BUSINESS STRATEGIES

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INTRODUCTION- Developing and

implementing strategies to remain competitive in the environment

- most small businesses have an initial strategy, a business plan

A strategy is a plan of action to address an opportunity or to

solve and problem

Strategic plan = corporate strategies + operational

strategies

DIFFERENT BUSINESS ENVIRONMENTS AND THEIR RELATED CHALLENGESENVIRONMENT COMPONENETS EXTENT OF CONTROL CHALLENGES

MICRO Vision, mission goal and objectives

Business functions

Management structure

Resources

Culture of the business

FULL control Difficult employees

Lack of vision and mission

Lack of management skills

MARKET Consumers

Competitors

Suppliers

Civil Society

Intermediaries

LIMITED control but can

influence components

Competition

Changes in consumer habits

Shortage of Suppliers

MACRO Political

Economic

Social

Technology

Legal

Environmental

NO control it can adapt to

challenges

Changes in income levels

Globalisation

Political changes

Recent legislation

Inflation, interest rates

Socio-economic issues

STEP TO DEVELOP STRATEGY

Application of SWOT analysis/PESTLE/Porter’s Five Forces/environmental scanning

Formulate strategies to meet objectives

Implement strategies using action plans

Evaluation of strategies (compare expected performance with actual)

STRATEGIC MANAGEMENT PROCESS

STEPS:

1. Review vision statement

2. Analyse mission statement

3. Conduct analysis using models

4. Formulate strategy

5. Implement strategy

6. Evaluate implemented strategy and identify gaps

7. Take corrective action to ensure goals are met

IMPLEMENTATION

• Takes place after formulation and involves all activities required to carry out strategic plan

• Begins with the following questions:

• Who is going to carry out the strategic plan?

• What must be done to bring the strategic plan in line with the business’s objectives

• How is the strategy going to be implemented?

• Management is responsible for implementation of strategies

STEPS IN STRATEGY EVALUATION✓Examine underlying basis of

strategy

✓Look forward and backward into implementation process

✓Compare expected with actual performance

✓Measure business performance in order to determine reasons for deviations

✓Take corrective action to correct deviations

✓Set specific dates for control and follow up

PESTLE ElementsPOLITICALP

•Government policies and trade agreements that limit imports

ECONOMICE

• Inflation, interest rates, exchange rates

SOCIALS

• Income levels of consumers, demographics

TECHNOLOGICALT

•New technology, cost to train employees

LEGISLATIONL

•Acts like CPA, BCEA and penalties for non-compliance

ENVIRONMENTALE

•Environmentally friendly products and processes, hazardous products and process

PORTER’S FIVE FORCES

Porter’s FIVE

Forces

POWER OF SUPPLIERS

POWER OF BUYERS

POWER OF COMPETITORS

THREAT OF SUBSTITUTION

THREAT OF NEW

ENTRANTS

1. POWER OF SUPPLIERS• Suppliers include providers of goods

and services that businesses would buy from

• Must assess the power of suppliers in influencing prices

• Suppliers that deliver high quality products may have power over the business

• More powerful suppliers, less control business has

• Smaller number of suppliers, more powerful they may be as the choice of suppliers

• Business must identify kind of power his suppliers have in terms of uniqueness, reliability and ability to make prompt deliveries

2. POWER OF BUYERS• Business must assess how easy

it is for his buyers to drive prices down

• Buyer power will depend on number of buyers, importance of each buyer and cost of switching to other products/services

• Business dealing with powerful buyers, often able to dictate terms to business

• If customers can easily go without products/services, they have more power to determine price and terms of sales

• Business must conduct market research so can really know their buyers

3. POWER OF COMPETITORS• Competitors: businesses

selling/rendering the same/similar products/services

• Business must find out how many competitors there are and how strong they are

• If competitors have unique products/services. They have greater power

• Come competitors have necessary resources to start price wars and continue tell at loss until other competitors leave market

• Many competitors, business has very little power

• Must draw up competitor’s profile of each rival

4. THREAT OF SUBSTITUTION• Other products/services that

can completely or partly satisfy the same needs of consumer, can be used to replace products/services

• Easily substituted, weakens power of business in market

• Cause business to reduce/lose its market sare

• Unique, will not be threatened

• Must do market research to assess if consumer is using substitute and why

• Important for business to change/improve existing products/services

5. THREAT OF NEW ENTRANTS• Power of business depends on

how easy it is for new competitors to enter market

• Business that is highly profitable, attracts more investors, put in more competitive advantage

• New competitors can quickly, easily enter the market if it takes little time or money

• Few traders but many buyers, easy to enter the market

SWOT ANALYSIS

Positive NegativeIn

tern

al

STRENGTHS WEAKNESSES

Micro environment,

positive and full

control

Micro environment,

negative and full

control

Ext

ern

al

OPPORTUNITIES THREATS

Market and Macro

environment,

positive and

limited/no control

Market and Macro

environment,

negative and

limited/no control

TYPES OF STRATEGIES

INTEGRATION

Horizontal

Vertical

•Backward Vertical

•Forward Vertical

INTENSIVE

Market Penetration

Market Development

Product Development

DIVERSIFICATION

Concentric

Horizontal

Conglomerate

DEFENSIVE

Retrenchment

Divestiture/ Divestment

Liquidation

I N T E G R A T I O N

• Business sees an opportunity to solve a problem by shortening distribution channel

• Effectiveness/ Advantages

• Eliminate competitors

• Increase profitability by not making use of supplier

• Ensure suppliers and business has control over final prices

• Horizontal Integration

• Business takes control of other businesses which sell SAME goods/services

• Reduce the threat of competition

• Acquiring activities that are substitute for business’s products

• E.g. potato farm takes over other potato farms. Apple juice manufacturer takes over mango juice manufacturer

• Vertical Integration

• Business taking control over either suppliers or distributors. Can be forward (distributors) or backwards (suppliers

• Backward vertical integration

• Combines business with its suppliers to reduce dependency on supplier

• E.g. apple juice manufacturer acquires its own apple farm

• Forward vertical integration

• Takeover/merging with a seller/retailer that will assure consumption of products

• E.g. car manufacturer takes over a car-retailing business

I N T E N S I V E• Aims at increasing sales

and market share by making use of existing products and resources

• Effectiveness / Advantages

• Increase market share reduces business vulnerability

• Control over prices may improve

• Increase sales and profitability

• Regular sales to existing customers may increase sales

• Market Penetration

• New products enter existing market at a low price, until it is well known to customers, the prices increase

• Business focus on selling existing products to existing market

• Do market research on existing clients to decide how to improve marketing mix

• E.g. new grocery store chain that offers meat below average price of other grocery stores

• Market Development

• Aim to sell existing products in new markets

• New ways of distributing products

• E.g. Finding new markets in other towns and cities. Local business that starts to export goods

• Product Development

• Introduce new products into existing markets

• Improve their product line by adding different types of related products

• E.g. Computer company develops faster, smarter and smaller computer

Differences between market and product development

MARKET DEVELOPMENT PRODUCT DEVELOPMENT

Existing products in NEW marks NEW products in existing market

Expanding/selling products in other

areas

Improves product line by adding

different types of related products

Find new ways to distribute

products/services

Conduct test marketing/market research

to establish whether new products will

be accepted by existing markets

Restructure pricing policies to cater for

customers of all income levels

Ensure new products of a higher quality

are more reasonably prices that

competitors

D I V E R S I F I C A T I O N

• Adds new NEWproducts and selling them n NEW markets

• Effectiveness/ Advantages

• Sales would increase by adding new/existing products to new/existing markets

• Highly competitive by adding new products, increasing target market

• Present channels of distribution can be used to market new/existing products to current/new customers

• Concentric diversification

• Business adds new products which are related to existing products to appeal to new customers

• E.g. car manufacturer offers same model car with a petrol or diesel engine

• Horizontal diversification

• Includes new (unrelated) products which may appeal to existing customers

• E.g. clothing store starts selling cosmetics

• Conglomerate diversification

• Business adds new products/services that are unrelated to existing products to appeal to new groups of costumers

• E.g. Virgin Group – Virgin Atlantic (airline), Virgin Money (insurance), Virgin Active (gym), Virgin Mobile (cell phones

D E F E N S I V E

• Implemented when a business wants to defend the existence of the business

• Effectiveness/ Advantages

• Decrease expenses

• Increase productivity by focusing on activities that are profitable

• Companies in financialdifficulty may apply for business rescue to avoid liquidation

• Retrenchment

• Terminating employment contracts for operational reasons

• Closing certain departments may cause some workers to become redundant

• E.g. cutting jobs / eliminating product lines

• Divestiture/Divestment

• Unprofitable divisions are sold to improve operation efficiency

• Unproductive assets are sold to improve cash flow / pay of dets

• Process used to withdraw investments in other businesses (divesting)

• Business may sell off divisions with slow growth potential

• E.g. selling some of the assets of the business

• Liquidation

• Sell all assets and stops operating to pay off debts due to lack of capital

• Forced liquidation – used as an option by creditors

• Sell entire business in order to pay shareholders fair price for shares

• E.g. business sells all its assets to pay debt and business closes down

OTHER STRATEGIES

• Company repositions itself by replacing one or more individuals

• Revising business mission

• Establishing or revising objectives

• Devising new policies

• Issuing shares to raise capital

• Adding additional salespersons

• Allocating resources differently

• Developing new performance incentives