BUSINESS STRATEGIESIdeas for Today and Tomorrow

Business environments, elements and challenges

MICRO MARKET MACRO

• Vision, mission, strategy and goals•Factors of production•Business functions•Management structure•Working environment

•Consumers•Competitors•Suppliers•Civil society•Intermediaries

•Political•Economic•Social •Technological•Legal•Environmental

• Difficult employees•Lack of mission or vision•Lack of adequate managements kills•Unions•Labour action

•Competition•Demographics•Shortage of supply•Change in consumer tastes and habits•Psychographics

•Changes in income levels•Globalisation•Political changes•Recent legislation•Labour restrictions•Socio-economic issues•Inflation and interst rates

STRATEGIES

Plan of action to address an opportunity or to solve a problem.

Top management: Strategic decisions – Corporate strategies

Recap: Middle management – Tactical decisionsLower management – Operational decisions

Activity 1: p90

Strategic Management Process

Strategic control and evaluation

Implement the strategy

Develop strategies in response to challenges

Analyse the external and internal environments for challenges

Develop strategic goals

Establish a strategic direction

Form

ulat

ion

of s

trate

gies

Implementation

Evaluation

Establish a Strategic Direction

Vision statement and a mission statement

Develop Strategic Goals

Action plans must be SMARTER! Specific, measurable, attainable, realistic, time-

bound, ethical and recordable

Analyse the Internal and External Environments for Challenges

Internal – Strengths and Weaknesses External – Opportunities and Threats SWOT analysis, PESTLE analysis, Porter’s Five

Forces

Activity 4 p 95 Activity 5 p 96

PESTLE Analysis By making effective use of the PESTLE analysis, the

business can ensure that its strategies are positively aligned with the forces of change that are affecting the world

By taking advantage of change the business is much more likely to be successful than if its activities oppose change

Doing a PESTLE analysis will help the business to avoid taking actions that are doomed to fail for reasons beyond control

Will help members of management break free of unconscious assumptions, and will help them to quickly adapt to realities of the new environment

EXAMPLE p 98

Porter’s Five Forces

Rivalry among competitors

Threat of new entrants

Bargaining power of buyers

Threat of substitute products/services

Bargaining power of suppliers

Power of Suppliers Every business needs reliable suppliers to be able

to compete in the market. How easy is it for suppliers to push up prices?

Number of suppliers Uniqueness of their product or service Whether they are reliable and do prompt deliveries Strength and control over the business Cost of switching from one supplier to the next

The fewer supplier choices the business has, the more it needs its suppliers’ help, the more powerful the suppliers

Power of Buyers How easy is it for buyers to drive prices down?

Number of buyers Importance of each individual buyer to the business Cost of them switching to someone else’s products

Businesses need to know their buyers through proper market research.

Businesses need to consider the powers of consumer organisations

Important to look after current customers

Power of Competitors Rivals are businesses selling the same or similar

products as the business, they compete for the same target market.

How many competitors are there and how strong are they?

Competing business has a unique product or service Some competitors have the necessary resources to

start price wars and sell products at a loss until all competition leave the market

Many competitors with similar products, business has very little power

Customer behaviour is very unpredictable and customers can very easily change to a competitor

Threat of Substitutes Substitutes are different products/services that, at

least partly, satisfy the same needs of consumers and can therefore be used to replace the other.

The threat lies in competitors who improve products and offer lower quality goods at lower prices

If substitution is easy add viable Substitutes can cause a business to lose its market

share completely

Threat of New Entrants How easy is it for competitors to enter the market?

If it takes little time/money to enter the market and there is a great opportunity for profits

There are only a few suppliers and many buyers The unit costs to make a few products does not differ

much from making many Business has little control over key technologies, the

design or the patent There is little competition

Difficulty entering an industry:

Economies of scale Access to distribution channels Government policy Product differentiation Capital requirements

Activity 7 p 103Activity 8 p 104

Develop Strategies in response to Challenges

Problem solving is the process of analysing a situation in a systematic, step-by-step way and then developing solutions, implementing the solutions and evaluating the results.

Creative thinking is needed to solve problems: Lateral thinking Looking at things differently Finding new solutions to old problems Being original and open minded

Summary of problem solving and creative thinking:

Chair Technique Empty chair technique Delphi technique Nominal group technique Brainstorming Forced combinations Six thinking hats SCAMPER

Implementation of StrategiesTYPES OF

STRATEGIES

Integration

Horizontal

Vertical

Backwards

Forward

Intensive

Market penetration

Market development

Product Development

Diversification

Concentric

Horizontal

Conglomorate

Defensive

Retrenchment

Divestiture

Liquidation

Other

INTEGRATION

Used when business sees an opportunity to solve a problem by shortening the distribution channel of the product

Take the form of an alliance, a merger, or a take-over

Horizontal Integration

Take over of businesses in the same field

Acquiring company Acquired company

Porsche Volkswagen

Daimler Benz Chrysler

Kraft Foods Cadbury

Delta Northwest Airlines

United Airlines Continental

Microsoft Yahoo!

Apple AuthenTec

Vertical Integration

Business taking control over its suppliers or distributors

Forward integration – gains control of distributors Backward integration - combines a business with

its suppliers

Intensive Strategies

Aimed at increasing sales and therefore the market share by making use of existing products and resources

Market Penetration

Focus on selling more of its existing products to existing markets in order to grow the business

Decrease prices, challenging selling techniques, appointing more sales personnel, changing or improving promotion strategies.

Market Development

Selling existing products in new markets. Finding new target markets in other towns/cities,

new distribution channels, improving packaging material, targeting a different market segment

Product Development

A growth strategy where the business aims to introduce new products or services into existing markets.

Research into development of new products and services can be expensive and time consuming

Diversification strategies

Involves the development of new products and selling them in new markets.

HIGH RISK

Concentric Diversification

Business adds new products or services which are related to existing products and will appeal to new customers

Horizontal Diversification Business adds a new product or service, unrelated

to existing products, but which may appeal to existing customers

Woolworths Edgarsetc

Conglomerate Diversification Business adds new products or services that are

unrelated to existing products, but which may appeal to new groups of customers

Defensive Strategies Used when business is under pressure that it may

have to close down and does not have many survival options to consider.

Management approach to reduce risk

Retrenchment Aims to decrease costs by decreasing the number

of employees, number of products or closing of certain departments.

Leads to loss of skilled workers and a decrease in market share.

Divestiture A business sells parts of the business that are not

profitable, or it sells off assets that are not productive.

Liquidation Management decides to close down the entire

business because it is not profitable. It involves selling the assets of the business as to

raise cash to pay the creditors, retrench employees and close off the business.

Other Strategies Replace individuals Revise business mission statement Establish or revise objectives Develop new policies Issue more shares to raise capital Acquire additional sales staff Allocate resources differently Develop new performance incentives

Requirements for Successful Strategy Implementation Strategies must be managed according to results Strategy implementation must focus on all the

people involved in executing the strategy Strategies need to be resourced properly, not just

with money

Evaluation of Strategies

Assess the strategy by looking forward and backward into the implementation process

Consider the impact of strategic implementation on internal and external environments of the business

Systematic and continuous Purpose is to see if the implemented strategy

has solved the challenge or created an opportunity

Steps to follow during evaluation:

Decide on results the business want to achieve

and measure the final situation against these

Compare expected performance with actual

performance to determine deviations

Determine the reasons for deviations and analyse

these reasons

Decide on affirmative action to prevent these

deviations in futureTake corrective action