Chapter 10

Question 1

10.1: Identify the four strategic choices for growth of the income streams of an organisation as suggested by Ansoff in his product/market grid.

Answer 1

• Market penetration suggests growth through the increase of the market share of the current product and market
  mix. This builds upon current strategic capabilities and is probably the most risk averse of the strategic directions
  that could be followed.
• Product development suggests using the knowledge of the existing customer base and markets to provide
  different, evolved, or complementary products or services.
• Market development suggests that there is an opportunity to take existing products or services into new
  markets. This would require significant pre-emptive research, and possibly some product development to tailor
  the existing product to the particular expectations of the new market.
• Diversification is undoubtedly the highest risk option from within the Ansoff matrix, requiring significant research
  and market intelligence in terms of both aspects of development.
• diversification

Question 2

10.2: Define the meaning of a strategic business unit

Answer 2

A strategic business unit (SBU) is a fully functional unit of a business with its own vision and direction, operating as a
separate unit but often still reliant upon the organisational centre for its ultimate direction. It is common for an SBU to
have its own support infrastructure, such as human resources, training and sometimes even finance. Not all SBUs are also defined as individual profit centres within an organisation – this will depend upon the corporate structure and culture
of a particular organisation.

Question 3

10.3: Suggest how an organisation can obtain a cost-leadership position, and the resultant advantages.

Answer 3

Cost leadership will require an aligned set of interrelated tactics, including:

• a detailed understanding of all true costs associated with the provision of a product or service – this will include
  the direct costs of production, but also a realistic assessment of the level of overhead cost that is absorbed in the
  production
• a focus on cost reduction based upon historic performance within the organisation aligned with an understanding of
  the cost options available
• the removal of unnecessary activities within the value chain
• a focus on customers who will fund the supply chain on time and in full
• a focus on quality of product or service to ensure a right-first-time delivery.

Cost leadership enables an organisation to price its product or services competitively and gain competitive advantage.

Question 4

10.4: What are the five rules of the BPR principles of strategic change?

Answer 4

The principles of business process re-engineering (BPR) are underpinned by five rules:
1. Strategy must be determined before any redesign takes place.
2. The existing process-flow should be used as the basis for the redesign.
3. The use of information technology should be optimised.
4. The governance, culture and organisational structures must be aligned with the process-flow.
5. People across the business need to understand and participate in the redesign – this is not just a top-down or
bottom-up approach, but requires a whole-business involvement.