weaknesses. Opportunities and threats. It is particularly helpful in identifying areas for development.
Another way of utilizing SWOT is ‘matching’ and ‘converting’.
Matching is used to find competitive advantages by matching the strengths to opportunities.
Converting is to apply conversion strategies to convert threats or weaknesses into strengths or opportunities.
An example of conversion strategy is to find new markets.
If the threats or weaknesses cannot be converted a company should try to minimize or avoid them.
Evidence on the use of SWOT
SWOT analysis may limit the strategies considered in the evaluation. J.Scott Armstrong notes that “people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm’s objectives or calculating ROI for alternative strategies. As an alternative to SWOT, Armstrong described a 5 – step approach alternative that leads to better corporate performance.
These criticisms are addressed to an old version of SWOT analysis that precedes the SWOT analysis described above under the heading “Strategic and Creative use of SWOT analysis”. This old version did not require that SWOTs be derived from an agreed upon objective. Example of SWOT analyses that do not state an objective are provided below under “Human Resource” and “Marketing.”
Internal and external factors
The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. These come from within the company’s unique value chain. SWOT analysis groups key pieces of information into two main categories.
Internal factors: – The strengths and weaknesses internal to the organization.
External factors: – The opportunities and threats presented by the external environment to the organization. Use a PEST or PESTLE analysis to help identify factors.
The internal facts may be viewed as strengths or weaknesses depending upon their impact on the organization’s objectives. What may represent strengths with respect to one objective may be weakness for another objective. The factors may include all of the 4P’s; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio – results are often presented in the form of a matrix.
SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade companies to compile lists rather than thinking about what is actually important in achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats.
It is prudent not to eliminate too quickly any candidates SWOT entry. The importance of individual SWOTs will be revealed by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that generates no strategies is not important.
Here I am concluding that my assignment was completed. Strategy at different levels of management was explained including different methods like SWOT analysis, CSF, DPM, etc. I have tried my best to compete this assignment with the help of some online resources.