A Level Section 6: Strategic management

35 Strategic developing the long-term plan, putting the strategy into

action and then reviewing to see if it needs changing.

management SWOT analysis considers the internal and external

environments of a business. S and W stand for Strengths
A barrier to entry is something that makes entering a and Weaknesses. These are internal features of a business
market more difficult for businesses, such as the need for at the present time. Opportunities (O) and threats (T)
specialist skills. refer to external events that might happen in the future;
threats are events that might damage the business and
The Boston Matrix highlights the position of different
opportunities are those that might benefit the business.
products in their markets and the growth of the market
as a whole. Undertaking this analysis enables a business
to take a view of what the strategy should be next. The
products are categorised as cash cows, question marks (or
36 Strategic choice
problem children), stars and dogs.
The Ansoff Matrix was developed by Igor Ansoff (1918–
Core competencies are the collective learning in the 2002). It examines strategies in terms of the products
organisation, especially how to coordinate diverse production offered and the markets a business competes in. It
skills and integrate multiple streams of technologies; they highlights four possible strategies open to businesses:
are the things that an organisation does extremely well and market penetration, market development, new product
therefore its strategy should be based on this. development, diversification.
A corporate strategy is the long-term plan of a business Decision tree analysis tries to estimate the possible
that is developed to help it achieve its corporate objectives. outcomes of different courses of action and work out the
The macro business environment refers to factors largely likelihood of these occurring to select the correct option.
outside the control of the business, such as the economy A decision tree is a mathematical model which can be used
and legal changes. A business cannot easily influence these by managers to help them make the right decision. By
on its own. combining possible outcomes with the probability of them
The micro or competitive business environment refers happening, managers can compare the likely financial
to groups or individuals that businesses regularly interact consequences of different decisions.
with, such as suppliers, distributors and competitors. The Expected Monetary Value (EMV) of each decision
The mission of a business sets out the overall guidelines is the average return expected from a decision, taking
within which strategies must fit. It sets the scope of the account of the different financial outcomes and their
business’s activities, for example, in terms of where it wants probability. It shows what you would expect to gain (or
to compete, which product markets it wants to be involved lose) on average if you made this decision many times.
in and the relative focus on different stakeholder groups. Force Field Analysis When a strategic choice needs to be
PEST analysis is a way of analysing the external macro- made, there will be forces pushing for change. These could
environment of business. It examines political, economic, be falling profits, a new management team or a falling share
social and technological factors. It can also be known price. At the same time there will be resistance to change,
as PESTEL analysis, referring to political, economic, such as an unwillingness by employees to change or financial
social, technological, environmental and legal factors. constraints. Analysis of these forces and how to change them
Managers attempt to identify the relevant factors in their is called Force Field Analysis and was developed by Lewin.
environment and rank them according to their relative
importance for the business.
Porter’s Five Forces analysis examines five different forces
37 Strategic
which determine the likely profitability of an industry. The
immediate business environment which contains these
implementation
forces is known as the micro or competitive environment. It A business plan sets out the objectives and strategy to be
includes groups which the business is likely to interact with pursued. It then sets out in detail the actions that need to
regularly; these groups exert a force on the business. be taken to make the strategy work.
These forces are: Contingency planning occurs when a firm prepares for
● rivalry unlikely events, such as:
● supplier power ● a fire
● buyer power ● the bankruptcy of a major customer
● entry threat ● the closure of an important supplier
● substitute threat. ● a major computer virus attacking the database
A strategy is a long-term plan to achieve an objective. ● an epidemic causing illness among staff.
Strategic management is the process of developing and Corporate culture refers to the values, attitudes and
implementing a strategy. It involves: analysing the existing beliefs of a business’s employees; it refers to ‘how we do
situation and the strategic options available to the business, things around here’.

Cambridge International A and AS Level Business © Hodder & Stoughton 2014