BUSINESS STRATEGIES CHAPTER 5

BUSINESS STUDIES

GRADE 12
TERM ONE
CHAPTER 5
WEEK 9
BUSINESS STRATEGIES
2023
PAPER 1
TABLE OF CONTENTS

TOPICS PAGES
Examination guidelines for human resources 2
Terms and definitions 2
Definition of a strategy 3
Steps in developing a strategy 3
The strategic management process 3
SWOT analysis 4
Example of a SWOT analysis 4
PORTERS’ FIVE Forces 5
Application of PORTERS Five Forces 5
PESTLE analysis 6
Challenges posed by the PESTLE factors and
recommendations 6-7
Types of business strategies 8-10
Steps in evaluating a strategy 10

This chapter consists of 10 pages.

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CONTENT DETAILS FOR TEACHING, LEARNING AND ASSESSMENT PURPOSES

Refer to page 9 and 10 of the 2020 exam guidelines

Learners must be able to:
 Outline/Explain/Discuss steps in developing a strategy.
 Outline/Describe/Explain/Discuss the strategic management process.
 Apply the strategic management process to solve business-related problems.
 Discuss the following industrial analysis tools:
o SWOT analysis
o Porter's Five Forces
o PESTLE analysis
 Explain how PESTLE factors pose challenges to businesses.
 Identify/Apply the above mentioned industrial analysis tools to analyse the challenges of
the business environment from given scenarios /statements.
 Describe/explain/discuss the different types of business strategies.
 Recommend/Suggest business strategies to deal with challenges identified from given
case studies/scenarios
 Discuss/Elaborate on the effectiveness (positives/advantages) of EACH type of business
strategy)
 Outline/Explain/Recommend/Advise businesses on the steps in strategy evaluation:
o Examine the underlying bases of business strategy.
o Look forward and backwards into the implementation process
o Compare expected performance (measure business performance).
o Take corrective action where necessary
o Set specific dates for control and follow up
o Decide on the desired outcome

Term Definition
Formulation of strategies To devise/develop a strategy.
Implementation of strategies This takes place after the formulation of the strategy and
involves all the activities that are required for putting the strategy
Evaluation of strategies into
Thisaction.
takes place after the implementation of the strategy and
determines whether the implemented strategy resolved the
challenge.
Industry analysis tools SWOT, Porter’s Five Forces and PESTLE analysis models are used
to analyse the challenges posed by business environments.

Suppliers Include factories/providers of goods/services that businesses

would obtain/buy from in order to operate their business.
Buyers The final users of the product/services.
Competitors All other businesses selling the same/similar products/services
Substitute product or service Different products/services that satisfy the same needs of
consumers and can be used to replace one another.
New Entrants New businesses that are selling the same/similar products entering
the market for the first time.

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1 Definition of a strategy
 A strategy is a long term plan of action to achieve a goal.
 A strategy is a plan of action to address an opportunity or to solve a problem.
 The business needs a strategy to achieve its vision and mission.

1.1 The strategic management process

Option 1
 Have a clear vision, a mission statement and measurable/realistic objectives in place.
 Identify opportunities/weaknesses/strengths/threats by conducting environmental
scanning/situational analysis.
 Tools available for environmental scanning may include a SWOT analysis/Porter's
Five Forces model/PESTLE analysis/industrial analysis tools.
 Formulate alternative strategies to respond to the challenges. (This involves
different types of business strategies)
 Develop (an) action plan(s), including the tasks to be done/deadlines to be
met/resources to be procured, etc.
 Implement selected strategies by communicating it to all stakeholders/organising the
business's resources/motivating staff.
 Continuously evaluate/monitor/measure strategies in order to take corrective action.
(This involves steps in evaluating a strategy)

Option 2
 Review/Analyse/Re-examine their vision and mission statement the vision statement.
 Conduct an environmental analysis using models such as PESTLE/
PORTER'S/SWOT.
 Formulate a strategy such as a defensive/retrenchment strategy.
 Implement a strategy, using a template such as an action plan.
 Control/Evaluate/Monitor the implemented strategy to identify gaps/deviations in
implementation.
 Take corrective action to ensure goals/objectives are met.
NOTE: The steps may be in any order.

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1.2 INDUSTRIAL ANALYSIS

1.2.1 COMPILATION OF A SWOT ANALYSIS

STRENGTHS WEAKNESSES
 What advantages does your  High cost infrastructure
organisation have and what do you do  High employee turnover
better than anyone else?  Weak brand portfolio
 What unique or lowest-cost resources  High debts level
can you draw upon that others can't?  What are people in your market likely to
 Do you have skilled employees and a see as weaknesses?
strong customer base?  What factors cause loss of sales
 Do you provide high quality product?  Are your competitors doing any better
 Do you have sufficient resources? than you?
 What is your core competency?
OPPORTUNITIES THREATS
 Market growth for the business product.  Corporate tax may increase
 New technology that will enhance quality  Rising pay levels.
services and products  Intense competition.
 Changing customer habits.  Increasing fuel price.
 Disposable income level will increase.  Aging population.
 Government’s incentives for ‘specific  Stricter laws regulating environment
industry pollution
 Growing number of people buying on  Currency fluctuations.
line (electronic marketing)  Changing technology.
 What good opportunities can you spot?
NOTE: The SWOT analysis is usually assessed in the form of a scenario as indicated
below:

Example of a scenario that requires learners to compile a SWOT analysis

DAVE DIGITAL SOUND (DDS)

DDS specialises in selling radios and car sound systems. They employ qualified sound
engineers. The business does not have sufficient capital to buy and sell sound systems that
cater for large events. Businesses in the same industry are closing down due to ineffective
marketing campaigns. DDS is located in a high crime area.

An example of a SWOT analysis of Dave Digital Sound DDS

STRENGTHS WEAKNESSES
 DDS employs qualified sound  The business does not have sufficient
engineers. capital to buy/sell sound systems that
 DDS specialises in selling radios cater for large events.
and car sound systems.
OPPORTUNITIES THREATS
 Businesses in the same industry are  DDS is located in a high crime area.
closing down due to ineffective marketing
campaigns.

NOTE: You need to quote verbatim (as is) from the scenario, otherwise you will lose
marks for writing incomplete quotes or for writing a summary of the scenario.

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1.2.2 PORTERS’ FIVE FORCES MODEL

 Power of suppliers
 Power of buyers
 Power of competitors/Competitive rivalry
 Threat of substitution/substitutes
 Threat/Barriers of new entrants to the market
NOTE: Ensure that you are able to correctly name the above-mentioned
Porter’s Five Forces model to avoid losing marks.

1.2.3 APPLICATION OF PORTERS’ FIVE FORCES MODEL

Power of suppliers
 Assess the power of the suppliers in influencing prices
 Suppliers that deliver high quality product may have power over the business.
 The more powerful the suppliers, the less control the business has over them.
 The smaller the number of suppliers, the more powerful they may be as the choice of
suppliers may be limited.
 Identify the kind of power suppliers' have in terms of the quality of
products/services/reliability/ability to make prompt deliveries, etc.

Power of buyers
 Assess how easy it is for buyers/customers to drive prices down.
 Buyers buying in bulk can bargain for prices in their favour
 Conduct market research to gather more information about its buyers.
 Determine the number of buyers/the importance of each buyer to the business and
the cost of switching to other products.
 A few powerful buyers are often able to dictate their terms to the business.
 If buyers can do without the business's products then they have more power to
determine the prices and terms of sale.

Power of competitors/Competitive rivalry

 If competitors have a unique product/service, then they will have greater power.
 A business with many competitors in the same market has very little power in their
market.
 Draw up a competitor's profile so that they can determine their own strength as well
as that of competitors.
 Some businesses have necessary resources to start price wars and continue selling
at a loss until some/all competitors leave the market.

Threat of substitution/substitutes
 If the business's product can be easily substituted, it weakens the power of the
business in the market.
 Establish whether the sellers of substitute products have improved their product/sell
lower quality goods at lower prices.
 If the business sells unique products it will not be threatened by substitute products.
 Assess if customers are using substitute products/services and determine reasons
for using substitutes.

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Threat/Barriers of new entrants to the market

 If the barriers to enter the market are low, then it is easy for new businesses to
enter the market/industry.
 If there are a few suppliers of a product/service but many buyers, it may be easy to
enter the market.
 If the business is highly profitable, it will attract potential competitors that want to
benefit from high profits.
 New competitors can quickly/easily enter the market, if it takes little time/ money to
enter the market.

NOTE: The main aim of Porter’s Five Forces model is to analyse the business
position in the market. This is more of a research study done by
businesses. Do not focus on recommendations as this is not form part of
an analysis. You must also be able to identify Porter’s Five forces model
from given statements and scenarios.

1.2.4 PESTLE ANALYSIS

 Political factors
 Economic factors
 Social factors
 Technological factors
 Legal factors
 Environmental factors
NOTE: Ensure that you are able to name and identify the PESTLE factors from
given statements/scenarios.

1.2.5 CHALLENGES POSED BY THE PESTLE FACTORS AND

RECOMMENDATIONS
NOTE: You need to name the PESTLE factor, identify challenges of each factor
and recommend ways businesses can deal with the identified challenges as
explained in the table below:
FACTOR CHALLENGES RECOMMENDATIONS
Political Some government policies may  Research recent government policies
affect businesses.  Network and lobby with the NGOs
Consumer rights organisations may and all consumer rights
prevent businesses from selling organisations.
products if they do not meet  Trade only with countries that have
certain requirements. favourable trade agreements with the
Trade agreements may prevent government.
businesses from importing some
medicine/products.
Economic Inflation/Interest rates may  Consider decreasing profit margins
negatively impact on business. rather than increasing product
Loans may be expensive due to high prices.
interest rates.  Borrow money from financial
Fluctuations in foreign currency may institutions when interest rates are
restrict import. favourable.
 Consider exchange rates when
trading with other countries
Social  Customers may not be able to  Sell substitute/generic products at

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afford products due to low lower prices.

income levels/high  Learn local languages/Hire
unemployment. employees who are well conversant
 Businesses may not be with the local language.
conversant with the language of
their customers.
 Some customers may prefer to
spend their money on medical
bills for the treatment of chronic
illnesses.
 High crime rate may affect the
trading hours of businesses
resulting in decreased profit.
Technologica Businesses may not keep up with/be Continuous research on the latest
l aware of the latest technology. available technology/equipment in the
Employees may not be skilled to market.
operate/maintain new technology/ Train existing/appoint new employees
equipment. to maintain/use new equipment.
Businesses may not be able to Compare prices/Select suitable
afford new technology. suppliers for new equipment at
May not be able to cater for/ afford reasonable prices.
online transactions/e-commerce. Businesses must be geared for online
trading/e-commerce
Legal Certain Acts may have a direct Comply with all relevant legislation that
impact on a business, e.g. the may impact on businesses.
CPA/BCEA. Comply with the legal requirements for
Legal requirements for operating operating businesses, e.g.
certain types of businesses time- licence/trade mark
consuming. registration/patents.
High legal costs involved in obtaining Budget for high legal establishment
a licence/trade mark/patent may costs.
prevent some establishments. Businesses must know the legalities of
Legalities of business contracts may business contracts so that they
limit business operations comply with all the requirements.
Environment Chemicals/Ingredients in business’ Chemicals/Ingredients should be clearly
al products may be harmful to indicated on labels/packaging to
customers inform customers about possible side
Measures to dispose of business effects/correct use of products.
waste may be expensive. Implement cost effective measures to
Packaging of some products may dispose of medical waste.
not be environmentally friendly Implement recycling measures to
may not be recyclable. prevent pollution of the
environment/Use packaging that is re-
usable/recyclable.
NOTE: The industrial analysis tools (SWOT, PESTLE AND PORTERS’FIVE) and
business strategies form part of the strategic management process.

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2 Types of business strategies

2.1.1 Integration strategies
Forward vertical integration
 The business combines business with or take over its distributors.
 Involves expansion of business activities to gain control over the direct distribution of
the products.
Backward vertical integration
 The business combines business with or take over its suppliers.
 The aim is to decrease the business’s dependency on the supplier

Horizontal integration
 A business takes control of/ incorporates other businesses in the same
industry/which produce/sell the same goods/services.
 The aim is to reduce the threat of competition /substitute products/services.

Intensive strategies
Market penetration
 New products penetrate an existing market at a low price, until it is well known to the
customers and then the prices increases.
 It is a growth strategy where businesses focus on selling existing products to existing
markets.
 Focuses on gaining a larger share of the market by reducing prices to increase
sales/increasing advertising and promotion.

Market Development
 It is a growth strategy where businesses aim to sell its existing products in new
markets.
 This strategy involves finding new markets and new ways to distribute product.

Product Development
 It is a growth strategy where businesses aim to introduce new products into existing
markets/modifies an existing product.
 Businesses generate new ideas and develop new products/services

2.1.2 Advantages of intensive strategies

 Increase in sales/income and profitability.
 Regular sales to existing customers may increase.
 Gain customer loyalty through effective promotion campaigns.
 Improved service delivery may positively impact/increase sales.
 Eliminate competitors and dominate market prices.
 Decrease in price could influence customers to buy more products.
 Businesses can have more control over the prices of products/services.

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 Enables the business to focus on markets/well researched quality products that

satisfy the needs of consumers.
 Increased market share reduces the business’s vulnerability to actions of
competitors.

2.2 Diversification strategies

Concentric diversification
 The business adds a new product or service that is related to existing products and
which will appeal to new customers.
 Occurs when a business wants to increase its product range and markets.

Horizontal diversification
 The business adds new products or services that are unrelated/ different to existing
products, but which may appeal to existing/current customers.
 Occurs when a business acquires or merges with a business that is at the same
production stage, but it may offer a different product

Conglomerate diversification
 The business adds new products or services that are unrelated to existing products
which may appeal to new groups of customers.
 Conglomerate diversification means that a business grows into new products,
services and markets.

2.2.1 Advantages of diversification strategies

 Increase sales and business growth.
 Improves the business brand and image.
 Reduces the risk of relying only on one product.
 More products can be sold to existing customers and additional more new markets
can be established.
 Businesses gain more technological capabilities through product modification
 Diversification into a number of industries or product line can help create a balance
during economic fluctuations.
 Business produce more output using less inputs as one factory may be used to
manufacture more products.

2.3 Types of defensive strategies

Divestiture/ Divestment
 The business disposes/sells some assets/divisions that are no longer profitable/
productive.
 Businesses may sell off divisions/product lines with slow growth potential.
 The business sells ownership by decreasing the number of shareholders.
 Unproductive assets are sold to pay off debts.
 Process used to withdraw its investment in another business (divesting).

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Retrenchment
 Terminating the employment contracts of employees for operational reasons.
 Decreasing the number of product lines/Closing certain departments may result in
some workers becoming redundant.

Liquidation
 All assets are sold to pay creditors due to a lack of capital/cash flow.
 Selling the entire business in order to pay all liabilities/close down the business.
 Companies in financial difficulty may apply for business rescue to avoid liquidation.
 Creditors may apply for forced liquidation in order to have their claims settled.
NOTE: You must be able to identify the types of business strategies from given
scenarios/statement.

3 Steps in evaluating a strategy

 Examine the underlying basis of a business strategy.
 Look forward and backwards into the implementation process.
 Compare the expected results in order to determine the reasons for deviations and
analyse these reasons.
 Take corrective action so that deviations may be corrected.
 Set specific dates for control and follow up.
 Draw up a table of the advantages and disadvantages of a strategy.
 Decide on the desired outcome.
 Consider the impact of the strategic implementation in the internal and external
environments of the business.
 Decide on the desired outcome as envisaged when strategies were implemented.
NOTE: The steps can be in any order

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