Business Strategy

Content Types of strategy SWOT Decision making to meet objectives Decision trees Corporate plans Contingency planning

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

Devising strategies Devising a strategy depends on a number of factors: –The number of markets they will compete in –If it will be UK only or international –The products and services that the business offers

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 SWOT: –Strengths –Weaknesses –Opportunities –Threats Strengths and Weaknesses are internal to a business Opportunities and Threats are external factors

SWOT 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

SWOT 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 To Meet Objectives 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

Making A Decision 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

Decision trees and expected value 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 and Disadvantages of using decision trees Advantages Allows management to consider all options and their probable outcomes Makes managers quantify the impacts of all decisions Allows for decisions to be compared 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: –Objectives –Strategy From the overall objectives / strategy businesses are able to devise objectives / strategy for each functional area

Advantages and Disadvantages of Corporate Plans Advantages Planning provides focus for the organisation It makes managers consider the businesses strengths and weaknesses 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 likelihood of a specific event occurring –The potential damage if the event did occur 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