Chapter 3 - Strategy, Reputation + Risk Flashcards
Stages for formulating a strategy:
- Strategic analysis – analysing current position
- Strategic choice – identifying & evaluating your options
- Implementation
- Review & control – monitoring performance & identifying lessons for future decisions
Additional risks created by strategy:
- Adopting the wrong strategy
* Implications from adopting a particular strategy
Corporate Mission Statement and values
Corporate Mission Statement:
* Describe org’s overall purpose/ identity
* Covers what org does, who it does it for, why it does it and how it does it
Values:
* What org believes are important and what it stands for
* Mission and values helps determine amount of risk the org will accept and ensure the correct strategy is chosen
Usefulness of mission statement:
- Promote goal congruence
- Provide focal point for new strategies
- Allow org to communicate core values to stakeholders
Data to be used when assessing environmental uncertainty:
- Competitive data
- Economic data
- Political data
- Legal data
- Social data
- Technological data
- Geographical data
- Energy supplier’s data
- Market research data
Resources to use when analysing current position of org:
- Value chain
- Choice of operating model
- Org structure
What is strategic information?
Provide org with info it needs about:
- Business environment to anticipate change,
- Design appropriate strategies and
- Create future growth and profits within a new market
Key areas of risk arising from strategic information:
- Is info shared when it should be?
- What timescales are used when considering info needs?
- Does org have any memory of past triumphs and disasters to learn from?
Benchmarking:
- Establishing best practice in business-critical processes
* It is hoped that performance will improve in both financial and non-financial aspects of org
Analysing Stakeholders - Mendelow’s Matrix:
- Low power, low interest stakeholders:
* Minimal effort
* E.g. casual labor - Low power, high interest stakeholders:
* Keep informed
* E.g. Small local suppliers, core employees - High power, low interest stakeholders:
* Kept satisfied
* E.g. Government, customers - High power, high interest stakeholders:
* Key players
* E.g. Key management/ employees, main suppliers
Mendelow’s matrix can be used to:
- Track changing influences of stakeholder groups
* Assess the likely impact that strategy will have on stakeholder groups
Analysing products - Product life cycle:
- Introduction: New product brought to market
- Growth: Product gains customer support + demand increases
- Shakeout: Growth slows down – does it need anything else?
- Maturity: Consistent performer – not growing though
- Decline: Demand falls – need to decide whether to withdraw
Analysing Markets - BCG Matrix
High market share, High market growth: * Star Low market share, High market growth: * Question mark (problem child) High market share, Low market growth: * Cash cow Low market share, Low market growth: * Dog
Porters Generic strategies:
- Cost leader:
* Potentially higher profit + low costs
* Compete on basis of lowest cost - Stuck in the middle:
* Low profit + high costs - Differentiator:
* Potentially higher profit + high costs
* Compete on basis of unique characteristics
Analysing competitive scope:
Cost driven, Broad focus:
* Cost leadership = Lowest cost producer in the industry as a whole
Differentiation driven, Broad focus:
* Differentiation = Exploitation of product which industry as a whole believes to be unique
Cost driven, Narrow Focus:
* Cost focus = Restricting activities to only part of the market – providing goods at lower cost
Differentiation driven, Narrow focus:
* Differentiation focus:
Restricting activities to only part of the market – providing a differentiated product
- Narrow target = aimed at a defined market group only
- Broad target = available to the market as a whole
Analysing products, markets and growth - Ansoff Growth Vector Matrix:
Existing products, Existing Market:
* Market Penetration:
* Increasing market share of existing products via promotions, price reductions, increasing usage
* Low risk strategy – no capital investment
* Attractive to unadventurous org or org who wants to simply maintain position in market
New products, Existing Market:
* Product development:
* Selling new products to existing customers (cross selling)
* Riskier than market penetration + development because require investment in new product development
Existing product, New Market:
* Market development:
* Seeking new customers for existing products via exporting or new distribution channels
New product, New Market:
* Diversification:
* Selling new products to new customers
* Offer significant growth potential
*Riskiest strategy – require significant investment and new competences with no guarantees of success
Market development - Internal development:
- Organic growth
- Ideal for market penetration, product/ market development
- Might be problem with extensive diversification projects due to need for new investment and new resources or capabilities
- Growth is slow so not suitable for org’s requiring rapid expansion
Potential problems with acquisitions + mergers:
- Cost
- Customers – may resent sudden takeover
- Incompatibility – of info systems or cultures
- Asymmetric info – existing management knows more about org than purchaser
- Driven by personal goals
- Firms rarely take into account non-financial factors – e.g. human resource issues
- Poor success record of acquisitions
- Corporate financiers and banks – charge fees for advice
Types of partnering strategies:
- Joint venture
- Franchising
- Strategic Alliance
- Internal partnering
Joint ventures:
- Two or more entities joins forces to create a separate entity with purpose distinct from owners
- Allows for capital + experience to be shared
- Prone to conflicts of interest
Franchising:
- Expanding business with less capital than would otherwise be possible – franchisees pay capital lump sum to enter franchise + bear some running costs
- Commonly used by entities who want to achieve rapid growth
- Alternative business strategy to raising extra capital
- Franchise removes some risk from franchiser, but could be run poorly by franchisee and cause reputational damage
