Five Forces Analysis for Premium Business Schools Essay
AIM seeks to identify ways to enhance the competitiveness of the UK economy and its infrastructure through research into management and organizational performance in both the private and public sectors. 2 about AIM AIM consists of: Over 250 AIM Fellows and Scholars – all leading academics in their fields… Working in cooperation with leading international academics and specialists as well as UK policymakers and business leaders… Undertaking a wide range of collaborative research projects on management… Disseminating Ideas and shared learning through publications, reports, workshops and events… Fostering new ways of working more effectively with managers and policymakers… To enhance I-J competitiveness and productivity. AIM’s Objectives Our mission is to significantly increase the contribution of and future capacity for world class UK management research.
Our more specific objectives are to: Conduct research that will identify actions to enhance the Auk’s international competitiveness Raise the quality and international standing of UK research on management Expand the size and capacity of the active I-J research base on management Engage with practitioners and other users of research within and beyond the UK as co-producers of knowledge about management contents AIM – the Auk’s research initiative on management About AIM AIM research themes
Executive summary Introduction:
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National productivity has been the concern of economists, government policymakers, and corporate decision-makers for mom time. Further research by scholars from a range of disciplines is bringing new voices to the debates about how the productivity gap can be measured, and what the I-J can do to improve the effectiveness of UK industry and its supporting public services. Sustaining innovation to achieve competitive advantage and high quality public services. How can UK managers capture the benefits of innovation while meeting other demands of a competitive and social environment?
Innovation is a key source of and organizational processes. The I-J has outstanding exemplars of innovative riveter and public sector organizations and is investing significantly in its science and skills base to underpin future innovative capacity. Adapting promising practices to enhance performance across varied organizational contexts. How can I-J managers disseminate their experience whilst learning from others? Improved management practices are identified as important for enhancing productivity and performance.
The main focus is on how evidence behind good or promising practices can be systematically assessed, creatively adapted, successfully implemented and knowledge diffused to other organizations that will benefit. Executive summary In an increasingly competitive business environment, the ability to spot and seize new opportunities, to plot a path of successful growth for an organization, and to use resources effectively and efficiently, becomes paramount. Managers have a number of management tools at their disposal to help meet the challenges that they face.
Among these are tools for dealing with strategy analysis, choice and implementation. The challenge for managers is knowing which of these tools to use, how many to use, and when to use them. Our research explored the use of strategy tools in organizations. By questioning over 2,000 business school alumni, all of whom will have been exposed to a variety of strategy tools as part of their business education, we looked at the impact of a range of variables on the use of strategy tools.
By consulting with both business academics and alumni on their knowledge and use of strategy tools, we have constructed a strategy toolkit containing a limited number of strategy tools that managers would benefit from being familiar and using in their work, particularly as their experience and seniority increases. In particular, our research revealed the following: Managers have a number of management tools at their disposal to help meet the challenges that they face.
While the world’s managers may be firmly attached to SOOT analysis, the most popular by far of the strategy tools we encountered, several other tools are both frequently used and useful. From our research we have constructed the following core strategy toolkit for practitioners: SOOT analysis, key success factors, core competences analysis, scenario planning, value chain, Porter’s 5 forces, resource- based analysis, industry life cycle, PESTLE analysis and portfolio matrices. Lolls, providing sufficient diversity, but still manageable.
The US and Europe are lagging behind. Managers from companies with headquarters in Asia, Africa, the Middle East or South America tend to use a higher number of tools than managers from companies with headquarters in the US and Europe. Even though SOOT analysis is easily the most popular tool, the tools with the most users are not the ones considered by managers as the most valuable. The usefulness of strategy tools varies according to the stage of the strategy process – strategy analysis, choice or implementation.
Porter’s 5 forces and PESTLE analysis re considered to be the more valuable for conducting strategy analysis; scenario planning for strategy choice; and key success factors for strategy implementation. 5 Managers consider strategy tools more useful for analysis and sense-making purposes than for making and implementing decisions; this may mean that more emphasis is required during training and education on those tools that assist managers with making and implementing decisions. There is a strong link between training and education, age, and career progression and a greater use of strategy tools. Managers with higher levels of education (e. Postgraduates) and who attend management training regularly (at least once a year), use more strategy tools. However, managers who left formal education less than two years ago use slightly fewer tools than other managers. Equally, senior managers tend to use more strategy tools than managers in all other hierarchical levels; the use of strategy tools starts increasing after two years in a position or firm. Finally, and importantly, our findings show that managers do not choose tools because of their relevance to the topics they intend to address, but those that are legitimacy with their peers I. The best known and most frequently used. Not that this necessarily makes a difference to outcomes as we did not identify relevant differences in the type of tools used. Purposes than for making and implementing decisions… 6 introduction: the importance of strategy tools Strategy tools such as SOOT analysis, scenario planning or key success factors, are types of strategic practices that enable managers to deal with the challenges they face in managing their organization’s strategic direction.
These tools have often gone through many adaptations and modifications to their theoretical definitions. Figure 1 presents a general definition, with some primary authors (in brackets, with reference works detailed in Appendix A), of the top 10 strategy tools addressed in this research. Figure 1: Top 10 Strategy Tools Definitions Strategy Tool Definition Core Competences Those capabilities fundamental to a firm’s strategy and performance that are deployed across strategic Analysis business units (Parallax and Hammed, 1990).
Critical (Key) Success Factors Industry Life Cycle Those variables that management can influence through its decisions and that can significantly affect he overall competitive position of the firm in an industry (Hoofer and Ascended, 1978). Analysis of the four stages in a product’s life cycle: introduction; growth; maturity; and decline (Vernon, 1966). Analysis of wider ‘mess-economic’ and ‘macro-economic’ environments, including: Political, Economic, Social, Technological, Legal and Environmental factors (Jugular, 1967).
A framework for analyzing an industry and determine its competitive intensity and market attractiveness. It includes three sources of horizontal competition (substitutes, entrants and rivals) and two sources f vertical competition (power of suppliers and power of buyers) (Porter, 1980). Analyses the growth and profitability of potential of products (Hassling, 1982). Analyzing the potential of firm’s resources to generate sustained competitive advantage along four dimensions – value, rareness, maintainability, and non- substitutability (Heartfelt, 1984; Barney, 1991).
Approach to develop flexible long- term plans. It is an attempt to consider a diverse range of possibilities which can highlight possible events that decision makers would otherwise ignore (Shoemaker and Heighten, 1992; Shoemaker, 1995). Analysis that stresses the importance of engendering the firm’s Strengths, Weaknesses, Opportunities and Threats (Anions, 1968). Analysis that categories and evaluates the integration of the primary and supporting value-adding activities within and around an organization (Porter, 1985).
PESTLE Porter’s 5 Forces SOOT Value Chain Such tools are becoming increasingly important both as private sector organizations struggle to differentiate themselves and succeed in a highly competitive global business world, and public sector organizations attempt to provide a growing range of services with limited resources. Surprisingly, given their widespread use, little search has been conducted into the application and role of strategy tools.
Our study addresses this situation by analyzing the strategy tools adopted by over 2,000 domestic and international alumni from a sample of 12 leading I-J business schools, where strategy tools are widely taught. 7 Several issues regarding the use of strategy tools were covered, and these form the basis of this report. In particular, this report examines the following aspects relating to the use of strategy tools: The most common strategy tools used (the manager’s core toolkit) and the range of tools that normally comprise a practitioner’s portfolio;
The effects of a company’s characteristics in the use of strategy tools – looking at the variations of tools’ used according to organization size, industry and headquarter location; The tools used at each stage of the strategy process (strategy analysis, strategy choice and strategy implementation), revealing the tools most frequently used at each stage, and comparing the level of use with the tool’s perceived value; The main reasons for using and not using strategy tools; How practitioner education, the level of management training, age, experience and career progression affects the use of strategy tools.
Research methods First we derived a list of 20 strategy tools by asking 66 strategy academics in the top 30 1-J business schools about the tools that they typically school alumni from 12 of the top 30 business schools in the UK and asked them about their use of the strategy tools on the list. We received over 2000 (2148) usable responses. Alumni are an appropriate unit of analysis as they have usually had the opportunity in their work to make use of the tools they learned about at business school. The strategy toolkit The first step in developing a better understanding about the role and importance of tragedy tools in practitioner’s strategy work is to know which tools are used the most. Figure 2 shows the wide variation in the level of use of different strategy tools. Some tools such as SOOT analysis (nearly 80 per cent) and Key Success factors (nearly 60 per cent) were used by over half of the respondents. Others, such as the Bowman’s strategy clock, and corporate parenting matrices, are hardly used at all.
Figure 2: Strategy tools levels of use Bowman’s Strategy Clock Corporate Parenting Matrices Methods of Expansion Matrices Globalization Matrices Dynamic Capabilities Analysis Merger and Acquisition Matrices Porter’s Diamond Nations Product/Market Matrix Strategic Group Analysis Porter’s Generic Strategy Model Portfolio Matrices (e. G. BCC or McKinney) PESTLE Analysis Industry Life Cycle Resource-Based Analysis Porter’s 5 Forces Value Chain Scenario Planning Core Competences Analysis Key Success Factors SOOT 0% 9 A balanced set of tools enables the accomplishment of different tasks…
There are considerable differences between the levels of use of the 20 strategy tools examined in this research. Figure 3 indicates those tools that form the practitioners’ ore strategy toolkit; it appears that managers rely on the tools summarizes in this table to do most of their strategy work. This does not mean that it is obligatory to use all these tools, nor does it mean that practitioners should restrict their portfolio of tools to those in the table. These results only tell us that these strategy tools appear to be highly useful for managers in accomplishing a diverse range of strategic activities.
Figure 3: Practitioners’ Core Toolkit SOOT Key Success Factors Core Competences Analysis Scenario Planning Value Chain Porter’s 5 Forces Resource- Based Analysis Industry Life Cycle PESTLE Analysis Portfolio Matrices, e. G. BCC or McKinney Typically, managers use between one and nine strategy tools. Four was the most common number cited, closely followed by three and five, suggesting managers need a combination of different tools to accomplish their strategy work. A balanced set of presented from different angles and perspectives. 0 company characteristics and strategy tool use The use of strategy tools alters depending on factors such as organizational size, sector, industry and companies’ headquarter (WHQL) location. The effects of size The size of an organization size affects both the number and type of tools used. With the number of strategy tools used, the impact of organization size is minimal. It is worth noting, however, that on average the greatest use of strategy tools is at the micro company stage (average of 6. 5 tools used) whereas at SEEM stage this reduces to 5. . The reason for this may be that companies in the first stages of their development tend to be very dynamic and therefore need to use more strategy tools to make sense of the environment in which they are competing. Additionally, companies in their tart-up stages may have to spend more time designing their strategies or developing business plans in order to convince investors. Similarly, organization size does not appear to impact significantly on the types of tools used, other than to confirm the higher levels of usage at micro companies.
The size of an organization size affects both the number and type of tools used. 11 Many strategy tools were developed from studies within the manufacturing sector… The effects of industry type Unlike organization size, our results show that the type of industry significantly affects the number of strategy tools used. Figure 4 shows that utilities (average of 6. 3), technology, media and information (TMI) (6. 3) and manufacturing (6. 1) companies use more tools than companies in financial services (5. 9), public or not-for-profit (NIP) (5. 6) and other services (5. 4).
These differences may be Justified by the dynamics of the sectors, the competitive environment and the problems and challenges faced by companies in their industry contexts. Our results suggest that utilities, TMI and manufacturing companies need to use more tools to accomplish their strategy work. However, the reasons underpinning these higher levels of tool use may be different. The highly regulated utilities firms may use greater levels of strategy tools because of a need to present strategic information appropriately to regulators and other stakeholders as part of their required transparency.
Many strategy tools were developed from studies within the manufacturing sector and hence managers in manufacturing may have established patterns of using tools that are applicable in the manufacturing context. The high average use of tools and greatest range in strategy tool use displayed by TMI, on the other hand may reflect the dynamism and emergent nature of business models in this sector. Interestingly, the public, NIP and professional services sectors use fewer strategy tools, which may reflect the different competitive environments and the and the number of strategy tools used 20. 0 15. 00 Number of Tools Used 10. 00 5. 00 0. 00 Utilities Other Services TMI Financial Services Public and Manufacturing NIP Sector Others Industry Sector 12 Counterintuitive, the level of use of each of the core strategy tools is very similar in all the industries, with only slight variations in the public and NIP and manufacturing sectors. , It was reasonable to assume that as managers in different industries face efferent needs they would use different tools to accomplish their goals.
Interestingly, however, our findings suggest that the content of managers’ analysis may not be an important issue in the choice of which strategy tools to employ. This also reflects the fact that managers across industries tend to use the tools that are better known and easier to use rather than those that are most appropriate for their analytic purposes. Another interesting observation is that the public and NIP sectors do not follow the same pattern as other sectors in some tools – particularly in the use of coruscated analysis, and especially in PESTLE analysis, for example (see Figure 5).
This may indicate that public sector companies are strongly oriented to a careful management of their resources. It also makes sense given that factors such as changes in policy and legislation, and environmental issues, may form part of PESTLE analysis. A greater focus on internal resources in order to provide services and gain advantage with founders, rather than on external resources, is suggested by their lower use of Porter’s 5 forces, a tool for competitive environment analysis, as well as their lack of attention to the value chain.