10 - Strategic choices Flashcards
What is required to be carried out prior to the development of strategy?
Understanding of the organisation as it stands now through research and development activities
(such as research into business environment and competition)
2 variables to manipulate when looking at strategic direction
Products/services
Customers (markets)
Ansoff’s product/market grid - explain/draw diagram
- 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
Ansoff’s product/market grid - what does it capture?
That there are two variables an org can manipulate when moving to future - products/services and customers
Why does Ansoff’s product market grid no longer have lines separating quadrants?
4 different aspects are more malleable than boxed lines indicates
Ansoff product/market grid - market penetration
- Growth through increase of market share in current product/market mix
2 forces restricting growth through market penetration (product/market grid)
- Retaliation from competitors
- Legal restrictions on monopolistic dominance
Ansoff product/market grid - product development
Using the knowledge of the existing customer base and markets to provide different, evolved or complementary products
Ansoff product/market grid - market development
Taking existing products or services into new markets
What is often required prior to market development (product/market grid)
Significant pre-emptive market and consumer research, possibly some product development to tailor existing product
Ansoff product/market grid - 4 types of diversification
Horizontal diversification
Vertical diversification
Concentric diversification
Conglomerate diversification
Ansoff product/market grid - diversification - horizontal diversification
New product marketed to customers of competitors
Ansoff product/market grid - diversification - vertical diversification
Org acquires new supplier or customer to broaden depth and breadth of commercial control
Ansoff product/market grid - diversification - concentric diversification
New closely related product introduced by an org, often times to support sale of existing product and vice versa
Ansoff product/market grid - diversification - conglomerate diversification
Completely new and unrelated products introduced by org wishing to take advantage of its markets
Why is diversification the highest risk option within Ansoff’s product/market grid?
It requires significant research and market intelligence in terms of both aspect of development
What is a strategic business unit (SBU)?
A grouping of certain areas/subsidiaries within one organisation, often due to location or customer/supplier focus
Classic definition of an SBU
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
2 benefits of creating formal SBUs
- Focused and aligned strategy
- Agility to react quickly in decision-making
Porter - 3 fundamental methods to achieve competitive advantage
- Lower costs
- Differentiation
- Focus - particular area of market (age, wealth, geography) or broad scope
What is meant by being a cost leader in an industry/sector?
Becoming the lowest cost organisation while maintaining quality - there can only be one!
4 key cost drivers to take into consideration when aiming to be cost leader
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
3 risks of cost leadership - causes of failure
- Restricted and insufficient supply base that is shared by all competitors
- Easy imitation of strategy by competitors
- Detriment in quality due to cheaper supplies
Financial benefit of product differentiation
Charging a price premium
Garvin - 8 dimensions of differentiation quality
Performance
Features
Reliability
Conformance
Durability
Serviceability
Aesthetics
Perceived quality
5 natural dangers of pursuing strategy focused on differentiation
- 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
What is the aim of strategic focus? (competitive advantage)
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
What should management focus on after deciding how the org is to gain or maintain competitive advantage?
How to design and implement the strategy to achieve the required objectives
Differentiate between business level and corporate level
Business level refers to single business operating within defined boundary
Corporate level refers to a number of businesses operating within a wider boundary
What does portfolio analysis involve?
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
BCG (Boston consulting group) approach to portfolio analysis - draw or explain diagram
- 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
Benefit of BCG (Boston consulting group) model
Plot and monitor movement of different products between four statements, and to analyse how this aligns with the product lifestyle
Lynch - 3 difficulties with BCG matrix
- Defining market growth and understating what is perceived as high or low
- Defining market itself
- Understanding what is meant by relative market share
4 potential drivers of internationalisation as a business strategy
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.
