Chapter 11

Question 1

11.1: Define the difference between a vertical acquisition and a horizontal acquisition

Answer 1

• Vertical acquisition: An organisation acquires another organisation in the same sector or industry but working at a
  different level in the supply chain. Therefore, this would usually involve the acquisition of either a direct supplier or
  a direct customer with the intent of reducing the number of links in the supply chain and ensuring greater continuity
  and agility.
• Horizontal acquisition: An organisation acquires another organisation in the same industry and stage of production to create a new single entity. This type of acquisition is the most likely kind to be referred to the competition and
  markets authority if it is perceived that the newly enlarged organisation will have an unacceptable level of market
  dominance.

Question 2

11.2: Suggest one advantage and one disadvantage of each of the three core strategic pathways.

Answer 2

• Organic growth:
  – advantage – low risk
  – disadvantage – slower to implement.
• Acquisition:
  – advantage – immediate market presence
  – disadvantage – potentially high cost and high risk.
• Strategic alliance:
  – advantage – lower cost gaining of market share and knowledge
  – disadvantage – lack of control.

Question 3

11.3: When might a strategic alliance be a useful pathway for strategic growth?

Answer 3

Strategic alliances can be a useful option when there is a need for:

• the rapid achievement of critical-mass scale within a marketplace, leading to cost reduction and an improved
  customer offering
• the complementarity of differing capabilities within the members of an alliance, ensuring a more holistic business
  and market coverage
• the learning potential from working closely with partners within an alliance without change to underlying
  organisational structure or culture

Question 4

11.4: What are the three core dimensions that are required of a KPI to ensure that it enables sound evaluation of a strategic
pathway?

Answer 4

• Accurate: it is based upon sound core data rather than one or more judgements or skewed opinions.
• Material: it is a measurement of a fundamental operational or strategic driver of the organisation.
• Forward impact: having derived the measurement the organisation, will use it to challenge what is happening and, if required, amend the strategy or the operation? It is not just a tick-box measure.