Business Strategy and Market Analysis

Question 1

Define “strategic planning”.

Answer 1

Strategic planning is the sequence of interrelated procedures for determining an entity’s long-term goals and identifying the best approaches for achieving those goals.

Question 2

Identify the major steps in a strategic planning process.

Answer 2

1. Establish entity’s mission, values and objectives;
2. Assess the entity (internal analysis) and the environment in which it operates (external analysis; environmental scanning);
3. Establish goals;
4. Formulate strategies;
5. Evaluate and control strategic activities.

Question 3

Define an entity’s values and the operational role they play.

Answer 3

An entity’s values are the underlying beliefs that govern the entity’s operations. They prescribe the conduct of an entity in its relationship with other parties.

Question 4

Define PEST analysis.

Answer 4

Provides framework for assessing and understanding macro-environment.

• Political,
• Economic,
• Social, and
• Technological elements of an environment

Question 5

Identify the kinds of factors that should be considered in a macro-environmental analysis.

Answer 5

Political factors;
Economic factors;
Social factors;
Technology factors;
Ecological factors;
Legal factors

Question 6

Identify the kinds of political factors that should be considered in a political, economic, social and technological analysis (PEST analysis) of a macro-environment.

Answer 6

1. Political stability;
2. Tax policy;
3. Labor laws;
4. Environmental laws;
5. International trade attitudes and restrictions.

Question 7

Identify the kinds of economic factors that should be considered in a political, economic, social and technological analysis (PEST analysis) of a macro-environment.

Answer 7

1. Economic structure, stability and growth rate;
2. Interest rate;
3. Inflation rate;
4. Currency exchange rates.

Question 8

Identify the kinds of social factors that should be considered in a political, economic, social and technological analysis (PEST analysis) of a macro-environment.

Answer 8

1. Population growth rate;
2. Age distribution;
3. Educational attainment and career attitudes;
4. Health and safety characteristics.

Question 9

Identify the kinds of technology factors that should be considered in a political, economic, social and technological analysis (PEST analysis) of a macro-environment.

Answer 9

1. Level of research and development activity;
2. State of automation capability;
3. Level of technology “savvy;”
4. Rate of technology change.

Question 10

Define an “industry” for purposes of competitive analysis.

Answer 10

An industry consists of those entities that produce goods or provide services which are identical or close substitutes and which compete for the same customers.

Question 11

Identify the five forces described by Michael Porter as determining the operating attractiveness and likely long-run profitability of an industry.

Answer 11

1. Threat of entry into the market by new competitors;
2. Threat of substitute goods or services;
3. Bargaining power of customers of the good or service;
4. Bargaining power of suppliers of inputs used by the industry;
5. Intensity of rivalry within the industry.

Question 12

Identify factors that would help determine the extent to which new competitors are likely to enter an industry.

Answer 12

1. Capital investment required;
2. Access to raw materials, technology and suppliers;
3. Economies of scale required for profitability;
4. Customer loyalty and customer cost of switching providers;
5. Access to distribution channels;
6. Governmental impediments to entry.

Question 13

Identify factors that would help determine the level of threat posed by substitute goods or services.

Answer 13

1. Availability of substitutes;
2. Ease of use of substitutes;
3. Relative price and performance of substitutes;
4. Buyers’ brand loyalty;
5. Cost to buyers of switching to substitutes.

Question 14

Identify factors that would help determine the bargaining power of buyers in an industry.

Answer 14

1. Extent of product standardization;
2. Number of suppliers;
3. Extent to which there are dominant buyers of the good/service;
4. Extent to which information about the good or service is available;
5. Cost to buyers of switching suppliers.

Question 15

Identify factors that would help determine the bargaining power of suppliers in an industry.

Answer 15

1. Extent of substitutes for the product or service;
2. Relationship between the number of users (buyers) and suppliers (sellers);
3. Ability of supplier to move downstream in the distribution/sales channel
4. Extent to which supplier is unionized.

Question 16

Identify factors that would help determine the level of rivalry in an industry.

Answer 16

1. Relative size of competitors in the industry;
2. Degree of product differentiation;
3. Cost structure of the industry;
4. Strategic objectives of firms in the industry;
5. Cost to customers of switching providers;
6. Cost associated with exiting industry.

Question 17

Identify the categories of factors that should be considered in a strengths, weaknesses, opportunities, and threats analysis (SWOT-type analysis) of the relationship between an entity and its environment.

Answer 17

Strengths of the entity (internal)

Weaknesses of the entity (internal)

Opportunities in the environment (market) (external)

Threats in the environment (market) (external)

Question 18

Identify factors that might constitute strengths which provide an entity a relative competitive advantage in its market.

Answer 18

1. Ownership of patents, copyrights, etc.;
2. Favorable reputation;
3. Proprietary processes, including those that give cost advantage;
4. Exclusive or preferential access to natural resources/commodities;
5. Desirable location.

Question 19

Identify factors that might constitute opportunities for an entity in a market.

Answer 19

1. Unmet market needs (demand);
2. Development or employment of new technology/processes;
3. Reduction in legal or regulatory restrictions;
4. Reduction of international trade barriers (quotas, tariffs, etc.).

Question 20

Identify factors that might constitute external threats to an entity in a market.

Answer 20

1. New substitute products or services;
2. Changes in customer preferences;
3. Increases in legal or regulatory restrictions;
4. Increases in international trade barriers (quotas, tariffs, etc.);
5. Union demands.

Question 21

Identify the three generic strategies enumerated by Michael Porter.

Answer 21

1. Cost leadership;
2. Differentiation;
3. Focus (or Niche)

Question 22

Define a “cost leadership strategy”.

Answer 22

Under a cost leadership strategy, an entity seeks to be the low-cost provider for a given level of output in an industry. The strategy is intended to enable either higher gross profits than competitors or sales at a lower price to gain market share.

Question 23

Define a “differentiation strategy”.

Answer 23

Under a differentiation strategy, an entity seeks to develop and offer a product or service that has unique features for which customers are willing to pay a premium price that more than covers the extra cost of providing the product or service.

Question 24

Define a “focus strategy”.

Answer 24

Under a focus strategy, an entity focuses on a narrow industry segment (an industry subgroup or “niche”) and seeks to achieve either:

1. a cost advantage, or
2. differentiation.

Question 25

Define “(external) environmental scanning”.

Answer 25

Environmental scanning is the assessment of the macro-environment in which an entity operates (or may operate) and the industry within that macro-environment. Thus, environmental scanning includes consideration and analysis of the economic system, economic market and industry in which an entity operates.

Question 26

What are the major characteristics appropriate for an entity’s goals?

Answer 26

An entity’s goals should be SMART:

    Specific;
    Measurable;
    Attainable;
    Relevant; and
    Time-bound.

Question 27

What are appropriate components associated with the evaluation and control element in a strategic planning context?

Answer 27

1. Determine what characteristics (attributes) to evaluate and measure;
2. Decide acceptable values (standards) for measurable characteristics;
3. Measure targeted characteristics;
4. Compare measurements with established acceptable values;
5. Implement changes needed to correct variances.

Question 28

What is the Resources-Based Model (RBM)?

Answer 28

An alternative variation of the strategic planning processes, assesses each entity as a unique collection of resources and capabilities.