45 Theories of corporate strategy Flashcards
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.
distinctive capability
a form of competitive advantage that is sustainable because it cannot easily be replicated by a competitor
three types of distinctive capability:
architecture - refers to the contracts and relationships with and around an organisation, these include the relationships between the business and its employees, and the collaborative relationships it has with partners, suppliers and customers
reputation - closely linked to brand image and takes time for a business to build
innovation - developing a new product or process in the production of a product in an innovative way
diversification
developing new products in new markets
it enables a business to move away from reliance upon existing markets and products, thus allowing the company to spread risk and increase safety. If one product faces difficulties or fails, a successful product in another market may prevent the business overall facing problems
however, diversification will take a business outside its area of expertise, and for this reason it is the strategy with the highest risk
market development
marketing of existing products in new markets
the most basic form of the strategy is entering geographically new markets
a different country may have different tastes and preferences, therefore the strategy relies heavily on understanding local habits, tastes and needs
even where market development is appropriate and successful, it is often necessary to make slight modifications to suit the new market, even if this is simply changing the name to be more acceptable or accessible in a different language, or labelling the product differently to meet international laws
product development
marketing new or modified products in existing markets
this strategy requires product innovation and significant investment in research and development, and 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 succeed, heavy investment in promotion may be required
market penetration
using tactics such as the marketing mix to increase the growth of existing products in an existing market
there are several ways a business can achieve this:
increase the brand loyalty of customers so that they use substitute brands less frequently e.g. a customer loyalty scheme
encourage consumers to use the product more regularly e.g. encouraging people to eat breakfast cereal as a night-time snack
encourage consumers to use more of the product e.g. a crisps manufacturer producing maxi-sized packets rather than standard-sized crisp packets
portfolio analysis
a method of categorising all the products and services of a firm (its portfolio) to decide where each fits within the strategic plans
Ansoff’s Matrix
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 willig to accept
Porter’s Strategic Matrix
this strategy is to identify the sources of competitive advantage that a business might achieve in a market
cost leadership: this involves striving to be the lowest-cost provider in the market 1. increase profits, while still charging market level prices 2. increase market share, while charging lower prices (still making a profit since costs are reduced)
differentiation: this involves a business operating in a mass market but adopting a unique position instead of the lowest-cost position
a business might differentiate itself from the competition through adding value to their products in a unique way, this include quality, design, brand identity or customer service
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 gurantee that the rewards of differentiation will justify the additional costs. Comparatively, differentiation is much easier to copy than cost leadership unless the differentiation is sustainable and defensible e.g. a patent
focus: this strategy is closely aligned to niche marketing, it tends to be used by small or very specialist firms
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 and delivering products and services that are very specific to their needs
as a result, this can create a high level of customer satisfaction and loyalty
Bonston Matrix
a portfolio analysis that helps a business categorise its products into one of four different areas based upon their current and potential market share or market growth
stars: high-growth products with high market shares e.g. Iphone. Stars require investment, but the hope is that they will become cash cows
cash cows: low-growth products with high market shares e.g. necessities. They generate more cash than they consume
question marks: products with low market shares in high-growth markets e.g. electric cars. They consume a lot of cash, but give little return. However, they have the potential to turn into stars
dogs: products with low market share in low-growth markets e.g. radios and Ipod. they may break-even, but nevertheless take up time and effort with little prospect of future growth
strategies and tactics
strategies set out the long-term direction that a firm will take to achieve its objectives. In contrast, tactics are short-term responses to an opportunity or threat in the market
