Chapter 8: Terms Flashcards
Three types of strategies:
- Corporate strategy
- Business strategy
- Functional strategy
KC: The strategic process
The strategic process refers to the way in which management strategy is formed. In most organizations this involves a mixture of scientific and rational analysis together with more subjective and political considerations.
Disadvantages of rational approach:
- knowledge is often imperfect
- Environment is often complex and dynamic
- managers can be unaware of their strengths and weaknesses
- collect the same information as rival companies
- criticism of pseudo-science
KC: SWOT analysis
SWOT stands for strengths, weaknesses, opportunities and threats. It is normally associated with more rational approaches to strategy formulation, but perhaps its greatest contribution lies in providing the management strategist and student of business with a framework for analyzing the position of a firm at a particular time. It can also be useful in the development of strategic options which attempt to tackle opportunities and threats, build on corporate strengths and avoid weaknesses. The challenge is to remain objective in appraisal of the strengths and weaknesses of the organization as well as being realistic about the opportunities and extent of the threats. An important consideration is that for most management there is a choice of strategy and SWOT analysis pro-vides a starting point for consideration of those choices.
Approaches of strategy
- rational
- flexible
- creative
- behavioral
- incremental or emergent approach
- absence of problems
environments that influence strategy
- general environment
- immediate competitive environment
Five forces model:
- The threat of potential entrants
- The threat of substitution
- The bargaining power of buyers
- The bargaining power of suppliers
- Competitive rivalry
Key resource elements of resource based view
- physical capital
- human capital
- organisational capital
- financial capital
VRIO (competitive advantage)
Value
Rarity
Imitability
Organization
KC: Core competence
Core competences refer to those activities of an organization that give it an advantage over its competitors. Such advantages could derive from an effective R&D department, an efficient operating system, good internal and external communications, the presence of key individuals, reputation and a loyal customer base. The stra-tegic relevance of core competences is the opportunity they provide management to build upon such specific advantages.
KC: Value chain
The value chain offers a view of the organization as a cumulative build-up of added value for the customer through the interaction between key operations activities. The end result is greater than the sum of its parts and, for profit seeking organizations, means increased margins. Porter identifies elements of the value chain in terms of primary and support activities. Like the Business in Context model, the value chain sees organizations in terms of interactions between the various parts.
Porter’s five primary activities:
- Inbound logistics
- Operations
- Outbound logistics
- Marketing and sales
- Services
Supported by:
Purchasing, technology development, human resource management, firm infrastructure
KC: Portfolio analysis
Portfolio analysis is a technique that can be used by firms operating in a number of markets and/or with a num-ber of different products. The technique enables management to assess the relative attractiveness of products and markets to assist decision making on future directions and resource allocation. There are several methods and models available, the most famous of which are probably the Boston Consulting Group matrix and the General Electric business screen.
Question marks:
Low market share / high growth market
High growth means an easy opportunity to win customers
But the position is not very strong. investments are necessary but risky
Future growth (Stars) and future turnover (Cash cows) are likely to come from Question Marks, so it’s good to have some in your portfolio, but limited
Stars
High market share / high growth market
Best shot at future cash cow
Investments are necessary to maintain the lead, but less risky than question marks
Not all companies have a cash cow, question mark, or star in portfolio
Dogs
Low market share / low growth market
Low growth means there are few opportunities to gain new customers
Position is weak
If you have a portfolio of products or SBUs, don’t invest
“Great care should be taken in the interpretation and application”
Cash cows
High market share/low growth market
Low growth means few investments required
But the position is very strong
Cash cows require few investments; instead generate cash flow to invest elsewhere????
Three generic strategies:
- cost leadership
- differentiation
- focus
Strategies that give growth options:
- product penetration
- product development
- market development
- diversification
KC: Diversification strategies
These are strategies that move the organization in different directions involving products or markets or both. Related diversification refers to new activities that are directly related in some way to existing operations, such as a hotel acquiring a catering business. Unrelated diversification moves the organization in a new direction, such as a hotel chain acquiring a newspaper. Highly diversified firms can spread risk across a number of products and/or markets. However, there may be problems associated with coordination and control. Related diversification can lead to benefits of economies of scale and scope.
KC: Backward and forward integration
Backward integration is a diversification strategy to gain control of activities and/or firms further back in the supply chain, such as raw material or components suppliers. Forward integration is a strategy to gain control of activities further forward in the supply chain, such as distribution and retailing. Both backward and forward integration can be achieved by acquisition, joint venture or strategic alliance. Backward and forward integration, either singly or together, are often referred to as vertical integration.
KC: Strategic fit
Strategic fit is an important ingredient of successful mergers, acquisitions and joint ventures. Successful joint activities occur when each party complements the other in terms of their relative strengths and weaknesses. The concept is normally applied to products and markets, but it can apply equally to resources and other forms of core competence. The strategic fit should be compatible with long term strategic plans, otherwise the partner-ship may be short lived or prove to be a costly mistake.
