Chapter 8: Terms

Question 1

Three types of strategies:

Answer 1

1. Corporate strategy
2. Business strategy
3. Functional strategy

Question 2

KC: The strategic process

Answer 2

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.

Question 3

Disadvantages of rational approach:

Answer 3

1. knowledge is often imperfect
2. Environment is often complex and dynamic
3. managers can be unaware of their strengths and weaknesses
4. collect the same information as rival companies
5. criticism of pseudo-science

Question 4

KC: SWOT analysis

Answer 4

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.

Question 5

Approaches of strategy

Answer 5

1. rational
2. flexible
3. creative
4. behavioral
5. incremental or emergent approach
6. absence of problems

Question 6

environments that influence strategy

Answer 6

1. general environment
2. immediate competitive environment

Question 7

Five forces model:

Answer 7

1. The threat of potential entrants
2. The threat of substitution
3. The bargaining power of buyers
4. The bargaining power of suppliers
5. Competitive rivalry

Question 8

Key resource elements of resource based view

Answer 8

1. physical capital
2. human capital
3. organisational capital
4. financial capital

Question 9

VRIO (competitive advantage)

Answer 9

Value
Rarity
Imitability
Organization

Question 10

KC: Core competence

Answer 10

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.

Question 11

KC: Value chain

Answer 11

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.

Question 12

Porter’s five primary activities:

Answer 12

1. Inbound logistics
2. Operations
3. Outbound logistics
4. Marketing and sales
5. Services

Supported by:
Purchasing, technology development, human resource management, firm infrastructure

Question 13

KC: Portfolio analysis

Answer 13

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 14

Question marks:

Answer 14

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

Question 15

Stars

Answer 15

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

Question 16

Dogs

Answer 16

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”

Question 17

Cash cows

Answer 17

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????

Question 18

Three generic strategies:

Answer 18

1. cost leadership
2. differentiation
3. focus

Question 19

Strategies that give growth options:

Answer 19

1. product penetration
2. product development
3. market development
4. diversification

Question 20

KC: Diversification strategies

Answer 20

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.

Question 21

KC: Backward and forward integration

Answer 21

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.

Question 22

KC: Strategic fit

Answer 22

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.