spm Flashcards
Strategy
Strategy is a pattern of activities that seeks to achieve the objectives of the organisation and adapt its scope,
resources and operations to environmental changes in the long term.
- consist of organised activities - purpose is to achieve an objective
- is always for long term - influenced by the environment
- is always flexible and dynamic - brings optimisation all the time
Corporate Strategy
What business should we be in?
[Should seek to achieve the overall
objective or objectives of the
entity
Business Strategy
How should we compete in each
selected business?
[contribute towards the
achievement of the corporate
strategy
Functional Strategy
For each business function, how
can that function contribute to
the competitive advantage of the
entity?
[contribute towards the
achievement of business strategy
STRATEGIC ANALYSIS
macro environment
(competitors, markets,
opportunities and threats
- strategic capability of the
organisation (resources and
competences),
- culture, beliefs and assumptions
of the organisation
- expectation and power of
stakeholders
STRATEGIC CHOICES
competitve strategies
- generation of strategic options,
e.g., growth, acquisition,
diversification or concentration.
- evaluation of the options to
assess their relative merits and
feasibility.
- selection of the strategy or
option that the organisation will
pursue.
STRATEGY INTO ACTION
- Organising/ structuring.
- Enabling an organisation’s
resources should support the
chosen strategy. - Managing change. Most
strategic planning and
implementation will involve
change, so managing change, in
particular employees’ fears and
resistance, is crucial.
Mission
Mission - purpose of
an organisation and
the reason for its
existence
Vision
Vision - desired
optimal future state of
what the organisation
wants to achieve
Goals and objectives
SMART (Specific,
Measurable, Agreed,
Realistic, Time-bound)
Intended Strategy
Emergent Strategy
Intended Strategy (planned
through formal process)
Emergent Strategy (emerges
without formal planning)
Future Basing
Future Basing [used to create a vision for implementing strategy at any level within an organisation]
Firstly, a compelling vision needs
to be established whilst ‘based in
the future’.
Secondly, milestone events and
dates need to be identified by
‘remembering back’ what you
must have done to get to the
future-based vision.
Reality check - the final stage
involves planning and strategising
how to achieve the milestones
through scheduling events and
assessing the resources required
PESTEL ANALYSIS
Political
[consistent
policy,
government
stability and
foreign trade
regulations]
Economic
[interest rates,
inflation,
business cycles,
unemployment,
disposable
income and
energy
availability]
Social
[population
demographics,
income
distribution,
lifestyle and
leisure, levels of
education and
consumerism.
Technological
[government
spending on
research, new
discoveries and
development,
focus of
technological
effort, rates of
obsolescence.
Ecological/
environmental
[considers ways
in which the
organisation
can produce its
goods or
services with
the minimum
environmental
damage]
Legal
[taxation,
employment
law, monopoly
legislation and
environmental
protection laws]
Bargaining Power
of Customers
Powerful buyers
can demand
discounted prices
and extra services
(which add costs to
the organisation).
Bargaining Power
of Suppliers
Powerful suppliers
can demand higher
prices for their
product(s).
Threat of New
Entrants
New entrants can
increase the cost of
resources as well
as increasing the
power of other
forces
Threat of
Substitutes
If an organisation
has a lot of
substitutes it will
have to keep its
prices low to deter
customers from
moving to these
substitutes.
Competitive
Rivalry
High levels of
competition can
lead to price wars
and high
expenditure on
marketing and
innovation
PORTER’s DIAMOND
[Why are firms based in a particular nation able to create and sustain competitive advantage against the world’s
best competitors in a particular field]
Factor conditions
- land, minerals and
weather
- capital
- skilled and motivated
human resources
- knowledge
- infrastructure.
Demand conditions
[strong home market
demand for the product
or service]
Related and supported
industries
[suppliers and related
industries]
Firm strategy,
structure and rivalry
[organisational goals
can be determined by
ownership structure.
Unquoted companies
may have slightly longer
time horizons to operate
in because their financial
performance is subject
to much less scrutiny
than quoted companies]
Strategic Group
[entities that operate in the same industry and that
have similar strategies or that are competing in their
markets in a similar way
Strategic Space
When all the companies in an industry are put into
strategic groups and are analysed, a strategic space
might become apparent.
A strategic space is a gap in the market that is not
currently filled by any strategic group.
The existence of strategic space might provide an
opportunity for a company to make an initiative.
Market segmentation
A market segment is a section of the total market in
which the potential customers have certain unique
and identifiable characteristics and needs.
Instead of trying to sell to all customers in the entire
market, an entity might develop products or services
that are designed to appeal to customers in a
specific market segment.
Market segmentation is the process of dividing the
market into separate segments, for the purpose of
developing differing products for each segment
STRATEGIC CAPABILITIES [COMPETENCES AND RESOURCES]
[Strategic capability is the adequacy and suitability of the resources and competences an organisation needs if it is
to survive and prosper]
THRESHOLD
- these are necessary for any organisation to exist
and compete in an industry - they are likely to be common to most rivals and
easily copied - they will not lead to success or competitive
advantage
Example: any daily newspaper has reporters, editors,
printing staff etc
STRATEGIC
- these are particular to an individual business
- they will be hard to copy
- they will be valued by the customer (CSF)
- they will lead to competitive advantage.
Example: A particular newspaper may be able to
stand out from its rivals if it has an exclusive deal
with the country’s top sport star who will write a
daily column on his/her sport
WHEN DOES A STRATEGIC COMPETENCE BECOME SUSTAINABLE COMPETITIVE ADVANTAGE?
refer notes
Sustainable competitive advantages
Sustainable competitive advantages – The capabilities that allow an organisation to beat its competitors.
These capabilities must meet the needs and expectations of its customers. Unique capabilities are not
enough – they must be valued by the customers
PORTER’S VALUE CHAIN
[identify which activities within the firm are contributing to a competitive advantage and which are not]
PRIMARY VALUE ACTIVITIES
Inbound
logistics
[receiving,
storing and
handling raw
material inputs.
For example, a
just-in-time
stock system
could give a
cost advantage]
Operations
transformation
of the raw
materials into
finished goods
and services.
For example,
using
skilled
craftsmen could
give a quality
advantage
Outbound
logistics
storing,
distributing and
delivering
finished goods
to customers.
For example,
outsourcing
delivering could
give a cost
advantage.
Marketing and
sales
for example,
sponsorship of
a sports
celebrity could
enhance the
image of the
product
Service
all activities that
occur after the
point of sale,
such as
installation,
training and
repair.
E.g., Marks &
Spencer’s
friendly
approach to
returns gives it
a perceived
quality
advantage.
SUPPORT OR
SECONDARY
VALUE
ACTIVITIES
Firm
infrastructure
[structure]
Technology
development
Human
Resource
Development
[people]
Procurement
[purchasing]
STRATEGIC CHOICE
refer notes
SUMMARY OF COMPETITIVE STRATEGIES
refer notes
STRATEGIC CLOCK
Routes 1 and 2 are price-based strategies.
1 = no frills: Very price-sensitive customers. Simple products and services where innovation is quickly imitated – price
is a key competitive weapon. Costs are kept low because the product/service is very basic.
2 = low price: Aim for a low price without sacrificing perceived quality or benefits. In the long-run, the low price strategy
must be supported by a low cost base.
3 = hybrid strategy: Achieves differentiation, but also keeps prices down. This implies high volumes or some other
way in which costs can be kept low despite the inherent costs of differentiation.
Routes 4 and 5 are differentiation strategies.
4 = differentiation: Offering better products and services at higher selling prices. Products and services need to be
targeted carefully if customers are going to be willing to pay a premium price.
5 = focused differentiation: Offering high perceived benefits at high prices. Often this approach relies on powerful
branding. New ventures often start with focused strategies, but then become less focused as they grow and need to
address new markets.
6, 7, 8 = failure strategies: Ordinary products and services being sold at high prices. Can only work if there is a
protected monopoly. Some organisations try option 8 by sneakily reducing benefits while maintaining prices
THE ANSOFF GROWTH MATRIX
notes
Strategy Evaluation
Suitability
whether the options are
adequate responses to the
firm’s assessment of its
strategic position.
Acceptability
considers whether the options
meet and are consistent with
the firm’s objectives and are
acceptable to the stakeholders
Feasibility
assesses whether the
organisation has the resources
it needs to carry out the
strategy
GREINER’s GROWTH MODEL
Greiner’s Growth Model is a framework that describes how organizations evolve over time and identifies five stages of
growth that organizations typically go through. The five stages are:
Growth through creativity: In this stage, the organization is typically small, with a flat organizational structure and an
entrepreneurial culture. The focus is on developing new products or services and establishing a market niche.
Growth through direction: As the organization grows, it becomes more complex, with a need for more formalized
processes and structures. The focus is on creating more efficient operations and developing a more hierarchical
organizational structure.
Growth through delegation: In this stage, the organization becomes even more complex, with multiple layers of
management and a greater focus on delegation of authority. The focus is on developing a more decentralized
structure and improving communication within the organization.
Growth through coordination: In this stage, the organization becomes even larger and more complex, with multiple
business units and a need for greater coordination and integration. The focus is on improving coordination and
communication between different parts of the organization.
Growth through collaboration: In the final stage, the organization becomes highly complex, with a global reach and a
focus on collaboration with external partners. The focus is on developing a collaborative culture and a strategic focus
on innovation.
Greiner’s model suggests that each stage of growth is marked by a crisis that must be overcome in order to move to
the next stage. By understanding the challenges and opportunities of each stage, organizations can better prepare for
the future and manage growth more effectively
Organic Growth
An entity might grow its business
with its own resources, seeking to
increase sales and profits each year
Management can control the rate of
growth more easily, and ensure that
the entity has sufficient resources
to grow successfully
The biggest disadvantage is
probably that there is a limit to the
rate of growth a business entity can
achieve with its internal resources.
Rival firms might be able to grow
much more quickly by means of
mergers, acquisitions and joint
ventures
Mergers & Acquisition
An entity can grow quickly by
means of mergers or acquisitions.
Acquisitions are more common than
mergers, but large mergers are
possibly more significant, because
they can create market leaders in
their industry
Growth by acquisition or merger is
much faster than growth through
internal development. An
acquisition can give the buyer
immediate ownership of new
products, new markets and new
customers, that would be difficult to
obtain through internal
development
An acquisition might be expensive.
The bid price has to be high enough
to make the shareholders of the
target company willing to sell their
shares. The return on investment
for the entity making the acquisition
might therefore be very low
Franchising
The franchiser grants a licence to
the franchisee allowing the
franchisee to use the franchiser’s
name, goodwill and systems. The
franchisee pays the franchiser for
these rights and also for subsequent
support services the franchiser may
supply.
Rapid expansion and increasing
market share with relatively little
equity capital.
The franchisee provides local
knowledge and unit supervision.
The franchiser specialises in
providing a central marketing and
control function, limiting the range
of management skills needed.
The franchiser will seek to maintain
some control or influence over
quality and service from the centre
but this will be difficult if the
franchisee sees opportunities to
increase profit by deviating from
the standards which the franchiser
has established.
Licensing
Franchises and licenses are both
business agreements in which
certain brand aspects are shared in
exchange for a fee. However, a
franchising agreement pertains to a
business’s entire brand and
operations, while a licensing
agreement only applies to
registered trademarks.
Licensing is a limited legal business
relationship where a specific party
is granted rights to use certain
registered trademarks of a brand.
The business relationship is
between the licensor and licensee.
To use the registered trademarks of
another brand, the licensee pays
the licensor an agreed-upon royalty
fee.
In general, licensing agreements are
most often used by brands that are
highly recognizable and marketable.
For a licensing agreement to be
beneficial to both parties, the
business branding must already be
successful and known by a large
portion of buyers.
Joint Venture
Joint Venture [two or more
companies join together to
collaborate on a particular project.
They share resources, profits, losses
and expense, and form a separate
legal entity]
- can share the set-up and running
costs
- can learn from each other
- can focus on relative strengths
- may reduce political or cultural
risks
- it is better than going it alone and
then competing
- can often lead to disputes may
give access to strategic capabilities
and eventually allow the partner to
compete in core areas
- there may be a lack of
commitment from each party
- requires strong central support
which may not be provided
Strategic alliance [
Strategic alliance [a co-operative
business activity, formed by two or
more separate organisations for
strategic purposes, that allocates
ownership, operational
responsibilities, financial risks, and
rewards to each member, while
preserving their separate identity/
autonomy]
Alliances can allow participants to
achieve critical mass, benefit from
other participants’ skills and can
allow skill transfer between
participants.
The technical difference between a
strategic alliance and a joint venture
is whether or not a new,
independent business entity is
formed.
Less risk – forming the alliance
reduces the risk of the venture.
Co-operative spirit – both
companies must want to do this and
be willing to co-operate fully.
Results, milestones, methods and
resource commitments must be
clearly understood.
STAR
[rate of market growth: high]
[relative market share: high]
A star has a high relative market share in a high-growth
market.
This type of product may be in a later stage of its product
life cycle.
A star may be only cash-neutral despite its strong
position, as large amounts of cash may need to be spent
to defend an organisation’s position against competitors.
Competitors will be attracted to the market by the high
growth rates. Failure to support a star sufficiently strongly
may lead to the product losing its leading market share
position, slipping to the right in the matrix and becoming
a problem child.
PROBLEM CHILD
[rate of market growth: high]
[relative market share: low]
A problem child (sometimes called ‘question mark’) is
characterised by a low market share in a high-growth
market.
Substantial net cash input is required to maintain or
increase market share.
The company must decide whether to do nothing – but
cash continues to be absorbed – or market more
intensively, or get out of this market.
The questions are whether this product can compete
successfully with adequate support and what that support
will cost
CASH COW
[rate of market growth: low]
[relative market share: high]
A cash cow has a high relative market share in a lowgrowth market and should be generating substantial cash
inflows.
The period of high growth in the market has ended (the
product life cycle is in the maturity or decline stage), and
consequently the market is less attractive to new entrants
and existing competitors.
Cash cow products tend to generate cash in excess of
what is needed to sustain their market positions. Profits
support the growth of other company products. The firm’s
strategy is oriented towards maintaining the product’s
strong position in the market.
DOG
[rate of market growth: low]
[relative market share: low]
A dog product has a low relative market share in a lowgrowth market. Such a product tends to have a negative
cash flow, that is likely to continue. It is unlikely that a dog
can wrest market share from competitors.
Competitors, who have the advantage of having larger
market shares, are likely to fiercely resist any attempts to
reduce their share of a low-growth or static market.
An organisation with such a product can attempt to
appeal to a specialised market, delete the product or
harvest profits by cutting back support services to a
minimum
