Business Strategy: Developing Business Strategy (Copy)

6.2 Business Strategy

6.2.1 Developing Business Strategy

The Meaning And Purpose Of Business Strategy

• Definition of business strategy
  • A business strategy is the long-term plan of action designed to achieve a company’s goals and secure competitive advantage.
  • It provides direction and scope for decision-making, resource allocation, and organisational priorities.
• Purpose of business strategy
  • Direction: Guides the business towards achieving long-term goals and objectives.
  • Competitive advantage: Helps businesses differentiate themselves from rivals.
  • Resource allocation: Ensures that resources (financial, human, technological) are used effectively.
  • Adaptability: Prepares the business to respond to changes in the external environment (e.g., economic shifts, technology, consumer trends).
  • Sustainability: Ensures long-term survival and growth through innovation and strategic positioning.
  • Decision-making: Provides a framework for consistent and informed choices.
  • Stakeholder alignment: Balances the needs of owners, employees, customers, suppliers, and society.
• Examples
  • Tesla’s strategy: focus on electric vehicle innovation, brand prestige, and vertical integration (battery production + car manufacturing).
  • McDonald’s strategy: standardisation, global brand consistency, and cost leadership in fast food.

The Meaning And Purpose Of Strategic Management

• Definition of strategic management
  • Strategic management is the ongoing process of analysing, formulating, and implementing strategies to achieve long-term objectives.
  • It involves aligning company resources with market opportunities while responding to competitive pressures and environmental changes.
• Key stages of strategic management
  1. Analysis
     • Examining internal strengths/weaknesses and external opportunities/threats.
     • Tools: SWOT, PEST, Porter’s Five Forces, financial analysis.
     • Example: A retail chain analysing customer trends towards online shopping.
  2. Choice (strategy formulation)
     • Selecting the most appropriate strategy from alternatives.
     • May involve growth strategies, diversification, cost leadership, or differentiation.
     • Example: Apple choosing to focus on product innovation and premium pricing.
  3. Implementation
     • Putting the chosen strategy into action through resource allocation, organisational structure, and leadership.
     • Monitoring progress and adjusting when necessary.
     • Example: Amazon expanding into cloud computing with AWS, supported by large-scale investment.
• Purpose of strategic management
  • To ensure that the organisation remains competitive and profitable.
  • To anticipate and adapt to changes in the external environment.
  • To provide clarity of direction to employees and managers.
  • To coordinate different departments towards shared objectives.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course

Approaches To Develop Business Strategy

Blue Ocean Strategy

• Definition
  • A strategy that focuses on creating new market spaces (“blue oceans”) where competition is irrelevant, instead of competing in saturated markets (“red oceans”).
• Features
  • Innovation in products/services.
  • Targeting non-customers or creating new demand.
  • Redefining value proposition.
• Advantages
  • Less direct competition.
  • High profit potential.
  • Strong brand differentiation.
• Disadvantages
  • Risk of failure if market does not respond.
  • High costs of innovation and development.
  • Potential imitation once the idea succeeds.
• Example
  • Cirque du Soleil created a new form of entertainment combining circus and theatre, avoiding competition with traditional circuses.

Scenario Planning

• Definition
  • A strategic planning method where businesses create different possible future scenarios and plan responses to each.
• Purpose
  • Reduces risk by preparing for uncertainty.
  • Helps businesses adapt quickly to unexpected events.
• Steps in scenario planning
  1. Identify key uncertainties (e.g., economic growth, political stability).
  2. Create different scenarios (best case, worst case, most likely case).
  3. Develop strategies for each scenario.
  4. Monitor indicators and adapt when one scenario starts becoming reality.
• Example
  • Oil companies (e.g., Shell) use scenario planning to anticipate oil price fluctuations and energy policy changes.
• Limitations
  • Expensive and time-consuming.
  • Cannot predict every possible outcome.

SWOT Analysis

• Definition
  • A framework for identifying a business’s internal Strengths and Weaknesses, and external Opportunities and Threats.
• Purpose
  • Helps managers understand the business’s current position.
  • Provides insights into areas of improvement and growth opportunities.
• Structure
  • Strengths: Internal advantages (brand reputation, skilled staff, strong financial position).
  • Weaknesses: Internal limitations (poor customer service, outdated technology).
  • Opportunities: External chances to grow (emerging markets, technological innovation).
  • Threats: External risks (new competitors, economic downturns, regulatory changes).
• Advantages
  • Simple and easy to use.
  • Provides a clear picture of internal and external factors.
  • Useful for strategic decision-making.
• Disadvantages
  • May oversimplify complex issues.
  • Subjective — depends on managers’ views.
• Example
  • A clothing retailer may identify its strength as a strong brand, weakness as high costs, opportunity in e-commerce, and threat from fast fashion competitors.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course

PEST Analysis

• Definition
  • A tool to analyse the external environment in terms of Political, Economic, Social, and Technological factors.
• Purpose
  • Helps businesses understand macro-environmental influences.
  • Guides long-term planning and risk management.
• Components
  • Political: government policies, trade laws, political stability.
  • Economic: inflation, interest rates, unemployment, exchange rates.
  • Social: demographics, lifestyle changes, cultural trends.
  • Technological: innovation, automation, digital transformation.
• Advantages
  • Provides a broad view of external factors.
  • Helps businesses anticipate change and adapt strategies.
• Disadvantages
  • Factors may change quickly.
  • Information may be incomplete or unreliable.
• Example
  • Netflix used technological analysis to move from DVD rentals to streaming, anticipating the shift in consumer preferences.

Porter’s Five Forces

• Definition
  • A framework developed by Michael Porter to analyse industry competitiveness.
• The five forces
  1. Threat of new entrants: How easy it is for new firms to enter the market.
  2. Bargaining power of suppliers: The ability of suppliers to raise prices.
  3. Bargaining power of buyers: Customers’ influence on prices and quality.
  4. Threat of substitutes: Availability of alternative products that can replace existing ones.
  5. Industry rivalry: Intensity of competition among existing firms.
• Purpose
  • Helps businesses understand the competitiveness of their industry.
  • Guides decisions about entering or exiting markets.
  • Assists in identifying ways to gain competitive advantage.
• Example
  • In the airline industry:
    • High competition (many airlines).
    • High supplier power (few aircraft manufacturers).
    • High threat of substitutes (trains, buses).
    • High buyer power (customers can easily compare ticket prices).
    • Moderate barriers to entry (high capital required).

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course

Core Competence Framework

• Definition
  • Developed by Prahalad and Hamel.
  • Core competencies are unique strengths or capabilities that give a business competitive advantage.
• Examples of core competencies
  • Apple: design and innovation.
  • Toyota: lean manufacturing and quality management.
  • Amazon: logistics and customer service.
• Purpose
  • Focuses business resources on what the company does best.
  • Helps businesses build sustainable competitive advantage.
  • Encourages investment in areas that differentiate the company.
• Application
  • Identify core competencies.
  • Develop strategies that exploit these competencies.
  • Avoid diversifying into areas where the company lacks strengths.
• Benefits
  • Builds strong brand reputation.
  • Allows businesses to charge premium prices.
  • Creates barriers to entry for competitors.
• Limitations
  • Competencies may become outdated if markets change.
  • Over-reliance on a single strength can be risky.

Ansoff Matrix

• Definition
  • A strategic tool that helps businesses decide on growth strategies by considering products and markets.
• Four strategies
  1. Market penetration
     • Increase sales of existing products in existing markets.
     • Example: Coca-Cola increasing advertising to sell more soft drinks in current markets.
  2. Market development
     • Selling existing products in new markets.
     • Example: Starbucks entering new countries with its coffee shops.
  3. Product development
     • Launching new products in existing markets.
     • Example: Apple releasing new iPhone models each year.
  4. Diversification
     • Launching new products in new markets.
     • Example: Amazon moving from online bookselling to cloud computing (AWS).
• Advantages
  • Provides a clear framework for growth.
  • Helps businesses evaluate risks and opportunities.
• Disadvantages
  • Diversification is highly risky.
  • Market development may require high marketing and distribution costs.

Force Field Analysis

• Definition
  • A decision-making tool developed by Kurt Lewin.
  • Analyses the driving forces (supporting change) and restraining forces (opposing change).
• Purpose
  • Helps managers decide whether change is worthwhile.
  • Identifies how to strengthen driving forces or reduce restraining forces.
• Process
  1. Identify the proposed change.
  2. List all driving forces (e.g., cost savings, competitiveness).
  3. List restraining forces (e.g., employee resistance, high costs).
  4. Assign numerical values to each force (strength).
  5. Compare totals — if driving forces > restraining forces, change is possible.
• Example
  • A company considering switching to automation:
    • Driving forces: lower costs (5), faster production (4).
    • Restraining forces: high investment cost (4), worker resistance (3).
    • Driving = 9, Restraining = 7 → change is possible if resistance is reduced.

Decision Trees

• Definition
  • A diagram that represents possible outcomes of decisions and their probabilities.
  • Used to evaluate risks and choose the best option.
• Structure
  • Decision nodes: Represent choices (squares).
  • Chance nodes: Represent uncertain outcomes (circles).
  • Probabilities: Likelihood of outcomes (must add to 1).
  • Expected values (EV): Calculated by multiplying probability × outcome and summing results.
• Advantages
  • Provides a visual representation of possible outcomes.
  • Helps managers evaluate risk and expected returns.
  • Encourages logical, data-driven decisions.
• Disadvantages
  • Probabilities are often estimates and may be inaccurate.
  • Complex decisions may lead to very large trees, difficult to interpret.
• Example
  • A firm deciding whether to launch a new product:
    • Option A: High demand (0.6 probability, profit $200,000), Low demand (0.4 probability, loss $50,000).
      • EV = (0.6 × 200,000) + (0.4 × -50,000) = 120,000 – 20,000 = 100,000.
    • Option B: Moderate demand (0.8 probability, profit $70,000), Low demand (0.2 probability, loss $10,000).
      • EV = (0.8 × 70,000) + (0.2 × -10,000) = 56,000 – 2,000 = 54,000.
    • Decision: Option A has the higher expected value ($100,000).

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course

Strategic Approaches: Comparison And Evaluation

• Blue Ocean vs Red Ocean
  • Blue Ocean avoids direct competition by creating new markets.
  • Red Ocean involves competing in existing markets.
  • Blue Ocean is innovative but risky; Red Ocean is safer but can lead to price wars.
• Scenario planning vs decision trees
  • Scenario planning is qualitative and explores broad futures.
  • Decision trees are quantitative and calculate expected values.
  • Both are useful — one for broad strategic thinking, the other for specific investment decisions.
• SWOT vs PEST
  • SWOT analyses internal and external factors.
  • PEST focuses only on external macro-environment.
  • Using both provides a complete picture of strengths, weaknesses, opportunities, and threats.
• Porter’s Five Forces vs Core Competence
  • Five Forces focuses on external competition and industry dynamics.
  • Core competence focuses on internal strengths.
  • Together they help businesses align their capabilities with market challenges.
• Ansoff Matrix vs other strategies
  • Ansoff provides clear growth paths.
  • Other strategies (e.g., scenario planning) prepare for uncertainty.
  • Businesses often combine multiple approaches to reduce risk and maximise opportunity.

Strategic Decision-Making In Practice

• Real-world examples
  • Amazon
    • Used Ansoff matrix (diversification) by moving into cloud computing (AWS).
    • Built core competence in logistics and technology.
    • Uses scenario planning to anticipate e-commerce trends.
  • Tesla
    • Blue Ocean strategy in electric vehicles.
    • Heavy investment in R&D (supply-side strategy).
    • Uses vertical integration to control suppliers (batteries).
  • Unilever
    • Uses SWOT and PEST to adapt to changing consumer preferences for sustainable products.
    • Strategic focus on environmental responsibility (social and political pressure).
  • Airlines (e.g., Emirates, Ryanair)
    • Porter’s Five Forces shows high competition → forces them to differentiate on service or price.
• Role of leadership in strategic management
  • Leaders must inspire and communicate strategy.
  • Align resources and motivate employees.
  • Adapt strategy when external conditions change.
• Impact on stakeholders
  • Shareholders: Expect profit growth from good strategy.
  • Employees: A clear strategy provides job security and motivation.
  • Customers: Benefit from improved products/services.
  • Government: Sees strategy impact on jobs, tax revenue, and compliance with laws.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course