Ch 7 Strategic Options and Choice Flashcards by Andy Mc Greal

What are the key decisions to make with regards to strategic analysis and choice?

1) Where to compete
2) how to compete
3) Which investment vehicle to use

How well did you know this?

Not at all

Perfectly

What are the typical model you could use for strategic options

Poters - generic strategies, look at competivie strategies
Ansoff - product / market matrix - directions for growth
BCG - growth / share matrix

How well did you know this?

Not at all

Perfectly

Discuss Porters Generic Strategy

Suggested COMPETIVE ADVANTAGE comes from selecting a strategy that best suits the environment then doing value adding activities to support it.
Strategy could be Broad in Scope with cost leadership or differentiation competive stance
Or narrow in scopre with a focused competitive stance

How well did you know this?

Not at all

Perfectly

Outline each of Porters Generic Strategies

Cost Leadership - Be lowest cost producer , but not inferior product (comparable but made more efficiciently)

Differentiation - percpetation that product is superior - so perhaps charge a premium price

Focus - eithe cost leadership / differentiation in a narrow profile (niching).

—- Two questions need answering (porter)
1) Shout strategy be diffe or cost / 2) narro or broad scope

How well did you know this?

Not at all

Perfectly

Porters Generic Strategies - Cost Leadership . Discuss benefits and issues / care

Be lowest cost producer , but not inferior product (comparable but made more efficiciently)

Benefits

Higher profits if sold at same price
build defence against price wars
Increase barriers
Access new market segments
Price penetration strategies

Issues

Care need to avoid price war
care not to suggest inferior product

How well did you know this?

Not at all

Perfectly

Porters Generic Strategies - Cost Leadership . Discuss how value chain analysis helps ?

Key to identifying cost savings

reduce cost copying not reinventing, cheaper mats, labour etc
Achieve EoS
high volume purchasing
location in cost saving areas
Learning and experience curve benefits

How well did you know this?

Not at all

Perfectly

Porters Generic Strategies - Differentiation strategy. benefits

Based on persuading customers they have a superior product via featuree / brand dev / or processes etc and as such justiry charging a higher price

Premium
demand becomes less elastic
Life cycle may extend

How well did you know this?

Not at all

Perfectly

Porters Generic Strategies - Differentiation strategy. How does value chain help

Helps
create superior products via activies 
- superior after sales service 
- augmenting / adding to the product
- packaging
- ensure innovation culture 
- brand

How well did you know this?

Not at all

Perfectly

Porters Generic Strategies - Focus strategy - Benefits and Requirements ?

Benefits
Cheaper entry / less competition / alllows specialisation / smaller investmetn in marketing

Requirements
ID segment properly / ensure segment in large enough id customer needs / good competitor analysis

How well did you know this?

Not at all

Perfectly

Porters Generic Strategies - Focus strategy. What does a good niche look like and where can it be done

Can be done - location type of user , product line , quality , price, size of customer, features etc

A good niche had;
- large enough / small comp interest / growth potential / company must have strategic capability

How well did you know this?

Not at all

Perfectly

Limitations of generic strategies

View of avoid getting stuck in the middle too limited many companies have hybrids!
Cost leadership may not bring comp advantage -create price war
Differentiation may not always command high price might get higher volume (effecively cost leader objective)

How well did you know this?

Not at all

Perfectly

Ansoff matrix used for analysing possible strategic direction for the organisation. Draw it

Draw image

How well did you know this?

Not at all

Perfectly

Ansoff matrix - Market Penetration. Outline Aim , how to and key notes

Aim - increase ms with existing product and existing market

How

1) stimute usage with existing customers (ads promotion etc)
2) non users via pricing / promotion, process redesign

Notes / when
- Market is growing / M is not saturated / strong marketing team / competior leaving or weak / strong brand presence

How well did you know this?

Not at all

Perfectly

Ansoff matrix - Market Development. Outline Aim , how to and key notes

aim - existing product to new market

How ? look at geo areas / demographic / distribution channels

Notes
May need new competencies (e.g language) / product change might be needed / if company is set up for one product costly to switch / marketing ability needed

How well did you know this?

Not at all

Perfectly

Ansoff matrix - Product Development - Aim / How / Key Ntoes

Aim - dev new products for existing markets
How - dev product big nature / different quality versions
Key - Need to be innovative and good and R&D

How well did you know this?

Not at all

Perfectly

Ansoff matrix - Diverisification . AIm , When to use and reasons

Aim new product new markets

When
market is saturated / or product has ended its life cycle

Reasons For / when

Objs no longer achievable
Excess cash and strong shareholders
can brand stretch
if diversifying guarantees bigger returns and lower risk
synergies (e.g R&D)

Reason against
new bus and strategy may have teething problems - risk reputation

How well did you know this?

Not at all

Perfectly

Ansoff matrix - No need to choose one can do a number of choices. In any case what are its limitations

1) Too simple - doesnt look at ext environment (need Pest / Porters etc)
2) Focus on Growht - No all want to grow (some defend /survive etc)
3) Decisions are subjective - bad strategy could still fail

Diversification can take two forms what are they

1) Related Diversification (concentric)

2) Unrelated diversification (conglometer)

Related Diversification (concentric ) involves either growth into similar industries , forward into customer marketplace or backward into existing supply chain. What are the three type

1) Vertical backward - operating in market where already obtain resources e.g supoermarket produces own goods
2) Vertical Forward - move into customer base e.g shampoo buys barber franchise
3) Horizontal - enter competing / complementary markets

Related Diversification (concentric), vertical integration can ne backward (e.g taking over a supplier) or forward (customer takeover) What are they key considerations

Cost - cheaper in house or elsewhere
Quality - making in house can tailor to needs / use expertise and vice versa
Risk / Flexibility - outsourcing gives flexibility

Related Diversification (concentric), vertical integration can ne backward (e.g taking over a supplier) or forward (customer takeover). What are the benefits

Economics of combined ops
eco of combined control
eco of avoid market (negotation/ package / ads)
tech advantage / IP protect
assured supply and demand
ability to differentiate

Related Diversification (concentric), vertical integration can ne backward (e.g taking over a supplier) or forward (customer takeover). What are the costs

Increased op gearing 
increased fixed costs 
increased bus risk 
reduced flexibility to change partner etc
capital investment requirement 
dulled incentives 
differing managerial requirements

Related Diversification (concentric), horizontal integration. what is it, and types and benefits of each type

What - Dev of activities that are competitive / complementary

a) competitive - e.g take can benefit e.g monopoly
b) Complimentary - full range offered / synergies
c) By Products - windfall potential !

Unrelated Diversification (conglometer) What is it , what are benefits and issues

What - New market or industry

Benefits - Reduce overall risk , synergies , when no tother opps available

Issues - More risk , may be little to gain for shareholders , mgmt may lose focus

BCG Matrix Draw it

Image draw

BCG matrix. What are the steps, how to interpret relative market share and mareket growth rate

Steps - Divide co in SBU's - Allocate into Matrix - Assess each and compare - develop strategic options for each Relative Market Share Ratio of MS to that of target rival Dividing line is set a 1 High MS = market leader so figure of 4 suggeest SBU is 4x bigger than greatest rival 0.1 SBU is 10% of sector leader Relative Growth rate - Represents growth rate - high growthr rate suggest better competive environment - Dividing line set @ 10%

Using the BCG Matrix - what are the strategies

Hold - keep in quadrant Build =- increase investment in product to boost MS Harvest - reduce inv in order to max cash return Divest - disposal / closure to release cash tied up

Using the BCG Matrix - Cash Cows what strategy should you employ and considerations

Strategy - Hold or Harvest Considerations - SBUs have high MS in low growth market (may have reached maturity stage) - Strong profit and cash generating - Low growth market (may not be attractive for new entrants) or investment (therefore cap reqs are low a defense strategies cheap) - Profits can be used elsewhere

Using the BCG Matrix - Stars what strategy should you employ and considerations ?

Strategy - Hold or Build consideration High MS in high growth market Leader so attractive LT prospects (may become cash cow) - not cash generating as competive market may require ongoing investment / ads to compete - Build strategy typical

Using the BCG Matrix - Problem Children what strategy should you employ and considerations ?

Strategy - Build / Divest Low MS in attractive market - may be at growth / intro stage in life cycle - opportunity for development - however low MS - risk of failure - Double down or out decision required - Risky - time / cash may not succeed

Using the BCG Matrix - Dogs what strategy should you employ and considerations ?

Strategy - Harvest / Divest Considerations Low MS in slow growth / declining market No longer attractive may be dominated elsewhere - MAY STILL BE PROFITABLE thoug h

BCG recommenation for use of matrix and its limitation

recommendation (beige) is portfolio in balance (need cash cows) - less attractive producst should divest Limitations Simple as only two variables Cash cows do not always generate cash failure to consider value creation (loss leaders / synergies etc) Over emphasis on leader - can be small and profitable too!

Acquisitions refer to strategy to grow What are the benefitfs and issues

Benefits access to resource/ less reaction from competitors / help restructure ops / avoid barriers / block competitor / P/E ratio / asset valuation Issues Risk / lower ROCE / Differen in mgr salaries / cultural mismatch / might be more expensive

Joint Methods for expansion include JV/ alliances / licence / outsourcing. Where key considerations include sharing of cost, risk / benefits, ownership of resources, control> Focus on Alliance. 1) What is it 2) Steps 3) 7 Characteristics of an Alliance

1) What is it? Corporarate business activity 2) Steps Allocate ownwership , responsibility, fin risk and rewards to each member. Preserve seperate entity / autonomy 3) 7 Characteristics of a well structured Alliance Synergy (more strength) Positioning opp - might gain leadership position Limited resource availability - strenght compliment each other Coop Spirit - both must WANT it Clarity of Purpose - result and milestones must be clear Win- win - Both must benefit

What are the options and considerations for international growth strategy

Options Exporting strategy , overseas manufacturing , multinational , transnational Considerations exposure to risk / capital requirements / customer relationship / transport costs / ethical issues / cultural issues

When evaluating strategies need to have strategic fit with environement internal / external so ability to assess viability lies with reliability of the position audit. What is selection down to ?

1) Stakeholder Power 2) Information availability and reliability 3) historical experience 4) presentation of options - manner 5) other corporate experiences 6) Ftureexpecations

When evaluating strategies need to have strategic fit with environement internal / external so ability to assess viability lies with reliability of the position audit. What is the basic approach to assessing viability (Johnson and Scholes)

Suitability - fits strategic position Feasibility - works in practise Acceptability - risk / return in line with shareholder expectations ? MUST FIT ALL THREE

The basic approach to assessing viability (Johnson and Scholes) - Suitability - questions to ask ?

Strategic Fit ? Will it cause issues elsewhere (e.g advantage of opps / build strenght / meet mission & objectives , fit other products

The basic approach to assessing viability (Johnson and Scholes) - Feasibility - questions to ask ?

Can resources/ competencies be obtained ? Can change be implemented ? Other considerations Raw mats / culural change / timescale / resistance / channel access / finance questions / IT reqs etc

The basic approach to assessing viability (Johnson and Scholes) - Accessibility - questions to ask ?

Need to be accepted by shareholder in terms of risk and return Consideations Staff / Owner requirements (may be non fin) / finance requirements / customer reqs/ gov reqs USE NPV and REAL OPTIONS for STRATEGIC NPV

Tests of a winning strategy (evaluating )

1) Comp Advantage - what is it ? How long will it last | 2) Does the performance measurement system show predictated improvement ? (how long will it last!)