BS

1. Unit 32: Business Strategy
Unit code k/508/0574
Unit type : Core
Unit level : 32
Credit value : 15
Lecture 03

2. By the end of this unit the student will be able to:
1. Analyse the impact and influence which the macro environment has on an organisation and
its business strategies
2. Assess an organisation’s internal environment and capabilities.
3. Evaluate and apply the outcomes of an analysis using Porter’s Five Forces Model
to a given market sector
4. apply models, theories and concepts to assist with the understanding and interpretation of
strategic directions available to an organisation.

3. P3 Applying Porter’s Five Forces model evaluate the competitive forces of a given market sector for an
organisation
M3 Devise appropriate strategies to improve competitive edge and market position based on
outcomes.
Pass and merit and distinction criteria For this section
D3 Critique and interpret information and data applying environmental and competitive analysis to
produce a set of valid strategic directions, objectives and tactical actions.

4. 3.1. Analytical tools and models of analysis:
3.1.1 The balanced score card to align organisation vision and strategy.
3.1.2 Competitive analysis using Porter’s Five Forces model.
3.1.3 Stakeholder Analysis
3.1.4 Applying the Ansoff matrix to product/market strategy

5. 3.1.1 The balanced scorecard to align organisation vision and strategy

6. What is balanced scorecard?
• To deal with this problem Robert Kaplan and David
Norton developed Balanced Scorecard, a
performance measurement management system that
considers not only financial measures but also,
customer, business process and learning measures.
• Traditional financial performance reporting systems provide an indication of
how a firm has performed in the past. But offer inadequate information
how it might in the future.

8. Four Balanced scorecard perspectives
Financial Perspective—“What financial goals do we have that will impact our
organization?”
Customer Perspective—“What things are important to our customers, which
will in turn impact our financial standing?”
Process Perspective—“What do we need to do well internally, in order to
meet our customer goals, that will impact our financial standing?”
People (or learning and growth) Perspective—“What skills, culture, and
capabilities do we need to have in our organization in order to execute on
the process that would make our customers happy and ultimately impact our
financial standing?

9. Four Balanced scorecard perspectives (Cont’d)
The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data. Timely and
accurate funding data will always be a priority, and managers will do whatever necessary to
provide it. In fact, often there is more than enough handling and processing of financial
data. With the implementation of a corporate database, it is hoped that more of the
processing can be centralized and automated.
The Customer Perspective
Recent management philosophy has shown an increasing realization of the importance of
customer focus and customer satisfaction in any business. These are leading indicators: if
customers are not satisfied, they will eventually find other suppliers that will meet their
needs. Poor performance from this perspective is thus a leading indicator of future decline,
even though the current financial picture may look good.

10. The Business Process Perspective
This perspective refers to internal business processes. Metrics based on this perspective
allow the managers to know how well their business is running, and whether its products
and services conform to customer requirements (the mission). These metrics have to be
carefully designed by those who know these processes most intimately; with our unique
missions these are not something that can be developed by outside consultants.
The Learning & Growth Perspective
This perspective includes employee training and corporate cultural attitudes related to
both individual and corporate self-improvement. In a knowledge-worker organization,
people -- the only repository of knowledge -- are the main resource. In the current
climate of rapid technological change, it is becoming necessary for knowledge workers to
be in a continuous learning mode.
Four Balanced scorecard perspectives (Cont’d)

11. • Each perspective of the Balanced scorecard includes objectives,
measures of those objectives, target values of those measures and
initiative.
The balanced scorecard to align organisation vision and strategy
• The balanced scorecard originally was convinced as an improved
performance measurement system.
• However, it soon became evident that it could be used as a
management system to implement strategy aligned with the
organisational vision, where the company wants to be in the future.

12. As a Strategic management system aligned with the vision, the balanced
scorecard will provide:
• Clarifying Strategy: the translation of strategic objectives in to quantifiable measures clarifies
the management team’s understanding of the strategy and helps to develop a coherent
consensus.
• Communicating strategic objectives: the balance can serve to translate high level objectives
in to operational objectives and communicate the strategy effectively throughout the
organisation.
• Planning, setting targets and aligning strategic initiatives: ambitious but achievable targets
are set for each perspective and initiatives are developed to align efforts to reach the targets.
• Strategic feedback and learning: Executives receive feedback on whatever the strategy
implementation is proceeding according to plan and on whether the strategy itself is
successful.

13. 3.1.2. Competitive analysis using Porter’s Five Forces model

14. Porter’s Five Forces Model
• Porter's Five Forces of Competitive Position Analysis were developed in
1979 by Michael E Porter of Harvard Business School as a simple
framework for assessing and evaluating the competitive strength and
position of a business organisation.
• This theory is based on the concept that there are five forces that determine
the competitive intensity and attractiveness of a market. Porter’s five forces
help to identify where power lies in a business situation.

15. Porter’s Five Forces Model (cont’d)

16. Porter’s Five Forces Model (cont’d)
Rivalry competition is high when there are just a few businesses equally selling a product
or service, when the industry is growing and when consumers can easily switch to a
competitors offering for little cost. When rivalry competition is high, advertising and price
wars can ensue, which can hurt a business's bottom line.
Eg: Nike and Adidas, which have considerably larger resources at their disposal, are making a
play within the performance apparel market to gain market share in this up-and-coming
product category.

17. Bargaining power of suppliers. This force analyzes how much power a
business's supplier has and how much control it has over the potential to
raise its prices, which, in turn, would lower a business's profitability. In
addition, it looks at the number of suppliers available: The fewer there
are, the more power they have. Businesses are in a better position when
there are a multitude of suppliers.
Eg: In 2012, Under Armour's products were produced by 27 manufacturers located
across 14 countries. Of these, the top 10 accounted for 49 percent of the products
manufactured.
Porter’s Five Forces Model (cont’d)

18. Bargaining power of customers. This force looks at the power of the consumer to affect
pricing and quality. Consumers have power when there aren't many of them, but lots of
sellers, as well as when it is easy to switch from one business's products or services to
another. Buying power is low when consumers purchase products in small amounts and the
seller's product is very different from any of its competitors.
Eg: Under Armour's customers include both wholesale customers as well as end customers.
Threat of new entrants. This force examines how easy or difficult it is for competitors to
join the marketplace in the industry being examined. The easier it is for a competitor to join
the marketplace, the greater the risk of a business's market share being depleted.
Eg: Large capital costs are required for branding, advertising and creating product demand,
and hence this limits the entry of newer players in the sports apparel market.
Porter’s Five Forces Model (cont’d)

19. Threat of substitute products or services. This force studies how easy it is for
consumers to switch from a business's product or service to that of a
competitor. It looks at how many competitors there are, how their prices and
quality compare to the business being examined and how much of a profit
those competitors are earning, which would determine if they have the ability
to lower their costs even more.
Eg: The demand for performance apparel, sports footwear and accessories is expected to
continue, and hence we think this force does not threaten Under Armour in
the foreseeable future.
Porter’s Five Forces Model (cont’d)

20. 3.1.3. Stakeholder Analysis

21. Who is a stakeholder?
Any individual or an organisation who can be positively or negatively impacted
by, or cause an impact on the actions of a company (Freeman, 1984)
The individuals and constituencies that contribute, either voluntarily or
involuntarily, to its wealth-creating capacity and activities, and are therefore,
its potential beneficiaries and/ or risk bearers (Post, Preston and Sachs, 2002)
Eg: Owners, Stockholders, investors, banks, creditors, partners, suppliers,
buyers, customers prospects, managers, employees, unions, work
councils, competitors, Government, regulators, international regulators,
media NGOs. Etc.

22. Why use stakeholder Analysis?
• Identify the stakeholders likely be affected by or influence the activities of
the organisation
• Asses how those stakeholders could be impacted or impact upon the
organisation
• Anticipate the consequences of any change in the organisation’s activities
• Identify stakeholders’ success criteria
• Assure successful outcome for the organisation by developing co-operation
with stakeholders

23. Advantages and disadvantages of Stakeholder Analysis
Advantages
 Get to know stakeholders better:
• Relative importance, power and
interests
• Better managed relationships
• Risks identifies
 Make better strategies and decisions
 Greater acceptance of organisational
actions by stakeholders
Disadvantages
 Assessment of analysis may be
subjective
 May be not all stakeholder interests
can be met at the same time
• Focus on most important stakeholder
 Balance and reconcile all interests
according to importance or urgency

24. Managing Stakeholders: A strategic Context
• The quality of relationships with
stakeholders are the key
determinant of corporate
reputation
• Stakeholder management is the
core of public affairs management

25. • Completing a
stakeholder
analysis
Brain storm the list of stakeholders
Define stakeholders’ strategic importance
Rate stakeholders’ current commitment
Clarify stakeholder’s goals/ Needs
Determine Stakeholder involvement
Develop stakeholder strategy

26. How to use the data collected form a stakeholder analysis?
• Incorporate stakeholder strategies in to the project implementation plan/
or general day to day operations
• Incorporate major risks into the risk management plan of the organisation
• Incorporate stakeholder strategies in to the communication plan
• Review immediately if operations or projects appears stalled to assist in
diagnosing roadblocks

27. Stakeholder Analysis Tools: Power/ Interest Matrix
• Classifies stakeholders in
relation to their power and
extent to which they are
likely to show interest in the
actions of the organisation.

28. Stakeholder Analysis Tools: Power/ Dynamism Matrix
• Classifies stakeholders
in relation to the
power they hold and
their aptitude for
action.

29. 3.1.4. Applying the Ansoff matrix to product/market strategy

30. What is Ansoff’s Matrix?
• A Strategic marketing planning tool that links a firm's marketing strategy
with its general strategic direction and presents four alternative growth
strategies as a table (matrix).
• A common tool used within marketing was developed by Igor Ansoff in
1957. He suggested that a business has the potential to grow by using one
of four strategies. These strategies involve making the most of existing
markets and products, introducing new products, or entering new target
markets.

31. • Ansoff’s Matrix

32. Market penetration
The business focuses on selling existing products into existing markets.
Market penetration seeks to achieve four main objectives:
• Maintain or increase the market share of current products – this can be
achieved by a combination of competitive pricing strategies, advertising, sales
promotion and perhaps more resources dedicated to personal selling
• Secure dominance of growth markets
• Restructure a mature market by driving out competitors; this would require a
much more aggressive promotional campaign, supported by a pricing strategy
designed to make the market unattractive for competitors
• Increase usage by existing customers – for example by introducing loyalty
schemes

33. Market development
The business seeks to sell its existing products into new markets.
There are many possible ways of approaching this strategy, including:
• New geographical markets; for example exporting the product to a new
country
• New product dimensions or packaging: for example
• New distribution channels (e.g. moving from selling via retail to selling
using e-commerce and mail order)
• Different pricing policies to attract different customers or create new
market segments
• Market development is a more risky strategy than market penetration
because of the targeting of new markets.

34. Product development
A business aims to introduce new products into existing markets. This strategy
may require the development of new competencies and requires the business
to develop modified products which can appeal to existing markets.
A strategy of product development is particularly suitable for a business where
the product needs to be differentiated in order to remain competitive. A
successful product development strategy places the marketing emphasis on:
• Research & development and innovation
• Detailed insights into customer needs (and how they change)
• Being first to market

35. Diversification
This is where a business markets new products in new markets.
This is an inherently more risk strategy because the business is moving into
markets in which it has little or no experience.
For a business to adopt a diversification strategy, therefore, it must have a clear
idea about what it expects to gain from the strategy and an honest assessment
of the risks.
However, for the right balance between risk and reward, a marketing strategy
of diversification can be highly rewarding.