Business Strategy Definition

A business strategy is a comprehensive plan of action that

outlines how a company will achieve its long-term goals and
objectives. It involves analyzing the competitive environment,
identifying potential opportunities and threats, and making
decisions on how to allocate resources to create a competitive
advantage.¹

Generic Business Strategies

Michael Porter proposed three generic business strategies that
companies can adopt to outperform competitors in an industry.
Tactics of business strategy
1. Cost Leadership Strategy
A cost leadership strategy involves becoming the lowest-cost
producer in the industry. This strategy aims to offer products or
services at a lower price than competitors without compromising
quality.

- *Key Features:*
- Large-scale production to achieve economies of scale
- Tight cost control across departments
- Efficient supply chain and operations
- Low-cost distribution channels

- *Advantages:*
- Can survive price wars
- Attracts price-sensitive customers

Page 1 of 26
Un 4
 - Can increase market share through competitive pricing
- Can improve profitability through cost savings

- *Challenges:*
- Requires significant investment in infrastructure and
technology
- Can be difficult to maintain cost leadership over time
- May lead to price wars with competitors

- *Examples:*
- Walmart uses cost leadership by offering low-priced goods
- Ryanair offers low-cost air travel by minimizing services

2. Differentiation Strategy
A differentiation strategy involves offering unique products or
services that are different from competitors in terms of features,
brand, design, quality, or customer service.

- *Key Features:*
- Innovation and product development
- Brand building and advertising
- Premium pricing due to added value
- Strong customer support

- *Advantages:*

Page 2 of 26
Un 4
 - Customers become loyal to the brand
- Reduced threat from substitutes
- Can command premium prices
- Can create a unique selling proposition (USP)

- *Challenges:*
- Requires significant investment in research and development
- Can be difficult to maintain differentiation over time
- May lead to high marketing and advertising costs

- *Examples:*
- Apple differentiates through innovation and design
- Starbucks differentiates through customer experience and
quality

3. Focus Strategy
A focus strategy targets a specific segment of the market, such as
a demographic group, geographic region, or product category.
There are two subtypes:

- *Cost Focus*: Serving a niche market at lower cost

- *Differentiation Focus*: Serving a niche market with unique
offerings

- *Key Features:*

Page 3 of 26
Un 4
 - Deep understanding of the target market
- Personalized offerings
- Specialized customer service

- *Advantages:*
- Deep customer understanding
- Less competition in narrow segments
- Can build strong relationships with customers
- Can create a loyal customer base

- *Challenges:*
- Limited market size
- Can be difficult to expand beyond the niche market
- May require specialized skills and expertise

- *Examples:*
- Rolls-Royce focuses on luxury car buyers
- Dollar Shave Club targets online male grooming customers

Importance of Business Strategy

A business strategy is essential for long-term success and growth.
It provides clarity and focus, guides decision-making, and helps
allocate resources effectively. A good strategy defines the
direction and scope of an organization and sets measurable goals
to work towards.²

Page 4 of 26
Un 4
Formulating a Business Strategy
To formulate a business strategy, companies should³:
1. *Define their vision*: Determine the company's long-term goals
and objectives.
2. *Set top-level objectives*: Establish specific, measurable,
achievable, relevant, and time-bound (SMART) objectives.
3. *Analyze the business and market*: Conduct a SWOT analysis
and analyze the competitive environment.
4. *Define how to gain competitive advantage*: Identify
opportunities to differentiate or lead in cost.
5. *Build a strategy framework*: Develop a roadmap for achieving
the company's objectives.

Business Strategies for Different Industry Conditions

The business strategy a company adopts depends on the specific
conditions of the industry it operates in. Industries go through
different life cycle stages, including emerging, growth, maturity,
decline, and fragmentation. Each stage has its unique
characteristics and requires a tailored approach to achieve
success.

1. Emerging Industries
Emerging industries are newly formed or developing sectors that
are in the early phase of their life cycle. These industries often
lack clear rules, face unstable demand, and are technology- or
innovation-driven.

Page 5 of 26
Un 4
- *Characteristics:*
- Uncertain demand
- Few competitors
- High innovation
- Rapid product development
- *Recommended Strategies:*
- First-mover advantage: Enter the market early to capture
market leadership and set industry standards.
- Educating customers: Create awareness and communicate
product benefits to potential customers.
- Heavy investment in R&D: Invest in research and
development to innovate and stay ahead in technology or service
features.
- Building brand loyalty: Offer quality, after-sales service, and
customer engagement to build a loyal customer base.
- Strategic alliances: Partner with firms for technology,
distribution, or market access.

2. Growth Industries
Growth industries are sectors where demand is expanding rapidly.
Many new firms enter the market, and competition starts building
up.

- *Characteristics:*
- Increasing demand
- Many new entrants
- Improving customer awareness
Page 6 of 26
Un 4
 - Expanding product range
- *Recommended Strategies:*
- Aggressive marketing: Increase market share and reach new
customers through aggressive marketing campaigns.
- Product line expansion: Offer variants or upgraded models to
attract different segments.
- Capacity expansion: Scale up production and logistics to meet
growing demand.
- Customer relationship management (CRM): Build loyalty
through after-sales services, offers, and feedback.
- Improved distribution networks: Ensure fast and wide
availability of products.

3. Mature Industries
A mature industry is one where growth slows down, demand
stabilizes, and companies compete for market share rather than
growing the market.

- *Characteristics:*
- Slowed demand growth
- Intense price competition
- Product standardization
- High market saturation
- *Recommended Strategies:*
- Cost efficiency: Reduce operational costs to maintain profit
margins.

Page 7 of 26
Un 4
 - Differentiation: Add features, branding, or service quality to
stand out.
- Customer retention: Use loyalty programs, service plans, and
regular engagement.
- Process innovation: Use technology to streamline operations
and reduce delivery time.
- Mergers and acquisitions: Consolidate to reduce competition
and improve economies of scale.

4. Declining Industries
In a declining industry, sales fall due to changing consumer
preferences, better alternatives, or technological shifts.

- *Characteristics:*
- Shrinking customer base
- Overcapacity
- Price wars
- High exit barriers
- *Recommended Strategies:*
- Focus on profitable niches: Serve a smaller but loyal customer
group.
- Harvesting strategy: Gradually reduce investment and
maximize short-term cash flow.
- Divestment: Sell off or shut down declining business units.
- Innovation or repositioning: Find new uses for existing
products or explore adjacent markets.
- Cost cutting: Reduce operating costs to maintain profitability.
Page 8 of 26
Un 4
 5. Fragmented Industries
A fragmented industry is one with many small players and no
single firm with a dominant market share.

- *Characteristics:*
- Low entry barriers
- Highly localized competition
- Difficult to gain economies of scale
- Undifferentiated products
- *Recommended Strategies:*
- Standardization: Bring uniformity to product/service to stand
out.
- Brand building: Develop a recognizable and trusted brand
across locations.
- Technology adoption: Use digital platforms for efficiency (e.g.,
online ordering, CRM).
- Consolidation: Merge with or acquire smaller competitors.
- Customer experience focus: Personalize offerings and build
strong relationships.

By understanding the different industry conditions and adopting

appropriate business strategies, companies can maintain
competitiveness, profitability, and sustainability throughout the
business life cycle.

Page 9 of 26
Un 4
Porter’s Five Forces Model

Porter’s Five Forces Model is a framework for analyzing the

competitive structure of an industry. Developed by Michael Porter,
this model identifies five key forces that shape the competitive
landscape and determine the profitability of an industry.

The Five Forces

1. *Threat of New Entrants*: The threat of new companies
entering the market and increasing competition. This force is
influenced by barriers to entry, such as high capital requirements,
patents, or brand loyalty.
2. *Bargaining Power of Suppliers*: The ability of suppliers to
negotiate prices and terms with the company. Suppliers with
significant market power can increase costs and reduce
profitability.
3. *Bargaining Power of Buyers*: The ability of customers to
negotiate prices and terms with the company. Buyers with
significant market power can demand lower prices and better
quality.
4. *Threat of Substitute Products or Services*: The threat of
alternative products or services that can replace the company’s
offerings. Substitute products can limit the company’s pricing
power and profitability.
5. *Industry Rivalry*: The intensity of competition among existing
companies in the industry. High rivalry can lead to price wars,
reduced profitability, and increased competition.

Page 10 of 26
Un 4
How Porter’s Five Forces Model Helps Managers
Porter’s Five Forces Model helps managers identify opportunities
and threats confronting a company by:

- *Analyzing industry structure*: The model provides a framework

for understanding the competitive dynamics of an industry and
identifying potential threats and opportunities.
- *Identifying competitive forces*: By analyzing the five forces,
managers can identify the key drivers of competition and develop
strategies to gain a competitive advantage.
- *Developing strategic responses*: The model helps managers
develop strategic responses to the competitive forces, such as
differentiating their products or services, building barriers to
entry, or negotiating with suppliers.
- *Anticipating changes*: By monitoring the five forces, managers
can anticipate changes in the industry and adjust their strategies
accordingly.

Benefits of Porter’s Five Forces Model

The benefits of using Porter’s Five Forces Model include:

- *Improved understanding of industry dynamics*: The model

provides a framework for understanding the competitive structure
of an industry and identifying potential opportunities and threats.
- *Better strategic decision-making*: By analyzing the five forces,
managers can make informed decisions about investments,
pricing, and other strategic initiatives.

Page 11 of 26
Un 4
- *Enhanced competitive advantage*: By understanding the
competitive forces, companies can develop strategies to gain a
competitive advantage and improve their profitability.

Overall, Porter’s Five Forces Model is a valuable tool for managers

seeking to understand the competitive dynamics of their industry
and develop effective strategies to gain a competitive advantage.
SWOT analysis is a strategic tool used to evaluate the internal and
external factors that affect a business. It’s a crucial component of
business strategy development, helping organizations understand
their strengths, weaknesses, opportunities, and threats.

*What is SWOT Analysis?*

SWOT analysis is a framework that identifies¹:

- *Strengths*: Internal attributes that give a competitive
advantage, such as core competencies, unique resources, or
exceptional customer service.
- *Weaknesses*: Internal limitations that can hinder performance
or growth, like gaps in expertise, inefficient processes, or limited
resources.
- *Opportunities*: External factors that offer potential growth,
such as market trends, changes in consumer behavior, or
emerging technologies.
- *Threats*: External risks that could impact success, like
increased competition, economic downturns, or regulatory
changes.

*Benefits of SWOT Analysis*

Page 12 of 26
Un 4
Conducting a SWOT analysis provides several benefits, including²
³:
- *Informed Strategic Decision-Making*: Provides a comprehensive
view of internal and external factors affecting the business.
- *Resource Allocation*: Helps prioritize resources and focus on
critical areas.
- *Risk Mitigation*: Identifies potential threats and weaknesses,
enabling proactive measures.

*How to Conduct a SWOT Analysis*

To conduct a SWOT analysis effectively⁴ ⁵:

1. *Identify Strengths*: Determine internal attributes that give a
competitive advantage.
2. *Identify Weaknesses*: Recognize internal limitations that can
hinder performance.
3. *Explore Opportunities*: Analyze external factors that offer
potential growth.
4. *Analyze Threats*: Identify external risks that could impact
success.
5. *Develop Action Plans*: Translate insights into actionable
strategies and plans.

*Best Practices*

When conducting a SWOT analysis, remember to:

Page 13 of 26
Un 4
- *Use Data*: Base the analysis on accurate and up-to-date data.
- *Be Specific*: Clearly define each strength, weakness,
opportunity, and threat.
- *Prioritize Factors*: Focus on the most critical factors that will
have the greatest impact.
- *Review Regularly*: Update the analysis to reflect changes in the
business environment.

By applying SWOT analysis, businesses can develop effective

strategies to drive growth, outmaneuver competitors, and achieve
long-term success.

McKinsey 7S Framework

The McKinsey 7S Framework is a strategic management tool that

helps organizations assess and improve their internal structure
and processes. It consists of seven interconnected elements that
must be aligned for an organization to achieve its goals and
objectives.

Hard Elements
1. *Strategy*: The plan of action to achieve the organization's
goals and objectives. A well-defined strategy provides direction
and focus for the organization.

- *Example*: A company decides to pursue a differentiation

strategy by offering unique products and services that set it apart
from competitors.

Page 14 of 26
Un 4
2. *Structure*: The organizational layout, including reporting lines
and division of labor. The structure should support the strategy
and facilitate effective communication and decision-making.

- *Example*: A company adopts a matrix structure to facilitate

collaboration and innovation across different departments and
functions.
3. *Systems*: The daily processes and procedures that govern
how work is done. Efficient systems are essential for productivity
and quality.

- *Example*: A company implements a new project

management system to streamline workflows and improve
collaboration among team members.

Soft Elements
1. *Shared Values*: The core values and culture of the
organization. Shared values influence employee behavior and
decision-making.

- *Example*: A company values innovation and customer

satisfaction, which encourages employees to think creatively and
prioritize customer needs.
2. *Style*: The leadership approach and behavior. Effective
leaders inspire and motivate employees to achieve their best.

- *Example*: A leader adopts a transformational leadership

style, empowering employees to take ownership and make
decisions.
Page 15 of 26
Un 4
3. *Staff*: The human resources and capabilities. The right staff
with the necessary skills and experience are crucial for success.

- *Example*: A company hires employees with expertise in

digital marketing to support its online growth strategy.
4. *Skills*: The distinct competencies and abilities of the
organization's employees. Developing and leveraging skills is
essential for competitive advantage.

- *Example*: A company invests in training programs to

develop employees' skills in data analysis and interpretation.

Benefits of the McKinsey 7S Framework

The McKinsey 7S Framework offers several benefits, including:

- *Improved alignment*: Ensures that all internal elements are

aligned to support the strategy.
- *Enhanced effectiveness*: Identifies areas for improvement and
develops strategies to address them.
- *Better change management*: Helps organizations adapt to
changing market conditions and internal challenges.

Applying the McKinsey 7S Framework

To apply the McKinsey 7S Framework, organizations should:

- *Assess the current state*: Evaluate the current state of each

element and identify areas for improvement.

Page 16 of 26
Un 4
- *Define the desired state*: Determine the desired state for each
element and develop a plan to achieve it.
- *Develop a roadmap*: Create a roadmap for implementing the
changes and tracking progress.

By using the McKinsey 7S Framework, organizations can ensure

that their internal elements are aligned and working together to
achieve their goals and objectives. This framework is particularly
useful for organizations undergoing significant change or
transformation.

GE 9-Cell Model
The GE 9-Cell Model, also known as the GE-McKinsey Matrix, is a
strategic tool used to analyze and prioritize investments among
various business units or product lines. Developed by McKinsey
and Company in the 1970s, this model evaluates business
portfolio based on two key dimensions:

- *Industry Attractiveness*: This dimension assesses the appeal of

an industry based on factors such as market size, growth rate,
competition, and profitability.
- *Business Strength*: This dimension evaluates the competitive
position of a business unit or product line based on factors such
as market share, brand reputation, and capabilities.

*Importance of the GE 9-Cell Model*

The GE 9-Cell Model is an important tool for businesses because it

helps them:
Page 17 of 26
Un 4
- *Prioritize investments*: By evaluating business units or product
lines based on industry attractiveness and business strength,
companies can prioritize investments and allocate resources more
effectively.
- *Make informed decisions*: The model provides a framework for
making informed decisions about which business units or product
lines to grow, maintain, or divest.
- *Optimize portfolio*: By analyzing the business portfolio,
companies can identify areas for improvement and optimize their
portfolio to achieve strategic objectives.

*Where is the GE 9-Cell Model used in business?*

The GE 9-Cell Model is widely used in business to:

- *Evaluate business portfolio*: Companies use the model to

evaluate their business portfolio and identify areas for
improvement.
- *Develop strategic plans*: The model helps companies develop
strategic plans that align with their business objectives.
- *Make investment decisions*: The model provides a framework
for making informed investment decisions and allocating
resources.

*Example*

Page 18 of 26
Un 4
A company like General Electric (GE) might use the GE 9-Cell
Model to evaluate its business portfolio and determine which
segments to grow, maintain, or phase out. By ranking products
across nine cells, the company can prioritize investments and
drive long-term success.

How to Use the GE 9-Cell Model

To use the GE 9-Cell Model, follow these steps:

1. *Identify business units or product lines*: Identify the business

units or product lines to be evaluated.
2. *Assess industry attractiveness*: Evaluate the attractiveness of
each industry based on factors such as market size, growth rate,
and competition.
3. *Assess business strength*: Evaluate the competitive position
of each business unit or product line based on factors such as
market share, brand reputation, and capabilities.
4. *Plot the business units*: Plot the business units or product
lines on a 3x3 matrix based on industry attractiveness and
business strength.
5. *Analyze the results*: Analyze the position of each business
unit or product line on the matrix to determine the future
direction.

By using the GE 9-Cell Model, companies can make informed

decisions about their business portfolio and drive long-term
success.

Boston Consulting Group (BCG) Matrix

Page 19 of 26
Un 4
The Boston Consulting Group (BCG) Matrix is a strategic tool used
to analyze and prioritize investments among various business
units or product lines. Developed by the Boston Consulting Group,
this model evaluates business portfolio based on two key
dimensions:

- *Relative Market Share*: This dimension assesses the

competitive position of a business unit or product line based on its
market share relative to its competitors.
- *Market Growth Rate*: This dimension evaluates the growth
potential of a market based on factors such as market size,
growth rate, and competition.

How the BCG Matrix Works

1. *Plot the Business Units*: Plot the business units or product
lines on a 2x2 matrix based on relative market share and market
growth rate.
2. *Analyze the Results*: Analyze the position of each business
unit or product line on the matrix to determine the future
direction.

The Four Quadrants

The BCG Matrix consists of four quadrants, each representing a
different combination of relative market share and market growth
rate [2]:
- *Stars*: Business units or product lines with high relative market
share and high market growth rate. These are typically high-
priority investments.

Page 20 of 26
Un 4
- *Cash Cows*: Business units or product lines with high relative
market share and low market growth rate. These generate
significant cash flow but may not require significant investment.
- *Question Marks*: Business units or product lines with low
relative market share and high market growth rate. These may
require significant investment to increase market share.
- *Dogs*: Business units or product lines with low relative market
share and low market growth rate. These may not be worth
investing in and may be candidates for divestment.

Benefits
The BCG Matrix offers several benefits, including [8]:
- *Portfolio Optimization*: Helps companies optimize their
business portfolio by identifying areas for investment and
divestment.
- *Strategic Decision-Making*: Provides a framework for making
informed strategic decisions about business units or product lines.
- *Resource Allocation*: Helps companies allocate resources more
effectively by prioritizing investments in high-growth, high-
market-share business units or product lines.

Example
A company like Apple might use the BCG Matrix to evaluate its
business portfolio and determine which product lines to invest in.
For example, Apple’s iPhone business might be classified as a
“Star” due to its high market share and growth rate, while its Mac
business might be classified as a “Cash Cow” due to its high
market share but lower growth rate.

Page 21 of 26
Un 4
Limitations
While the BCG Matrix is a useful tool, it has some limitations,
including [6]:
- *Oversimplification*: The model oversimplifies the complexity of
business portfolio by focusing on only two dimensions.
- *Lack of Context*: The model does not take into account specific
industry or market context, which can lead to inaccurate
conclusions.

By understanding the BCG Matrix and its limitations, companies

can use this tool to make informed strategic decisions and drive
long-term success.

Competitor Analysis
Competitor analysis is a critical component of business strategy
that involves analyzing and understanding the strengths,
weaknesses, and strategies of competitors. This analysis helps
companies identify opportunities and threats in the market and
develop effective strategies to gain a competitive advantage.

Components of Competitor Analysis

1. *Identify Competitors*: Identify the main competitors in the
market, including direct and indirect competitors.
2. *Analyze Competitor Strengths and Weaknesses*: Analyze the
strengths and weaknesses of each competitor, including their
financial resources, market share, product offerings, and
marketing strategies.
3. *Assess Competitor Strategies*: Assess the strategies of each
competitor, including their goals, objectives, and tactics.
Page 22 of 26
Un 4
4. *Evaluate Competitor Performance*: Evaluate the performance
of each competitor, including their sales, revenue, and market
share.
5. *Identify Competitor Opportunities and Threats*: Identify
opportunities and threats in the market that may impact
competitors’ performance.

Strategic Plan
A strategic plan is a document that outlines a company’s overall
strategy and goals. It provides a roadmap for achieving the
company’s objectives and helps guide decision-making and
resource allocation.

Components of a Strategic Plan

1. *Mission Statement*: A statement that defines the company’s
purpose and objectives.
2. *SWOT Analysis*: An analysis of the company’s strengths,
weaknesses, opportunities, and threats.
3. *Goals and Objectives*: Specific, measurable goals and
objectives that the company wants to achieve.
4. *Strategies and Tactics*: The strategies and tactics the
company will use to achieve its goals and objectives.
5. *Implementation Plan*: A plan that outlines the steps the
company will take to implement its strategies and achieve its
objectives.
6. *Performance Metrics*: Metrics used to measure the company’s
performance and progress towards its goals.

Page 23 of 26
Un 4
Importance of Competitor Analysis and Strategic Planning
Competitor analysis and strategic planning are essential
components of business strategy that help companies:

- *Gain a competitive advantage*: By understanding the strengths

and weaknesses of competitors, companies can develop effective
strategies to gain a competitive advantage.
- *Make informed decisions*: A strategic plan provides a
framework for making informed decisions and allocating
resources.
- *Achieve business objectives*: A well-developed strategic plan
helps companies achieve their business objectives and drive long-
term success.

Example
A company like Amazon might use competitor analysis to
understand the strengths and weaknesses of its competitors, such
as Walmart and eBay. Based on this analysis, Amazon might
develop a strategic plan to increase its market share and improve
its competitive position.

By conducting competitor analysis and developing a strategic

plan, companies can gain a deeper understanding of their market
and competitors, make informed decisions, and drive long-term
success.

Benefits of Competitor Analysis and Strategic Planning

1. *Improved Decision-Making*: Competitor analysis and strategic
planning provide valuable insights that inform business decisions.
Page 24 of 26
Un 4
2. *Increased Competitiveness*: By understanding competitors’
strengths and weaknesses, companies can develop strategies to
gain a competitive advantage.
3. *Better Resource Allocation*: A strategic plan helps companies
allocate resources more effectively by prioritizing initiatives that
align with their goals and objectives.
4. *Enhanced Performance*: By setting clear goals and objectives,
companies can measure performance and make adjustments to
improve results.

Best Practices for Competitor Analysis and Strategic Planning

1. *Conduct Regular Analysis*: Regularly conduct competitor
analysis and review strategic plans to ensure they remain
relevant and effective.
2. *Gather Accurate Data*: Gather accurate and reliable data to
inform competitor analysis and strategic planning.
3. *Involve Stakeholders*: Involve stakeholders in the strategic
planning process to ensure everyone is aligned and committed to
the company’s goals and objectives.
4. *Monitor Progress*: Regularly monitor progress towards
strategic objectives and make adjustments as needed.

Challenges of Competitor Analysis and Strategic Planning

1. *Gathering Accurate Data*: Gathering accurate data about
competitors can be challenging, especially in industries with
limited publicly available information.
2. *Developing Effective Strategies*: Developing effective
strategies requires a deep understanding of the market,
competitors, and company’s strengths and weaknesses.

Page 25 of 26
Un 4
3. *Implementing Strategic Plans*: Implementing strategic plans
can be challenging, especially if it requires significant changes to
the organization’s culture, processes, or structure.

By understanding the benefits, best practices, and challenges of

competitor analysis and strategic planning, companies can
develop effective strategies to gain a competitive advantage and
drive long-term success.

Page 26 of 26
Un 4