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BUSINESS
STRATEGY
[Discover New Opportunities.
Manage and Eliminate
Threats.]
The aim of this paper is to provide a summary of those models
from Management literature most often used in student
assignments, management activities & business consultancy.
Table of Contents
INTRODUCTION TO BUSINESS STRATEGY....................................................................1
The aim of this paper is to provide a summary of those models from Management
literature most often used in student assignments, management activities &
business consultancy. ................................................................................................1
MAIN REFERENCES.....................................................................................................3
INTRODUCTION TO STRATEGY....................................................................................6
PESTLIED.................................................................................... ..............................14
PORTER’S DIAMOND.................................................................................................20
STRATEGIC TRIANGLE...............................................................................................33
(Also called the BCG Matrix, the Growth-Share Matrix and Portfolio Analysis)......37
GENERIC STRATEGIES...............................................................................................42
MAIN REFERENCES
• THE MIND OF THE STRATEGIST (1982) K.OHMAE
• COMPETITIVE STRATEGY: TECHNIQUE FOR ANALYZING THE INDUSTRIES &
COMPETITIORS BY MICHAEL PORTER
• SIMON & SCHUSTER FROM DIVERSIFICATION THROUGH ACQUISTION (1979)
• COMPETITVE ADVANTAGE: CREATING & SUSTAINING SUPERIOR
PERFORMANCE BY PORTER (1985)
• THE COMPETITIVE ADVANTAGE OF NATIONS BY MICHEAL PORTER (1990)
• INTERNATIONAL BUSINESS & MULTINATIONAL ENTERPRISE, ROBOCK &
SIMMONDS, RICHARD D.IRWIN INC. 1989.
• PROVEN BUSINESS MODEL BY GROWER.
FEW WORDS ON MODEL
The term “model” is often used to describe a pictorial summary of principal
Challenges within a particular domain.
The models in this paper are presented in a way that most effectively
summarizes the interaction of main elements & usually follow the form
produced by the original author. Each model is accompanied by explanatory
text which is in following sections:
Selection of models
I have not included all the possible models. Criteria of selecting models are:
• Those models which most often help, & are expected to used, in
written student assignments, projects, case studies or dissertation
• Those models which are most useful to relation to the normal activities
of today’s organization
Strategic decisions
What are strategic decisions?
Johnson & Scholes (2002) suggest that strategic decisions are all about some
of the following:
• Long-term direction of an organization- strategic decision is likely
to be concerned with the long-term survival of an organization.
• Securing advantage – strategic decisions also concern effective
positioning in relation to competitors to achieve advantage in the
market.
• Scope of an organization’s activities – strategies decisions are
likely to be concerned with the scope of an organization’s activities.
• Using the links between the organization & the environment –
strategy can be seen as matching the activities of an organization to
the environment in which it operates.
• Major resource change- strategies may require major resource
changes for an organization.
• Values & expectations – the strategy of an organization is affected
not only by environmental forces & resource availability, but also by
the values & expectations of those who have power in & around the
organization.
• Strategic decision affects operational decisions.
Strategic thinking
In thinking about strategy, three themes can be picked out:
• The long-term plan – thinking strategically mean’s raising one’s eyes
from day-to-day problems to consider how the relationship between
the organization & its environment is shaping up for the long term.
• Big Challenges – strategic thinking means converting an awareness
of trends into an overall picture of the environment & how the
organization should relate to it.
• Interdependency – understanding the way that each of the big
Challenges links to the others enables the strategist to see the map as
it changes.
Position Ploy
Perspective Plan
Principle
Assumption
Elements
Plan
Ploy
Pattern
Position
Perspective
Understanding
The five Ps are simply labels to help develop appropriate strategic thinking.
They should not define or restrict our thinking but should act as an aid to
unravel the complexity implicit in strategy.
Compatibility
Flexibility
Plans, Position & ploys may be easily changed whereas Perspectives &
Patterns are longer term & more fundamental.
Programme
Applications
The term ‘strategy’ is sometimes ill-used. Use of the five definitions helps to
prevent confusion & aids strategy formulation.
Assessment of strategy
The model can help to define both the formal & informal Challenges
impacting on strategy & its development.
INTRODUCTION TO BUSINESS STARTEGY
Any business has to deal with three things ENVIRONMENT which it operates,
INDUSTRY which it competes & PRODUCT which it produces.
Business level strategy is the firm specific strategy that facilitates in gaining
competitive advantage in the market. The business level strategy of the
organization outlines the methodologies of the organization regarding
competing with rival firms in the market.
• PESTILED
• Porter’s Diamond.
INTRODUCTION TO ENVIRONMENT ANALYSIS
In the very broadest sense ‘the environment means that which is external to
& within which some entity exists’.
The external environment we are concerned with comprises the whole set of
relevant strategic conditions surrounding the firm. This can be termed as the
strategic environment.
BUSINESS UNIT
COMPETITIVE THE
INDUSTRY ENVIRONMENT
ENVIRONMENT FIRM
ENVIRONMENT
PESTLIED
ECONOMICAL
TECHNICAL
POLITICAL SOCIAL
LEGAL ORGANISA
DEMOGRAPHIC
INTERNATIONAL
ENVIRONMENTAL
Principle
Assumption
Elements
Political
Political factors include government regulations and legal issues and define
both formal and informal rules under which the firm must operate.
Economic:
Social:
Technological:
Legal matters
Legislation may affect the organization & can inhibit or enhance its
performance.
Environmental
These factors are environmental constraints on factory operation such as
‘green Challenges’
Demographic
Challenges
Other factors
Besides PESTLIED factors, there are other factors or environments that affect
the organization.-for example, the competitive environment.
Applications
Planning
The model may be used as a checklist in the planning process to ensure that
the forecast effects of PESTLIED factors are taken into account.
Management development
The use of the list of PESTLIED factors encourages managers to become less
insular & to consider the impact of external influences upon their
organizations.
GEO BUSINESS MODEL
CONDTIONING
MOTIVATIONAL VARIABLES
VARIABLES
CONTROL VARIABLES
Principle
Assumptions
There are three main interacting forces that affect firm’s international
business action.
Elements
Conditioning variables
Motivational variables
Control variables
These comprise administrative actions-i.e. laws & policies of home & host
governments that directly or indirectly influence international business
through positive incentives & or negative controls.
Challenges
International relevance
The model applies to the international business action of all firms, not just
those classified as multinationals.
Interdependence
The variables are interlinked- for example, wage controlled, low labour costs
in a particular country may be classified as a country-specific variable
(conditioning) & a production-efficiency seeking measures (motivation).
Wage control would also be a control variable.
Effect on organizations
Influence of variables
Applications
Growth strategies
Another application lies in the assessment of the potential for growth given a
change in international conditions.
Evaluation
The model can help in the evaluation of international competitors & markets.
Decision-making
Assessment
The model may be used to assess the relative importance & interaction of
the different variables to the organization.
PORTER’S DIAMOND
Porter introduced this model in his book: the Competitive
Advantage of Nations, after having done research in ten leading
trading nations. The book was the first theory of competitiveness based
on the causes of the productivity with which companies compete
instead of traditional comparative advantages such as natural
resources and pools of labor. This book is considered required reading
for government economic strategists and is also highly recommended
for corporate strategist taking an interest in the macro-economic
environment of corporations.
FIRM STRATEGY,
STRUCTURING &
RIVALRY
DEMAND
FACTOR
CONDITIONS
CONDITIONS
Principle
A. Land
B. Location
D. Labor, and
Assumption
The individual points on the diamond and the diamond as a whole affect four
ingredients that lead to a national comparative advantage. These ingredients
are:
Elements
Factor conditions
Factor’s conditions are the state of the nation’s factors of production, such as
labour, land, capital, natural resources & infrastructure.
Demand conditions
• When the market for a particular product is larger locally than in
foreign markets, the local firms devote more attention to that product
than do foreign firms, leading to a competitive advantage when the
local firms begin exporting the product.
Firm’s strategy, structure & rivalry describes how organizations are created,
managed & compete within the industry.
Challenges
Competitive environment
Prosperity
Organizations prosper particularly with access to specialized assets & skills,
best information, effective management, Investment & innovation.
Even when the four attributes are strong some organizations fail because
they either do not take advantage of opportunities or they possess relatively
low levels of skills & resources.
Further attributes
Industry clusters
Applications
Audit
Strategy review
Strategic alliances
EXIT BARRIERS
LOW =LOW
PROFITS HIGH
PROFITS
=LOW
HIGH
PROFITS = HIGH PROFITS =
HIGH
SOURCE: COMPETITIVE STRATEGY: TECHNIQUE FOR ANALYZING THE
INDUSTRIES & COMPETITIORS BY MICHAEL PORTER
Principle
The model shows how organizations’ returns vary with the strength of market
exit & entry barriers.
Assumption
Elements
Exit barriers
Entry barriers
• Economies of scale
• Product differentiation
• Capital requirement
• Supplier switching costs
• Access to distribution channels
• Cost disadvantages independent of scale
• Government policy
Challenges
Best position
High entry barriers with low exit barriers can be the best position for the
established organization. In this way high, stable returns can be achieved &
unsuccessful firms may readily exit market.
Worst position
The worst position for organization can be in a market exhibiting low entry
barriers & high exit barriers. New entrants are attracted into the market by
upturns in the economy but cannot leave when conditions deteriorate. This
leads to poor profits caused by surplus capacity.
Applications
Lateral thinking
Predicting behavior
The model may be used to predict competitor behavior with regard to a new
or existing market, giving entry & exit barriers.
Selecting markets
The model may be used to help the organization select markets that will give
better returns with the desired order of risk.
Choice of markets
The audit & improved control of entry & exit barrier features impinging upon
the organization gives it a wider choice of markets.
THREAT
OF NEW
ENTRA
NT
INDUSTRY
COMPETITIOR
S
BUYER POWER
SUPPLIER POWER
RIVALRY
AMONG
THREAT
OF
SUBSITU
TION
Principle
Porter's 5 forces analysis is a framework for the industry analysis and business
strategy development developed by Michael E. Porter of Harvard Business School in
1979. It uses concepts developed in Industrial Organization (IO) economics1 to
derive 5 forces that determine the competitive intensity and therefore
attractiveness of a market. Attractiveness in this context refers to the overall
industry profitability
It is possible to classify forces acting against a firm into five main categories.
Assumption
The five forces can act continuously & adversely against the firm unless it depends
itself or influences them in its favor.
Elements
Potential entrants
These are new players which threaten the livelihood of firms already in the market.
Buyers
Substitutes
Suppliers
1
Industrial organization is a field of economics that studies the strategic behavior of firms,
the structure of markets and their interactions.
Suppliers provide raw materials & other resources.
Industry competitors
These are firms which compete in the same market & act as rivals to the
organization.
Challenges
The effect of the five forces upon organizations may vary depending on the
strengths of the firm, the nature of the sector & the product.
Potential entrants
Buyers
Buyers may try to force down prices whilst requiring better quality or service & may
play off competitors against one another. The influence of buyer’s groups is greater
if:
• Buyers decide to manufacture their own supplies & thereby replace the
supplier.
Substitutes
The number of perceived substitutes deters existing firms from increasing prices &
profits.
Suppliers
Competition
Competitive rivalry may increase where one or more of the competitors are under
threat.
Applications
Strategy development
Positioning
Ideally a firm would aim for a position in which it could counter potential
competitive forces. It might also attempt to influence those forces in order to
strengthen its position.
The model could be applied in anticipating & exploiting changes in the forces ahead
of competitors.
SWOT ANALYSIS
Principle
Assumption
Elements
Strengths
Weakness
Opportunities
Opportunities are the scope for taking advantage of external possibilities for
growth.
Threats
Threats are those external influences which can negatively impact on the
organization’s growth.
Challenges
Context
Strengths
An organization can take advantage of strengths for future growth & can use
them to better withstand adverse environmental forces.
Weakness
Threats
Analysis
Other techniques
Applications
Analysis
• Of processes
• Of organizational problems as they arise.
Strategy formulation
Self-assessment
TARGET SEGMENTS
CUSTOMER
S
UE L
V LU
VA A
E
COST COMPETITIOR
CORPORATIO S
N
PRODUCT/SERVICE
DIFFERENTIATION
Principle
There are three main interest groups in the development of any business
strategy. The 3C’s model points out that a strategist should focus on three
key factors for success. In the construction of a business strategy, three main
players must be taken into account:
A. The Corporation
B. The Customer
C. The Competitors
Elements
Customers
Clients are the base of any strategy according to Ohmae. Therefore, the
primary goal supposed to be the interest of the customer
Corporation
• Make or buy
• Cost-effectiveness
Competitors
Value
This is the benefit added to customers from the corporation & competitors in
terms of quality, service & price.
Cost
Challenges
Performance
Superior performance can be achieved by an organization differentiating
itself from its competitors using its relative corporate strengths to better
satisfy customers needs.
Choice of strategists
Strategists are best placed where they are able to deal with all of the
organization’s key customer segments, all key functions of the corporation &
all the key aspect of competitors.
Choice of strategists
Applications
The market is segmented & changes to product applications, customer mix &
other product attributes may be engineered using this model to satisfy
customer trends.
The model may be used to identify, select & sequence key functions in order
to optimize.
Differences between the company & its competitors are linked to one or
more of the elements which determine: price, volume or cost. Thus a
strategy for achieving a higher price through a differentiated product may
lead to better performance. A powerful image may be reflected in a price
premium.
Functional analysis
The business portfolio is the collection of businesses and products that make
up the company. The best business portfolio is one that fits the company's
strengths and helps exploit the most attractive opportunities.
(1) Analyze its current business portfolio and decide which businesses should
receive more or less investment, and
(2) Develop growth strategies for adding new products and businesses to the
portfolio, whilst at the same time deciding when products and businesses
should no longer be retained.
In each method, the first step is to identify the various Strategic Business
Units ("SBU's") in a company portfolio. An SBU is a unit of the company that
has a separate mission and objectives and that can be planned
independently from the other businesses. An SBU can be a company division,
a product line or even individual brands - it all depends on how the company
is organized.
The origin of the Boston Matrix lies with the Boston Consulting Group in
the early 1970s. It was devised as a clear and simple method for helping
corporations decide which parts of their business they should allocate
cash to. Since the 1970s, it’s become much easier to borrow money
cheaply (in many parts of the world) making this less of an issue.
MARKET SHARE
LOW HIGH
HIGH
QUESTION MARKS STARS
MARKET
GROWTH
LOW
DOGS CASH COWS
.
PRINCIPLE
The BCG matrix method is based on the product life cycle theory that can be used to
determine what priorities should be given in the product portfolio of a
business unit. To ensure long-term value creation, a company should have a portfolio
of products that contains both high-growth products in need of cash inputs and low-
growth products that generate a lot of cash. It has 2 dimensions: market share and
market growth. The basic idea behind it is that the bigger the market share a product
has or the faster the product's market grows the better it is for the company.
Elements
Market Share
Market share is the percentage of the total market that is being serviced by
your company, measured either in revenue terms or unit volume terms. The
higher your market share, the higher proportion of the market you control.
Market Growth
In these areas, your market presence is weak, so it's going to take a lot of
hard work to get noticed. Also, you won't enjoy the scale economies of the
larger players, so it's going to be difficult to make a profit.
Here, you're well-established, so it's easy to get attention and exploit new
opportunities. However it's only worth expending a certain amount of effort,
because the market isn't growing and your opportunities are limited.
These are the opportunities no one knows what to do with. They aren't
generating much revenue right now because you don't have a large market
share. But, they are in high growth markets so the potential to make money
is there.
Challenges
Product position
A company can increase market share & exploit market growth rate in order
to move into a more attractive product position.
Investment
Experience
Competition
Applications
Strategy evaluation
• Resource allocation
• Encouraging growth
• Market share & growth rate opportunities may be exploited through
product portfolio planning to aim for stars (high profit), cash cows
(cash generation) & question marks (future cash cows/stars).
As an analysis tool
The model may be used to analyze resources & other organizational factors
in addition to products.
DIVERSIFICATI
ON
Principle
Assumption
Elements
This occurs when a company expands by entering product markets that call
for functional skills identical to those it already possesses.
Related-complementary diversification(R-CD)
This occurs when a company adds key functional activities & skills to those it
already has, but does not substantially change its final product market.
Challenges
Purpose of acquisition
The purpose of the acquisition should be evaluated & Cleary defined before
going ahead.
Related acquisitions
Compatibility
A good fit with respect to culture, management style & cash flow between
the company & the target acquisition is essential if the acquisition is to
succeed.
Related diversification can result in lower unit costs & improved margins
through synergy.
Applications
Strategy development
The model may assist with the development of strategic actions designed to
overcome weakness & or capitalize on strengths the parent company
through acquisitions.
Targeting acquisition
The model may help with the identification of candidate acquisitions with
high potential through an analysis of acquiring company strengths.
Portfolio analysis
DIFFERENTAITION COST
LEADERSHIP
GENERIC STRATEGIES
FOCUS
SOURCE: COMPETITIVE STRATEGY: TECHNIQUE FOR ANALYZING THE
INDUSTRIES & COMPETITIORS BY MICHAEL PORTER
Principle
Assumption
A firm positions itself by leveraging its strengths. Michael Porter has argued
that a firm's strengths ultimately fall into one of two headings: cost
advantage and differentiation. By applying these strengths in either a broad
or narrow scope, three generic strategies result: cost leadership,
differentiation, and focus. These strategies are applied at the business unit
level. They are called generic strategies because they are not firm or
industry dependent.
Elements
Cost leadership
The firm’s strategy is to minimize costs, giving greater flexibility over pricing
decisions.
Differentiation
The firms offer a product or service which is different in some way that is
valued by customers.
Focus
Challenges
Prices
Cost leadership firms may offer average or just below average prices in the
industry or market thereby remaining competitive & gaining high margins.
Flexibility
Cost leadership firms can better cope with cost increases from suppliers &
are well placed to combat entry barriers because of economies of scale.
Development
These include obsolescence & new entrants to the market copying in the
leading organization’s processes.
Margins
Differentiation can yield higher margins with which to offset the power of
suppliers, & also reduces the threat posed by substitutes once the customer
loyalty is achieved.
Differentiation risks
The cost of remaining differentiated may push prices too high even for loyal
customers. As industries mature, imitations which reduce the perceived
differentiation may come on to market.
Focus risks
Applications
Cost leadership
Differentiation
Focus
OLD/EXISTING NEW/CREATIVE
KFS AGGRESSIVE
INTIATIVES
COMPETITVE
WISELY
INTENSIFY
FUNCTIONAL
DIFFERENTIATION
ASK ‘WHY-WHY’
COMPETITION
Principle
Assumptions
Resources are allocated where they will be most effective in relation to the
identified key success factors.
These include direct competition with the new business or new products.
Challenges
Route 1: KFS
Strategy formulation
Organization may use this model to dissect the market imaginatively in order
to identify key segments, discover the particular strengths of winning
companies & analyses differences from losing companies.
**THE END **