Strategic Templates for Managerial and Market Success - Essay Example

? Porter’s Five Forces and PESTEL/SWOT analyses: Strategic templates for managerial and market success BY YOU YOUR SCHOOL INFO HERE HERE Strategic templates for managerial and market success 1. Introduction Organisations attempting to make capacity decisions in markets where there is unpredictable demand patterns rely on a variety of strategic tools to determine whether the organisation is properly aligned to respond to changing market demands. In a situation in which a solar panel manufacturing plant requires knowledge of market trends, regionalised economic conditions, and internal capacity to guide the organisation in a new strategic direction, the business must assess the multitudes of potential threats that can impede forward progress. Porter’s Five Forces model, a strategic analysis tool, allows organisational leadership to examine consumer and supplier characteristics, market trends, and competitive activity to determine what market-related factors maintain the most probable characteristics to disrupt or otherwise impede strategic advancement. The PESTEL/SWOT template of evaluation allows a firm to examine its internal strengths and weaknesses, based on the tangible characteristics of the external market, including political, economic, and social forces relevant to the strategic plan and new business direction. An organisation cannot determine capacity without first understanding what dynamics of the internal and external market environment will demand either flexibility in operations or create some degree of resistance toward meeting a specific strategic goal. This report utilises data uncovered using Porter’s Five Forces model and PESTEL/SWOT to determine how a solar panel manufacturing company can assess new strategic commitments and ensure the organisation is aligned with market conditions to achieve profit success with key target markets. 2. Porter’s Five Forces Analysis There are five forces that influence or shape competition that include competitive rivalry, threat of new market entrants, the degree of substitute products on the market, as well as both supplier and consumer buying power on the market (Porter 2011). A solar panel manufacturing plant, in order to achieve a new strategic goal or market positioning strategy, must be concerned with establishment of a partnered and adaptive supply chain network (as one example) in order to achieve maximum business outputs. In this scenario, the plant management must examine whether the existing supply network is sufficient for adaptability to meet just-in-time demands (in a lean environment) or whether the supply partners are able to reduce their switching costs to defect to other high-profit-building buyers in the same industry. The framework of the Five Forces Analysis is to give the business a strategic snapshot of current, external market conditions so as to translate such findings into internal operational restructuring or human capital development (as two examples) necessary to achieve strategic results. Bennet and Rundle-Thiele (2004) remind the business world that the nature of today’s markets make it easy for competition to replicate existing products and services. The only feature of a business that cannot be replicated is the firm’s brand image (Nandan 2005; Bennet and Rundle-Thiele 2004). In the solar panel industry, products are largely homogenized, meaning that they have similar features, benefits, pricing and function that are easily replicated by competitors maintaining strong capital resources and manufacturing know-how. This is why, to this industry, the degree of competitive rivalry as well as consumer characteristics are so vital to establishing a strong competitive edge. Porter (2011) iterates the importance of understanding the potential risks of buyer brand defection. In the solar panel industry, consumers have a great deal of buying power. This market is characterised by concentrated markets, where there are actually few buyers that maintain the majority of market share (Porter 2011). Further, solar panels are largely standardised products in which buyers purchase a significant volume of total manufactured output. Because it is difficult for a solar panel manufacturer to differentiate products using marketing conceptions to achieve an effective market position, the organisation must determine how to remove some of the buying power to achieve competitive advantage. The Five Forces model allows the organisational management to examine what factors could potentially influence brand defection in a sales environment where switching costs to competition are very low for the buyer network. If the analysis determines that the product is simply too homogenized to attempt differentiation through product emphasis, the business will need to coordinate a total brand-building strategy to position the business effectively against homogenized competition. The Five Forces analysis will determine whether quality positioning in marketing is required to create a distinct business image through brand or whether dynamic pricing to capture market interest in the short-term will provide the most advantages. Examination of what factors are driving buyer power will determine competitive marketing strategies to build a solid brand image that is recognised, respected and will ultimately gain loyalty against standardized competitors. Chaudhuri and Holbrook (2001) iterate that when a business is able to build brand loyalty with buyer markets, it provides opportunities to use a premiumisation strategy that will justify a higher pricing model. Customers who are loyal to a company or brand conception spend more time and resources on the product or service and will often provide valuable word-of-mouth advertising (Chaudhuri and Holbrook 2001). Because there are significant, potential revenue gains associated with achievement of brand loyalty, the solar panel manufacturer must assess and analyse all factors associated with brand identity and buyer preferences/attitudes that could lead to premium pricing models accepted by buyers under marketing conceptions of quality, pricing, or expertise. All of these are supported by brand strategy in operations that are critical to achieving competitive success. Early market entrants in an industry have significant competitive advantages. In the solar panel industry, buyers are very risk averse. When a pioneering company launches an innovative product into the market, buyers will often compare late movers to the first mover with mostly unfavourable evaluations (Kalyanaram and Gurumurthy 2008). Why is this relevant for the solar panel industry? Porter’s Five Forces model allows the business to assess the risks of new market entry by competitors as a means of assessing the potential longevity as a first market mover or as an established competitor in a mature industry. Analysis of new entrant risks will illustrate to the solar panel company what cost/capital barriers exist (which are typically high in this industry). For instance, a new market entrant might attempt to penetrate a saturated and mature market utilising low pricing models to gain buyer loyalty and undercut competition. By conducting the Five Forces Analysis, strategic management at the solar panel firm can establish entry-deterring pricing models, launch proprietary protections of innovative intellectual property, or close avenues along an existing distribution or procurement chain to attempt to dissuade market entry. It allows the business to gain a snapshot of what is occurring competitively and then utilise a variety of strategies to create difficulty for new market entry. In an industry where a competitive entity can enter that maintains adequate technological expertise and high capital availability, it would be prudent for the organisational leadership to come up with contingency plans to attempt to place barriers for entrants that could erode profit expectations. Fortunately for this industry, there are not many risks of substitutes, as solar panels maintain a unique purpose and function that is not easily substituted. However, buyers can defect to competitors that provide alternative energy producing opportunities (such as traditional electric servicing), thereby reducing switching costs for buyers and posing further defection risks to the solar panel producer. Price elasticity is impacted when higher volumes of substitute products flood the market (Porter 2011). Though the availability of substitute products in a desired target market is largely out of the control of the manufacturer, it allows for establishment of short- and long-term strategy development to determine how to structure operations or pricing through marketing to make the business more attractive to buyer markets. This might involve more emphasis on promotion and advertisement or through diversification of product outputs to satisfy buyers looking for alternatives to solar panels, but with the same functionality. Having an understanding of the volume of substitutes provides a valuable template by which to organise the business internally to erode market risks. The degree of competitive rivalry in a market environment is also critical to finding an appropriate market position among competition. The solar panel industry is an oligopoly market structure, one in which there are few competitors that dominate the industry (Boyes and Melvin 2005). This market is characterised by intensive competitive rivalry where routine counter-strategies, usually related to marketing and branding, are conducted to achieve a superior market position with buyers and suppliers. The Five Forces template provides opportunities to address the brand power of competition, the types of promotions being utilised to gain market attention and brand loyalty, as well as competitive fixed costs compared to internal costs to achieve competitive advantages. Analysis of the market as it relates to competitive rivalry may open avenues for launching a radical new innovation to achieve brand loyalty or adapting channels of distribution for competitive cost advantages that can translate to lower pricing models to satisfy buyers in the network. Without having an understanding of the promotional, brand-related, or even advertising of competitors, the business will be ill-equipped to sustain high market share and differentiate from other producers. Analyses of competitive rivalry may even identify that human capital development and talent management could serve to position the business effectively in the market. There are some large companies that are able to find competitive advantages by emphasising the human resource function and through the provision of training to build a dedicated corporate culture with sufficient knowledge transfer between tacit and explicit knowledge holders. Dooley (2005) reminds the business world that when an existing product reaches the decline stage along the product life cycle model, cash management, inventory control and procurement, and timing for new innovation launches are affected. The business might discover, through the Five Forces analysis, that the business requires a decentralisation strategy to remove thick layers of bureaucracy so as to involve employees in horizontal decision-making to achieve competitive results. A transformation from a top-down hierarchical structure to a team-focused, culturally-minded business environment might be the only competitive tool available to achieve market gains. Whatever dynamics of competitive rivalry exist in a market will give the solar panel manufacturer a clear picture of what steps, internally, need to be taken to ensure that the effectiveness of rival strategies are reduced or diminished. One of the most critical factors that will determine potential success in this oligopolistic market structure is the level of power held by suppliers. In the solar panel industry, there are many metallurgical and technological components that must be procured to achieve quality product outputs. This requires an extensive and cooperative supply chain network in order to reduce costs of manufacture and procurement that can effectively adapt to changing business conditions and production needs. To effectively manage the supply chain and reduce costs associated, it is recommended to develop a series of strategic alliances with suppliers and also involve suppliers during new product development and prototyping to ensure capacity to respond (Ragatz 1997; Copacino 1996). Fortunately, in the case of the solar panel manufacturer, suppliers do not maintain much buying power. There are only a handful of major buyers in this oligopoly, thus for a supplier to attempt price bargaining will likely lead to minimal results. In this market, the Five Forces analysis provides knowledge that the switching costs for suppliers are high as they will likely have to adjust their production systems to meet with new customer demands and expectations. When such costs are high, supplier participants find it difficult to find leverage (Porter 2008), which can lead to cost advantages for the solar panel manufacturer. However, it is not until analysis of the existing supply network has been conducted that the business can create counter-strategies or attempt to remove some leveraging power that might be experienced by the suppliers offering metallurgical or technological components needed for assembly. 3. PESTEL/SWOT Analyses The PESTEL diagram illustrates to strategic leadership the political, economic, social, technological, environmental and legal factors associated with a market that influence strategic direction. The solar panel manufacturer, as one relevant example, may have a production operation based in the United Kingdom, but deliver the majority of products to corporate customers in Asia. The PESTEL diagram will allow the organisational management to assess issues of government-imposed tariffs for imported products which lead to higher costs to customers or the level of taxation incentives that are available for establishing a base of production in Asia. Understanding what politically-driven factors will impede business or support its ongoing growth is critical to determining whether return on investment can be achieved in production, distribution, or even diversification strategies such as foreign direct investment to achieve operational cost gains. The economic environment in which a company sells or operates is critical. For instance, in recent years, the Eurozone and United States have been embroiled in an economic recession that has lingered since 2008. A business manager conducting analyses of the economic environment will need to be concerned with demand ratios, price sensitivity caused by economic meltdown in the region, or any other factor that could impede sales. Examination of the economic environment might lead to a need for short-term pricing reductions to gain buyer attention and commitment. The analysis might even uncover that there are significant currency exchange problems that could erode profitability, thus allowing the business to make the decision to seek new market opportunities in another nation or region. Without having an understanding of micro-level and macro-level economic conditions, no legitimate and sustainable decision on pricing, branding, or distribution strategy can be effectively made. Social issues in the sales environment are also critical for some industries, but less relevant for the solar panel manufacturer that sells primarily to corporate customers. Businesses that rely on consumer attitudes and trends to achieve profit results often utilise psychographic segmentation to identify markets based on their attitudinal, lifestyle or personality traits (Boone and Kurtz 2007). By assessing the social trends in a sales region, the strategic management can determine what type of advertising messages are required to achieve market gains; as one example. For the solar panel producer, assessment of what attitudes and needs are prevalent in the B2B sales market are critical for relationship development and establishment of long-term loyalty associated with perceptions of quality or expertise. The other factors identifiable in the PESTEL analysis include technological, environmental and legal issues. The solar panel industry maintains stricter environmental regulations for clean manufacturing and sustainability. The business must determine what potential fines for environmental non-compliance will be imposed for failing to meet clean production guidelines and regulations. Are these high cost risks to the business model? Will adaptability of operations systems to meet these regulations in a specific nation be worth the investment or should the organisation seek production facility development in another region with less environmental control by political forces? The PESTEL analysis provides valuable data about costs, regulations, and forced manufacturing adaptability that lead to cost over-runs. The solar panel manufacturer cannot maintain control over costing without uncovering this important information. Technological support in the industry is critical to sustaining competitive advantage. The business must understand what technologies or human capital support are available to maintain information systems or improve production capacity and capability in order to be competitive. The PESTEL analysis template identifies what software packages are available, along with costs, thus providing the ability for the solar panel producer to determine staffing coordination for new project development and implementation. This is critical information to achieve strategic results or select the most cost effective technology vendor. The SWOT analysis is relatively simplistic, providing information about the strengths, weaknesses, opportunities and threats impacting the business strategy and direction. A business must look at what it does well and then try to maximise these successes to outperform competition. For instance, the solar panel producer might have strengths in distribution and strategic alliance development, whilst at the same time maintain weaknesses in human capital talent management. Understanding what threats are likely to impact business direction can also provide useful data to build a powerful value proposition to gain market attention. The value proposition describes what specific benefits a product or service has to the buyer markets, a differentiation tool that promotes why one competitor maintains more ultimate value than others (Boone and Kurtz 2007). It is only when the business understands what it does well and what needs development that it can be flexible and adaptable to changing market conditions. Once strengths have been identified, the business can determine how to make internal changes to operations or even culture to gain even more prominence in the sales market. When a buyer market begins to develop favourable attachments to the company or its brand conception, the egocentric relationship between self and product changes (Greenwald et al. 2002). When buyers believe that one product has superior characteristics to competition (whether pricing or quality), trust is instilled that leads to long-term loyalty toward the company or brand. This is why analysis of threats are important, as the SWOT analysis can identify potential innovations in competitive advertisements that are seizing market share from customers that believe in the positioning concepts of competition. The solar panel manufacturer could then invest less in tangible production and spend more on marketing to improve its perceived brand personality. 4. Conclusion As illustrated through research, Porter’s Five Forces template and the PESTEL/SWOT analyses provide valuable data that can be translated into better operational strategy, marketing development, and the establishment of a more responsive production system that meets with varying demand and expectations of the external buyer markets. Without these tools for analysis, a business will be unprepared to adapt to changing market conditions and will likely not succeed in new strategic direction. To accurately consider capacity and capability, these analysis tools are critical success factors to achieve competitive advantage and gain market prominence. References Bennet, R. and Rundle-Thiele, S. (2004). Customer satisfaction should not be the only goal, Journal of Service Marketing, 18(7), pp.514-523. Boone, L. and Kurtz, D. (2007). 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