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Successful businesses implement the strategic management process to improve internal operations - NSC Business Studies - Question 5 - 2023 - Paper 1
Question 5
Successful businesses implement the strategic management process to improve internal operations. Porter's Five Forces model enables businesses to analyse their posit... show full transcript
Worked Solution & Example Answer:Successful businesses implement the strategic management process to improve internal operations - NSC Business Studies - Question 5 - 2023 - Paper 1
Step 1
Outline the strategic management process.
Answer
The strategic management process is a structured approach that allows organizations to develop and enhance their operational effectiveness. It typically involves several key steps:
- Vision and Mission Statement: Establishing a clear vision and mission provides direction for the organization.
- Environmental Analysis: Assessing internal and external environments through analyses like SWOT (Strengths, Weaknesses, Opportunities, Threats) helps in identifying necessary strategies.
- Strategy Formulation: Developing actionable strategies, such as retrenchment or growth strategies.
- Implementation: Executing the formulated strategy involves allocation of resources and defining tasks.
- Monitoring and Evaluation: Regularly tracking progress against goals ensures the strategy is being properly implemented and allows for adjustments as necessary.
Step 2
Explain how businesses could apply the following forces of Porter's Five Forces model to analyse their position in the market environment: Power of buyers.
Answer
The Power of Buyers refers to the ability of customers to influence pricing and quality. Businesses can assess the power of buyers by:
- Assessing Buyer Influence: Understanding how easily customers can drive prices down based on their preferences and the alternatives available.
- Switching Costs: Evaluating how difficult or costly it is for buyers to switch to competitors’ products, which can enhance their bargaining power.
- Buyer Concentration: If a few buyers account for a significant portion of sales, they may have greater leverage over pricing and terms.
Step 3
Explain how businesses could apply the following forces of Porter's Five Forces model to analyse their position in the market environment: Power of competitors/Competitive rivalry.
Answer
The Power of Competitors or Competitive Rivalry examines how the presence of competitors affects profits and pricing strategies. Businesses can evaluate this by:
- Market Share Analysis: Assessing the current market shares of competitors to understand competitive positioning.
- Product Differentiation: Identifying how unique or similar products are compared to competitors, which can influence competitive power.
- Pricing Strategies: Investigating how competitors set prices could indicate market dynamics and influence strategic pricing.
Step 4
Discuss THREE types of intensive strategies.
Answer
Intensive strategies focus on growth through market development, penetration, or diversification. Three types include:
- Market Penetration: Increasing sales of existing products in existing markets, often through competitive pricing or promotions.
- Market Development: Selling existing products in new markets, targeting new consumer segments or geographical areas.
- Product Development: Introducing new products to existing markets, leveraging research and development to innovate and meet consumer demands.
Step 5
Advise businesses on the advantages of diversification strategies.
Answer
Diversification strategies offer significant benefits, including:
- Sales Growth: Expanding product lines or entering new markets can significantly increase revenue.
- Risk Reduction: By diversifying, businesses are less reliant on a single product or market, which stabilizes income streams.
- Resource Utilization: Leveraging existing resources across various products can optimize operational efficiency and reduce costs.