8.3 Approaches to developing business strategy Flashcards

1
Q

What is the basis of Blue Ocean Strategy?

A

To stop competing in existing markets and start creating uncontested markets.

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2
Q

What are Blue Oceans?

A

Newly created markets or market segments with no close competitors.

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3
Q

What do W. Chan Kim and Renée Mauborgne suggest is essential for Blue Ocean strategies?

A

A combination of high product differentiation and low cost.

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4
Q

What is the goal of Blue Ocean strategies?

A

To make the competition irrelevant rather than just beating it.

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5
Q

What are the four questions in the Four Actions Framework for identifying Blue Oceans?

A

Raise: What factors can be raised above the industry standard?
Reduce: What factors can be reduced?
Eliminate: Which factors can be eliminated?
Create: What factors should be created that the industry has never offered before?

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6
Q

What do Red Ocean strategies focus on?

A

Competing in existing markets and ‘out-competing’ the competition.

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7
Q

What common characteristic do Amazon, Alibaba, and Air Asia share regarding business strategy?

A

They have all adopted a Blue Ocean strategy, focusing on excellent customer service and innovative offerings.

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8
Q

What is scenario planning?

A

A technique where senior managers identify possible future outcomes (scenarios) and discuss strategies for each.

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9
Q

What are some benefits of scenario planning?

A

It forces managers to consider main risks and uncertainties.
Managers develop a range of strategies for different scenarios.
It encourages flexibility in strategic planning.

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10
Q

What are some limitations of scenario planning?

A

Managers may become confused by too many uncertainties.
Some may only focus on one possible scenario, leaving them unprepared.
Less effective if only short-term risks are considered.

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11
Q

What does a SWOT analysis consist of?

A

Strengths
Weaknesses
Opportunities
Threats

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12
Q

How are strengths defined in a SWOT analysis?

A

Internal factors that provide real advantages to a business, such as experienced management or product patents.

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13
Q

How are weaknesses defined in a SWOT analysis?

A

Internal factors viewed as disadvantages, such as a poorly trained workforce or limited production capacity.

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14
Q

What do opportunities refer to in SWOT analysis?

A

Potential areas for business expansion and future profits identified through an external audit.

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15
Q

What do threats refer to in SWOT analysis?

A

External factors that could negatively impact the business, such as new competitors or regulatory changes.

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16
Q

What does PEST analysis stand for?

A

Political, Economic, Social, and Technological factors that influence a business.

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17
Q

How is PEST analysis complementary to SWOT analysis?

A

While SWOT assesses internal and external factors, PEST focuses solely on external macro-environmental factors that can present opportunities or threats.

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18
Q

What is PEST analysis?

A

PEST analysis may need constant updates and reviews due to rapid changes in the wider environment.

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19
Q

What factors are included in the Political and Legal category of PEST analysis?

A

Stability of the government, legal changes impacting the industry, environmental regulations, employment law, competition regulations, consumer protection laws, and government attitudes towards free market controls.

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20
Q

What economic factors are considered in PEST analysis?

A

Rate of economic growth, exchange rate stability, membership in free trade areas, tax rates, interest rates, inflation rates, and stage of the business cycle.

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21
Q

What social factors are evaluated in PEST analysis?

A

Demographic changes, dominant religion, education standards, gender roles, social issues, labour mobility, and language diversity.

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22
Q

What technological factors are analysed in PEST?

A

New manufacturing technologies, government support for research, internet access, renewable energy costs, and the speed of technological obsolescence.

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23
Q

What is the purpose of Porter’s Five Forces analysis?

A

It models an industry’s competitive environment by analyzing five key forces to help managers understand and strategize for competitive advantage.

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24
Q

Name the five forces in Porter’s model.

A

Barriers to entry
The power of buyers
The power of suppliers
The threat of substitutes
Competitive rivalry

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25
Q

What are barriers to entry?

A

Factors that affect how easily new firms can enter an industry, including economies of scale, technology costs, distribution access, legal restrictions, and product differentiation.

26
Q

How does buyer power affect an industry?

A

Buyers have more power when there are many suppliers, low switching costs, and the ability to easily purchase from alternative suppliers.

27
Q

What conditions give suppliers power over buyers?

A

High switching costs, strong brand recognition, and the ability to threaten forward integration.

28
Q

What is the threat of substitutes?

A

The likelihood that customers will switch to alternative products from other industries based on technology, price competition, or significant new product availability.

29
Q

What factors influence competitive rivalry in an industry?

A

The ease of entry for new firms, threats from substitutes, supplier and buyer power, number of firms, fixed costs, and market growth.

30
Q

What is the importance of core competencies?

A

Core competencies provide competitive advantage and are difficult for other businesses to replicate, applying across various products and markets.

31
Q

What are core products?

A

Products that stem from core competencies and are used to create a range of end-user products, not necessarily sold directly to consumers.

32
Q

Why might a business not have a core competence despite having a competence?

A

If the competence is not exceptional or easily replicated, it does not qualify as a core competence.

33
Q

What is the relationship between core competencies and strategic opportunities?

A

Once core competencies are established, they can lead to the development of new core products and open up strategic opportunities in different markets.

34
Q

What is the Ansoff Matrix?

A

An analytical tool used to assess corporate business strategies and plan for their introduction, focusing on market and product options for sales growth.

35
Q

What are the two main variables in the Ansoff Matrix?

A

The market in which the business operates and the product(s) it plans to sell.

36
Q

What are the two market options in the Ansoff Matrix?

A

Remain in the existing market.
Enter new markets.

37
Q

What are the two product options in the Ansoff Matrix?

A

Selling existing products.
Developing new products.

38
Q

How many distinct strategies does the Ansoff Matrix provide?

A

Four distinct strategies: Market Penetration, Product Development, Market Development, and Diversification.

39
Q

What is Market Penetration?

A

A strategy to increase market share in existing markets, often by lowering prices, though it can lead to price wars.

40
Q

What is Product Development?

A

Creating new products or modifying existing ones to offer distinctive identities, such as launching Diet Pepsi.

41
Q

What is Market Development?

A

Expanding into new markets, such as repositioning products for different consumer segments or exporting goods.

42
Q

What is Diversification?

A

A strategy that involves entering new markets with new products, which is the riskiest strategy in the Ansoff Matrix.

43
Q

What is a limitation of the Ansoff Matrix?

A

It considers only two main factors (market and product) and lacks detailed marketing options, requiring further analysis.

44
Q

What is Force-Field Analysis?

A

A technique that weighs the forces for and against a decision, providing insights to strengthen supportive forces and reduce opposing ones.

45
Q

What is the purpose of Force-Field Analysis?

A

To analyse potential advantages and disadvantages of a decision before making a choice, such as introducing a new product or service.

46
Q

What does a force-field diagram illustrate?

A

It visually represents the driving forces for change and the restraining forces against change in a business decision.

47
Q

Why might companies like Caffè Nero and Siemens Gasema need long-term plans?

A

Long-term plans help achieve objectives and adapt strategies to market conditions and competition.

48
Q

What factors might Caffè Nero consider in Turkey using PEST analysis?

A

Political, Economic, Social, and Technological factors relevant to the Turkish market before entering it.

49
Q

How does management judgment play a role in strategic choices?

A

Experience with risks and returns is crucial alongside analytical tools for making final decisions.

50
Q

What is the significance of scoring forces in Force-Field Analysis?

A

Scoring helps quantify the strength of each force, aiding in determining the viability of a proposed change.

51
Q

What is one major risk of the Diversification strategy?

A

It involves new challenges in both markets and products, which can be outside the firm’s core competencies.

52
Q

What is a decision tree?

A

A diagram that represents options, outcomes, probabilities, and economic returns to aid in decision-making.

53
Q

What are the four main features represented in a decision tree?

A

Options available to a manager.
Possible outcomes from these options.
Chances of outcomes occurring.
Economic returns from outcomes.

54
Q

How is a decision tree constructed?

A

From left to right, with branches for options, decision points as squares, chance nodes as circles, probabilities alongside outcomes, and expected financial gains/losses.

55
Q

What does a decision node represent in a decision tree?

A

A point where a choice must be made, denoted by a square.

56
Q

What does a chance node represent in a decision tree?

A

A point that indicates various possible outcomes from a decision, denoted by a circle.

57
Q

How do you calculate expected values in a decision tree?

A

By multiplying the probability of each outcome by its economic return and summing the results, then subtracting costs to find the net return.

58
Q

What is the expected value of tossing a coin that pays $5 for heads?

A

$2.50 (0.5 × $5).

59
Q

What does it mean if an option is blocked off with a double line in a decision tree?

A

It indicates that this decision will not be taken.

60
Q

What are the limitations of decision trees?

A

Accuracy of data used.
Changing circumstances may affect probabilities.
Cannot replace qualitative considerations.
Expected values are averages, not guarantees.

61
Q

Why might a manager prefer low but certain returns over higher-risk options?

A

Due to attitudes towards risk and the impact on the business environment or workforce.

62
Q

How can decision trees aid managers in decision-making?

A

They encourage logical thinking, thorough consideration of options, and a quantitative assessment of risks and returns.