6.0 Business Strategy Chapter 38 HL Only

What is business strategy? A long-term plan of action for the whole organization, designed to meet the needs of markets and to fulfill stakeholder expectations In order words… How to do we get from where we are NOW to where we WANT to be in the future?

What is business strategy? Strategic management The role of management when setting long-term goals and implementing cross-functional decisions that should enable a business to reach these goals. Tactic Short-term policy or decision aimed at resolving a particular problem or meeting a specific part of the overall strategy.

Strategic Management Process of strategic management 1. Strategic Analysis Assessing the current position of the company in relation to its market, competitors, and external environment 2. Strategic Choice Setting the company’s mission, vision, and objectives Making important long-term decisions that will push the business towards the set objectives 3. Strategic Implementation Integrating the activities of the different functional areas Allocating sufficient resources to put decisions into effect Evaluating success of the overall business performance and its progress towards its objectives

Strategic Management Why Important Strategies Mission and Objectives 1. Strategic Analysis Assessing the current position If you don’t know where you are, decisions you make could be ineffective or inappropriate 2. Strategic Choice Setting mission, vision, and objectives Making long-term decisions that will push the business towards set objectives Provide a clear sense of direction for the whole organization 3. Strategic Implementation Integrate activities of different functional areas Allocating sufficient resources Departments must work together Changing strategy is expensive; adequate resources are required Control and Evaluation Evaluate success and progress towards objectives Lessons can be learned from “failure” and “successful” strategies

Strategy Hierarchy Strategic management is the highest level of managerial activity Completed or supervised by: Chief Executive Officer Approved by: Board of Directors Corporate Strategy The overall strategy development of the whole corporation Business Strategy Separate business divisions form strategies to achieve and sustain competitive advantage Functional Strategy These plans are limited to the department’s own functional responsibilities such as product development, marketing strategies, or human resource strategies

Business Tactics Business Tactics are smaller scale decisions that are aimed at reaching measurable goals that are part of the long-term plan. Strategy Tactic Be more environmentally friendly The cafeteria starts a recycling program

Strategic Analysis Strategic Analysis Analyzing strengths and weaknesses of the current position Understanding external factors that may influence this position Where is the business now? How might the business be affected by what is happening or likely to happen? How could the business respond to these likely changes?

Strategic Analysis Tools Tools you might use to aid in strategic analysis: PEST SWOT Porter’s Five Forces Financial Analysis (ratios) Consider Organizational structure, private/public sector or profit/non-profit Multi-national or domestic Product portfolio (Boston Matrix)

Competitive Advantage Two main factors that lead to significant competitive advantage*: Lower Costs OR Differentiated Products *Porter’s Five Forces (Threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, competitive rivalry)

Another way to be competitive Core Competencies Core competence An important business capability that gives it a competitive advantage Core Product Product made from a business’s core competencies, but not for final consumer use To be of profitable benefit a core competence should be: Provide recognizable benefits to consumers Not be easy for other firms to copy (patents) Be applicable to a range of different products and markets

Core Products Example Black & Decker Corporation Apple Corporation Core Competency: they design and manufacture small electric motors Core Product: these motors are used in power tools, lawn mowers, and food processors Apple Corporation Core Competency: they designed an easy to use screen interface for electronics Core Product: computers, phones, music players

Strategic Choice Strategic choice Identifying strategic options, evaluating them, and then choosing between them

Strategic Choice Tools Tools you might use to aid in strategic choice: The process of decision-making Scientific or formal decision-making Decision trees Fishbone diagram Force-field analysis Forecasting future markets changes Sales forecasting The future options available Core Competencies Growth strategies (Ansoff’s Matrix) Target setting and benchmarking Return on investment Benchmarking

Creating a Plan – Corporate Plans A methodical plan containing details of the organization’s central objectives and the strategies to be followed to achieve them

Corporate Plan (Example: Sales Growth) Corporate Plans include: Overall objectives within a time frame Profit target Sales Growth Market share target The strategy or strategies to be used to attempt to meet these objectives Increase sales of existing products – market penetration Develop new markets for existing products – market development Research and develop new products for existing markets – product development The main objectives for the key departments

Strategic Implementation The process of allocating and controlling resources to support the chosen strategies Putting your plans into action or carrying out your idea.

Strategic Implementation Appropriate organization structure to deal with changes Adequate resources to make the change happen Well-motivated staff who want change to happen successfully A leadership style and culture that promotes change with positive attitude and support Control and review systems to monitor progress