ICAB PL Business Strategy cheat sheet

PESTLE covers Political, Economic, Social, Technological, Legal and Environmental factors; it maps macro-environment forces outside firm control.

Porter's Five Forces: rivalry, buyer power, supplier power, threat of new entrants, threat of substitutes; high combined force intensity compresses industry profitability toward the competitive floor.

A sixth force, complementors, is added when the value of a product rises with another firm's product, as with hardware and software ecosystems.

Value chain analysis splits activities into primary (inbound logistics, operations, outbound logistics, marketing and sales, service) and support (firm infrastructure, HR, technology, procurement).

SWOT pairs internal strengths and weaknesses with external opportunities and threats; it is a matching tool, not a ranking tool, so items carry no weights.

Industry life cycle stages are introduction, growth, maturity and decline; rivalry typically peaks in maturity when growth slows and capacity is fixed.

Strategic group mapping plots firms on two competitive dimensions; firms in the same group face closer rivalry than firms in different groups.

Core competence test (Prahalad and Hamel): a competence must be valuable, rare, hard to imitate and non-substitutable to yield sustained advantage.

Ansoff matrix: market penetration (existing product, existing market), product development, market development, diversification; diversification carries the highest risk.

Porter's generic strategies: cost leadership, differentiation and focus; a firm lacking a clear generic strategy is 'stuck in the middle'.

BCG matrix axes are market growth rate and relative market share; cells are star, cash cow, question mark and dog.

A cash cow generates surplus cash for stars and question marks; a dog with negative cash flow is a candidate for divestment.

SAFe criteria for evaluating a strategic option: Suitability (fits environment and capability), Acceptability (returns, risk, stakeholder reaction), Feasibility (resources and competence).

Strategy hierarchy: corporate level sets portfolio and scope, business level sets competitive advantage, operational level sets functional delivery.

Mintzberg's deliberate strategy is realised as intended; emergent strategy arises from unplanned patterns of decisions; realised strategy is the sum of both.

Related diversification shares capabilities or value-chain activities across businesses; unrelated diversification shares only financial or managerial resources.

McKinsey 7S: strategy, structure, systems (hard) plus staff, skills, style, shared values (soft); all seven must align for implementation to succeed.

A structure follows strategy: growth by diversification pushes firms toward divisional structures; single-business firms typically use functional structures.

Budgeting links strategy to resources; zero-based budgeting starts each period from nil and forces justification of every cost line.

Critical success factors are the few activities a firm must execute well to meet strategic goals; key performance indicators measure them.

A balanced scorecard uses four perspectives: financial, customer, internal process, and learning and growth.

Investment appraisal: payback ignores cash flows after the cutoff and time value; net present value ranks mutually exclusive projects by absolute value added at the cost of capital.

Internal rate of return is the discount rate at which net present value equals zero; accept a project when IRR exceeds the cost of capital.

Lewin's three-step change model: unfreeze, move (change), refreeze; refreezing embeds new behaviour into systems and culture.

Mintzberg's organisational configurations include simple structure, machine bureaucracy, professional bureaucracy, divisionalised form and adhocracy.

Mechanistic structures suit stable environments (specialisation, hierarchy, vertical communication); organic structures suit turbulent environments (flexibility, lateral communication).

Span of control is the number of subordinates reporting to one manager; a wide span flattens the hierarchy and shortens the scalar chain.

Handy's culture types are power, role, task and person culture; role culture relies on rules and position rather than individuals.

Kotter's eight steps begin with creating urgency and forming a guiding coalition, and end with anchoring change in culture.

Resistance to change sources include self-interest, low tolerance of uncertainty, differing assessments and misunderstanding; participation reduces resistance.

The change curve (Kubler-Ross adaptation) runs denial, resistance, exploration and commitment; productivity dips before recovery.

Centralisation concentrates decision authority at the top; decentralisation pushes it to lower levels, increasing responsiveness but risking inconsistency.

Suitability, acceptability and feasibility (SAFe) triage options before commitment; a feasible option can still be unacceptable on risk grounds.

Return on capital employed = operating profit / capital employed; compare against the cost of capital, not against zero.

Payback period = initial investment / annual net cash inflow; it ignores the time value of money and cash flows after payback.

Sensitivity analysis asks how far a variable must move before the decision changes; a small tolerance signals high risk.

Gap analysis compares the strategic target with the forecast from current plans; the gap is closed by new strategies, not by hope.

Stakeholder power-interest grid: manage closely (high power, high interest), keep satisfied (high power, low interest), keep informed (low power, high interest), monitor (low both).

Financial ratio families: profitability, liquidity, gearing, efficiency and investor ratios; trend and competitor benchmarks give ratios meaning.

Strategic drift is the gradual divergence of strategy from a shifting environment, often exposed by a performance crisis.

Agency problem arises where ownership is separated from control; governance mechanisms include independent non-executive directors, audit committees and performance-linked pay.

Board committees typically include audit, remuneration and nomination; the audit committee should comprise independent non-executives and oversee external audit.

Risk treatment options: avoid, reduce (mitigate), transfer (insurance, outsourcing) and accept (retain), chosen after likelihood and impact assessment.

A risk map plots likelihood against impact; high likelihood with high impact demands priority treatment.

Internal control components (COSO): control environment, risk assessment, control activities, information and communication, and monitoring.

Segregation of duties prevents one person from authorising, recording and safeguarding the same transaction.

Corporate social responsibility covers economic, legal, ethical and discretionary responsibilities; the discretionary layer is voluntary.

Risk appetite is the amount of risk a board is willing to accept in pursuit of objectives; risk capacity is the maximum it can bear before solvency or reputation fails.