Chapter 4 - Introduction to business strategy Flashcards
What is strategy?
Direction and scope of an organisation over long term, achieves advantages for the organisation
What are the considerations of strategy?
- Long term
- Whole organisation
- Resources and external environment
- Stakeholders (internal and external
- How to gain sustainable competitive advantageW
What are the three levels of strategy?
Corporate
Business
Functional (operational)
What is corporate strategy?
Strategies determined at main board level for the business as a whole
e.g. product market decision, method of growth, major investment decisions
What is the business strategy?
Planning, developing and producing
e.g. how to gain a sustainable competitive advantage
What is Functional (operational) strategies?
Strategies for the main functions within each SBU
e.g. operations, finance, HRM and marketing strategies
What is a strategic plan?
Long term goals along with a definition of the strategies and policies which ensure achievement of these goals
What are the four main stages of strategic planning according to Johnson & Scholes) ?
- Analysis - Where are we now?
- Strategic choice - strategic option
- Strategy implementation - Convert into plans / objectives
- Review and control - Monitor targets and budgets
What are the FORMAL stages of strategic planning?
- Internal/external analysis
- Corporate appraisal
- Mission and objectives
- GAP
- Strategic choice
- Strategy implementation
What is external analysis in business strategy?
Factors outside the business which can present opportunities or threats
What factors are involved in the external envrionment?
- Physical - Touch + feel e.g. neighbours tree fell on your shop
- General - covers economical, social, technology and legal influences in the countries the business operates
- Task - Factors relevant to the business e.g. competitors
- Business
What are the two forms of environmental uncertainty?
- Static environments
- Dynamic Environments
What are characteristics of static envrionment
- Static/slow change
- Single product/market
- Simple technology
- Safe envrionmentW
What are the characteristics of dynamic envrionments?
- Dynamic changes
- Diverse product/market
- Difficult environment
- Dangerous to stand still
What are the PESTEL analysis?
- Political
- Economical
- Social and demographic
- Technological
- Ecological environmental
- Legal issues
What are the potential political issues in PESTLE analysis?
- Taxation
- Government spending
- Foreign trade
What are the potential economical issues in PESTLE analysis
- Economic growth
- Exchange/interest rates
- Inflation
What are the social and demographic issues in PESTLE analysis
- Attitudes, tastes and fashions
- Population demographics
- Income distribution
What are the technological issues in PESTLE analysis
- New products
- Improved production methods
- Rate of obsolesce
What are the potential Ecological issues in PESTLE analysis
- Sustainability
- Pollution
- Climate change
What are the potential Legal issues in PESTLE analysis
- Industrial regulation
- Competition legislation
- Employment law
What are Porter’s five force analysis?
- Threat of new entrants - competition
- Bargaining power of supplier - increasing prices
- Threats of substitutes - Different products satisfying the same needs
- Bargaining power of customer - Few customers, buyers can bring down the prices
What is competitor analysis?
Used to analyse competitive rivalry
What are Philip Kotler’s list of four types of competitors?
- Brand - smaller size firms with similar products
- Industry - Similar products but different markets or distribution methods
- Form - Distinctively different products satisfying the same needs - mcdonalds vs coffe shop
- Generic - Different products but compete for the same disposal income
What are Kotler’s four reaction profiles?
- Laid back - no response to competitor moves
- Tiger - Responds aggressively to all competitor moves
- Selective - reacts to some threat in some markets but not other
- Stochastic - difficult to predict when or how they will react
What is internal analysis?
Comprises the business’s strengths and weaknesses
What are the 9M model
Help identify resources available to the business help achieve critical success factors
- Men/women - skills, number, wages
- Machines -
- Money - Credit & turnover
- Material - Source, supplier
- Markets - Product/customer
- Makeup - brands, good will
- Management - size, skills
- Methods - how activities are carried
- MIS - generate ideas
What is value chain?
Analyse the business activities which add value to products and services produced by company
What is the Porter’s value chain analysis?
Support activities:
- Firm infrastructure: finance, legal, QA
- Technology development: technology involved in product itself
- Human resources: training, recruitment management
- Procurement (suppliers): acquiring resources for all aspects for value chain
Primary activities
1. Inbound logistics
2. Operations - outputs, assembly
3. Outbounding logistics - storage and delivery
4. Marketing and sales - making customers aware of the products
5. Services - avoid confusion with sales industry
AND THEN MARGIN
What are the 4 stages of the Product life cycle?
- Development
- Introduction to market
- Growth (sales/revenue)
- Maturity
- Decline
What does the BGX matrix analyse?
Analyses the balance of a business product portfolio based on the combination of both market growth and market share
The BCG Matrix - What icon is High Market growth and High Market share?
Star - Market share is high but under constant threat from new entrants.
Requires business to build causing cash neutral position
The BCG Matrix - What icon is Low Market growth and high Market share?
Cash Cow - Reduced threat from new entrants, makes it easier for the business to hold their position and just harvest +ve cash flow
The BCG Matrix - What icon is High Market Growth and Low Market Share
Question Mark - Business must decide whether to harvest or build by injecting further finance
-ve cash flow
The BCG Matrix - What icon is Low Market Growth and Low Market Share
Dog
Business must decide to divest or hold position in short-term if modest positive cash flow
What is the SWOT analysis
Technique that can be used to perform a corporate appraisal to evaluate the strategic position of an organisation
What are the internal and external components of SWOT
Internal
- Strengths
- Weakness
External:
- Opportunities
- Threats
Strategies should be consistent with the organisations missions and objectives
That’s all!
What are the components of Mendelow’s power-interest stakeholder matrix
- Minimal effort can be directd
Low Power
Low interest - Keep informed
Low Power
High interest - Keep satisfied
High power
Low interest - Key players need participation
High interest
High power
What to consider after analysis of internal and external envrionments
- How to compete (Porter’s generic strategies)
- How to grow? (Ansoff’s matrix)
What is Porter’s generic strategies?
- Suggests competitive advantage can be achieved by finding a position that competitors find hard to replicate
- Organisations need to address to key questions
1. Which strat, differentiation or cost leadership
2. Should the scope be broad or narrow
What are the four components of Porter’s generic strategies
- Cost leadership
- Lower cost
- Broad Target - Cost Focus
- Lower cost
- Narrow Narget - Differentiation
- Differentiation
- Broad Target - Differentiation focus
- Differentiation
- Narrow Target
What is cost leadership and how can it be achieved?
- More competitive
Achieved through
- Economies of scale - e.g. primark
- Seek cheaper sources of supply e.g. budget supermarkets
- Reduced labour costs - e.g. manufacturers who outsource overseas
What is differentiation and how can it be achieved?
Standing out from competitors due to product features or consumer perception
Achieved through
- Strong branding e.g. designer clothes
- Product innovation e.g. Apple, Dyson
- Quality e.g. M&S clothing
- Product Performance e.g. BMW
What is Focus strategy and how can it be achieved?
- Specialising on a clearly defined market segment or segments
- Identify a segment of consumers with similar needs
- Choose whether to adopt differentiation or cost focus approach
- Develop the marketing mix to meet the needs of the segment
What is 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
What are the four components of Ansoff’s Matrix?
- Market Penetration: More sales of existing products to existing markets e.g. price cuts
- Existing Markets
- Existing Products - Market Development: Find new markets for existing products, e.g. new customer segments or geographical location
- Existing Products
- New products - Product development : Develop new products for existing markets
- Existing Market
- New Product - Diversification: Develop new products for new markets
- New products
- New markets
Evaluation of markets is important. What is Johnson, Scholes and Whittington’s tests before choosing strategy is chosen
- Suitability (bold internal and external)
- Does it exploit strengths
- Mitigate weaknesses
- Take advantage of opportunities
- Meet sustainability objectives - Feasibility (resources capable?)
- Time-scale achievable?
- Availability to finance
- Other resources
- Internal competencies - Acceptability (risk and return pov key shareholders)
- What are the risks
- Potential returns
- Acceptable to shareholders?
What key functions of the business are involved with the strategy implementation
- HRM
- Finance
- Operations
- Marketing
