TOPIC 6: BUSINESS STRATEGY
Strategic analysis and choice
INTRODUCTION
• Often, employees are concerned with the day-to-day running of a business. However,
senior management often need to think about a range of issues to do with the
business’s direction, its competitors, and so on. This is what we refer to here as
strategic management.
• the components of strategic management:
1. Strategic analysis
2. Strategic choice
3. Growth strategy
• In this section, we will look at the first two, and then we’ll address the third in a
subsequent topic.
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STRATEGIC ANALYSIS
Porter’s five forces model:
• Put forward by Michael Porter back in the 1980s, this
model was designed to get firms to consider the factors that
might affect their competitiveness
• These five forces are:
1. the bargaining power of suppliers
2. the bargaining power of buyers
3. the threat of potential new entrants
4. the threat of substitutes
5. the extent of competitive rivalry
Porter’s Five Forces Model
A lot of this relates back to
what we’ve talked about in
previous topics –
competition, substitutes,
and so on.
Potential
entrants
Threat of
new entrants
Bargaining power
of suppliers
Suppliers
Industry competitors
Bargaining power
of buyers
Rivalry among
existing firms
Threat of
substitutes
Substitute
products
Buyers
Ideally, a firm will be able
to identify the main forces
of competition it faces,
however, sometimes this
is easier said than done!
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
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The value chain
Value chain analysis
• Developed by Michael Porter,
designed to get firms to think
about backwards and forward
linkages of inputs and outputs
the firm requires.
• We can separate this into
‘primary activities’ and ‘support
activities’.
After-sales
service
Primary activities:
• As the name suggests, this
is concerned with all things
to do with the production,
distribution and sale of the
product itself
Marketing
and sales
Outbound
logistics
Secondary/support activities:
• Whilst they don’t
formally add value to the
product itself, they ensure
the primary activities are
completed as efficiently as
possible.
Operations
Inbound
logistics
STRATEGIC CHOICE
Strategic choice focuses on choices that need to be made with respect to two aspects
of the business – the external environment (the market), and the internal
environment (within the firm itself)
Environment or market-based choices
•
types of strategy a firm might adopt:
• cost leadership
• differentiation
• Focus (a market niche)
•
importance of establishing:
Resource-based strategy (internal)
• defining and establishing core competencies (does
the firm even have one?)
• exploiting core competencies
• conditions for core competencies
• valuable
• rare
• the basis of a firm's competitive advantages
• costly to imitate
• the nature of the target market
• non-substitutable
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STRATEGIC CHOICE
Reactions of competitors
• As we’ve seen previously though, even after all that
has been taken into consideration, strategic choice
also often relies on strategic behaviour, and how
the firm reacts to competitors (in other words –
game theory!)
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