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Dirección Estrategica De La Empresa > Chapter 1: The Directions Of Strategy Development > Flashcards

Chapter 1: The Directions Of Strategy Development Flashcards

1
Q

Synergy definition

A

Refers to the benefits gained where activities or assets complement each other so that their combined effect is greater than the sum of their parts (2+2=5 effect)

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2
Q

What are the strategic decision levels?

A
  • Corporate Strategy
  • Business Strategy
  • Functional Strategy
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3
Q

Corporate Strategy Concept

A

What are the businesses/markets we will focus on?

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4
Q

Business Strategy Concept

A

How do we compete better on each business/market to generate advantage?

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5
Q

Functional Strategy Concept

A

How do departments support busines-level strategies?

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6
Q

Abell’s Matrix characteristics

A
  • Defines the boundaries of the industry
  • Shows company’s position and allows to compare with competitors
  • Shows industries, businesses and segments
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7
Q

Abell’s Matrix Dimensions

A
  • Customer groups (WHO)
  • Functions (WHAT)
  • Technology (HOW)
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8
Q

Growth characteristics

A
  • Increase in assets
  • Indicator for business health
  • Necessary in competitive environments
  • Associated with managerial capabilities
  • Pressure from financial markets
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9
Q

Development characteristics

A
  • Refers to qualitative changes in the firm’s activities
  • Accompanied by growth
  • Should be geared towards value creation for the whole company
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10
Q

Organic growth characteristics

A
  • Investments in the firm’s resources and capabilities
  • Slower growth
  • Prefered choice for specialization in a growth phase
  • Innovation capabilities or financial resources
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11
Q

Inorganic growth characteristics

A
  • Carried out through mergers and acquisitions
  • May be used to increase market share
  • Capabilities of external firms may be acquired
  • Greater one-off payment
  • Faster
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12
Q

Ansoff Matrix combinations

A
  • Existing products/markets: Market penetration
  • Existing markets/new products: Product development
  • New markets/existing products: Market development
  • New markets/products: Diversification
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13
Q

Why do companies initiate new development directions?

A
  • Mission and goals of companies change
  • Environment changes
  • Resources and capabilities change
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14
Q

Possible environment changes

A
  • General environment changes (PESTLE)
  • Technology evolves
  • Consumer behaviour changes
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15
Q

Possible resources and capabilities changes

A
  • Availability of R&C
  • More scope require more R&C
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16
Q

Business Development directions

A
  • Consolidation
  • Expansion
  • Diversification
  • Vertical integration
  • Restructuring
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17
Q

Consolidation characteristics

A
  • Description: Current business is maintained on similar levels of sales and market share
  • Activities: No change. No development
  • Stage: Maturity/decline
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18
Q

Expansion characteristics

A
  • Description: Close relationship with current products/markets
  • Activities: Change along one of the axes
  • Stage: Growth/maturity
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19
Q

Diversification characteristics

A
  • Description: Both new product and new market
  • Activities: Change along both axes
  • Stage: Growth
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20
Q

Vertical integration charateristics

A
  • Description: New activities along the value chain
  • Activities: Change of area of activity
  • Stage: Growth/maturity
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21
Q

Restructuring characteristics

A
  • Description: Redesign of business portfolio
  • Activities: Change sometimes
  • Stage: Decline
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22
Q

Market penetration definition

A

It implies increasing share of current markets with the current product range

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23
Q

Market penetration characteristics

A
  • Builds on established strategic capabilities
  • Means an organization’s scope is unchanged
  • Leads to a greater market share and increased power
  • Provides greater economies of scale
  • Normally due to intensive marketing
  • Reinforces competitive strategy
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24
Q

When to adopt market penetration?

A
  • When there’s expected growth of the industry
  • Unsatisfied clients in an industry
  • Take advantage of companies leaving the industry
25
Q

Constraints on market penetration

A
  • Retaliation from competitors
  • Legal constraints
  • Economic constraints
26
Q

Product development definition

A

It is where an organisation delivers modified or new products to existing markets

27
Q

Product development characteristics

A
  • Products usually serve the same purpose
  • Can be expensive and high risk
  • Can be done through tech innovations or extending ranges
  • May require new resources and capabilities
  • Typically involves project management risks
28
Q

Advantages of product development

A
  • Better satisfy customer needs
  • Offer a picture of innovation
  • Generate synergies
29
Q

When to apply Product Development

A
  • Industries whose products have short life cycles
  • Client needs change rapidly
  • Strong R&D capabilities
30
Q

Risks of Product Development

A
  • Costs of creating new products
  • Innovation not part of your capabilities
  • Products not accepted by consumers
31
Q

Market development definition

A

Involves offering existing products to new markets, understood as:
- New industry segments
- New uses for the same product
- New geographic locations to sell your products

32
Q

Market development characteristics

A
  • Markets not saturated
  • Production capacity underutilised
  • International key markets
  • Meeting the critical success factors of the markets
  • New strategic capabilities
33
Q

When to apply Market Development

A
  • New and trustable distribution channels
  • High efficiency and efficacy rates in current markets
  • Productive capacity underutilised
34
Q

Risks of Market Development

A
  • Not enough resources or knowledge to expand
  • New competitors approaching your core market
35
Q

Diversification definition

A

Involves simultaneously increasing the range of products and markets served by an organisation

36
Q

Other diversification drivers

A
  • Exploting economies of scope
  • Stretching corporate management competences
  • Exploiting superior internal processes
  • Increasing market power via mutual forbearance
37
Q

Value destroying diversification drivers

A
  • Responding to market decline
  • Spreading risk
  • Managerial ambition
38
Q

Types of diversification of activities

A
  • Related diversification involves expanding into products or services with relationships to the existing business
  • Unrelated diversification involves diversifying into products or services with no relationships to existing businesses
39
Q

Benefits from related diversification

A
  • Sharing intangible resources such as core competencies in marketing, distribution, logistics…
  • Sharing tangible resources such as production facilities, distribution channels and via vertical integration
40
Q

Benefits from unrelated diversification

A
  • Value creation derived from the corporate office
  • Brand image
  • Leveraging support activities
  • HR
  • Technology development
  • Infrastructure
41
Q

Risks of unrelated diversification

A
  • Absence of synergies
  • Lack of focus
  • Difficulties managing and coordinating the company
  • Difficulties to overcome entry barriers
42
Q

Risks of related diversification

A
  • Success is based on each SBU level, and not on Company Level
  • Diversification does not always mean profitability
  • Adapt the company’s management structure to a diversified reality
  • Diversification costs can be greater then synergies
43
Q

Vertical integration definition

A

It describes entering activities where the organisation is its own supplier or customer

44
Q

Backward integration definition

A

Refers to development into activities concerned with the inputs into the company’s current business

45
Q

Forward integration definition

A

Refers to development into activities concerned with the outputs of a company’s current business

46
Q

Conditions previous to vertical integration

A
  • Quality of suppliers and distributors
  • Is the current value chain a viable source of future profits?
  • Level of competence of the company to execute vertical integration strategies
  • Risk of negative impacts for stakeholders
47
Q

Transaction costs before vertical integration

A
  • Search costs
  • Negotiation costs
  • Contract costs
  • Monitoring costs
  • Enforcement costs
  • Administrative costs of coordination
48
Q

Reasons behind vertical integration

A
  • Cost reductions
  • Improvement of competitive position
49
Q

Types of reorganization of activities

A
  • Retrenchment
  • Restructuring
50
Q

Retrenchment definition

A

Refers to a strategy by which an organisation focuses defensively on their current markets with current products

51
Q

Restructuring definition

A

Refers to a strategy of withdrawal from marginal activities in order to concentrate on the most valuable segments and products within their existing business

52
Q

Reasons for restructuring

A
  • Negative results of one or several businesses (Retrenchment)
  • Lack of synergies (Restructuring)
  • Crises on the business portfolio (Either)
53
Q

Causes of crisis in business portfolio

A
  • Inefficient management
  • Excessive growth
  • Inappropriate competitive strategy
  • High costs
  • Entry of new competitors
  • Structural change in demand conditions
  • Organizational inertia
54
Q

Options following crisis in business portfolio

A
  • Recovering the business
  • Abandoning the business
55
Q

Business retrenchment measures

A
  • Change management
  • Redefinition of competitive strategy
  • Sale of assets
  • Refinancing of debt
  • Cost reductions
56
Q

Business retrenchment problems

A
  • Poor analysis of root causes
  • Only short term solutions are adopted
  • Focus does not return to competitive advantage
  • Risk of losing critical assets
57
Q

Reasons for restructuring of the business portfolio

A
  • The whole business portfolio shows a low performance
  • The redesign of the portfolio is envisioned
58
Q

Exit strategies when restructuring

A
  • Sale or divestment: total or partial recovery of investment
  • Harvest: operate until bankruptcy
  • Liquidations: assets are sols on the market and depends on their characteristics

Dirección Estrategica De La Empresa (4 decks)

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