Strategic management tools provide valuable information that can help add value to any organisation. Some of the most common ones in this respect include the following:
Porter’s Five Forces
Porter’s Five Forces analysis is a strategic tool that helps in the assessment of the environment for any business through a consideration of the bargaining power of suppliers, the bargaining power of buyers, threat of new entrants, threat of substitutes, and rivalry amongst existing competitors. An analysis of these factors provides the opportunity to assess potential business profitability, risks and opportunities based on the micro-external environment of any company. An adequate use of this model helps in the development of strategic options that provide it with the competitive edge needed for sustainability and profits against other companies operating in the same industry. This can thus be used in an industry-specific context (Porter, 2008).
VRIO Analysis
The VRIO analysis provides strategic knowledge and assessment on the basis of an organisation’s resources and the competitive value that they bring to it. The VRIO model views internal organisational environment in the context of four key questions: Are these resources Valuable, Rare, Imperfectly Imitable and Non-substitutable? Valuable resources would provide an organisation with the edge that can make effective use of an opportunity or effectively mitigate a threat; Rare would mean that the resource is not easily available in the environment and/or industry of the organisation; Imperfectly Imitable refers to the fact that the key resource of an organisation cannot be copied or reproduced by its competitors easily, and not in its entirety; and Non-substitutable refers to a resource that could not be substituted by any other product (Barney, 1991). Using this model provides organisations with an assessment of its key resources that it can use as a competitive advantage in its market.
Balanced Scorecard
The Balanced Scorecard is used as a strategic tool for measuring organisational performance on financial and non-financial metrics. The Balanced Scorecard advocates a strategic analysis of organisations from four different perspectives in the interests of securing a more holistic idea than the one that would be gained from a purely financial perceptive. To this end, the Balanced Scorecard includes non-financial aspects of customer experiences, organisational learning capabilities, elements of organisational culture and structure, and its business and management processes. This helps in securing a more balanced perceptive of an organisation’s capabilities and performance, and helps in the development of realistic and holistic strategic guidelines as well that help the financial and non-financial aspects of a business equally well (Kaplan, 2008; Kaplan and Norton, 1992).
PESTLE/STEEPLE Analysis
The PESTLE analysis is a strategic tool that appoints a consideration of multiple forces in the macro-external environment of any business that may have the potential to affect its strategic considerations and outcomes. These include political, economic, social, technological, legal and environmental factors that affect business strategy. A more recent version of the PESTLE, the STEEPLE also includes the element of ethics, which is a key area of concern as organisations in modern environments have to cater to and be answerable for their business processes and adherence to corporate social responsibility requirements (Johnson, Scholes and Whittington, 2008). These elements provide businesses with the critical knowledge that they need about their external environments so as to develop adequate internal policies, including employee recruitment and selection, training and development, management approaches, management structures, pricing and marketing, distribution and supply chain management, etc. (Rogers, Ghauri and George, 2005).
SWOT/TOWS Analysis
A SWOT analysis provides an internal and external analysis of an organisation. The internal analysis identifies the strengths and weaknesses that either have the potential to add value to a business or to reduce it, whereas the external analysis analyses the opportunities and threats in its environment which it may capitalise for its benefit or needs to mitigate. In an ideal scenario, it is meant to enable an organisation to plot its strengths and weaknesses against opportunities and threats in the environment to ensure that an organisation would be able to use its internal resources in a way that it would be able to capitalise on the opportunities. The use of the SWOT is designed to help an organisation maximise its strengths and minimise its weaknesses whilst making use of opportunities and managing threats. A TOWS analysis works in a similar manner to a SWOT, with the only difference being that opportunities and threats are identified before the internal strengths and weaknesses, and helps in the development of adequate responses to the eternal challenges (Johnson, Scholes and Whittington, 2008).
Strategic management tools compel analysts to ask questions that pertain to the different aspects of organisational processes, keeping in view of its life cycle stage, its resources and the potential hurdles it can face in the pursuit of its goals and objectives. These questions then allow an analysis of the organisational resources and their effective and efficient management for optimum output. Moreover, this analysis does not restrict itself to the internal situation of any organisation as no analysis would be entirely complete without due consideration of external situations as well. The use of these tools thus allows for a holistic approach to the strategic analysis of any business. Moreover, the use of these tools not only extends strategic benefits, but also allows organisations to develop and define their culture, structure, management approaches and processes, as well as business functions to best align them to the internal and external demands of the time and its environment. This helps in creating an effective business management process and a correct and appropriate choice of resulting business strategies. However, it needs to be remembered that these tools can be used effectively only if the people using these tools have an adequate insight, expertise and skills needed to draw analytical conclusions that are specific to the business that these are being used for. Moreover, strategic business choices need to consider and address organisational factors such as business mission, vision and goals in order to be of any true value, and these strategic analysis tools need to be used in conjunction with these elements to be of any long-lasting effect. Strategic analysis is also an ongoing process the requires a rethinking of any and all business circumstances, and hence, the results from one exercise may not be relevant to other situations that occur in different contexts (CIMA, 2007).
Within the context of the specific industry for Royal Bank of Scotland (RBS), the most appropriate tools for an analysis of the Bank would need to consider environmental factors, competition and the strengths and weaknesses of the company itself. In this context, the first tool that would need to be used would be PESTLE. The PESTLE analysis is appropriate for the banking industry as there are several factors that affect the industry which are adequately considered in the tool. The political factors are important in developing guidelines for the financial sector, and the government stability and/or creates a significant impact on the financial sector and its performance within any country, alongside consumer protection and business regulations issues.
In the context of RBS in particular and the banking sector in the UK in general, the Government’s Competition Review findings could be an issue to deal with. The economic aspect is important as it determines the buying capacity of people, and hence, their banking habits. It also affects the profitability of a business in the banking industry in the UK, such as through the need to offer lowered interest rates. The social factor is important due to population demographics, and how the people use banking services. In the context of RBS, for example, the UK has an ageing population and therefore, the bank may struggle to deliver its services through the use of latest technology which the users may not be entirely familiar with. Technological factors are important as more and more companies, including those in the banking sector, are aiming to provide virtual services to their customers whilst managing threats of hacking and virtual fraud. The financial sector is also subject to strict legal scrutiny, and in this context as well, the banking sector can benefit form the use of the PESTLE (Sanjeepan, 2017).
Yet another important tool for RBS and the banking industry itself could be Porter’s Five Force analysis. Where the PESTLE allows for an analysis of the macro environment, the Five Forces analysis looks at the issues facing any company within its micro environment. It not only looks at the position of the buyers and suppliers within an industry, but also provides insight about potential and existing competitors. This is relevant to the banking industry given the fact that not only is it subject to several regulations, but in the context of commercial banking, has to work like any other business to secure and retain customers and manage competition (Indiatsy et al. 2014). Finally, a SWOT analysis not only provides any business in any industry with an overview of its own strengths and weaknesses, but also provides an assessment of the threats and opportunities within the immediate external environment. This provides a holistic idea of the internal and external dynamics of any business that it can then use to drive its strategic growth.
References
- Barney, J. (1991) ‘Firm Resources and Sustained Competitive Advantage’, Journal of Management, Vol. 17 (1), pp. 99-120.
CIMA (2007) ‘Strategic Analysis Tools’, Available at https://www.cimaglobal.com/Documents/ImportedDocuments/cid_tg_strategic_analysis_tools_nov07.pdf.pdf Accessed 24/01/19. - Indiatsy, C.M., Mwangi, M.S., Mandere, E.N., Bichanga, J.M. and George, G.E. (2014) ‘The application of Porter’s five forces model on organization performance: A case of cooperative bank of Kenya Ltd’, European Journal of Business and Management, Vol. 6(16), pp.75-85.
- Johnson, G., Scholes, K. and Whittington, R. (2008) Exploring Corporate Strategy, Harlow: Prentice Hall.
- Kaplan, R. S. (2008) ‘Conceptual Foundations of the Balanced Scorecard’, Handbooks of Management Accounting Research, Vol. 3, pp. 1253-1269.
- Kaplan, R. S. and Norton, D. P. (1992) ‘The Balanced Scorecard – Measures that Drive Performance’, Harvard Business Review, Vol. 69 (1), pp. 71-79.
- Porter, M.E. (2008) ‘The Five Forces that Shape Strategy’, Harvard Business Review, Vol. 86 (1), pp. 25-40.
- Rogers, H., Ghauri, P.N. and George, K.L. (2005), “The Impact of Market Orientation on the Internationalization of Retailing Firms: Tesco in Eastern Europe”, The International Review of Retail, Distribution and Consumer Research, Vol. 15(1), pp. 53-74.
- Sanjeepan, N. (2017) ‘Strategic Analysis and Strategic Planning for Commercial Banking (An Analysis based a Commercial Bank operating in Sri Lanka)’, International Journal of Economics & Management Sciences, Vol. 6 (3).
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