Chapter 8: Business Strategy of the Cambridge International AS & A Level Business

Coursebook (4th edition) by Peter Stimpson & Alastair Farquharson

1. Business Strategy

A business strategy is a long-term plan designed to achieve a company's goals by gaining a

competitive advantage in the market. It involves identifying the best ways to allocate
resources, target customers, and position the company against competitors. Business
strategies guide decision-making on areas such as market entry, pricing, product
development, and expansion. Companies develop strategies based on internal strengths and
external opportunities.
🔹 Example: Apple follows a differentiation strategy by producing high-quality, innovative
products like the iPhone and MacBook, maintaining its premium brand positioning.

2. Strategic Management

Strategic management is the process of planning, monitoring, and evaluating business

strategies to ensure the company achieves its objectives. It consists of three main stages:
strategic analysis (assessing internal and external environments), strategic choice (deciding
on the best strategy), and strategic implementation (executing the strategy effectively).
Effective strategic management allows businesses to stay competitive and adapt to changes. It
requires continuous assessment of market trends, competition, and internal performance.
🔹 Example: Amazon uses strategic management to analyze market trends, invest in cloud
computing (AWS), and expand into artificial intelligence (Alexa).

3. Strategic Decision

Strategic decisions are high-impact, long-term choices that influence the overall direction of a
business. These decisions often involve major investments and risks, requiring thorough
market analysis and forecasting. Unlike operational or tactical decisions, strategic decisions
affect the entire organization and its future growth. Such decisions determine a company’s
market positioning, resource allocation, and competitive advantage.
🔹 Example: Tesla’s decision to invest in electric vehicle production and battery technology
was a strategic move that positioned it as a leader in the EV industry.

4. Tactical Decision

Tactical decisions are short-term, operational decisions that support the company’s overall
strategy. These decisions focus on specific activities such as pricing, promotions, and
inventory management. They are usually made at the middle-management level and help
implement broader strategic goals. Unlike strategic decisions, tactical decisions are flexible
and can be adjusted based on immediate market conditions.
🔹 Example: McDonald's introducing a seasonal menu item like the McRib is a tactical
decision to increase sales temporarily.

5. Competitive Advantage

Competitive advantage is a company's ability to outperform rivals by offering superior

products, lower prices, or unique features. Michael Porter identified two main types: cost
leadership (being the lowest-cost producer) and differentiation (offering unique products). A
strong competitive advantage allows businesses to increase market share and profitability.
Companies build competitive advantages through brand reputation, innovation, efficient
operations, and customer loyalty.
🔹 Example: Nike’s strong brand reputation and advanced athletic footwear technology give it
a competitive edge over other sportswear brands.

6. SWOT Analysis

SWOT analysis is a strategic planning tool used to evaluate a business's Strengths,

Weaknesses, Opportunities, and Threats. Strengths and weaknesses are internal factors, while
opportunities and threats come from external sources. This analysis helps businesses identify
competitive advantages and areas for improvement. Companies use SWOT to make informed
decisions and develop strategic plans.
🔹 Example: Netflix identified "strong brand recognition" as a strength and "increasing
competition from Disney+" as a threat in its SWOT analysis.

7. PEST Analysis

PEST analysis examines external factors that impact a business: Political, Economic, Social,
and Technological influences. Political factors include regulations, trade policies, and
government stability. Economic factors cover inflation, interest rates, and economic growth.
Social factors involve demographic trends and cultural shifts, while technological factors
include innovation and automation.
🔹 Example: Brexit led many UK businesses to conduct PEST analysis to evaluate the impact
of new trade regulations.

8. PESTLE Analysis

PESTLE analysis expands on PEST by including Legal and Environmental factors. Legal
considerations include labor laws, safety regulations, and compliance requirements.
Environmental factors assess sustainability, carbon footprint, and climate change policies.
Companies use PESTLE analysis to anticipate potential risks and adapt their strategies. It
helps businesses remain compliant with regulatory changes.
🔹 Example: Toyota uses PESTLE analysis to ensure its production processes comply with
international environmental regulations.

9. Porter’s Five Forces Model

This model analyzes the level of competition in an industry through five key forces: Threat of
New Entrants, Bargaining Power of Suppliers, Bargaining Power of Customers, Threat of
Substitutes, and Competitive Rivalry. Businesses use this framework to understand market
dynamics and adjust their strategies accordingly. High competition forces companies to
innovate and improve efficiency. The stronger these forces, the harder it is for a company to
maintain profitability.
🔹 Example: The airline industry faces high competitive rivalry due to the presence of major
carriers like Emirates, Delta, and Qatar Airways.

10. Core Competencies

Core competencies are the unique strengths and capabilities that give a company a
sustainable competitive advantage. These include specialized knowledge, advanced
technology, strong brand identity, and efficient supply chains. Companies leverage their core
competencies to develop innovative products and dominate their markets. Businesses should
focus on building and protecting their core competencies to stay ahead of competitors.
🔹 Example: Google’s search engine algorithm is a core competency that differentiates it
from competitors like Bing.

11. Ansoff’s Matrix

Ansoff’s Matrix helps businesses decide on growth strategies: Market Penetration (increasing
sales in existing markets), Market Development (expanding into new markets), Product
Development (launching new products), and Diversification (entering new markets with new
products). This model guides businesses in selecting the best expansion strategies.
Diversification is the riskiest strategy, while market penetration is the safest.
🔹 Example: Starbucks expanded into China (Market Development) while launching plant-
based drinks (Product Development).

12. Blue Ocean Strategy

This strategy focuses on creating new, uncontested market spaces instead of competing in
existing ones. It encourages businesses to innovate and develop unique offerings to capture
untapped customer demand. Companies following a Blue Ocean strategy avoid price wars
and intense competition. Instead, they create markets where competition is irrelevant.
🔹 Example: Cirque du Soleil reinvented the circus industry by targeting adults with a luxury
theater-like experience.

13. Red Ocean Strategy

Red Ocean Strategy refers to competing in a crowded market where businesses fight for
market share. Companies in red oceans compete on price, quality, and branding. This often
leads to aggressive marketing and price wars. Unlike Blue Ocean Strategy, businesses in red
oceans must constantly innovate to maintain an edge.
🔹 Example: The fast-food industry is a red ocean, with McDonald's, Burger King, and KFC
competing for the same customers.

14. Growth Strategies

Growth strategies are methods businesses use to expand their operations, increase revenue,
and enhance market presence. These strategies can be categorized into organic growth
(expanding operations internally) and inorganic growth (expanding through mergers and
acquisitions). Organic growth is achieved by increasing sales, launching new products, or
entering new markets, while inorganic growth involves acquiring or merging with other
companies to expand quickly. Businesses must choose the right growth strategy based on
market conditions and financial stability. Effective growth strategies ensure sustainability and
competitive advantage.
🔹 Example: Amazon achieved organic growth by expanding its logistics and warehouse
operations, while its acquisition of Whole Foods represents inorganic growth.

15. Vertical Integration

Vertical integration is when a company expands by taking control of different stages of its
supply chain. It can be divided into backward integration, where a company acquires its
suppliers, and forward integration, where it controls distribution channels. This strategy
helps businesses reduce costs, improve efficiency, and gain more control over production.
However, vertical integration requires significant investment and can increase operational
complexity. Companies use it to enhance their supply chain stability and competitive
advantage.
🔹 Example: Starbucks practices backward integration by purchasing coffee farms to
control its supply chain, while Apple follows forward integration by selling its products in
exclusive Apple Stores.

16. Horizontal Integration

Horizontal integration occurs when a business expands by merging with or acquiring

competitors in the same industry. This strategy helps companies increase market share,
reduce competition, and achieve economies of scale. While it strengthens the company's
position, it can lead to regulatory scrutiny and potential monopolization issues. Businesses
must assess industry conditions and financial feasibility before pursuing horizontal
integration. Successful horizontal integration results in a stronger brand and improved market
dominance.
🔹 Example: Disney acquired 20th Century Fox to expand its content library and compete
more effectively in the streaming market.

17. Diversification

Diversification is a growth strategy where a company expands into new industries or markets
to reduce risk. There are two types: related diversification, where a company enters a
similar industry, and unrelated diversification, where it ventures into completely different
sectors. This strategy reduces dependence on a single revenue source and increases long-term
sustainability. However, it requires extensive market research and resource allocation.
Companies diversify to protect themselves from industry downturns.
🔹 Example: Tesla diversified from electric cars to solar energy and battery storage
solutions.

18. Risk Analysis in Strategy

Risk analysis involves identifying, evaluating, and mitigating potential threats that could
impact business strategy. It includes financial risks, operational risks, market risks, and
competitive risks. Businesses conduct risk analysis before making strategic decisions to
minimize uncertainties and enhance preparedness. Effective risk management helps
companies avoid financial losses and reputational damage. Risk analysis ensures long-term
stability and resilience.
🔹 Example: Coca-Cola analyzes consumer health trends before launching new beverages
to reduce the risk of regulatory issues.

19. Force-Field Analysis

Developed by Kurt Lewin, Force-Field Analysis is a tool used to assess the factors driving
and resisting change within a business. It helps managers identify the forces that support or
oppose a particular strategy, allowing them to strengthen positive forces and reduce
resistance. This method is commonly used in change management and strategic planning.
Companies use it to improve decision-making and ensure smoother implementation of new
strategies. It visually represents the forces impacting a business decision.
🔹 Example: A company considering remote work policies can use Force-Field Analysis to
assess employee acceptance versus infrastructure challenges.

20. Decision Trees

A decision tree is a graphical tool that helps businesses evaluate different strategic options
and their potential outcomes. Each branch represents a possible decision, its expected
benefits, costs, and probabilities. Decision trees are used to assess risks, compare alternatives,
and make data-driven choices. They simplify complex decision-making processes by
providing a structured framework. Businesses use decision trees to predict financial returns
and operational impacts.
🔹 Example: A company deciding whether to launch a new product or invest in advertising
can use a decision tree to evaluate the risks and rewards of each option.

21. Contingency Planning

Contingency planning involves creating backup strategies to handle unexpected situations or

business disruptions. It ensures that a company can recover quickly from crises such as
economic downturns, supply chain failures, or cybersecurity threats. Businesses develop
contingency plans by identifying risks, setting up response protocols, and ensuring alternative
resources are available. This strategy enhances resilience and minimizes financial losses.
Effective contingency planning helps businesses maintain operations during uncertain times.
🔹 Example: Companies developed remote work policies and online sales strategies as
contingency plans during the COVID-19 pandemic.

22. Benchmarking

Benchmarking is the process of comparing a company's performance against industry leaders

or best practices to identify areas for improvement. It helps businesses set performance
standards, enhance efficiency, and improve competitiveness. There are different types of
benchmarking: internal benchmarking (comparing departments within the company) and
external benchmarking (comparing with competitors). Businesses use benchmarking to
learn from market leaders and optimize operations. It encourages continuous improvement
and innovation.
🔹 Example: Airlines like Emirates and Singapore Airlines use benchmarking to compare
their customer service and operational efficiency with top competitors.

23. Strategic Alliances

A strategic alliance is a partnership between two or more businesses that collaborate to

achieve mutual benefits while remaining independent. Unlike mergers, strategic alliances do
not involve ownership transfers. These alliances allow companies to share resources, enter
new markets, and strengthen their competitive positions. However, managing alliances
requires clear agreements and aligned objectives. Strategic alliances enhance market
expansion and innovation.
🔹 Example: Nike partnered with Apple to develop Nike+ running apps that integrate with
Apple’s devices.
24. Joint Ventures

A joint venture (JV) is a business agreement where two or more companies create a separate
entity to pursue a shared project. Each company contributes resources, shares risks, and
benefits from the venture’s success. JVs help businesses expand into new markets and
industries. However, they require strong legal agreements and strategic alignment. Businesses
enter JVs to leverage expertise and capital.
🔹 Example: Sony and Ericsson formed Sony Ericsson to enter the mobile phone industry.

25. Scenario Planning

Scenario planning involves developing multiple potential future scenarios to prepare for
uncertainties in the business environment. It helps companies create flexible strategies to
handle different economic, political, and technological conditions. Scenario planning ensures
companies remain proactive rather than reactive to external changes. It enhances risk
management and decision-making. Businesses use this strategy to anticipate market shifts.
🔹 Example: Oil companies like Shell develop scenario plans for fluctuating oil prices and
regulatory changes.

26. First-Mover Advantage

First-mover advantage refers to the benefit a company gains by being the first to enter a
new market or introduce an innovative product. It allows businesses to establish strong
brand recognition, customer loyalty, and technological leadership. However, first-movers
also face risks, such as high research and development costs. Competitors can learn from
first-mover mistakes and improve upon their strategies. First-mover advantage is crucial in
technology and innovation-driven industries.
🔹 Example: Amazon was a first-mover in online retail, allowing it to dominate the e-
commerce industry.

27. Cost-Benefit Analysis

Cost-benefit analysis (CBA) is a financial evaluation tool that compares the costs and
benefits of a business decision. It helps businesses determine whether an investment or
project is financially viable. Companies use CBA to allocate resources effectively and
minimize risks. It involves calculating projected costs, potential revenue, and return on
investment. Businesses rely on CBA for informed decision-making.
🔹 Example: A company evaluating whether to automate production or hire more workers
would conduct a cost-benefit analysis.