the meaning and purpose of strategic management: analysis, choice and implementation

6.2 Business Strategy – Developing Business Strategy

Objective

Explain the meaning and purpose of strategic management and describe the three core stages – analysis, choice and implementation. Apply the key tools and models required by the Cambridge A‑Level Business (9609) syllabus.

1. Meaning and Purpose of Strategic Management

Strategic management is a systematic, continuous process that enables an organisation to:

• Define its long‑term direction and objectives.
• Match internal resources and capabilities with external opportunities and threats.
• Create and sustain a competitive advantage.
• Adapt to change, manage risk and support long‑term growth.

2. Stage One – Strategic Analysis

Analysis provides the factual basis for strategic choice. It examines the external environment and the internal situation of the business.

2.1 External Analysis

Tool	When to Use It	Key Focus	Typical Output
PESTLE	Start of any strategic review; when macro‑environmental forces are likely to affect the industry.	Political, Economic, Social, Technological, Legal, Environmental factors.	List of trends/opportunities and threats for each factor.
Porter’s Five Forces	Assessing industry attractiveness and competitive pressure.	Threat of new entrants, supplier power, buyer power, threat of substitutes, rivalry.	Rating (high/medium/low) for each force and an overall industry‑attractiveness score.
Market Segmentation	Identifying distinct customer groups for targeting or positioning.	Demographic, geographic, psychographic, behavioural characteristics.	Clear definition of target segments, size and key needs.

2.2 Internal Analysis

Tool	When to Use It	Key Focus	Typical Output
SWOT	After external analysis; to link internal capabilities with external possibilities.	Strengths, Weaknesses, Opportunities, Threats.	Matrix highlighting strategic issues that need attention.
VRIO	Evaluating whether a resource or capability can be a source of sustained competitive advantage.	Value, Rarity, Imitability, Organisation.	Assessment of each resource as a temporary, sustained, or non‑source of advantage.
Value‑Chain Analysis	Analysing cost structure or differentiation points across activities.	Primary activities (inbound logistics, operations, outbound logistics, marketing & sales, service) and support activities (infrastructure, HR, technology, procurement).	Identification of activities that add value or create cost efficiencies.

2.3 Example SWOT Matrix

	Internal
Opportunities (External)	• Growing demand for eco‑friendly products • Expansion into emerging markets
Threats (External)	• Stricter environmental regulation • Intense price competition
Strengths (Internal)	• Strong brand reputation • Advanced R&D capability
Weaknesses (Internal)	• Limited distribution network • High fixed costs

3. Stage Two – Strategic Choice

Based on the analysis, managers select the most appropriate direction for the organisation.

3.1 Generic Competitive Strategies (Porter)

1. Cost Leadership – become the lowest‑cost producer in the industry.
2. Differentiation – offer unique attributes that customers value.
3. Focus – target a narrow market segment, either cost‑focused or differentiation‑focused.

3.2 Growth Strategies (Ansoff Matrix)

	Existing Markets	New Markets
Existing Products	Market Penetration – increase market share.	Market Development – sell existing products in new regions.
New Products	Product Development – introduce new products to current customers.	Diversification – enter new markets with new products.

3.3 Additional Choice Tools (Syllabus Requirement)

Tool	Purpose	Typical Output
Blue‑Ocean Strategy	Identify uncontested market space where competition is irrelevant.	New value‑curve/strategic canvas showing simultaneous low cost and differentiation.
Scenario Planning	Explore how different future environments could affect the business.	Set of plausible scenarios with strategic implications for each.
Core‑Competence Framework	Identify capabilities that provide a sustainable advantage across markets.	List of core competencies and suggested ways to leverage them.
Force‑Field Analysis	Assess driving and restraining forces for a proposed change.	Diagram showing the balance of forces and actions to strengthen drivers or weaken resistors.
Decision Trees	Quantitatively evaluate alternatives under uncertainty.	Tree diagram with probabilities, expected values and a recommended path.

3.4 Quantitative Decision‑Making: Weighted Scoring Model

Ranks strategic alternatives against a set of weighted criteria.

\[ \text{Score}_i = \sum_{j=1}^{n} w_j \times r_{ij} \]

where w_j = weight of criterion j (∑w = 1) and r_ij = rating of alternative i on criterion j (e.g., 1–5).

Example

Criterion	Weight	Alternative A	Alternative B	Alternative C
Market growth potential	0.30	4	5	3
Fit with existing capabilities	0.25	5	3	4
Financial return (NPV)	0.25	3	4	5
Risk level	0.20	4	2	3
Total Score		3.95	3.80	3.55

4. Stage Three – Strategic Implementation

Implementation converts strategic decisions into concrete actions. Success depends on aligning structure, culture, leadership, resources, control systems and risk management.

4.1 Organisational Structure

• Functional – groups by expertise (e.g., marketing, finance).
• Divisional – groups by product line, geography or market.
• Matrix – dual reporting lines to combine functional efficiency with divisional responsiveness.

4.2 Corporate Planning, Culture & Leadership

• Corporate Planning – long‑term roadmap that sets objectives, allocates resources and links strategic choice to day‑to‑day operations.
• Corporate Culture – shared values, beliefs and behaviours that shape how strategy is interpreted and enacted. A supportive culture accelerates implementation.
• Transformational Leadership – leaders who inspire a shared vision, encourage innovation and empower employees to exceed expectations.

4.3 Managing Change – Kotter’s 8‑Step Model

1. Create a sense of urgency.
2. Form a powerful guiding coalition.
3. Develop a clear vision and strategy.
4. Communicate the vision.
5. Empower broad‑based action (remove obstacles).
6. Generate short‑term wins.
7. Consolidate gains and produce more change.
8. Anchor new approaches in the culture.

4.4 Risk, Contingency & Crisis Management

1. Risk Identification – list internal and external risks (e.g., supply‑chain disruption, regulatory change).
2. Risk Assessment – evaluate likelihood and impact using a risk matrix.
3. Contingency Planning – develop alternative actions (e.g., backup suppliers, financial buffers).
4. Crisis Response Plan – define communication protocols, decision‑making authority and recovery steps.
5. Testing & Review – conduct drills and update plans after each incident.

4.5 Resource Allocation

Implementation requires budgeting, staffing and technology investment that are consistent with the chosen strategy.

• Capital budgeting – NPV, IRR for major projects.
• Human resources – recruitment, training, performance‑linked incentives.
• Technology & infrastructure – systems that support the strategic focus (e.g., ERP for cost leadership, R&D labs for differentiation).

4.6 Strategic Control

• Financial Control – variance analysis, ROI, break‑even analysis.
• Strategic Control – Balanced Scorecard and KPIs linked to strategic objectives.

4.7 Example Balanced Scorecard

Perspective	Strategic Objective	KPI (Measure)	Target
Financial	Increase profitability	Return on Capital Employed (ROCE)	15 % by FY 2026
Customer	Enhance customer satisfaction	Net Promoter Score (NPS)	+45
Internal Processes	Improve operational efficiency	Average order‑fulfilment time	≤ 24 hours
Learning & Growth	Develop employee capabilities	Training hours per employee	30 hours / year

5. Summary Flowchart (Suggested Diagram)

Three‑stage flowchart: Strategic Analysis → Strategic Choice → Strategic Implementation with feedback loops from implementation back to analysis (learning, performance data, emerging threats).

6. Quick Revision Checklist

• Define strategic management and its purpose.
• Apply at least two external (PESTLE, Porter’s Five Forces) and two internal (SWOT, VRIO) analysis tools; know when each is appropriate.
• Explain Porter’s generic strategies and the Ansoff matrix.
• Summarise additional choice tools: Blue‑Ocean, Scenario Planning, Core‑Competence, Force‑Field Analysis, Decision Trees.
• Calculate a weighted scoring model and interpret the result.
• Describe the key elements of successful implementation: structure, culture, transformational leadership, resource allocation, strategic control, and risk/contingency planning.
• Construct a balanced scorecard (four perspectives, objective, KPI, target).
• Sketch the three‑stage strategic management flowchart and explain the feedback loops.