11.2 Strategic pathways

Question 1

When developing its strategy, an organisation will need to assess its own a________ and p_________ within the perceived marketplace for its products and services.

Answer 1

abilities

potential

Question 2

The three core strategic pathways for an organisation are:

• o_______ growth
• a___________
• s________ alliance

Answer 2

organic growth
acquisition
strategic alliance

Question 3

What are some advantages and disadvantages to the “organic growth” strategy?

Answer 3

Advantages:

• low risk
• allows for learning as the entity grows
• greater control

Disadvantages:

• slow to grow
• lack of knowledge in the beginning
• potential to misread markets

Question 4

What are some advantages and disadvantages to the “acquisition” strategy?

Answer 4

Advantages:

• fast
• buys presence, market share and expertise

Disadvantages:

• high cost
• high risk (if wrong purchase)
• lack of targets
• can be difficult to sell unwanted targets

Question 5

What are some advantages and disadvantages to the “strategic alliance” strategy?

Answer 5

Advantages

• cheap compared to acquisition strategy
• access to market knowledge
• useful where acquisition is impractical
• joint ventures can lock out the competition

Disadvantages

• lack of control, as ventures are usually 50-50
• potential differences of opinion between managers

Question 6

“Organic development”as an approach to strategy is built around a s_______ plan to grow a business through a strategic pathway of building upon and developing the o___________’s existing capabilities.

Answer 6

strategic

organisation

Question 7

Advantages of the “organic development” approach to strategy include:

• dealing with the known
• staggered i________
• minimised d________
• self-reliance
• focus on s_______
• c______ maintenance

Answer 7

investment
disruption
strategy
culture

Question 8

What example of “organic development” strategy does Wearden provide in Chapter 11?

Answer 8

Domino’s Pizza Group plc - expanded from three US stores to a multinational corporation by steadily expanding into new territories.

Question 9

“Mergers and acquisitions” as an approach to strategy involves the purchase or joining of others’ b______ as a method of expansion (as opposed to o________ development)

Answer 9

businesses

organic

Question 10

What is a “merger”?

Answer 10

A reorganisation of the assets and liabilities of two or more organisations who agree to join together.

Question 11

What is an “acquisition”?

Answer 11

The buying of the share capital of one organisation by another, allowing the acquirer to take control.

Question 12

What is “horizontal acquisition”?

Answer 12

An organisation acquires another organisation in the same sector to create a single entity (i.e. buying a competitor).

Question 13

What is “vertical acquisition”?

Answer 13

An organisation acquires another organisation in its supply chain (e.g. a customer or supplier).

Question 14

What is “conglomerate acquisition”?

Answer 14

An organisations acquires another organisation in a different industry or sector to spread risk by entering diverse markets.

Question 15

What are some possible STRATEGIC motives for making an acquisition?

Answer 15

• extend the reach of the business to different locations or customer bases
• reduce competition
• increased industry power
• potential development of new market opportunities
• synergy between entities could decrease costs (e.g. greater power over buyers)

Question 16

What are some possible FINANCIAL motives for making an acquisition?

Answer 16

• align assets and liabilities between companies - e.g. a cash risk company with a low asset base could buy a high-debt, high-asset volume entity
• improved financial efficiency (e.g. purchasing a supplier)
• increase in market value
• tax advantages
• financial “creativity” when combining balance sheets to give an improved outlook.
• asset stripping

Question 17

What are some possible MANAGERIAL motives for making an acquisition?

Answer 17

• personal achievement for a CEO or CFO (including increased power and remuneration)
• Hubris - often a manager views themself as an agent “gaming” the system, rather than being a good steward of shareholders’ assets.

Question 18

What are some potential benefits of an acquisition?

Answer 18

• rapid access to resources
• rapid access to a bigger marketplace
• building strength against competition
• restructure of an operating environment

Question 19

What are some potential disadvantages of an acquisition?

Answer 19

• cultural mismatch between the two businesses
• managerial mismatch and conflict
• unwarranted increased power of certain executives
• forced disposal of assets due to regulator intervention (e.g. Competition & Markets Authority)

Question 20

Johnson (2017) gives four reasons that will determine the success or failure of an acquisition:

1) addition of real vs p________ value to core stakeholders.
2) gaining the c__________ of middle managers to are responsible for operational success
3) the ability to realise s_________ between the businesses
4) the alignment of different c________.

Answer 20

perceived
commitment
synergies
cultures

Question 21

What is due diligence?

Answer 21

The initial research and analysis of potential acquisition option as the preferred pathway to strategic development.

Question 22

Why is due diligence important when considering an acquisition?

Answer 22

Due diligence allows an arms-length review of the potential pros and cons of the merger and the potential benefits or issues of combining two workforces/cultures/finances etc.

Question 23

What might be some potential considerations when conducting due diligence prior to an acquisition?

Answer 23

Why is the business for sale?
The current strategic position of the business.
The current market position, reputation and customer base.
The current and previous business plan.
The integrity of the financial results.
The culture and ethos of the organisation.
Any regulatory issues or impending litigation.

Question 24

A “strategic a________” is formed when two or more o________ agree to share r_______ and activities in pursuit of a common s_______.

Answer 24

alliance
organisations
resources
strategy

Question 25

Johnson (2017) argues that a strategic alliance is likely to fall into one of two categories:

1) a collective s_______ - e.g. Xbox ensuring that its strength of independent games developers beats its rivals, Nintendo and Sony.
2) a collaborative a______ - e.g. Xbox ensuring that it works with its developer network to ensure that it always has the best games.

Answer 25

strategy

advantage

Question 26

What are some possible motives for the creation of a strategic alliance?

Answer 26

• cost reduction
• complementary strengths of differing members of the alliance
• market domination
• learning potential from working closely with partners

Question 27

There are several types of strategic alliance:

• customer end n_______ - focus on increasing the potential offering to customers or widen the potential customer base.
• s______ end network - seeking to gain a competitive edge in a marketplace from a common supplier base.
• formal p________ - formal agreement between partners to provide a specified range of activities
• joint-v______ - legally recognised structure where two organisations create a jointly owned organisation

Answer 27

network
supplier
partnership
venture

Question 28

What might be some advantages of a strategic alliance?

Answer 28

• access to complementary resources or services without high costs
• shared risk between partners
• speed of access to the market
• reduced political/legal compliance as opposed to using a JV or acquisition.

Question 29

What might be some disadvantages of a strategic alliance?

Answer 29

• risk of reputational damage through being associated with other non-alliance activities of a partner
• confusion among managers of who they are working for
• erosion of capabilities due to over reliance on a partner