Discussing The Internal And External Environment (PEStle) (Research Paper Sample)

The Concept of Strategic Management
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Institutional Affiliation
The Concept of Strategic Management
Introduction
"What business strategy is all about; what distinguishes it from all other kinds of business planning is, in a word, competitive advantage. Without competitors there would be no need for strategy, for the sole purpose of strategic planning is to enable the company to gain, as efficiently as possible, a sustainable edge over its competitors (Ohmae, 1982:36)". The quote implies that gaining a competitive advantage is the main aim objective of strategy. I agree with the statement since firms formulate the strategic plan to enable them compete more favorably in the target market.
There are different definitions of strategy but considering the most simple and direct; strategy can be defined as “the direction and scope of a company over the long-term” (Jim, (2017). The strategy therefore involves what an organization is currently doing and what it plans do in the future to pursue its objectives. According to Collis (2008) companies implement strategy to gain a competitive advantage over their competitors. The competition arises as each firm is aiming at selling its goods or services hence the need of expanding its market share. The development and implementation of strategy enables an organization to achieve its objectives despite the fact that competition exist. Strategic management is therefore the process through which an organization manages the formulation and implementation of the strategy.
Strategy works through a coordinated process of formulation of the strategy, implementation, evaluation and motoring by the strategic managers. The managers ensure that the strategy is effectively formulated and implemented to achieve the overall objective of the strategy. Evaluation and monitoring helps the managers to follow up with the strategy to ensure their main goal is achieved.
Importance of strategy
Strategic management process enables a company to plan for the predictable and unpredictable factors that are likely to affect the company either positively or negatively. It is important to note that both large and small organization can attain a competitive advantage by formulation and implementing appropriate strategies (MSG Experts, 2017). In this case, appropriateness means the ability to identify the current state and the direction in which the organization is moving. Strategic management is usually a continuous process aimed at controlling and evaluating business.
MSG Experts (2017) highlights that strategic management helps to shape the future of an organization as the managers are able to come up with a plan. Besides, the chances of success are increased since strategy is formulated on a rational and logical manner. Strategic management also creates preparedness as procedures of carrying out different activities are developed. Additionally, organizations are likely to grow and expand as strategic plan aims at seeking new opportunities hence increasing the market share. According to Jurevicius (2017), strategic planning and management helps managers to be innovative hence enabling them to make realistic and attainable strategic plan. This leads the organization towards production of quality goods and services that satisfy the needs of the market. Besides, strategic management also helps to improve the productivity of an organization. This is made possible by formulating the vision and mission of the company. A firm is also able to put in place different controls that would have impact of improving the efficiency and effectiveness of operations.
Relevance of Strategy in Today’s Business Environment
In today’s business environment, strategy has become a relevant part of businesses as it provides the direction through which the activities of a company can be directed. The high competition that exists has necessitated most companies to establish a strategic plan to help them gain a competitive advantage and hence succeed in the market. Further, the changing needs of customers due to current trends in many industries require a strategic plan on how to satisfy them to avoid losing clients to competitors.
Business environment
During strategic planning, the managers assess the environment under which the company operates. In environmental scanning, the managers should consider the internal and external environment. Besides, competitor analysis is also done at this stage. Managers use various tools for situational analysis. Examples of tools used include PESTLE Analysis, SWOT analysis, critical success factors, Porter’s five forces and core competencies (Jurevicius, 2017). Others tools used include value chain analysis, financial ratios, competitor profile matrix, and internal and external factor evaluation matrix among many other tools.
Internal and External Analysis
Internal analysis entails all the factors that a company has control over such as its finances, human resource, its culture and structure. The external analysis covers the factors which a business cannot control such as the political, technological, social and cultural environment. The internal environment is the most important for a company as it determines its business model, products and services to offer, marketing and positioning strategies, strategic plan and ways to finance available projects.
Internal environment analysis
Analyzing the internal environment entails assessment of the company’s internal resources and capabilities. Today, internal analysis provides a platform of identifying the weaknesses that the firm should overcome and the strengths to build on while formulating the strategies. Internal environment analysis helps managers to organize various resources to create a competitive advantage for the company (Barney, J. 1991). Tools such as SWOT analysis and core competencies are applicable in assessing internal environment of an organization.
Significance of internal analysis
Internal environment is crucial to an organization that aims to remain in business in the foreseeable future. Through internal analysis a firm is able to identify its level of strength and competence. Identification of strengths enables an organization to take advantage of them in gaining a competitive edge in the market. Examples of strengths that a firm can have include access to modern technology, experienced management team, motivated employees and customer loyalty (Kumar, 2017). A combination of different strengths of a firm enables it to meet its financial and strategic goals which improve the efficiency and stability of the firm. Additionally, a company with strong core competency has the ability to develop expertise and capabilities, built the brand identity and mobilize resources within the firm (MSG Experts (2017). Therefore, identification of the strengths and competencies helps the managers during the process of strategic planning.
Internal analysis helps establish the weaknesses of an organization. When identified, the weaknesses can be eliminated to ensure the success of the company in attaining its short and long-term goals. Collis (2008) notes that weaknesses that may affect the operations of a company include use of outdated technology, inadequate assets or financial distress, lack of expertise in the management team, lack of motivation and unity of purpose among the employees. Thus, internal analysis will identify major weaknesses as well as objectives of the company that are not being met. After the weaknesses and deficiencies have been identified, the managers are able to revise the strategic plan thus addressing the failed objectives.
The managers also establish the cost position of the firm through the internal analysis. The cost position includes the ability of the organization to acquire and manage different resources and deliver to the customer exceptional value that is different from that of the competitors. Internal analysis is essential in identify the opportunities of the organization. These opportunities can include the relationship with the current and prospect market, ability to acquire other businesses in the industry, access to capital and venture capital partnership (Olsen, 2017). An internal analysis will therefore establish the preparedness of the firm to take advantages of the growth opportunities that are available.
Positioning the organization at the top of the industry is a process that has various threats and challenges. This is because existing firms are also improving their production methods to be more efficient and enlarge their market share. Besides new firms also enter the market with advanced technology aimed at gaining a sustainable competitive advantage that will enable them succeed. The improvement of technology by existing and new firms in the industry is likely to threaten the existence of the organization. As a result, it is vital for the managers to be aware of changes in the market, technology, economy and operations of the main competitors that have the ability of threatening the competitiveness of the organization in the market (Olsen, 2017). Analyzing the internal environment provides useful information that can help the firm identify and build on their strengths and keep the firm growing by preparing to handle the threats. Internal analysis is also a tool for determining the competitive viability of the company.
A company Example
Apple Inc. is an American based company dealing with computer hardware and software, consumer electronics and digital distribution. An internal analysis of the company by its management revealed that its iPhone and iPod brand are preferred hence the company has over the years developed advertising capabilities to create awareness. Further, the company has extensive multiple channels of distribution such as online and retail stores used to deliver its produ...