Business Strategy and Market Analysis Frameworks

Posted on Mar 17, 2025 in Business Administration and Management (BAM)

Factors of Production and Business Strategy

Factors of Production: Capital, knowledge, construction, agriculture. Scarcity: The condition of any productive resource that has a finite supply. Business Incubators: Help an entrepreneurial team develop an idea into a workable business model. Entrepreneur: Captures problems in a society, finds a solution, and turns it into an opportunity. They are risk-takers, creative, biased-to-action, managerial, and effectual.

Sarasvathy’s Effectuation Model

Sarasvathy: The effectuation model explains that entrepreneurs should use what they already have, like their skills, resources, and connections, and then figure out possible opportunities along the way.

5 Principles Driving Entrepreneurial Action:

  • Bird-in-hand: Start with your means.
  • Affordable loss: Calculate risks and take acceptable losses.
  • Crazy quilt: Use networks to get others to join.
  • Lemonade: All surprises are opportunities.
  • Pilot-in-the-plane: Focus on the now, which affects the future.

Types of Start-Ups

  • Salary Substitute: Provide their owner a similar income to what they would earn in a normal job (e.g., freelance work).
  • Lifestyle: Provide their owner the opportunity to pursue a particular lifestyle (e.g., a dance teacher opening a studio).
  • Entrepreneurial Firms: Bring new products and services to the market.

Start-Up Options

Create a new independent business, buy an existing business, or buy into a franchise system.

Why Businesses Fail

The most common reason is that the business does not find a market for its products.

Business Environment and Analysis

Business Environment

Includes the organization, competitors, market, industry, and macro-environment.

PESTEL Analysis

Analyze the macro-environment to scan the business environment and how it will affect the business in the future. Focus on market and non-market factors.

  • Political: Government policies. Businesses must adapt to trade laws, taxes, and regulations to avoid legal issues.
  • Economic: Market and financial conditions. Companies adjust pricing, wages, and expansion plans based on economic trends.
  • Social: Cultural trends, consumer behavior, and income distributions. Businesses must align with changing customer preferences and values to maintain brand loyalty.
  • Technological: Innovation. Companies must invest in new technology to stay competitive or risk becoming outdated.
  • Environmental: Pollution, waste, affecting resources, revenues, and profit. Environmental participants, green environmental issues, and climate change.
  • Legal: Laws and regulations, data privacy, legal content, safety, and competition law.

Using PESTEL, a company can anticipate and forecast, allowing for effective action.

Porter’s Five Forces

Used to identify the attractiveness of an industry and whether a business should enter it. It focuses on competition rather than collaboration, potentially missing opportunities for partnership.

  • Bargaining Power of Buyers: Buyers are the immediate customers. If buyers are powerful, they can demand cheaper prices or improvements in the product.
  • Bargaining Power of Suppliers: Suppliers provide what an organization needs to produce a good or service. Powerful suppliers can reduce a company’s profits.
  • Threat of New Entry: Barriers to entry are the factors that need to be overcome by new entrants. New players entering the market can intensify competition and reduce profitability (e.g., economies of scale, high fixed costs).
  • Threat of Substitutes: Substitutes are products that offer a similar benefit.
  • Competitive Rivalry: Organizations that offer similar products in the same industry increase competition when there are fixed costs and low levels of differentiation.

Value Net

A map of organizations in a business environment demonstrating opportunities for value-creating cooperation and competition. Includes customers, competitors, complementors, and suppliers.

  • Competitors: A player is your competitor if customers value your product less when they have the other player’s product.
  • Complementors: Players that value your product more when they have another player’s product.

Industry Life Cycle

Market size stages: development, growth, shake-out, maturity, and decline. Maturity is often the best stage because it maintains stable profits.

Core Competencies and Competitive Advantage

Core Competencies: Support the preservation of competitive advantage over time.

  • Resources: What we have (assets).
  • Capabilities: Skills; what we do well.

Competitive Advantage:

  • Value: Meets market needs.
  • Rarity: Unique to the company.
  • Inimitable: Challenging for competitors to copy.
  • Robust: Core competencies are resilient and adaptable.
  • Non-substitutable: Cannot be replaced by other resources or capabilities.

Dynamic Capabilities

Adaptation to change; represents core competencies over time. Focuses on the dynamic of combining and developing new and old knowledge to adapt to the environment.

  • Sensing: Constantly scanning and exploring new opportunities across markets and technologies.
  • Seizing: Addressing opportunities through new products.
  • Re-configuring: New products and processes may require reconfiguration of capabilities and investment in new technologies.

Types of Knowledge

Organizational, explicit (objective), and tacit (more personal).

Benchmarking

A means of understanding how an organization competes. Two approaches:

  • Industry/Sector: Comparing performance against other organizations in the same industry.
  • Best-in-Class: Comparing an organization’s performance or capabilities to the top-performing organizations in the same industry.

SWOT Analysis

Used to examine strengths and weaknesses (internal), opportunities and threats (external). Used to draw concrete conclusions and generate strategic opinions using the TOWS matrix.

Strategic Management

Strategy: The direction and scope of an organization over the long term, which achieves advantage in a changing environment to fulfill stakeholder expectations. Strategic management involves making strategic choices about cost, understanding the strategic position of your business, brand loyalty, and turning strategy into action. Strategic decisions are long-term, broad in scope, and aim at fulfilling the value and expectations of the consumer.

Porter’s Generic Strategies

Helps businesses achieve competitive advantage.

  • Cost Leadership: Become the lowest-cost producer in a broad market. Achieved through economies of scale, lower production costs, and maintaining acceptable quality while competing on price (e.g., Walmart: low prices, large corporation, efficient supply chains).
  • Differentiation: Involves high-quality products that stand out in a broad market. Achieved by focusing on innovation and customer experience.
  • Cost Focus: Become the lowest-cost producer in a narrow market segment. Serve niche customers at a lower cost than competitors (e.g., Aldi: budget-friendly with a specific product selection).
  • Differentiation Focus: Unique, high-quality products for a niche market. Offering specific products/services for the needs of a small, well-defined market, fostering high customer loyalty within the niche (e.g., Rolex, Ferrari).
  • Hybrid Strategy: Combines cost leadership and differentiation.
  • “Stuck in the Middle”: Too many strategies.

BCG Matrix

Uses market share and market growth criteria to determine attractiveness and investment strategy.

  • Question Mark: Requires investment to become a star but could also become a dog (e.g., Apple Watch).
  • Star: High market share and high market growth; requires investment to maintain position.
  • Dog: Low market share and low market growth; liquidate or divest (e.g., iPod).
  • Cash Cow: High market share and low market growth; reinvest funds in other parts of the business (e.g., iTunes, MacBooks).

McKinsey Model

Evaluates a company’s business units based on industry attractiveness and business unit strength.

  • Grow: Deserves investment.
  • Hold: Investment depends on strategic considerations.
  • Harvest: Should be sold for cash flow or become a cash cow.

Ansoff Matrix

A corporate strategy framework to guide growth for Strategic Business Units (SBUs) based on market and product focus.

  • Market Penetration: Increasing market share within current markets using existing products.
  • Market Development: (Existing product, new market) SBU enters new markets with existing products (e.g., geographical expansion, targeting new customer segments).
  • Product Development: (New products, existing markets) Product innovation and leveraging existing brand loyalty.
  • Diversification: (New products, new markets) Radically increases an organization’s scope; a high-risk strategy.

Parenting Matrix

Refers to different strategic roles and approaches a corporate parent can use to manage and add value to its business units.

  • Ballast: Understands the business unit well but can do little for them (e.g., Mac, iPad).
  • Heartland: Understands the business unit well and adds value.
  • Value Trap: Opportunities to add value, but a lack of “feel” results in more harm than good.
  • Alien: Offers little to no opportunity or value; the parent doesn’t understand the business unit.

Marketing Fundamentals

Marketing: The process of creating value for customers and building relationships with them to capture value back.

4 Eras of Marketing

  • Production Era: Mass production of a simple item; business holds the position of power over customers.
  • Sales Era: Sales campaigns.
  • Marketing Era: Focus on the customer.
  • Relationship Era: Value-based era.

The 4Ps of Marketing

Used to develop marketing strategies to meet customer needs and achieve business goals: Product, Place, Price, Promotion.

Customer Perceived Value

The difference between the customer’s evaluation of all the benefits and all the costs of an offering and the perceived attractiveness.

Additional Frameworks

Three Horizons Framework

Manage growth and innovation, considering value and time.

  • Horizon 3: Create viable options for future businesses.
  • Horizon 2: Build and grow start-up businesses.
  • Horizon 1: Protect and defend core businesses.

Bowman’s Strategy Clock

Analyzes a company’s competitive position based on price and perceived value.

Internationalization

Any activity that implies a business partner outside of the home country. Reasons to expand include diversification, enlarging the market, and reducing costs.

Internationalization Drivers

  • Market Drivers: Similar customer needs and global customers.
  • Cost Drivers: Economies of scale.
  • Competitive Drivers: Interdependence and global competitors.
  • Government Drivers: Trade policies.

CAGE Framework

Measures the impact of distance between countries when considering international business expansion. It helps businesses understand the challenges and opportunities associated with entering foreign markets.

  • Cultural: Religion, languages, ethics, traditions.
  • Administrative: Legal, government, visa requirements, corruption.
  • Geographic: Transportation and climate.
  • Economic: Cost of labor, human resources.