Chapter 4 - Introduction to Business Strategy Flashcards
What is the definition of strategy according to CIMA Official Terminology?
‘Strategy is a course of action, including specification of the resources required, to achieve a specific objective.’
What are the three key aspects strategy is concerned with?
HOW, WHERE, WITH WHAT? 1. The long-term direction (objectives) of the business.
2. The environment in which it operates.
3. The resources at its disposal.
At what levels can strategy exist within a business? 3
Corporate Strategy, Business Strategy, and Functional (Operational) Strategy.
What is Corporate Strategy?
Corporate Strategy is generally determined at the main board level for the business as a whole.
What are the main areas of focus in Corporate Strategy? 5
- Determining the overall corporate mission and objectives.
- Overall product/market decisions (e.g., expand, close down, enter a new market, develop a new product).
- Major investment decisions (e.g., IT development).
- Overall financing decisions (obtaining funds at lowest cost).
- Relations with external stakeholders (shareholders, lenders, government).
What is Business Strategy? 1
Business Strategy forms in strategic business units (SBUs) and relates to how a particular market is approached or how an SBU acts.
What is Functional (Operational) Strategy? 1
Functional Strategy refers to the main functions within each SBU (e.g., production, finance, IT, HR, marketing) and how they deliver the strategies determined at the corporate and business levels.
What is strategic management?
Strategic management involves taking decisions about a business’s scope, its long-term direction, and the allocation of resources.
What are the three main areas involved in strategic management? 3
- Taking decisions about a business’s scope.
- Taking decisions on the long-term direction of the business.
- The allocation of resources.
What are the key questions a business must answer when developing a strategy? 4
- What is it good at?
- How might the market change?
- How can customer satisfaction be delivered?
- What might prevent the plan from coming into being?
What are the characteristics of strategic decisions, as summarized by Johnson and Scholes? 7
- They concern the scope of the business’s activities.
- They match activities to capabilities and the environment.
- They revolve around resource allocation.
- They set off a chain of ‘lesser’ operational decisions.
- They are based on senior management values and expectations.
- They dictate the long-term direction of the business.
- They lead to changes in the business.
What determines the order of stages in strategic planning?
The order of stages in strategic planning depends on whether the business takes a positioning-based or a resource-based view.
What are the stages in the strategic analysis and choice process? 7
- External analysis. And 2. Internal analysis. - BOTH SAME LEVEL
- Corporate appraisal.
- Mission, goals, and objectives.
- Strategic choice.
- Identifying and addressing the gap.
- Strategy implementation.
What are the three types of strategies a business should have at the end of the strategic planning process?
- Competitive strategies: Generic strategies for competitive advantage, determining how the business competes.
- Product-market strategies: Determine where it competes and the direction of growth (e.g., which markets to enter or leave).
- Institutional strategies: Determine the method of growth (e.g., relationships with other businesses).
What is strategy implementation?
Strategy implementation is the conversion of chosen strategies into detailed plans or objectives for operating units.
What is environmental uncertainty, and what are the key characteristics of static and dynamic environments?
Environmental uncertainty refers to a business’s inability to predict the future with certainty. Static environments are characterized by slow changes, single products/markets, simple technology, and safety. Dynamic environments are characterized by fast changes, diverse products/markets, complexity, and risk.
What is PESTEL analysis, and what are the six factors it considers?
PESTEL analysis is a framework for analyzing the general environment of a business. The six factors it considers are:
1. Political factors
2. Economic factors
3. Social/demographic factors
4. Technological factors
5. Ecological factors
6. Legal factors
What framework is used for analyzing the general environment of a business?
PESTEL analysis is a framework for analyzing the general environment of a business. The six factors it considers are:
1. Political factors
2. Economic factors
3. Social/demographic factors
4. Technological factors
5. Ecological factors
6. Legal factors
What is Porter’s Five Forces model used for?
Porter’s Five Forces model is used to analyze the competitive environment of a business by assessing the attractiveness of an industry.
What are the five forces in Porter’s model?
- Threat of new entrants
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of substitutes
- Rivalry among existing competitors
What are Philip Kotler’s four types of competitors?
- Brand competitors: Firms offering similar products (e.g., McDonald’s vs. Burger King).
- Industry competitors: Firms with similar products but differing in range or markets (e.g., Tesco vs. Amazon).
- Generic competitors: Compete for the same disposable income (e.g., a DVD store vs. a bookstore).
- Form competitors: Different products satisfying the same need (e.g., matches vs. lighters).
What are brand competitors?
- Brand competitors: Firms offering similar products (e.g., McDonald’s vs. Burger King).
What are industry competitors?
- Industry competitors: Firms with similar products but differing in range or markets (e.g., Tesco vs. Amazon).
What are generic competitors?
- Generic competitors: Compete for the same disposable income (e.g., a DVD store vs. a bookstore).
What are form competitors?
- Form competitors: Different products satisfying the same need (e.g., matches vs. lighters).
Once you have identified the type of competitor (e.g. brand, industry, generic and form) what does this indicate?
All these are combined in a competitor reaction profile. This indicates the competitor’s vulnerability
and the right ‘battleground’ on which to fight. Kotler lists four reaction profiles: Laid back, tiger, selective, stochastic
What are Philip Kotler’s four competitor reaction profiles?
- Laid back: Does not respond to competitors’ moves.
- Tiger: Responds aggressively to all opposing moves.
- Selective: Reacts to some threats in some markets but not all.
- Stochastic: Unpredictable behavior.
What aspects of the business should be analyzed after examining the external environment? 4
After analyzing the external environment, a business should analyze:
1. Its resources and competencies (using a position and resource audit). WHAT IT HAS
2. Its ‘value chain.’ HOW IT USES THESE
3. Its supply chain.HOW IT FITS IN WITH SUPPLIERS AND CUSTOMERS
4. Its products and markets (using the product life cycle and BCG matrix). ITS FIT WITH THE MARKET
What is a position audit, and what areas does it examine? 6
A position audit is part of the planning process that examines the current state of the entity in respect of:
1. Tangible and intangible resources and finance.
2. Products, brands, and markets.
3. Operating systems (production and distribution).
4. Internal organization.
5. Current results.
6. Returns to shareholders.
What are the factors included in the 9 Ms model for a resource audit? IMPORTANT
The 9 Ms model includes the following factors:
1. Machinery: Age, condition, utilization, value, replacement, technological relevance.
2. Make-up: Culture, structure, patents, goodwill, brands.
3. Management: Size, skills, loyalty, career progression, structure.
4. Management information: Ideas, innovation, information systems.
5. Markets: Products and customers.
6. Materials: Sources, suppliers, waste, cost, availability, future needs.
7. Men and women: Skills, wage costs, proportion of costs, efficiency.
8. Methods: How activities are carried out.
9. Money: Credit, cash flow, surpluses/deficits, finance, gearing.
What is Porter’s value chain, and how does it help businesses?
Porter’s value chain is a model that provides a bird’s eye view of a business’s activities. It helps identify how competitive advantage arises from the way activities are organized and performed.
What are value drivers and cost drivers in the context of Porter’s value chain?
Value drivers are elements of a product or service that increase the value consumers place on it, such as product features or branding. Cost drivers are activities that affect the cost of a product or service.
What are the primary and support activities in Porter’s value chain? 5, 5
Primary activities: Inbound logistics, operations, outbound logistics, marketing and sales, and service.
Support activities: PHIT. PRINCE HARRY IS TALL. Firm infrastructure, human resources, technology development, and procurement.
What are the primary activities in Porter’s value chain? 5
Primary activities: Inbound logistics, operations, outbound logistics, marketing and sales, and service.
What are the support activities in Porter’s value chain? 5
Support activities: PHIT. PRINCE HARRY IS TALL. Firm infrastructure, human resources, technology development, and procurement.
Inbound logistics
Anything that comes into business
Operations
Conversion actvities
Outbound logistics
Sendings things out
Service
After care, chasing for debts credit control
Procurement
How we buy - quantity, volume, discounts
Technology Development
Use of technology - e.g. bespoke MI system
Human Resources
Policies, way we recruit
Firm Infrastructure
The makeup. The capital struture, location of operation, the management
What is supply chain management (SCM), and what aspects does it involve?
Supply chain management (SCM) involves optimizing the activities of businesses working together to produce goods and services. It focuses on managing the chain from input resources to consumers.
What are some key practices in supply chain management to improve efficiency and focus? 4
Key practices in SCM include:
1. Reducing the number of suppliers and fostering close partnerships with remaining ones.
2. Focusing resources on customers of high potential value.
3. Early supplier involvement in product development and design.
4. Joint problem-solving among supply chain partners.
What is the product life cycle, and why is it useful for businesses?
The product life cycle is a model that shows how a product demonstrates different characteristics of profit and investment over time. It helps businesses examine their portfolio of goods and services as a whole.
What are the stages of the product life cycle? 5
The stages of the product life cycle are:
1. Product development
2. Introduction
3. Growth
4. Maturity
5. Decline
Define phased shakeout
During the shake-out phase, sales continue to increase, but at a slower rate, usually due to either approaching market saturation or the entry of new competitors in the market. Sales peak during the shake-out phase. Although sales continue to increase, profit starts to decrease in the shake-out phase.
What is the BCG matrix, and what does it analyze?
The BCG matrix, developed by the Boston Consulting Group, is a tool that assesses a business’s products or services in terms of potential cash generation and expenditure requirements. It categorizes products based on market growth rate and relative market share.
What are the four categories in the BCG matrix, and how are they defined?
- Market Leader: Stars: High market growth, high market share. >10 market gross per annum is high. BUILD
- Cash Cows: Low market growth, high market share <10 market gross per annum is low. HOLD (MAINTAIN) OR HARVEST (MAX SHORT TERM GAIN AT THE EXPENSE OF LONG TERM)
- Everybody else : Question Mark: High market growth, low market share. >10 market gross per annum is high. BUILD OR INVEST
- Dogs: Low market growth, low market share. <10 market gross per annum is low. DIVEST (get rid off: sell or shut it down) OR HOLD - Maintain complete a product portfolio.
What does a star mean in the BCG matrix?
- Market Leader: Stars: High market growth, high market share. >10 market gross per annum is high. BUILD
What does a cash cow mean in the BCG matrix?
- Cash Cows: Low market growth, high market share <10 market gross per annum is low. HOLD (MAINTAIN) OR HARVEST (MAX SHORT TERM GAIN AT THE EXPENSE OF LONG TERM)
What does a question mark mean in the BCG matrix?
- Everybody else : Question Mark: High market growth, low market share. >10 market gross per annum is high. BUILD OR INVEST
What does a dog mean in the BCG matrix?
- Dogs: Low market growth, low market share. <10 market gross per annum is low. DIVEST (get rid off: sell or shut it down) OR HOLD - Maintain complete a product portfolio.
How is relative market share calculated in the BCG matrix?
Relative market share is calculated by dividing the entity’s sales of a product/service in a specified market by the sales of the biggest competitor in that market. If the ratio is greater than 1, the entity is the market leader; if below 1, it has low market share.
What is corporate appraisal, and what does it involve?
Corporate appraisal brings together the analyses to date, involving the critical assessment of a business’s strengths, weaknesses, opportunities, and threats (SWOT analysis) to establish its condition before preparing a long-term plan.
What is internal analysis in corporate appraisal?
Internal analysis appraises the business’s strengths and weaknesses.
What is external analysis in corporate appraisal?
External analysis appraises the opportunities and threats facing the business.
What is SWOT analysis, and what is its purpose?
SWOT analysis is a critical assessment of strengths, weaknesses, opportunities, and threats related to internal and environmental factors, helping to establish the business’s condition and inform long-term planning.
What are the two approaches to using SWOT analysis in corporate appraisal?
- Positioning-based approach: SWOT is used as a summary or synthesis of prior examination of resources and environment.
- Resource-based approach: SWOT is used as the first stage of strategy-making to establish the nature of the business’s core competencies.
What stage is SWOT used in a positioning-based approach?
- Positioning-based approach: SWOT is used as a summary or synthesis of prior examination of resources and environment.
What stage is SWOT used in a resource-based approach?
- Resource-based approach: SWOT is used as the first stage of strategy-making to establish the nature of the business’s core competencies.
Why is stakeholder analysis important in the strategic planning process?
Stakeholder analysis is important because the needs and objectives of different stakeholders often conflict. It helps businesses focus on the most dominant stakeholders while considering the impact of all stakeholders on the business’s objectives.
What is Mendelow’s power/interest matrix, and what are its four categories?
Mendelow’s power/interest matrix is a tool to categorize stakeholders based on their level of interest and power:
1. Category A: Minimal Effort (Low power, low interest). e.g. neighbours (local households)
2. Category B: Keep Informed (Low power, high interest). e.g. employees, general suppliers and customers, local government
3. Category C: Keep Satisfied (High power, low interest). e.g. instituional shareholder, national government
4. Category D: Key Player (High power, high interest). e.g. major shareholder or customer
What type of power and interest does a minimal effort category have as defined by mendelow’s matrix?
Mendelow’s power/interest matrix is a tool to categorize stakeholders based on their level of interest and power:
1. Category A: Minimal Effort (Low power, low interest). e.g. neighbours (local households)
What type of power and interest does a keep informed category have as defined by mendelow’s matrix?
Mendelow’s power/interest matrix is a tool to categorize stakeholders based on their level of interest and power:
2. Category B: Keep Informed (Low power, high interest). e.g. employees, general suppliers and customers, local government
What type of power and interest does a keep satisfied category have as defined by mendelow’s matrix?
Mendelow’s power/interest matrix is a tool to categorize stakeholders based on their level of interest and power:
3. Category C: Keep Satisfied (High power, low interest). e.g. instituional shareholder, national government
What type of power and interest does a key player category have as defined by mendelow’s matrix?
Mendelow’s power/interest matrix is a tool to categorize stakeholders based on their level of interest and power:
4. Category D: Key Player (High power, high interest). e.g. major shareholder or customer
What are strategic objectives, and how are they determined?
Strategic objectives are the primary goals of a business, such as making a profit for shareholders. They also include other major objectives addressed to stakeholders.
When does a business need to choose a new corporate strategy?
A business needs to choose a new corporate strategy if there is a gap in its current strategy. If there is no gap, the business can continue with its current corporate strategy.
What are Porter’s three generic competitive strategies?
Porter’s three generic competitive strategies are:
1. Cost leadership
2. Differentiation
3. Focus (niche)
What is cost leadership in Porter’s strategies?
Cost leadership involves producing at the lowest cost in the industry as a whole, allowing the business to compete freely on price.
What is differentiation in Porter’s strategies?
Differentiation involves providing a product or service perceived by the industry as unique.
What is focus (or niche) in Porter’s strategies?
Focus (or niche) restricts activities to a segment of the market by:
1. Providing goods/services at a lower cost to that segment (cost-focus).
2. Providing a differentiated product/service to that segment (differentiation-focus).
What is Ansoff’s matrix, and what does it describe?
Ansoff’s matrix describes how a business’s activities in current/new markets and with existing/new products can lead to growth strategies.
What are the four strategies in Ansoff’s matrix?
The four strategies in Ansoff’s matrix are:
1. Market penetration: Consolidate, penetrate (e.g., loyalty schemes), or withdraw.
2. Product development: Sell more to existing customers.
3. Market development: Explore new segments, territories, or uses.
4. Diversification: Introduce related/unrelated, vertical/horizontal products; the most risky strategy.
