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Business strategy

Commonly defined as a plan or course of action required in order to achieve a business objective. See business objectives. Once objectives have been set, decision makers need to decide upon the most appropriate strategy to ensure the business objective(s) can be achieved. Business strategy, in fact, concerns the overall direction, framework and objectives for the organisation as a whole. Strategic decisions are taken at the highest level, ie Chairman / Managing Director / Board / Owner level. They may deal with issues such as: What business are we in? In what market sector(s) should we compete? How big do we want to be? Should we manufacture our product or buy it in? How is the organisation to be financed? High volume – low margin, or low volume – high margin? Marketing directed to the public or via intermediaries, eg retailers? Home market only or should export be considered? How should we achieve a competitive advantage? Strategic decisions differ to tactical (and operational) decisions. Strategic decisions provide the criteria and direction necessary to ensure that tactical (and operational) decisions are optimised and consistent with the overall business objective(s). See tactical and operational decisions. To summarise, strategic decisions are concerned with setting objectives / direction on those aspects which are of vital importance to the organisation. Tactical decisions are concerned with how these objectives can be achieved. Furthermore, if a strategic decision proved to be wrong the ramifications to the organisation would probably be serious. Whilst, if a tactical decision proves to be wrong, it is easier to correct. Although the rectification may be costly, it should not be overly threatening. One further point to make is that, depending upon the dynamics of the environment in which the organisation operates, strategic decisions will involve a significant degree of prediction and value judgement, and are generally the most difficult to get right. Strategic decisions should be taken after a strategic analysis of the organisation and its environment has been carried out and options fully evaluated. At its simplest level the former should involve PEST and SWOT analysis but other techniques of analysis could be employed eg forecasting, time series analysis, porter’s generic strategies. See strategic analysis, PEST analysis, SWOT analysis, forecasting, time series analysis, Porter’s generic strategies. In line with the need to ensure SMART objectives, strategy should be evaluated in terms of three specific criteria, as follows: Is it suitable in terms of: economic sense? achieving objectives? addressing specific problems / weaknesses? Is it feasible in terms of implementation: does the business have the resources (Financial, HR, Physical)? If not, can it develop / obtain the resources required? Is it acceptable to the key stakeholders: what are the risks? will it generate sufficient return / reward in relation to the risks (financial and non-financial) eg greater dividends and capital gain for shareholders, job security, pay, promotion prospects for employees, greater value for customers? What is the likely impact on and, thus, reaction from the business’s stakeholders? NB Although in Business Studies we consider the importance of all stakeholders, we should not lose sight of the fact that, in terms of influence on decision making, the owners / shareholders remain the prime stakeholder. Finally, it should be appreciated that making strategic (and tactical and operational) decisions is not a ‘one-off’ exercise. Economic, social and competitive environments and technology are continually changing and strategic (tactical and operational) reviews should be performed as often as appropriate, to ensure their optimisation.

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