Business strategy is the term that describes all the strategic actions that are taken by an organisation in order to achieve growth and predetermined objectives. For all the business entities it is very important to formulate appropriate policies so that operational activities can be performed in effective manner (Burlton, 2015). Organisation's managers, directors and other executives are responsible to form impressive plan of action in order to smoothly run a business. In UK, telecommunication sector is continuously growing that's why competition is this industry is increasing. The organisation which is chosen for this report is Virgin which is a British company and providing telecommunication services to the customers. Its Headquarters are in Hook, Hampshire, UK and founded in year 2006.
This assignment aims at the concept of business strategy by covering various topics such as impact and influence of macro environment on Virgin and its strategies, analysis of internal environment and capabilities. Application of Porter's Five Force Model to analyse competitive forces, range of theories, concepts and models are also discussed under this project report in order to interpret and understand strategic directions.
P1 Application of frameworks to analyse impact and influence of macro environment
Macro environment: All the factors that are external and uncontrollable by the organisation are the part of macro environment that may affect overall ability of the company to execute business. All the conditions that are available in the economy rather than in a particular sector or region are going to leave an impact on all the business entity.
PESTLE analysis: It is method which is used to analyse external market where the operations are executed by organisations (PESTLE analysis,2015). It is very beneficial for all the business entities as it helps in environmental scanning and strategic management by providing appropriate information of external environment. It is mainly used to determine the impact of different factors such as political, legal, environmental, economical, social and technological etc. It is also advantageous for Virgin as it guide managers to gain information regarding valuable advantages and threats that may affect business execution process. All the elements of PESTLE are described below:
Political: Such factors that are related to government, its rules, regulations and policies that may affect business of a company. In UK government supports such organisations which may contribute a higher amount in national income.
- Positive impact: it is good opportunity for Virgin to operate business in UK appropriately because its profitability is high and it will increase the contribution of telecommunication sector in GDP.
- Negative impact: It also affects negatively when any changes are made in the policies of the government then it would impacts the overall decision making and leads to modification under the future plans.
Economic: The factors that are related to inflation, deflation, price of goods, interest and foreign exchange rate, economic growth etc. are considered as economic factors.
- Positive impact: These factors may leave positive impact on Virgin if inflation rate decreases because at that time costs get decreased nad purchasing power of customers get increased.
- Negative impact Changes in such factors may affect business of Virgin as inflation and deflation rates affect purchasing power of customers. It is very important for the business entity to gather information of such factors so that appropriate strategies can be formulated in order to reduce their negative impact (Torrent-Sellens, 2015).
Social: Customer's taste, paying capacity, age, preferences are considered as the part of social factors. In UK people are very much socially aware hence it is essential for Virgin to focus on all these elements in order to meet customer's expectations and operate business in effective manner.
- Positive impact: If Virgin focuses on each requirement of customers then it will help to gain their trust and enhance overall profits.
- Negative impact: In case, company is not able to meet customer's expectations then it would directly impacts the internal performance of the company.
Technological: Latest technology and market trends are the variables falls under this factor. Citizens of UK are very much interested in technology and get attracted toward such products that have some latest features.
- Positive impact: Virgin may take advantage of this by providing them unique technological products so that profitability and market share can be enhanced (Teh and Corbitt, 2015). Thus it is very crucial for managers of company to make decisions regarding impressive use of technologies for the betterment of business.
- Negative impact: If no technological factors are considered by Virgin then it will result negatively for the company as it will not be able to meet customers expectations.
- Legal: There are various policies that are imposed by the legal authorities of UK and for all the business entities it is very important to follow all of them.
- Positive impact: In UK legal authorities support such business that may contribute a higher amount in the national income. Mobile industry contributes a good amount in GDP hence Virgin will have full support of government for its business exevution which is positive impact.
- Negative impact: In case if these policies are not examined by the manger of virgin than it may have negative impact on the business. Thus they have to take valuable decision in order to make strategies that support to run business in appropriate manner.
- Environmental: Government of UK is highly concerned about the protection of environment and implemented various acts.
- Positive impact: As Virgin is planning to mitigate the effect of telecommunication masts on environment it is a good opportunity of the company to get support of government. It will help to run the business smoothly in UK.
- Negative impact: If Virgin breaks any environmental protection rule then it will result negatively for the organisation and government may take strict action against the company.
Ansoff's Growth Vector Matrix: This model was introduced by H. Igor Ansoff and the main aim of this matrix is to provide simple ways to the marketers in order to analyse risk of growth (Ansoff's Growth Vector Matrix,2019).
Purpose of Ansoff: main purpose of using Ansoff's Matrix is to determine the best suitable strategy for the business. It guides executives to choose one right strategy that may result in attainment of organisational goals.
Uses of Ansoff: It is used by various organisations such as Virgin to figure out different options that are available in the market that can be chosen for growth and development. It is also used to identify possible growth strategies for an enterprise.
All the four strategies of this model for Virgin are as follows:
- Market development: In such type of strategy Virgin can launch its existing products in new market segment in order to expand its business and increase market share. While implementing this model the organisation needs to form new promotional strategies in order to reach maximum number of customers.
- Market penetration: By using this strategy Virgin can offer its current products to existing market by decreasing their cost. This step may help the organisation to increase its sales and profits. Promotion and distribution cost of the company will get enhanced because to attract more customers from same segment it is very important to use some new promotional techniques (Spender, 2014).
- Product development: Virgin may use this strategy to offer some new products with unique features to its existing market in order to attain higher growth. This may help the company to increase its profitability. This may help to strengthen the sustainability in the market by developing new product range.
- Diversification: This strategy is implemented by such organisation which are willing to offer new products to a new market segments in order to expand business, capture large market area, increase profitability and sales. This option can be used by Virgin in order to acquire more market share. There is a higher risk involved in this strategy because market and product both developments are required. Organisation's cost for launching a new item will be increased.
From all the above described options the best suitable strategy for Virgin is market development because it will help to capture more market and also increase profitability and sales because customers will get attracted towards the new product.
M1 Critical evaluation of macro environment to determine and inform strategic management decisions
For the purpose of analysing macro environment of Virgin PESTLE analysis and Ansoff's Growth Vector Matrix are used. It has helped to form best strategies for the company because PESTLE guides to assess the factors that may leave positive and negative impacts of different factors on business operations. Ansoff's matrix guides to find best ways to grow the business in market and acquire large market share. The organisation has chosen market development strategy in which it will offer its existing products in a new market. Both the methods has helped the managers and top executives of the company to make strategic business decision.
P2 Analysis of internal environment of the company
Internal environment: All the factors that are available within the organisation and affect operations positively or negatively are considered as the part of internal environment. It is essential for all business entities to analyse all the intrinsic elements that may help to formulate effective business strategies. Virgin is a telecommunication company that offers various products and services to customers. VRIO model can be used by the managers to identify capabilities and internal resources in order to achieve growth.
Strategic capabilities of Virgin:
- The organisation have a higher competitive advantage in the market of UK where it is executing its business successfully.
- Future sustainability of the company is very high because currently a larger area of market is being captured by the entity.
The VRIO model and organisation's strength with weaknesses are described below:
VRIO Model: it is a measuring tool which is used by most of the organisations to determine that their products are able to attain competitive advantage or not. Four different elements are analysed in this model that are valuable, rare, inimitable, organised. If a product is having all these features then it may help to achieve sustainable agonistic benefits in the market. An analysis of this model for Virgin is as follows:
- Valuable: First of all the Virgin needs to analyse that all of its products are valuable or not. If they are not then it will lead the organisation towards competitive disadvantage if it is valuable then the next factor of the analysis will be analysed. It is found that internet leased line is one of the most valuable product of virgin as it help to increase the market share for company in a short period (Oldman and Tomkins, 2018).
- Rare: In this step Virgin needs to assess that its products are rare or not. If the items sold by the company are not extraordinary then it will lead the organisation toward competitive parity. If the products are rare then the business entity will analyse the net feature of the analysis. Management of virgin found that voice over IP solution is one of the rare product for company. As there are various unique feature such as voice over internet protocol or VOIP that add to digital alternative to traditional phone line.
- Inimitable: This is the third part of VRIO analysis in which the organisations are answerable for a question to them selves which is that the items that are sold are inimitable or not. If the products can be manufactured by other companies then it will provide temporary competitive advantage to Virgin. When answer of the question is yes then next factor will be analysed in context of the organisation.
- Organisation: It is the last component of the analysis in which organised nature of the products that are offered by Virgin is analysed. Different product such as business broadband, Phone line, business mobile and connecting site & VPNs are analysed so that they provide the required satisfaction to user. Manager also check that if there are enough resources to manage different services offered through various product of virgin.
It is very important for Virgin to incorporate all the above described features in the products so that competitive advantage can be achieved by the company. It may result in increased profitability and market share (Leonidou and et.al., 2017).
Strengths and Weaknesses: It is very important for all the business entities to analyse both strengths and weaknesses in order to formulate future decisions so that business can grow faster. If the company is not able to determine the strengths and weaknesses then it is not possible to achieve success as impressive strategies cannot be formulated in this situation. For Virgin it is essential to gather information of these elements so that it can be assured that the business will attain success . All the strengths and weaknesses of the company are as follows:
- The customers of Virgin are highly satisfied with the services and product quality. It has helped the organisation to capture large market share. The organisation is concerned with good customer relationship management which helps to meet their expectations and also satisfy them.
- The organisation is concerned with automation which has resulted in consistency in the quality of products of Virgin (Lehmann, 2016).
- As Virgin is expanding its business in various locations and segments and its performance in new markets is outstanding. It has helped the company to achieve success and increase its profitability.
- It has a successful track record of product development which helps to attract large number of customers and provide them such products that they are willing to buy.
- Virgin has strong dealer community that help to promote its productsand also investing in training of their sales team so that they can provide appropriate information to the users.
- The organisation have skilled workforce who work hard to achieve organisational as well as personal goals (Lai, Melloni and Stacchezzini, 2016).
- The organisation has a higher rate of loosing market opportunities of growth as compare to competitors. Virgin has to face this situation because it is not good in demand forecasting.
- Virgin is not good in financial planning which creates financial issues for the company. These are unplanned expenses, sudden requirement of fund and losses.
- The company is expanding less amount in the research and development activities. It has resulted in decreased competitive advantage of Virgin.
- Virgin's attrition rate in work force is very high as compare to other organisations in the same industry. The company is spending a higher amount in the training and development of employees which is not required (Kossyva, Sarri and Georgolpoulos, 2015).
M2 Evaluation of internal environment to assess strengths and weaknesses of the company
In Virgin VRIO analysis is used to analyse internal environment in which four different types of elements are analysed. All the products that are sold by Virgin are of good quality and customers are satisfied with them. It is providing training to its employees which is good but a higher amount is invested in training and development programs that are not required. Virgin's liquidity is high but the managers are not good in financial planning and forecasting that affects its operational efficiency. It is very important for the company to form new strategies to overcome all the weaknesses.
P3 Evaluation of competitive forces by applying Porter's Five Forces model
Competitive forces: All the external factors that may leave negative impact on sales and profits of an organisation are considered as competitive factors. It is very important for business entities to gather information all such elements while formulating growth strategies so that the company get developed in less time. If an enterprise is not able to collect data of such causes then it is not possible to achieve business objectives. Virgin is executing its business in UK, perform operational activities in effective manner the managers needs to gather information of all competitive factors. It will help to make best assert-able decisions in order to appropriately run the business. The best way to determine such components is Porter's Five Force Model which is described below:
Porter's Five Force Model: This model was imposed by Michael Porter in year 1979 in which five different forces are described in order to facilitate companies to find ways to attain competitive advantage (Porter's Five Force Model,2018). It guides the mangers to identify the causes that are affecting an industry. For Virgin an analysis of all five elements is as follows:
(Source: Porter's Five Force Model, 2018)
- Industry rivalry: It is very important for all the business entities to have information of its competitors and their business strategies so that best decision can be taken for the betterment of the company. As Virgin is a part of telecommunication sector and competition in this industry is continuous increasing. So, it can be said that industry rivalry is high in market. Hence, the organisation needs to form such strategies for it self so that its competitive advantage get enhanced. Main competitors of Virgin are BT Group, O2 Mobile, Talk Talk and Vodafone. The managers of the organisation have to get appropriate data of these companies so that effective marketing and business strategy can be formulated so that higher growth can be attained. Virgin has strong competitive advantage in the market as it has captured larger area of UK.
- Threat of entry: In current era various new mobiles and their networks are launching as their demand is increasing. Virgin need to determine and be aware of any new entrant in the same market segment which may target its customers. If the company is not having such information then it may affect overall performance and profitability of the organisation. Virgin should launch some new products with unique features in order to retain its existing customers and reduce negative impact of any new company (Klettner, Clarke and Boersma, 2014). Threat of new entry is very high which means here the company is weak because currently various new telecommunication companies are being launching in the market.
- Threat of substitutes: It is essential for Virgin to determine its substitutes that can be chosen by the company at the place of its products. If it is not possible for the company to analyse the existing items that may replace its merchandise then it cannot survive in the market. To overcome all the critical situations that may take place due to substitutes Virgin may have to decrease price of its products so that large number of customers can get attracted. The threat of substitute is high in this sector as other firm provides product and services at decent price. So to attract those customer there is a need to provide goods and services as low cost. Organisation is having threat of substitute because new and innovative services are offered by the competitors on low price hence it is very important for the company to use some new and innovative products that may fight in the market.
- Bargaining power of buyers: Most of the organisations face higher bargaining of buyers because of unsatisfactory prices of products. If there are less customers in the market then bargaining power of customers get increased and in opposite situation it will be decreased. For Virgin it is very important to decide right and affordable price to its products so that bargaining level of individuals get decreased. If the rates that are set by the company is not appropriate then rate of bargain will be increased. There are various other companies that provide communication services thus bargaining power of buyer is high. Due to which company have to fix price according that attract more customer. Bargaining power of buyers is not high which means organisation have strong situation in the market. Bargaining power is low because organisation have capturd a larger area of market due to its good services.
- Bargaining power of suppliers: In most of the sectors suppliers enjoy their monopoly and provide raw material on higher amount. When organisations are not having sufficient number of suppliers then they have to buy goods from them on high cost. If there are large number of customers but small suppliers then it they will be powerful and in opposite condition. Virgin may bargain with them to decrease the cost of items that are going to be purchased from them (Jocovic and et.al 2014). It is observed that currently there are less number of supplier in market due to which they are able to sell telecommunication equipment at high price. So, the bargaining power of suppliers is high in telecommunication sector. Thus manager of virgin need to develop effective plans to deal with situation. They should maintain good relations with suppliers in order to get resources on time. In telecommunication sector of UK bargaining power of suppliers is high and it is very important for Virgin to deal with them in appropriate manner here organisation's power is weak.
M3 Appropriate strategies to improve competitive edge and market position
In Virgin Porter's Five Forces Model is used by the managers so that all the factors that may affect its business can be analysed. There are five different elements of this model that help to formulate best business strategy in order to attain market growth and development. It provides information of such factors that may influence organisation's pricing policy, marketing strategy and other techniques. Competitive pricing strategy helps company in improving competitive advantage and market position.
P4 Application of theories, concepts and models for strategic planning
Strategic management plan is a document which is prepared to communicate information within organisation. This information is for organisation's goals, set priorities, focus, important resources, operational strength and ensures that employees of business are working towards common goal to achieve set objective. A well defined strategic management plan helps business organisation to respond to changing environment in positive manner. Strategic plan is a comprehensive collection of ongoing activities and processes that the organisation needs to be used to coordinate and aligned resources and actions with goals and mission of the organisation. To establish a effective strategic management plan by Virgin company Bowman's Strategic Clock model will be used. This model used in marketing to analyse competitive position of company in comparison to competitors.
Bowman's Strategic Clock model: Eight strategies of this model is as follows-
Low Price and Low Added Value- As per this strategy price of product and services offered by Virgin company is low and product is not different from competitor. Consumers perceives very little value and no effect of low price is noticed (Bowman's Strategic Clock model, 2018).
Low Price- A strategy of cost minimisation by Virgin company is very effective and successful when associated with economies of scale. Low price will leads to minimum profits but when volume of output is high then it leads of more profits.
Hybrid- It is a combination of two strategies which involves law price with product differentiation. Aim of this strategy is to get good value added through reasonable price and different feature of product. Use of this strategy by Virgin will turn out to be a effective positioning strategy.
Differentiation- The aim of this strategy is to offer customers the highest value added to the product and services offered. High quality product of Virgin company helps to create a good brand image in market.
Focused Differentiation- Setting highest price level for the product is considered core of this strategy. This strategy is adopted for luxury brands. This strategy of Virgin company helps them to introduce new luxury range of products. This strategy leads to high profit margin but difficult to sustain in long run (Chang, 2016).
Risk High Margin- As per this strategy high priced are charged for a product without offering anything extra. For short term this strategy may work but in long run risk high margin is not a competitive strategy for Virgin company.
Monopoly- This strategy is used by organisations that have monopoly in market. In UK Virgin company faces huge competition and do not enjoy monopoly. So, this strategy is not suggested for company.
Loss of Market Share- When consumers are not offered product as per value they may move to other product. Availability of wide range of product will shift consumers preference. Virgin company will loose its market share by not providing goods as per price charged.
Porter's generic Strategies:- Virgin telecommunication company may use another model for strategic management plan. Michael Porter describes four strategies in the year 1985. Adopting these strategies helps organisation to gain competitive advantage (Porter's generic Strategies,2015). These four strategies are as follows-
Cost Leadership- In cost leadership, organisation set out to become low cost producer in the industry. Cost advantage depends on economies of scale, preferential access to raw material or high technology. In cost leadership Virgin company can increase profits by reducing cost or increase market share by charging low price. This strategy can helps company to attain sustainability (Chu, Krishna Kumar and Khosla, 2014).
Differentiation- As per this strategy company provides products and services with some unique features and that is highly valued by buyers. Adoption of this strategy can help Virgin company to charge premium price for the product.
Cost Focus- Selecting a focused market with little competition and offering lowest price for offered product can help Virgin company to gain competitive advantage. Focused market will help to understand dynamics of various consumers and help to fulfil it (Hart, Sharma and Halme, 2016).
Differentiation Focus- Strategy to provide unique products by Virgin company in focused market leads to strong brand loyalty among consumers. Unique products can help company to gain one position ahead to competitor (Galbraith, 2014).
For Virgin it is advised to adopt differentiation generic strategy to make strategic management plan. As this a broad strategy that gives the option for company to deliver valuable product. Adopting strategies of this model will help to gain competitive advantage
M4 Strategic management plan with tangible and tactical priorities
In present time it is observed that telecommunication sector in UK is growing at fast speed. Thus it is very important for virgin to maintain its current position and increase market share. This is done by adopting the strategies of Porter's Generic Model. Adopting cost leadership strategy gives advantage to offer products at low price and attract more consumers to buy product. Introduction of new feature makes product different and induces buyers to purchase these products. All these strategies helps to attain the desired goal to capture large market share. Capture a large market share provides benefit to survive in long run.
D1 Interpretation of information by applying competitive and environmental analysis
Various methods are used by Virgin in order to analyse its environment and competitors. Porter's five force model is used to determine the factors that may affect the business, PESTLE analysis and Andoff's Growth Vector Matrix are used to analyse macro environment in order to form business strategy and porter's generic model is utilised to manage the business. Main objective behind the implementation of all these models is to formulate an effective business strategy and manage the operations of the company so that profits can be maximised in future. It has also helped the organisation to determine existing and potential growth opportunities.
From the above report it is concluded that setting business strategy helps to achieve specific business objectives and goals. Success of a strategic plan depends upon its contribution towards business growth and strong financial performance. Business of each organisation works under macro environment and various external factors have large impact on business decisions. To understand external environment PESTLE model and Ansoff's growth vector matrix is used. To increase competitive advantage capabilities of internal factors will be evaluated on the basis of VRIO model. Porter's five forces model helps to analyse market and provide competitive advantage. All these models and strategies helps to increase market share and gain competitive advantage.
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