Factors Influencing Strategic Direction

Choosing which markets to compete in and which products to offer is one of the most consequential decisions a business can make. The Ansoff Matrix provides a framework for categorising growth options, but it does not tell a business which strategy to choose. That decision depends on a complex interplay of internal factors (the firm's own resources and capabilities) and external factors (the market environment, competition, and broader context). This lesson examines the key influences on strategic direction and how they interact.

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Internal Factors

1. Financial Position

A firm's financial resources are a fundamental constraint on — and enabler of — strategic direction.

Financial Factor	Impact on Strategic Direction
Cash reserves and liquidity	Businesses with strong cash positions can afford riskier strategies (diversification, NPD)
Profitability	Consistently profitable firms generate the internal funds needed for investment
Gearing (debt levels)	Highly geared firms may be unable to borrow more to fund expansion
Access to external finance	Firms with strong credit ratings or stock market listings can raise capital more easily