SWOT Analysis Model

Answer

Strategic development models consistently apply and integrate the structure, people, overlay, processes, and infrastructure in the organization to come up with the most profitable and optimal business strategy that will guarantee performance (Jabłoński 2017). This paper seeks to evaluate SWOT analysis, PESTEL analysis, Ansoff Matrix, and Porter’s Five Forces models of strategy development and their practical application in various organizations.

SWOT Analysis Model

            SWOT analysis can be described as an analysis technique that focuses on evaluating the external and internal factors influencing the success of a system or organization (Vitasek 2016). SWOT analysis as a strategic tool was developed by Albert Humphrey to identify factors affecting organizational performance from within namely strengths and weaknesses and those acting from outside the organizational jurisdiction namely opportunities and threats (Jabłoński 2017). External factors subject to scrutiny for their threat and opportunity aspects include competition, sector analysis and surrounding analysis (Newth 2012).

            From the SWOT analysis strategy for Amazon represented using figure 1 in the appendix section, the company strengths are outlines such as GLOCAL strategy, acquisitions, low cost structure, and many third party sellers among others. Some of the weaknesses the company identifies are reducing margins, product flops, and high debt. The opportunities for more investment include opening of physical stores, IT operated e-commerce and supply management sections, and expanding business to emerging markets. However, the organization faces external threats such as low entry barriers, rivals and publishers legal action and availability of free e-books from Kindle to name a few.

Ansoff Strategic Model

            Igor Ansoff’s Ansoff Matrix is a core tool for business strategy analysis. According to Newth (2012), when an organization takes its existing products to known customers, they are utilizing the market penetration strategy. The product development strategy, on the other hand, requires an organization to develop new products to be sold in its existing markets. Market development strategy, on the other hand, required the organization to introduce its existing products in new markets (Vitasek 2016). Diversification  requires the organization to come up with new products and take them to new markets and is the riskiest strategy (Jabłoński 2017).

            According to Newth (2012), a growth strategy can be developed following two approaches namely product growth and market growth to give four strategic options of varying risk levels as shown in the Coca Cola model represented in the figure below. The coca-cola can product is an existing product which is pushed further into an existing market through a strategy called market penetration. When the company introduces its existing diet coke into a new market, the strategy is referred to as market development to enable them see how well the product will do in the discovered potential market. Introduction of its new cherry and vanilla products into their existing markets amounts to product development with the intent of studying how the market reacts to it and decide whether to increase production or eliminate the product from the market depending on the reaction. Introduction of the vitamin water is a related diversification as the product is new but still a cold drink but being sold in a new market. Production of t-shirts on the other hand is unrelated diversification because it is not within the company’s normal product range and will require an entirely new production line and a new market to sell the t-shirts.         

PESTEL Analysis

            PESTEL analysis represents the political, economic, social, technological, environmental and legal factors that influence the operation of an organization gives a wide scope of the environment to be assessed when planning to take a given course of action (Vitasek 2016). Political factors determine the degree of government influence on the industry or economy through fiscal and tax policies and trade tariffs among others. Economic factors, on the other hand, are economic performance determinants that have direct and long term effects on the organization (Jabłoński 2017). The social factors influence the market environment just like technological innovations influence business operations favorably or unfavorably depending on its ability to keep up to date with current trends. Internal and external legal factors influence the business environment and should be carefully analyzed before making any strategic decisions. Finally, environmental factors include any influence from the surrounding such as global climatic changes, geographical location, and weather can have on the business (Newth 2012).

            PESTEL analysis can be demonstrated using the Nike example shown in figure 3 below. Nike has to consider political factors such as import and export laws, taxation and laws influencing the manufacturing industry. Besides, the company must factor in economic factors such as customer purchasing power and social factors such as the health conscious nature of its target customers. The ability to employ up to date technology and ensure its designs and copyrights are consistent with the rules of health and safety are technological and legal factors the organization must assess. Besides, Nike’s product must be environmentally friendly to enjoy support from ecological enthusiasts.

Porters’ Five Forces Model

            According to Michael Porter, the competitive environment is comprised of five forces namely competitive rivalry, supplier power, buyer power, substitution threat, and new market entry threats. Competitive rivalry is analysis of the strength and number of competitors necessary to develop appropriate strategies to give competitive advantages such as increased marketing campaigns, or price cuts (Vitasek 2016). The supplier power, on the other hand, determines their potential to increase prices depending on the uniqueness of the service or product they offer. The power of the buyer is the ability of the customer to influence prices (Jabłoński 2017). Substitution implies the chance that clients can find alternative solutions to your product or service. The ability for new entrants to join the market affects the company’s profitability (Newth 2012).

            An example is the Starbucks’ structure of Porter’s five forces model shown in appendix 1: figure 4. The low barrier to new entrants and entry of new big organizations are the new entrants threats faced by the company. The company enjoys low supplier bargaining power and consumer bargaining power owing to availability of many suppliers and high product differentiation respectively. There is low threat of substitute products because of the established brand image and high product differentiation which makes it difficult to copy. The competitive rivalry is manageable because it comes from smaller companies and Starbucks unique structure and character.

            In conclusion, organizational strategy models can be used for overall business analysis or on specific projects, areas or purposes. The model can also be used to conduct a risk analysis for a firm and facilitate identification of countermeasures and possibilities.