Strategy formulation involves all the steps taken by an organization’s top management depending on the resources available to implement the organization’s goals. The management carries an assessment on the external and internal environment in which the firm competes. The management is then tasked with making strategic decisions on how the organization will compete. Formulation of strategies ends with a series of measures and goals for the organization to undertake.
Internal resources or the environment include the strength and weaknesses of the resources the organization owns. The resources include people, processes within the organization, and the firm’s IT system. Strength and weaknesses indicate the capabilities of an organization and its limitations. Organizations strength includes a strong team dedicated to propelling the business to greater heights, availability of raw materials or labor, and a good PR team. Weaknesses of an organization may arise from the inability to use resources efficiently, and failure to contain high level of secrecy of the organizations operations.
External forces that control strategy formulation are the opportunities of a firm and the possible threat to its survival. The opportunities and threats help an organization to examine it resources in the context of its competitive environment. An opportunity and a threat indicate changes in business and limitations of the business. Opportunity provides a means of improvement and competitive advantage in the operation of an organization. Some opportunities can be predicted, such as being in the capacity to expand a franchise into a town while some opportunities come abruptly. A person can create some opportunities, as long as you can think far ahead. For an example, a company can be able to predict the potential of a newly introduced product developed from the changing technology. Twitter and Facebook are a good example of such foresight in the trending technology. Anything from outside an organization that can adversely affect its operations and performance is termed as an external threat. Weaker groups often experience less risk in contrast to larger organizations.
This factor is based on the assumption that success breeds more enemies around the business environment. External threats include; new technologies that may render your services or products obsolete, new and existing regulations, new and existing competitors, economic issues, unfriendly legal systems in markets abroad, and unstable political systems. It is vital to note that managers can transform a threat into an opportunity, for instance, development of a new technology. The development may render one of the products or services obsolete but may also provide the development of a new and better product or service.
External opportunities and threats can lead to the optimal performance of an organization as compared to the internal factors. When an organization adequately addresses the opportunities and threats, the organization can address the five forces and all the processes related to value chain within an organization.
Industry life cycle and product lifecycle mirror closely in several perspectives. The concept of a life cycle is a proper term used to describe what happens to industries and products over time. Industry life cycle and product lifecycle are often combined and called product lifecycle. The development of Allegiant Air and the services it provides follows a similar process. Consequently, an industry’s position and the position of a product in their cycles lead to different decisions about their future operations. An industry is a broader classification compared to a product. Allegiant Air is an industry that offers various products to its esteemed customers. Products have shorter life cycles than industries. Allegiant focuses on air transport industry offering various products and services to people. Thus, in this perspective, an industry and product are very different. A product is not an individual but a group as opposed to an industry, which is a collection of comparable products.
The capabilities that give business organization operative advantages over its competitors are the core competencies. Core competencies differentiate a firm from its competitors. An organization can increase its efficiency through maximization of core competencies and outsourcing. The first determinant of core competency is what that particular business can offer, which creates value for clients. For instance, suppose a particular company employs the use of technology in money transfer to customers worldwide, other companies will be left behind. The second core competency is the ability of a business organization to broaden and reach more clients. The final core competency is uniqueness. A business organization should come up with products that cannot be easily replicated by its competitors.
The porter’s five forces are applied to analyze the position of the core competencies. An organization will be able to outdo threat of substitute services and products, the threat of new entrants, and threat of established competitors if the organization produces unique products. Unique products that are attractive will give the rivals a hard time to establish themselves in the market field. The organization should also cope with the bargaining power of the customers and the suppliers so as not to lose the suppliers and the customers. The type of business should easily win customers trust and convince them easily.
PESTLE refers to a tool used to analyze the marketing environment externally by monitoring certain factors that have an impact on an organization. PESTLE refers to political, economic, social, technological, and environmental which have an impact on a business. Political factors entail the influence of the state on business operations. Political factors include areas like labor laws, tax compliance, tariffs, trade restrictions, and environmental law. The state has a great influence on the business operation within its boundary. Economic growth, interest rate, inflation, and exchange rate comprise the economic factors. A firm’s capital margin is affected by interest rate while exchange rate affects the cost of exporting goods. The cultural aspect of a particular group makes up the social part. Social factors also include population growth rate and age distribution. Business companies need to change various strategies to adapt to the changing social trends. The technology comprises the use of R&D activity and automation systems. Technology leads to innovation and quality of services and products. Stakeholders are the people directly or indirectly involved in the running of organizations.
The stakeholders are responsible for all the activities undertaken in by the company to ensure maximum profits are generated. The managers employ all the necessary skills and analysis like PESTLE, SWOT, and triple bottom line model to ensure that the company maintains its competitive advantage. The Triple bottom line strategy consists of three parts; that is the social part, financial, and the environment. The strategy is an accounting framework for determining profits and loss. The Triple Bottom line consists of economic, also known as financial, social equity, and environmental factors. Triple bottom line companies can reach niches that are highly profitable that were initially absent when money was the driving factor. The framework has been adopted by many organizations to evaluate their performance in the market.