3.1.2 Theories of corporate strategy

Question 1

Corporate strategy defined?

Answer 1

• The overall scope and direction of a business and the way in which its various business operations work together to achieve particular goals

Question 2

What is the Anoff’s Matric

Answer 2

Existing Product or Service and Existing
market

• Market Penetration (Low risk)
  Increase sales to the existing market, or penetrate it more deeply - sell more to the same customers – encourage them to order more often – loyalty schemes e.g. Boots Advantage card

Existing Product or Service and New market

Market Development (moderate risk)
Existing product or service sold to new market e.g. Colouring books sold to adults

New Product or Service and existing markets

Product or Service Development (moderate risk)
New product or service developed for existing market: means R&D of new products to sell to your existing customers e.g. Herbal essences new shampoo

New Product or Service and new markets

Diversification (high risk)
New product or service sold in new markets (new to the company):
Tata Group consists of 116 diverse companies including; Jaguar, Land Rover, Tata Steel, Tetley Tea and Ginger Hotels.

Question 3

Uses of Ansoff’s Matrix – identify new markets

Answer 3

A business can identify all their current products or services and their markets, then consider their future options for expansion using the matrix shown, considering opportunities, associated costs, benefits and risks
Ansoff’s matrix helps to identify potential new markets or marketing strategies for a business

Question 4

Limitations of Ansoff’s Matrix

Answer 4

• The Ansoff’s matrix has some limitations;
• It only shows part of the picture
• It oversimplifies the market
• Large MNCs may need thousands of sub options and strategies
• Any organisation using Ansoff’s matrix as an analysis tool to help decide on a company strategy should also conduct a SWOT and a PESTLE analysis to get a better idea of the whole picture, to see the issues from more than one angle

Question 5

Porter’s Strategic matrix

Answer 5

suggested that there were 3 generic business strategies that would get competitive advantage. These were:
• Cost leadership; making products at the lowest cost, may include outsourcing, lean management, standard no frills low cost products
• Differentiation; the product or service is unique and the USP adds value to the product
• Focus; the product or service will serve a very small specific niche, high costs are passed on to customers, no close substitutes (Divided into cost focus and differentiation focus)

Question 6

Cost leadership?

Answer 6

• Useful in highly competitive markets where there are homogenous products
• Customers may frequently switch supplier to gain best value
• New entrants to the market will use low prices to build a customer base

Question 7

Differentiation

Answer 7

• Useful strategy in highly technological markets where there are rapidly changing and evolving features of products and services
• Where customers needs are very diverse
• Where the competitors in the market are all following a similar differentiation strategy

Question 8

Cost focus ?

Answer 8

• Useful strategy when the business wants to offer very low prices to a small market segment
• Niche marketing but at very low cost

Question 9

Differentiation focus ?

Answer 9

• Useful strategy when the business wants to offer products and services to a small market segment
• Products or services will be differentiated and aimed at a niche market

Question 10

Uses of Porter’s Strategic matrix

Answer 10

• Those in support of Porter’s Strategic matrix (generic strategies) say that it establishes a clear direction for the business to go in
• Identifies when a business may be in trouble e.g. Woolworths and BHS both got “stuck in the middle”

Question 11

Limitations of Porter’s Strategic Matrix

Answer 11

• This is only a tool for a business to look at their strategy and as such has some limitations;
• Not as relevant in very dynamic markets
• May not be useful in a crisis situation • Over simplifies the market structure
• Can be possible for a store or business to offer a range of products to a range of customers and not get stuck in the middle e.g. Debenhams

Question 12

What is a star?

Answer 12

• A product in this quarter will have high market share and high market growth
• This product may be in the growth phase of the product life cycle
• Production of this product should remain consistent while profits are harvested

Question 13

What is a question mark ?

Answer 13

• Also known in some books as a problem child
• A product in this quarter enjoys high market
growth but low market share
• This product may have just been launched on
the market and is building its customer loyalty
• Products should be invested in while their
market share builds

Question 14

What is cash cow?

Answer 14

• Products in this quarter are reaching the maturity of their product life cycle but still have customer loyalty
• Products should be produced until sales start to decline

Question 15

What is a dog?

Answer 15

• Products in this quarter face declining sales in
declining markets
• Products may be in the decline phase of their
product life cycle
• For example video tapes or top hats
• These products should be removed from sale

Question 16

Uses of the BCG matrix

Answer 16

• The BCG matrix is a good starting point when reviewing an existing product line to decide future strategy and budgets
• The BCG helps businesses analyse future opportunities or problems with their product portfolios
• The conclusions drawn from such an analysis are to transfer the surplus cash from cash cows to the stars and the question marks, and to close down or sell off the dogs.
• In the end, question marks reveal themselves as either dogs or stars, and cash cows become so drained of finance that they inevitably turn into dogs.

Question 17

Limitations of using BCG Matrix

Answer 17

• BCG matrix classifies businesses as low and high, but generally businesses can be medium also. So, the true nature of business may not be reflected
• High market share does not always lead to high profits. There are high costs also involved with high market share.
• Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability
• This approach is considered as to be too simplistic

Question 18

Kay’s Distinctive Capabilities

Answer 18

gued that some outstanding businesses got their strength from their relationships with their employees / customers / suppliers
• Key to success was the continuity and stability of relationships with these three groups

there were 3 distinctive capabilities (DC) that could create added value and give a business competitive advantage. These were:
• Architecture – relationships with employees, suppliers, customers • Reputation – through the customer experience
• Innovation – bringing inventions to market

Question 19

What are strategic decisions?

Answer 19

• Long term direction of the business
  -What the business will do to meet its aims and objectives
• Pro-active decision making
  -Forward thinking, future planning

Question 20

What are tactical decisions ?

Answer 20

• Short or medium term decisions
• How the business will implement its strategy
  -Reactive to competitor actions
• Present day thinking, what is happening now that needs dealing with

Question 21

How is Strategic (proactive)

Impact of decisions on human resources

Answer 21

• Hiring new staff as part of a long term strategy to improve productivity
• Training staff to achieve the business objective of long-term efficiency and growth

Question 22

How is tactical (reactive)

Impact of decisions on human resources

Answer 22

• Having to hire a new network manager because the old one has quit
• Having to train staff because a new IT system has been introduced

Question 23

How is strategic (proactive )

Impact of decisions on physical resources

Answer 23

• Moving a factory location to another country to achieve the long-term objective of cost cutting and profit maximisation

Question 24

How is tactical ( proactive)

Impact of decisions on physical resources

Answer 24

• Moving a factory layout around to accommodate a new product being manufactured

Question 25

Impact of decisions on financial resources
How is strategic ( proactive)

Answer 25

• Issuing shares to raise capital to achieve a long-term objective of growth and expansion
• Allocating budgets to ne R&D projects which help the business to achieve the long-term objectives of expanding the product portfolio

Question 26

Impact of decisions on financial resources
Tactical ( reactive )

Answer 26

• Agreeing an overdraft with the bank to cover a shortfall in a cash flow forecast
• Arranging a bank loan to buy some office furniture to replace some that is old and broken

Question 27

Distinctive capability

Answer 27

A form of competitive advantage that is sustainable because it cannot easily be replicated by a competitor

Question 28

Diversification

Answer 28

Developing new products in new markets.

Question 29

Market penetration

Answer 29

Using tactics such as the marketing mix to Increase the growth of existing products in an existing market

Question 30

Portfolio analysis

Answer 30

A method of categorising all the products and services of a firm ( its portfolio) to decide where each fits within the strategic plans.

Question 31

Product development

Answer 31

Marketing new or modified products in existing markets