Business strategies

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  • 1. BUSINESS STRATEGIES Ideas for Today and Tomorrow
  • 2. Business environments, elements and challenges MICRO MARKET MACRO • Vision, mission, strategy and goals •Factors of production •Business functions •Management structure •Working environment •Consumers •Competitors •Suppliers •Civil society •Intermediaries •Political •Economic •Social •Technological •Legal •Environmental • Difficult employees •Lack of mission or vision •Lack of adequate managements kills •Unions •Labour action •Competition •Demographics •Shortage of supply •Change in consumer tastes and habits •Psychographics •Changes in income levels •Globalisation •Political changes •Recent legislation •Labour restrictions •Socio-economic issues •Inflation and interst rates
  • 3. STRATEGIES  Plan of action to address an opportunity or to solve a problem.  Top management: Strategic decisions – Corporate strategies  Recap: Middle management – Tactical decisions Lower management – Operational decisions Activity 1: p90
  • 4. Strategic Management Process Strategic control and evaluation Implement the strategy Develop strategies in response to challenges Analyse the external and internal environments for challenges Develop strategic goals Establish a strategic direction Formulationofstrategies Implementation Evaluation
  • 5. Establish a Strategic Direction  Vision statement and a mission statement
  • 6. Develop Strategic Goals  Action plans must be SMARTER!  Specific, measurable, attainable, realistic, time- bound, ethical and recordable
  • 7. Analyse the Internal and External Environments for Challenges  Internal – Strengths and Weaknesses  External – Opportunities and Threats  SWOT analysis, PESTLE analysis, Porter’s Five Forces Activity 4 p 95 Activity 5 p 96
  • 8. PESTLE Analysis  By making effective use of the PESTLE analysis, the business can ensure that its strategies are positively aligned with the forces of change that are affecting the world  By taking advantage of change the business is much more likely to be successful than if its activities oppose change  Doing a PESTLE analysis will help the business to avoid taking actions that are doomed to fail for reasons beyond control  Will help members of management break free of unconscious assumptions, and will help them to quickly adapt to realities of the new environment EXAMPLE p 98
  • 9. Porter’s Five Forces Rivalry among competitors Threat of new entrants Bargaining power of buyers Threat of substitute products/services Bargaining power of suppliers
  • 10. Power of Suppliers  Every business needs reliable suppliers to be able to compete in the market.  How easy is it for suppliers to push up prices?  Number of suppliers  Uniqueness of their product or service  Whether they are reliable and do prompt deliveries  Strength and control over the business  Cost of switching from one supplier to the next  The fewer supplier choices the business has, the more it needs its suppliers’ help, the more powerful the suppliers
  • 11. Power of Buyers  How easy is it for buyers to drive prices down?  Number of buyers  Importance of each individual buyer to the business  Cost of them switching to someone else’s products  Businesses need to know their buyers through proper market research.  Businesses need to consider the powers of consumer organisations  Important to look after current customers
  • 12. Power of Competitors  Rivals are businesses selling the same or similar products as the business, they compete for the same target market.  How many competitors are there and how strong are they?  Competing business has a unique product or service  Some competitors have the necessary resources to start price wars and sell products at a loss until all competition leave the market  Many competitors with similar products, business has very little power  Customer behaviour is very unpredictable and customers can very easily change to a competitor
  • 13. Threat of Substitutes  Substitutes are different products/services that, at least partly, satisfy the same needs of consumers and can therefore be used to replace the other.  The threat lies in competitors who improve products and offer lower quality goods at lower prices  If substitution is easy add viable  Substitutes can cause a business to lose its market share completely
  • 14. Threat of New Entrants  How easy is it for competitors to enter the market?  If it takes little time/money to enter the market and there is a great opportunity for profits  There are only a few suppliers and many buyers  The unit costs to make a few products does not differ much from making many  Business has little control over key technologies, the design or the patent  There is little competition
  • 15. Difficulty entering an industry:  Economies of scale  Access to distribution channels  Government policy  Product differentiation  Capital requirements Activity 7 p 103 Activity 8 p 104
  • 16. Develop Strategies in response to Challenges  Problem solving is the process of analysing a situation in a systematic, step-by-step way and then developing solutions, implementing the solutions and evaluating the results.  Creative thinking is needed to solve problems:  Lateral thinking  Looking at things differently  Finding new solutions to old problems  Being original and open minded
  • 17. Summary of problem solving and creative thinking:  Chair Technique  Empty chair technique  Delphi technique  Nominal group technique  Brainstorming  Forced combinations  Six thinking hats  SCAMPER
  • 18. Implementation of Strategies TYPES OF STRATEGIES Integration Horizontal Vertical Backwards Forward Intensive Market penetration Market development Product Development Diversification Concentric Horizontal Conglomorate Defensive Retrenchment Divestiture Liquidation Other
  • 19. INTEGRATION  Used when business sees an opportunity to solve a problem by shortening the distribution channel of the product  Take the form of an alliance, a merger, or a take- over
  • 20. Horizontal Integration  Take over of businesses in the same field
  • 21. Acquiring company Acquired company Porsche Volkswagen Daimler Benz Chrysler Kraft Foods Cadbury Delta Northwest Airlines United Airlines Continental Microsoft Yahoo! Apple AuthenTec
  • 22. Vertical Integration  Business taking control over its suppliers or distributors  Forward integration – gains control of distributors  Backward integration - combines a business with its suppliers
  • 23. Intensive Strategies  Aimed at increasing sales and therefore the market share by making use of existing products and resources
  • 24. Market Penetration  Focus on selling more of its existing products to existing markets in order to grow the business  Decrease prices, challenging selling techniques, appointing more sales personnel, changing or improving promotion strategies.
  • 25. Market Development  Selling existing products in new markets.  Finding new target markets in other towns/cities, new distribution channels, improving packaging material, targeting a different market segment
  • 26. Product Development  A growth strategy where the business aims to introduce new products or services into existing markets.  Research into development of new products and services can be expensive and time consuming
  • 27. Diversification strategies  Involves the development of new products and selling them in new markets. HIGH RISK
  • 28. Concentric Diversification  Business adds new products or services which are related to existing products and will appeal to new customers
  • 29. Horizontal Diversification  Business adds a new product or service, unrelated to existing products, but which may appeal to existing customers Woolworths Edgars etc
  • 30. Conglomerate Diversification  Business adds new products or services that are unrelated to existing products, but which may appeal to new groups of customers
  • 31. Defensive Strategies  Used when business is under pressure that it may have to close down and does not have many survival options to consider.  Management approach to reduce risk
  • 32. Retrenchment  Aims to decrease costs by decreasing the number of employees, number of products or closing of certain departments.  Leads to loss of skilled workers and a decrease in market share.
  • 33. Divestiture  A business sells parts of the business that are not profitable, or it sells off assets that are not productive.
  • 34. Liquidation  Management decides to close down the entire business because it is not profitable.  It involves selling the assets of the business as to raise cash to pay the creditors, retrench employees and close off the business.
  • 35. Other Strategies  Replace individuals  Revise business mission statement  Establish or revise objectives  Develop new policies  Issue more shares to raise capital  Acquire additional sales staff  Allocate resources differently  Develop new performance incentives
  • 36. Requirements for Successful Strategy Implementation  Strategies must be managed according to results  Strategy implementation must focus on all the people involved in executing the strategy  Strategies need to be resourced properly, not just with money
  • 37. Evaluation of Strategies  Assess the strategy by looking forward and backward into the implementation process  Consider the impact of strategic implementation on internal and external environments of the business  Systematic and continuous  Purpose is to see if the implemented strategy has solved the challenge or created an opportunity
  • 38. Steps to follow during evaluation: Decide on results the business want to achieve and measure the final situation against these Compare expected performance with actual performance to determine deviations Determine the reasons for deviations and analyse these reasons Decide on affirmative action to prevent these deviations in future Take corrective action