Strategic Environmental Analysis Systems - Coursework Example

Strategic Environmental Analysis System By Strategic Environmental Analysis System Introduction We candefine strategic analysis as the process of conducting intensive research on the entire business environment where the firm or the organization operates. It enables the firm to formulate the appropriate strategies that will enable it to be competitive and successful in its operating environment (Ansoft, 1979). Further, it is a broader understanding of both internal and the external environment of the organization and how it interacts with it as well as how the organization can interact with all these factors to improve efficiency and effectiveness of all firms operations. It also enables the organization to increase its entire capacity to either deploy or redeploy its resources with confidence (Boulton, 2001). Several frameworks have consequently been developed all with the aim of coming up with a better explanation of factors that affect the firm both internally and externally. All the elements of these frameworks are discussed below in the essay: SWOT Analysis The framework enables the organization and analysts to clearly understand its major strengths and weaknesses as well as opportunities where the organization is operating into (Dess & Miller, 1993). These are both internal and external factors that affect the well-being of the organization. In most cases, a 2*2 matrix is commonly used with various titles as explained below: Strengths The organization has to determine its main competitive advantage over the other firms in the same industry. This may include its unique selling points, customer relations among other factors (Mindtools, 2007). The firm also has to consider how the competitors in the industry and the market perceive them and which their retaliatory measures are. Also, the firm must have in mind the perceptions of their customers. Finally, the firm has to determine its competitive edge and its position in the market and industry (Dess & Miller, 1993). Weaknesses The firm has to assess and determine what other firms do better than it does. This will require an intensive assessment and evaluation of all the business elements and their impact on the business of the firm (Fly & Killing, 1986). Further, the firm also has to research and determine what the customers, as well as competitors, perceive as their weakness. This enables the firm to work on their weaknesses (Dess & Miller, 1993). Opportunities These are the gaps that exist in the market that are unexploited or their demand is also unfulfilled. The firm has to analyze clearly and determine the gaps that exist in the market and the entire industry (Dess & Miller, 1993). Also, the firm has to keep in mind political changes, economic and cultural changes. Technology is greatly changing too, and the firm has to consider all these factors. Further, after analysis, the firm needs to determine which innovations it could introduce in the market and the industry. Threats They exist both in the internal and the external environment of the firm (Qin, 2010). This could be unfavourable conditions such as economic as well as cultural environment (Qin, 2010). Mostly, competition from other players in the industry and the market is the major threat that most firms face. Therefore, strategic analysis enables a firm to bring all these factors into consideration and come up with the appropriate strategies in how to handle (Huff & Jenkins, 2002). PEST Analysis This is an analysis of the external environment of the firm and all the factors which surround it (Qin, 2010). It enables the firm to analyze and evaluate the entire market growth as well the direction it takes (Qin, 2010). A firm revolves around various factors as discussed below: Firstly, it is the political environment. This entails all the government rules and regulations that affect the well-being of the business and those of the firm. Employment laws may affect the terms of the contract and hence touch on employees (Qin, 2010). Environmental regulation also plays an important role in the firm, or the organization has to ensure that it is environmentally friendly (Businessballs, 2006). Tax policy has to come in as all business and firms are mandated to pay taxes to the federal government. Trade restrictions ensure that all the firms are protected against dumping and establishment of foreign firms within their country. These promote development in any given country. Finally, political stability ensures that businesses and firms are operating in a favourable environment. This attracts investors and goodwill with other partners to produce and sell more. Secondly, the economic factors normally have an effect on the cost of capital as well as the purchasing power of a firm in the market. The level of economic growth affects the interest rates and that of inflation in a country that affects the entire market (Qin, 2010). Also, the terms of payment within a country also affect the currency exchange rates. This directly influences the level of imports and exports in a country (Qin, 2010). Moreover, the social factors that affect organizations. They have an impact on the consumer needs and the level of potential in the market. This includes the level of population growth, the entire demographics that directly influence the level and culture of spending within a market. Finally are the technological factors. They are the barriers to entry into a market (Qin, 2010). They highly influence the decision of consumers in purchasing different commodities in the market. This also affects the willingness and ability of a company to invest in various innovations according to the current trends and changes in the world of technology. Porter’s five forces The framework is bases on five forces that generally verify the charm and the competitiveness of the market within an industry (Porter’s, 2004). In most cases, the framework is used to identify where the power lies in a particular market. Most analysts employ this framework in order to gauge whether a new product is in a position to survive in the market. The five forces are broadly explained below: Firstly, it is the power of the supplier in the market that determines the level of prices. Mostly, this is determined by the number of suppliers and their strengths in a particular market (Porter’s, 2004). The uniqueness of the product is also an important factor. This is because it affect the power of the suppliers (Porter’s, 2004). Additionally, it is also determined by the entire cost of switching from a particular supplier to the other. The market is also affected by the buying power of consumers. Buyers affect the level of demand and supply in the market (Porter’s, 2004). Equally, all consumers are important to the firm as the firm’s manufactures products and services to suit different needs of consumers in the market. Further, the power of the consumers is also affected by the ability to switch from one supplier to the other. Also, there is competitive rivalry in the market as different firms tend to offer undifferentiated products in the market. This makes the market less attractive to most consumers. Threat of substitution also exists in the market. This increases the chances of consumers from switching from one product to the other in search of satisfaction and price changes. This entirely reduces the power of the supplier in the market and its attractiveness (Porter, 1998). Finally, there is the threat of new entrants in the market (Porter, 1998). In most cases, when the market is attractive, there are so many new entrants, and this reduces the chance of firms to increasing their profits. This is the reason as to why there is a need to have patent barriers in order to restrict the number of new players in the market. Four Corner Analyses This is a framework that is commonly used by analysts in analyzing the competitors in the market. Basically, it enables to predict how different competitors will respond to different situations in the market. Firstly, we analyze the motivation drivers of different competitors in the market (Warner, 2010). This enables us to determine whether the firm is satisfied with its current performance in the market and its position in the market too. This enables the competitor to predict the external forces and formulate strategies that will enable the firm to overcome them. Secondly, the framework enables the analyst to evaluate various management assumptions. That is, how a firm considers itself in a particular market, the entire industry as well as how other firms will influence its strategic decisions. Further, it strategies will also determine how it compete with other firms in the market. Finally, the analyst employs the framework to analyze actions and capabilities of the firm. This is because they highly determine the actions of different competitors in the market (Worrel, 1998). Mostly, the organizations capabilities determine its ability to react to different forces and competitors in the market. Value Chain Analysis This framework is mainly built to help analyze and appreciate the value of consumers in the market. There are three steps that are applied in this framework as discussed below. The first step is to separate the core operations of the firm from the prime functions to the support functions (Neiman & Bennett, 2006). The physical activities enable the firm in producing different products and services. On other hand, the support activities enable the firm to facilitate the primary activities of the firm. The other step is to allocate the cost of each and every activity of the firm (Cromwell and Demand Media, 2015). This gives the managers a valuable insight on the available internal capabilities of the firm. Thirdly, it enables the firm to identify the most critical and important activities that are of great importance and significance to the consumers. In most cases, these activities enable the firm to be successful in the market and also satisfy the needs of different consumers (Porter’s, 2004). However, there are three important considerations that every analyst must consult in before the formulation of all the strategies by the firm. First and foremost, the analyst must evaluate the mission of the firm. In most cases, the mission of the firm directly influences the kind and choice of the activities that are undertaken by the firm. Therefore, firms and organizations must be very cautious when developing their missions (Saddler, 2003). Secondly, the industry type is also of great importance to analyst, in this case. The nature or the type of the industry influences the kind of activities and products which a firm produces. Its relevance in the market should also be considered. The firm should take into consideration the latest trends in the market and technology in order to remain relevant in the market. Finally, there is the value system where the firm is supposed to analyze it capabilities different products to the end consumers in the market. Conclusion Strategic analysis plays an important role in assessment and evaluation of both the internal environment that surrounds the organization or the firm. Therefore, the firm has to determine which framework best describes its environment and how well it deals with all these factors that the firm must consider. All the frameworks discussed above were developed by different analysts in order to help organizations to deal with all factors that affect them. Hence, analysts should enable firms to analyze all these factors strategically and make the best decisions on their behalf. References Ansoff, H. I., 1979. Strategic management. New York: Wiley. Bertelsen, B., 2012. Everything you need to know about SWOT analysis. Newmarket, Ont.: BrainMass Inc. Boulton, Dr. W.R., 2001. Understanding the strategic analysis model. [Online] Available at: < www.auburn.edu/~boultwr/index.html> [Accessed 07 February 2015]. Businessballs, 2006. PEST market analysis tool. [Online] Available at: [Accessed 07 February 2015] Businessballs, 2006. Porter’s five forces model. [Online] Available at: [Accessed 07 February 2015] Cromwell, J & Demand Media. What Are the Two Stages of Allocation in Activity-Based Costing? [Online] Available at: [Accessed 08 February 2015]. Dess, G. G., & Miller, A., 1993. 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