What is strategy?
A strategy is a long-term plan (often 2–5 years) that says where a business will compete and how it will win. It uses the firm's resources: people, money, machines and ideas.
- Mission: why the business exists, in one sentence. Example: a bus company's mission might be 'safe, cheap travel for every village'.
- Vision: what the business wants to become in the future.
- Corporate objectives: big measurable targets for the whole firm, such as 'grow sales by 20% in 3 years'.
- Strategy answers 'how will we reach the objectives?'. Tactics are short-term actions, such as a weekend discount.
Good objectives are SMART: Specific, Measurable, Achievable, Relevant, Time-bound.
Diagnosis: SWOT and the environment
Before choosing, a firm studies its situation. This is called strategic diagnosis.
- Internal (inside, the firm can control): strengths and weaknesses, such as skilled staff, brand, cash, old machines. Ratios like profit margin and staff turnover show internal performance.
- External (outside, the firm cannot control): opportunities and threats from customers, rivals, suppliers, laws, the economy, technology and the environment. A firm lives in an ecosystem of partners, rivals and regulators.
A SWOT grid puts these four lists together. The goal: use strengths to grab opportunities, fix weaknesses, and guard against threats. Diagnosis then turns into clear goals.
Which markets and products? The Ansoff matrix
The Ansoff matrix gives four growth options:
- Market penetration: sell more of the same product in the same market (lowest risk). Example: loyalty cards.
- Product development: new product, same market (medium risk).
- Market development: same product, new market, such as a new city or export (medium risk).
- Diversification: new product in a new market (highest risk, but spreads risk across businesses).
Firms can grow organically (by themselves) or by joining others: mergers, takeovers, joint ventures and alliances. They can also choose to specialise or to outsource parts of the work.
Strategic positioning: how to compete
Michael Porter described three generic strategies:
- Cost leadership: be the lowest-cost producer, so you can charge low prices and still make profit (budget airlines).
- Differentiation: offer something special (quality, design, service, brand), so customers pay more.
- Focus: do either of the above for a small, narrow group of customers.
A firm that tries to be both cheap and special without being clearly either may get stuck in the middle. Positioning should give a competitive advantage that rivals find hard to copy.
Putting strategy into action
A great plan fails if it is not carried out. Implementation needs:
- Leadership and clear communication so everyone knows the plan.
- Structure and resources: the right people, budget and machines in the right place.
- Culture: the shared habits of staff must support the change.
- Project management and control: milestones, a critical path, and regular checks against the SMART objectives, then adjust.
Try it at home
Pick a shop near you. Write its mission in one line, one SMART objective, a 4-box SWOT, and choose one Ansoff route for it. Then check the 3D: is your route low, medium or high risk?
Key formulas and definitions
- Mission: why the firm exists.
- SMART: Specific, Measurable, Achievable, Relevant, Time-bound.
- SWOT: Strengths, Weaknesses (internal); Opportunities, Threats (external).
- Ansoff: penetration, product development, market development, diversification.
- Porter: cost leadership, differentiation, focus.
- Strategy = long term, whole firm; tactics = short term, small steps.
- Competitive advantage: something you do better than rivals that is hard to copy.
Worked examples
1. Is 'We want to do better' a SMART objective? Fix it.
No. It is not specific, measurable or time-bound. Better: 'Increase monthly sales from 2,000 to 2,400 cups (20%) by 31 March next year.'
2. A phone maker starts selling its existing phones in Africa. Which Ansoff option?
Step 1: product is old (same phones). Step 2: market is new (new continent). Step 3: old product + new market = market development, medium risk.
3. A firm has a famous brand but old machines; a new law bans plastic packaging; online sales are booming. Sort into SWOT.
Famous brand = strength (inside). Old machines = weakness (inside). Online boom = opportunity (outside). Plastic ban = threat (outside).
4. A small hotel cannot match big chains on price. Which positioning do you suggest?
Differentiation with focus: offer something special (local food, heritage rooms) for a narrow group (cultural tourists). It avoids a price war it would lose.
Common mistakes
- Mixing up strategy and tactics. A one-week sale is a tactic, not a strategy.
- Putting external factors into strengths. Strengths and weaknesses are only things inside the firm.
- Thinking diversification is always safest. It spreads risk but is the riskiest Ansoff option because both product and market are new.
- Trying to be the cheapest and the most luxurious at once, and ending up stuck in the middle.