11 - Strategy development

Question 1

2 learning outcomes - chapter 11

Answer 1

• demonstrate the different advantages and disadvantages of the three core strategic pathways
• recognise the cultural and business impacts of an acquisition process and be able to compare this to a strategic alliance

Question 2

3 core strategic pathways

Answer 2

Organic growth
Acquisition
Strategic alliance

Question 3

Organic growth as strategic pathway - 5- advantages

Answer 3

• Lower risk
• Allows for ongoing learning
• More control over strategy, culture
• Minimises disruption (smoother)
• Leads to self-reliance

Question 4

Organic growth as strategic pathway - 3 disadvantages

Answer 4

• Slow
• Lack of early knowledge
• Misreading of markets

Question 5

Acquisition as strategic pathway - 4 advantages

Answer 5

• Rapid access to resources
• Rapid access to greater marketplace
• Buys presence, market share, expertise
• Opportunity for restructuring

Question 6

Acquisition as strategic pathway - 5 disadvantages

Answer 6

• High cost
• High risk
• Cultural mismatch across business
• Managerial mismatch (in ambition and salary)
• Potential for forced disposal of assets if monopolistic

Question 7

Strategic alliance as strategic pathway - 5 advantages

Answer 7

• Cheaper than acquisition
• Access to market knowledge and complementary resources
• Risk is spread
• Increased speed of access to market
• Reduced political and legal complications as no external approval required

Question 8

Strategic alliance as strategic pathway - 2 disadvantages

Answer 8

• Risk of reputational damage caused by partner in alliance
• Differences in ideas on strategy, direction between partners in alliance
• Confusion as to who people work for and report to

Question 9

What is absolutely vital prior to proceeding with an acquisition?

Answer 9

Due diligence process

Question 10

7 generic considerations as part of due diligence process for target

Answer 10

• Why the entity is for sale
• Target’s current strategic position
• Target’s market standing and reputation
• Understanding of target’s current and previous business plan
• Soundness and integrity of target’s financial results
• Culture and ethos of target
• Any issues facing the target, such as regulatory, litigation, etc.

Question 11

3 broad areas of motivation for acquisition

Answer 11

Strategic
Financial
Managerial

Question 12

3 strategic motives for acquisition

Answer 12

• Extension of customer potential (geog, products, markets)
• Reduction of competitors can allow raising prices
• Increasing efficiency through sharing of resources

Question 13

3 financial motives for acquisition

Answer 13

• Potential tax advantages through acquiring loss-making (or less profitable) org
• Market value of firm will be greater than sum of parts (so long as there is recognised financial benefits to acquisition)
• Opportunity for financial creativity in restructuring (eg. spreading financial benefits over time)

Question 14

2 managerial motives (causes) for acquisition

Answer 14

• Personal ambitions for increased power, remuneration, etc.
• Excessive self-confidence

Question 15

What is meant by strategic alliance?

Answer 15

2 or more orgs sharing recourses in pursuit of common strategy

Question 16

Johnson - 2 categories within which strategic drive for alliance will fall in

Answer 16

Collective strategy - network of alliances to compete against rival network

Collaborative advantage - achieved through more effective managing of resources than competition

Question 17

3 main motives behind strategic alliance as preferred strategic pathway

Answer 17

• Rapid achievement of critical-mass scale
• Complementarity of differing capabilities ensuring more holistic business
• Learning potential from working closely with partners within alliance

Question 18

4 types of strategic alliance

Answer 18

• Customer-end network
• Supplier-end network
• Formal partnership
• Joint-venture

Question 19

What is a ‘customer-end network’? - form of strategic alliance

Answer 19

Alliance focussed on increasing potential offering to existing customers of individual partners of alliance

Question 20

What is a ‘supplier-end network’? - form of strategic alliance

Answer 20

Alliance seeking to gain competitive edge by creating critical mass requirement from common supply base

Question 21

3 key underlying criteria for evaluation/assessment of strategic options

Answer 21

Suitability (does it address the strategic objectives?)

Acceptability (will it satisfy the stakeholder objectives?)

Feasibility (will it actually work?)

Question 22

What does assessment of the suitability of a strategic option require (3)

Answer 22

• understanding of mission and objectives of strategy
• use of a SWOT analysis
• understanding of the culture of the organisation

Question 23

What does assessment of the acceptability of a strategic option require (3)

Answer 23

• levels of expected returns of different stakeholder groups
• risk appetite and tolerance of org and its stakeholders
• perceived synergy that will be driven by achievement of strategic objectives

Question 24

What does assessment of the feasibility of a strategic option require (3)

Answer 24

• ability to drive sustainable change from both a process and people perspective
• availability of finance and other resources
• likelihood of gaining sustainable advantage

Question 25

Johnson - 3 areas of caution in the process of strategic evaluation

Answer 25

• need to avoid conflict between people
• need to ensure consistency between different elements of strategy
• need to ensure strategic options can be implemented in reality