Business Strategy: Scope, Steps and Vocabulary

• Strategy is a long-term plan of action to achieve specific goals.
• Strategy determines how a business will compete, grow, and succeed.
• A company might use a cost-leadership strategy (low prices) or a differentiation strategy (unique product features).
• Strategy covers all key business areas.

Scope of Strategy

• Corporate level answers: "What business should we be in?"
• Business level answers: "How should we compete in a specific market?"
• Functional level answers: "How to use resources efficiently"
• Involves planning, implementing, and evaluating strategies to achieve organizational goals.

Steps in Strategic Management

• Environmental Scanning: Understand external and internal environments.
• Strategy Formulation: Create plans based on analysis.
• Strategy Implementation: Put the plans into action.
• Strategy Evaluation: Monitor and improve strategies as needed.

Vocabulary of Strategy

• Vision describes what the organization wants to become in the future.
• Vision is inspirational and long-term.
  • Example: “To be the world's most customer-centric company.”
• Mission describes the purpose of the organization – why it exists.
  • Example: “To organize the world's information and make it universally accessible.”
• Goals are broad, long-term outcomes the company wants to achieve.
  • Example: “Increase market share by 20%.”
• Objectives are specific, measurable steps to reach the goals.
  • Example: “Launch 3 new products in the next 6 months.”
• Values are core principles and beliefs that guide behavior.
  • Example: Integrity, Innovation, Customer Focus.
• Strategy is a plan of action to achieve objectives using company resources.
• Resources are tangible and intangible assets like money, people, machines, brand names, etc.
• Capabilities is a company's ability to use its resources effectively.
  • Example: Strong customer service or fast delivery systems.

Analyzing a Company's External Environment

• The external environment includes all outside factors that affect the business but are not under its control.

• Tools to Analyze:

  • PESTLE Analysis: Looks at Political, Economic, Social, Technological, Legal, and Environmental factors.
  • Porter's Five Forces: Assesses industry competition.

• Purpose:

  • Identify opportunities and threats in the market.
  • Understand industry trends, customer behavior, and competition.

Characteristics of the Business Environment

• Dynamic: Changes rapidly (e.g., technology).
• Complex: Many interrelated factors.
• Uncertain: Future trends can be unpredictable.
• Competitive: Constant pressure from competitors.
• Global: Affected by international markets.

Analyzing a Company's Internal Environment

• The internal environment includes all elements within the company's control.

• Factors to Analyze:

  • Strengths and Weaknesses (SWOT Analysis).
  • Resources and Capabilities.
  • Leadership and Management.
  • Organizational Culture.
  • Financial Performance.

• Purpose:

  • Understand what the company does well and where it needs to improve.
  • Identify how it can use its internal strengths to gain a competitive edge.

• Strategy is the first step to becoming a smart decision-maker in business.

• Strategy helps align company efforts toward success, based on careful analysis of both external trends and internal strengths.

• Organizational capabilities are the internal strengths and skills that a company uses to compete effectively.

• Key Capability Factors:

  • Resources: People, money, technology, brand value.
  • Processes: Efficient systems and operations.
  • Leadership: Strong management.
  • Culture: Values, beliefs, attitudes within the company.
  • Learning Ability: Ability to innovate and adapt.

• Help a company deliver value and respond to market changes.

Core Competency

• A core competency something the company does better than competitors.
• It provides a competitive advantage and is hard to copy.
• Characteristics of Core Competencies:
  • Adds significant customer value.
  • Difficult for competitors to imitate.
  • Can be used across multiple products or markets.
  • Example: Apple's design innovation, or Amazon's logistics and delivery system.

Critical Success Factors (CSFs)

• CSFs are key areas where things must go right for the company to succeed and vary from industry to industry.
• Examples:
  • Retail: Location, pricing strategy.
  • Tech: Innovation, speed to market.
  • Banking: Trust, regulatory compliance.
• Industry analysis helps a company understand how attractive or competitive an industry is.

Porter's Five Forces Model

• This model analyzes five competitive forces that affect industry profitability:
  1. Threat of New Entrants: How easy is it for new companies to enter the market?
  2. Bargaining Power of Suppliers: Can suppliers demand higher prices?
  3. Bargaining Power of Buyers: Can customers demand lower prices or better quality?
  4. Threat of Substitute Products: Are there alternative products that can replace yours?
  5. Competitive Rivalry: How intense is the competition within the industry?
• A high level of these forces means lower profitability.

Types of Strategy

• Growth Strategy: Focused on increasing sales, market share, or profits such as market expansion and product development.
• Stability Strategy: Continuing current activities without major changes and often used in mature or saturated markets.
• Retrenchment Strategy: Reducing activities to cut costs and survive tough times such as downsizing or divesting a business unit.

Corporate Level Strategies

• These are top-level decisions about the overall direction of the company.
• Common Types:
  • Diversification: Entering new businesses (e.g., Tata Group).
  • Mergers & Acquisitions: Buying or merging with other companies.
  • Strategic Alliances: Partnerships to share resources. Focus: Which businesses should we be in?

Business Level Strategies

• These are strategies for individual business units or product lines.
• Michael Porter's Generic Strategies:
  • Cost Leadership: Offering the lowest prices (e.g., Walmart).
  • Differentiation: Offering unique features (e.g., Nike).
  • Focus Strategy: Targeting a specific niche market.
• Focus: How do we compete in this market?

Functional Level Strategies

• These are department-level strategies to support business strategies.

• Examples:

  • Marketing Strategy: Pricing, promotions, branding.
  • HR Strategy: Talent recruitment, training.
  • Finance Strategy: Budgeting, cost control.
  • Operations Strategy: Supply chain, quality control.

• Focus: How do we support the business strategy at the functional level?

• Strategy involves understanding the company's strengths, the industry environment, and executing the right strategies at every level to stay competitive and grow.

Analyzing Strategic Change

• Strategic change modifying the direction, structure, or operations of a company to adapt to changes in the environment. Why Strategic Change is Needed:
  • Changes in customer needs.
  • New technologies.
  • Competitive pressure.
  • Economic shifts.
  • Legal/political changes.

Steps in Analyzing Strategic Change

1. Recognize the need for change (internal or external signals).
2. Assess current strategy – Is it working?
3. Identify the gap between current position and goals.
4. Develop a new strategy or adjust the current one.
5. Manage resistance to change – Training, communication, and support.

• Change must be managed smoothly to avoid employee resistance and confusion.

Analyzing Organizational Structure

• Organizational structure refers to how tasks, responsibilities, and authority are arranged in an organization.
• Strategy and structure must align.
• A wrong structure can block execution.

Types of Organizational Structure

• Functional Structure:
  • Departments are divided by functions: Marketing, HR, Finance, etc.
  • Best for: Small to medium-sized companies.
• Divisional Structure:
  • Divided based on products, markets, or geography.
  • Best for: Large firms with diverse operations (e.g., FMCG companies). - Matrix Structure:
  • Combines functional and divisional structures.
  • Employees report to two managers one functional, one project.
  • Best for: Complex projects, multinational companies. - Team-Based Structure: - Focuses on teams rather than hierarchy. - Best for: Innovation-driven or creative firms.

Strategic Control Process

• Strategic control helps ensure that the strategy is working effectively and achieving its goals.
• Steps in Strategic Control:
  1. Set strategic goals.
  2. Measure performance.
  3. Compare with desired results.
  4. Identify deviations.
  5. Take corrective action.
• Strategy must be evaluated and adjusted over time.

Types of Strategic Control

• Premise Control: Checks if the assumptions on which the strategy is based are still valid.

  • Example: Assumption of stable oil prices – if it changes, the strategy must be revised.

• Implementation Control: Ensures that the strategy is being implemented as planned and checks deadlines.

• Strategic Surveillance: Broad-based control to monitor external changes or threats, keeping an eye on the entire environment for unexpected issues.

• Special Alert Control: Activated during crisis or unexpected events for rapid response and emergency planning.

• Strategic Implementation translates plans into actions, and Strategic Control ensures those actions are on the right path.

• A company must have the right structure, change management process, and control mechanisms to achieve its strategic goals successfully.