3.1 - Business Objectives & Strategy Flashcards
What is a business’s mission?
A business mission flows from its overall aim and is usually expressed in inspirational terms.
What are corporate objectives?
Corporate objectives detail the achievable goals a business wants to achieve over a specified period.
What is Ansoff’s Matrix?
It is a tool for businesses with a growth objective that considers four elements, broken down into two categories:
* Market Penetration (existing market, existing product)
* Product Development (existing market, new product)
* Market Development (new market, existing product)
* Diversification (new market, new product)
What is market penetration?
It is the least risky strategy to achieve growth. It involves selling more products to existing customers by encouraging more regular use, increased use, and brand loyalty.
What is market development?
It involves finding and exploiting new market opportunities for existing products by:
* entering new markets abroad
* repositioning the product by selling to different profiles
* seeking complementary locations
What is product development?
It involves selling new or improved products to existing customers by:
* developing new versions or upgrades of existing successful products
* redesigning packaging and aesthetic features
* relaunching heritage products at commercially convenient intervals (e.g. Cadbury releasing Christmas-themed products with a subtle design change)
What is diversification?
It is the most risky growth strategy as it involves targeting new customers with entirely new or redeveloped products
What is Porter’s Strategic Matrix?
It identifies a range of strategies a business might adopt considering:
* its source of competitive advantage (cost or differentiation)
* the scope of the market in which it operates (mass or niche)
Porter argues that failing to adopt one of these strategies risks a business being ‘stuck in the middle’ and unable to compete successfully with rivals in the market
Cost advantage in a mass market (Porter’s Strategic Matrix)
Cost Leadership - being the most cost-competitive business in a large market
Differentiation advantage in a mass market (Porter’s Strategic Matrix)
Differentiation - being distinctive and standing out on quality, innovation, brand identity, or customer service
Cost advantage in a niche market (Porter’s Strategic Matrix)
Cost Focus - being the most cost-competitive business in a small or specialised market
Differentiation advantage in a niche market (Porter’s Strategic Matrix)
Differentiation Focus - deliver unique products that meet specific needs within a small market
What is portfolio analysis?
It involves a business carrying out a detailed evaluation of its full range of products in order that appropriate strategies may be identified and pursued
What is the Boston Matrix?
It is a portfolio analysis tool that considers the relative market share of a firm’s products and the rate of growth within the market in which each product is sold
Where is a Star placed on the Boston Matrix?
A star has high market growth and high market share
* Stars require ongoing investment to maintain their market position and if managed well, they are likely to become cash cows in the future
* A market penetration strategy to increase sales revenue and maximise market share is likely to be appropriate
Where is a Question Mark/Problem Child placed on the Boston Matrix?
A Question Mark/Problem Child has high market growth and low market share
* These require lots of investment if they are to improve their level of market share and become stars
* There is a risk that these could become Dogs when market growth rates slow
Where is a Cash Cow placed on the Boston Matrix?
A Cash Cow has low market growth and high market share
* Cash Cows generate more cash than they need to maintain their market position and can be used to fund the development of other products in the portfolio
* Businesses mat seek new markets for these products if it is relatively risk-free
Where is a Dog placed on the Boston Matrix?
A Dog has low market growth and low market share
* Dogs have little potential for future growth and should be divested so that finance and effort may be invested in other products
What are distinctive capabilities?
- When a business has a particular strength that is very difficult for competitors to copy, it has a distinctive capability
- The nature of that distinctive capability will determine the aims and objectives of the business and the strategies it will pursue to achieve them
What is strategic decision-making?
Strategic decision-making involves medium to long-term planning to achieve corporate and functional objectives. It establishes the actions that the business intends to take to achieve its goals. This will have an impact on a business’s human, financial, and production resources.
How does the strategic decision to enter a new overseas market impact resources?
Human - Staff may be required to relocate
- Additional staff with language skills may be needed
- More staff in general may be needed
Financial - Marketing budgets will need to be increased
- Investment in overseas distribution and retail outlets may be required
Production - Products may require adaptations to meet the needs of overseas customers
- Increased output may require more capital investment in machinery
How does the strategic decision to withdraw an obsolete product from the sale impact resources?
Human - Fewer workers may be required as output is likely to be lower and so redundancies may be needed
- The remaining staff may need to be retrained or redeployed to produce alternative goods
Financial - Finance spent on the withdrawn product can be used elsewhere
- Redundancy payments or retraining of staff may incur significant short-term costs
Production - Capacity utilisation is likely to be lower, increasing unit costs of production
- The remaining stocks of the withdrawn product will require disposal
How does the strategic decision to merge with a competitor impact resources?
Human - Where staff roles are duplicated, redundancies or redeployment may be required
- Staff may have greater opportunities for promotion in a larger organisation
Financial - Shared financial resources may lead to improved cash flow and a healthier balance sheet
- Duplicated capital equipment and property may be sold to create income
Production - The production process may be initially incompatible and require reorganisation
- Techniques and knowledge can be shared between former rivals
What are tactical decisions?
Tactical decisions are made to support the overall strategy and are usually short-term. Tactical decision-making will also have an impact on a business’s human, financial, and production resources.
