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E3 - Strategic Management > Chapter 8: Strategic options and choice > Flashcards

Chapter 8: Strategic options and choice Flashcards

1
Q

What are the three key levels of strategy to consider as part of strategic choice?

A

Where to compete?
How to compete?
Which investment vehicle to use?

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2
Q

What are the the three strategic models to be familiar with?

A

Porter - generic strategies - looks at competitive strategy
Ansoff - product/market matrix - directions for growth
Boston Consulting Group (BCG) - growth/share matrix

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3
Q

What are the benefits of the strategic models?

A

Provide a useful starting point for the discursive process as they initiate discussion amongth management
Well known and as such have credibility
Generate options that can be used in the debate and allow comparison
Can be linked to each other to enhance the analysis
Used simply or be developed into more complicated applications

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4
Q

What are the limitations of strategic models?

A

Simplistic - most are two-by-two models
Undue emphasis tends to be placed upon them
Dated and were produced when environments were very different
Not perfect and do not apply to every situation

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5
Q

What is cost leadership?

A

Being the lowest cost producer

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6
Q

What is differentiation?

A

Creating a customer perception that the product is superior to that of competitors so that a premium can be charged

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7
Q

What is Focus?

A

Utitilising either cost leadership or differentiation in a narrow profile of market segments sometimes called niching

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8
Q

What is the cost leadership strategy based on?

A

Business organising itself to be the lowest-cost producer

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9
Q

What are the potential benefits of the cost leadership strategy?

A

Business can earn higher profits by charging the same price as competitors or even moving to undercut where demand is elastic
Lets a company build defence against price wars
Allows price penetration entry strategy into new markets
Enhances barriers to entry
Develops new market segments

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10
Q

What can cutting prices to below those of rivals trigger?

A

Damaging price war

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11
Q

What is the differentiation strategy?

A

Based upon the idea of persuading customers that a product is superior to that offered by the competition

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12
Q

What are the benefits of the differentiation strategy?

A

Products command a premium price so higher margins
Demand below less price elastic and so avoids costly competitor price wars
Life cycle extends as branding becomes possible

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13
Q

How can value chain analysis identify the points at which the benefits of differentiation strategy be acheived?

A

Creating products which are superior to competitors by virtue of design, technology, performance
Offering superior after-sales service by superior distribution
Creating brand strength
Augmenting the product
Packaging the product
Ensuring an innovative culture exists within the company

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14
Q

What is a focus strategy?

A

Aimed at a segment of the market rather than the whole market.
Possibly based upon age, gender, lifestyle, income or geography

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15
Q

What are the benefits of focus strategy?

A

Smaller segments and so smaller investment in marketing operations
Allows specialisation
Less competition
Entry is cheaper and easier

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16
Q

What is required for the focus strategy?

A

Reliable segment identification
Consumer/customer needs to be reliably identifies
Segment to be sufficiently large to enable a return to be earned in the long run
Competition analysis
Direct focus of product to consumer needs

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17
Q

How can niching be done via specialisation?

A

Location
Type of end user
Product or product line
Quality
Price
Size of customer
Product feature

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18
Q

What influences the attractiveness of the market niche?

A

Niche must be large enough in terms of potential buyers
Niche must have growth potential and predictability
Niche must be negligible interest to major competitors
Firm must have strategic capability to enable effective service of the niche

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19
Q

According to Ansoff if we have an existing product in an existing market what is the best strategy?

A

Market penetration

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20
Q

According to Ansoff if we have an new product in an existing market what is the best strategy?

A

Product development

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21
Q

According to Ansoff if we have an existing product in an new market what is the best strategy?

A

Market development

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22
Q

According to Ansoff if we have an new product in an new market what is the best strategy?

A

Diversification

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23
Q

What is the aim of market penetration?

A

Increase market share using existing products within existing markets

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24
Q

How do we stimulate usage by existing customers in market penetration?

A

New uses of advertising
Promotions, sponsorships
Quantity discounts

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25
How do we attract non-users and competitor customers in market penetration?
Price Promotion and advertising Process redesign
26
When is market penetration considered?
Overall market is growing Market not saturated Competitors leaving or weak Strong brand presence by your company with established reputation Strong marketing capabilities within your company
27
What is the aim of market development?
Increase sales by taking the present product to new markets
28
What approach should we take with market development?
Add geographical areas - regional and national Add demographic areas - age and sex New distribution channels
29
What are some key notes to do with market development?
Sligh product modifications may be needed Advertising in different media and in different ways Research Company is structured to produce one product and high switching costs exist for transfer to other product types Strong marketing ability is needed
30
What does product development focus on?
Development of new products for existing markets
31
What is the approach to product development?
Develop product features of a significant nature Create different quality versions
32
What are the key notes of product development?
Company needs to be innovative and strong in the area of R&D and have an established, reliable marketing database Constant innovation allows for the developing sophistication of consumers and customers Ensures that any product related competitive advantage is maintained
33
What is the approach to diversification?
New products to new markets
34
What are the key things to note in diversification?
Appropriate when exisiting markets are saturated Goes through periods of being in and out of favour Debate is always continuing as to whether this is a good strategic option
35
What is often seen as being the CSF for successful diversification?
Brand stretching ability
36
What is usually seen as the riskiest of the growth strategies suggested by Ansoff?
Diversification as the business has no experience of the market or the product that it is planning to sell
37
What are the two main forms that diversification can take?
Related diversification (concentric diversification) Unrelated Diversitication (conglomerate diversification)
38
What is related diversification?
Growth into similar industries Growth forward into the customer marketplace Growth into the existing supply chain.
39
What is vertical backwards within related diversification?
A company seeks to operate in markets in which it currently obtains its resources
40
What is vertical forward within related diversification?
A company seeks to move into its customer base
41
What is horizontal within related diversification?
Involves a company entering into complementary or competing markets
42
What is vertical integration?
Taking over a supplier or customer
43
What are the key issues that relate to vertical integration?
Cost Quality Risk/Flexibility
44
What is horizontal diversification?
Refers to development into activities that are competitive with, or directly complementary to, a company's present activities
45
What are the three cases of horizontal diversification?
Competitive products Complementary products By-products
46
What is unrelated diversification?
Occurs when a business expands into completely new markets or industries with which the business currently shares no common ground
47
What are the advantages of unrelated diversification?
Occurs when there are limited opportunities in current market May be only way for business to grow Opportunity for return Reduces the organisations overall risk
48
What are the disadvantages of unrelated diversification?
Increased risk of failure Little gain to shareholders Management lose focus on the core markets that the company operates within Could lead to reduced returns as a whole
49
If there is high market growth and high relative market share what is it according to the produce portfolio theory (BCG)?
Star - cash neutral
50
If there is low market growth and high relative market share what is it according to the produce portfolio theory (BCG)?
Cash cows - cash generator
51
If there is high market growth and low relative market share what is it according to the produce portfolio theory (BCG)?
Question mark - Cash user
52
If there is low market growth and low relative market share what is it according to the produce portfolio theory (BCG)?
Dog - Cash neutral
53
What was the product portfolio theory orginally developed for?
Assist managers in identifying cash flow requirements of different businesses or products within their organisation's portfolio and to help to decide whether change in the mix of businesses is required
54
What are the four steps that are required to use the BCG matrix?
1. Divide the company into SBUs 2. Allocate into the matrix 3. Assess the prospects of each SBU and compare against others in the matrix 4. Develop strategic objectives for each SBU
55
What is the relative market share?
Ratio of SBU market share to that of largest rival in the market sector. BCG suggests that market share gives a company cost advantages from economies of scale and learning effects
56
What is the market growth rate?
Represents the growth rate of the market sector concerned.
57
What does the BCG model suggest the appropraite strategies are?
Hold - Adopt strategies to keep the product in its current quadrant Build - Increase investment in the product Harvest - reduce investment to maximise net cash return from the product Divest - disposal/closure of the product in order to release any cash
58
What are cash cows in the BCG model?
Hold or harvest Products have a high market share in a low-growth market Usually reached maturity stage of their life cycle Usually stongly profit and cash generated Market leaders with relatively high sales Capital requirements are low for the cash cow Maximising cash flows by keeping investement to a minimum
59
What are stars in the BCG model?
Hold or build High market share in an attractive, high-growth market Offer attractive long-term prospects and if maintained could one day become a cash cow Rarely generate significant amounts of cash or profits for the company Operate in an attractive, high growth market Company required to spend large amounts of money to beat off competitor attack strategies Require high level of capital investment
60
What are question marks in the BCG model?
Low market share in an attractive, rapidly growing market 'growth' or 'introduction' stage of life cycle Management adopts a 'double or quits' approach Try to grow market share through heavy investment in expansion, marketing and promotion
61
What are dogs in the BCG model?
Low market share of a slow growing market Product may be in 'decline' stage Could be a question mark that never successfully grew Making small profits or losses and will be cash neutral Little point for business to try and grow Would require significant cost and risk to invest May be used as a loss leader to attract customers
62
What are some methods of growth?
Acquisitions Mergers Organic growth
63
What is an acquisition?
Refers to a corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm
64
What are mergers?
Business combinations that result from the creation of a new reporting entity formed from the combining parties
65
What is organic growth?
Growth through internally generated projects, such as increased output, customer base expansion, or new product development
66
What is a synergy?
The advantage to a firm gained by having existing resources which are compatible with new products or markets that the company is developing
67
What are the advantages of acquisitions over organic growth?
High speed access to resources Avoid barriers to entry Less reaction from competitors Can block a competitor Can help restructure the operating environment Relative price/earning ratio Asset valuation
68
What are the disadvantages of acquisitions over organic growth?
Acquistion may be more costly than internal growth because owners of the acquired company will have to be paid for the risk already taken Bound to be cultural mismatch between the organisations Different in managers salaries Disposal of assets Risk Reduction in ROCE
69
What are some joint development methods?
Joint venture Strategic alliances Franchising Licenses Outsourcing
70
What are the key consideration in any joint arrangement?
Sharing of costs Sharing of benefits Sharing of risks Ownership of resources Control/decision making
71
What is a joint venture?
Business entity whose shares are owned by two or more business entities. Assets are jointly owned
72
What is a strategic alliance?
Cooperative business activity, formed by two or more seperate organisations for strategic purposes, that allocates ownerships, operational responsibilities, financial risk, and rewards to each member
73
What are the seven characteristics of a well-structured alliance?
Strategic synergy Positioning opportunity Limited resource availability Less risk Co-operative spirit Clarity of purpose Win-win
74
What is franchising?
Purchase of the right to exploit a business brand in return for a capital sum and a share of profits or turnover
75
What is licensing?
Right to exploit an invention or resource in return for a share of proceeds
76
What is outsourcing?
Contracting out aspects of the work of the organisation
77
When may divestment occur?
SBU no longer fits with existing group SBU may be too small and not warrant the management attention given to it Selling the SBU as a going concern may be a cheaper alternative to putting it into liquidation Parent company may need to improve its liquidity position An MBO (management buy out) is one way a divestment can occur
78
What are the different possible strategies that we can adopt when deciding whether to expand abroad?
Exporting strategy Overseas manufacture Multinational Transnational
79
What is an exporting strategy?
Firm sells products made in its home country to buyers abroad
80
What is multinational?
Firms co-ordinate their value adding activities across national boundaries
81
What is transnational?
'Nation-less' firms that have no 'home' country
82
What should be considered when deciding which approach to take if expanding abroad?
Exposure to risk Need for capital investment Customer relationships Transportation costs Ethical issues Cultural issues
83
What are the three criterias that Johnson and Scholes suggests that potential strategies can be evaluated against?
Suitability Feasibility Acceptability
84
Where would a market development strategy 'fit'?
Channels of distribution are available Business has a strong marketing presence Products are superior to competitors Unsaturated markets exist Spare production capacity exists Economies of scale are possible
85
Where would a product development strategy 'fit'?
Brand reputation is high Brand is transportable Strong research capabilities exist
86
Where would a market penetration strategy 'fit'?
Current markets are not saturated Present customers will rebuy Competitors are weak Spare production capacity exists
87
Where would a consolidation strategy 'fit'?
Lack of funding Owners do not want to grow HR not available Any kind of restraining factor exists
88
Where would a diversification strategy 'fit'?
Strong brand presence Significant resources are available to enable the development of new competencies Market research base is reliable and competent
89
What consideration should we consider with feasibility?
Cultural change required and realism of change Timescales Potential resistance Raw materials availability Human resource availability Distribution channel access Marketing requirements IT requirements and skills Finance
90
What areas should we consider with acceptability?
Staff Financiers Owners Customers, consumers and suppliers Governments Public
91
What is the strategic management principle that Thompson poses?
The more a strategy fits the enterprise's external and internal situation, builds competitive advantage and improves company performance, the more it qualifies as a winner

E3 - Strategic Management (13 decks)

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