"Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations".
Direction, scope, long-term, advantage, resources, markets and stakeholders, all the words mean a lot when related to strategy. Planning the strategy helps an organization to make a decision, for it to go on a long term. While running a business, the organization should be aware of the competition in the market, and the suitable market place for it. This is the scope of the organization. And analyzing how the business can effectuate the competition in the market by giving better performance is the advantage when a planning is done. The resources those are available in an organization helps a lot when it comes to competition. They include the skills of the individual of an organization, the assets that are available, the financial strength, the facilities and features made available to the employs, and up-to-date accessible technology and its competency. The environment in which the company is competing, the type of people living in the market place, their likes and dislikes are to be visualized while strategic planning.
Johnson and Scholes have illustrated each factor of strategy with good example. As a long-term direction, AOL and Timer Warner merged to make multimedia giant, Time Warner is a film production company, cable and TV majorly, where AOL was the emerging internet service provider. So the merge gave them a direction for a long-term business. Strategic decisions are usually made to achieve advantage to the company in the competitive market. Continuing with the example of AOL/Time Warner, the merge between them gave access to the content, like movies and music over the internet which was a tough thought and implementation for the competitors at that time. It was a better value for money service to the viewers/users of the internet when compared to the other service providers. Scope of organizational activities is also taken into consideration while making decisions. The management is the one who concentrates on the activities and its limitations of an organization, like the product range and the area covered. For example, The AOL has broadened their activities by a thought of merging with Time Warner, resulting in a massive growth in the business as "The worlds first internet powered media and communication company". (Johnson and Scholes, p4-5)
Strategic levels in business:
Every organization maintains the levels of strategies, may it be the whole business or an individual person working for that company. There are three different levels of strategy, they are: Corporate Level Strategy, Business Unit strategy and Operational strategy.
In corporate Level strategy, the expectation of the stakeholders is the target to achieve which is the scope and purpose. This level is the pathway to decision making in overall business and is a critical level as every decision is to be taken concerning the stakeholders and investors. (http://tutor2u.net/business/strategy/what_is_strategy.htm) EBay's corporate level strategy was towards diversification of the business. As eBay offers a number of products and also they wanted to diversify the customer base all over the world. So they resulted in finding everything a person can be in need of, virtually on eBay website. (Coghlan,Pauley,ScotteBay,A Company Analysis 26,oct,2005)
In Business unit strategy/Business Level Strategy, it is concerned to the market in which the business is in competition with. In this level of strategy the decisions like product choice, fulfilling customer needs and giving innovative opportunities to the market are made. (http://tutor2u.net/business/strategy/what_is_strategy.htm) EBay is an online auction website, it follows the broad differentiation strategy. Ebay is not the only website which offers less-expensive auctions, but the variety of products is more than any others. EBay has a community, with the help of which it has reached broad differentiation, which no other competitor has reached. And moreover the customers look into the value of the service. And thus it is successful. (Coghlan, Pauley, Scott 12/9/2009 eBay, A Company Analysis)
The Operational Strategy concentrates how well the resources and factors like process and people are focused in the business so as to make sure the other two levels of strategies are performing to its mark. (http://tutor2u.net/business/strategy/what_is_strategy.htm)
Management of Strategy
Strategic management is nothing but discussing about the decisions of strategy which describe the decisions in each level of strategy. Practically the process if strategic management is followed in three elements, they are:
- Strategic Analysis
- Strategic Choice
- Strategic Implementation.
Strategic analysis is the analysis of the position of the business and the strength of the business, and more over understanding the external factors that can influence the business at the position it is in the market. There are a number of tools that can be used for the assistance of strategic analysis:
- SWOT Analysis
- FIVE FORCES Analysis
- Market Segmentation
PESTLE raises to - Political, Economical, Sociological, Technological, Legal, And Environmental. The PESTLE analysis is done for the strategic decision making by using the environmental influences by doing the audit of an organization. If an organization's audit is done, the status of the environment is known and the assessment for the potential changes can be performed and hence the position of the organization will be much better than its competitors. (http://www.cipd.co.uk/subjects/corpstrtgy/general/pestle-analysis.htm)
These can be called as the factors of macro-economics, as for a manager to take decision there are many more factors that are considered. So the managers of the organization use the PESTLE framework to categorize all the factors under the pestle model.POLITICAL:
ECONOMICAL: The behavior or the economical position, the growth or decline of the economy, the interest rate, the availability of credit and the living cost.SOCIOLOGICAL:
SWOT stands for Strength, weakness, opportunities and threats. This is one of the tools for the analysis of a business in the environment. This analysis, once done, results in the key issues of the environment and strategic capability of a company, which helps in strategic development. The main aim of this analysis is to know what capabilities the organization has and to what extent the strengths and weaknesses effect the organization in the challenging environment. This analysis is also used to judge what actions should be taken in the near future for the betterment and success of the organization. (Johnsonandscholes,p183)
The SWOT analysis is the most popular tool for the strategic analysis, as soon as the analysis is done and all the key issues are identified, the assessment for the capitalization of strengths and minimization of the weakness can be done easily. This ultimately gives a positive approach to opportunities and threats. By making use of the opportunities and reducing the threats. The opportunities and strengths are the external factors of a business and strength and weakness are internal factors of the business as it is concerned to what an organization has. Some times the opportunity can be a threat and a threat can be an opportunity. For example, competitors dominating the new markets leaving the company undetermined. The new market may be the opportunity but the competitor's domination can be a threat. On the other hand a new market with the product of that company means the expansion of the product in the market. (http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1074451452)
SWOT Analysis with EBay as an example explains all the key issues mentioned above.Strengths of EBay:
- Leading online auction provider and a customer can trade with a customer all over the world. Their core and distinctive competencies make them standalone from the competitors. The range of products and the brand name are a couple of reasons for EBay to make it on top in the market.
- It is the largest forum for the online auction. It maintains brands which are recognizable by people.
- EBay has alliances with many large companies with all over the world, some of them are IBM, PayPal, America online, Walt Disney etc., and this is a very strong point for their advertisement. Moreover people trust on PayPal for safer transactions.
- EBay is in partnership with many international companies, it makes EBay stronger in the environmental point of view, as the international individuals are familiar with the needs of the people in their region.
- EBay has a global reach and popularity in the world, so does Amazon but customers prefer EBay to Amazon.
- EBay has got a wide range of products, around 27,000 categories. It has become the "Wall-Mart of Internet",
- The important concept of EBay is that it does not have any warehouse or stores. And this makes strength to them as they cut down the cost, and have no threats of liquidating the company.
- As the products and services in the website are more, all the activities happening on the website could not be monitored. And as the standalone feature of the website "customer to customer trading" there are chances of illegal trading occurring.
- EBay has very well penetrated into the international markets, but could not gain access in Japan, which is crucial international market. If it does not get hold of Japan market then there will be a trouble for EBay in the international market.
- Each product of eBay is not described in detail while on sale. But the competitor (Amazon) has done that. That has become the strength of the competitor.
- Malfunctioning is the worst practice when comes to the websites, EBay has to make sure that malfunctioning is reduced
- Any organization should look out for opportunities because this is the major factor in growth of the company. A strategy for getting new customers should be followed, where this is the key to their success. More penetration into the market, as day to day life is more into online usage.
- EBay is in partnership with yahoo, yahoo's online shopping is not up to the mark, so if Ebay acquires yahoo's online shopping both of them would be benefitted by this.
- Hacking is the major threat that an online shopping website can face, it an all time challenge to the site administrators to be aware of the hackers, as they always have an innovation in hacking.
- Amazon is a big threat to EBay. Since this competitor was formed, it has been growing in the business. And it is capable of snatching the market share of EBay. This is the major threat. And also many other online shopping stores like JC Penny and Target which have become online retailers. EBay should also set a fixed price rather than following only the bid system. This will be interesting for the customers who want to shop, (buy and sell) directly than to bid and wait. (Coghlan,Pauley,ScotteBay,A Company Analysis 26,oct,2005)
Porter five forces has become a vital tool for analyzing the structure of the organization in a industry while strategic planning. By using this tool every organization or market can get into a shape. It decides the power of the competitors in the environment. By this the management will be able to decide the strategy to influence and to take advantage of the distinctiveness of their organization.The five forces are:
- Bargaining power of suppliers: Suppliers are the one who provide goods or services. Bargaining power of suppliers could be elevated when there are few dominating suppliers in the market and no substitutes; the disintegration of customers is done so as to reduce bargaining power. The cost of changing the supplier would be high.
- Bargaining power of customers: In the same way the bargaining power of customers conclude to what extent customers can enforce demands on the boundaries and volumes. Customers bargaining power can be high when they purchase in more quantity, outsized supplying operators, more substitutes, the customer knows the margin on the product,
- Threats of New Entrants: The more the competition is, the easier it is for a new organization to get into the business. In that circumstances the entrants will have the capability to alter main determinants of the business environment in any moment.
- Pestle Analysis
- Five Forces Analysis,
- Market segmentation,
- Porter's generic strategy
- Stakeholders and market expectations.