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Organizations have various strategic planning models to choose from depending on their culture, existing situation, and planning objectives. This paper will describe some of these models in terms of their basis, implementation as well as pros and cons. In addition, it will focus on Porters five forces model and offer insight into how its adoption would affect different functional areas of an organization.
Michael Porter’s Five Forces
Michael Porter developed the five forces model to provide a simple viewpoint for evaluating the competitive position and strength of an organization. It is a powerful tool as it boosts understanding the strengths of organizations existing and desired competitive position. The model incorporates five competitive forces that affect an industry, which are the threat of new entrants, the bargaining power of buyers, industry rivalry, the bargaining power of suppliers, and the threat of substitutes (Jones & Hill, 2012).
The model is used to develop organizations strategy by estimating its forces to compete in its industry. To apply it, first, an organization should collect information on the five forces and assess the factors that affect every force. Then, organizations management should analyze both information and factors to establish how every force impacts the industry. For instance, a high number of slowly growing companies of similar size indicates healthy rivalry between existing businesses. Finally, the management should create the strategies for organization development based on the outcome of the analysis. For example, if an organization discovers that the market is saturated and its growth is slow, it should adopt a product development strategy.
The model has various advantages. It improves the understanding of shared values, provides insights into redistribution and wider perspective on competition. Moreover, it gives broader context that exceeds single products or services and stresses external analysis. At the same time, there are various disadvantages. The model assumes a particular situation and adopts a reactive analysis. It excludes perspectives that would reform an industry such as the resource-based view. Besides, the analysis suggests that organizations only endeavor to attain a competitive advantage, and implies that competitors, buyers, and suppliers are unrelated and do not interact beyond the industry under consideration (Lussier & Achua, 2012).
Adrian Slywotzky’s Value Migration
Adrian Slywotzky developed the value migration model on the premise that an organization will move from an old business design to a new one based on how its selects customers, develops and differentiates product and service offerings, defines and outsources its tasks, organizes its resources and market approach, creates customer utility as well as pursues profit. The model identifies three kinds and three stages of value. The first ones regard value flow between industries, companies, and company business designs while the stages include value inflow, stability, and outflow (Philips, 2012).
A business should conduct value migration mapping early enough to enable taking action when necessary. The mapping should be guided by revenue measures or market capitalization to approximate the organizations relative position. The business should seek to establish the following: the position of the company and its main business units; the way the ability to earn profits is changing in its industry; factors that affect the movement of earning ability and its direction; the completeness and reversibility of value migration. Then, the business must seek to understand the movement of customer needs to predict value migration. Lastly, organization should compare its business design to that of competitors in terms of organizational configuration, technology, the level of vertical integration, and value-recapture mechanisms.
The valuation migration model assists businesses in developing strategies based on new business designs by introducing captivating value offerings to attract customers. Also, it emphasizes the importance of understanding markets and connecting them to strategy-making. Therefore, companies must clearly and comprehensively outline their competitive fields. However, businesses must put a lot of effort in continuous learning and changing to become successful. Also, the management must be proactive to recognize the opportunities that possible migrations present in various markets (Philips, 2012).
W. Chan Kim and Renee Mauborgne’s Blue Ocean Strategy
The Blue Ocean model was developed on the premise that organizations tend to engage in direct competition in pursuit of profitable growth sustainability. However, the overcrowding in different industries means that the competition for direct outcomes constitutes red ocean of business rivals battling over a decreasing profit pool. Therefore, an organization creates sustainable success not by fighting its competitors, but developing blue oceans of unexploited market spaces that will present it with growth opportunities (Clydesdale, 2009).
An organization can utilize the model in two ways: by launching an entirely new industry as, for example, eBay did with an online auction, or by expanding the boundaries of an existing industry. The company should recognize that strategy developed using the Blue Ocean model should be founded on data. Thus, the organization should evaluate the current state of the industry to determine the ways of identifying a new market space, and understand how to transform non-customers into customers. Moreover, it is prudent to test ideas for commercial viability with a view of refining them to maximize the opportunities they provide and reduce associated risk (Lussier & Achua, 2012).
The Blue Ocean strategy is practical for small and medium-sized organizations due to their flexibility to adjust to market and customer needs. These businesses are close to their customers and, thus, can obtain information quickly. Also, they can relay messages fast, what provides them with more free publicity. However, it is hard for them to develop a strategy without proper marketing and communication knowledge and experience. Also, the model requires a marketing budget that some small and medium-sized organizations may be unable to support. The ability to duplicate value points usually forces a business to develop new strategies after several years (Clydesdale, 2009).
Michael Porters Five Forces Model
Continuous improvement involves the identification of opportunities to increase production and decrease wastage. Therefore, it entails lowering cost and time consumption without sacrificing quality. An organization may achieve continuous improvement by adopting a cost leadership strategy, which aims at the lowest pricing to win market share by appealing to price-sensitive consumers (Jones & Hill, 2012).
Porters five forces model is based on the concept that a strategy should address the opportunities and threats in organizations external environment. Therefore, an evaluation of the effectiveness of a strategy from an accounting or business finance perspective under this model would be determined by its ability to improve the understanding of different structures in an industry and the ways they evolve (Clydesdale, 2009).
Change management involves the process of transforming individuals, teams, and organizations from an existing state to a desired one. An organizational leader can initiate strategic organizational change from the inside or outside. Thus, it is important to understand crucial change catalysts. Moreover, since change may affect organizational structure, a leader must ensure that there is employee training to address shifts in hierarchy and communication as well as their consequences on daily operations. Also, capitalizing on great ideas may require the reorganization of resources and talent or new branding (Clydesdale, 2009). Organizational culture refers to values that help employees to understand what an organizations stands for, how it reaches its goals, and what is considered significant. Under the low-cost strategy, the organization would prioritize order, efficiency, and stability. Therefore, a leader would prefer an efficiency-driven and highly-structured workforce, which will be achieved through the strict following of outlined policies, procedures, and rules (Lussier & Achua, 2012).
A marketing plan has two main aims: to address an organizations competitive marketplace and to execute and support its daily operations. The plan must incorporate factors such as market share, market penetration, budgets, profit margins, demographic changes, cultural trends, and emerging technologies. The cost leadership strategy will mean that the organization believes that it can produce and sell high-quality goods or services at a lower cost than others and have higher returns. Therefore, the market should be supported by the consistent accessibility of operating capital, superior processes, low-cost distribution, and proper human resource management. At the same time, the organization should focus on cost-conscious customers to win market share by having the lowest pricing or the lowest price-value ratio. The approach may be supplemented by offering standardized products in high volumes, a promotional strategy, which presents product features, and an extensive distribution strategy (Jones & Hill, 2012).
A cost leadership strategy aims at developing efficient production methods to assist an organization to compete at lower prices. From an HR perspective, a loyal soldier approach is the most compatible with the cost leadership strategy. Therefore, the organization should hire and retain employees that would do everything required. Also, the recruitment will target employees that fit organizational culture. The organization should develop a strong bond and reduce turnover, hire individuals at the early stages of their career, and offer them extensive training to ensure acquiring necessary skills. Compensations will be connected to overall performance and include long-term benefits and incentives. Performance evaluation will aim at facilitating cooperation among employees (Clydesdale, 2009).