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CIMA - E3 > 7. Making Strategic Choices > Flashcards

7. Making Strategic Choices Flashcards

1
Q

What are the 4 steps of making strategic choices?

A
  1. Choosing one of the 3 generic strategies
  2. Choosing the strategic direction
  3. Choosing the method of development
  4. Evaluating options
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2
Q

What are Porter’s 3 generic strategies?

A
  1. Cost Leadership
  2. Differentiation
  3. Focus
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3
Q

What is cost leadership strategy?

A

Gaining competitive advantage at producing at the lowest cost, through efficiency and economies of scale - not necessarily selling at the lowest cost

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4
Q

What 5 things do companies need to be cost leaders?

A
  1. Considerable market share
  2. Cheap resource 9 Ms
  3. Efficient processes
  4. Continuous cost reduction
  5. Extensive distribution
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5
Q

What is differentiation strategy?

A

Being, or appearing to be, different in something that the customer values, thus charging a comparatively higher price and gaining a higher margin

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6
Q

What 5 things to companies need to be differentiators?

A
  1. Strong R&D skills
  2. Strong marketing skills
  3. Incentives based on subjective measures
  4. Attract skilled, creative people
  5. Strong product engineering skills
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7
Q

What is niche/focus strategy?

A

Smaller firms focusing effort and resources on a narrow, defined segment of the market, using either cost or differentiation on that segment

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8
Q

What does it mean to be ‘stuck in the middle’?

A

Trying to achieve more than one of the 3 generic strategies and failing to achieve any of them

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9
Q

What are the 4 direction options from Ansoff’s product market matrix?

A
  1. Market penetration
  2. Product development
  3. Market development
  4. Differentiation
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10
Q

What are the 3 types of diversification that can be pursued?

A
  1. Related (vertical - buy suppliers/customers)
  2. Related (horizontal - buy competitor/complementary)
  3. Unrelated (conglomerate growth)
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11
Q

What are the 4 elements of market penetration?

A
  1. Existing products, existing markets
  2. Consolidate
  3. Penetrate
  4. Withdraw
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12
Q

What is the main benefit of choosing a product development direction?

A

It is easier to sell more to existing customers than to find new ones

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13
Q

What 3 options does a company pursuing market development have?

A
  1. New segments
  2. New territories
  3. New uses
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14
Q

What are the 5 benefits of related vertical diversification?

A
  1. To secure inputs of raw materials
  2. Improve distribution
  3. Take profts from suppliers
  4. Create barriers to entry
  5. Spread risk
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15
Q

What is the main pitfall of vertical diversifcation?

A

Increases operating leverage (higher fixed costs)

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16
Q

What are the 3 risks of unrelated diversification?

A
  1. Risky
  2. Spreads management thinly
  3. Unpopular with investors
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17
Q

What are the 6 stages of the product lifecycle?

A
  1. Introduction
  2. Development
  3. Growth
  4. Shakeout
  5. Maturity
  6. Decline
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18
Q

What is the key application of the product life cycle?

A

Successful management of a product portfolio which means making good products strategy decisions to protect and grow competitive position

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19
Q

What are the 4 elements of successful product portfolio managemenet?

A
  1. Maximising the value of products
  2. Maximising the use of resources
  3. Identifying which products to sell where
  4. Diversification to protect from possible downturns in a sector
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20
Q

What is the business portfolio?

A

The collection of businesses and products that make up the company

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21
Q

What are the 3 steps that organisations should take when using the BCG matrix?

A
  1. Analyse the current portfolio and decide which products should receive investment
  2. Develop growth strategies for adding new products and businesses
  3. Compare results over time and against competitors
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22
Q

What is relative market share?

A

Dividing our market share by that of our largest competitor - only one player can have

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23
Q

What are the 4 quadrants of the BCG matrix?

A
  1. Stars (high share, high growth)
  2. Cash Cows (high share, low growth)
  3. Question Marks (low share, high growth)
  4. Dogs (low share, low growth)
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24
Q

What do stars need to sustain growth?

A

High investment in marketing and R&D (so often can have negative cash flows from time to time)

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25
Q

What do we use cash cows for?

A

‘Milking’ to generate strong cash flows for Stars and Question Marks

26
Q

What is needed to gain benefit from Question marks?

A

Substantial investment in order to grow market share, often leading to negative cash flows (some will be allowed to fail and shrink)

27
Q

What is the condition for Dogs to be allowed to continue as businesses?

A

They must generate positive cash flows

28
Q

What are the 5 criticisms of the BCG matrix?

A
  1. Average growth is difficult
  2. Many successful products would be classified as dogs
  3. Calculating market share can be difficult
  4. No attempt to measure cash flow or profit
  5. Difficult to deal with declining markets
29
Q

What are the 4 strategy options once the BCG matrix has been used?

A
  1. Build Share through investment (Question Mark > Star)
  2. Hold (invest to keep in position)
  3. Harvest (reduce investment to minimise cash outflows (Star > Cash Cow)
  4. Divest (phase out or sell)
30
Q

What are the 3 options for achieving strategy development?

A
  1. Internal development
  2. Acquisition (or disposal)
  3. Joint development/alliances
31
Q

What are the 6 main benefits of internal development?

A
  1. Cost spread over time
  2. Slower rate of change
  3. More acceptable to stakeholders
  4. May be no competitor to buy
  5. Easier than acquiring overseas
  6. Get exactly what is wanted
32
Q

What are the 5 main disadvantages of internal development?

A
  1. Slow
  2. May lack expertise
  3. May be expensive
  4. Risk of distraction from core operations
  5. Spreads management thinly
33
Q

What are the 6 main benefits of M&A?

A
  1. Quick
  2. Takes out competitors
  3. Cheaper than internal development
  4. Can acquire scare resources and core competencies
  5. Cost efficient
  6. Institutional stakeholders expect growth
34
Q

What are the 5 main disadvantages of M&A?

A
  1. Cultural differences
  2. Difficult to control speed of acquisition
  3. Buy ‘warts and all’
  4. May cause staff anxiety
  5. Risk of paying too much
35
Q

What are strategic alliances?

A

When two or more organisations share resources and activities to pursue a strategy, when they are not strong enough to do so alone

36
Q

How does a strategic alliance compare to a JV?

A

Less formal

37
Q

What are the 6 main causes of failure in strategic alliances?

A
  1. Failure to understand different management styles or cultures
  2. Lack of commitment
  3. Strategic goal divergence
  4. Insufficient trust
  5. Operational/geographic overlap
  6. Unrealistic expectations
38
Q

What is collaborative leadership?

A

Leadership across functional and organisational boundaries, particularly applying in strategic alliances and in public-private partnerships

39
Q

What are the 6 core attributes of collaborative leaders?

A
  1. Passion to create value
  2. Understanding of different perspectives
  3. Network of relationships
  4. Willingness to take risks
  5. Willingness to share knowledge
  6. Ability to handle conflict
40
Q

What is a joint venture?

A

An entity formed between two or more parties to undertake economic activity together

41
Q

What are the 2 main reasons for failure in joint ventures?

A
  1. Lack of communication
  2. Disputes over distribution of power
42
Q

What is franchising?

A

Where the franchisor provides proven methods of doing business to a franchise for a fee and a percentage of sales or profits

43
Q

What is franchising?

A

Where the franchisor provides proven methods of doing business to a franchise for a fee and a percentage of sales or profits

44
Q

What are the 4 advantages of franchising?

A
  1. Speed
  2. Cost and risk lower for franchisor
  3. Rapid and wide expansion
  4. Training offered to franchisee
45
Q

What are the 3 disadvantages of franchising?

A
  1. Loss of control
  2. High price for franchisees
  3. Potential conflicts
46
Q

What is licensing?

A

Giving the right to use a resource in return for a share of the proceeds

47
Q

What is divestment?

A

Disposal of part of it’s activities by an entity

48
Q

What are the 5 possible methods of divestment?

A
  1. Flotation
  2. Trade sale
  3. Management buy out
  4. Liquidation and sale of assets
  5. Demeger
49
Q

What are the 6 main reasons for a divestment?

A
  1. To raise cash
  2. To rationalise a diversified business
  3. To allow managers to concentrate on remaining portfolio
  4. To reduce debt
  5. As a result of strategic review (e.g. sell dogs)
  6. As a result of competition law requirements
50
Q

What are the 5 strategies for expansion overseas?

A
  1. Cost saving (overseas shared service centre)
  2. Exporting
  3. Overseas manufacture
  4. Multinational
  5. Transnational (acts locally and shares globally)
51
Q

What is the value chain?

A

The sequence of business activities by which, in the perspective of the end user, value is added to products or services produced by an organisation

52
Q

What are the 4 support activities in the value chain?

A
  1. Firm infrastructure
  2. HR
  3. Technology Department
  4. Procurement
53
Q

What are the 5 primary activities in the value chain?

A
  1. Inbound logistics
  2. Operations
  3. Outbound logistics
  4. Sales and Marketing
  5. Service
54
Q

What are the 6 ways that the organisation can use the value chain?

A
  1. Better understanding of key capabilities required
  2. Can understand differences through benchmarking
  3. Identify core competencies and critical success factors
  4. Identify sources of increased efficiency
  5. Facilitate benchmarking of competitor value creation
  6. Identify where distinctive capabilities are based
55
Q

What are the 4 underlying elements of the value chain?

A
  1. Identifying cost and benefits of each activity
  2. Understanding the factors that drive costs and benefits
  3. Benchmarking against competitors
  4. Understanding linkages in the chain
56
Q

What is the value network?

A

The set of inter-relationships that are necessary to create a product or service - linking our value chain with those of our suppliers and customers

57
Q

What is the value shop?

A

The alternative to the value chain that is relevant for service providers - scheduling activities and applying resources in a way that identifies problems and how to solve them for particular client needs

58
Q

What are the 5 steps of the primary activities within the value shop for service providers?

A
  1. Problem finding
  2. Problem solving
  3. Choosing solutions
  4. Execution
  5. Control/evaluation
59
Q

What are the 2 questions that must be asked when evaluating a strategic plan?

A
  1. Is it viable?
  2. is it competitive?
60
Q

What are the 3 elements of the framework for determining viability of a strategic plan?

A
  1. Suitable (fit with objectives and take advantage of strengths/ops)
  2. Acceptable (to stakeholders)
  3. Feasible (do we have the resources and capabilities)

CIMA - E3 (10 decks)

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