The Outside In View Of Strategy Business Essay

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The term "strategy" is originally derived from the Greek word of "stratçgos", stratus (which means army) and "ago" (which means moving or leading). In general, the term strategy is defined as an action which is taken by an organisation's management team in order to achieve certain business objectives (Ghamawat, 2000). According to McKeown (2012), strategy is also defined as "A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process". Thus, a strategy is about putting all the organisational activities together and to allocate and assign the limited resources within the organisational environment in order to achieve the set business goals (McKeown, 2012). Some academic researchers have suggested that when the organisation is building up a strategy, it is critical for the organisation to consider that the strategic decisions are not taken in a vacuum and that any act taken by the organisation is likely to be met by a reaction from those influenced, customers, competitors, suppliers or employees (Clegg et al, 2011). Another definition of strategy is said to be the knowledge of the objectives, the uncertainty of events and the necessity of taking the potential or actual behavior of others into consideration (Wit and Meyer, 2010). What is more, sometimes organisations see strategy as the blueprint of decisions which presents the companies' goals and objectives, plans for achieving such goals and objectives, reduces the key policies, and provides definitions for the organisations in the market or industry such as they type of economic and human organisation it wants to be (Clegg et al, 2011). Furthermore, strategy contributes to plan for the organisational customers, shareholders and society. There are many ways to build up a strategy from different perspectives (McKeown, 2012). In this essay, two general methods will be critically discussed, namely the outside-in view of strategy and the inside-out view of strategy.

Three Levels of Strategy

There are three different levels of strategy, which are commonly known as corporate level, business unit level and departmental or functional level. It is argued that even though a business strategy is about competing and surviving as an organisation, products, not corporations compete, and products are developed by business units. Therefore, at the corporate level, the organisation needs to efficiently manage its products and business units in order to make sure that each of them is competitive, which in turn contributes to the business at the corporate level (Johnson et al, 2011). Strategy at the corporate level is primarily concerned with how the organisation needs to choose businesses which are the most competitive and with the coordination and development of that businesses' portfolio. There are four basic perspectives of corporate level strategy. The first one is to identify the issues which involve corporate responsibilities; such issues may include the different kinds of business activities which the organisation should involve, identifying the organisational corporation goals, and how to integrate and manage those business activities. Secondly, corporate level strategy is concerned with deciding where in the corporation competition is to be localized. Also, strategy at corporate level tends to build up synergies by coordinating and sharing human resources and other resources across different business units, and by using those business units to enhance other business activities at the corporation level. Finally, corporate level strategy helps the organisation to decide how to govern those business units, which could be through centralisation or decentralisation. Therefore, corporation level strategy is about creating long-term values for the organisation (Verbeke, 2009). Compared with corporation level strategy, business unit level strategy focuses more on creating and maintaining competitive advantages for the products or services produced by the organisation. A strategic business unit may be a division, product line, or other profit centre that may be planned independently from other business units of the organisation (Clegg et al, 2011). The formulation of the strategy at business unit level is concerned with three basic matters. Firstly, it is concerned with positioning the organisation against its competitors; secondly, it is concerned with reacting to the changes in technologies and customer demand and to accommodate such changes by appropriately changing the strategy; thirdly, it is concerned with affecting the features of competition in the market by adjusting strategic actions of the organisation which may include vertical integration and other political actions (Verbeke, 2009). The departmental or functional level strategy of the organisation focuses on the operating and departmental levels. The typical strategic issues which are associated with functional level strategy are business processes and the value chain. Strategy at functional level involves better development and allocation of resources in finance, marketing, human resources, R&D and business operations. Thus, the functional level strategy provides useful information about resources and capabilities of the organisation, which in turn helps the organisation to make better strategic decisions (Clegg et al, 2011).

The Outside-In View of Strategy

The outside-in view of strategy tends to help the organisation to create business strategy from environment outside the organisation. The steps of creating such business strategy are from the macro environment to the organisation, with middle layers of industry and competitors. In order to analyse the macro environment, many people have suggested the PESTEL analysis (Clegg et al, 2011). PESTEL (or sometimes known as PESTLE) analysis is a tool of strategic planning which scans the context of the campaign. PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal external factors which are likely to have influences on the campaign. However, when performing examinations for the different external factors, it is critical to remember that men and women, boys and girls may be influenced differently at different levels and by different aspects (Hill, 1998). Political factors involve factors which may influence the business strategies of the organisation. For example, is there a risk that ultra-conservative politicians opposing women's rights gain a strong voice in national parliament? Or, are there chances to overcome resistance from local decision-makers by winning support from national or international political forces? The economic factors may include factors that involve economic development and amount of available resources, and the different ways in which they influence men and women and so on. The social factors involve many aspects with potential opportunities and difficulties that are related in a social manner such as religion, gender roles, culture, social class or caste, and stereotypes etc. Technological factors are concerned with available communication and information technology for the organisation. Legal factors include law enforcement and laws that are related to the organisation's issues. Finally, environmental factors consider the natural environment, which may include the change of climate that has influences on certain organisations and businesses depend on the nature of the organisation. Therefore, the PESTEL analysis takes all these factors of the macro environment into consideration, and helps the organisation to identify the potential opportunities and risks in the macro environment in order to develop an effective business strategy (Fleisher and Bensoussan, 2007). After the macro environment, the outside-in view of strategy then considers the industry environment for the organisation. The porter's five forces analysis is a strategic tool that is used to analyse the industry in which the organisation operates. It is mainly based on the industrial organisation economics to derive five different forces which help the organisation to determine the competitive intensity or attractiveness of a particular market or industry. The more potential profitability a market has, the more attractiveness the market has, as defined by Porter (Porter, 2008). A market is defined as "unattractive" if the five forces measured the profitability to be low. An extremely unattractive market would have all the firms operate in such market gain normal profit of the economic term (Fleisher and Bensoussan, 2007). The porter's five forces include barriers to entry, threat of substitute products or services, bargaining power of buyers (customers), bargaining power of suppliers and the intensity of competitive rivalry. Therefore, porter's five forces analysis provides the organisation a clear picture of the market in which it operates or it is trying to operate in (Porter, 2008). By gaining better understanding of the industry, the organisation is able to create better business strategies. The outside-in view of strategy looks at the competition. In order to survive in the business world, the organisation has to gain competitive advantages. However, it is critical to decide what kind of competitive advantages are more suitable. An organisation gains its positions in the market by leveraging its strengths (Kogut, 2002). According to Michael Porter, an organisation's competitive advantages will ultimately fall into one of two categories: either cost advantage or differentiation. By implementing these business strengths, the organisation is able to select one of the three resulted competitive advantages: cost leadership, differentiation, and focus. The organisation can aim for any one of these competitive advantages depends on its available resources and type of businesses etc. Porter's generic strategies help the organisation to analyse the layer of competition of the outside-in view of strategy (Porter, 2008).

The Inside-Out View of Strategy

In contrast with the outside-in view of strategy, the inside-out view of strategy focuses on the organisation's uniqueness and competence. It requires the organisation to firstly look at its own strengths and weaknesses, and to develop successful and suitable business strategies according the analysis results (Clegg, et al, 2011). The SWOT analysis is a popular technique which helps the organisation to identify its own uniqueness and competence. The SWOT analysis is a strategic planning method that is generally used to measure the Strengths, Weaknesses, Opportunities and Threats that are associated with a particular project or in a business venture. A SWOT analysis can be used to measure a product, industry, place or an employee. It is concerned with identifying the business goals of the business or a particular project, and to identify the internal and external factors which may positively or negatively affect the process of achieving such objectives (Bohm, 2008). By using SWOT analysis to identify strengths and weaknesses, the organisation can have a detailed internal measuring of its available resources, thus to focus on obtaining sustainable competitive advantages. It is suggested that the organisation should perform the SWOT analysis first, then to set the business goals according to the results of the analysis. This way it allows the organisation to set realistic goals or objectives which are achievable for the organisation (Fine, 2010). Strengths include factors which can provide more advantages over others for the organisation; weaknesses include factors which place the organisation at a disadvantage compared with other factors; opportunities include elements which the organisation can exploit to become its advantage; and threats include elements which could have negative effects on the organisation's performance in the industry (Pahl and Richter, 2007). Sometimes, an organisation may achieve better performance than the other organisations in the same industry. This may be explained by the resource-based view of strategy. The resource-based view of strategy focuses on how efficiently and effectively the organisation allocates and assigns its limited available resources. If the organisation can use the limited resource wisely, then it can achieve many benefits such as reduced cost, better efficiency, and higher productivity and so on. Therefore, the resource-based view of strategy will help the organisation to achieve sustainable competitive advantages, which are valuable to any businesses (Verbeke, 2009). However, the organisation needs to be aware which resources are rare and valuable, and to allocate and assign such resources efficiently. After identifying the organisation's own competence, the inside-out view of strategy turns to look at the business environment (Hill, 1998). Nowadays, the business environment is constantly changing due many factors such as rapidly developing technologies. A successful organisation will then need to react to the environmental change quickly and effectively; otherwise it may face serious challenges from its competitors. How well the organisation can react quickly to the environmental change will depend on the dynamic capability of the organisation. The organisation can improve its dynamic capabilities by improving its technological know-how, intellectual property, business process know-how, customer and business relationships, reputations, and organisational culture and values and so on (Johnson et al, 2011). If an organisation fails to respond to the environmental change or responded not quickly enough, then the organisation may face negative results such as losing customers or business reputations. For example, as an organisation with great history, HMV used to be a very successful business. However, due to the rapidly improving technology and online media systems, people changed their purchasing behavior from buying CDs or VCDs from store to download entertainment programmes from on-line. HMV to some extent did not respond well enough to this change, and is now forced to go into administration. Such business activities will also improve the organisation's value chain, thus to add more values to the entire business (Ghamawat, 2000).

Conclusion

To sum up, a business strategy is crucial to have direct influence on the organisation's overall performance, and its position in the market or industry. The purpose of building up a business strategy is to help the organisation to achieve its business objectives or goals. With different business goals or objectives, the organisation needs to plan different business strategies. There are three levels of business strategy namely corporation level strategy, business unit level strategy and functional or departmental strategy (Clegg et al, 2011). The organisation needs to consider strategies at each level in order to create a comprehensive business strategy. The outside-in view of strategy asks the organisation to start with analysing the macro environment, and then to look at the industrial environment to firstly decide whether the organisation's target market or industry is a good choice. Once these analyses are done, the organisation can focus on its own competence (Porter, 2008). On the other hand, the inside-out view of strategy asks the organisation to first analyse its own strengths and weaknesses, then expands the analysis to the outside environment (Bohm, 2008). In both methods, the common purpose is to build up business strategy which suits the organisation and also allow the organisation to perform better and achieve its goals (Johnson et al, 2011).

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