Business Strategy and Business Strategy Tools
Johnson and Scholes (1993) define strategy as the ‘direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations’.
More simply this means articulating ‘where are we going and how are we going to achieve those objectives?’ This is about deciding on the long-term direction of a company, such as which markets it should operate in, how it can perform better in these markets and what external environmental factors might affect its ability to complete.
There are a number of business strategy tools to help in the process of analysis and strategic choice.
Business strategy tools:
PESTLE:
This is an acronym for political, economic, social, technological, legal and environmental. It is a useful checklist to help analyse and summarise the external business environment that a company is operating in. This analysis will help a firm determine the implications of the elements identified and decide on the best course of action to respond and manage those things.
A PESTLE analysis for a supermarket chain might include:
- Political: corporate taxation due to be reviewed in the next budget
- Economic: inflation reflected in the cost of goods sold
- Social: the population is generally getting older with pensioners wanting help with their shopping
- Technological: the rise and popularity of e-tailing
- Legal: the legal age to purchase alcohol is planned to be lowered to 16
- Environment: ‘green’ issues around the issue of ‘one use only’ free carrier bags
Porter’s Five Forces:
Michael Porter’s model focuses on five areas which can help a company to understand its competitive position. These areas are:
- the threat of new entrants
- the threat of substitutes
- the bargaining power of suppliers
- the bargaining power of customers
- the degree of rivalry between existing competitors
SWOT Analysis:
This is another acronym. It stands for strengths, weaknesses, opportunities and threats. It is based on the understanding that companies should be looking to build on their strengths and improve their weaknesses to take advantage of the opportunities and overcome the threats in their external environment. Read More On SWOT. Read Our SWOT Analysis Samples.
Decision making tools:
Ansoff’s Matrix:
Ansoff’s matrix states that there are four possible strategies a business can follow: market penetration (offering existing products to existing markets), market development (taking existing products to new markets), product development (offering new products to existing markets) and diversification (launching new products into new markets).
Boston Consulting Group (BCG) Matrix:
The BCG identifies the performance of all the products in a firm’s portfolio. It is a useful tool to analyse the portfolio and decide which products should perhaps be invested in or discontinued. It can also help develop strategies for new products
Thorough understanding of the external environment and internal resources and strategic capabilities, will ultimately lead to the right strategic choices being made. Read More On Boston Matrix.