2. Theories of corporate strategy

Question 1

what is strategy

Answer 1

This planning to achieve corporate objectives is known as strategy

Question 2

two parts of business strategy

Answer 2

1. The first part of the process involves using analytical tools to understand the current position of the business in the market. - A firm might begin this analytical process with a SWOT analysis
2. The next part of the process involves evaluating where the business wants to be - a Five Forces Analysis

Question 3

corporate strategy

Answer 3

corporate strategy - the plans and policies developed to meet a company’s objectives. It is concerned with what range of activities the business needs to undertake in order to achieve its goals, It is also concerned with whether the size of the business organisation makes it capable of achieving the objectives set

Question 4

Benefit of a succesful strategy

Answer 4

A successful strategy will give the firm an advantage in the competitive market place, It will help to fulfil stakeholder expectations

Question 5

process of strategy planning

Answer 5

1. The process of strategic planning involves key members of management looking critically at what the business has done before (i.e. assessing what it has done well and what it has done badly).
2. They look at what the business may need to do in the future in order to achieve its corporate objectives.

Question 6

tools for strategy plan

Answer 6

1. Ansoff’s Matrix
2. Porter’s Strategic Matrix
3. portfolio analysis.

Question 7

who is ansoff and what is his matrix

Answer 7

Igor Ansoff was an applied mathematician and business strategist. He developed Ansoff’s Matrix as a strategic tool to help a business achieve growth

Question 8

why might a business use ansoffs matrix

Answer 8

Ansoff’s Matrix is a useful decision-making tool because it allows the owners of a business to consider a number of factors that will determine its corporate strategy:

• the level of investment in existing and new products
• the exploitation of different markets
• the growth strategy for the business
• the level of risk the business is willing to accept.

Question 9

whats the key issue that ansoffs matrix highlights

Answer 9

The key issue is that risk becomes greater if a business moves away from its most important existing products and consumers. in other words, the further a business gets from the top left-hand corner of the matrix, the greater the risk

Question 10

what are the 4 strategies in ansoffs matrix

Answer 10

1. market penetration
2. product development
3. market development
4. diversification

Question 11

what is market penetration and what are its benefits

Answer 11

market penetration - using tactics such as the marketing mix to increase the growth of existing products in an existing market

• increase the brand loyalty of customers so that they use substitute brands less frequently, An example might be adopting a loyalty scheme, such as the loyalty card introduced by small restaurant chain Casa Brasil. This card offers points that provides holders with discounts at the restaurants.
• encourage consumers to use the product more regularly, An example might be encouraging people to eat breakfast cereal as a night-time snack.
• encourage consumers to use more of the product. An example might be a crisp manufacturer producing maxi-sized crisp packets rather than standard-sized crisp packets.

Question 12

when might a business adopt a market penetration strategy

Answer 12

• A business might adopt a market penetration strategy if it has a successful product and believes that it can make more revenue from it.
• This is the strategy with the lowest risk because it involves the lowest level of investment. In addition, the business will have a good understanding of the product and how the market might respond

Question 13

what is product development and what are its benefits

Answer 13

it is marketing new or modified products in existing markets

• The confectionery market is famous for product development, Some businesses have gained a reputation for continuous product development and used this strategy to stay ahead of the competition.
• Example - Apple® has achieved this through the iPhone®, iPad® and Apple Watch’

Question 14

when might a business adopt a product development strategy

Answer 14

This might be an appropriate strategy to adopt where the product life cycle is traditionally short, or where trends or technology change quickly

Question 15

drawbacks of product development strategy

Answer 15

1. A strategy of product development requires a lot of investment in research and development.
2. There may be a high level of risk in developing new products — it may be that only one in five product launches succeed; for those that do succeed, heavy investment in promotion may be required

Question 16

what is market development and its benefits

Answer 16

market development the marketing of existing products in new markets

• USA-based Enterprise Rent-A-Car is one example of a business that has adopted a very successful strategy of market development. The car-leasing company’s model was very successful. However, the business achieved exponential growth (i.e, the rate of growth became faster and faster) when it started to locate its branches at airports.
• This move opened the company up to an entirely different profile of customers, such as flyers and holidaymakers. By 2018, Enterprise Rent-A-Car had over 7600 branches worldwide with more than 250 in US airports alone.

Question 17

when might a business adopt a market development strategy

Answer 17

The most basic form of the strategy is to enter geographically new markets

Question 18

drawbacks of market development strategy

Answer 18

• This is not always simple. Tastes and preferences may be different in regions of the same country, let alone between countries A market development strategy relies heavily on understanding local habits, tastes and needs.
• Even where market development is appropriate and successful, small changes are often made to suit the new market. This might be changing the name to be more acceptable or accessible in a different language or labelling the product differently to meet international laws

Question 19

what is diversification strategy and its benefits

Answer 19

diversification - developing new products in new markets

• It enables a business to move away from depending upon existing markets and products. Therefore, it allows the company to spread risk and increase safety. If one product faces difficulties or fails, a successful product in another market may prevent the overall business facing problems
• Examples of this marketing strategy include the move by Mercedes-Benz “ into the market for small, high-volume cars, and the diversification by Virgin® into financial services,
• Virgin is one business where the brand has allowed it to diversify into a range of industries.

Question 20

when might a business adopt diversification strategy

Answer 20

Diversification is adopted by large corporations and conglomerates that have extensive business networks, considerable capital and strong corporate brands.

Question 21

drawbacks of diversification strategy

Answer 21

• diversification will take a business outside its area of expertise (Le. the area where the business has special skills or knowledge). For this reason, it is the strategy with the highest risk, This might mean that its performance in new markets is poor compared with more experienced operators
• there may be significant barriers to entering a new industry when diversifying

Question 22

who is porter and what is porters strategic matrix

Answer 22

• Porter’s Strategic Matrix was developed by Michael Porter, a professor at Harvard Business School
• to identify the sources of competitive advantage that a business might achieve in a market.

Question 23

according to porters strategic matrix why might a business be unlikely to succeed

Answer 23

Porter stated that any business that does not adopt one of these three generic strategies is ‘stuck in the middle’ and unlikely to succeed

Question 24

what are the three components of porters matrix

Answer 24

1. cost leadership
2. differentiation
3. focus

Question 25

what is cost leadership

Answer 25

Cost leadership: This involves striving to be the lowest-cost provider in the market

Question 26

how does a firm using cost leadership strategy compete in a market

Answer 26

1. increasing profits, while still charging market level prices
2. increasing market share, while charging lower prices (still making a profit since costs are reduced).

Question 27

characteristics of a firm being a cost leader

Answer 27

1. Cost leadership is generally held by one business in the market as it requires having a significant market share in order to achieve the lowest costs.
2. A firm will achieve the lowest costs by operating on a large scale and therefore exploiting economies of scale
3. The business will also have a clear focus on reducing costs through negotiation with suppliers, efficiency and streamlining operations)
4. A cost leader will also offer a basic product in order to minimise costs and limit the options for adding value. The level of service and number of available versions of the product will be minimal and the scale will be associated with mass production

Question 28

example of a cost leadership firm

Answer 28

• Big Bazaar is controlled by Future Group It is a large and growing retail store with 300 branches located in 100 Indian cities. It operates hypermarkets, discount department stores and grocery outlets. Big Bazaar has a wide product range including home furnishings, utensils, sports goods, electronics, toys, footwear, men’s and women’s clothing, luggage, fruits, vegetables and stationery products.
• Big Bazaar employs a low-cost leadership strategy. This means that the retailer sells branded products 10-15 per cent cheaper than its rivals. Big Bazaar is a very large retailer and is able to exploit economies of scale. This helps to lower costs significantly. However, the company is very active in finding new and cheaper suppliers. It is constantly trying to find ways of lowering its operating costs.

Question 29

what is differentiation

Answer 29

Differentiation: This involves a business operating in a mass market with a unique position instead of the lowest-cost position

Question 30

how can a business implement a differentiation strategy

Answer 30

A business adopting differentiation will do so through adding value to their products in a unique way. This might include quality, design, brand identity or customer service.

Question 31

benefits and drawbacks of differentiation strategy

Answer 31

• • The advantage of operating under a differentiation strategy is that the business may be able to charge a premium price if customers value their unique selling point.
• - However, it is difficult to guarantee that the rewards of differentiation will justify the additional costs, For example, differentiation will require good research and development as well as effective marketing to highlight the uniqueness to the customer.
• - Differentiation is much easier to copy than cost leadership
• • unless the differentiation is sustainable and defensible, For example, a business may be able to get a patent on a design or register a logo as a trademark so that competitors cannot copy it.

Question 32

example of a company implementing differentiation strategy

Answer 32

One company that has done well by differentiating its products is Airstream`^-, the US caravan producer. It produces iconic luxury caravans. The products are very different from the majority of caravans and recreational vehicles (RVs) in the global market.

Question 33

what is focus

Answer 33

Focus: This strategy involves targeting a narrow range of customers. It tends to be used by small or very specialist firms

Question 34

two forms of a focus strategy

Answer 34

• Cost focus — emphasising cost minimisation within a focused or niche market. The German supermarket chain Aldi^-‘⁾ is a good example of this strategy. Although it does not operate as the cost leader in the market, it is able to offer a focused range of products at very low prices.
• Differentiation focus — following different strategies within a focused market. Ferrari:⁹ is an example of this strategy. Its high-performance cars are targeted at a very small percentage of the population.

Question 35

benefits of implementing a focus strategy

Answer 35

• As a business is focusing on a very narrow segment of the market, it is able to gain an advantage by understanding its customers very well, It can deliver products and services that are very specific to their needs. As a result, this can create a high level of customer satisfaction and loyalty.
• Also, a focus strategy will result in less competition and higher profit margins.

Question 36

drawback of focus strategy

Answer 36

However, as the market is very small, a firm adopting this strategy tends to have low bargaining power with suppliers

Question 37

what is portfolio analysis

Answer 37

portfolio analysis - a method of categorising all the products of a firm (its portfolio) to decide where each one fits within the strategic plans

Question 38

in portfolio analysis of how products evaluated

Answer 38

The products are then evaluated according to their competitive position and

potential growth rates. This involves a two-step process.

• Step 1: Give a full and detailed overview of all of
  the products in the current business portfolio.
• Step 2 : Look at the performance of each of these products and services by examining:
• current and projected sales
• current and projected costs
• competitor activity and future competition
• risks that may affect performance

Question 39

describe the components in the boston matrix

Answer 39

1 Stars are high-growth products that are strong compared to those of competitors. Stars require investment, but the hope is that they will become cash cows.

2 Cash cows are low-growth products with high market shares. They generate more cash than they consume, and so can provide a return for investors and fund investment in other areas.

3 Question marks are products with low market shares in high-growth markets. They consume a lot of cash but give little return. However, they have the potential to turn into stars. Keeping these lines requires a belief that there is a potential for growth.

4 Dogs are products with low market share in low-growth markets. They may break even, but nevertheless take up time and effort with little prospect of future growth. They should be sold or divested

Question 40

Use and benefits of boston matrix

Answer 40

The Boston Matrix may be used to assist a business in identifying which strategy to adopt.

• For example, if a firm believes that it has a ‘Star’ it may decide to adopt a market penetration strategy This is so it can increase sales revenue and maximise market share while the product is competitive.
• Similarly, a firm may choose to move a product out of a low-growth market and target a market with high-growth prospects.
• Or, the matrix could be used to identify those ‘Dogs’ that need to be discontinued. This will help the firm to cut costs and follow its strategy of cost leadership.

Question 41

difference between strategy and tactical decisions

Answer 41

• Strategies set out the long-term direction that a business will take to achieve its objectives. Strategy is often based on a set of principles or guidelines set down by the CEO and board of directors.
• In contrast, tactics are short-term responses to an opportunity or threat in the market. Most day-to-day decisions in business are tactical and involve decision making in response to the current business conditions. Tactical decisions happen at managerial or even supervisory level

For example, a business might organise a two-week sale to help generate cash in order to improve cash flow.

Question 42

The impact of strategic vs tactical decisions on resources of the business: human resources

Answer 42

Human resources:

• A strategic decision will have a long-lasting effect on the workforce. For example, a new growth strategy might involve increasing the size of the workforce, recruiting different types of labour or moving existing workers to a new location. People may feel the impact of such measures indefinitely.
• A tactical decision may affect people for a short period of time and only a small proportion of the workforce might be affected. For example, an ice-cream manufacturer may decide to open the factory at weekends to cope with an increase in demand caused by very warm weather. This may only affect some of the workforce, as it is likely that only production workers will be needed, They may be recruited on a voluntary basis (in many countries workers cannot be forced to work overtime). Also, once the warm weather has ended, normal working hours are likely to be resumed

Question 43

The impact of strategic vs tactical decisions on resources of the business: physical resources

Answer 43

Physical resources: Physical resources in a business include land, machines, tools, equipment, vehicles, shops, computers, factories and raw materials.

A strategic decision could have quite a wide variety of effects on these resources depending on the nature of the decision. For example, if a business decides to permanently outsource its transport and delivery operation, it will need to sell off most of its delivery vehicles. This means only a small proportion of physical resources will be affected, However, if the business decides to develop and launch a new product, a larger proportion of physical resources will be affected, e.g, more research equipment, additional factory space or new types of raw materials may be required.

Tactical decisions can also have an impact on physical resources, but they may not be so dramatic. For example, if a catering company agrees to meet an unusually large order for an event outside of its normal geographical area, it may have to lease some extra kitchen equipment, utensils or dining furniture. But since these additional physical resources are only leased, they will be returned to the hire company after the event. Therefore, they will not affect the company in the long term.

Question 44

The impact of strategic vs tactical decisions on resources of the business : financial resources

Answer 44

Financial resources: Strategic decisions can have a significant and long-term impact on the financial resources of a business.

Strategy - For example, a company might raise $200 million by issuing some shares to pay for a planned acquisition programme. Once the shares have been issued, the company will have to meet dividend payments on those shares for as long as the company trades, This is a long-term effect on the finances of the business.

Tactical - In contrast, a tactical decision may only have a short-term effect, For example, a business may deliberately go overdrawn at the bank because it is waiting for a delayed payment from a customer. This tactical decision will not have a huge effect on the company’s finances as the assumption is that once the customer pays the debt, the overdraft will be cleared

Question 45

how do the 3 tools of corporate strategy relate to each other

Answer 45

1. Ansoff’s Matrix is a useful tool for a business to identify its current position and choose an appropriate direction for the company — the ‘what and where tool’.
2. In contrast, Porter’s Strategic Matrix presents three strategies that a business might use to compete in its market — the ‘how tool’.
3. Similarly, using the Boston Matrix can help to categorise a firm’s products and make informed recommendations on how it should use them for future growth