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10 - Strategic choices Flashcards

1
Q

6 learning outcomes - Chapter 10

A
  • differentiate between short-term and long-term strategic choice.
  • use the Ansoff matrix and the Porter strategic choice models to analyse differing market potential and how to progress it.
  • consider the implications of a blue-ocean type approach to strategy.
  • demonstrate the purpose of business process re-engineering.
  • understand how and why the BCG portfolio matrix is a useful analysis tool.
  • consider the impact and challenges of internationalisation.
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2
Q

Johnson - 3 predominant areas of strategic choice an organisation needs to consider

A

Business strategy - how an org has positioned itself in relation to competitors

Strategy methods - is the org acting in isolation or seeking some form of strategic alliance?

Strategic direction - products, industries and market sectors than an org intends to operate within

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3
Q

What is required to be carried out prior to the development of strategy?

A

Understanding of the organisation as it stands now through research and development activities
(such as research into business environment and competition)

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4
Q

2 variables to manipulate when looking at strategic direction

A

Products/services
Customers (markets)

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5
Q

Ansoff’s product/market grid - explain diagram

A
  • Products/services on top (existing on left column, new on right column)
  • Markets on left (existing on top row, new on bottom row)
  • Top left = market penetration
  • Top right = product development
  • Bottom left = market development
  • Bottom right = diversification
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6
Q

Ansoff’s product/market grid - what does it capture?

A

That there are two variables an org can manipulate when moving to future - products/services and customers

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7
Q

Why does Ansoff’s product market grid no longer have lines separating quadrants?

A

4 different aspects are more malleable than boxed lines indicates

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8
Q

Ansoff product/market grid - market penetration

A
  • Growth through increase of market share in current product/market mix
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9
Q

2 forces restricting growth through market penetration (product/market grid)

A
  • Retaliation from competitors
  • Legal restrictions on monopolistic dominance
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10
Q

Ansoff product/market grid - product development

A

Using the knowledge of the existing customer base and markets to provide different, evolved or complementary products

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11
Q

Ansoff product/market grid - market development

A

Taking existing products or services into new markets

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12
Q

What is often required prior to market development (product/market grid)

A

Significant pre-emptive market and consumer research, possibly some product development to tailor existing product

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13
Q

Ansoff product/market grid - 4 types of diversification

A

Horizontal diversification

Vertical diversification

Concentric diversification

Conglomerate diversification

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14
Q

Ansoff product/market grid - diversification - horizontal diversification

A

New product marketed to customers of competitors

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15
Q

Ansoff product/market grid - diversification - vertical diversification

A

Org acquires new supplier or customer to broaden depth and breadth of commercial control

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16
Q

Ansoff product/market grid - diversification - concentric diversification

A

New closely related product introduced by an org, often times to support sale of existing product and vice versa

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17
Q

Ansoff product/market grid - diversification - conglomerate diversification

A

Completely new and unrelated products introduced by org wishing to take advantage of its markets

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18
Q

Why is diversification the highest risk option within Ansoff’s product/market grid?

A

It requires significant research and market intelligence in terms of both aspect of development

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19
Q

What is a strategic business unit (SBU)?

A

A grouping of certain areas/subsidiaries within one organisation, often due to location or customer/supplier focus

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20
Q

Classic definition of an SBU

A

A fully functional unit of a business with its own vision and direction, operating as a separate unit but often still reliant upon the organisational centre for ultimate direction

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21
Q

2 benefits of creating formal SBUs

A
  • Focused and aligned strategy
  • Agility to react quickly in decision-making
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22
Q

Porter - 3 fundamental methods to achieve competitive advantage

A
  • Lower costs
  • Differentiation
  • Focus - particular area of market (age, wealth, geography) or broad scope
23
Q

Porter’s strategic choices matrix (re. competitive advantage) - explain

A
  • Competitive advantage on top (lower cost on left column, differentiation on right column)
  • Competitive scope on left (broad target on top row, narrow target on bottom row)
  • Top left = cost leadership
  • Top right = differentiation
  • Bottom left = cost focus
  • Bottom right = differentiation focus
24
Q

What is meant by being a cost leader in an industry/sector?

A

Becoming the lowest cost organisation while maintaining quality - there can only be one!

25
Q

4 key cost drivers to take into consideration when aiming to be cost leader

A

Input costs - need to minimise cost of labour and raw materials

Economies of scale - reduction of fixed costs through greater quantities

Experience - cumulative experience and knowledge of people can ensure efficiency

Design - efficiency can be built into the core design of product/process

26
Q

3 risks of cost leadership - causes of failure

A
  • Restricted and insufficient supply base that is shared by all competitors
  • Easy imitation of strategy by competitors
  • Detriment in quality due to cheaper supplies
27
Q

Financial benefit of product differentiation

A

Charging a price premium

28
Q

Johnson - 3 primary drivers of differentiation

A

Product and service attributes/quality (colour, design, size)

Customer relationships - manner in which org deals with customer (speed of distribution, payment terms/methods)

Complements - provision of additional products or services, enhancing value of core purchase

29
Q

Garvin - 8 dimensions of differentiation quality

A

Performance
Features
Reliability
Conformance
Durability
Serviceability
Aesthetics
Perceived quality

30
Q

5 natural dangers of pursuing strategy focused on differentiation

A
  • Too much differentiation causing confusion
  • Too high a price premium
  • Easy imitation by competitors
  • Differing perceptions of the meaning of quality between buyers and sellers
  • Striving for a uniqueness that fails to bring sufficient added value
31
Q

What is the aim of strategic focus? (competitive advantage)

A

To achieve competitive advantage by giving a better service to target customers than which is achieved by competitors who are aiming for a broader customer base

32
Q

What should management focus on after deciding how the org is to gain or maintain competitive advantage?

A

How to design and implement the strategy to achieve the required objectives

33
Q

What does BPR stand for?

A

Business process re-engineering

34
Q

What does BPR entail?

A

A fundamental reconsideration in a radical redesign of org processes with the ultimate aim of increasing efficiency

35
Q

Five rules underpinning principles of BPR

A
  • Strategy must be determined before redesign takes place
  • Existing process-flow used as basis for redesign
  • Use of IT should be optimised
  • Governance, culture and org structures should be aligned with process-flow
  • People from all across business should understand and participate in redesign
36
Q

Differentiate between business level and corporate level

A

Business level refers to single business operating within defined boundary
Corporate level refers to a number of businesses operating within a wider boundary

37
Q

3 alternative approaches to development, analysis, challenge and understanding of corporate strategy:

A
  • Blue ocean strategy
  • Corporate parenting
  • Portfolio analysis and the Boston Consulting Group (BCG) approach
38
Q

3 underpinning principles of blue ocean strategy

A
  • markets need to be analysed to find new opportunities
  • value can be added by lowering costs and by raising prices
  • innovative thoughts will come through a focus on the key elements that provoke new ways of thinking and acting
39
Q

Kim and Mauborgne - what are red oceans?

A

Existing markets which are awash with the blood of competitors which are competing sharks

40
Q

Kim and Mauborgne - what is the benefit of seeking out blue oceans?

A

They have untapped market space, offering highly profitable growth

41
Q

Lynch - 4 dimensions of realising and deriving value from blue ocean strategy

A

Elimination - which aspects of current red ocean can be eliminated (eg. excessive packaging)

Reduction - removal of overdesigned products and services within red ocean

Raising - improving features of current products and services

Creation -use of existing knowledge to create value addition for both customers and the org itself

42
Q

What is the natural result of a successful blue ocean

A

It becomes a red ocean as competition arrives

43
Q

What is corporate parenting?

A

The centralised control exerted over a diversified organisation that has a number of different parts, subsidiaries or SBUs

44
Q

Goold et al. - 5 core activities through which a corporate parent can add value

A

Envisioning - provision of clear overall vision for each aspect of org
Facilitating synergy - enabling of co-operation across business units
Coaching - development of managers
Central services/resources - cost-efficient use of expertise
Intervention - intervening, where necessary, with a particular unit

45
Q

Danger of corporate parenting

A

Destroying value through unnecessary central cost and bureaucratic complexity

46
Q

What does portfolio analysis involve?

A

The grouping together of a range of similarly performing products (or businesses) to help decision-makers consider where best to build their organisation or business

47
Q

BCG (Boston consulting group) approach to portfolio analysis - explain diagram

A
  • Market share on top (High on left column, Low on right column)
  • Market growth on left High on top row, Low on bottom row)
  • Top left = STARS - cash neutral
  • Top right = PROBLEM CHILD - cash user
  • Bottom left = CASH COWS - cash generator
  • Bottom right = DOGS - cash neutral
  • cash generator/user is in relation to that org
48
Q

Benefit of BCG (Boston consulting group) model

A

Plot and monitor movement of different products between four statements, and to analyse how this aligns with the product lifestyle

49
Q

Lynch - 3 difficulties with BCG matrix

A
  • Defining market growth and understating what is perceived as high or low
  • Defining market itself
  • Understanding what is meant by relative market share
50
Q

4 potential drivers of internationalisation as a business strategy

A

Market drivers - potential customer reach of expansion

Cost drivers - reduction of operational costs

Government drivers - potential gov support to enable international operation

Competition drivers - development and maintenance of competitive advantage may require an organisation to develop its markets. if it is dealing with international customers, then it is likely that it will need to also develop an international strategy.

*note on competition drivers - not sure if this makes sense but is from textbook and used in model answer.

51
Q

What does Porter’s diamond model consider?

A

Why some countries produce firms with sustained competitive advantages in some industries - he suggests 4 interacting factors which will help an org determine optimal approach to internationalisation

52
Q

Porter’s diamond - 4 interacting factors

A

Factor conditions - what goes into making product that can give competitive advantage?

Demand conditions (in domestic market) - can help company become sophisticated when trading internationally

Related and supporting industries - in same geographical regions can lead go cost and logistics advantage

Firm strategy, structure and rivalry (in domestic market) - will build more resilient approach when trading internationally

53
Q

Porter - 4 differing levels of international strategies

A

Simple export - majority of activities remain in domestic country of origin, finished products exported

Multi-domestic - certain activities placed non-domestically to maximise efficiency and resources

Complex export - most activities in one country, but not necessarily domestic

Global strategy - highly co-ordinated activities dispersed around the world

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