Business strategy

1. Unit 43 - Business Strategy
LO1 Analyse the impact and influence that the macro
environment has on an organisation and its business
strategies

2. Why Strategy?
• In ancient Greek, ‘stratos’ was the term for the army and
so in military terms, ‘strategy’ referred to ‘the act of the
general’.
• Strategy nowadays is ‘big stuff’ – the top levels of the
organisation are generally involved in preparing plans for
the future – for finance, and growth by acquisitions,
innovation in products, developing new markets and
increasing internal efficiency. The recent rise of Apple is
due to a combination of these factors.

3. Different Definitions:
• A strategy is:
• “The art of war*, especially the planning of movements of
troops and ships etc., into favourable positions; plan of
action or policy in business or politics etc.”
– Oxford Pocket Dictionary

4. Different definitions
• Porter relates strategy to the success or failure of a
company “obtaining a competitive position or series of
competitive positions that lead to superior and sustainable
financial performance”.
– Michael E Porter (1991)

5. The strategic context:
• Strategic management is the organised development of
the resources of the functional areas: financial,
manufacturing, marketing, technological, manpower etc.,
in the pursuit of its objectives. It is the use of all the
entity’s resources.

6. Hierarchy of Strategy process:

7. • A sequence of developing plans that move from general to specific and intent
to action would create several levels of planning, which could be illustrated in
the triangle above.
• ‘Vision’ and ‘mission’ are often used interchangeably: Vision is broader and
future looking.
• Conveys the unique purpose of a company
• Delimits the scope of activities that the company is, or will be, undertaking
• Every organisation will have a purpose for its continued existence. A mission
statement expresses their purpose and can therefore be a brief statement. It
also links with the idea of Vision – how managers interpret the Mission for
their colleagues.

8. Mission statement:
• Mission statements contain two main elements:
• -A declaration of the overall mission
• -An articulation of key organisational goals
Examples
ConocoPhillips (oil)
“Use our pioneering spirit to responsibly deliver energy to the world”
Harley-Davidson (motor-bikes)
“We fulfill dreams through the experience of motorcycling, by providing to motorcyclists and to
the general public an expanding line of motorcycles and branded products and services in
selected market segments.”
Avis (car hire) ‘we try harder’

9. Goals, Objectives and Strategies
• Goals: General statement of aim or purpose
• Objectives: Quantification if possible or more precise statements of the goal.”
Objectives do not only represent the end point of planning but are the ends
towards which management activities and resource usage is directed. They
therefore provide a sense of direction and a measure of success
achievement.
(Johnson and Scholes 2002)
• In a way, objectives are easier as they are nearer ‘now’ and can be seen at
the bottom levels – such as “reduce absenteeism by 5% by end-year”. These
are often ‘SMART’ – Specific, Measureable, Achievable, Relevant/Realistic
and Time-bound.

10. Strategies,Tactics and Actions
• Strategies – relate to broad areas of an enterprise’s operations. Their
purpose is to furnish a framework for more detailed tactical planning and
action.
• Tactics – are actions carried out to put into effect the details of a strategic
decision – tactics can therefore be seen as the detailed implementation of a
strategy. In addition, some tactical decisions will be made in response to
changing circumstances.
• Actions, programmes and rules – are the operational practices that will
translate the intention of the tactics into action by individuals and are
therefore detailed, short term and subject to immediate control.

12. Analytical frameworks of the macro environment:
• The different types of frameworks and analysis of the macro environment,
• including:
• ● stakeholder analysis and stakeholder matrix, stakeholder mapping
• ● environmental analysis using PESTLE and Porter’s Five Forces model
• ● structure-conduct-performance model
• ● strategic positioning, e.g. Ansoff’s growth vector matrix
• ● organisational audit and the use of SWOT analysis, benchmarking
indicators.

13. Stakeholder Analysis:
• Introduction – definition of Stakeholders
• Groups or individuals that have an interest in the well-being of the company and/or are
affected by the goals, operations or activities of the organisation or the behaviour of its
members. They have a ‘stake’ in what the organisation does.
• Explanation
• Stakeholders can be broadly categorised into:
• a.internal stakeholders – employees, management
• b.connected stakeholders – customers, suppliers, competitors
• c.external stakeholders – government, pressure groups

14. Stakeholder Mapping

15. • A stakeholder map is a snapshot of your stakeholder
landscape at a given point in time. It’s often depicted as a
graph with 2 axes divided into 4 quadrants:
• The x-axis represents a stakeholder’s level of power or
influence over your project.
• The y-axis indicates their level of interest in your project.

16. • When to use a power-interest grid
• In straightforward projects where you need to quickly
prioritize stakeholders based on their power and interest.
For example, an NGO working on biodiversity
preservation could use a power-interest stakeholder map
to identify and prioritize stakeholders such as government
agencies, influential environmental activists, major
donors, Scientifics, and local communities in order to
effectively engage and collaborate on conservation
initiatives.

17. When to use an influence-interest matrix
When you want to focus specifically on the direct influence stakeholders. A good
example can be found in event that took place not so long ago. A government
agency responsible for implementing a vaccination campaign, such as a
vaccination drive, might use an influence-power stakeholder map. In this
context, they would identify and assess stakeholders like healthcare
professionals, community leaders, pharmaceutical companies, and
policymakers. This mapping would help them evaluate the level of influence and
power each stakeholder exercises in promoting or hindering the vaccination
campaign’s success, allowing for targeted engagement and strategic decision-
making.

18. Useful for projects in dynamic environments, where stakeholders’ activity and responsiveness
can change rapidly and significantly affect outcomes. A merger situation for example. Think of
multinational corporation undergoing a major merger. They could benefit from using a power-
dynamism stakeholder matrix. In this scenario, the organization would identify and analyze
stakeholders such as shareholders, executive leadership, employee unions, regulatory bodies,
and market competitors. This type of mapping could help uncover the power dynamics and the
level of change with each stakeholder group. It would certainly enable the company to adapt its
strategies and communications effectively during times of significant organizational change and
uncertainty.

19. PESTLE Analysis:
• PESTLE Analysis: Examining the Political, Economic, Social, Technological, Legal, and
Environmental factors that can impact the organization's external environment
• Political Factors:
• These include government policies, stability, and political trends that can influence the
business environment. For example, changes in taxation policies, trade tariffs, or government
stability can impact businesses.
• Economic Factors:
• Economic factors encompass aspects related to the broader economic conditions, such as
inflation rates, interest rates, exchange rates, and overall economic growth. Businesses must
be aware of these factors as they affect consumer purchasing power and market demand.

20. PESTLE
• Social Factors:
• Social factors involve the societal and cultural influences that can impact
business operations. Demographics, cultural attitudes, lifestyle changes, and
social values all fall under this category. Businesses need to adapt to
changing social trends to remain relevant.
• Technological Factors:
• Technological factors include innovations, advancements, and the rate of
technological change. Businesses need to stay abreast of technological
developments to remain competitive, improve efficiency, and meet evolving
customer expectations.

21. PESTLE
• Legal Factors:
• Legal factors encompass laws, regulations, and legal frameworks relevant to
the industry or organization. Compliance with these regulations is crucial to
avoid legal issues and maintain a positive reputation.
• Environmental Factors:
• Environmental factors involve considerations related to sustainability, climate
change, ecological impact, and corporate responsibility. Organizations are
increasingly expected to adopt environmentally friendly practices, and failure
to do so can lead to reputational damage.

22. Porter's Five Forces Model
• Porter's Five Forces Model: Analyzing competitive forces in the industry, including the threat
of new entrants, bargaining power of buyers and suppliers, the threat of substitute products,
and the intensity of competitive rivalry
• Threat of New Entrants:
• This force assesses the ease with which new competitors can enter the industry. Factors
such as barriers to entry, economies of scale, brand loyalty, and government regulations play
a role. High barriers, such as high startup costs or strong brand loyalty, can deter new
entrants and make the industry less attractive.
• Bargaining Power of Buyers:
• This force evaluates the power that customers (buyers) have in the industry. Factors such as
the number of buyers, the uniqueness of the product, and the availability of substitutes
influence buyer power. If buyers have many choices and can easily switch to alternatives,
they have higher bargaining power.

23. Porters 5 force model:
• Bargaining Power of Suppliers:
• This force assesses the power that suppliers have over firms in the industry. Factors include
the number of suppliers, the uniqueness of their products or services, and the availability of
alternative suppliers. If there are few alternative suppliers and their products are unique, they
have higher bargaining power.
• Threat of Substitute Products or Services:
• This force examines the extent to which alternative products or services can replace those
offered in the industry. If there are many substitutes available and they are comparable or
offer better value, the threat of substitution is high. This can impact pricing and profitability in
the industry.
• Intensity of Competitive Rivalry:
• This force looks at the level of competition among existing firms in the industry. Factors such
as the number of competitors, industry growth, and differentiation of products contribute to
the intensity of competitive rivalry. In highly competitive industries, firms may compete
aggressively on price, innovation, or marketing.

24. Structure-Conduct-Performance Model:
• Structure: Examining the characteristics and composition
of the industry structure.
• Conduct: Assessing the behavior of firms within the
industry, including pricing strategies and competitive
practices.
• Performance: Evaluating the overall economic and
financial performance of firms in the industry.

25. Structure
• In the SCP Model, structure refers to the characteristics and composition of
the industry. This involves analyzing the number of firms in the industry, their
size, market share distribution, entry and exit barriers, degree of product
differentiation, and the level of concentration (whether the industry is
dominated by a few large firms or has many small players).
• A highly concentrated industry, for example, may have a small number of
dominant firms with significant market power. On the other hand, a
fragmented industry might have many small firms with relatively equal market
shares.
• The structure of the industry sets the stage for how firms within it will behave
and compete.

26. Conduct:
• Conduct in the SCP Model involves assessing the behavior of
firms within the industry. This includes examining how firms
compete, the pricing strategies they employ, their approaches to
product differentiation, advertising, research and development,
and other competitive practices.
• Conduct is influenced by factors such as the level of competition,
the degree of market concentration, the ease of entry or exit, and
the availability of substitute products. Firms may engage in
aggressive or cooperative behaviors based on these factors.

27. Performance:
• Performance:
• Performance, in the SCP Model, refers to the overall economic and financial outcomes of
firms in the industry. This involves evaluating metrics such as profitability, efficiency,
innovation, and market share.
• The performance of firms is influenced by both industry structure and conduct. For instance,
a highly competitive industry with low entry barriers may result in lower profit margins, while
a concentrated industry with collusive behavior might lead to higher profits for dominant
firms.
• The goal of evaluating performance is to understand how well firms are faring in the industry
and to identify patterns or trends that may be indicative of the overall health and
competitiveness of the market.

28. Strategic Positioning:
• Ansoff Matrix
• The Ansoff Matrix, developed by Igor Ansoff, is a strategic
planning tool that provides a framework for businesses to
identify and evaluate potential growth strategies. The
matrix considers two key dimensions: products and
markets. It helps organizations understand their current
position and guides them in selecting appropriate
strategies for growth. The matrix consists of four growth
strategies:

29. Ansoff Matrix:

30. • Market Penetration:
• Objective: Increase market share in existing markets with existing products.
• Strategy: This involves selling more of the current products or services to the
existing customer base or attracting new customers within the current
market. It often requires marketing and operational efficiencies.
• Market Development:
• Objective: Introduce existing products into new markets.
• Strategy: This entails expanding into new geographic areas, reaching new
customer segments, or targeting new distribution channels. It involves
adapting products or services to meet the needs of different market
segments.

31. Ansoff Matrix
• Product Development:
• Objective: Introduce new products or services into existing markets.
• Strategy: Organizations pursue this strategy by creating and offering new products or services to their
existing customer base. This can involve innovation, research and development, and a deep
understanding of customer needs.
• Diversification:
• Objective: Introduce new products into new markets.
• Strategy: This is the most risky strategy, as it involves both new products and new markets. It can be
related diversification (entering a new industry related to the existing business) or unrelated
diversification (entering a completely different industry).
• The matrix is presented as a 2x2 grid, with one axis representing products and the other representing
markets. Each quadrant corresponds to one of the four growth strategies mentioned above.
• The Ansoff Matrix serves as a practical tool for strategic decision-making by helping organizations
systematically explore growth opportunities and make informed choices based on their risk tolerance,
resources, and market conditions. It encourages businesses to think strategically about how to expand
and evolve over time.

32. Organisational Audit
• An organizational audit is a systematic examination of an organization's structure, processes, performance, and capabilities.The
purpose is to evaluate the current state of the organization, identify areas for improvement, and align resources with strategic
objectives. Key components of an organizational audit may include:
• Leadership and Governance: Assessing the effectiveness of leadership, governance structures, and decision-making processes
within the organization.
• Organizational Structure: Evaluating the design and efficiency of the organizational structure to ensure it supports the overall strategy
and objectives.
• Human Resources: Analyzing the capabilities, skills, and motivation of the workforce, as well as the effectiveness of HR practices.
• Operational Processes: Examining the efficiency and effectiveness of key operational processes and workflows.
• Financial Performance: Reviewing the financial health of the organization, including profitability, liquidity, and financial sustainability.
• Technological Infrastructure: Assessing the organization's use of technology and information systems to support its operations and
strategic objectives.
• Cultural and Ethical Considerations: Evaluating the organizational culture and adherence to ethical standards.

33. SWOT Analysis
• SWOT analysis is a strategic planning tool that involves identifying an organization's internal strengths and
weaknesses, as well as external opportunities and threats. The analysis helps organizations understand their
current position and make informed decisions about strategy. Key aspects of SWOT analysis include:
• Strengths (Internal): Identifying internal factors that give the organization a competitive advantage. This could
include strong brand reputation, skilled workforce, or proprietary technology.
• Weaknesses (Internal): Recognizing internal factors that may hinder the organization's performance. This could
include inadequate resources, outdated technology, or a lack of certain capabilities.
• Opportunities (External): Identifying external factors or trends that the organization could exploit for its benefit. This
could include emerging markets, technological advancements, or changes in consumer behavior.
• Threats (External): Recognizing external factors that may pose challenges or risks to the organization. This could
include economic downturns, regulatory changes, or increased competition.
• SWOT analysis helps organizations develop strategies that leverage their strengths, address weaknesses,
capitalize on opportunities, and mitigate threats.

34. Benchmarking Indicators:
• Benchmarking involves comparing an organization's performance against industry standards or best practices. Benchmarking
indicators help organizations measure their performance and identify areas for improvement. Some key benchmarking indicators
include:
• Financial Ratios: Comparing financial metrics such as profitability ratios, liquidity ratios, and efficiency ratios to industry averages.
• Operational Metrics: Assessing operational efficiency through metrics like production output, cycle times, and error rates.
• Customer Satisfaction: Comparing customer satisfaction scores or Net Promoter Scores (NPS) with industry benchmarks.
• Employee Productivity: Measuring employee performance and productivity against industry standards.
• Innovation Metrics: Evaluating the organization's innovation capabilities by comparing research and development investments or new
product launches with industry norms.
• Supply Chain Performance: Assessing supply chain efficiency and effectiveness by comparing metrics like lead times, inventory
turnover, and supplier performance.
• By benchmarking against industry standards, organizations can identify best practices, set performance targets, and continuously
improve their processes and outcomes.
• Combining organizational audits, SWOT analysis, and benchmarking provides a comprehensive approach to strategic planning and
performance improvement, helping organizations align their resources with strategic goals and stay competitive in their respective
industries.