Strategic Management and Business Policy
This domain tests strategic analysis, choice and implementation - how firms define advantage, select markets and align organisation and control.
Core rules
- Strategic intent: vision (future state), mission (purpose), values and goals.
- External: PESTEL; Porter's five forces - rivalry, new entrants, substitutes, supplier power, buyer power. High forces compress industry profitability.
- Internal: VRIO - value, rarity, imitability, organisation. Core competence must be hard to imitate and transferable to new markets.
- SWOT is diagnostic; TOWS converts it into strategies.
- Generic strategies: cost leadership, differentiation, focus (cost or differentiation). Stuck in the middle is a risk when neither advantage is clear.
- Corporate strategy: Ansoff (market penetration, product development, market development, diversification); BCG portfolio; vertical integration; M&A; alliances.
- International: global integration versus local responsiveness.
- Implementation: structure, culture, resource allocation, balanced scorecard (financial, customer, internal process, learning and growth), strategic control.
Worked example. A division has 40% share of a mature, slow-growing market. In BCG terms it is a cash cow: generate cash, invest selectively, avoid heavy capacity expansion. If the same cash is diverted to a question mark with a credible path to leadership, portfolio returns improve; if not, divest the dog.
Traps. SWOT is not a strategy. Five forces analyse an industry, not one firm. Cost leadership is not "low price at any cost". Synergy from M&A is not automatic. Intended strategy differs from realised strategy.