Strategic methods: how to pursue strategies

Welcome to Strategic Methods!

Hi there! Welcome to one of the most exciting parts of Business. Think of this chapter as the "Grand Plan" section. In your personal life, you might have a strategy to get into a top university or land a dream job. Businesses do the same thing! They don't just wake up and hope things go well; they use specific methods to plan their future.

In these notes, we are going to look at how businesses decide which path to take, how they analyze their own strengths, and how they keep their "stakeholders" (the people involved) happy along the way. Don't worry if it sounds a bit "corporate" right now—we'll break it down using everyday examples!

1. Strategy vs. Tactics: The "Big Picture" vs. "The To-Do List"

Before a business can pursue a strategy, it needs to know what one actually is. The syllabus makes a clear distinction between Strategic decisions and Tactical decisions.

What is a Strategic Decision?

A strategy is a long-term plan to achieve a major goal.
• Long-term: It usually covers 3 to 5 years or more.
• High Risk: Because they involve a lot of money and big changes, if they go wrong, the business could fail.
• Difficult to Reverse: Once you start, it’s very hard (and expensive) to go back.
• Example: A car company deciding to stop making petrol cars and only make electric cars by 2030.

What is a Tactical Decision?

Tactics are short-term actions taken to achieve smaller, everyday goals.
• Short-term: They cover days, weeks, or months.
• Lower Risk: If a tactic fails, it’s usually easy to fix.
• Easy to Change: You can stop a tactic tomorrow without much cost.
• Example: A supermarket offering a "Buy One Get One Free" deal on bread for one weekend to clear stock.

Memory Aid:
Strategy = Sea (The whole ocean you are crossing).
Tactics = Turns (The small turns you make with the steering wheel to avoid a wave).

Quick Review: Strategy is the destination (where we want to be in 5 years); Tactics are the steps we take today to get closer to it.

2. SWOT Analysis: Looking Inward and Outward

How does a business choose its strategy? They often start with a SWOT Analysis. This is a tool used to identify Strengths, Weaknesses, Opportunities, and Threats.

Internal Factors (Inside the business)

Strengths: Things the business is good at. (Example: A famous brand name like Coca-Cola).
Weaknesses: Things the business struggles with. (Example: Old machinery that breaks down often).

External Factors (Outside the business)

Opportunities: Chances to grow in the market. (Example: A new law that makes your product more popular).
Threats: External things that could hurt the business. (Example: A new competitor opening a shop next door).

Why use it? A business will pursue a strategy that uses its Strengths to take advantage of Opportunities, while trying to fix its Weaknesses to protect against Threats.

Takeaway: SWOT helps managers make "Strategic Decisions" based on facts rather than just guessing.

3. Stakeholder Mapping: Who Matters Most?

When a business pursues a new strategy, it can’t please everyone. A stakeholder is anyone with an interest in the business (like employees, customers, or owners). To manage them, businesses use Stakeholder Mapping (Power vs. Interest).

Imagine a grid where you plot stakeholders based on two things:

1. Power: How much can they actually influence the business?
2. Interest: How much do they care about what the business is doing?

The Four Groups:

• High Power / High Interest: These are the "Key Players." You must involve them in the strategy and keep them very happy. (Example: Major shareholders or the Government).
• High Power / Low Interest: Keep these people satisfied, but don’t bore them with too much detail. (Example: A large bank that lends the business money).
• Low Power / High Interest: Keep these people informed. They care a lot but don't have much power. (Example: Local community members or most employees).
• Low Power / Low Interest: Just monitor them. Don't spend too much time on them. (Example: Casual customers who only visit once a year).

Common Mistake to Avoid: Don't assume all stakeholders want the same thing! Shareholders usually want profit, while employees might want higher wages. These "conflicting objectives" often make choosing a strategy very difficult.

4. Strategic Objectives: Why Pursue Growth?

According to your syllabus, businesses pursue strategies to reach specific objectives. These include:

• Growth: Getting bigger by selling more or opening more stores.
• Profitability: Making more money than you spend.
• Shareholder Value: Making sure the people who own the company get a good return on their investment.
• Social and Environmental: Doing things that help the planet or the community.

Did you know? Some businesses suffer from "Short-termism." This is when they choose a strategy that makes a quick profit today (Tactical) but hurts the business in the long run (Strategic). A good business tries to balance both!

5. Using Data to Choose: Decision Trees

Don't worry if this seems tricky at first—it’s just a bit of simple math to help make a choice! When a business has two different strategies to choose from, they might use a Decision Tree.

Managers calculate the Expected Value (EV). This is the average amount of money they expect to make, taking into account the chance (probability) of success or failure.

The Formulas You Need:

1. Expected Value (EV):
\( EV = (Probability \times Outcome \ 1) + (Probability \times Outcome \ 2) \)

2. Net Gain:
\( Net \ Gain = Expected \ Value - Cost \ of \ the \ Strategy \)

Example:
If a strategy has a 60% (0.6) chance of making \$100,000 and a 40% (0.4) chance of making \$0:
\( EV = (0.6 \times 100,000) + (0.4 \times 0) = \$60,000 \)
If the strategy costs \$20,000 to start:
\( Net \ Gain = 60,000 - 20,000 = \$40,000 \)

Takeaway: Businesses will usually pursue the strategy with the highest Net Gain.

Summary: Putting it All Together

To pursue a strategy successfully, a business must:
1. Understand the difference between long-term strategy and short-term tactics.
2. Perform a SWOT Analysis to see what they are good at and what the world is offering.
3. Map out their Stakeholders to ensure they don't face too much resistance.
4. Set clear Objectives (like growth or profit).
5. Use tools like Decision Trees to pick the most financially sensible path.

Final Tip: When answering exam questions, always ask yourself: "Is this decision for the next few months (Tactical) or the next few years (Strategic)?" This distinction is the key to mastering this chapter!