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Toolkit: SWOT, STEEPLE, Ansoff, BCG and Porter

The business management toolkit · SL and HL

The business management toolkit is a set of analytical tools you are expected to use, not just describe, in all three papers and the IA. This page covers the tools for analysing a business’s position and choosing a strategy: SWOT, STEEPLE, the Ansoff matrix, the BCG matrix and, for HL, Porter’s generic strategies. Each has a worked application and its limitations.

🎯What you need to be able to do

  • Construct and apply a SWOT analysis and a STEEPLE analysis to a given business.
  • Apply the Ansoff matrix to evaluate growth strategies.
  • Apply the BCG matrix to analyse a product portfolio.
  • HL Apply Porter’s generic strategies to analyse how a business competes.
  • Evaluate the usefulness and limitations of each tool.

📚The business management

How to use a tool in an exam answer

Examiners reward application: every point must come from the case, not a generic list. Construct the tool from the evidence, analyse what it shows (which factors matter most and why), then use it to support a decision. Finish by noting a limitation: a tool is a snapshot based on the information available.

SWOT analysis

A two by two grid. Columns: helpful, harmful. Rows: internal, external. Strengths: what the business does well, such as a strong brand. Weaknesses: what holds it back, such as high costs. Opportunities: external trends it could exploit, such as growing tourism. Threats: external trends that could harm it, such as new rivals.
Strengths and weaknesses are internal; opportunities and threats are external.

Uses: a quick overview of the business’s position for strategic planning, before choosing a strategy (match strengths to opportunities; fix weaknesses that expose it to threats). Limitations: subjective; a list without weighting; the same factor can be a strength and a weakness; quickly out of date; says nothing about what to do next unless you analyse it.

Putting external factors under strengths. “Growing tourism” is an opportunity, not a strength, however good it is for the business.

STEEPLE analysis

Seven boxes: Social (demographics, lifestyles), Technological (automation, AI), Economic (growth, inflation, interest and exchange rates), Environmental (climate change, green consumers), Political (government stability, tax and trade policy), Legal (employment, consumer and data protection laws), Ethical (fair trade, working conditions).
The seven external factors of STEEPLE.

STEEPLE scans the external environment in a structured way, feeding the opportunities and threats of a SWOT. It is especially useful before entering a new market or country (4.6). Limitations: factors overlap (a carbon tax is political, legal and environmental); the environment changes fast; it can become a long list without prioritizing the factors that matter most.

The Ansoff matrix

A two by two grid. Columns: existing products, new products. Rows: existing markets, new markets. Market penetration (existing products, existing markets) is lowest risk. Product development: new products for current customers. Market development: current products into new segments or countries. Diversification: new products for new markets, highest risk.
Four growth strategies, with risk rising towards diversification.
  • Market penetration: more promotion, loyalty schemes, lower prices to win share. Lowest risk, but limited in a saturated market.
  • Product development: new or improved products for existing customers; uses customer knowledge, needs R&D (5.8).
  • Market development: new segments, regions or countries for existing products; uses existing products, but the business lacks market knowledge.
  • Diversification: new products in new markets; spreads risk across markets, but both elements are unfamiliar, so it is the riskiest.

Limitations: shows risk only in broad terms; ignores competitors’ reactions and the business’s resources; categories blur (is a new flavour a new product?).

The BCG matrix

A two by two grid with market growth on the vertical axis (high at the top) and relative market share on the horizontal axis (high at the left). Star: high share, high growth. Question mark: low share, high growth. Cash cow: high share, low growth. Dog: low share, low growth.
Note the reversed share axis: high relative share is on the left.

The BCG matrix places each product (or business unit) by the growth rate of its market and its relative market share (its share divided by the largest rival’s). A balanced portfolio uses the cash from cash cows to build stars and selected question marks, while dogs are reviewed. Products tend to move anticlockwise, from question mark to star to cash cow, and link to the product life cycle.

Limitations: high share does not guarantee profit; a “dog” may still be profitable or support other products; defining the market is subjective; it is a snapshot; it considers only two variables.

Porter’s generic strategies HL

A two by two grid. Columns: source of advantage, lower cost or uniqueness. Rows: broad or narrow target. Cost leadership, for example budget airlines. Differentiation, for example premium phones. Cost focus, for example a discount store for one town. Differentiation focus, for example a luxury eco-resort.
Compete on cost or on uniqueness, for a broad market or a niche.

Michael Porter argued that a business gains competitive advantage in one of two ways, lower cost or differentiation, applied to a broad market or a narrow segment (focus). Cost leaders need economies of scale and lean methods; differentiators need branding, quality and R&D. A firm that tries to do both without excelling at either risks being stuck in the middle.

Limitations: some firms do achieve low cost and differentiation together; advantages can be copied; it does not say how to implement the strategy.

✏️Worked example

Ombak Boards makes handmade surfboards in Bali and sells mostly to tourists in its Canggu shop. It is known for quality shaping but its costs are higher than those of imported boards. Surf tourism is growing; a new airport terminal is planned; rival brands sell cheaper foam boards online; the rupiah has weakened against the Australian dollar. It is considering selling its boards to surf shops in Australia. Construct a SWOT and use Ansoff and Porter to analyse the proposal.

SWOT. Strengths: reputation for handmade quality; Bali brand image. Weaknesses: higher costs; one shop, small scale. Opportunities: growing surf tourism; airport capacity; weak rupiah makes exports cheaper for Australian buyers. Threats: cheaper online foam boards; tourist demand is volatile.

Ansoff. Selling existing boards to a new country is market development: medium risk. Ombak knows its product but not Australian retail, where many local shapers compete.

Porter HL. Ombak cannot be a cost leader against mass-produced boards; its strategy is differentiation focus: premium handmade boards for committed surfers. In Australia it must keep that position rather than compete on price.

Judgment: the proposal matches a strength (quality, Bali image) to an opportunity (weak rupiah), so it is reasonable if Ombak starts small (a few specialist shops) and protects its premium positioning. The analysis relies on current exchange rates, which may change.

Check it. Every SWOT entry above comes from the case; nothing is a generic “good management” point.

📝Practise

Work through these on paper, then reveal the answer.

1. [2 marks] Distinguish between market development and product development.
Market development sells existing products to new markets (segments or countries); product development sells new products to existing markets.
2. [2 marks] Describe a cash cow in the BCG matrix.
A product with a high relative market share in a low-growth market; it generates more cash than it needs, which can fund other products.
3. [4 marks] A coffee chain in Indonesia wants to open in Malaysia. Explain two STEEPLE factors it should consider.
Social: coffee-drinking habits and tastes differ (kopi culture, preference for sweet drinks), affecting the menu. Legal: halal certification, food safety and foreign-ownership rules affect costs and set-up time. (Also economic: incomes and the ringgit exchange rate.)
4. [4 marks] Explain two limitations of the BCG matrix for a business deciding which products to drop.
(1) Market share does not equal profit: a “dog” may be profitable or complement other products (a product customers buy with others). (2) It is a snapshot based on how the market is defined; a different market definition or a change in growth could move the product to another quadrant.
5. HL [4 marks] Explain the risk of being “stuck in the middle” for a mid-price hotel chain.
Without the lowest costs it cannot match budget hotels on price; without a distinctive experience it cannot charge luxury prices. Price-sensitive guests choose budget chains and quality-seekers choose boutique hotels, so it loses customers to both and earns low margins.
6. [10 marks] Using the Ansoff matrix, discuss whether a Balinese spa brand should diversify into selling herbal skincare products in supermarkets.

Analysis: new product (manufactured skincare) in a new market (supermarket shoppers, not spa visitors): diversification, the highest risk. It could be seen partly as product development if targeted at existing spa customers.

For: brand recognition from the spa; spreads risk away from tourist-dependent services; scalable; natural-products trend.

Against: no manufacturing or retail experience; strong competitors with scale; supermarket margins and listing fees; brand damage if quality slips; regulatory approval for cosmetics.

Judgment: lower the risk by starting with sales in its own spas and online (product development), outsourcing production, and entering supermarkets only once demand is proven.

🔗Go deeper — other people’s work

These are external resources, not mine. If one stops working, tell me and everything above it on this page still stands.

  • Michael Porter — Competitive Strategy (1980), the source of the generic strategies.
  • Igor Ansoff — “Strategies for Diversification”, Harvard Business Review (1957).
  • Boston Consulting Group — its own articles on the growth-share matrix.