How can firms use models of analysis to understand their business environment? Discuss using appropriate examples.
Organizations can use one business analysis model to analyse a section of its business or combine this with other business models to help them in the strategic planning process to gain a competitive advantage in today’s fast changing markets.
SWOT and TOWS are acronyms for strengths, weaknesses, opportunities and threats. SWOT (internal-external) provides a checklist of strengths, weaknesses to minimize, uncover opportunities to take advantage of and identify threats to avoid. Whereas the TOWs matrix is (external-internal) matching internal strengths and weaknesses with ...view middle of the document...
This could be a Country, Region or a new or existing market and help the manager draw conclusions about the significant forces of change operating within it. It provides a context for more detailed planning where the company can gain an advantage in profitability. Media recently highlighted that Starbucks legally evaded UK taxes of 50M. The owner however made a token payment of 20M for fear of the public boycotting the chain. Their public image is tarnished and they will have to build up customer loyalty again. PEST has expanded to suit the changing needs of business to PESTLE with the addition of Legal and Environmental; to STEEPLED with the addition of Ethics and Demographics and LONGPESTLE with Local, National and Global added which is useful for multinational organizations.
To maintain a competitive edge to get the sale, business needs to ask questions like what is my Unique Selling Proposition (USP) and strategically plan using this as a core competency. Using Porters Five Forces Model helps managers understand both the competitive strength of their company’s position and the competitive position they are considering moving into. Five factors are addressed: Threat of substitution – can the customer get your product/service elsewhere i.e. outsourcing?; Bargaining power of buyers which is driven by the number of buyers who can drive prices down; Threats of new entrants who can weaken your position – if you have strong barriers for entrants you can take fair advantage of this; Bargaining power of suppliers who can drive cost of goods up and also the strength of your competitors – if there are few who can provide what you do i.e. economies of scale or technology protection then you possess great strength in this area.
In practice motor manufacturers (suppliers) limit the margin of dealerships to maintain costs and volumes. Businesses need to be aware of trends and their competitor’s strengths i.e. Costa Coffee chains provide loyalty cards to buyers with a loyalty incentive (buy 9 coffees, get 1 free). No such loyalty cards are issued in Saudi Arabia where Costa’s is a franchise, Saudi owned. Businesses here do not maximise on marketing strategies to pull in and keep customers.
Using the Porters Value Chain Analysis can help a business identify where value is added (costs incurred) in a sequence of events. Porter (1985) states that a company is profitable when the value it creates exceeds the cost of performing the value chain functions. The value chain can be looked at in terms of physical or financial flows. In physical terms material in the supply chain flow from left to right - taking an input (wood pulp), adding value and making it an out-put (paper). The financial flow moves from right to left and can be used to make broad comparisons with competitors. The company activities is separated into two groups: Primary activities related to direct productivity to be maintained within the...