Chapter 3 - Strategy Risk Flashcards
What is strategy?
Course of action, including the specification of resources required, to acheive a specific objective
What are the three main stages of the rational model according to Johnson, Scholes and Whittington?
Strategic analysis
Strategic choice
Strategic implementation
What are the eight stages of the rational model?
Internal Environment
Mission & Objectives
External Environment
Position & Appraisal
Strategic Options
Evaluation & Choice
Implementation
Review & Control
What are the risks of formal planning?
Setting corporate objectives
Short term pressures
Difficulties in forecasting accurately
Bounded by rationality
Rigidity
Cost
Management distrust
What are the risks of a lack of formal planning?
Failure to identify threats
Strategic drift
Harder to raise finance
Lack of management skills
Why is the strategic planning process more complex for NFP’s?
Multiple objectives are hard to prioritise
Objectives are more difficult to measure
Influence/objectives of funding bodies
Receipients of the service are not the ones who pay for it
What is the 3E’s model when accessing the value for money of a NFP?
Economy - focuses on inputs
Efficiency - Link between inputs and outputs
Effectiveness - Outputs
What is the risks of using the 3E’s model?
Wrong choice of measures
Contradictory results
Internal confusion over prioritisation
Ease of measurement of economy and efficiency can lead to incorrect focus
What are the risks of cost leadership?
No fall back position if leadership on costs is lost
Constant investement to adapt to changing market and competitive threats
Failure to pass on costs savings to customers may mean no advantages
Passing on cost savings can lead to price wars with competitors
What are three broad approaches that Porter identified to gain a competitive advantage?
Cost Leadership
Differentiation
Focus
What are the risks of differentiation?
Significant marketing costs
Smaller volumes
Continuous investment to retain differentiation
More susceptible to economic downturn
What are the risks of focus/niche?
Success can attract major competitors
Size of the market may be too small to make sustainable returns
What are the risks of the generic strategies in general?
Many firms end up being what Porter refers to as ‘stuck in the middle’
What are the four strategic directions that an organisation can follow according to Ansoff?
Market penetration
Product development
Market development
Diversification
According to Ansoff if the market is new and the product is new what strategy should we adopt?
Diversification
According to Ansoff if the market is current and the product is new what strategy should we adopt?
Product development
According to Ansoff if the market is current and the product is current what strategy should we adopt?
Market penetration
According to Ansoff if the market is new and the product is current what strategy should we adopt?
Market development
What are the risks of market penetration?
Lowest risk
Key issue may not generate significant returns
What are the risks of product development?
Significant cost
Not good enough
Someone delivers product sooner or better
Failure damages core brand
What are the risks of market development?
Costly entry to the market
Fail to understand the new market
Failure damages core brand
What are the risks of diversification?
Riskiest option
Over reliance on market if it’s related diversification
Lack of skills or knowledge if it’s unrelated
What are some acquisition risks?
Cost
Strategic fit
Cultural fit
Cultural issues
Competition legislation
Lack of knowledge
What are the risks of organic growth?
Too slow
Lack of management skill
What are the methods of joint development?
Joint venture
Strategic alliance
Franchising
Licenses
Outsourcing
What are the risks of joint developments?
Strategic fit
Cost sharing
Knowlege sharing
Profit sharing
Loss of control
What is disruptive innovation?
Someone creates a new development that changes an existing market or creates a new market which means that the old market is no longer viable and can lead to having a significant drop in sales
What is scenario planning?
Creation of detailed possible futures that the organisation may encounter, allowing for the creation of contingency plans
What are the stages of scenario planning?
Identify high-impact, high-uncertainty factors
Indentify possible futures
Cluster together different factors
Write scenarios
Identify possible courses of action
Monitor reality
Revise
What are the advantages of scenario planning?
Focuses management attention on the future and possibilities
Encourage creative thinking
Can be used to justify decisions
Encourages communication within the organisation
Can identify sources of uncertainty
What are the drawbacks of scenario planning?
Costly and inaccurate
Tendency for scenarios to be distorted by organisational culture of bias
Risks becoming a self-fulfilling prophecy
Many scenarios will never occur
What are the key considerations in stress testing?
Prioritisation
Measurement
Productivity
Flexibility
