Business plans and corporate objectives

A business plan sets out the idea, the market, the marketing and operations plan, the management team and — crucially — the financial forecasts (cash flow, break-even, funding required).

• Why write one: it is required by lenders and investors; it forces the entrepreneur to research and quantify assumptions; it becomes a benchmark to monitor against.
• Limits: it is built on forecasts that may be wrong, it can create false confidence, and it dates quickly in a dynamic market.

The hierarchy runs: mission (why we exist) → corporate aims → corporate objectives (SMART, whole-business) → functional objectives (marketing, HR, operations, finance) → tactics.

Strategy vs tactics: strategy is the long-term plan to achieve the corporate objectives — expensive and hard to reverse. Tactics are short-term, cheap, reversible actions (a two-week price promotion). Do not confuse them in an answer.

SWOT analysis

Strengths and weaknesses are internal and controllable; opportunities and threats are external and come straight out of PESTLE and Porter.

The classic error: putting "recession" in weaknesses or "our strong brand" in opportunities. Ask: is it inside the business, or outside it?

Quick check

Build the SWOT

Tap a factor, then tap where it belongs in the SWOT grid.

Ansoff's matrix

Ansoff's matrix maps growth strategies against risk, using two axes: existing/new products and existing/new markets.

Judgement: risk rises as you move away from the top-left cell — but so does the potential reward. Diversification spreads risk across markets, yet the firm has neither product nor market knowledge, which is why so many diversifications fail.

Your turn — sizing the prize

Quick check

Porter's generic strategies

Porter argued a firm must choose a source of competitive advantage (low cost or differentiation) and a scope (broad market or narrow niche):

• Cost leadership — be the lowest-cost producer in the whole market. Needs scale, efficiency and tight cost control; margins survive a price war.
• Differentiation — offer something the market values as unique (brand, design, service, quality) and charge a premium.
• Cost focus and differentiation focus — the same two strategies applied to a narrow niche.

Stuck in the middle: Porter warned that a firm that is neither the cheapest nor meaningfully different has no competitive advantage at all — the most common cause of long-run failure.

Your turn — cost leadership

Porter's five forces

Five forces determine how profitable an industry is:

• Threat of new entrants — low if barriers (capital cost, brand, patents, economies of scale, regulation) are high.
• Bargaining power of buyers — high if buyers are few, large and can switch easily (supermarkets vs farmers).
• Bargaining power of suppliers — high if suppliers are few, or the input is unique.
• Threat of substitutes — a different way of meeting the same need (streaming replaced DVDs).
• Competitive rivalry — the intensity of competition, driven by the other four.

Use it to explain why margins are thin in an industry, and what a firm must do — build barriers, differentiate, lock in customers, integrate vertically — to protect them.

Quick check

Your turn — is the objective realistic?

Core competences and strategic fit

A core competence (Hamel and Prahalad) is something the business does that is valuable to customers, difficult to imitate and transferable to new products or markets — for example an engineering firm's miniaturisation expertise.

Strategy should build on core competences rather than chase every opportunity. Ask three questions of any proposed strategy:

• Suitability — does it fit the external environment and our objectives?
• Feasibility — do we have the finance, capacity and skills?
• Acceptability — will shareholders and other stakeholders accept the risk and the returns?

Match the model to what it analyses

Tap a card on the left, then its partner on the right.

Competitive advantage and why strategies fail

Competitive advantage is an edge that lets a firm outperform rivals — and it must be sustainable: valuable, rare, hard to imitate and supported by the organisation.

Why strategies fail:

• Strategic drift — the environment changes but the strategy does not, until the gap becomes a crisis.
• Poor implementation — a good strategy with no resources, no communication and no buy-in.
• Stuck in the middle — neither cheapest nor different.
• Over-optimistic forecasts and ignoring rivals' likely responses.

Exam edge: the best evaluation of any strategy asks three things — is it suitable (fits the environment), feasible (we have the money, skills and capacity) and acceptable (the risk and return satisfy stakeholders)?

Your turn — market penetration

Quick check