How does a business analyse its current strategic position?
The meaning of corporate strategy, analysing the internal position through core competences and financial data, analysing the external position with Porter's five forces, and assessing overall competitiveness.
A focused answer to AQA A-Level Business 3.7, covering the meaning of corporate strategy, analysing the internal position through core competences and financial data, analysing the external position with Porter's five forces, and assessing overall competitiveness.
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What this dot point is asking
AQA wants you to explain what corporate strategy means, analyse a firm's internal position through its core competences and financial data, analyse its external position using Porter's five forces, and assess its overall competitiveness. This sits at the top of the specification, so expect extended, evaluative essay questions.
Corporate strategy
Analysing the internal position
A firm assesses its internal strengths through its core competences and its financial data.
Financial data (profitability, ROCE, gearing, cash flow, ratios) shows the firm's financial strength and its capacity to fund a strategy. A firm with strong ratios and low gearing has the resources to pursue growth; a stretched one may have to consolidate.
Analysing the external position: Porter's five forces
Porter's five forces gauge how attractive (profitable) a market is by examining the competitive pressures on it:
- Competitive rivalry: how intense the competition between existing firms is. High rivalry (many similar firms, slow growth) squeezes margins.
- Threat of new entrants: how easily new firms can enter. Low barriers (little capital, no scale advantage) mean a constant threat.
- Threat of substitutes: how easily customers can switch to a different kind of product that meets the same need.
- Bargaining power of buyers: how much pressure customers can put on price, strong when they are few, large or can switch easily.
- Bargaining power of suppliers: how much pressure suppliers can put on price, strong when they are few or hard to replace.
The more favourable the forces (low rivalry, high barriers, weak buyers and suppliers, few substitutes), the more attractive the market.
Assessing overall competitiveness
Competitiveness comes from matching internal strengths to the external environment. A firm with strong core competences and finances in a favourable market is well placed; one with weak competences in a hostile market is exposed. The analysis of the strategic position feeds directly into the choice of strategic direction and method.
Exam-style practice questions
Practice questions written in the style of AQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
AQA 202116 marksUsing Porter's five forces, evaluate the attractiveness of the UK grocery market to a new entrant. (16 marks)Show worked answer →
A 16-mark evaluation needs the framework applied, weighed and judged, not just described.
Threat of new entrants: low, because incumbents (the big supermarkets) have huge economies of scale, established supply chains and strong brands, raising barriers. Bargaining power of suppliers: mixed; large supermarkets squeeze suppliers, but a new entrant lacks that buying power. Bargaining power of buyers: high; customers are price-sensitive and switch easily between stores. Threat of substitutes: significant; discounters, online and convenience formats all compete. Competitive rivalry: very high; established players compete fiercely on price and range.
Evaluation: most forces point to an unattractive market for a new entrant, with high rivalry, powerful buyers and strong incumbents, so entry is risky unless the firm has a genuine differentiator (a strong niche or new model). The strongest answers weigh which forces matter most and reach a justified judgement. Markers reward applying all five forces to the grocery market, weighing them, and a supported conclusion.
AQA 20186 marksExplain how a core competence can give a business a competitive advantage. (6 marks)Show worked answer →
A core competence is something a business does exceptionally well that is valuable to customers, hard for rivals to imitate and can be applied across markets.
Because it is hard to copy, a core competence lets the firm offer something rivals cannot easily match, supporting either lower costs or a valued point of difference, which translates into a sustainable competitive advantage and the ability to win and keep customers or charge a premium. For example, a firm's expertise in miniaturised engineering could underpin advantage across several product lines. Markers reward defining a core competence (valuable, rare, hard to imitate), and explaining the chain from it to a sustainable advantage, ideally applied.
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Sources & how we know this
- AQA A-level Business (7132) specification — AQA (2015)