Business Strategy and Competitive Analysis
Domain 5 examines how a firm chooses where to compete and how to win. Questions combine external analysis (attractiveness), internal analysis (resources and capabilities) and the resulting competitive advantage, often asking you to judge whether a claimed advantage is sustainable.
External analysis
- PESTEL for the macro environment; Porter's five forces for industry attractiveness (rivalry, entrants, substitutes, supplier power, buyer power).
- A profitable industry does not guarantee a profitable firm, and vice versa.
Internal analysis
- Resources (tangible and intangible) → capabilities (how resources are combined) → core competence.
- VRIO/VRIN test: Valuable, Rare, costly to Imitate, Organised to capture value. Only the full set supports a sustained advantage.
Competitive advantage
- Porter's generic strategies: cost leadership, differentiation, focus (cost or differentiation). Combining cost and differentiation without a clear logic leaves the firm "stuck in the middle".
- Value chain (Porter): primary activities (inbound logistics, operations, outbound logistics, marketing and sales, service) and support activities (procurement, technology, HR, infrastructure).
- SWOT synthesises the analysis; it is a diagnosis, never a strategy.
- Growth options: Ansoff matrix (penetration, product development, market development, diversification); integration; Blue Ocean.
Worked example
VRIO on a family hotel group in the Balearics. Prime seafront location: valuable, rare, costly to imitate (planning restrictions), organised - a sustained advantage, though regulatory. Loyalty programme: valuable but not rare - competitive parity at best. Revenue-management capability: valuable, rare, and hard to imitate because it is tacit knowledge embedded in people and systems - potential sustained advantage. Reasoning: the strategy should protect the location asset and invest in the capability, not in copying rivals' loyalty schemes.
Traps
- Presenting a SWOT as if it were a strategy.
- Calling "what we do well" a core competence without the VRIO test.
- Confusing a low price with cost leadership; the cost advantage must be sustainable.
- Forgetting that differentiation also raises costs.