Understanding Business Strategy

What is Strategy?

• A strategy is a plan of action or policy to achieve a particular goal.
• It's a long-term approach that guides organizations to achieve their objectives.
• Strategies can be for business, military, political, or personal use.

Strategy, from Mission to Action

• Mission: A firm's values, purpose, and the scope of its operations in terms of products and markets.
• Plan: How a firm positions itself in the market, using internal resources and capabilities to achieve the mission.
• Action: Individual actions to execute the strategic plan.

Three Horizons for Strategy

• Horizon 1: Current core activities, focused on maintaining and growing the company's existing products and markets.
• Horizon 2: Developing emerging activities in new markets or products, with potential to become major revenue sources.
• Horizon 3: Creating viable strategic options for future, new ideas to disrupt existing markets or generate new ones.
• Each horizon has a different time horizon and level of uncertainty and risk.
• A company should balance its focus and resources across all three horizons for long-term success.

Mission, Vision, and Values

• Mission: Defines the purpose and scope of a company's operations. (Why do we exist?)
• Vision: Describes the company's long-term goals. (Where do we want to be in the future?)
• Values: Principles that guide a company's behavior and decision-making. (Reflects company culture.)
• These elements guide decision-making and align employees and stakeholders towards shared goals.

PESTEL Analysis

• PESTEL analysis identifies factors that impact an organization.
• Political: Government policies, regulations, and legal frameworks.
• Economic: Conditions like inflation, unemployment, and interest rates.
• Social: Societal norms, values, and demographics.
• Technological: Advances in technology affecting products, services, and processes.
• Ecological: Physical and ecological factors.
• Legal: Laws and regulations.
• PESTEL analysis helps identify opportunities and threats in an organization's external environment.

Key Drivers for Change

• Key drivers for change are environmental factors with a high impact on industries and sectors.
• Identifying key drivers for change helps managers focus on important factors and urgent issues.

Forecasting

• Forecasting approaches vary based on the level of uncertainty about the future.
• Single-point forecast: One specific, certain forecast number, useful for budgets.
• Range forecast: Offers a range of possible outcomes with different probabilities, useful when certainty is lower.
• Alternative futures forecast: Identifies scenarios with radically different outcomes, typically used when uncertainty is extremely high.

Industry and Sector Analysis

• Industry: A group of firms that produce essentially similar products and services.
• Market: A group of customers for particular products or services.
• Sector: A broad industry group (often in the public sector).

Porter's Five Forces

• Competitive rivalry: Intensity of competition amongst existing firms.
• Threat of new entrants: Ease with which new competitors can enter the market.
• Threat of substitutes: Availability of products or services that could replace the industry's offerings.
• Bargaining power of buyers: Ability of customers to negotiate lower prices or higher quality.
• Bargaining power of suppliers: Ability of suppliers to raise prices or reduce the quality of inputs.

Industry Structure

• Monopoly: One firm, unique product/service, high entry barriers.
• Oligopoly: Few firms, varies among products/services, high entry barriers.
• Perfect competition: Many firms, highly similar products/services, low entry barriers.

Critical Success Factors (CSFs)

• CSFs are factors that are highly valued by customers and give a significant advantage over cost.
• If an organization has them, CSFs lead to competitive advantage.

Blue Ocean Strategy

• Blue oceans are new market spaces with low competition; red oceans have intense competition.
• Blue ocean thinking focuses on creating new market spaces instead of competing in established markets.

Resources and Capabilities

• Resources (what a company has): physical (machines, buildings), financial (balances), and human (employees).
• Capabilities (what a company does): using resources effectively to achieve goals; example: efficiently producing and selling products.
• Threshold resources and capabilities are the minimum needed to operate in a market.
• Strategic resources and capabilities lead to competitive advantage.

Value Chain and Value System

• Value Chain: Activities within an organization that create a product or service.
• Primary activities: Directly involved in creating and delivering the product/service.
• Support activities: Help improve the efficiency of primary activities.
• Value System: Inter-organizational links and relationships necessary to create a product/service.

Strategic Capabilities

• Technological Capabilities: Adapting to new technologies.
• Business Model Capabilities (BM): How a business model will generate significant value to the end user/customer.
• Sense Making/Decision Making Capabilities (S&D): How a company deals with ambiguity in changing markets and makes informed decisions.
• Dynamic Capabilities: The ability of an organization to renew and recreate its capabilities in reaction to changes in the environment. (includes: sensing, seizing, re-configuring)

Strategic Choices

• Cost Leadership: Systematically having the lowest cost in a domain of activity.
• Differentiation: Offering unique or distinct products or services that customers value.
• Focus Strategy: Targeting a narrow market segment by tailoring products/services to satisfy specific needs of that segment.

Digital Transformation

• The process of fundamentally changing how an organization operates and delivers value to its customers using digital technologies.
• Digital transformation drivers include: customers, data, innovation, and value.

Innovation

• Innovation is a key driver for digital transformation.
• It creates new products, services, processes or business models that differentiate and increase market opportunities.
• Innovation can be driven by technology push or market pull; Open or Closed.
• Innovation diffusion considers the speed and degree of acceptance of an innovation in the market.

This quiz explores the fundamentals of strategy, including its definition, components, and the three horizons framework. Delve into how organizations formulate plans to achieve their objectives, from mission to action. Enhance your knowledge of strategic planning in business contexts.