1 - Strategic Analysis

Question 1

Strategies for Growth

Answer 1

Organic
Mergers & Acquisition
Joint ventures
Licensing
Subcontracting
Franchising

Question 2

Value drivers

Profit seeking businesses usually have the primary objective of shareholder wealth maximisation. This can be achieved through:

Answer 2

 Increasing sales growth
 Increasing operating profit margin
 Reducing tax paid
 Reducing capital expenditure
 Reducing investment in working capital
 Increasing time period of competitive advantage
 Reducing cost of capital

Question 3

When considering investment in a new strategy, a business must consider which stakeholders will be impacted positively or negatively. It is also necessary to prioritise which stakeholders are most important to the survival of the business.

Answer 3

Mendelow’s Matrix - level of interest vs level of power

Question 4

Macroeconomic factors – PESTEL

Answer 4

 Political – for example, government and regulatory considerations
 Economic – for example, market conditions, interest rates, exchange rates
 Social – such as people issues (customers, suppliers, media)
 Technological
 Environmental
 Legal

Question 5

Competitive factors – Porter’s 5 Forces

Answer 5

 New Entrants
 Substitutes
 Customers
 Suppliers
 Existing Competitors

Question 6

Strategic risk analysis
The following are some generic risks that all businesses will face – they must consider whether any new strategy would increase or decrease these risks. See chapter 7 for more detail.

Answer 6

 Business strategy risk
 Financial strategy risk
 Competition and consolidation risk
 Reputational
 Political and regulatory risks
 Product life cycle risk (see below)

Question 7

Summary - for a new business strategy what things to think about?

Answer 7

• effect on stakeholders
• risk analysis
• competitive forces
• macroeconomic factors

Question 8

Product Life Cycle

Answer 8

Phases: Introduction, growth, maturity, decline

BCG Matrix - relative market share / relative growth
Star, Problem Child, Cash cow, Dog

Question 9

Value Chain
A business should consider how each of its activities can aid its competitive advantage by either

Answer 9

 Reducing costs (cost leadership strategy)
 Adding value to products and services (differentiation strategy)

Firm Infrastructure
Human Resource Management
Technology Development
Procurement

Service
Marketing and Sales
Outbound Logistics
Operations
Inbound Logistics

Question 10

SWOT analysis

Answer 10

Strengths, weaknesses, opportunities, threats

Question 11

What questions to ask when starting an SBM question:

Answer 11

 What is the company’s main line of business?
 What is its current strategy?
 What are its long-term objectives?
 Are there any external issues to consider?
 How is the company performing financially?
 Are there are any obvious areas for improvement?
 Does the company have any particular strengths that could be further exploited?
 Are there any limited resources (or other weaknesses) that may affect the company’s ability to fulfil its objectives?
 What are competitors doing?

Question 12

The three stages of strategy:

Answer 12

strategic analysis
strategic choice
strategic implementation, monitoring and control

However, this linear sequence of analysis, choice and implementation is not necessarily an accurate description of how strategies are actually made and implemented in all organisations.

Question 13

three interrelated elements to a business strategy:

Answer 13

competitive strategy
financial strategy
investment strategy

These three elements must work together for the strategy of a firm to be successful

Question 14

What is competitive strategy?

Answer 14

This determines how and where the firm competes in the market (customers, products) in order to achieve a sustainable position, and thereby generate profits and cash flows.
The results of competitive strategy determine the level of profits and cash flow available for financial and investment strategies.

Question 15

What is financial strategy?

Answer 15

This is concerned with the way companies raise and deploy their funds. As such it looks at how companies build and maintain relationships with shareholders and other providers of finance. It is also concerned with how companies use the cash and earnings generated by their competitive
strategy, and specifically how financial resources are invested for the future of the company.

In her text Corporate Financial Strategy, Ruth Bender argues that financial strategy has two key components:
(a) raising the funds needed by an organisation, in the most appropriate manner
(b) managing the ways those funds are used within the organisation

Question 16

What is investment strategy?

Answer 16

This aims to provide the resources (such as non-current assets, working capital, training, marketing, branding, R&D expenditure) for the competitive strategy to be carried out.

Question 17

In seeking to achieve the financial objectives of an organisation, a finance manager has to make decisions on three interrelated topics:

Answer 17

(a) Investment
(b) Financing
(c) Dividends