Business Management strategy
Business Management (BM) flows throughout the whole of the CA qualification, so it’s only right that we take it back to basics for in-depth analysis. This print-out and keep guide details Porters, SWOT and PEST, explained by Lauren O’Brien, TPS Level Controller.
For those who have successfully passed the subject, thinking back to TC Business Management tends to conjure images of calculations and costing (including the dreaded absorption costing!). There is a considerable quantity of non-calculation-based material in BM.
And, in terms of your future ICAS studies, the most important narrative area introduced in BM is Strategy. It’s a theme that runs through a number of different BM modules to some degree, but it’s mainly addressed in module seven – Strategies for Business.
Amongst other things, this module introduces a range of different strategic concepts including SWOT, PEST, Porters 5 Forces, Porters Competitive Strategies and Strategic Directions.
But here’s the thing: in BM we give you some basic examples of each of these strategic concepts, but the first day of your TPE course might expect you to be able to complete a SWOT analysis as part of a TPE case study. Or a PEST analysis, or Porters…. you get the picture!
The strategy basics you learned in BM will very much influence your future studies. At TPS level you can try performing a SWOT or equivalent analysis for one of your clients, in the run-up to TPE. Alternatively, you could take a business that’s been covered in the news recently and analyse them.
Let’s get back to basics about what these concepts are, and think about how you can practice using these concepts ahead of TPE.
This is where you analyse the:
- Opportunities and
- Threats of the business
Strengths and weaknesses should be from an internal perspective, and opportunities and threats from an external perspective.
At TPE you should take your basic BM knowledge of what a SWOT is, along with the skills gained in analysing a business from TPS (eg from ABS or Afin) and use this to construct a really meaningful analysis of the business.
One of the advantages of doing a SWOT at TPE is that it gives you a good overall feel for the business - it’s unlikely to be either too negative or too positive, as the SWOT forces you to consider a range of different perspectives.
This is where you consider the more remote external environment. This might allow you to see further into the future and identify opportunities and threats earlier than a SWOT analysis. PEST stands for:
- Political factors
- Economic factors
- Social factors and
- Technological factors
At TPE, you will probably have a much better idea of these factors than you did at TC. For example, your tax knowledge will impact on both the political and economic factors, and your ABS work on CSR will help you with the social side of things.
There are two different approaches you could take, namely Porters 5 forces or Porters generic strategies.
Porters 5 forces comprise determining which of the forces has the biggest impact on the company, and to what extent, to allow the company to plan better for the future.
Porters 5 forces are:
- New Entrants and
In TPE case studies, it might be quite apparent that a company is heavily dependent, for example, on specific customers or suppliers. We would expect you to notice this in a case study and provide appropriate advice.
Porters 3 competitive strategies are:
- Cost Leadership
- Differentiation or
The competitive strategies are specific strategy options that a business can choose to pursue.
In TPE you could have situations where a business is already pursuing these strategy options, or you could advise the business to pursue them in the future. Be cautious and apply common sense when doing so.
For example, being a cost leader might seem appealing, but it could come at the expense of revenue in the future (as cutting costs could annoy your customers); as such, this might actually lead to overall profits falling.
Focus can be a very risky strategy because if something happens to the specific market you are targeting, it could prove fatal to the company.
Of the three competitive strategies, differentiation is probably the one that I would recommend most often, albeit at TPE level you would be expected to carefully consider the costs involved with a differentiation strategy.
After all, it costs money to advertise and highlight the differentiating factors of your business and, again, we would expect you to judge if it is worthwhile before pursuing this strategy.
The strategic directions are also strategy options that a business can choose to pursue. These are neatly summed up in the following table: