Business Strategy Content Types of strategy SWOT Decision

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 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 = (probability 1 x outcome 1) + (probability 2 x outcome 2)

Advantages and Disadvantages of using decision trees Advantages Disadvantages • Allows management • Estimations are used to consider all options for probabilities and their probable financial outcomes consequences of outcomes – these • Makes managers may be inaccurate quantify the impacts of all decisions • Only consider financial and • Allows for decisions to quantifiable data be compared

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