Business Studies Grade 11 - Business Environments, Creativity & Problem Solving & Quality Performance

Business Strategies

To formulate a strategy to respond to changes in the business environment, it is important that management keeps a close eye on events in both the internal and external business environment.

Some of the events may be something that develops over time (a trend), while other events may come as a surprise (crisis) to the business

Corporate Strategies:
Decline / Defensive strategies

When a business decides to scale down or reduce its operations or some of the products, it follows a defensive or decline strategy.

  • If a business decides to follow a Retrenchment strategy, it reduces the size of the business or reduces the diversity of products / service sold

  • Divestiture is part of a retrenchment strategy and involves the business selling off some its operations because assets used in these operations are under-utilised and it hampers the financial performance of the business.

    * If a business is bankrupt, it results in Liquidation

Growth

When a growth strategy is implemented, the aim is to grow the business’ turnover and sales volume. There are numerous options for a business when it comes to growing the business, but the four most common options as discussed below are known as Intensive strategies or Ansoff’s growth matrix

Market Penetration. The existing market and existing products are used to expand

Product Development brand extension. This involves taking a new product and offering it to an existing market

Market Development-an existing product taken into a new market

Diversification: brand stretching -The business enters a new market with a new product. It does not mean the market or product does not exist at all, merely that this business has never sold this product/service to this market before and is doing this now to grow the business

Generic Strategies:

*Low-cost strategy
The competitive advantage created by a low-cost strategy is based on having the lowest cost in the industry. To achieve this, the workforce must be committed to saving costs.

  • Focus niche market
    Using a focus strategy to develop a competitive advantage means all efforts are aimed at a specific market segment based on geography, culture, age, hobbies, or any other criteria that created a unique group of customers in the market

  • Differentiation
    All efforts are aimed at providing a unique product / service which will ensure customer loyalty, as this may give the business the opportunity to charge a premium price. To base the business' competitive advantage on a differentiation strategy, it must be difficult for competitors to copy

Forward integration (in the distribution channel):

The business takes over one of its suppliers to eliminate the middleman in the distribution process and therefore reduce the ultimate selling price to consumers. The selling price could be reduced because there is no longer a middleman that adds profit.

Backward integration (in the distribution channel):

The business decides to eliminate the Power of Suppliers by either buying out a supplier or creating its own manufacturing plant

PESTLE Analysis

Each letter represents a factor in the macro environment that could threaten the business or provide opportunities:-

  • Political

  • Economical

  • Social

  • Technological

  • Legal

  • Environmental

  • Ethical
    The task is to identify these factors, anticipate their impact, and strategize solutions.

Porter's Six Forces Model

  • A popular tool for analyzing the market environment.

  • Investigates:

    • Level of Rivalry

    • Threat of New Entrants
      Factors: Overhead costs, economies of scale.

    • Availability of Substitute Products

    • Power of Suppliers

    • Power of Buyers

    • Power of Complementary Products

  • A market will be attractive if it has the potential of high profits.

  • FOR RETAILERS- THIS IS NOT TRUE- BUYERS HAVE THE POWER!

Micro Tools

Resource-based Analysis: The resource-based analysis is used to identify resources, both tangible and intangible, that the business owns

It is important to identify the value that each of the resources creates. One needs to assess the value of each resource and identify how (a strategy) that resource would be used to create value and a competitive advantage to the business

A business resource is valuable and has the potential to create a sustainable competitive advantage if

It is durable, i.e., it does not lose value (depreciate) or become obsolete too quickly

Value Chain Analysis: A company conducts a value-chain analysis by evaluating the detailed procedures involved in each step of its business

The purpose of a value-chain analysis is to increase production efficiency so that a company can deliver maximum value for the least possible cost

The Value chain approach in 3 steps

Porter Value Chain Template
Balanced Score Card

The elements of the (traditional) BSC that are used are finance, customer, internal business process perspective, and a learning and growth standpoint. attempts are made to identify and describe how each of these plays a critical role in the business.

The financial perspective focuses on maximum utilisation of assets and minimizing costs to create shareholder value.

The customer perspective focuses on how customers see the business and what their expectations might be

The internal business process perspective is focused on innovative products and services, the management of operations and social investments to improve the business.

The learning and growth perspective looks

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