C. Generating strategic options Flashcards
what are the benefits of stakeholder alliances?
stakeholder analysis
matching needs
creation of the alliance:negotiate terms with desired party
what is a non-market strategy?
refers to an organisation’s relationship and interactions with its non-market environment e.g. gov, regulators, charities, pressure groups, the media, the public
have social and political considerations rather than simply economic concerns
what is corporate political activity?
when organisations influence political decision making instead of waiting for govts to pass new laws
what does corporate political acitivity involve?
lobbying: either individually or as part of an association
donations to political parties
legal action against governments
directorships:give MPs or retired civil servants non-exec directorship
influencing public opinion
associations:interested parties
what seven ways did Porter identify in which a government can affect the structure of an industry?
capacity expansion
demand
divestment and exit
emerging industries may be controlled by the government
entry barriers
competition policy
new product adoption
what are some examples of non market strategy?
Toyota
- sale of hybrid cards
- lobbied for Cali state govt to allow drivers in carpool lanes
- increased demand for hybrid cars and green credentials
Novartis
- pharma company gaining patent for anti-cancer drug (Glivec)
- corporate citizenship programme:low priced drugs to needy
- built brand, improve its image with the wider public and undermine critics
why do some corporate political activities raise ethical concerns?
- donations to candidates of political parties could be seen as bribery, which could be highly unethical
- offering directorships to MPs or retired civil servants in order to gain favourable votes on relevant legislation could be a form of bribery
- advertising campaigns, petitions or legal action could be seen as a way of large, well-resources organisations bringing unfair pressure on the public or government on certain issues, simply for their own profit
what is the Cadbury Report 1992’s definition of corporate governance?
the system by which companies are directed and controlled
- interests of shareholders’ highlighting the agency issue involved
- and in relation to those beyond the company boundaries
- stakeholders’ suggesting a much broader definition that brings in concerns over social responsibility
how are companies directed from within?
-nature and structure of those who set direction, the board of directors
-the need to monitor major forces through risk analysis
the need to control operations:internal control
how are companies controlled from outside?
- the need to be knowledgeable about the regulatory framework that defines codes of best practice, compliance and legal statute
- the wider view of corporate position in the world through social responsibility and ethical decisions
what are the benefits of corporate governance?
- strengthening the control structure fo a business increases accountability of management and maximises sustainable wealth creation
- institutional investors believe that better financial performance is achieved through better management, and better managers pay attention to governance, hence the company is more attractive to such investors
- share price rising ‘ ‘governance dividend’
- socially responsible company may be more attractive to customers and investors hence revenues and share price may risk - ‘social responsibility dividend’
what is the purpose of corporate governance for the private sector?
- monitor those parties within a company which control the resources owned by investors
- primary objective of sound corporate governance is to contribute to improved corporate performance and accountability in creating long term shareholder value
what are the objectives of corporate governance for NFP and public sectors?
more complex and conflicting
VFM: economy, effectiveness, efficiency
what is the primary purpose of corporate governance?
monitor those parties within a company who control the resources owned by investors
supporting:
- ensure there is a suitable balance of power on the board of directors
- ensure executive directors are remunerated fairly
- make the board of directors responsible for monitoring and managing risk
- ensure the external auditors remain independent and free from the influence of the company
- address other issues and protection of whistleblowers
what is the primary objective of corporate governance?
contribute to improved corporate performance and accountability in creating long-term shareholder value
supporting:
- control the controllers by increasing the amount of reporting and disclosure to all stakeholders
- increase level of confidence and transparency in company activities for all investors (existing and potential) and thus promote growth
- ensure that the company is run in a legal and ethical manner
- build in control at the top that will ‘cascade’ down the organisation
what are the key concepts of governance?
FAIRNESS-in all dealings with stakeholders
OPENNESS/TRANSPARENCY-particularly between drs and shareholders
INNOVATION-in how the organisation reports performance
SCEPTICISM-NEDs should challenge and scrutinise EDs
INDEPENDENCE-an equal balance of NEDs and EDs
PROBITY/HONESTY-e.g. in financial/positional reporting
RESPONSIBILITY-clarity in roles and responsibilities
ACCOUNTABILITY-for the outcomes of actions
REPUTATION-developing and sustaining a moral stance
JUDGEMENT-exercise proper judgement in the interests of the organisation
INTEGRITY-honesty and fair dealing
how does corporate governance help maximise the effectiveness of an organisation’s strategy?
- ensure no individual can dominate the board and force through weak strategies
- improving diversity on the board to improve generation of new strategies
- ensuring adequate internal audit and control systems to ensure that the board has accurate information about the company
- enabling the company to continue attracting investors
what is corporate social responsiblity?
firm’s obligation to maximise its positive impacts upon stakeholders while minimising the negative effects
what are the arguments against CSR?
‘the business of business is business’
- purpose is to try and earn a profit
- why donate to charity when we can generate higher returns with them :form shareholders and tax for city
what are the drawbacks of CSR?
loss of business value-acting against primary role
maximisation of profits can be seen as socially responsible-benefits institutional investors and creates more tax revenue for governments
increased cost of raw materials-responsibly sources materials are likely to be more expensive
having to turn away business-an ethical company cannot be seen to be trading with unethical partners
increased management time- significant management time can be taken up by a focus on CSR
what are the arguments for CSR?
attractive to customers-enhances the company’s reputation and can act as positive advertising
attractive to potential employees-ethical businesses can attract higher calibre staff
it can save the business money-many governments will fine or increase the taxes of businesses that cause pollution
it reduces the risk of the organisation-there will be less chance of adverse environmental reactions against the company
form of advertising, tax deductible and improve staff morale
How can CSR increase the financial value of the business?
- good CSR will reduce the risk of adverse environmental reactions against the company. Anything that reduces risk should lower the risk adjusted cost of capital, increasing the value of the company
- a socially responsible business will be allowed to operate for longer in society. Will be more years of cash flows in the future. This would also increase the value of the company.
what are the 3 main models surrounding the concept of CSR?
Carroll’s pyramid
Carroll’s philosophies
Ethical stances (J,S and W)
what is Carroll’s model
Satisfy all 4 parts consecutively
Economic responsibilities-be profitable
- fundamental level that all the others rest on
- shareholders demand a reasonable return
- employees want safe and fairly paid jobs
- customers demand quality at a fair price
Legal responsibility-obey the law
- baseline for operating within society
- accepted rule book for company operations
Ethical responsibility-do what is right and fair
- relate to doing what is right, just and fair
- actions taken in this area provide a reaffirmation of social legitimacy
- naturally beyond the previous two levels
Philanthropic responsibility-be a good corporate citizen
- related to discretionary behaviour to improve the lives of others
- charitable donations and recreational facilities
- sponsoring the arts and sports events
What are Carroll’s philosophies that and organisation can adopt with regard to corporate social responsibility?
Reaction-denies any responsibility for social issues, arguing that is not to blame or required to act
Defence-admits responsibility but fights it, doing the very least that seems to be required. Typically only done as an attempt to defend current position e.g. health warning
Accommodation- accepts responsibility and does what is demanded of it by relevant groups
Proaction-corporation seeks to go beyond industry norms and anticipates future expectations by doing more than is currently expected. The organisation attempts to improve society.
what is sustainability?
the use of resources in such a way that they do not compromise the needs of future generations. It also involves not polluting the environment at a rate faster than they can be absorbed
what 6 key conclusions did the CIMA article on CSR and strategy come up with?
- strong ethical principles can add great value to an org’s BRAND AND REPUTATION
- there may be BOTTOM-LINE BENEFITS from adopting a sustainable approach
- the ETHICAL TONE MUST COME FROM THE TOP of the organisation
- HQ MANAGEMENT INFORMATION on social, environmental and ethical performance is essential
- corporate communications need to provide HARD EVIDENCE of the organisation’s positive impact on the environment and society
- MANAGEMENT ACCOUNTANTS have a particular ethical responsibility to promote an ethics-based culture
How does Ben and Jerrys show CSR in actions?
Fair Trade ingredients-company’s raw materials, reasonable work hours
Ethically sources supplies-Fair Trade, free range ingredients
Community work-engaged with communities to improve sustainability. Practical farming methods to reduce nitrogen and phosphorous run-off
Corporate philanthropy-donate portion of its pre-tax profits to B&J’s foundation
In CIMA and AICPA’s ‘Evolution of corporate sustainability practices’, why do businesses have sustainability plans?
COMPLIANCE-need to comply with laws and regulations
REPUTATIONAL RISK-companies are concerned with how stakeholders will view them if they fail to act in a sustainable manner
COST-CUTTING AND EFFICIENCY-acting in a sustainable manner can help to reduce business expenditure. This is especially valuable for smaller companies
In CIMA and AICPA’s ‘Evolution of corporate sustainability practices’, what are the 10 elements of organisational sustainability?
Strategy and oversight
- Board and senior mgmt commitment
- Understanding and analysing the key sustainability drivers for the organisation
- Integrating the key sustainability drivers into the organisation’s strategy
Execution and alignment
- everyone’s responsibility
- break down targets and objectives
- processes enable clear accountability and consistently in day-to-day decision-making
- extensive and effective sustainability training
Performance and reporting
- including sustainability targets and objectives in performance appraisal
- champions to promote sustainability and celebrate success
- monitoring and reporting sustainability performance
what is the impact of technologies on CSR?
Quicker scrutiny - get updated in real time on the actions of the organisations due to increased connectivity
Greater stakeholder engagement-use of technology such as virtual reality means more stakeholders are willing to engage with the organisation
More integrated CSR practices-data can be provided on the entire supply chain
Improved measurement-of performance e.g. via Big Data and AI
Increased openness in the ecosystem-due to greater expectation of openness
what are corporate ethics?
related to the application of ethical values to business behaviour
- broad strategies to how companies negotiate
- goes beyond legal requirements and is to some extent therefore discretionary
- many companies provide details of their ethical approach in a corporate and social responsibility report
what are the key areas included in a code of corporate ethics?
purpose and value of business employees customer relations suppliers shareholders society implementation
how do JS&W define an ethical stance?
the extent to which an organisation will exceed its minimum obligations to stakeholders
what are the 4 possible ethical stances?
ST shareholder interest (STSI)-follow the law, max profits
long-term shareholder interest(LTSI)-spend on CSR in the short term to make long-term financial gains e.g. donating funds. ‘enlightened’ self interest
multiple stakeholder obligation-involve stakeholders. The company has a purpose beyond the financial
shaper of society-financial and other stakeholder interests are secondary
What are the fundamental ethical principles?
confidentiality-no disclosure of information unless there is a legal or professional duty to do so
objectivity-no bias or conflict or interest
professional competence - have required skills and knowledge to carry out work
professional behaviour - not bringing the profession into disrepute
integrity-fair dealing and truthfulness
What type of information should a member with integrity not be associated with?
- materially false or to contain misleading statements
- provided recklessly
- incomplete such that the report or communication becomes misleading by this omission
what are the 3 reasons where Confidentiality can be forgone?
1) permitted by law and authorised by the client
2) required by law e.g. during legal proceedings or disclosing information regarding infringements of law
3) professional duty or right to disclose e.g. provision of information to the professional institute or compliance with ethical requirements
How can ethical conflicts be resolved?
1) gather all relevant facts
2)establish ethical issues involved
3refer to relevant fundamental principles
4)follow established internal procedures
5)investigate alternative courses of action
6)consult with appropriate persons within the firm
7)obtain advice from professional institutes
8)if the matter is still unresolved, consider withdrawing from the engagement team/assignment/role
what is an inducement?
receiving bribes or offers that encourage unethical behaviour
what is gap analysis?
comparison between an entity’s ultimate objective and the expected performance from projects, both planned and under way, identifying means by which an identified difference or gap might be filled
what is the diversification gap?
new strategies will be needed to close this gap
what is the efficiency gap?
after efficiency savings made
what is the expansion gap?
filled through market or product development
how is the efficiency gap closed?
through an efficiency driver
- make cost savings and any other actions that will improve the output for a given set of inputs
- easiest way of closing a gap and is therefore normally undertaken first
how is the expansion gap closed?
look at ways that the organisation can expand its sales
can either adopt a market development approach, where it looks to sell its existing products to new markets or could choose a product development strategy where it tries to sell new products
how is the diversification gap closed?
involved the organisation taking a riskier strategy where it looks to sell new products to new markets
due to higher risk of failure, this is typically the last strategy that the organisation would adopt in order to close its gap
why is significant spend on orecasting systems needed?
need to identify deviance and apply corrective, proactive action
too important to leave to reactive control systems
what is usually involved in forecasting systems spending?
- the team
- IT
- data sourcing and audit
- scenario planning
- time to facilitate the action
- uncertainty evaluation techniques such as ‘what if’ analysis, high-low forecasting and simulation exercises
what are the drawbacks of gap analysis?
- uncertain business environment leads to INACCURATE PREDICTIONS
- EXPENSIVE AND TIME-CONSUMING
- cannot cope with CONFLICTING OBJECTIVES from powerful stakeholder groups
what are the advantages of gap analysis?
- STARtING POINT for further discussion
- EASY TO UNDERSTAND and communicate
- forces LONG TERM FOCUS
- PROVIDES BASIC OPTIONS or closing gaps
- TOOL to assist but not solution provider
- allows QUESTIONING of the realism of the objective
- stable environments will still provide a basis for effective gap analysis
what is forecasting?
prediction of future events and their quantification for planning purposes
how can we forecast?
statistical models
other forecasting models
what are some statistical models?
regression analysis
- how a particular variable correlates with another variable
- good for looking at relationships between different variables
time series analysis
- involved the identification of short-and-long term trends in previous data and the application of these patterns for projections
- how a particular factor varies over time
- good for looking at how a factor is expected to vary over time
when is trend analysis particularly useful?
for companies who have to forecast demand that is influenced by seasonal fluctuations or where demand is strongly influenced by the business cycle
what are the drawbacks of statistical models?
- they assume that past results are a good indication of the future
- regression analysis assumes that the two factors are strongly correlated but there is not likely a causal link giving misleading forecasts
- regression analysis is only likely to be accurate within the range of the past data collected
- it can be very difficult to accurately build in seasonal and other fluctuations in to time series analysis, meaning that forecast results using this method can be inaccurate
what are the other forecasting models?
system modelling
- programmes
- ERM software generally includes this
intuitive forecasting methods
- think tanks
- Delphi methods
- scenario planning
- brainstorming
- derived demand analysis
what is a think tank?
panel of experts have an unstructured discussion
used by large organisations and may cross the line between forecasting and planning
useful for generating ideas and assessing their feasibility, as well as providing an opportunity to test out reactions to ideas prior to organisational commitment
what are the essential features of a think tank?
- relative independence of its members, enabling unpopular, unacceptable or novel ideas to be broached
- the relative absence of positional authority in the group, which enables free discussion and argument to take place
- the group nature of the activity that not only makes possible the sharing of knowledge and views, but also encourages a consensus view of preferred scenario
what is the Delphi technique?
panel of experts who do not meet
- avoid conformity inherent to think tank
- individually, systematically and sequentially interrogating a panel of experts
what are the features of the Delphi technique?
- members do not meet, and questioning is conducted by formal questionnaires
- where the experts are speculating about the future, they are asked for subjective probabilities about their predictions
- a central authority evaluates the responses and feeds these back to the experts who are then interrogated in a new rounds of questions
what is brainstorming?
group from all levels of the company come up with ideas
- generating ideas
- 6-15 people
what is the usual structure of brainstorming?
- each person proposes something, no matter how absurd
- no one is allowed to criticise or ridicule another person’s idea
- one idea provoked another and so on
- all ideas are listed and none rejected at this initial stage
- rationality is not particularly important, but what is essential is that a wide range of ideas emerges and in the ensuing discussion that these ideas are picked up, developed and combines and reshaped
- only after the session are ideas evaluated and screened against rational creiteria for practicality
what is derived demand?
analysing the level of one economic activity to allow the level of another aspect to be deduced
- exists for a commodity, component or good because of its contribution to the manufacture of another product
- principle is simple
- practice is complex and costly so restricted use
what is foresight?
tries to identify possible ways that the future of the organisation could develop
what are the advantages of foresight? [5Cs]
COMMUNICATION-bringing together groups of people and providing a structure in which they can communicate
CONCENTRATION - on the longer term
COORDINATION-enabling different groups to harmonise their future R&D activities
CONSENSUS-creating a measure of agreement on future directions and research priorities
COMMITMENT-to the results among those who will be responsible for translating them into research advances, technological developments and innovations for the benefit of society
what techniques are used to improve an organisation’s foresight?
- scenario planning
- visioning:mental image of future, should be realistic, attracts and improvement
- Delphi method
- morphological analysis-systematic investigation of all the components of large-scale problems, matrix used to identify reasonable combos
- relevance trees:start with clear goal, traced back through trends
- issues analysis:convergence of trends and events, potentially significant issues should be analysed in terms of probability and impact
- opportunity mapping:identifying gaps in the current environment in order to reveal new business opportunities
- cross impact analysis:recording events on a matrix and at each matrix intersection analysing how the event in the row could affect the likelihood of occurrence of the event in the column
- role-playing:see how people behave in a hypothetical situation
what is scenario planning?
involved the creation of detailed possible futures that the organisation may encounter, allowing for the creation of contingency plans
what are the stages of scenario planning?
- identify high-impact, high-uncertainty factors
- identify possible futures
- cluster together different factors to identify various consistent future scenarios
- write scenarios
- identify possible courses of action for each scenario
- monitor reality to see which scenarios are unfolding
- revise scenarios and strategic options as needed
what should a detailed scenario construction include?
financial implications:anticipated net profits, cash flow and net working capital
strategic implications:possible opportunities and risks
the probability of occurrence, usually based on past experience
what should be considered during the construction of scenarios?
- use a team for a range of opinions and expertise
- identify time-frame, markets, products and budget
- stakeholder analysis-who will be the most influential in the future?
- trend analysis and uncertainty identification
- building of initial scenarios
- consider organisational learning implications
- identify research needs and develop quantitative models
what are the downsides of scenario planning?
- costly and often inaccurate
- tendency for scenarios to be distorted by organisational culture or bias
- risks becoming a self-fulfilling prophecy
- many scenarios will never actually occur
what is the upside of scenario planning?
- focuses management attention on the future and possibilities
- encourages creative thinking
- can be used to justify a decision
- encourages communication via the participation process
- can identify the sources of uncertainty
- encourages companies to consider fundamental changes in the external environment
what is game theory?
interrelationship between the competitive moves of a set of competitors
anticipating moved
what are the 2 key principles of game theory?
1) strategists can take a rational, informed view of what competitors are likely to do and formulate a suitable response
2) If a strategy exists that allows a competitor to dominate us, the the priority is to eliminate that strategy
What is the prisoner’s dilemna?
equilibrium: both spend, leaving each other worse off
collusion would help keep costs low
commonly applied to price wars
What is the prisoner’s dilemma?
equilibrium: both spend, leaving each other worse off
collusion would help keep costs low
commonly applied to price wars
What are the 3 main strategic decisions that the organisation needs to make?
How to compete:Porter’s generic strategies model
Where to compete: Ansoff, BCG matrix models
Choice of investment vehicle: organic growth, acquisition or joint development
What are the 3 strategic models?
Porter: generic strategies-looks at competitive strategy
Ansoff: product/.market matrix, directions for growth
Boston Consulting Group (BCG): growth/share matrix
what are the benefits of strategic models?
- provide a useful starting point for the discursive process as they initiate discussion amongst the management teams
- well-known and as such have credibility. this results in their easy application with minimal resistance
- generate options that can be used in the debate and allow comparison
- can in some instances be linked to each other to enhance the analysis
- can be used simply or be developed into more complicated applications
what are the limitations of a strategic model?
- they are simplistic-most are two-by-two models
- given their prominence in management education, undue emphasis tends to be places upon them and there is a tendency at times to think that the models will provide a solution
- they are dated and were produced when environments were very different. Tend to suggest that strategic choice is a straightforward process
- serve as a good basis for analysis, but are not perfect and do not apply to every situation
What does Porter’s model suggest?
competitive advantage arises from the selection of a generic strategy which best fits the organisation’s environment an then organising value-adding activities to support the chosen strategy
what is cost-leadership?
being the lowest cost producer
what is differentiation?
creating perception that product is superior to that of competitors so premium can be charged
what is focus?
utilising either of the above in a narrow profile of market segments, sometimes called niching
what are the 2 key questions that Porter argues organisations need to address?
should the strategy be one of differentiation or cost leadership?
should the scope be wide or narrow?
should not end up stuck in the middle if it fails to adapt one of Porter’s strategies
what are the features of a cost leadership strategy?
based on becoming THE LOWEST COST PRODUCER of standard products or services (not necessarily inferior ones)
cost advantage comes from ECONOMIES OF SCALE, large production runs, automation and efficiency (links to the Value Chain)
will allow the business to either UNDERCUT RIVALS PRICES, or match their prices while earning more profit for reinvestment
what are the potential benefits of cost leadership strategy?
- business can earn higher profits by charging the same price as competitors or even moving to undercut where demand is elastic
- lets a company build defence against price wars
- allows price penetration entry strategy into new markets
- enhances barriers to entry
- developed new market segments
why could cutting prices below competitors be dangerous?
trigger price war
indicate product is inferior to competitors
how can the value chain be used to attain cost savings?
- reduce costs by copying rather than originating designs, using cheaper materials and other cheaper resources, producing products with ‘no frills,’ reducing labour costs and increasing labour productivity
- achieving EOS by high-volume sales allowing fixed costs to be spread over a wider production base
- use high-volume purchasing to obtain discounts for bulk purchase
- locating in areas where cost advantage exists or government aid is possible
- obtaining learning and experience curve benefits
what is the differentiation strategy?
- based on offering BETTER PERCEIVED QUALITY/MORE FEATURES than rivals
- customers are willing to PAY EXTRA for this differentiation
- the differentiation MUST BE VALUED BY CUSTOMERS and may be real or created by advertising
what are the benefits of differentiation strategy?
- products command a premium price so higher margins
- demand becomes less price elastic and so avoids costly competitor price wars
- life cycle extends as branding becomes possible-hence strengthening the barrier to entry
how can value chain analysis identify the points at which differentiation strategy can be achieved by?
- creating products which are superior to competitors by virtue of design, technology, performance. Marketing spend becomes important
- offering superior after-sales service by superior distribution, perhaps in prime locations
- creating brand strength
- augmenting the product i.e. adding to it
- packaging the product
- ensuring an innovative culture exists within the company
what is the focus strategy?
- focus on a particular buyer group, market segment or section of the procudt range
- reduces likelihood of reaction from market leaders
what are the benefits of the focus strategy?
- smaller segment and so smaller investment in marketing operations
- allows specialisation
- less competition
- entry is cheaper and easier
what does the focus strategy require?
- reliable segment identification
- consumer/customer needs to be reliably identifies-research becomes even more crucial
- segment to be sufficiently large to enable a return to be earned in the long run
- competition analysis-given the small market, the competition if any needs to be fully understood
- direct focus of product to consumer needs
how can niching be done via specialisation?
- location
- type of end user
- product or product line
- quality
- price
- size of customer
- product feature
what is the attractiveness of the market niche influenced by?
- must be large enough in terms of potential buyers
- must have growth potential and predictability
- must be of negligible interest to major competitors
- firm must have strategic capability to enable effective service of the niche
How does Casio exhibit cost leadership in pocket calculators?
operations: mass produce in China, cheaper labour and EOS
operations: buttons, display and instruction manuals are multilingual, reduce need to make for specific country
procurement: mass purchase/production of components
outbound logistics:packaging is robust, yet allows a considerable number of calculators to be shipped at any time
How does BA implement the differentiation strategy?
examine value chain to achieve:
procurement: prime landing slots at major airports
procurement: HQ food and drink
operations: well-maintained, clean and comfortable aircraft are sourced
marketing: advertising based on quality
HR:training in customer care and the recruitment of HQ staff
Why is Ferrari’s niche strategy risky?
Focus on small percentage of global car market:high premium price and HQ cards
if it fails to capture customer attention, may shrink or disappear altogether
what are the limitations of Porter’s generic strategies?
- stuck in the middle if it fails to adopt a strategy but they might be too simplistic, may need a hybrid
- cost leadership itself may not give comeptetive advantage
- differentiation may not always lead to a business being able to command a high price for its goods
what does Ansoff’s matrix look at?
potential strategic directions that the business can take to grow
what is market penetration in Ansoff’s matrix?
increase market share using existing products within existing markets
what is the approach to achieving market penetration?
usage by existing customers
- new uses of advertising
- promotions, sponsorships
- quantity discounts
then attempt to attract non-users and competitor customers via:
- pricing
- promotion and advertising
- process redesign e.g. Internet/e-commerce
when is market penetration considered?
- overall market is growing
- market not saturated
- competitors leaving or weak
- strong brand presence by your company with established reputation
- strong marketing capabilities exist within your company
what is market development?
increase sales by taking the present product to new markets
what is the approach to achieving market development?
- add geographical areas: regional and national
- add demographic areas:age and sex
- new distribution channels
when should the market development approach be used?
- slight product modifications may be needed
- advertising in different media and in different ways
- research:primary research at this point given significance of the investment
- company is structures to produce one product and high switching costs exist for transfer to other product types
- strong marketing ability is needed, usually coupled with established brand backing
what is product development?
focuses on the development of new products for existing markets
offers the advantage of dealing with known customer/consumer bases
what is the approach to product development?
- develop product features of a significant nature
- create different quality versions
what conditions are needed for product development?
company needs to be innovative and strong in the area of R&D and have an established, reliable marketing database
constant innovation allows for the developing sophistication of consumers and customers and ensures that any product-related competitive advantage is maintained
what id diversification?
new products to new markets
- appropriate when existing market is saturated or when products are reaching the end of their life-cycle
- goes through periods of being in favours and debate on whether it is a god strategic option
- high risk, high reward
what is usually seen as the CSF for successful diversification?
brand stretching
-may have teething problems which may damage brand reputation
why might teething problems damage brand reputation?
- objectives can no longer be met in known markets-possible due to a change in the external environment
- company has excess cash and powerful shareholders
- possible to ‘brand stretch’ and benefit from past advertising and promotion in other SBUs
- diversification promises greater returns and can spread risk by removing the dependency on one product
- greater use of distribution systems and corporate resources such as R&D, market research, finance and HR leading to synergies
How is Porter’s strategy different to Ansoff’s?
Ansoff does not argue that you should only adopt ONE of the four possible strategies
-can adopt multiple simultaneously
what are the 2 main forms of diversification?
related (concentric) diversification: growth into similar industries to current operations, backward, vertical integration
unrelated diversification: growth into completely new markets or industries
what are examples of Ansoff’s matrix in action?
market penetration:Kellogg’s repositioned products through various advertising campaigns
product development/ piggybacking: Kwikfit took opportunity to cross sell insurance to customers on their database who had visited their outlets to have equipment fitted
market development:Kaplan selling ACCA courses in Eastern Europe and Asia
diversification:Virgin expanding into a wide range of different activities including airlines, trains, cosmetics, wedding wear and so on
What are the limitations of Ansoff’s matrix?
- matrix is seen as being too simplistic as it fails to take account for the external environment, such as competitor strategies. Essential that the organisation undertakes detailed external analysis with, for example, SWOT, PESTEL and Five Forces
- matrix focuses on ways that the organisation can grow. In reality, not all companies want to grow their business. They may wish to simply defend their current position or may be focused on survival
- any decision made by management using Ansoff’s matrix is subjective-the model does not show the company which strategy is optimal. As such, ineffective strategies can still easily be selected
what are th
