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component 2: strategy and implementation - Coggle Diagram
component 2: strategy and implementation
business objectives and strategy
DEFINITION: strategy is the way in which a business operates in order to meet its aims and objectives
the setting and achievement of goals in a business is a hierarchal process:
CORPORATE STRATEGY
STRATEGIC DIRECTION
DIVISIONAL STRATEGY
FUNCTION LEVEL STRATEGY
relates to a single functional operation such as production, marketing or HRM. the decisions made at this strategy are decided by the higher level strategies.
the overall corporate strategy will be communicated to divisional managers
is a course of action that ultimately leads to the achievement of the stated goals of the corporate strategy
the strategic decisions a business makes that affect the entire business. at the corporate level, strategy is concerned with setting objectives for financial performance, proposed mergers or acquisitions
There are 3 main types of decisions:
TACTICAL DECISIONS: tend to be medium term decisions which are far less reaching than strategic decisions
OPERATION DECISIONS: short term administrative decisions that carry little risk
STRATEGIC DECISIONS: concern the overall policy and general direction of a business
TACTICAL DECISIONS: medium to long term decisions made by middle managers they follow on from strategic decisions and aim to meet the objectives of any strategic plan
CORPORATE PLAN: a statement of organisational goals to be achieved in the medium to long term. it will be based on management assessments in the medium to long term, the economic situation and the resources and technology of the business.
SWOT
a SWOT analysis is used to identify and analyse the internal strengths and weaknesses of an organisation as well as the external opportunities and threats created by the business in an economic environment
the objective of using SWOT is the development of a strategic plan that considers many different internal and external factors and maximises the potential of the strengths and opportunities whilst minimising the impact of the weaknesses and threats
positives and negatives of SWOT analysis
it makes an firm asses its current market position in the term of its strengths and weaknesses
it enables a firm to build on its strengths and protect itself against weaknesses
it will show where there are market opportunities to exploit
it will enable firm to reduce the impacts of any threat
it may be assumed that all strengths, opportunities, weaknesses and threats have been thought of whereas something important may have ben missed sending the firm in the wrong direction.
there may be unexpected exogenous shocks such as recession
SWOT table
Strengths
Weaknesses
Opportunities
Threats
economic recession
changing consumer incomes or tastes
new product launches by competitors
environmental legislation
new or increased taxes
new technologies being used by competitors
changes in technology and competitive structure markets
changes in govt policy related to the business' field
changes in social patterns, population profiles, lifestyle changes, fashion etc.
limited product range
poor investment record in technology
poor investment record in technology
failing to achieve industry benchmarks
bad debt or cashflow problems
effective distribution networks
strong brand identity
high staff motivation
thought of as a price leader
good industrial relations
high levels of productivity
once the SWOT has been completed, the information can be used to help develop a strategy that uses strengths and opportunities to reduce the weakness and threats and to achieve the objectives of the business:
an effective SWOT will allow a business to:
build on strengths
resolve weaknesses
exploit opportunities
avoid threats
porters 5 forces
Michael Porter outlined 5 forces or factors which determine the profitability of an industry. he argued that the aim of competitive strategy is to cope with and ideally change those forces in favour of the business
RIVALY AMONGST EXSITING COMPETITORS:
THREAT OF SUBSTITUES
the more substitutes there are for a particular product the fiercer the competitive pressure a business faces. A business can reduce the number of potential substitutes through:
research and development and patenting substitutes themselves
marketing tactics such as predator pricing
BARGAINING POWER OF BUYERS
buyer power concerns the ability of the customers within an industry to affect/ determine the price they pay.
The higher the buyer power, the lower the potential for the business to set the price themselves.
If buyer power is low, then the business is able to set the price high and therefore achieve more profit.
BARGAINING POWER OF SUPPLIERS
If suppliers have high levels of power they are able to push up prices for raw materials and components, so lowering profit margins for the business (the supplier’s buyer) to reduce bargaining power of suppliers a business can :
use backward integration
seek out new suppliers to create competition
engage in technical research
BARRIERS TO ENTRY
The position of a business is stronger the more barriers to entry there are in the market.
EASIER TO ENTER
common technology
access to distribution channels
low capital requirements
no need to have high capacity and output
absence of strong brands and customer loyalty
HARDER TO ENTER
well established brands
restricted distribution channels
patented or proprietary know how
high capital requirements
need to achieve acceptable economies of scale for unit cost
The degree of rivalry among existing firms in an industry will also determine prices and profits for any single firm. businesses can reduce rivalry by:
forming cartels or engaging in a broad range of anti competitive policies
taking over their rivals is legal but competition law may prevent it from happening.
not competing on price but competing on introducing new products, and through advertising.
Ansoff matrix