Business Strategy

Types of Strategy

A strategy is the businesses long term plan. Strategies help businesses achieve their aims and objectives.

Devising a strategy depends on a number of factors:

There are different types of strategy

Niche strategy – concentrate on a small segment of the market that might be specialist

Mass market strategy – aim products at the entire market

SWOT

Businesses use SWOT analysis to assist them in choosing business strategies

Strengths

Weaknesses

Opportunities

Threats

Strengths and Weaknesses are internal to a business
Opportunities and Threats are external factors
Strengths are things a business is good at / areas of expertise
Weaknesses are things a business is poor at
Opportunities are areas that a firm could develop
Threats are factors that could damage the firm
By conducting a SWOT analysis you are able to understand the firms position and the market position
By doing this you are helping the planning process
It allows a business to think about future strategies
To be effective businesses need to be honest when identifying both their strengths and weaknesses

Decision Making

Strategic decisions are linked to the achievement of business aims
Tactical decisions are linked to the future achievement of aims
Strategic decisions tend to be longer term
Scientific decision making – gathering data and analysing it to make a decision. This is a rational and logical approach
Managers may also make decisions based on experience, hunches, gut feeling and intuition
Effective decision making is often a combination of all of these methods

Decision Trees

These are mathematical models that can be used by managers to aid decision making
They allow the manager to answer a number of questions which will steer them towards an answer
Decision trees allocate probabilities and estimated benefits to each outcome
Each decision is then allocate an “expected value”
Expected value is calculated by taking a weighted average of the outcomes considering the probability of each one

Expected value = (probability1 x outcome1) + (probability2 x outcome2)

Advantages

Disadvantages

Estimations are used for probabilities and financial consequences of outcomes – these may be inaccurate
Only consider financial and quantifiable data

Corporate Plans

Corporate plans are documents that set out what a business is trying to achieve and how it will do this

Corporate plans include:

From the overall objectives / strategy businesses are able to devise objectives / strategy for each functional area

Advantages

Disadvantages

The plan may become outdated, therefore a flexible approach to planning is better

Contingency Plans

These are preparations for unlikely events. Need to consider what events to prepare for and which resources to put into contingency planning.

Managers need to look at:

The higher the likelihood and potential damage the more likely a firm is to plan for it

Summary

Niche strategies are focused on a specific market segment
Mass market strategies are concerned with the entire market
SWOT analysis looks at internal factors (strengths and weaknesses) and external factors (opportunities and threats) to formulate future strategies
Scientific decision making is based on the rational analysis of evidence
Decisions are also made on experience, hunches and intuition
Decision trees are an aid to decision making using mathematical models
Decision trees give expected values to decisions to allow managers to make comparisons
Corporate plans quantify the corporate objectives and strategy for the business and objectives and strategy for the different function areas
Contingency planning looks at what will happen in a disaster

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