This paper describes different external and internal analysis tools in strategic management. Discover the role of external and internal analysis tools such as SWOT, PESLEL, VRIO, and Porterās five forces work. In addition, the essay provides information about the efficiency of these models implemented in Quatar National Bank.
Strategic Management Overview
The current changes in economic situations are frequent and unpredictable. Companies from different parts of the world try to analyse their performance, investigate certain markets, consider the current political or cultural improvements, and take the steps needed to improve the quality of the work and introduce effective strategies. Companies have to be ready to establish goals and objectives, adopt appropriate courses, and allocate the resources that are crucial for companies in their activities (Chandler 1963).
Michael Porter (1996) adds that strategies have to be competitive because companies should differ due to various sets of activities and a unique means of value. Finally, Mintzberg (2007) offers to consider a strategy as a pattern in an existing stream of decisions. Each definition is a significant contribution to strategic management and the development of tools and techniques that add value to organisations. Companies need to develop new strategies to access new markets, introduce attractive prices and products, satisfy customers, and participate in beneficial business relations (Afonina 2015).
Any management tool is a possibility to identify both the strong and weak aspects of a company and clarify the steps that could be taken to improve performance. Several effective techniques have been offered already, and companies have to learn their peculiarities and make the correct decisions and choices. These techniques are strategic capabilities that contribute to organisational survival and promote competitive advantage in such organisations as Qatar National Bank where personal and organisational needs have to be identified.
In this paper, several tools will be investigated to identify the impact of management tools on a company’s performance. They include SWOT, Porter’s Five Forces Analysis, benchmarking, VRIO, value chain analysis, and PESTEL analysis. The goal of this work is to promote an internal analysis of a business and explain how the already identified tools of strategic management may add value to organisations.
Each tool is a unique opportunity for the company to observe its current achievements and possible challenges. This paper helps to clarify what strategic management techniques are available to modern companies and explains how to use them to achieve the required portion of success and recognition. A company may be lost in the existing variety of options, and this paper is a guide for managers to rely on.
Role of Strategic Management
In a constantly changing world, the concept of strategic management cannot be ignored. It ensures survival and long-term success in the existing competitive environment (Bhandari & Verma 2013). Strategic management is a crucial process many companies have to be involved in if they want to achieve success, properly organise their activities, and make decisions that are thoughtful and effective. In strategic management, a strategy is a key term that represents a systematic plan of action that promotes self-defence, rival, and success (Bhandari & Verma 2013).
A strategy is based on decision making where all decisions are usually based on rational analysis and the relations developed between a company, its customers, and competitors (Hubbard, Rice & Galbin 2014). The analysis of the internal and external environment is the essence of any strategy. It helps to investigate positive and negative aspects of organisational performance and clarify what kind of work may be done to change the results.
In addition to a strategy, the conceptual framework of strategic management includes such concepts as a policy, tactics, stakeholders, and strategic tools that vary in regards to their purposes and possible outcomes of the value of organisational performance. Since strategic management is a relatively new field, it should have a strong theoretical basis and explanations. Two main approaches help to bring an understanding of different strategic tools: industrial and sociological (Bhandari & Verma 2013).
On the one hand, the industrial approach includes a variety of economic factors and assumptions that define organisational behaviour, advertising, and the utilisation of capacities. On the other hand, the sociological approach is based on such issues as human interactions, personal behaviour, and the consideration of personal needs and opportunities. As soon as these approaches are taken into consideration, managers and leaders of companies can decide what types of strategic management tools can be used and what purposes should be achieved.
Strategic decisions and long-term goals are the two crucial aspects of strategic management that help to add value to organisations and introduce the conditions under which new ideas, activities, and improvements may be developed. There is no need to investigate which decisions are more or less effective or which goals are more or less appropriate. Any company must have at least several goals and take decisions to stay competitive and demonstrate its abilities.
Importance of Adding Value to Organizations
There are many ways how a company could position itself in the market regarding its differentiation strategies. A cost advantage is one of the goals any company strives to achieve. It helps to create effective communication between a company and its customers and to choose the resources that are appropriate in a certain environment.
A company should introduce its products in the way it may compete with other organisations. Therefore, competitive advantage and differentiation play an important role in organisations. Still, these two concepts cannot add value to an organisation if they are used separately and without the support of additional activities.
Analysts and managers have to understand the essence of the value of diversification (Feldman, Gilson & Villalonga 2012). There are two crucial reasons why the value is important in strategic management and the activities when information is used in management. First, value management helps to understand the environment where an organisation has to exist and be developed regularly. Value is the way a company sees itself in the existing, comprehends its duties, compares with other organisations, and makes the decisions that help it stay competitive.
Second, value is a possibility to analyse the opportunities from different aspects. In other words, value is a possibility to investigate the environment and determine the possibilities. It is not enough to mention what a company can and cannot do. It is necessary to provide explanations of why certain steps may be taken and why some decisions should be avoided. Also, companies have to consider their resources that help to add value. The process of adding value is the difference that exists between the market value of the output and the cost of the input (Langston & Lauge-Kristensen 2013). Therefore, it is possible to add value with the help of raising output values or lowering input costs of the company (Evans, Stonehouse & Campbell 2012).
Nowadays many companies face a real challenge when they try to demonstrate their possibilities to add value to different issues (Freeman 2010). Although companies do not have to develop cost or benefit analyses, they cannot decide if it is time to add value to their work or if it is necessary to wait. Therefore, much time is spent on understanding operations, the businesses the companies are involved in, the choice of operating managers, and other details of the work that has to be done. To comprehend the worth of adding value to organisations, different strategic management tools may be used. Some of them will be discussed in this paper with the examples taken from different companies and their annual reports offered online.
Internal Analysis Tools in Strategic Management
Some many strategic tools and techniques help companies investigate their possibilities, compare the internal and external environments, share personal opinions on the events, and introduce the solutions. Strategic tools vary in regards to their goals and outcomes. It is hard to clarify what tool is more effective and which tools have to be used under certain conditions only. Therefore, the evaluation of the tools should be based on their functions to comprehend the worth of each technique.
SWOT Analysis in Strategic Management
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is one of the most frequently used strategic tools with the help of which the descriptive and analytical information on a company and its employees, customers, suppliers, and competitors may be gathered. It is used to succeed in organisational development with probable causes and possible effects when the time to implement a strategy comes (Snelling 2012).
The peculiar feature of this type of analysis is the possibility to investigate the internal (strengths and weaknesses) and external (threats and opportunities) factors each company may have. Strengths are all possible factors that make a company strong in regards to other competitors and representatives in the same market. Weaknesses introduce the factors that could harm a company or make it weak in front of its competitors. Opportunities are all those external factors and situations with the help of which a company may achieve its competitive advantage and value. Finally, threats introduce the sector when the most unfavourable and unstable situations are mentioned. Such a framework helps companies to analyse the results of their current achievements and clarify what improves them and what makes them weak in regards to the existing environment. The SW sector is usually determined by companies when their managers investigate the possibilities of the employees. The OT sector is based on the conditions under which the company should exist. In other words, Opportunities and Threats are the effects each company may undergo.
The main benefit of this strategic technique is its simplicity. For example, the annual report of the Mitsubishi Heavy Industries Group in 2014 introduced a powerful, still compact SWOT analysis that became a good example of how the evaluation of strengths, weaknesses, opportunities, and threats should look. As a rule, the information is divided into four sections titled with the required letter, and the factors are enumerated and marked by bullet points (Appendix A).
It is not difficult to understand the main issues of the analysis and use the factors in the future. Still, there are also several limitations to this technique that cannot be ignored. It happens that the authors of such reports do not prioritise factors. Therefore, it is hard to comprehend what threat is more dangerous and why.
Also, the authors do not have access to certain methods that help to recognise the factors and make sure that each of them has a correct category. In other words, it is hard to check the correctness of the offered ideas other than to rely on the visions and values of the company and its employees. Value is added to organisations with the help of SWOT analysis, but this value is based on the experiences and knowledge of the company only.
Porterās Five Forces in Strategic Management
In 1980 a new strategic technique was offered by Michael Porter to facilitate the work of managers and improve their abilities to analyse organisational performance (Dobbs 2014). This tool is also known as Porter’s Diamond due to its form and five evident factors for consideration. The goal of this tool is to explain the worth of competitive advantages in different industries. Managers have to take into consideration five crucial factors in this form of the analysis:
- Power of Suppliers. Companies investigate their prices and the relations with suppliers who could influence the uniqueness of products and services. When there are few suppliers, the power of suppliers is higher due to the evident dependence of the company.
- Power of Buyers. A company investigates prices from the buyersā point of view. It is necessary to clarify if buyers could drive prices. If there are few buyers, they could dictate their own rules and priorities. If there are many buyers, their power is not that crucial.
- Threat of New Entrants. The evaluation of the possibility to enter the same market occurs. Existing barriers and opportunities are evaluated. Companies have to clarify if they can overcome the challenges and stay competitive.
- Threat of Substitutes. Consumers may find other companies to address for the same services and products. The existing companies in the market have to be clarified. Such factors as employees, prices, customers, and uniqueness of goods should be underlined.
- Industry Rivalry. The explanation of the current findings should be given. It demonstrates if industry competitions make sense and are intense enough (Fleisher & Bensoussan 2015).
In Appendix B, there is a scheme of how Porterās Diamond looks like. There is no need to add additional explanations or examples. This strategic tool is effective and helpful due to its clear directions and certain facts. Academics, students, and managers use this form of analysis to clarify if a company is ready to compete and what challenges may prevent its development.
The worth of this tool is the possibility to understand the value and its effects on companies’ profits. Also, Porter’s analysis is a chance to investigate the nature of competitions that occur between the representatives of the same market. Finally, not one product or service should be considered above the whole company and its abilities. However, there are also several weak points of the analysis. For example, outside factors and assumptions are not taken into consideration. Resources are also not included in the analysis because the task is based on the relations between the companies but not on the opportunities, values, and visions.
Benchmarking in Strategic Management
Benchmarking is another effective strategic management tool with the help of which companies investigate the best ways to compete in the chosen market. Key metrics have to be identified, and the relative performance of organisations is clarified. The comparison is the core of this technique because it helps to understand if the success of the company may be explained or the failure of the company could be changed. Nowadays, organisations try to use their best practices to learn what can be used to improve organisational performance so they can stay competitive. They observe the current changes, analyse new technologies, and choose the practices that are more appropriate in the market (Parast & Adams 2012).
There are two types of benchmarking: industry comparison (when the evaluation occurs within the frames of one industry or market to clarify what achievements and abilities the main competitors may use) and best-in-class comparison (when the analysis of the same techniques and methods may cover different markets where the companies could become competitors with time or serve as good examples to follow).
Any benchmarking process usually consists of five main steps. First, the identification of focus is required. Companies have to comprehend what their main problems are and what their possible outcomes could be. Then the process of planning and research should occur. During this phase, a company identifies its resources and thinks about the approaches that could help. The next step is the process of gathering the information. The success of the benchmarking process depends on how deep the company’s managers can investigate the market. As soon as the information is gathered, it has to be analysed. Statistical techniques and examinations facilitate the chosen strategic tool. Finally, the recommendations have to be given to the company in regards to the findings offered. Qualitative and quantitative data are combined to cover all areas the company may be involved in.
In general, benchmarking is a powerful strategic tool that helps to investigate the company and its abilities to compete. However, due to the necessity to spend much time on search and elaborate on much information, not many companies are ready to work and compare using this particular tool.
VRIO in Strategic Management
The task of formulating a proper strategy and asking appropriate questions is not easy, and managers have to be ready to work hard and consider different aspects. Managers have to analyse the strategic capabilities of their companies to create a sustainable competitive advantage. VRIO is one of the possible opportunities for managers to diagnose organisational capabilities.
VRIO stands for Value, Rarity, Inimitability, and Organisational support. It is a framework that aims at identifying core competencies by asking questions in regards to every possibility available to a company (Frynas & Mellahi 2015). Core competencies include any possible organisational abilities that work together and promote the success of an organisation and its employees. As a rule, core competencies have several advantages, including the possibility to influence markets, investigate rivals and their work, or establish and control the accomplishment of strategically-related goals (Witcher & Chau 2010).
VRIO is a tool that has four basic questions to each organisation:
Value Chain Analysis in Strategic Management
Are there any capabilities that could be valued by customers to make an organisation able to respond to various environmental opportunities or threats?
Value could be explained when a company is ready to take advantage of opportunities and eliminate threats and when a company can provide the required portion of values to customers.
Rareness
Are there any competitive organisations that could possess resources or capabilities of the same value?
Any organisation should check if its values and capabilities are rare by their nature. It is not enough to control how many companies could take the same steps and achieve good results. It is necessary to investigate the market and make sure that rare capabilities could be developed and attract the attention of people.
Inimitability
Are there any capabilities that cannot be or could hardly be obtained by competitors?
The capabilities of a company should be easily defined and understood. Still, the company can achieve success if some resources chosen create some kind of cost disadvantage. It means that companies see the resources and recognise their urgency. However, they may face several threats and costs that should be spent.
Organisation
Are there enough conditions to make sure that a firm is properly organised to exploit its capabilities?
The evaluation of a firm’s abilities and resources is based on the idea of how everything is organised. If appropriateness in the organisation is achieved, the support and promotion of valuable, rare, and inimitable capabilities are possible.
Value Chain Analysis in Strategic Management
The core of many business processes is the necessity to add value to customers and promote the development of the relations that could gain different forms (Rajarathinam, Chellappa, & Nagarajan 2015). Value is a crucial factor in any organisation. Therefore, the analysis of value or the recognition of the factors that could influence value and the development of organisations cannot be neglected. Value chain analysis is a tool with the help of which an organisation can identify its primary and secondary activities that could add the required portion of the value with a minimum of losses and costs. The value chain includes several internal activities that are required during the process of transformation of inputs into outputs and that lead to competitive advantage (Witcher & Chau 2010).
Five main activities have to be taken first to make sure that products or services are properly delivered. These activities include:
- Inbound logistics,
- Operations,
- Outbound logistics,
- Marketing & sales, and
- Service.
These activities could add value directly to the working process. Yet all these decisions and ideas are not as important as support activities. There are four secondary or supportive activities with the help of which the improvement of organisational effectiveness is possible. These activities are:
- Firm infrastructure,
- Procurement,
- HR management, and
- Technology.
As soon as managers identify each activity and understand the worth of each idea, the analysis of competitive positions is possible. Also, competitive advantage may be investigated in terms of all these activities taken together or separately. The relation between primary and supportive activities may be properly discussed in terms of the table given in Appendix C. Each activity is the collection of ideas and possibilities of companies that may be developed into strengths or turned into weaknesses because of poor organisation.
The peculiar feature of the chosen tool is the possibility to combine strategic management and cost analysis. The value chain should be defined properly because it helps to operating costs and to give an understanding of what value activities may help companies. As soon as a firm succeeds in cost analysis and value chain development, appropriate cost behaviour may be chosen and effective decisions can be made.
PESTEL Analysis in Strategic Management
PESTEL is one of the most famous anagrams among scholars, researchers, and managers that are used for the analysis of the environment companies have to work in. PESTEL aims at describing five types of environment that are crucial for organisations regardless of their directions and opportunities. These competitive spheres are political (P), economic (E), socio-cultural (S), technological (T), ecological (E), and legal (L) (Grunig & Kuhn 2015).
Sometimes companies find the first four factors to be enough and explain that PEST analysis is what can help a company achieve success. However, Porter, the developer of this framework, underlines the necessity of considering the combination of the offered six aspects and their possible impact on the development of a firm.
The evaluation of these six factors helps companies and their managers to promote the required development, identify outside threats and opportunities, and clarify what steps should be taken to achieve success. For example, the analysis of the political factors shows if a firm has enough environmental protection, whether it could use the existing governmental attitude, and if it demonstrates consumer protection and competition regulations to their full extent. The evaluation of the economic environment includes the necessity to investigate the peculiarities of the economic growth of the market and the country. Additionally, managers have to pay attention to such issues as the exchange rate, inflation, taxation, and international trade conditions.
Economic factors also include such laws as health and safety law and employment law. These two types of law help to clarify the conditions under which a company may exist and promote its employees with appropriate support. Socio-cultural issues cover demographics, education, living conditions, and the existing ethnic diversity that could influence health and welfare or lifestyle changes. The analysis of the technological environments helps to look at the current changes in sciences, the use of the Internet, the relation between the government, and the technological progress.
The legal environment is the sphere of the analysis where different regulations, barriers, and obligations are identified. Companies face certain legal responsibilities and have to be aware of their opportunities, strengths, and weaknesses. Finally, the environmental issues have to be identified by companies by giving answers to such questions as āAre there any environmental laws that have to be followed?ā or āWhat are some waste regulations that could be applied to a company?ā
PESTEL analysis is an important strategic management tool for many companies because it evaluates the environment possible before the marketing process.
Strategic Management Choices in Companies
Strategies are crucial for all companies regardless of their markets and goals. It is not enough for a company to develop a goal and make sure its people take the necessary steps to meet it. All members of a team need to know how to make strategic management choices properly. First of all, any company has to underline its strong and weak points to know what kind of work should be done.
Therefore, SWOT analysis is what a firm should begin with. Then the evaluation of the external environment has to be developed. As a rule, PESTEL analysis is chosen. Finally, core competencies and values have to be integrated with the resources and turned into opportunities. The value chain analysis and VRIO are the solutions for companies where the leaders and managers want to achieve recognition and success.
Therefore, taking into consideration the opportunities of companies, the goals and intentions of managers, and leadersā decisions in regards to the resources that could be available to all team members, it is possible to say that a successful strategic management choice depends on how an appropriate strategic management tool is used.
Qatar National Bank Strategic Choices
There are many ways of how the strategic tools and techniques mentioned in this paper may influence the work of people in such an organisation as Qatar National Bank and add the required portion of the value. Qatar National Bank is a serious financial institution that identifies and works with personal and business financial needs. It helps people to solve their financial problems and overcome the challenges. This organisation has to deal with several personal issues and make sure that all financial operations are properly organised. However, not much attention is paid to the company’s value and the needs of its employees.
Therefore, such tools as SWOT or benchmarking could be used to clarify what makes the company strong. With the help of such tools, Qatar National Bank can understand what its main shortages and benefits are. VRIO and value chain analysis may be used to clarify how crucial the role of each employee is, and what steps could be taken to add value to the company.
At the same time, the recognition of political or economic external factors may help to identify potential threats and avoid them. Employees could gain benefits and overcome the challenges in case PESTEL analysis shows the threats beforehand. The analysis of Qatar National Bank’s strengths and weaknesses is also the possibility for its leaders to comprehend what has been already achieved, and what kind of work should be done more.
Conclusion
In general, the description and analysis of the existing tools and techniques in strategic management help to investigate the current technological changes, the importance of planning, and the intentions to succeed in the market, which cannot be neglected or misunderstood. Companies need an effective plan and a strategy based on which employees get an idea of what should be done, what resources could be used, and what outcomes may be expected. Strategic management tools such as SWOT, PESTEL, VRIO, the value chain analysis, and benchmarking allow businesses to neutralise threats or potential mistakes that may weaken a company.
Also, these are good opportunities to introduce the company’s goals and missions in regards to the existing resources and capabilities. Finally, strategic management is the field where mistakes could be made and corrected in a short period if they are recognised quickly. Tools and techniques may vary, and companies are free to make their own choices and offer their explanations regarding the theoretical aspects and frameworks mentioned in this paper. Qatar National Bank could use these tools and techniques to clarify possible threats and help every employee to identify the strengths and use them to gain personal and organisational benefits.
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Appendix A: SWOT of Mitsubishi Heavy Industries Group
Appendix B: Porterās Five Forces
Appendix C: Value Chain Analysis
