Strategic Management tools developed by famous economist like Michael Porter are being used in business text books and in organisational planning as part of a business’s strategic management. For instance, Porter’s five forces model for accessing industry competition breaks down industry forces
and helps in identifying which areas are stronger and how much bargaining power a seller would have in the industry. Before pursuing a strategy like diversification, an analysis done beforehand as per this model could help in identifying the competitors in the market and whether a business can have price leadership in this industry or not. Additionally, the marketing mix can be further developed after this analysis since a business can decide what pricing strategy to use, where to sell the product and what features to focus on for differentiation. Similarly, Porter’s generic strategy model can help in business planning by identifying a business’s area of competitive edge. So before diversifying into an international market a business could identify beforehand what it’s source of competitive edge would be. Should it be a cost leader or should it focus on differentiation? This type of planning could then help in lower level planning . For instance, if a business has identified it’s source of competitive advantage to be cost leadership, it could look towards all aspects of keeping the cost low. This would be further translated into its strategy formation in terms of location, supplier decisions etc
It’s not that a business would not be able to accomplish diversification without strategic planning but this type of planning offers substantial risk aversion. Since diversification is important for lessening an organisation’s dependency on a particular market or product, Strategic Management can be seen as a tool for lessening the potential challenges and risks that come with this move(Adrian Haberberg, 2008).
Adrian Haberberg, A. R. (2008). Strategic Management: Theory and Application. Oxford University Press.
Farquharson, P. S. (2014). United Kingdom: Cambridge University Press.
Huiru, D. (2011). The Importance of Strategic Managmenet : A Case Study of H&M. SAVONIA UNIVERSITY OF APPLIED SCIENCES.
Kenny, G. (2009). Diversification Strategy: How to Grow a Business by Diversifying Successfully. Australia: President Press…………………..
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