PESTLE Analysis and the Resource-Based Theory
Organizations often determine their intended objectives and goals before establishing their specific course of action to help them accentuate and realize their goals. However , the most appropriate course of action can only be verified after a thorough analysis of the industry’s characteristics to determine the forces that influence its interplay. Although organizations have the power to influence internal aspects that afflict their operations, they have little influence on the external business environment that forms the industry’s characteristics. Such external environmental factors include barriers to entry of new business firms or players, the buying power of the customers, the threat of substitutes that buyers can rely on, as well as the industry suppliers’ bargaining power and the overall intensity of competition within the industry. These aspects are so powerful that they may derail an organization’s resolve to achieve its objectives and goals. Thus, analysis of the characteristics helps in determining the exact plans and strategies that the organization may employ. This paper seeks to analyze, through the help of relevant strategic management theories, the effectiveness of any business organization undertaking an analysis of the industry characteristics in its strategic management process.
The PESTLE analysis involves investigations of the industry’s environment on six most important fronts, including political, economic, and social aspects whose forces have a bearing on the actual performance of an organization (PESTLE Analysis, 2013). Additionally, it entails analyzing the technological, legal, and environmental aspects that also determine the probability of an organization achieving success in its operations (PESTLE Analysis, 2013).
All industries at least exist within a political framework. Even the global industry does not remain uniform concerning individual countries and their existing political frameworks, which form unique guidelines and specifications that are most likely to interfere with business performance. The political aspect refers to the government organization and its enacted policies that establish how businesses operating within their area of jurisdiction can operate (Ekpenyong & Umoren, 2010, p. 28).
A business organisation must analyze the components of the political aspect. These include tariffs, trade control, government stability, bureaucracy, and corruption level among many others to understand on how to institute its specific course of actions (Ekpenyong & Umoren, 2010, p. 30). Higher tariffs may mean that firms operating within the industry have set relatively higher prices to cater for high operation costs. In essence, strategic management in this scenario would call for the firm to seek for ways of achieving low costs in order to attract more buyers, including acquiring supplies in large quantities so that it may benefit from financial systems of scale benefits (Cullen & Parboteeah, 2010, p. 23).
However, excessive trade manage measures by the particular government may lead to that the industry is not really lucrative since the gamers lack ample space to compete towards each other. The earnings may be lower overly, meaning that will the firms might not see the particular have to focus upon improving their person quality performance due to the fact it may change in order to be very expensive (Cullen & Parboteeah, 2010, g. 23). Nevertheless , this kind of a characteristic from the political environment might be critical in setting up a management technique that focuses upon improving the high quality performance levels of the company so that this may attract a lot more consumers. Although the particular industry might be much less competitive, attracting a lot more buyers will improve the profit margins and help in traveling the competitors away of business simply because they will lack the required financial muscle (Guislain, 2003, p. 65).
The economic elements often are distinctive to a nation or perhaps a particular area. These aspects are usually described in conditions of inflation prices, unemployment trends, work costs, growth prices, trade flows, plus patterns, as nicely as fiscal guidelines and price variances among other functions (Galeotti, 2007, g. 429). An evaluation of a particular industry’s characteristic that will determines an usually higher labor price will most certainly mean that the companies make use of a huge sum of their income in paying income and salaries. Therefore, for such the firm to stay operational and assistance the high expenses of labor, it can be required to increase its prices in order to create an similarly bigger revenue foundation. An alternative technique for a firm looking for to, or currently operating inside the business would be in order to hire a smaller sized number of employees such that this may control the overall expenses. Nevertheless, other strategies, this kind of as targeting a reduction of the stock costs and adding internal operations along with those of the providers and distributors may well help in made up of the escalating fees of operations. While a result, typically the firm would nonetheless gain from its begun competitive advantage and even perform according to be able to its profit optimization objectives.
Higher inflation costs within an sector may imply of which the firm may well have to take on the battle of better prices as a way to boost its profits. Typically the appropriate strategy may well call for typically the firm to have its overall expense of operations and so that it may well make a healthy earnings base (Galeotti, the year of 2007, p. 430). This kind of may end up being converted into higher profit margins for the firm. Thus, from typically the analysis and conclusion of the certain characteristics that determine the industry or operation, a firm can understand clearly what challenges lie ahead and use the information gathered to draw up a responsive strategy that would enable it to register its anticipated results.
The success of a given firm’s performance in business depends heavily on the social construct of the surrounding environment (Kew & Stredwick, 2005, p. 81). The individual characteristics of a social aspect that influence business operations include the educational level, health consciousness, emphasis on safety, buying habits, general lifestyles, and religious beliefs among other factors. An organization’s business mission and objective must inculcate these important factors if at all it anticipates registering success in an offered environment. For instance, a society with very low education levels may not necessarily appreciate the need for higher quality products or services (Auzair, 2011, p. 237). A majority of the buyers in such a community would rather acquire cheaper products that are manufactured with inferior quality than spend more on high-quality products. Such knowledge would call on the management to devise strategies that focus on segmenting the market according to the population compositions of the educated and illiterate to manufacture quality and poor products in respected quantities. While typically the firm can be offering both classes involving consumers that help make up industry, that would also always be centering on maximizing it is profits by obtaining goods and services that top suit the instructional classes (Auzair, 2011, s. 237).
Religious beliefs happen to be incorporated in a firm’s products or companies since they drive typically the specific choices of which buyers make. Between the Muslim culture, for instance, girls must observe old-fashioned behaviors and techniques in the way they costume, so that they are generally not expected to be able to wear any disclosing dresses (Altinay & Wang, 2011, s. 675). However, typically the same may not be explained of Christian believers, whose teachings may well not be also harsh on typically the way people elect to dress. A design and style firm that discounts in clothes, consequently , would be compelled to produce very long women dresses in the event that it operated in the predominantly Muslim industry (Altinay & Wang, 2011, p. 677). In contrast, typically the same firm or perhaps marketer would get it more interesting to create short and even revealing dresses in the event that it operated inside of a market that has been predominantly less old-fashioned in its faith based beliefs and instruction, for instance Christianity placing. Ignoring such the important social element would lead to deficits for the internet marketer, thereby weakening the much-needed competitive edge.
Technology currently acts as one of the most integral needs for organizations plus companies with the high capability associated with enhancing business overall performance (Kew & Stredwick, 2005, p. 83). The technological environment involves factors including basic infrastructure degree, technology incentives, the total spending required for research and advancement, the general web infrastructure penetration, plus access to the latest technology. Even though technology is critical within supporting the overall performance of a company, great care must also be taken whenever acquiring it due to the fact it is costly and widely diverse (Tapp & Hughes, 2004, p. 284). A particular technological innovation might not always be what a good organization requires at that particular time, meaning that scrutiny is needed before deciding to buy. A country along with relatively poor created technological infrastructure will be expensive to work within because it might force an business to invest much associated with its resources in trying to set up the necessary fundamental framework.
The firm might, therefore , need to establish alternative techniques that would enable it to take pleasure in the advantages of technology, whilst at the same exact time maintaining its operational costs as low as possible in order to continue attaining competitive advantage (Tapp & Hughes, 2004, p. 285). Other competitors in the same industry could be located in environments where they enjoy good technological infrastructure, thus making it difficult to compete with them. The firm may opt to work collaboratively with a technological firm to enable it to enjoy the technological advantages that lack within the country. Such a strategy may be too expensive for the company, but the see the two firms enter into an agreement that would allow payment of services and products delivered done over a stretched out period.
The idea is to analyze the technological environment and determine the basic requirements that may be missing, but which the organization may hardly do without in executing its operations (Kew & Stredwick, 2005, p. 85). The basis of identifying the basic requirements should be to enable the company to achieve greater operational advantage over its competitors in the same industry and acquire the same without immediately transferring the related costs to buyers. The firm would eventually achieve efficiency in its performance, making its operations lean compared to those of the competitors. This would make the firm achieve a competitive advantage. This competitive advantage is critical since it may force competitors out of business, particularly if they are unable to acquire a similar technology (Tapp & Hughes, 2004, p. 285).
The legal force is another important industry characteristic since it constitutes the rules and regulations that generally define how the industry players operate and act. Several factors make up the legal force, including regulations on employment, data protection, health and safety of the workers, copyright and patents, anti-trust law, and discrimination laws. The firm has to adhere to these requirements if at all it expects to be allowed to conduct its operations within any jurisdiction (Kew & Stredwick, 2005, p. 83). The objective and mission of the firm, therefore, will have to be fashioned in such a way that they may allow the firm the opportunity to continue with its operations within the acceptable legal limits.
An extensive health and safety regulation requirement would force a firm to utilize more of its resources in ensuring that it implements the requirement. Workers will require extensive training on health and safety. This will, consequently, require the firm to meet the costs of the activity (Kew & Stredwick, 2005, p. 84). Supervisors and managers will also require periodic trainings and refresher courses to ensure the teams of workers operating under their command are always safe. Failure to meet these standards may mean that the firm’s operating license may be withdrawn altogether, or the company required to pay high fines to the authorities.
The firm may take the responsibility of devising a precise strategy that ensures comprehensive efforts are directed toward achieving efficient health and safety criteria (Kew & Stredwick, 2005, p. 83). Although with the primary stages this software would likely require heavy wasting, the strategy would likely eventually pay up mainly because fewer funds would likely be expended throughout trying to handle the identical aspect regularly. Instead, the rescued resources could turn out to be used in various other important areas, thus allowing the organization to maximize it is operations overly.
Typically the general environment has got a bearing for the performance and businesses of an organization. Environmental aspects entail factors like weather condition, climate changes, these recycling of materials, managing of waste elements, as well seeing that pollution of normal water and air and even regulatory requirements in pollution of typically the environment. Any sector relies on typically the makeup of typically the environment. It is certainly, therefore, critical of which a firm performs an extensive research from the environmental aspects before establishing functional strategies (Kew & Stredwick, 2005, g. 85).
A regulatory necessity inside a country that will requires firms in order to recycle their waste materials materials will call upon the firm’s administration to consider trading in the region. This particular means may imply the firm purchasing incinerators and utilizing employees with abilities and knowledge upon environmental management (Guislain, 2003, p. 67). Such a proceed is complex because it disrupts the particular organization’s concentrate on attaining its prime goal in business. This may also be too costly for that firm, therefore affecting its income and profit magnitudes over time (Guislain, 2003, p. 70). Nevertheless, the management might still devise a good alternative strategy sometimes in the encounter of such difficult circumstances by looking for to outsource the particular services of the special company that will mainly concentrates on environment issues. This might decrease the costs that this firm would have got otherwise expended in case it had concentrated on managing the environmental matters, while at the same time helping the company achieve efficiency in its prime business.
The Resource-Based Theory
This theory views a firm’s capability or inability to work within the exterior environment based upon the resources it owns internally. Particularly, this theory starts by carrying away a thorough inner analysis from the company to classify person resources (Montresor, 2004, p. 410). As soon as this happens, the particular firm would become able to evaluate the resources in conditions of their abilities and failings based on exactly what other industry rivals own and have handle over. This likewise can be useful for the method of identifying options such that typically the already scrutinized assets work extremely well in typically the best possible in addition to optimal way (Montresor, 2004, p. 411).
Comprehending the internal resources in the firm enables typically the management to experience power over typically the decisions that will at some point be made with regards to the strategy. Unlike inside the PESTLE theory the location where the external industry qualities are determined primary, the resource-based principle takes a slow approach that commences with all the internal assets owned by typically the firm (Montresor, 2005, p. 412). On the other hand, the process continue to heavily takes into mind the external market characteristics. The effects obtained are applied to benchmark the skills and weaknesses in the internal resources. The key external factor under the internal reference analysis is typically the determination in the competitor’s strengths and disadvantages with regards to their assets.
Selecting which a competing organization contains a limited amount of skilled staff, for instance, ensures an organization regarding an obvious edge that enhances their competitive edge above that of one other industry players. Only at that initial stage regarding strategic planning, consequently , the organization could maintain focus about the ways whereby it may more augment its reference advantage that that enjoys over their competition (Foss & Klein, 2006, l. 39) even since it progresses together with the other levels of devising typically the full-scale plan.
Identification regarding the firm’s capacity follows after executing an appraisal in the resources. At this specific stage, the organization is more concerned with the exact routines, operations, or jobs it will pursue. Typically the resultant outcome outshines the particular rivals could do. This period is still appropriate in considering the particular characteristics of the particular industry since it particularly identifies resource advices that are necessary to enhance each regarding the identified features. The capability stage focuses mainly about bridging the distance through outsourcing coming from external sources the location where the company’s internal assets were noted to possess weaknesses in the particular previous stage (Foss & Klein, 06\, p. 39).
Resources in addition to capabilities make up the important source of method direction because the particular entire mission in addition to objective of the particular firm depend on these types of two important elements. In formulating the particular mission statement regarding the organization, the particular question sought to get answered identifies the particular business is (Foss & Klein, 06\, p. 39). The answer then is defined by the particular exact market that will the firm wants to serve, which include determining who the particular exact customers usually are and what their particular needs are. On the other hand, customers’ needs are really volatile in different business situation. The company, therefore, has to carefully analyze the level to which it could continue serving the particular changing needs. This specific calls for a new comprehensive analysis regarding the industry’s qualities, including taking directly into consideration aspects just like fashion and purchasing developments.
Nevertheless, keeping inside touch with transforming customer tastes in addition to trends may not necessarily be achieved quickly if at just about all the company are unable to or fails in order to create a competitive edge over its competition. This objective is usually only achievable any time the firm looks at using its interior resources effectively with regards to the external market characteristics. Importantly, the particular competitive benefit of the particular firm comes from working with the potential regarding generating rent regarding the resources, like well as the particular capabilities which may have currently been identified.
The aggressive advantage must end up being sustainable to supply the firm together with a continuous edge over its market competitors and additional aspiring new traders. For example, a business such as Apple. operates in a great industry that depends heavily on technical know-how. However, the particular company has a highly skilled workforce. This specific assures Apple of any great competitive edge over its additional competitors in the particular industry. The exterior industry situation more enhances the company’s strong market place given that right now there is a massive shortage of modern expertise that might be employed by simply Apple’s competitors seeing that a strategy involving counteracting its power (Jinjin, 2013, s. 95). Firms throughout this industry can easily reassure themselves of your highly competitive employees by spending a big part of their very own resources to in the camera improve the skills involving their personnel.
Thus, The apple company Inc. is confident of an abundant potential of reasonably competitive advantage because that sits over a higher-priced resource, regarding remarkably trained and knowledgeable workers that almost all from the competitors just like Research In Action (RIM) and Htc have recently recently been lacking. This inside capability and useful resource contrast heavily using the industry attributes. The industry is definitely defined by some sort of shortage of skilled personnel. The actualization of profit optimization for Apple, in such a case, calls for some sort of strategy that depends effectively on it is internal capabil which none of the industry players have similar command over (Jinjin, 2013, p. 98). Another important aspect of competitive advantage is the extent of the suitability of the returns. The internal resource, which is analyzed based on the external industry characteristic, must be of higher returns to enable the organization to gain from the competitive advantage.
The eventual strategy of the firm is determined by alternatives that best exploit the resources and capabilities of the firm. The resources and capabilities within the firm are stronger about a comparison made to the external industry characteristics (Hurtado, 2010, p. 32). The objective of the strategy is to ensure that it draws optimum performance from its resources and capabilities that other industry players lack the advantage or ability to exploit.
Competitors and industry players are a vital part of the industry characteristic. In this regard, understanding their capabilities enables the firm to strengthen itself in a way that disadvantage competitors. Analyzing the industry characteristics may not necessarily demand that the film begins with its internal characteristics and resources. Instead, an external analysis of the characteristics may be used to determine what other firms or competitors have in exact terms, including their resources and capabilities (Hurtado, 2010, p. 33). Once this is ascertained, the company can sit down and establish ways of building its internal capability and resource-base. The aim of doing this is to take full advantage of the industry situation.
In sustaining the business strategy, the firm also needs to identify its own resource gaps and conversely work toward filling them (Hurtado, 2010, p. 34). In the case of Apple Inc., although the firm enjoys superior capability over its rivals, it equally faces challenges within its resources that pose as a challenge to its operation. These challenges are what the firm’s management should work tirelessly to eliminate (Hurtado, 2010, p. 35). An example of such a resource challenge faced by the technology company is on microchips. The company heavily relies on microchips for all its handheld devices. This crucial resource is simply not wholly under the control of the company as it relies on supplier firms to provide the same (Hurtado, 2010, p. 35). Apple should invest its resources toward replenishing, upgrading, and augmenting this important resource base so that it can continuously create and sustain its competitive advantage over the rivals.
Strategic management is an important aspect of the performance of business for organizations and firms whose basis relies on analysis of industry characteristics. The PESTLE concept divides the industry characteristics into six major forces that a firm needs to analyze thoroughly before devising its strategy. The forces include political, economic, social, technological, legal, and environmental influences. In terms of politics, a firm needs to analyze aspects like tariffs, government stability, and corruption levels in a country or region to determine its strategy. Economic forces comprise of aspects like inflationary rates, interest rates, and growth rates. These factors have a direct influence on a company’s revenue and its profit margins. Knowledge of this characteristic of the industry would enable a company to come up with supportive strategies that sustain it to achieve its mission and objective. The technological force comprises of infrastructure like internet availability and penetration. The resource-based theory, on its part, identifies the need for firms to analyze industry characteristics in the form of competitors’ resources and capabilities and make a comparison with the internal resource and capability of the firm. In all instances, the external characteristic of the industry must be analyzed such that the firm can use the resultant findings to establish a more superior strategy to accentuate its objective.
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