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AsL Business > Business strategy > Flashcards

Business strategy Flashcards

1
Q

Four main factors that influence business strategies

A
  1. Resources available
    All business resources are finite. scarce resources will force firms to choose which strategies to proceed with and which to drop or scale back
  2. Strengths of the business
    The safest areas to expand as a business already has the expertise to do so. Selling off non-core and low performing areas may be wise as it will allow focus on its area of strengths
  3. Competitive environment
    A major constraint on business strategy. All businesses operate in a competitive environment to a greater or lesser degree
  4. Objectives
    the objectives of the business will influence strategy. e.g. a business with social responsibility objectives may pursue different investment options as compared to a business with the objective of maximizing returns to shareholders
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2
Q

strategic management

A

analysis of the current business situation, setting long-term objectives, deciding on business strategies to achieve them and then implementing these strategies

has three key stages -
strategic analysis, strategic choice & strategic implementation

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3
Q

strategic analysis

A

the process of conducting research into the business environment as well as into the business itself in order to help identify future strategies

attempts to find answers to these questions:
- where is the business now
- how might the business be affected by future events?
- how could the business respond to these likely changes?

includes: SWOT, PEST, Porters five force model, scenario planning, core competencies, blue ocean & red ocean

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4
Q

strategic choice

A

the process that leads to a decision to choose a particular strategy from various alternatives and the techniques used to help make the choice

  • identifying, choosing and deciding between different strategic options

includes:
Ansoff matrix, decision tree analysis, force field analysis

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5
Q

strategic implementation

A

the process of planning, allocating and controlling resources to support the chosen strategy

  • planning for and managing change in areas such as motivating staff to adapt to the change, having sufficient resources, leadership style, monitoring progress
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6
Q

what is the need for strategic management

A
  • a plan for the future of the business
  • being able to respond logically to the changing business environment
  • make effective long-term business decisions based on clear objectives
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7
Q

strategic vs tactical decisions

A

strategic = highest level of managerial activity, long term and difficult to reverse once made. Cross functional and involves all major departments
e.g. to develop new markets abroad

tactical = smaller-scale decisions aimed at reaching more limited and measurable goals, reversible, taken up by less senior managers and is often only taken up by one department
e.g. sell a product in different sized packaging

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8
Q

blue ocean strategy

A

a strategy that exploits uncontested market space through product differentiation and low cost

  • based on creating and capturing uncontested market space to create new demand thereby making the competition irrelevant
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9
Q

blue ocean = four actions framework

A
  1. Raise = what factors, such as quality or customer service, could be raised above the industry’s standard?
  2. Reduce = what factors, such as costly. competitive advertising, were a result of competing against other businesses, and which of these can be reduced?
  3. Eliminate = which factors that the business has used to compete against rivals could be eradicated altogether?
  4. Create = which factors should be created that the industry has never offered before?
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10
Q

red ocean strategy

A

a strategy where businesses competes with rivals in existing market spaces to beat the competition and exploit existing demand

  • product differentiation OR low cost
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11
Q

scenario planning

A

identifying possible future situations and how the business might respond to them

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12
Q

advantages of scenario planning

A
  • forces managers to consider the main risks and uncertainties that affect their business
  • managers have to develop different strategies to deal with different scenarios
  • makes managers adopt a flexible approach as different scenarios will require different strategies
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13
Q

limitations of scenario planning

A
  • managers could try to consider too many uncertainties and become confused and overwhelmed by the range of possible scenarios
  • some managers might only be focus on one specific possible future scenario and be unprepared for others
  • it will be less effective if only short term risks are considered. Looking far into the future can lead to more creative strategies
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14
Q

SWOT analysis

A

a form of strategic analysis that identifies and analyses the main internal strengths and weaknesses and external opportunities and threats that will influence the future direction and success of a business

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15
Q

what does SWOT analysis comprise of

A

Strengths:
- internal factors that are a business’s current real advantages.
- Could be used as a basis for developing a competitive advantage
- e.g. experienced management, loyal workforce, good product range
- these factors are identified by undertaking an internal audit of the firm

Weaknesses:
- the internal business factors that are view as disadvantages
- e.g. poorly trained workforce, limited production capacity, aging equipment
- also obtained from an internal audit

Opportunities:
- potential areas for expansion of the business and future profit
- identified by an external audit of the market the business operates in & its major competitors
- e.g. new tech, export markets expanding faster than domestic markets, lower interest rates increasing consumer demand

Threats
- also external factors gained from an external audit
- this audit analyses the business and economic environment, market conditions and the strength of competitors.
- e.g. new competitors entering the market, globalization driving down prices, changes in laws regarding the sale of certain products

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16
Q

SWOT- evaluation

A
  • a very subjective analysis
  • not a quantitative form of assessment so the cost of correcting a weakness cannot be compared with the potential profit
  • must be used as a management guide for future strategies, not as specific guide for future actions
  • it provides a lot of clarity to senior managers
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17
Q

PEST analysis

A

the strategic analysis of a firm’s macro environment, including political, economical, social and technological factors

  • considered as being either opportunities of threats. They are complementary to SWOT, not an alternative
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18
Q

evaluation of pest analysis

A
  • any significant new business strategy should be preceded by a detailed analysis of the wider environment in which the strategy has to operate and be successful
  • once completed, PEST analysis would still need to be constantly updated and reviewed, esp in a rapidly changing wider environment
  • for a business planning to sell overseas, PEST for all operating countries must be conducted
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19
Q

Porter’s five forces model

A

a technique for analyzing competitive forces within an industry

  • Michael Peter provided a framework that models an industry as being influenced by five forces
  • business managers can use this model to understand the industry’s dynamics in which the business operates
20
Q

porter’s five force model: barriers to entry

A

the ease with which other firms can join the industry and compete with existing businesses

this threat of entry is greatest when

  • economies of scale are low in the industry
  • the capital requirements and technology needed to enter the industry is relatively cheap
  • distribution channels are easy to access
  • there are no legal or patent restrictions on entry
  • the importance of product differentiation is low so extensive advertising may not be required to get established
21
Q

porter’s five force model: the power of buyers

A

refers to the power that customer have over the producing industry
e.g. if there are four major supermarket groups that dominate this sector of retailing, their buyer power over food and other producers will be great.
buyer power will also be increased when:

  • there are many undifferentiated small supplying firms (e.g. many small farmers supplying chicken or milk to supermarkets)
  • the cost of switching suppliers is low
  • buyers can realistically and easily buy from other suppliers
22
Q

porter’s five force model: the power of suppliers

A

suppliers will be relatively powerful compared with buyers when:

  • the cost of switching is high
  • the brand being sold is very powerful and well-known (e.g. Nike shoes)
  • suppliers could realistically threaten to open their own forward-integration operations (e.g. coffee suppliers open their own cafes)
  • customers have little bargaining power as they are small firms and fragmented (e.g. dispersed around the country, as will independent petrol stations)
23
Q

porter’s five force model: the threat of substitutes

A

refers to substitute products in other industries, not alternatives in the same industry
e.g. demand for aluminum for cans is partly affected by the price of glass for bottling and plastic for containers
threats of substitution will exist when:

  • new technology makes other options available e.g. satellite TV instead of traditional antenna reception
  • price competitiveness forces customer to consider alternatives
  • any significant new product leads to a switch in consumer spending e.g. increasing spending on mobile phones by young people reduces the available cash they have to spend on clothes
24
Q

porter’s five force model: competitive rivalry

A

based on the other four forces, this is the key part of the analysis that sums up the most important factors that determine the level of competition or rivalry in an industry

competitive rivalry is most likely to be high where

  • it is cheap and easy for new firms to enter an industry
  • there is a threat from substitute products
  • suppliers/buyers have much power
  • there are a large number of firms with similar market share
  • high fixed costs forces firms to try to obtain economies of scale
  • there is a slow market growth, forcing firms to take a share from rivals if they wish to increase sales
25
Q

how does Porter’s five forces analysis help a business take important strategic decisions?

A
  • helps a business decide whether to enter an industry or not
  • whether to stay in these markets in the future if they are becoming more competitive
  • how to reduce competitive rivalry in these markets and increase potential profitability
  • with the knowledge gained of the competitive forces, businesses can develop strats to improve their competitive position through - product differentiation, buying out competitors, focusing on less competitive segments, and deals/collusions with competitors
26
Q

evaluation of the five forces model

A
  • it analyses an industry at just one moment in time as many industries are changing very rapidly, for example due to globalisation and technological changes
  • the model can become very complex when trying to use it to analyse many modern industries with joint ventures, multiple product groups and different market segments within the same industry, each having their own competitive forces
27
Q

core competencies

A

an important business capability that gives a firm competitive advantage

28
Q

to be of commercial and profitable benefit to a business, a core competence should:

A
  • provide clear and recognizable benefits to consumers
  • be difficult for other businesses to copy (e.g. if it is a patented design)
  • be applicable to a range of different products and markets
29
Q

core product

A

product based on a business’s core competencies but not necessarily for the final consumer or end user

  • not necessarily sold to final consumers
  • instead, they are used to produce a large number of end-user products
  • e.g. Black & Decker, has a core competence in the design and manufacture of small electric motors which are used in a huge variety of different applications like drills, lawnmowers and food processors
30
Q

developing core competencies

A

a business may be particularly good at a certain activity and might have competence in it, however that doesn’t necessarily make it a core competency if it is not exceptional or if its easy to copy

  • it depends on integrating multiple technologies and product skills
  • if a management team can effectively bring together designers, production specialists and IT experts into a team to develop new and different competencies, then these may become differentiated and core competencies
  • once established, it opens up strategic opportunities for developing core products and new markets

examples of core competencies:

  • the development of Philips’s expertise in optical media
  • Sony’s ability to miniaturise electronic components which led to many core products
31
Q

The Ansoff Matrix

A

a model used to show the degree of risk associated with the four growth strategies of market penetration, market development, product development and diversification

32
Q

the Ansoff matrix shows the two main variables in a strategic marketing decision are:

A
  1. the market in which the business is going to operate
  2. the product(s) it plans to sell

in terms of the market, managers have two options:
1. to remain in the existing market
2. to enter new ones

in terms of the product, the two options are:
1. selling existing products
2. developing new ones

giving us a total of four distinct strategies that business can adopt when planning to increase sales

33
Q

ansoff matrix: market penetration

A

achieving higher market shares in existing markets with existing products

  • least risky strategy as the market and product parameters remain the same
  • not completely risk free, if low prices are used to penetrate the market, they could lead to a price war that reduces the profit margin of all firms in the industry
34
Q

ansoff matrix: product development

A

the development and sale of new products or new developments of existing products in existing markets

  • often involves innovation and these brand new products can offer a distinctive identity to the business
  • e.g. Pepsi launching Diet Pepsi - developed its product into a slightly different version and sold it in the soft drinks market where Pepsi is already available
35
Q

ansoff matrix: market development

A

the strategy of selling existing products in new markets

  • could include exporting goods to oversee markets or selling to a new market segment
  • e.g. Lucozade used to be promoted as a health tonic for colds and influenza, then was able to successfully repositioned itself into the sports drink market (appealing to a new and younger consumer group)
36
Q

ansoff matrix: diversification

A

the process of selling different, unrelated goods or services in new markets

  • the riskiest strategy, however it is a possible option if the high risk is balanced out by the chance of high profits
  • related diversification (e.g. backward or forward vertical integration in the same industry) can be less risky than unrelated diversification, which takes the business into a completely different industry
  • e.g. The Virgin Group, constantly seeking new areas for growth, from a media empire to an airline, train operator and more recently into finance (that’s crazy)
37
Q

evaluation of the Ansoff matrix

A
  • by identifying the different strategic areas for business expansion, managers are then able to analyse the degree of risk associated with each area.
  • managers can then apply decision-making techniques to assess the costs, potential gains and risks associated with all options
  • however it only considers two main factors in strategic analysis. Recommendations based purely on the Ansoff model would tend to lack depth and important environmental evidence (which may be provided by SWOT or PEST)
  • The matrix does not suggest detailed marketing options. Further research and analysis would be needed to supply answers to the questions of which market and which existing products to develop
38
Q

force field analysis

A

technique for identifying and analyzing the positive factors that support a decision (driving forces) and negative factors that constrain it (restraining forces)

  • it weighs up the potential advantages and disadvantages of a decision before a choice is made
  • the main purpose is to give managers an insight that will allow them to strengthen the forces supporting a decision and reduce the forces that oppose it
39
Q

conducting a force field analysis

A

1. analyse the current situation and the desired situation
e.g. outdated technology, needs new IT system to be more competitive, up to date and efficient
2. list all the factors driving change towards the desired situation
e.g. improved customer service, improved internal communications, increased administrative efficiency, improved supplier comm.
3. list all the constraining factors against change towards the desired situation
e.g. cost of IT system and training, staff losses, staff concern about new tech, environmental impact of new tech
4. Allocate a numerical score to each force from 1 - 10 indicating the strength or impact, 1 being extremely weak & 10 being extremely strong

5.chart the forces on the diagram with driving forces on the left and restraining forces on the right

6. total he scores and establish whether the change is viable

7. discuss how the success of the change can be affected by decreasing the strength of restraining and increasing the strength of driving forces

40
Q

evaluation of force field analysis

A
  • unskilled/inexperienced managers could fail to identify all of the relevant forces involved in the change process
  • the allocation of numerical value is very subjective. Two managers independently undertaking the same force-field analysis could arrive at different values for the forces and consequently propose very different decisions based on their assessment
41
Q

decision tree

A

a diagram that sets out the options connected with a decision and the outcomes and economic returns that may result

represents four main features of a business decision:
1. all of the options open to a manager
2. the different possible outcomes resulting from these options
3. the chances of these outcomes occurring
4. the economic returns from these outcomes

42
Q

construction of a decision tree

A

•It is constructed from left to right

•Each branch of the tree represents an option together with a range of consequences or outcomes and the chances of these occurring

•Decision points (decision nodes) are denoted by a square

•A circle (chance node) shows that a range of outcomes may result from a decision

•Probabilities (shown by a numerical value measuring the chance of outcome occurring) are shown alongside each of these possible outcomes

•The economic returns are the expected financial gains or losses of a particular outcome

43
Q

expected value

A

the likely financial result of an outcome obtained by multiplying the probability of an event occurring by the forecast economic return if it does occur

44
Q

advantages of decision tree

A
  • it forces the decision maker to consider all of the options and variables related to that decision
  • they put these on an easy to follow diagram, which allows for numerical consideration of risk and economic returns to be included
  • The approach encourages logical thinking and discussion among managers
45
Q

potential limitations of decision trees

A
  • possible inaccuracy of data due to it just being based on forecasts of market demand or estimates of the most likely financial outcome, esp if it concerns decisions the business has never experienced before
  • probabilities of events occurring may be based on past data and so may not reflect any changes
  • it can aid the decision making process but cannot replace the consideration of risk or the impact of non numerical, qualitative factors on a decision
  • the expected values are average returns, assuming that the outcomes occur more than once. The average will not be the final result

AsL Business (13 decks)

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