Strategic analysis

Strategic Choice

Strategic Implementation
Strategic Management

Setting long-term goals and enabling a business to achieve them.

How is it done?

1. Assess current position of the business (strategic analysis)

2. Choosing from the different options (strategic choice)
3. Implementing and incorporating the chosen option (strategic implementation)
(involves allocating resources, coordinating departments and evaluating success)

Corporate Strategy
Long-term plan of action for the whole firm to achieve a particular goal (what we want to be)

Need the following to achieve - Strengths of the business (e.g. brand image, technology etc)
- PEST analysis
- Resources available
- Vision/objective
Strategy can be at a corporate level (for the whole firm) or divisional/departmental

Importance of strategic management

- Plan for the future (setting objectives, SMART)
- Respond to the changing environment
- Make effective long-term decisions
Chandler’s assertion – Structure follows strategy
(dynamic firms change their organizational structure) Hierarchal, delayering, matrix
So if a firm wants diversity (spreading risks) divisional organizational structure.
(Each division has its own departments)

Business strategy determines Competitive Advantage

Competitive advantage – Any factor that allows a firm to outperform its competitors

Competitive advantage gained by a firm by providing cheaper/better quality products.

Only two ways to gain it

1) Have a USP (not mint lemonade!)
2) Cut costs

USP can only be gained by spending $  Automation, rationalization and R&D

Should not be easily copied – either through a patent/copyright
OR
An established brand name
OR
A unique technology that is expensive OR cannot be copied (e.g. secret recipe, machinery of
even a software that improves efficiency in any department.
 STRAT
EGIC ANALYSIS
Researching and analysing a business and its external conditions
 Leads to clearer, relevant goals, better decisions, less risk (prepared for the future)

The following techniques are used for SA

1) SWOT - Strengths Weaknesses of a business (internal), Opportunities Threats (external)

2) PEST – Political, Economic, Social Technological impacts on a business +/-

(SWOT and PEST factors have to be
identified from the case)
 Evaluation
- SWOT analyses both internal and external factors; PEST only looks at external
factors.
- Different managers can give different assessments
- No quantitative evaluation
- Its guide not a definitive formula
- BUT it takes up time, money to make it; cannot predict future
- Must be updated regularly (environment changes rapidly)
-
3. Boston Matrix – A model that analyses the firm’s portfolio (multi product firm)
- Can use product life cycle along with it
- Each product is classified based on its market share and growth
(Market share - Does the product sold have a high market share?
Market growth – Are the potential customers growing or not?)
Strategies for each product

The product portfolio can be shown in the product life cycle like this

A balanced product portfolio should consist of multiple products various stages of the product
life cycle (except dogs). At the mature stage they generate good profitability and provide cash
flow stability and with both introduction and growth stages will provide the future profits for
the firm and ensure that they are able to remain competitive against new players and offerings,
as well as adapting to changing consumer preferences and needs.

Evaluation
- Helps in evaluating the portfolio; plan introduce/remove products
- Considers market share of each product and the market growth for that product
- BUT takes up time, money to make it ; cannot predict future
- Market conditions keep changing (need constant, updated market research/PEST etc.)
- High market share does not mean higher profits always.

4) Porter’s 5 forces
 - Helps decide whether to enter new markets, stay in a market
- Helps decide which strategies to develop to improve their position e.g. product
differentiation, merger/takeover, diversify etc.
Evaluation
- Helps analyse current competitive structure of an industry
- BUT Analyses one industry at a time (so need another diagram for another industry
For example, if it is hard to achieve economies of scale in the market, the company should
pursue cost leadership strategy.
Product development strategy should be used if the current market growth is slow and the
market is saturated.
5) Core Competencies
CC is a capability that gives a business a competitive advantage
It could be skills, knowledge, technical or managerial systems.

A core competency must

- Provide recognizable benefits to consumer (that no other product can deliver)
- Not easily copied (technical or patented)
- Be applied to more than one market
Hence to achieve this, the firm needs to spend a lot on R&D/ technology etc

IKEA’s core competency is its unique design capabilities. This capability results in offering
customers great value for money. It is very hard for competitors to compete with great design at
a very low cost.
Apple’s core competencies are its user-centered design along with its integrated software
and hardware ecosystem. The design is so strong that it is practically impossible for
competitors to create laptops that can sell for a similarly high price.
Amazon was founded as an online marketplace for books. Its core competency was its
selection, IT system and customer service. Through this technical innovation it is now the
largest online marketplace.

If a firm does not have a core competency, it should work on developing it.
If it has one, it should work on developing new products that use the core competency.

General evaluation for all SA techniques.

- There is no one best method; use a combination of two or more
- Time used in SA is time taken away from production and marketing
- Cost
- Depends on experience/outlook of manager.
- Market keeps changing so techniques must be updated

STRA
TEGIC CHOICE

After strategic analysis is complete, a firm sees the different options available and can
used the following techniques to make a choice of what strategy to undertake

1. Ansoff.s Matrix
 Evaluation
- Shows different strategies a business could expand into
- Helps analyse degree of risk associated
- Can choose more than one strategy
- Use investment appraisal, breakeven and SWOT/PEST to choose options
- BUT Evaluation by an experienced manager needed; time and cost.
- Details of marketing not included

2. Force Field Analysis

You will not need to write numbers, just

explain they are assigned according to the
importance of each force

Evaluation
- Analyses forces for and against option
- Assign values to each; total up each side and choose better option
- Can adjust strategies e.g. current efficiency is low, so increase it OR train more
- BUT need skilled manager needed to identify forces and assign values to them (difficult)
- Different managers can apply different values; time and cost.

3. Decision Trees
A decision tree is a mathematical model that sets out the different options that are available
to a business when making decisions. It uses 1) estimates and 2) probabilities to calculate
likely outcomes.
It thus helps to decide whether the net gain from a decision is worthwhile.

Calculation of a decision tree

A firm is considering either launching a loyalty card or to cut prices. The possible options
could have different outcomes depending on the expected sales. These are given in a table
below
Loyalty Card Cut prices
Probability of high sales 60% with £1m 80% with £0.8m
Probability of low sales 40% with £0.75m 20% with £0.5m
 Option: Launch loyalty card: Option: Cut prices:
If -High sales: (0.6 x £1,000,000) = £600,000 If -High sales: (0.8 x £800,000) = £640,000
If -Low sales: (0.4 x £750,000) = £300,000 If - Low sales: (0.2 x £500,000) = £100,000
Total expected value = £900,000 Total expected value = £740,000

Loyalty card Cut prices

Net gain: £900,000 - £500,000 = £400,000 Net gain: £740,000 - £300,000 = £240,000

Both options indicate a positive net gain, suggesting that either would be better than doing
nothing.
However, launching the loyalty card has a higher net gain thus looks the best option of the
two considered

Advantages
- They show the amounts of money of each option
- It considers probabilities of their occurrence.
- Show possible courses of action.
- Visual method of presentation; easy to see and understand.

Drawbacks
- The probabilities are only estimates.
- They can only show quantitative data
- Some of the data may be out-of-date by the time the decision is finally made.
Strategic Implementation

Putting into effect the strategic option chosen (after strategic analysis and choice is carried out)
Planning, allocating and carrying out a strategy.

Must ensure
- An appropriate organizational structure
- Resources
- Motivated staff
- Suitable leadership style/ corporate culture
- Review systems (to check progress)

Business Plan (new business, up to a year)

A business plan is a formal statement of a set of business goals, the reasons why they are
believed attainable, and the plan for reaching those goals.
It may also contain background information about the organization or team attempting to reach
those goals.

Important when setting up a new business

Used to obtain finance (creditors, shareholders)
Forecasts/plans must be SMART; must include strategies
Must be updated regularly
Usually for one year
(Use notes from AS unit 1 to answer)
Corporate Plans (long term plans)
Contain
1. Overall objectives (e.g profit, market share target)
2. Strategies used (Ansoff matrix option)
3. Departmental objectives

Can be used for potential investors, lenders, govt, other stakeholders

Advantages Limitations
Clear focus; sense of direction External factors can change
Communicates vision to all employees Unforseen events
Compare targets with actual results
Preparing makes managers

Influences on corporate plan

Internal factors (Look at the different departments and any +/-
External factors (PEST, competitors)

Corporate Culture – Values, attitudes and beliefs of a firm; ‘the way things are done’

(Refers to the leadership, communication style, relationship between employer and employees)

When does a culture need to be changed? (Major change)

- Privatization/nationalization
- Changing firm’s structure e.g. sole trader  pvt ltd
- Merger/takeover
- Extreme external conditions e.g. recession
- Declining profits/market share
- Reputation damaged
(If not too bad, suggest HRM)

- Identify the type of culture based on the leadership/management style

- Explain why culture needs to be changed (give examples from case)
- Look at operations (productivity) and profits/image – how will CC help them?
- CC can provide a competitive edge if it is positive (firm will be more responsive to change)
- Can motivate workers more (with spending too much $)
- Can improve management/leadership (If too demotivating, replace bad mangers)
- Need new policies; training; set an example;
Evaluation
- Culture determines how workers are treated/what is the general attitude in the firm
- A positive culture can support a brand image (e.g. a TQM culture leads to a quality
image,)
- CC determines how change will be accepted in a firm
- Long term success/profitability depends on CC
Also, democratic leadership may encourage better qualified employees to apply, an open culture
allows ideas from workers

Change Management
Outlines how to implement, manage, control change

1. Identify the change in the case.

2. Recognise the causes (e.g. PEST factors, competition change, what needs to be done)
3. Incorporate it
- Recognise why change is needed
- Change objectives
- Communicate with staff/warn them
- Involve them (encourage feedback)
- Introduce quick initial changes and see results
- Train/re train
- ‘Sell’ benefits to staff (convince them of the benefits)
- Check and review
4. Lead change (set an example)
5. Select Project Champion (who will convince people; an informal leader? Someone who will
be listened to)
6. Project groups (e.g. Quality Circles)

John Kotter’s 8 stage change process

1. Establish a sense of urgency
2. Have a project team lead the change
3. Develop a vision and strategy for the change
4. Communicate change vision
5. Empower people to take action
6. Show some immediate short term benefits to staff
7. Use these benefits to produce more benefits
8. Build change into the culture

Why change is resisted?

- Fear of the unknown
- Fear of failure
- Radical change means changing your habits
- Lack of trust of workers (that they will suffer)
- Inertia (don’t want to change the way things are)
Leadership will determine how change management is implemented!

Contingency Planning/Crisis Management

‘Business Continuity Planning’ – a business must keep functioning as normally as possible

Contingency Planning is having a back-up plan/Plan B

(Planning means setting objectivs)
Crisis Management is what to do in an unexpected disaster situation

1. Identify possible disasters that can occur (give possible examples from case)
2. Assess the probability they will occur
3. Minimise the potential impact (back up, training to deal with it etc)
4. Plan to resume operations as normally as soon as possible (less impact on customers)

CPCM does not guarantee disasters are avoided BUT prepares the firm how to deal with
them immediately

Benefits
- Reassures all stakeholders (that something will be done in case of emergency)
- Minimises the negative impact when problem occurs.
- Can immediately inform all of plan of action in case of emergency and feel prepared.

Limitations
- Time wasted in planning if nothing happens (?)
- Cost of setting up plan (training, any equipment etc)
- Needs constant updating ($)
- Need constant training especially if staff turnover high
Importance of business planning  impact on firm/profitability/objectives

- A corporate plan is a report on the future aims and objectives and HOW the business hopes
to achieve them.
-Gives direction to the firm and a clear focus what is to be achieved
- Helps set specific targets through MBO to the employees (motivation as they know what is
expected of them)
- MBO of the objectives helps everyone in the firm work towards the same goals
- Acts as a means of review and control (Can compare achievements with targets).

(Refer to issues, potential issues and objectives in the case)

Planning can help

- Avoid/minimize future disasters
- Motivated staff will give more output, staff retention, less HRM problems
- Less confusion and better communication between departments

Evaluation
- Must be flexible, updated regularly (dynamic environment)
- In planning the managers will be analyzing business environment constantly