CIMA E2: Business Strategy
The official CIMA terminology for strategy is:
“A course of action, including the specification of resources required, to achieve a specific objective”.
For a more detailed definition, Johnson, Scholes and Whittingham define strategy as:
“The direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a changing environment, to meet the needs of the markets and to fulfil stakeholder expectations”
The importance of formulating a business strategy is key to the business achieving and/or maintaining their competitive advantage. It also provides a clear direction and allows the management to focus their decision making on the strategic objectives of the company.
A business strategy should co-ordinate all elements of the business in a structured planned approach and will build on key competencies to ensure the customers demands are met.
Approaches to Business Strategy
There are four main ways of approaching a business strategy and employing one will depend on the size of the company as well as the industry.
Planned Strategies (The Rational Planning Model)
The Rational Planning Model (pictured below) is a example of a planned strategy of a company that is put in place by the directors. It’s a detailed and (can be) complex process to put in place and can take many months – it consists of these four main areas.
- Strategic Analysis – can use PESTEL or Porters 5 forces to analyse the external environment whole SWOT analysis can be used for corporate appraisal.
- Strategic Choice – models like NPV, IRR and payback evaluation can be used to choose when strategic option to take.
- Strategic Implementation – need to consider policies and strategies to implement for ALL areas of the business.
- Strategy Evaluation and Control – measuring the performance against the objectives.
Below is the flow and detailed steps that make up the rational planning model – it’s an alternative way of showing the four main areas of Planned Business Strategies.
While there maybe plenty of added advantages by employing a planned strategy such as providing a clear framework and strategic direction for all areas of the business, it can also be criticised in some respects such as time commitment – large businesses will need a lot of time to complete all of the mentioned steps and could become obsolete by the time the planned strategy has been completed.
This also means the cost will be high – from staff time to using strategy consultants. Meanwhile, the company could end by being constrained by the planned strategy and not take new opportunities or adapt to changes in the business environment.
These strategies are more inclined to be used in dynamic fast paced industries like high technology where opportunities and threats arise quickly so the company needs to adapt.
Emergent strategies emerge during the course of normal business rather than being planned as mentioned above. Either due to opportunities that pop up (i.e. buying a competitor) or specific threats need to be addressed (i.e. a new innovative product is released by a competitor).
Emergent strategies can be combined with planned strategies – bring a planned and emergent strategy together is called “crafting”.
For example; a new innovative product was released by a competitor, so Company ABC decides to develop a similar product not to lose their competitive advantage. This development will be an emergent strategy that’s need to be crafted alongside their planned strategy and existing business operations (as it will share factors like production timings, marketing strategies and allocation of funds.
Is a short term strategy based approach that is employed in smaller fast paced businesses who cannot realistically undertake the full strategic planning process.
This approach was taken on by lots of businesses during the economic downturn from 2009 as uncertainty made it harder to predict. The strategy is adjusted and developed constantly using a series of small scale changes to reach the overall strategic direction.
The public sector is an area where incrementalism is used as there are a wide range of stake holders to satisfy making it harder to take a longer approach used with planned strategies. Therefore, a shorter “middle ground” approach would suit all parties involved.
This approach is used in smaller companies who have an entrepreneurial leader who likes to take advantage of every opportunity that presents itself.
There are no formal strategies in place and this allows the business to take advantage of opportunities as they arise. There is little plan and direction in terms of the business strategy to be employed but this allows for a very dynamic and flexible business that can grow quickly by adapting to the market conditions around it without the constraint of a rigid business strategy.
Nevertheless, this “slap-dash” approach can also allow for a lack of focus on strategic decision making and the thinking and approach of the company may become inconsistent with it’s core values.