Advanced Study Notes: Business Strategy
and Corporate Planning
1.0 Developing Business Strategy (6.2.1)
Business strategy serves as the long-term blueprint for an organisation's success, providing
the essential direction required to navigate a complex and competitive landscape. This section
will deconstruct the core components of strategy, from its fundamental meaning to the
analytical frameworks used in its development. For any A-Level student aiming to
understand modern business, mastering these concepts is critical, as they form the foundation
upon which all significant corporate decisions are built.
1.1 The Essence of Strategy and Strategic Management
Define Business Strategy
A business strategy is the long-term plan developed by a business to help it achieve its
objectives. It is characterised by four key features that distinguish it from shorter-term tactical
decisions:
• Long-term: Strategic plans are typically designed to span several years, providing a
guiding framework for the organisation's future direction.
• High Resource Commitment: The implementation of a strategy involves a
significant commitment of financial, human, and physical resources.
• High Risk: Due to the substantial resource commitment and the potential for the plan
to be incorrect, strategic decisions are inherently high-risk.
• Difficult to Reverse: Once resources are committed to a specific strategy, it is often
challenging and costly to reallocate them, making the decision difficult to reverse.
Explain the Purpose of Strategy
The primary purpose of a business strategy is to provide a clear and coherent path for
achieving organisational objectives. It serves to clarify goals, establish priorities for resource
allocation, and coordinate actions across all departments. A well-defined strategy ensures
strategic alignment and prevents functional silos from working at cross-purposes, directing
the collective effort of the organisation towards a unified goal.
Define Strategic Management
Strategic management is the comprehensive process of developing and implementing a
business strategy to ensure its success.
Illustrate the Strategic Management Process
The process of strategic management can be broken down into three distinct stages, which
guide managers from initial assessment to final execution.
Strategic Analysis -> Strategic Choice -> Strategic Implementation
Below this process, the three stages are detailed:
• Strategic Analysis: This initial stage involves a thorough assessment of the business's
current position. Managers analyse both the internal environment (e.g., financial
health, brand strength, staff skills) and the external environment (e.g., competition,
economic conditions, technological changes). A common tool for this is a SWOT
analysis, which identifies Strengths, Weaknesses, Opportunities, and Threats.
• Strategic Choice: In this decision-making phase, managers use the insights from the
strategic analysis to decide on the best strategy to pursue. This involves making
critical choices about target customers, product offerings, and market positioning.
• Strategic Implementation: This final stage is concerned with the execution of the
chosen strategy. It is often the most challenging phase, requiring meticulous planning,
resource management, coordination across the organisation, and effective leadership
to ensure that the strategic goals are achieved.
1.2 Analytical Frameworks for Strategy Development
Effective strategic analysis relies on a variety of established frameworks. These models
provide structured methods for analysing a business's internal capabilities and its external
competitive environment, forming a solid foundation for informed strategic choices. The
initial frameworks like PEST and Porter’s Five Forces help a business understand its
environment, while subsequent models like the Ansoff Matrix and Core Competence
framework help managers use that understanding to make decisive strategic choices.
1. Blue Ocean Strategy
A Blue Ocean Strategy is a plan that seeks to create new, uncontested market space by
combining differentiation with low cost, thereby making competition irrelevant. This
approach contrasts sharply with the traditional "Red Ocean" strategy of competing in
existing, crowded markets.
Red Ocean Strategy Blue Ocean Strategy
Competing in the existing market space Creating an uncontested market space
Attempting to fight and beat the competition Aiming to make the competition irrelevant
Fighting for existing demand Creating new demand
Focusing on differentiation or low cost Combining differentiation and low cost
Examples of Blue Ocean Thinking:
• Groupe SEB's Acti-Fry: Instead of competing in the crowded market for traditional
deep-fat fryers, Groupe SEB created a new market space with the Acti-Fry, a device
that makes healthier French fries using only one tablespoon of oil.
• Cirque du Soleil: This company reinvented the circus by moving away from the
traditional model of clowns and performing animals. It created a sophisticated, high-
end theatrical experience that appealed to adults as well as children, thereby creating a
new, uncontested market.
2. Scenario Planning
Scenario planning is a technique where managers imagine several plausible future scenarios
to aid in strategic planning. Its core principle is that the future is not simply an extension of
the past. By considering multiple potential futures, managers can develop more robust and
flexible strategies. The oil company Shell is well-known for using this technique to create
visions of the future world and plan its long-term strategy accordingly.
3. SWOT Analysis
A SWOT analysis is a framework used to evaluate a business's competitive position by
considering its internal Strengths and Weaknesses alongside its external Opportunities and
Threats.
• Strengths (Internal): These are the internal attributes that give a business an
advantage.
o High cash funds
o Strong brand
o Good distribution network
o Skilled staff
• Weaknesses (Internal): These are internal attributes that place the business at a
disadvantage.
o High levels of borrowing
o Lack of new product development
• Opportunities (External): These are external elements that the business could
exploit to its advantage.
o Entering new overseas markets
o Forming alliances with competitors
o Establishing an online presence
• Threats (External): These are external elements that could cause trouble for the
business.
o New legislation increasing costs
o New competitors entering the market
o Potential takeover bids
The results of a SWOT analysis are used to formulate strategic objectives. The goal is to
develop a strategy that builds on strengths, addresses weaknesses, capitalises on
opportunities, and protects against threats.
While SWOT analysis provides a holistic overview, a PEST analysis allows for a deeper dive
into the 'Opportunities' and 'Threats' by systematically breaking down the external macro-
environment.
4. PEST Analysis
A PEST analysis is a framework for analysing the external macroenvironment. An extended
version, known as PESTEL, also includes Environmental and Legal factors. This analysis
helps a business understand the broader forces that could impact its operations.
• Political: These factors include legal issues, trade agreements, and changes in
government policy.
• Economic: These factors include interest rates, inflation, economic growth, and
exchange rates.
• Social: These factors include demographic factors and social trends.
• Technological: These factors involve the impact of changes in technology.
A PEST analysis provides the broad context, while Porter's Five Forces model drills down
into the specific competitive dynamics of the industry itself.
5. Porter's Five Forces Analysis
Developed by Michael Porter, this model is a tool for analysing the competitive forces that
shape an industry and determine its profitability. Businesses seek to operate in environments
where these five forces are weak to maximize their profit potential.
• Rivalry: This force examines the intensity of competition among existing firms. In an
industry with many firms of similar size, profits are likely to be shared and thus lower
for each individual business.
• Entry Threat: This force assesses how easy it is for new competitors to enter the
market. The threat is low if there are high barriers to entry, such as high entry costs
(e.g., for specialist equipment), strong brand loyalty among existing customers, and
legal restrictions like patents.
• Buyer Power: This force measures the power of customers to drive down prices.
Buyers have more power when there are few of them, they are crucial to the
business's survival, and they can easily switch to alternative suppliers.
• Supplier Power: This force assesses the power of suppliers to raise their prices.
Suppliers are powerful if there are few of them, their product is unique, and the
business is highly dependent on them.
• Substitute Threat: This force considers the ease with which a customer can switch to
a different type of product that serves the same function (e.g., switching from air
travel to trains). A high substitute threat limits the prices a business can charge.
After analysing the external environment, a business must look inward to identify its unique
capabilities, which is the focus of the Core Competence framework.
6. Core Competence Framework
Developed by C.K. Prahalad and Gary Hamel, this framework suggests that strategy should
be built around a business's core competencies—the collective learning and unique skills
that the organisation does exceptionally well. A core competence can be identified by three
factors:
1. It provides access to a wide variety of markets.
2. It delivers a significant customer benefit.
3. It is difficult for competitors to copy.
The strategic implication is that businesses should focus on and invest in these core
competencies while considering outsourcing activities where they lack competence.
7. Ansoff Matrix
The Ansoff Matrix is a strategic tool that examines growth strategies based on the
combination of existing or new products and existing or new markets.
• Market Penetration (Low Risk): This strategy involves selling existing products to
existing customers. The focus is on increasing market share through tactics like price
cuts or increased advertising.
• New Product Development (Risky): This involves developing new products for
existing customers. While managers understand their customer base, the high failure
rate of new products makes this a risky approach.
• Market Development (High Risk): This strategy offers existing products to new
markets, such as selling overseas or targeting new market segments. The risk comes
from a lack of familiarity with the new market.
• Diversification (High Risk): The riskiest strategy, this involves offering new
products to new markets. It requires the business to operate in an unfamiliar sector,
though success can reduce overall risk by spreading the business across different
markets.
8. Force Field Analysis
Developed by social psychologist Kurt Lewin, Force Field Analysis is a model for
understanding the forces that influence a situation of change. It identifies a balance between
'driving forces' (factors pushing for change, such as falling profits) and 'restraining forces'
(obstacles resisting change, such as employee unwillingness). Strategic change occurs when
managers either increase driving forces (e.g., by stressing the dangers of not adopting new
technology) or decrease restraining forces (e.g., by providing training to equip staff with the
necessary skills).
9. Decision Trees
A decision tree is a mathematical model that helps managers compare the financial
consequences of different decisions. It combines possible outcomes with their estimated
probabilities to provide a structured way of assessing risk and reward. Key components
include a square for a decision point, circles for outcomes, and lines for options.
A central calculation is the Expected Monetary Value (EMV), which represents the average
return expected from a decision if it were made many times.
• Formula: EMV = (Probability of Outcome A * Financial Value of A) +
(Probability of Outcome B * Financial Value of B)
Example Calculation (from source Figure 6.50):
1. Option: Modify the existing product
o Cost: $0.2 million
o EMV = (0.8 probability of success × 1m gain) + (0.2 probability of failure × -
0.3m loss)
o EMV = $0.8m - 0.06m = **0.74m**
oNet Gain = EMV - Cost = $0.74m - 0.2m = **0.54m** (Note: The source text
states a final net gain of $0.594m for this option. However, for academic
clarity and consistency with the provided formula, this guide follows the direct
calculation.)
2. Option: Enter a new market
o Cost: $1 million
o EMV = (0.6 probability of success × 4m gain) + (0.4 probability of failure × -
2m loss)
o EMV = $2.4m - 0.8m = **1.6m**
o Net Gain = EMV - Cost = $1.6m - 1m = **0.6m**
Based on this analysis, the option to enter a new market is the preferred choice as it has the
highest expected net gain ($0.6 million compared to $0.54 million).
Usefulness Limitations
Makes managers consider all options
Depends on the accuracy of the options included.
systematically.
Forces managers to quantify outcomes Probabilities and financial values are only
and probabilities. estimates.
Provides a logical, data-driven basis for Outcomes are purely financial and do not account
decisions. for ethics or brand image.
Once a strategy has been developed through rigorous analysis and careful choice, the focus
must shift to its successful implementation and ongoing management.
2.0 Corporate Planning and Implementation (6.2.2)
While a well-analyzed strategy is the necessary starting point, it is the quality of its execution
that ultimately determines success or failure. This section transitions from strategic choice to
strategic implementation, examining the critical internal factors—from corporate culture to
leadership—that dictate whether a plan remains on paper or becomes a market reality. A
brilliant strategy is worthless without effective execution.
2.1 Corporate Planning and Culture
Define Corporate Planning
A corporate plan is a detailed document that sets out a business's objectives and the specific
steps required to achieve them. Its purpose is to provide clarity for everyone in the
organisation, enable the prioritisation of resources, and establish a benchmark for measuring
success.
Define Corporate Culture
Corporate culture can be described as "the way we do things around here." It encompasses
the shared values, attitudes, and beliefs of employees that shape their behaviour and
decisions.
Analyze Different Types of Culture
The culture of a business can vary significantly, influencing its operations and strategic
direction.
• Entrepreneurial: A culture that values initiative, encourages new ideas, and is
tolerant of trial and error.
• Bureaucratic: A culture that emphasizes rules, procedures, and adherence to
established systems. Initiative is often discouraged.
• Customer-focused: A culture where the primary goal is to meet and exceed customer
expectations.
• Conservative: A culture that tends to avoid risk and prioritises safe, well-researched
decisions.
• Short-term vs. Long-term focus: Cultures can be differentiated by whether they
prioritize immediate financial results or are willing to invest in projects with long-
term payoffs.
Summarize Handy's Four Types of Culture
Management theorist Charles Handy identified four distinct types of corporate culture:
• Power Culture: Decision-making is centralized around a dominant individual or a
small group. This allows for quick, decisive action but risks the central figure
becoming overloaded as the business grows.
• Role Culture: An individual's importance is defined by their job title and position in
the hierarchy. This culture relies heavily on rules and procedures, which leads to very
predictable outcomes, but the danger is that the organisation is inflexible to change.
• Task Culture: Expertise is valued more than formal titles. Teams are formed for
specific projects, bringing together individuals with the relevant skills to solve
problems.
• Person Culture: A collection of highly qualified individuals who operate with a high
degree of independence while respecting each other's skills, often found in
professional practices like universities or medical clinics.
Evaluate the Importance of Corporate Culture
Corporate culture is critical to a business's success because it fundamentally determines how
employees behave. It influences their approach to customer service, their willingness to take
risks, their collaborative spirit, and their commitment to new initiatives. Ultimately, the
successful implementation of any strategy depends on whether the culture supports or resists
the required changes.
2.2 Leadership and Managing Change
Define Transformational Leadership
Transformational leadership is a style where leaders work collaboratively with their teams
to identify necessary changes, create a compelling vision, and inspire their followers to
execute that vision.
Explain Bass's 'Four Is' of Transformational Leadership
According to Bernard Bass, transformational leadership is composed of four key elements:
• Idealised Influence (II): The leader acts as a respected role model, winning the trust
and admiration of their team.
• Intellectual Stimulation (IS): The leader encourages innovation, challenges existing
beliefs, and pushes the team to think creatively.
• Inspirational Motivation (IM): The leader motivates the team by setting high
expectations and articulating a clear, shared vision.
• Individualised Consideration (IC): The leader creates a supportive environment that
respects individual differences and listens to the concerns and needs of each team
member.
Analyze Resistance to Strategic Change
According to Kotter and Schlesinger, people often resist change for several key reasons: self-
interest (fear of losing something of value), misunderstanding and lack of trust, a preference
for the status quo, and skepticism about the new idea.
Identify Barriers to Change
Beyond human resistance, change can also fail due to a lack of essential resources. Key
constraints include:
• Money: Insufficient funds to invest in new systems, training, or equipment.
• Skills: The workforce may lack the necessary talents or experience to implement the
change effectively.
• Time: Managers may be too occupied with daily operations to dedicate the time
needed to manage a major change initiative.
Outline Strategies for Managing Change
To implement change successfully, managers should involve those affected, ensure clear and
consistent communication, and provide the necessary resources. Approaches can be
categorised as behavioral change methods (using "carrot" incentives or "stick" punishments)
and attitudinal change methods (using education and reassurance to alter beliefs).
Summarize Kotter's Common Errors in Change Management
John Kotter identified seven common errors that managers make when trying to implement
strategic change:
1. Too much complacency.
2. Failing to build a substantial coalition of support.
3. Underestimating the need for a clear vision.
4. Permitting roadblocks against the vision.
5. Not planning or achieving short-term wins.
6. Declaring victory too soon.
7. Not anchoring changes in the corporate culture.
2.3 Contingency Planning and Crisis Management
Define Contingency Planning
Contingency planning is the process of preparing for unlikely but potentially damaging
events. Examples of such events include a fire, the bankruptcy of a major customer, a major
computer virus, or a widespread epidemic.
Explain the Purpose and Process
The purpose of a contingency plan is to provide a clear sense of direction in a crisis, enabling
a swift and organised response. Managers must first identify potential risks and then decide
which events are worth preparing for, based on an assessment of their likelihood and
potential damage.
Provide Examples of Contingency Plans
• Using two different suppliers for the same critical component to safeguard supply.
• Arranging for backup computer facilities or alternative office space.
• Cross-training employees in several tasks so they can cover for absent colleagues.
• Ensuring a pipeline of new products is in development to replace any that fail.
Define Crisis Management
When a disaster occurs, a business must manage the resulting crisis effectively by taking
immediate and decisive action to control the situation and mitigate damage.
List Key Steps in Crisis Management
• Identify the 'facts' as soon as possible to understand the scale and nature of the
problem.
• Establish good communication systems to ensure a consistent and accurate message is
delivered to all stakeholders.
• Have the authority and resources to make decisions quickly, avoiding delays.
Both proactive strategic planning, which sets a long-term course, and reactive crisis
management, which prepares the business for unexpected shocks, are essential disciplines for
ensuring long-term survival and success in a dynamic environment.