Competitive Strategy: Analyzing Strategy Development Tools - HI6006

This essay examines four key strategy development tools: PESTEL, Resource-Based View (RBV), Five Forces, and SWOT analysis. The PESTEL framework is used to assess the impact of political, economic, social, technological, environmental, and legal factors on a company, with Wesfarmers Limited ...Read More

Competitive Strategy

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PESTEL
The role of top-level management is to make sure that they are aware of external factors
that could have a potential impact on the business; in this regards, they can use PESTEL
framework to keep a bird-eye view on major external factors that affect a company such as
political, economic, social, technological, environmental and legal (Andrei and Prisecaru,
2014). Awareness regarding these factors is crucial for a company since it enables them to
prepare for future risks that reduce the profitability of the organisation while using potential
opportunities to increase the profitability of the company. The role of this framework can be
understood by an example of Wesfarmers Limited which is the latest company in Australia
in terms of revenue generation. External factors such as political stability in Australia
benefits the company since it did not have to face stricter compliances or charges that
could be imposed on its operations due to change in political parties. Stable growth in the
economy of Australia and lack of recession for over 27 years is a good sign for
Wesfarmers since it increases its sales and market (Miller, 2019).
However, the company face challenges in relation to increasing wage costs. The social
aspects also create challenges and opportunities for the organisation, for example, people
are becoming more health conscious in Australia, and they prefer healthy and sustainable
food products which resulted in increasing sales of Woolworths Group that is the biggest
competitor of Wesfarmers (Lucio, 2019). Use of technology also creates opportunities for
the company; for example, it uses drone technology in its agricultural operations through
CSBP which is a subsidiary of Wesfarmers and a fertilizer and chemical company. The
company also has to focus on protecting the environment by reducing its carbon footprint;
the company reduce 6 per cent of its carbon emission in 2018 by investing in energy
efficiency projects (Wesfarmers, 2019). Lastly, legal regulations and amends in trade
policies, employment laws, taxation laws and reporting requirements also affect the
operations of Wesfarmers.

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Resource based view (RBV)
Organisations that wanted to generate a competitive advantage in the industry have to
develop resources that give them an edge than compared to their competitors; in this
regards, they can use RBV framework which identifies effective resources of a company
by using VRIO framework (Bromiley and Rau, 2016). The VRIO framework identifies
whether a resource is valuable, rare, inimitable and organised. These factors make a
resource effective that lead to providing a competitive advantage to companies. This
model enables companies to rely on their strengths to expand their operations in domestic
as well as international markets that expand their profitability. For example, Toyota Motor
Corporation is a leading Japanese automobile manufacturer that is known across the
globe for its efficient and strong cars. The key resource that provides a competitive
advantage to the company is its ‘lean’ manufacturing system which the company has
established in most major automobile markets (Matsuo, 2015).
By applying the VRIO framework, it can be seen that it is a valuable resource because it
enables Toyota to make a large number of cars in an efficient manner without wasting time
or resources. This is a rare resource because the company relies on its expertise of
automobile to establish an efficient supply chain and inventory management system that
leads to building strong and fuel-efficient cars (Hearnshaw and Wilson, 2013). This
resource is inimitable because other car manufacturers will have to invest substantially in
the beginning to establish their supply chain operations across the globe to make sure that
they manufacture cars as efficiently as Toyota. This is an organised system as well
because the company is able to manufacture a large number of cars; for example, in 2012,
it passed a legendary milestone of manufacturing 10 million cars in a year (The Japan
Times, 2013). Thus, this resource provides a competitive advantage to Toyota which is the
key to the success of the enterprise.

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Five forces framework
The top-level management in an organisation has to make sure that they understand the
industry of the company to develop strategies policies that address major challenges in the
industry. The attractiveness or unattractiveness of industry and evaluation of key factors
that affect the operations of organisations can be analysed through five forces framework
that was developed by Michael Porter (Fung, 2013). As per this framework, the five forces
that affect a company in a particular industry include the intensity of competition, the threat
of new entrants, the bargaining power of customers, the threat of substitutes and the
bargaining power of suppliers. By understanding these factors, companies can develop
policies that provide them a competitive advantage in their respective industries.
This can be understood by an example of Nestle that operates in the food processing
industry. The intensity of competition in the industry is medium because of the positive
international brand reputation of Nestle (Miah et al., 2015). The threat of new entrants is
low because they have to face competition from major brands such as Nestle and they
have to incur high initial costs which affect their profitability in the long run. The threat of
suppliers is high because they have the upper hand when it comes to negotiations
because Nestle has to purchase high-quality raw materials to manufacture high-quality
products for its customers (Wilkinson, 2012). The bargaining power of customers is high
as well since they are not loyal to a particular brand and there are no switching costs.
Lastly, the threat of substitute is medium because many local and international companies
manufacture substitute products that affect the sales of Nestle.

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SWOT
In today’s highly competitive business world, companies have to rely on tools such as
SWOT analysis while developing their business strategies to make sure that they are
prepared for key challenges that affect their business. Through SWOT analysis,
companies can focus on key elements that affect their business operations and provide
them a competitive advantage to make sure that they prepare strategies that are based on
their strengths (Kajanus et al., 2012). In the SWOT analysis, companies evaluate their
strengths, weaknesses, opportunities and threats to develop business strategies that focus
on remove weaknesses and preparing for future threats while relying on strengths to
exploit opportunities in the market. This tool is used by senior level management, and an
example of BHP can be analysed to understand its role in strategy formation.
BHP is an Anglo-Australia multinational corporation that operates in metals, mining and
petroleum industry. Its strengths are a strong market position, international presence,
skilled workforce, effective corporate social responsibility (CSR) structure and diverse
range of revenue streams (BHP, 2017). Its weaknesses are negative brand reputation due
to accidents at the workplace and intervention by government authorities. Opportunities for
BHP include expansion of business in sectors such as copper and coal, collaboration with
already established brands and acquisition of smaller companies. Lastly, the potential
threat for the company includes reduced foreign demand due to growth in in-house
production and fierce competition from domestic as well as international brands (BHP,
2015). The business strategy of the company should focus on increasing the marketing
budget to create a positive brand reputation and associating with other brands to diversity
business operations and expand international presence.

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