6.2 Business strategy

Developing business strategy

6.2.1.1 Business strategy

Strategic decisions are normally made by senior managers. They are usually long term, commit significant resources, carry substantial risk and can be difficult to reverse. A strategy gives direction to the whole organisation: it identifies priorities, helps departments co-ordinate their actions and provides a basis for allocating resources.

6.2.1.2 Strategic management

Strategic management should create competitive advantage: a position that allows the business to perform better than rivals. The advantage might come from lower costs, stronger differentiation, superior technology, better relationships or a distinctive capability that competitors cannot easily copy.

6.2.1.3 Approaches to developing business strategy

Blue ocean planning

Blue ocean thinking asks managers to redefine the market rather than simply compete more aggressively inside it. The potential reward is rapid growth with limited direct rivalry; the risk is that the new demand may not appear, or competitors may copy the idea.

Scenario planning

Scenario planning asks managers to build several plausible pictures of the future rather than assume that past trends will continue. For example, an energy business might plan separately for low energy prices, strict environmental regulation, political instability or a rapid shift toward renewable energy. Managers then examine how each scenario would affect the organisation and what responses would be sensible.

PEST and PESTEL analysis

A PEST analysis should be specific to the business and market. A factor that is critical to an airline may be relatively unimportant to a local professional service. Multinational businesses may need separate analyses for different countries.

SWOT analysis

The purpose is not to create a long list. Managers should prioritise the most important issues and convert the analysis into strategic objectives. A business might use a strength to exploit an opportunity, reduce a weakness, or protect itself from a serious threat. Because both the business and its environment change, SWOT should be reviewed regularly.

Vision, mission and objectives

A strategy should fit the organisation's overall vision or mission. These statements define the broad scope and purpose of the business: the markets it intends to serve, the kind of organisation it wants to be and, often, the stakeholder priorities it values. Objectives then translate this overall direction into measurable targets.

Boston Matrix as a strategic tool

The Boston Matrix can support strategic analysis by showing the balance of products or business units according to market growth and relative market share.

The matrix is a starting point, not an automatic instruction. Market growth and share do not capture profitability, synergies, brand value or future disruption.

Porter's Five Forces

Industries tend to be more profitable when rivalry is limited, barriers to entry are high, buyer and supplier power are low, and customers have few substitutes. Businesses may try to make the forces more favourable by differentiating products, strengthening brands, acquiring competitors, collaborating in purchasing or developing unique capabilities.

Core competencies framework

Prahalad and Hamel argued that a true core competence should meet three tests:

1. Access to many markets: the capability can support more than one product or market.
2. Significant customer benefit: it contributes to a reason customers choose the business.
3. Difficult to imitate: competitors cannot easily reproduce it because it depends on distinctive technology, systems, culture, knowledge or location.

Activities that are not core strengths may be candidates for outsourcing, while investment should concentrate on capabilities that can produce sustainable advantage.

The Ansoff Matrix

Force Field Analysis

Lewin's Force Field Analysis considers the forces pushing for change and those restraining it. The existing situation remains in place while these forces are broadly balanced.

Managers can promote strategic change either by strengthening the driving forces or, often more sustainably, by reducing the restraining forces through communication, training, reassurance, involvement and resources.

Decision trees and expected monetary value

Implementing a strategy

• Communication: employees must understand what is changing, why, when and what is expected of them.
• Leadership: managers need to create commitment and provide direction.
• Management and control: progress must be measured against clear targets and corrective action taken when performance is off track.
• Resources: finance, people, skills, technology and time must be sufficient.
• Review: even a well-implemented strategy should be reconsidered if conditions change.

Corporate planning and implementation

6.2.2.1 Corporate planning

The corporate plan links the organisation's objectives to detailed actions. Individual departments then prepare plans that support the overall direction. A clear corporate plan helps employees understand priorities, allows resources to be allocated deliberately and gives managers benchmarks for measuring progress.

6.2.2.2 Corporate culture

Culture can shape risk-taking, customer focus, time horizons, treatment of stakeholders, innovation and the willingness to change. A large organisation may contain several subcultures, but there are often dominant expectations that guide behaviour.

Handy's four culture types

Culture can support strategy when employee behaviour matches strategic needs — for example, innovation in a technology company or precision in an accounting firm. It can also block strategy if employees resist risk, ignore customers or automatically agree with senior leaders rather than challenge poor decisions.

6.2.2.3 Transformational leadership

Transformational leadership seeks more than compliance. Employees are encouraged to understand and own the change, contribute ideas and develop leadership themselves.

The approach can be particularly useful during strategic change because it encourages participation and ownership. Its effectiveness still depends on the credibility of the leader, organisational culture, resources and the urgency of the situation.

6.2.2.4 Leading and managing strategic change

Resistance can appear as low effort, refusal to use new systems, demands for higher pay, industrial action or attempts to delay implementation. Readiness for change tends to be higher when employees are dissatisfied with the current situation and believe the personal risks of change are low.

Why people resist change

• Self-interest: employees may fear loss of status, pay, security or convenience.
• Misunderstanding and lack of trust: people may not understand why change is necessary or may doubt management's motives.
• Preference for the status quo: familiar systems feel safer.
• Belief that the new idea will fail: employees may see weaknesses that managers have overlooked.

Techniques for implementing change successfully

Why strategic change can fail

Kotter's work highlighted recurring management errors: excessive complacency, failing to build a strong coalition, lacking a clear vision, leaving barriers in place, failing to create short-term wins, declaring victory too early and failing to anchor the new approach in the organisation's culture.

6.2.2.5 Contingency planning and crisis management

Possible contingencies include fire, cyber-attack, the loss of a major customer or supplier, natural disaster, epidemic, product-safety problem or other events with potentially severe consequences. A business cannot prepare for everything, so managers should focus on risks that combine a meaningful probability with serious potential damage.

Examples of contingency actions

• Use more than one supplier for critical inputs.
• Maintain alternative IT facilities, backups or workspace.
• Cross-train employees so essential roles can still be covered.
• Keep alternative products or processes under development.
• Define who has authority to make rapid decisions during a crisis.

When a crisis occurs, managers need to establish facts quickly, maintain consistent internal and external communication, and ensure decision-makers have sufficient authority and resources. Acting too slowly may let the crisis worsen; acting before the facts are understood can create a second problem.