Chapter 4: Introduction to Business Strategy

Question 1

What is strategy and what does it consider?

Answer 1

Strategy is the direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a changing environment, to meet the
needs of the markets and to fulfil stakeholder expectations.

 It considers the longer term.
 It considers the whole organisation (not just individual Strategic Business
Units (SBUs).
 It considers the resources and external environment.
 It considers all stakeholders (internal and external).
 It looks at how to gain a sustainable competitive advantage.

Question 2

What are the levels of strategy?

Answer 2

Corporate strategy
Strategies determined at main board level for the business as a whole.
 e.g. overall mission and objectives, expansion strategies, divestments

Business strategies
Strategies for strategic business units (SBUs) and individual markets.
 e.g. how to gain a sustainable competitive advantage

Functional (operational) strategies
Strategies for the main functions within each SBU.
 e.g. operations, finance, HRM and marketing strategies

Question 3

What is a strategic plan?

Answer 3

A strategic plan is a statement of long-term goals along with a definition of the strategies and policies which will ensure achievement of these goals

Question 4

What are Johnson and Scholes four approaches to strategic planning?

Answer 4

Strategic analysis
 Where are we now?

Strategic choice
 Selection of a strategic option

Strategy implementation
 Convert into plans/objectives

Review and control
 Monitor targets and budgets

Question 5

How do you assess the external environment?

Answer 5

PESTEL/Porter’s Five Force’s Analysis/Kotler’s Competitor Analysis and Reactions

External analysis looks at factors outside the business which can present opportunities or threats.

Question 6

What does a business have to consider if its environment is likely to be static?

Answer 6

 Static/slow change
 Single product/market
 Simple technology
 Safe environment

In static situations there is often great value in studying the business’s historic and current environment. As change is only slow the past can help to predict the future

Question 7

What does a business have to consider if its environment is likely to be dynamic?

Answer 7

 Dynamic changes
 Diverse product/market
 Difficult environment
 Dangerous to stand still

In dynamic environments the past is often a poor guide to the future

Question 8

What is the PESTLE analysis? Give examples.

Answer 8

Political:
 Taxation policy
 Government spending
 Foreign trade regulations

Economical:
 Economic growth
 Exchange/interest rates
 Inflation

Social and Demographic: 
 Attitudes, tastes and
fashions
 Population demographics
 Income distribution

Technological:
 New products
 Improved production
methods
 Rate of obsolescence 

Legal:
 Industry regulation
 Competition legislation
 Employment law

Ecological:
 Sustainability
 Pollution
 Climate change

Question 9

What does Porter’s five forces analysis account for?

Answer 9

EXTERNAL ANALYSIS
Porter’s five forces analysis can be used to assess the attractiveness of an industry in terms of long run profitability.
The five competitive forces determine the level of competition and therefore profitability of the industry.

Question 10

What are the different force’s within Porter’s analysis?

Answer 10

• Threat of new entrants
• Bargaining power of customers
• Threat of substitutes
• Bargaining power of suppliers
  All contribute to the final force: Competitive analysis

Question 11

What are Kotler’s four types of competitor within competitor anaylsis?

Answer 11

 Brand – similar size firms with similar products
 Industry – similar products but different markets or distribution methods
 Form – distinctly different products that satisfy the same need
 Generic – different products but compete for the same disposable income

Question 12

What are Kotler’s four competitor reactions?

Answer 12

 Laid back – no response to competitor moves
 Tiger – responds aggressively to all competitor moves
 Selective – reacts to some threat in some markets but not to others
 Stochastic – difficult to predict when or how they will react

Question 13

What does internal analysis do?

Answer 13

Internal analysis looks at factors inside the business which comprises the business’s strengths and weaknesses.

Question 14

What is the resource audit and 9M’s model?

Answer 14

A resource audit analyses the tangible and intangible resources available to the
business.
The 9Ms model can be used to identify the resources which are available to the
business and those resources may need to be addressed to achieve CSFs.

• Men
• Money
• Material
• Machines
• Market
• Management
• Methods
• Make up
• MIS

Question 15

What is Porter’s Value Chain analysis?

Answer 15

Value chain analysis can be used to analyse the sequence of business activities which add value to the products or services produced by a company.

The value (or margin) is measured by the difference between the cost of the activities and sales revenue created by sales to customers.

Also, non-value adding activities can be identified and reduced or eliminated

Question 16

What is the BCG Matrix?

Answer 16

BCG matrix analyses the balance of a business’s product portfolio based on a combination of both market growth and market share.

Question 17

What are the different components of the BCG Matrix?

Answer 17

Star: High Market Share and High Market Growth. The business therefore has to build often due to constant threats from new entrants and it often results in cash neutral position

Question Mark: Low Market share but High Market Growth. The business must decide whether to harvest or build by injecting further finance resulting in negative cash flow.

Cash Cow: High Market Share but Low Market Growth. Reduced threat from new entrants makes it easier for the business to hold their position or just harvest resulting in positive cash flow.

Dog: Low Market Share and Low Market Growth. The business now must decide whether to divest or may hold position in the short-term if modest positive cash flows are being made.

Question 18

How can you combine the issues identified from external and internal analysis?

Answer 18

Issues identified from internal analysis and external analysis can be combined using the SWOT technique.
5.1 SWOT analysis
SWOT analysis is a technique that can be used to perform a corporate appraisal to evaluate the strategic position of the organisation.

Question 19

What is the most basic comparison between external and internal analysis?

Answer 19

External: Opportunities and Threats
Internal: Strengths and Weaknesses

Question 20

Strategies should be consistent with what?

Answer 20

Strategies should be consistent with the organisation’s mission and objectives.

Question 21

What is stakeholder mapping?

Answer 21

In order to formulate its mission and objectives an organisation may need to analyse or prioritise its stakeholders – this can be done with stakeholder mapping.

Question 22

How do you analyse stakeholders?

Answer 22

Mendelow’s power-interest stakeholder matrix can be used to analyse stakeholders and to identify an appropriate response.

Mendelow’s matrix categorises stakeholders into four main types:

• Low level of interest, low power: minimal effort can be directed
• Low level of interest, high power: keep satisfied so they do not wish to increase their power
• High level of interest, low power: keep suitably informed
• High level of interest, high power: Key players need participation

Question 23

How does the business assess how to compete? What questions are asked?

Answer 23

Porter’s generic strategies.

Porter suggests that a sustainable competitive advantage can be achieved by finding a position that competitors find hard to replicate

Porter argues that organisations need to address two key questions:
 Should the strategy be one of differentiation or cost leadership?
 Should the scope be broad or narrow?

• Broad target, lower cost: Cost leadership
• Broad target, higher cost: Differentiation
• Narrow target, lower cost: Cost focus
• Narrow target, differentiation:
  Differentiation focus

Question 24

What is cost leadership?

Answer 24

Achieving a lower cost base than rivals allows the business to reduce prices.
This can be achieved through:
 Economies of scale – e.g. Primark’s large stores
 Seek cheaper sources of supply – e.g. budget supermarkets
 Reduced labour cost – e.g. manufacturers who outsource overseas

Question 25

What is Differentiation?

Answer 25

Standing out from competitors due to product features or consumer perception.
This can be achieved through:
 Strong branding – e.g. designer clothing
 Product innovation – e.g. Apple, Dyson
 Quality – e.g. M&S clothing
 Product performance – e.g. BMW

Question 26

What is focus strategy?

Answer 26

Specialising on a clearly defined market segment or segments.
 Identify a segment of consumers/customers with similar needs.
 Choose whether to adopt a differentiation or cost focus approach.
 Develop the marketing mix to meet the needs of the segment.

Question 27

What is Ansoff’s Matrix?

Answer 27

Ansoff’s matrix looks at growth by considering opportunities to sell more existing products/develop new products and building market share in existing/new markets

Question 28

What is suitability according to Johnson, Scholes and Whittington?

Answer 28

Suitability – is the strategy consistent, both externally
and internally?

 does it exploit strengths?
 mitigate weaknesses?
 take advantage of opportunities?
 minimise threats?

Question 29

What is feasibility according to Johnson, Scholes and Whittington?

Answer 29

Feasibility – is the strategy within the resources and
capability of the organisation?

 is the time-scale achievable?
 availability of finance?
 other resources?
 internal competencies?

Question 30

What is acceptability according to Johnson, Scholes and Whittington?

Answer 30

Acceptability – look at risk and return perspectives of key stakeholders

 what are the risks?
 potential returns?
 is this acceptable to
stakeholders?

Question 31

What are the key functions of a business?

Answer 31

Functional strategies:

• Human Resource Management
• Finance
• Operations
• Marketing