3.1.2 Theories of Corporate Strategy Flashcards
What does a successful corporate strategy help provide?
- It helps provide a business with a competitve advantage
What does an effective corporate strategy provide?
- Requires careful consideration of a range of internal factors & the external environment in which a business operates
What are the internal and external factors within a corporate strategy?
- Internal Factors include the human and capital resources avaliable
- External Factors include the economic and political environment.
What are the two strategic models used to develop a corporate strategy?
- Ansoffs Matrix
- Porters strategic matrix
What is Ansoffs Matrix?
- Ansoffs Matrix is a tool for business with a growth objective
- It is used to identify an approprite corporate strategy and identify the level of risk associated with the chosen strategy
What elements is Ansoff’s matrix broken down into?
- The market- existing and new markets
- The product- exisitng and new products
What are the 4 strategies within Ansoff’s Matrix?
- Market Penetration
- Market Development
- Product Development
- Diversification
What is market penetration?
- Involves selling more products to existing customers by encouraging:
- More regular use of the product
- Increased usage of the product
- Brand loyalty of customers
The least risky strategy to achieve growth
What are the pros and cons of market penetration?
Pros:
- 4P’s can increase marketing
- Promotes awareness- Influence- Loyalty so all of this can help to therefore increase sales & AAR lead to greater market share
- Done at a lower cost than the other strategies as investment is not needed to research & develop a new product or investigate the needs of a new market.
- Business knows their product & market well & is comfortable w their needs
What is market development?
- Involves finding and exploiting new market opportunities for existing products by:
- Entering new markets abroad
- Repositioning the products by selling to different customer profiles (selling to other businesses as well as other customers)
- Seeking complementary locations e.g. M&S food has achieved significant growth since teaming up w fuel retailers such as BP
What are the pros & cons of market development?
Pros:
- No development cost for the product
- New people to sell to = increased sales
- Market may not have competition/ be saturated, your product may be new into the market
Cons:
- New market may have existing businesses that consumers already go to & have loyalty with
- May be really hard to get consumers to switch to your product
- If you go into new market w same product that you have & dont alter it for cultural differences it might not be successful
What is product development?
- Involves selling new or improved products to existing customers by:
- Developing new versions or upgrades of existing successful products
- Redesigning packaging & aesthetic features
- Relaunching heritage products at commercially convinient intervals
e.g. Cadbury relaunches Christmas-themed products each year, often with a subtle design change, to recapture the interest of customers
What are the Pros & Cons of product development?
Pros:
- Can develop competitive advantage- USP
- Create a product that competitors dont have
- Could also gain first mover advantage which could increase market share
- Less risk as knowns needs & wants of cutomers & have already established customer loyalty- consumers are more likely to buy product= more success
Cons:
- Customers may not like new product
- V costly to develop new product - millions could go into research & development & product could fail or could still have loads of competition
What is diversification?
- Often involves targeting new customers with entirely new or redeveloped products
- The most risky growth strategy
e.g. tesco launching a range of financial products including current accounts and credit cards
What are the pros and cons of diversification?
Pros:
- Very useful when current market is saturated & you have exhausted all other options
- If you have a strong brand rep people would be likely to buy your products
Cons:
- Biggest risk as you have to invest in developing a new product
- R&D costs & also needs to research a whole new market
- But if successful could be most rewarding
What is Porters Generic Strategic Matrix?
Idenitfy’s a range of strategies a business might adopt considering:
- It’s source of competitive advantage (cost or differentiation)
- The scope of the market in which it operates (mass or niche)
What did Porter argue with these strategies?
- 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
What are Porters Strategies?
- Cost Leadership
- Differentiation
- Focus - (cost& differentiation)
What is cost leadership?
- Be the most cost competitive business in a large market
Competing to try and have the lowest price
What is differentiation?
- Be distinctive - stand out on:
- quality
- innovation
- brand identity
- customer service
What should businesses operating in a mass market do?
- They should adopt either a cost leadership or differentiation strategy, depending on what it is that makes them stand out from their competitors
- Businesses that have a significant cost advantage over competitors should exploit this as much as possbile to achieve success- cost leadrship
- Businesses that are unable to operate as the most competitive on cost should adopt a strategy of differentiation.
What should a business that operates in a Niche market do?
- Should adopt a focus strategy that closely meets the needs of its specific group of customers
- A cost focus involves being the lowest cost competitor within the market niche
- A differentiation focus involves offering specialised products within the niche market
What is the aim of portfolio analysis?
- Involves business carrying out a detailed evaluation of its full range of products
- & the rate of growth within the market where each product is sold
What is the Boston Matrix?
- A portfolio analysis tool
- Considers the relative market share of a firms products
- & the rate of growth within the market where each product is sold.
What are the two axis on the Boston Matrix?
- Market growth (left)
- Relative market share (top)
What are the 4 components that make up the boston matrix?
- Stars
- Question Mark
- Cash Cows
- Dogs
What are star products?
- Sold in high growth markets
- Have a high level of market share
- Require on going investment to maintain market position
If managed well could become cash cows
Market penetration strategy is likely to be appropriate
What are cash cows?
- Sold in lower growth markets
- Have high market share
- Generate more cash than they need to maintain their market position
- & Can be used to fund the development of other products in the portfolio
Businesses may seek new markets for this if relatively risk free
What are question marks?
- Sold in high growth markets
- Have relatively low market share
- Require significant investment if they are to improve their market share & become stars
- Risk that QM’s may become dogs when market growth rates slow
What are dog products?
- Sold in low growth markets
- Have relatively low market share
- Have little potential for future growth & should be divested so finance & effort can be invested into other products
What is a distinctive capability and how do people achieve a competitive advantage through these?
- Distinctive Capability- When a business has a strength that is very difficult for other competitors to copy
What are some examples/ parts of a distinctive capabilities?
- Architecture – Strong relationships wistakeholders (e.g., employees, suppliers, and customers) that improve communication and efficiency.
- Reputation & Image of the business
- Innovation & the ability to change- business may be particularly effective at responding to external change- Unique processes, patents, or advanced technology that competitors struggle to replicate.
What is strategic decision making?
- Establishes the actions that the business intends to take to achieve its goals
- Also shows the impact on human, financial & production resources
