Business Strategy Formation in Simple Language

Creating a business strategy is about planning how your business will succeed over time. It involves
making decisions on what your company will do, how it will compete, and how it will grow. Here’s a
simple way to understand the steps in forming a business strategy:

1. Know Your Goals

 What do you want to achieve?

Start by deciding what you want your business to accomplish. For example, is your goal to
increase sales, expand to new markets, or improve customer service? Having clear goals
helps guide your decisions.

2. Understand the Market

 What is happening around you?

Look at the market and your competitors. What are their strengths and weaknesses? What
are the trends or changes in the industry? This helps you figure out where you fit and how
you can be better.

3. Know Your Strengths and Weaknesses

 What are you good at, and where can you improve?
Look inside your company. What do you do well (e.g., excellent customer service, innovative
products)? And where can you improve (e.g., delivery time, marketing efforts)? This helps
you focus on your strengths while working on areas that need improvement.

4. Decide on a Plan

 How will you achieve your goals?

Once you know what you want and where you stand, create a plan. For example, if your goal
is to increase sales, your plan might include improving your product, expanding your
advertising, or opening new stores. Your plan should be clear and realistic.

5. Set a Timeline

 When will you achieve your goals?

Make sure your goals have deadlines. For example, you might want to increase sales by 10%
in one year or launch a new product by the end of the quarter. Timelines keep you on track.

6. Monitor and Adjust

 How will you know if your plan is working?

Regularly check if you’re making progress toward your goals. If something isn’t working,
don’t be afraid to adjust the plan. Business strategies should be flexible.

Example of a Simple Strategy:

 Goal: Increase customer base by 15% in the next year.

 Market Analysis: Competitors are offering discounts, but you have better quality.

 Strength: Strong product quality and customer service.

 Plan: Focus on online marketing, offer loyalty programs, and improve the website.
  Timeline: Achieve the 15% growth by the end of the year.

 Monitor: Track sales and customer feedback every month.

Key Takeaways:

 A business strategy is a plan to help your business achieve long-term success.

 It involves understanding your goals, the market, your strengths, and weaknesses.

 It includes creating a plan, setting a timeline, and regularly checking progress.

In simple terms, business strategy is like a map that guides your business toward its destination,
making sure you avoid obstacles and take the best path to success.

Nature of a Company’s Environment and Its Analysis for Strategy Formulation

To create a successful business strategy, it’s crucial to understand the environment in which your
company operates. The business environment consists of both internal and external factors that
influence your company's decisions and performance.

Here’s a breakdown of the nature of a company’s environment and how to analyze it for strategy
formulation in simple language:

1. What is the Business Environment?

The business environment is everything that surrounds and affects a company’s operations. It
includes:

 Internal Environment: Factors inside the company that you can control, such as employees,
management, resources, and company culture.

 External Environment: Factors outside the company that you can't control but must
understand, such as the economy, competitors, customers, laws, and technology.

2. Types of Environments

A. Internal Environment

These are factors within the company that affect how it operates. You have more control over these.

 Employees and Management: The skills, experience, and motivation of your team. Strong
management can drive the company forward, while skilled employees can help achieve
business goals.

 Company Culture: The values, work ethic, and overall attitude in your organization. A
positive, creative culture can lead to more innovative ideas.

 Resources: This includes financial resources (money, funding), physical resources (offices,
machinery), and intangible resources (brand reputation, patents).

 Products and Services: The quality and uniqueness of what your company offers. Strong
products can help you compete in the market.

B. External Environment
These factors are outside the company’s control but significantly affect its strategy.

 Economic Factors: The overall state of the economy, including things like inflation, interest
rates, and unemployment rates. A booming economy may mean more customers, while a
recession might reduce demand for your products.

 Political and Legal Factors: Laws, regulations, and government policies that affect business
operations. For example, labor laws, tax rates, or trade restrictions.

 Social and Cultural Factors: These refer to changes in society, such as consumer preferences,
lifestyle trends, or cultural shifts. For example, a growing interest in health-conscious
products could influence your product offerings.

 Technological Factors: Advances in technology can create new opportunities or disrupt your
business. For example, e-commerce has changed how retail businesses operate, and new
technology could create better products or make operations more efficient.

 Competitive Environment: The actions of competitors. You need to analyze who your
competitors are, what they’re doing, and how you can differentiate your company to attract
customers.

 Environmental Factors: Concerns about sustainability and the environment. For instance,
climate change, recycling, and sustainable production methods are becoming important
factors in consumer buying decisions.

3. How to Analyze the Business Environment?

To formulate a good business strategy, you need to analyze both the internal and external
environment of your company. Here's how to do it:

A. Internal Environment Analysis

 SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats):

o Strengths: What does your company do well? (e.g., strong brand, good customer
service, skilled team)

o Weaknesses: What could your company improve? (e.g., outdated technology, high
employee turnover)

o Opportunities: What external trends can benefit your company? (e.g., growing
demand in a new market)

o Threats: What external factors can harm your business? (e.g., new competitors,
changing customer preferences)

 Value Chain Analysis: Understand each step in your company's process from production to
marketing. This helps you identify areas that can be improved or made more efficient.

B. External Environment Analysis

 PESTLE Analysis (Political, Economic, Social, Technological, Legal, Environmental): This

analysis helps you examine the external factors that can affect your business:

o Political: How do government policies, laws, and stability impact your business?
 o Economic: What’s the overall economic climate? Is it growing, stagnant, or in a
recession?

o Social: What are the current social trends? Are customer preferences changing?

o Technological: Are there new technologies that you need to adopt or that might
disrupt your business?

o Legal: What laws and regulations impact your industry?

o Environmental: Are environmental issues becoming more important to your

customers and business operations?

 Competitive Analysis (Porter’s Five Forces):

Michael Porter’s model helps you understand the competitive forces in your industry:

1. Threat of New Entrants: How easy is it for new companies to enter your industry?

2. Bargaining Power of Suppliers: Do you rely on a few suppliers who can affect prices
or availability?

3. Bargaining Power of Customers: How much power do customers have to influence

prices or demand?

4. Threat of Substitutes: Are there alternatives to your products or services that could
replace them?

5. Industry Rivalry: How intense is the competition in your market?

4. How to Use the Analysis for Strategy Formulation

Once you understand both your internal and external environment, you can use the information to
form a strategy that helps your business succeed.

 Leverage Strengths and Opportunities: Use your strengths to take advantage of external
opportunities. For example, if your company has strong research and development, you
could launch innovative products to meet new market trends.

 Address Weaknesses and Threats: Work on improving areas where you’re weak and prepare
for external threats. If your competitor is innovating faster than you, focus on improving your
product development.

 Adapt to the Environment: Make sure your strategy is flexible enough to adapt to changes in
the environment. For example, if new technology is emerging, plan to adopt it early to stay
competitive.

Example of Environmental Analysis for Strategy:

 Internal Analysis (SWOT):

o Strength: Experienced team, strong customer loyalty.

o Weakness: Limited online presence.

o Opportunity: Growing trend for eco-friendly products.

o Threat: Competitors launching similar products at lower prices.

  External Analysis (PESTLE):

o Political: Government incentives for eco-friendly products.

o Economic: Economic slowdown could reduce customer spending.

o Social: Customers are more interested in sustainability.

o Technological: New eco-friendly production techniques are emerging.

o Legal: New laws on sustainability and environmental impact.

o Environmental: Growing concern over climate change.

 Strategy:

o Focus on launching eco-friendly products that align with customer demand.

o Improve the online presence and e-commerce capabilities to reach more customers.

o Leverage government incentives for sustainable practices.

Conclusion:

The business environment is everything around your company that can influence its success. To
create a strong business strategy, you must carefully analyze both the internal environment
(strengths and weaknesses) and the external environment (opportunities and threats). By
understanding these factors, you can make informed decisions and create a strategy that helps your
business grow, compete effectively, and adapt to changes.

SWOT analysis

A SWOT analysis is a simple tool used by businesses or individuals to understand their Strengths,
Weaknesses, Opportunities, and Threats. It's a way to identify what is working well, what can be
improved, and what might affect success in the future. Let's break it down in easy language:

1. Strengths (S):

These are the things you or your business does really well. Strengths help you succeed and stand out
from others.

Examples:

 Strong brand or reputation

 Skilled team members

 Unique products or services

 Good customer loyalty

 Financial stability

 Access to resources (like technology or funding)

Questions to ask:
  What do I do better than anyone else?

 What resources do I have that help me succeed?

 What do customers like about me?

2. Weaknesses (W):

These are areas where you or your business are lacking or could improve. It's important to be honest
about weaknesses so you can work on fixing them.

Examples:

 Limited budget or funding

 Lack of experience or skills in certain areas

 Poor customer service or bad reputation

 Outdated technology or processes

 Low employee morale or high turnover

Questions to ask:

 Where can I improve?

 What do I struggle with?

 What feedback have I received that points to weaknesses?

3. Opportunities (O):

Opportunities are external factors that could help you grow or succeed. These are trends, changes,
or new possibilities that you can take advantage of.

Examples:

 A new market or audience to target

 Technological advancements you can use

 Changes in regulations that could benefit you

 Partnerships with other companies

 Growing demand for your products or services

Questions to ask:

 What trends could help me?

 Are there any gaps in the market I can fill?

 Can I take advantage of any upcoming changes?

4. Threats (T):

Threats are external challenges or risks that could harm you or your business. These are things
outside of your control, but you need to be aware of them so you can protect yourself.
Examples:

 Increased competition

 Economic downturns or recessions

 Changing laws or regulations that could hurt your business

 Negative public perception or bad reviews

 Disruptions in the supply chain

Questions to ask:

 What challenges or risks do I face?

 What are my competitors doing?

 What could change that would hurt me?

Putting it All Together:

A SWOT analysis helps you take a step back and look at your situation as a whole. By identifying your
strengths, weaknesses, opportunities, and threats, you can come up with strategies to improve,
protect yourself, and make the most of what you have.

For example:

 Maximize Strengths: Leverage your best features to gain more customers.

 Improve Weaknesses: Work on areas that need improvement to avoid risks.

 Seize Opportunities: Act quickly on trends or changes that could benefit you.

 Address Threats: Plan for challenges and reduce risks.

Example of a Simple SWOT Analysis for a Coffee Shop:

Strengths:

 Great location near office buildings

 High-quality coffee beans

 Friendly, knowledgeable staff

Weaknesses:

 Small seating area, limited space for customers

 Higher prices than some competitors

 Limited marketing or brand recognition

Opportunities:

 Partner with local businesses for catering or events

 Trend toward organic or sustainable products

 Opening a new location nearby

Threats:

 New coffee shop opening in the area

 Rising cost of coffee beans

 Economic slowdown affecting customer spending

By doing a SWOT analysis, the coffee shop could decide to use its strengths (great location, high-
quality coffee) to attract more customers, work on weaknesses (improve marketing), take advantage
of opportunities (partnering with local businesses), and be aware of threats (competition, rising
costs).

That's a basic explanation of SWOT in simple terms! It's a helpful way to think about your situation,
whether you're running a business or just working on a personal goal.