Business (9609) | Business strategy

Welcome to Business Strategy (A Level Topic 6.2)!

Hello future business leaders! This chapter is where everything you learned in AS Level comes together. Strategy is all about how a business plans to win in the long run—it’s the big picture!
We will explore powerful tools that huge companies like Apple and Coca-Cola use to analyze their environment, make crucial long-term choices, and prepare for the unexpected.
Don't worry if some of the concepts sound complex; we'll break down each tool using simple examples. Mastering strategy is essential for Paper 3 and Paper 4 case studies!

6.2.1 Developing Business Strategy

1. What is Strategy and Strategic Management?

Think of strategy as the detailed road map a business uses to get from where it is now (the present) to where it wants to be (its objectives) over a long period (usually 3-5 years).

Business Strategy:
The long-term plans made by senior management to achieve the overall corporate aims and objectives of the business.

Strategic Management:
This is the whole process of developing and implementing a strategy. It involves three core stages:

• Analysis (Where are we now?): Evaluating the internal and external environment. (E.g., using SWOT, PEST).
• Choice (Where do we want to go?): Deciding which strategic path to take to achieve objectives. (E.g., using Ansoff Matrix, Blue Ocean).
• Implementation (How do we get there?): Putting the chosen strategy into action and allocating resources. (E.g., managing change, corporate planning).

2. Tools for Strategic Analysis

To make good long-term choices, a business must first understand its current situation and the environment it operates in. These tools help management analyze the facts.

A. SWOT Analysis

SWOT is a foundational tool used to identify the organization's internal health and external conditions.

• S: Strengths (Internal, positive) – Things the business does well. E.g., strong brand loyalty, unique patents.
• W: Weaknesses (Internal, negative) – Areas where the business performs poorly. E.g., outdated technology, high staff turnover.
• O: Opportunities (External, positive) – Favorable trends or changes in the environment the business can exploit. E.g., opening of new markets, new trade agreements.
• T: Threats (External, negative) – Challenges or risks that could harm the business. E.g., new competitors, rising interest rates.

Why use it? It provides a simple, structured overview, helping management link internal resources (S&W) to external market conditions (O&T).

B. PEST Analysis

PEST analyzes the major external, macro-environmental factors that influence strategy.

• P: Political – Government policies, political stability, trade restrictions. E.g., a new government promising tax cuts.
• E: Economic – Interest rates, inflation, unemployment, exchange rates, economic growth. E.g., a recession decreasing consumer spending.
• S: Social – Lifestyle trends, demographic changes, cultural factors. E.g., growing demand for vegan products.
• T: Technological – New inventions, innovation rates, automation, AI. E.g., the rise of e-commerce platforms.

Memory Aid: PEST helps you understand the world Pushing Every Strategy To its limits!

C. Porter's Five Forces

This tool, developed by Michael Porter, helps a business understand the competitive intensity and therefore the attractiveness (profit potential) of an industry.

1. Threat of New Entrants: How easy is it for new companies to start competing? (High barriers to entry = less threat).
2. Bargaining Power of Suppliers: Can suppliers dictate terms (price, quality)? (If there are few suppliers, their power is high).
3. Bargaining Power of Buyers: Can customers demand lower prices or better quality? (If there are many substitutes, buyer power is high).
4. Threat of Substitute Products or Services: Can customers switch to different products that fulfill the same need? (E.g., switching from taxis to bicycles or buses).
5. Rivalry Among Existing Competitors: How fierce is the current competition? (Many competitors, slow market growth, or undifferentiated products increase rivalry).

Key Takeaway: If all five forces are strong, the industry is highly competitive and has low profit potential. Strategy must aim to reduce the influence of these forces.

D. Core Competence Framework

A Core Competence is a unique ability or asset that a business possesses which gives it a competitive advantage. It’s what you do so well that it differentiates you from everyone else.

• These are skills, technologies, and resources that provide access to many markets and are difficult for competitors to imitate.
• Example: Sony’s core competence used to be miniaturization technology. Amazon's core competence is highly efficient logistics and customer data management.

3. Tools for Strategic Choice

A. Ansoff Matrix (Product/Market Strategies)

The Ansoff Matrix is a tool for deciding on growth strategies based on whether the business uses existing or new products, and existing or new markets. Risk increases as you move down and right!

The four quadrants are:

1. Market Penetration: Selling existing products in existing markets. (Lowest risk. E.g., running sales promotions to encourage repeat purchases.)
2. Product Development: Selling new products in existing markets. (Medium risk. E.g., a car company releasing a new model to existing customers.)
3. Market Development: Selling existing products in new markets. (Medium risk. E.g., exporting domestically sold goods to a foreign country.)
4. Diversification: Selling new products in new markets. (Highest risk. E.g., a clothes retailer deciding to open a chain of restaurants.)

Did you know? Diversification is often referred to as "the riskiest quadrant" because the business is moving into unknown territory on two fronts simultaneously.

B. Blue Ocean Strategy

Most businesses compete in 'Red Oceans'—markets that are saturated with fierce competition, making the water bloody (symbolizing intense rivalry and low margins).

Blue Ocean Strategy means creating new, uncontested market space where competition is irrelevant. The goal is to make the competition irrelevant by creating unique value.
Example: Cirque du Soleil stopped competing with traditional circuses (Red Ocean) and created a new form of entertainment that combined theatre and circus (Blue Ocean), attracting an entirely new, adult audience.

C. Decision Trees

A quantitative tool used to analyze potential strategic decisions by calculating the financial outcome of each possible choice, considering the probability (likelihood) of different outcomes.

• They use expected values (EV) to help managers choose the path with the highest potential return.
• Formula Hint (Don't worry, you focus on interpretation!): \( EV = \sum (\text{Outcome Value} \times \text{Probability}) \)

Limitation: Decision trees are based on estimates of probability and financial returns, which may not be accurate in reality. They also ignore important qualitative factors (like staff morale).

4. Tools for Strategic Implementation and Change

A. Scenario Planning

Since the business environment is dynamic and always changing, strategic plans must be flexible.
Scenario Planning involves creating several alternative futures (scenarios)—e.g., rapid technological change, severe global recession, stable market conditions—and developing strategies for each one.

Importance: It helps managers prepare for uncertainty, test the resilience of their core strategy, and react faster when a predicted scenario begins to unfold.

B. Force Field Analysis (FFA)

Developed by Kurt Lewin, FFA is a tool for managing change. It identifies and weighs the factors that push for change (Driving Forces) against the factors that resist change (Restraining Forces).

• Driving Forces: Need to increase profit, new technology, market pressure. (Pushes the business toward the new strategy).
• Restraining Forces: Staff resistance, high cost of change, lack of skills. (Holds the business back).

The strategy should focus on strengthening the driving forces and weakening or removing the restraining forces to ensure successful change.

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6.2.2 Corporate Planning and Implementation

1. Corporate Planning

Corporate Planning is the detailed, long-term plan (often 3-5 years) that coordinates the overall strategy across all functional departments (HR, Marketing, Finance, Operations).

• It involves setting specific targets (like budgets) based on the overall objectives.
• Importance: It ensures that marketing activities support the operations goals, and finance allocates funds to match strategic priorities, creating a consistent and unified direction for the entire business.

2. Corporate Culture

Corporate Culture refers to the shared values, attitudes, beliefs, and ways of working within an organization. It's often described as "the way we do things around here."

• Impact on Decision-Making: A culture that values risk-taking and innovation (like SpaceX) will implement strategies very differently from a cautious, traditional culture (like an old banking institution).
• If the new strategy conflicts with the existing culture (e.g., management wants rapid growth but staff fear change), implementation will likely fail.

3. Transformational Leadership

Implementing major strategy often requires strong leadership, especially Transformational Leadership.

• These leaders inspire and motivate employees to achieve extraordinary outcomes and help them adopt the vision of the new strategy. They focus on innovation, creativity, and shifting the organizational culture.
• They are crucial for managing Strategic Change, as they help overcome staff resistance by communicating the vision clearly and ethically.

4. Management and Control of Strategic Change

Change is inevitable, but it must be managed carefully. Strategic Change involves significant, long-term modifications to the structure, processes, or overall direction of the business.

Successful management of strategic change involves:

• Communication: Explaining *why* the change is necessary and *how* it will benefit employees.
• Participation: Involving employees in the planning process to reduce fear and resistance.
• Training: Ensuring staff have the new skills needed for the updated strategy.
• Monitoring: Controlling the change process through targets and feedback to ensure it stays on track.

Common Mistake to Avoid: Confusing strategic change (major, long-term shift) with operational change (day-to-day tweaks).

5. Contingency Planning and Crisis Management

Even the best strategies can be derailed by unexpected events (a crisis). This is why firms must plan for the worst.

• Contingency Planning: Developing alternative plans or procedures in advance to cope with foreseeable, disruptive events. It’s the "Plan B" for things like a key supplier going bankrupt, or a major IT system failure.
• Crisis Management: The response of the business when a serious, unexpected event (a crisis) actually occurs. This focuses on immediate damage control, maintaining public relations, and ensuring the business survives.

Importance: Effective contingency planning significantly reduces the impact of a crisis, allowing the business to resume normal operations faster and minimizing financial losses and reputational damage.