Strategic Choices

Question 1

THE SCOPE OF STRATEGIC CHOICE

Johnson (2017) suggests that there are 3 predominant areas of strategic choice an organisation needs to consider. What are they?

The scope of our strategic choice will be determined by what?

Answer 1

1. Business strategy = determines how an organisation has positioned itself in relation to its competitors.
2. Strategic direction = determines the products, industries and market sectors that the organisation intends to operate within.
3. Strategy methods = determine whether the organisation is acting in isolation or seeking some form of strategic alliance with one or more different but aligned organisations

the breadth of vision concerning the imagined future of the organisation, and ourselves

Question 2

DRIVING THE BUSINESS FORWARD - A WHOLE-BUSINESS APPROACH

The concept of the development of strategy suggests what?

Company secretaries or governance professionals are required to be able to do what?

Why?

Answer 2

that we wish to drive the business forward

to consider and challenge the impact of strategic choices upon the whole business, while recognising the different aspirations of the individuals in the organisation and their respective sections or departments

Often, directors or managers in meetings hold strong views based around their own beliefs and about the need for change and strategic momentum within an organisation.

Question 3

DRIVING THE BUSINESS FORWARD - RESEARCH AND DEVELOPMENT

Why is research and development important? (2)

How are research and development defined?

Answer 3

(1) To achieve the necessary understanding of the organisation as it stands now in alignment with its future (strategic) potential

(2) The development of strategy requires both of these activities to have been carried out to ensure that we are making informed choices.

Research = a systematic investigation into materials and sources in order to establish facts and reach new conclusions

Development = an event constituting a new stage in a changing situation

Question 4

DRIVING THE BUSINESS FORWARD - RESEARCH AND DEVELOPMENT

To be able to make strategic choices it is fundamental that what is understood?

Why?

To succeed in a world of competition it is necessary for an organisation to recognise what?

What does this require?

Answer 4

it is fundamental that we understand the nature of the competitive environment within which we are operating before we make strategic choices

Appropriate research into the competitive environment will allow us to challenge the internal drivers within our own organisation and will ensure that we are viewing the organisation within the context of the markets that are available for our products or services, and the position of other players within those markets

how it can obtain competitive advantage

= requires research into the competition to help drive the development of the required changes and facilitate effective and efficient strategic change

Question 5

DRIVING THE BUSINESS FORWARD - STRATEGIC DIRECTION

A central strategic choice that needs to be made by every organisation is what?

What are the only two variables to manipulate?

Why is this recognition fundamental?

This concept was captured by Ansoff (1988) in his product/market grid. Explain this grid. (4)

Answer 5

the direction in which it sees its future development and growth

products/services and customers

fundamental in allowing the identification of the areas within which we need to refine our market research and strategic development, and ultimately our choices

1. Existing markets, existing products/services = market penetration
2. Existing markets, new products/services = product development
3. New markets, existing products/services = market development
4. New markets, new products/services = diversification

Question 6

DRIVING THE BUSINESS FORWARD - STRATEGIC DIRECTION - MARKET PENETRATION

What does market penetration suggest?

What does this build upon?

What are the 2 core forces that may restrict this type of perceived growth?

In the UK the Competition and Markets Authority (CMA) has the right to do what?

Name an example.

Answer 6

suggests growth through the increase of the market share of the current product and market mix.

This builds upon current strategic capabilities and is probably the most risk averse of the strategic directions that could be followed.

(1) retaliation from competitors (wanting to capture a share of a proven successful market); and
(2) legal restriction based around an acceptable concentration of market power

to challenge, prevent or restrict any perceived monopolistic dominance.

requiring the closure of stores when one company is dominant
e.g. Morrisons plc acquired Safeway group and were forced to close 52 stores

Question 7

DRIVING THE BUSINESS FORWARD - STRATEGIC DIRECTION

PRODUCT DEVELOPMENT

What does product development suggest?

Name an example.

MARKET DEVELOPMENT

What does market development suggest?

What would this require?

Name an example.

Answer 7

Product development suggests using the knowledge of the existing customer base and markets to provide different, evolved or complementary products or services

E.g., the development of the iPad by Apple, where sales of a completely new concept were made readily to a marketplace that had already developed with sales of the iPod and iPhone.

Market development suggests that there is an opportunity to take existing products or services into new markets.

would require significant pre-emptive market and consumer research, and possibly some product development to tailor the existing product to the particular expectations of the new market

E.g., Sony introduced their PlayStation 2 games console = they radically reduced the price point of the earlier PlayStation 1, thus opening significant new market potential for an existing product, with the additional intangible benefit of building their brand reputation within a dramatically larger group of people

Question 8

DRIVING THE BUSINESS FORWARD - STRATEGIC DIRECTION - DIVERSIFICATION

Diversification is undoubtedly the highest risk option from within the Ansoff matrix, requiring what?

This type of diversification will often be narrowed through what?

What is horizonal diversification?

Name an example.

What is vertical diversification?

Name an example.

What is concentric diversification?

Name an example.

What is conglomerate diversification?

Name an example.

Answer 8

significant research and market intelligence in terms of both aspects of development.

through the recognition of opportunity:

1. Horizontal diversification = takes place when an organisation sees the opportunity to develop a new or variant product and market it to the customers of its competitors.
   E.g., after the successful introduction of the iPad tablet most other technology companies rapidly began to produce tablets
2. Vertical diversification = takes place when an organisation sees the opportunity to acquire either a new supplier or a new customer and therefore broaden its overall offering.
   E.g., Alibaba has grown its market presence through the frequent acquisition of direct suppliers of core commodities
3. Concentric diversification = takes place when an ostensibly new product (in reality closely related to a current product) is introduced by an organisation.
   E.g., PepsiCo broadened its product line from soft drinks to a range of fast-food franchises = led to a mutuality of offering (fast-food franchises being used to sell the classic PepsiCo drinks)
4. Conglomerate diversification = describes the situation where completely new and unrelated products are introduced by an organisation wishing to take advantage of its existing name and reputation.
   E.g., Virgin Group = different offerings and breadth of its markets = holidays, internet, airline, bank

Question 9

BUSINESS LEVEL STRATEGY

What does business level strategy describe?

It is important for the decision-makers, those making the strategic choices, to recognise what?

Answer 9

= describes the development of strategy and the choices that take place within a defined business unit

the boundary or parameter of the area of business that will be affected by their decisions

Question 10

BUSINESS LEVEL STRATEGY - STRATEGIC BUSINESS UNITS

It is important to take a whole-business view when considering the choices to be made in the development of strategy. However, as an organisation increases in size, there is a need to recognise what?

Where is this particularly clear?

It is common to refer to such a grouping as what?

How is this defined?

What infrastructure will it have?

What is the purpose of creating formal SBUs within a large organisation?

Answer 10

that some areas of the organisation will have a close synergy with other business units

in a large group of companies combined under one holding company, where some subsidiaries will be naturally aligned, either through location or customer/supplier focus

a strategic business unit (SBU)

SBU = a fully functional unit of a business with its own vision and direction, operating as a separate unit but often still reliant upon the organisational centre for its ultimate direction

have its own support infrastructure and specific policies and procedures (but maybe generic organisation-wide ones too)

to allow focused and aligned strategy, and agility to react quickly in DM within a changing external environment

Question 11

BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE

Porter (2004) argues that there are 3 fundamental methods for an organisation to achieve competitive advantage. What are these?

Porter suggests that an organisation is able to focus its business and choose the scope of customers that it wishes to serve. What are the 2 options?

Explain these above ideas in the matrix Porter proposes. (Competitive advantage and competitive scope)

Answer 11

Take either offensive or defensive action to create a defendable strategic position:
1. need structurally lower costs than competitors; or
2. demonstrate that products/services are differentiated from competitors (to charge a higher price for the added value created)
3. organisational focus = organisation will tailor its product or service to one or more specific needs of the perceived customer.

(1) could be a particularly narrow segment = strategic intention to skim the top layer off a wider market OR be a strategy to dominate a particular segment of a market; alternatively,
(2) adopt a broad scope and target customers with a new and much wider range of characteristics, such as age, wealth or geography

(1) competitive advantage; lower cost, competitive scope; broad target = cost leadership
(2) competitive advantage; lower cost, competitive scope; narrow target = cost focus
(3) competitive advantage; differentiation, competitive scope; broad target = differentiation
(4) competitive advantage; differentiation, competitive scope; narrow target = differentiation focus
(with a narrow market = dotted line recognises the need for a combined focus on both cost focus and differentiation focus rather than explicit strategy)

Question 12

BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - COST LEADERSHIP

There can only be one cost leader in any industry or sector. What is the intent when pursuing this as a strategic choice?

What will it require? (5)

Answer 12

to become the lowest cost organisation within a particular area of activity while maintaining quality

require an aligned set of interrelated tactics including:
1. a detailed understanding of all actual costs associated with the provision of a product or service

2. a focus on cost reduction based upon historic performance within the organisation aligned with an understanding of the cost options available;
3. the removal of unnecessary activities within the value chain;
4. a focus on customers who will fund the supply chain on time and in full;
5. a focus on quality of product or service to ensure a right-first-time delivery

(Cost leadership enables an organisation to price its product or services competitively and gain competitive advantage.)

Question 13

BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - COST LEADERSHIP

Johnson (2017) suggests that there are 4 key cost drivers that need to be taken into consideration. What are these?

Answer 13

1. Input costs = minimise labour and raw materials costs lead to cost advantage (source raw materials locally, outsource labour)
2. Economies of scale = (1) spreading high fixed costs across time and maximum potential output units and/or (2) having control over a critical mass of raw material suppliers (create bulk purchasing power)
3. Experience = cumulative experience and knowledge of people can ensure efficiency within the production process = know what doing so will operate more effectively and efficiently = the learning curve effect
4. Design = a rational strategic approach can ensure efficiency is built into the core design of the product or process.
   e.g., enhanced use of technology = greater cost efficiency

Question 14

BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - COST LEADERSHIP

Why are there risks in pursuing such a focused strategy?

Name 4 examples.

Answer 14

there are a number of areas where cost leadership can fail, including:

1. unjustified focus on the direct cost of one or more specific value-chain activities, while ignoring or not realising the true underlying cost of other activities
2. a restricted and insufficient supply base needing to be shared between all competitors
3. easy imitation or replication of the cost strategy by competitors
4. reductions being made in cost, by using cheaper supplies, to the detriment of quality

Question 15

BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - DIFFERENTIATION

The principle that underpins a differentiation strategy requires what?

What will this enable?

Johnson (2017) argues that there are 3 primary drivers of differentiation which an organisation ought to consider when pursuing this strategy. What are they?

Name examples for each.

Answer 15

the development of one or more aspects of the product/service that are either unique or perceived by customers as being unique

enable the organisation to charge a price premium for the provision of that product or service

these can work in isolation or on a combined basis:
1. Product and service attributes = endless possibilities only limited by the creativity of an organisation, with the objective to appeal to different consumer preference = based around colour, design, size, speed, style, taste, etc.

E.g., Apple make minimal changes to new products but are perceived to be adding value by end consumer = ‘must have the latest’ drive

2. Customer relationships = the manner in which the organisation deals with its customer = availability, speed of distribution, methods of payment or after sales service

E.g., rapid growth of different coffee shops driven by the ambience and service that is received rather than types of coffee

3. Complements = the perceived or actual receipt of additional products or service online, to enhance the value of the core purchase

E.g., the inclusion of software with certain phones and computers, differentiating
them from less expensive alternatives

Question 16

BUSINESS LEVEL STRATEGY - GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - DIFFERENTIATION

The consumer perception could be linked to one or more of what 5 non-exclusive categories of differentiation?

Answer 16

Point of differentiation:
1. Brand image
E.g., BMW cars, shopping at Waitrose rather than an alternative store

2. Technology
   E.g. BOSE headphones and sound equipment
3. Innovation
   E.g., Apple computers, iPads and iPhones
4. Customer service
   E.g., John Lewis department stores
5. Consumer preference
   E.g., Buying a can of Coca-Cola or Pepsi-Cola rather than an own-brand alternative

Question 17

BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - DIFFERENTIATION

Garvin (1987) identified 8 dimensions of differentiation quality. What are they?

These dimensions are clearly interlinked, but what does Garvin suggest?

What does this mean for an organisation?

Answer 17

1. Performance = is it better than the competition?
2. Features = does it have unique or unusual additional aspects?
3. Reliability = will it outperform the competition?
4. Conformance = does it comply with the law or required standards?
5. Durability = will it last?
6. Serviceability = if it breaks can it be repaired?
7. Aesthetics = does it look, sound or feel better?
8. Perceived quality = does the customer achieve a sense of satisfaction by acquiring this product or service?

at least one has to be satisfied to attract a continuing customer base

Strategic choice of organisation = ensure that one or more of these dimensions are deliberately built into the production process

Question 18

BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - DIFFERENTIATION

The success of a differentiation strategy will be aligned to what?

As with cost leadership, there are natural dangers in pursuing a very focused strategy of differentiation. These might include what 5 things?

Answer 18

how well an organisation can identify and understand its strategic customer

1. too much differentiation causing confusion for the customer
2. too high a price premium
3. easy imitation by competitors leading to dilution of brand value
4. differing perceptions of the meaning of quality between buyers and sellers
5. striving for a uniqueness that fails to bring sufficient added value.

Question 19

BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - ORGANISATIONAL FOCUS

Johnson (2017) gives useful examples of the 2 different types of focus strategy identified by Porter. What are these?

The choice of strategic focus requires an organisation to what?

Often an organisation following strategic focus is able to identify what?

Johnson argues that a successful focus strategy depends upon at least one of the following what three key factors?

Answer 19

1. cost-focus strategy E.g., Ryanair target price-conscious travellers; and
2. differentiation-focus strategy E.g., Ecover gains a price premium by targeting its ecological cleaning products at environmentally conscious consumers

dedicate itself to achieving competitive edge by giving a better service to its target customers than that which is achieved by its competitors who are aiming for a broader customer base

niche opportunities that have been left open by the breadth of coverage from its wider target competitor

1. identification of a distinct segment need
2. identification of distinct segment value chains
3. identification of a viable market segment

Question 20

BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE

Porter is clear in his views that, under normal operating circumstances, an organisation should have clarity in the strategic choice that it makes between generic strategies. He suggests what? (3)

Can a hybrid strategy be used?

Name 2 examples.

Answer 20

(1) a cost leader will only add cost if it attempts to also differentiate its product or service;
(2) a differentiator will lose its point of difference if it fails to have clarity as to why its product or service is different; and
(3) a focus strategy can find its customer base eroded by being perceived as having lost its dedication or speciality

Yes, part of the strategic choice is to recognise the time to move from one generic strategy to another

1. McDonalds = moved from its initial strategic positioning of product differentiation to combining this with a low-cost base = only achieved through size and dominance of its markets through the rapid multiplication of its outlets
2. Tesco = the largest UK retailer for over 25 years through a combination of all three of Porter’s generic strategies being exercised jointly or individually in different product offerings

Question 21

BUSINESS LEVEL STRATEGY - SUSTAINING COMPETITIVE ADVANTAGE

The gaining of competitive advantage can take significant organisational time and effort. Therefore, a core part of the strategic choice being made by directors and managers must be to what?

What quote from Arie de Geus does this link to?

The method required to build such sustainability will differ slightly depending on what?

There are many different tools available that an organisation is able to employ to help the process. Name an example for each. (4)

Answer 21

to find a means to achieve a sustainable competitive advantage = it is strategically
important to build a sustainable competitive position

‘The ability to learn faster than our competitors … may be the only sustainable competitive advantage.’

depending on which of Porter’s generic choices are chosen:

1. Cost leadership can be monitored and controlled through the effective and ongoing use of a robust value-chain analysis
2. Differentiation can be monitored and controlled through a close understanding of different stakeholder expectations, through the effective and ongoing use of a stakeholder mapping exercise
3. Focus can be monitored and controlled through a robust understanding of the different options that are available to customers, and that might act in competition to the organisation, through the effective and ongoing use of the ‘5 forces’ model
4. A whole-business approach in a large and diverse organisation is likely to require a range of different strategic options and it is unlikely that one simple strategic choice will ever be sufficient

Question 22

BUSINESS LEVEL STRATEGY - BUSINESS PROCESS RE-ENGINEERING

Having taken the strategic choice recommended by Porter and decided how the organisation is to gain, or maintain, its competitive advantage within the marketplace, the management focus must be on what?

What must be kept in mind?

One approach is business process re-engineering (BPR). What does business process re-engineering require?

What is its ultimate aim?

Answer 22

how to design and implement the strategy to achieve the required objectives

business models and concepts are rarely generic and will need adapting to suit the people and culture of a particular organisation

BPR requires a fundamental reconsideration in a radical redesign of organisational processes with the aim of achieving significant improvement in operation to enable the achievement of a particular set of strategic objectives

ultimate aim = to increase efficiency within the organisation, and this could include all or one of: cost control, product differentiation or specific customer focus

Question 23

BUSINESS LEVEL STRATEGY - BUSINESS PROCESS RE-ENGINEERING

The principles of business process re-engineering are underpinned by what 5 rules?

Why have many business process re-engineering projects failed? (2)

However, when implemented professionally, what can happen?

Name an example of a successful business process re-engineering project.

Answer 23

1. Strategy must be determined before any redesign takes place.
2. The existing process-flow should be used as the basis for the redesign.
3. The use of information technology should be optimised.
4. The governance, culture and organisational structures must be aligned with the process-flow.
5. People across the business need to understand and participate in the redesign = not just a top-down or bottom-up approach = requires a whole-business involvement to ensure ‘buy in’

Fell down in principle 5 (whole-business approach) = (1) BPR projects require significant time and cost, and often an organisation has insufficient project management skills or resources; (2) Frequently, the day-to-day operational requirements mean it is virtually impossible for people to be deployed in a BPR project

BPR project can provide useful challenge and learning towards determine the optimal method to achieve strategic objectives

Ford re-designed accounts payable department = eliminated many unnecessary stages and employees

Question 24

CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS

Many of the tools discussed in business level strtaegy are equally applicable at the corporate level. What is the differentiation between corporate level and business level?

What are the 3 alternative approaches to the development, analysis, challenge and understanding of corporate strategy?

Answer 24

= precisely where the operational boundary is drawn:

Business level generally refers to a single business operating within a defined boundary

Corporate level refers to a number of businesses operating within a wider boundary

1. blue ocean strategy
2. corporate parenting
3. portfolio analysis and the Boston Consulting Group approach

Question 25

CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS - BLUE OCEAN STRATEGY

The concept of a blue ocean strategy evolved from the recognition that an organisation will often need to find a different approach to innovation.

Kim and Mauborgne (2005) originated the term. What do they describe as red oceans?

They suggest that innovative organisations ought instead to be searching for and identifying what?

In essence what are they trying to encourage?

Answer 25

Red ocean = Kim and Mauborgne argue that too much of current strategy is based around attempts to satisfy existing and historic perceptions of markets, resulting in a fight for competitive advantage between rivals within these markets (existing markets are red oceans with the blood of competitors (sharks!))

Blue oceans in today’s marketplace have untapped market space = offers highly profitable growth opportunities

encourage organisations to look beyond their existing markets and boundaries (higher returns in new markets)

Question 26

CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS - BLUE OCEAN STRATEGY

In a blue ocean strategy, there is a recognition of what?

Lynch (2015) identifies what 4 dimensions of realising and deriving value from a blue ocean strategy?

Answer 26

blue oceans need to coexist with the red oceans = that there will be the need to continue to develop strategies in existing markets while seeking out the higher value new and totally innovative opportunities that exist

1. Elimination = the recognition of which aspects of the current red ocean are really important to customers, and which can be eliminated – e.g. do we need excessive packing?
2. Reduction = the removal of overdesigned products and services that can take place within the red ocean without detrimental effect to existing products or customers – e.g. do all mobile phones need to have complex technological features?
3. Raising = the need to improve features of current products and services to make them more attractive to customers – e.g. are we more likely to buy a product if it contains a longer warranty in the price?
4. Creation = use of existing knowledge and abilities to create new value addition for both customers and the organisation itself – e.g. when handled correctly, a move to more sustainable packaging can create a better approach to social responsibility and enhanced customer perception, combined with a reduced cost to the manufacturer

Question 27

CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS - BLUE OCEAN STRATEGY

What is the note of caution of a blue ocean strategy?

Name an example of a blue ocean strategy.

Answer 27

The reality of the blue ocean concept is that once the new creative product is being consumed on a regular basis, the laws of economics will take over and competition will arise (the sharks will be rapidly circling)

Cirque du Soleil = present customers with a new and more ethical approach to entertainment, away from circus, but this concept has now been imitated by many others

Question 28

CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS - CORPORATE PARENTING

What is meant by corporate parenting?

What sits at the heart of the concept of corporate parenting?

In a diversified organisational structure, each unit will have what?

Name 6 examples.

Do organisations flip between structures?

Name an example.

Answer 28

a diversified organisation with a number of different parts, subsidiaries, or SBUs, will require some level of centralised control

The nature of organisational governance = Every company has a top level board of directors who ultimately are accountable to the stakeholders for the use of the assets of the organisation and delivery of long-term value

a substructure that enables it to fulfil its core strategic objective BUT there are a number of activities that might be more effectively and efficiently controlled throughthe centre, the corporate headquarters, or through corporate parenting

e.g., strategic direction, boundaries of operational control, corporate ethics, human resources, legal services and often a centralised finance function

Yes = many large organisations will move from diversified to centralised structures, and back again, in an attempt to find greater efficiency (ach organisation will ultimately find its own appropriate structure)

RBS plc centralised many of its functions, then replicated functions, then re-centralised (there is no right answer)

Question 29

CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS - CORPORATE PARENTING

Goold et al. (1994) identified 5 core activities through which a corporate parent can add value. What are they?

What is the note of caution of this strategy? (2)

Answer 29

1. Envisioning = the provision of a clear overall vision for each aspect of the organisation, enabling differentiation between different units while ensuring a comprehensive vision for the entire organisation.
2. Facilitating synergy = the enabling of co-operation and sharing across different business units, often more visible in the centre than from the individual parts.
3. Coaching = the development of business unit managers to encourage a shared vision and approach to the operation and to the ethos of the organisation as a whole.
4. Central services and resources = the cost-efficient use of expertise from the centre.
5. Intervention = where necessary, the alignment and correction of individual unit performance.

(1) If not controlled correctly, corporate parenting can destroy value within an organisation through the addition of unnecessary central cost and bureaucratic complexity.
(2) There might also be the danger that a weak business unit is allowed to underperform through hidden compensation from an over-performing alternative business unit

Question 30

CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS - PORTFOLIO ANALYSIS AND THE BOSTON CONSULTING GROUP APPROACH

Portfolio analysis is a technique that has been developed by a number of strategic thinkers to help decision-makers what?

The ‘portfolio’ identifies what?

The principle for strategic growth is to recognise what?

Answer 30

consider the strategic options available to them and where best to build their organisation or business

the grouping together of a range of similarly performing products

recognise where a product or potential product will or might sit, and therefore its desirability as part of the whole portfolio

Question 31

CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS - PORTFOLIO ANALYSIS AND THE BOSTON CONSULTING GROUP APPROACH

A popular and frequently used model of portfolio analysis was developed by the BCG (1979) and is widely recognised as a useful and challenging alignment of differently performing segments or units of a business.

Explain this matrix. (Market growth and market share)

Answer 31

(1) DOGS = low market growth, low market share (cash neural) = will only be marginally profitable and therefore need monitoring and will be withdrawn when they become loss making (if not before)

(2) CASH COWS = low market growth, high market share (core cash generators) = require only minimal further investment and are often the most profitable products within the portfolio
(Cash cows often fund the products that exist within the other quadrants of the matrix)

(3) PROBLEM CHILD = high market growth, low market share (cash user) = often include new products being launched into high-growth markets which require high expenditure, but the intention being that such products will become either stars or cash cows.

(4) STARS = high market growth and high market share (cash neutral) = normally arise from a successful problem child becoming a market leader in a growth market, but with investment still being required to maintain the rate of growth and defend a leadership position

Question 32

CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS - PORTFOLIO ANALYSIS AND THE BOSTON CONSULTING GROUP APPROACH

Apply the BCG matrix to a high-street supermarket retailer.

An initial analysis of a business using the BCG model will identify what?

Although such modelling can be used for a snapshot analysis, it is significantly more useful to monitor what?

What is the benefit of the BCG model?

What is the note of caution with this strategy? (3)

Answer 32

(1) Dogs: the sale of batteries – necessary but not a core offering.
(2) Cash cows: a wide range of brand-name alcoholic and soft drinks.
(3) Problem children: inexpensive clothing designed for single-wear and then disposal.
(4) Stars: high-end ready-prepared meal packages.

how and why the current product mix within the portfolio is performing and then help to identify the gaps for future strategic growth.

the movements of products within the portfolio across different time periods enabling development of a proactive rather than reactive strategic approach to business

The benefit of the BCG model is to use it both to plot and monitor the movement of different products between the 4 segments, and to analyse how this aligns with the product lifecycle (anticipated and actual)

Lynch (2015) identifies difficulties with the BCG matrix:
(1) defining market growth and understanding what is perceived as low or high
(2) defining the market in itself
(3) understanding what is meant by a relative market share and what it is based upon

Question 33

INTERNATIONALISATION AS A STRATEGIC OPTION

What is international strategy?

What is global strategy?

Answer 33

International strategy refers to the options that can be considered by an organisation when it wants to operate outside of its country of origin.

Global strategy is a specific type of international strategy concerned with the co-ordination of geographically dispersed activities

Question 34

INTERNATIONALISATION AS A STRATEGIC OPTION - DRIVERS OF INTERNATIONALISATION

What are the 5 forces which drive an organisation to consider internationalisation?

Answer 34

(1) Market drivers = the potential customer reach of taking a successful product or service to different countries
(needs handling with caution strategically as different countries operate from diverse cultural and behavioural positions)
E.g., Tesco took their business model to the US, replicating their supply-chain model and then failing because the US marketplace does not buy food items in the same manner as in the UK

(2) Cost drivers = operational costs could be reduced by operating internationally, particularly if an organisation is already sourcing input products from outside of the UK = many of the fixed UK costs will not change so the overhead can be spread over a wider market potential.

(3) Government drivers = government will often provide support and funding to enable companies to operate internationally

(4) Competition drivers = the development and maintenance of competitive advantage might require an organisation to develop its markets= if dealing with international customers, then it is likely that it will need to also develop an international strategy.

(5) Porter’s diamond = Porter (1990) introduced 2 core models to help strategists consider the potential for the internationalisation of their organisations:
(A) = Diamond model
(B) = matrix identifying the differing levels of international strategy that an organisation can consider

Question 35

INTERNATIONALISATION AS A STRATEGIC OPTION - DRIVERS OF INTERNATIONALISATION - PORTER’S DIAMOND MODEL

What does Porter’s diamond model consider?

He suggests that what 4 interacting factors will help an organisation do what?

Expand on these 4 factos.

Answer 35

considers why some countries produce firms with sustained competitive advantages in some industries

suggests that (1) factor conditions, (2) demand conditions, (3) related and supporting industries, and (4) firm strategy, structure and rivalry will help an organisation to determine its optimal approach to internationalisation:

(1) Factor conditions = what is it that goes into the making of a product or service that can give a competitive advantage?

(2) Demand conditions within the original home market can help a company to become a more sophisticated operator when trading internationally.

(3) Related and supporting industries that are based in the same geographical locations can lead to cost and logistics advantage.

(4) Firm strategy, structure and rivalry in the domestic market will build a more resilient approach to trading internationally

Question 36

INTERNATIONALISATION AS A STRATEGIC OPTION - PORTER’S INTERNATIONAL STRATEGIES

Porter’s matrix identifies the differing levels of international strategy that an organisation can consider.

Explain this matrix. (Activity co-ordination and activity configuration)

Name an example for each.

Answer 36

(1) Simple export = low activity co-ordination and concentrated activity configuration = the majority of activities remain concentrated in the domestic country of origin, with an approach being taken to generally export finished products with only marginally adapted international variants such as packaging and language.
E.g., Microsoft products are available worldwide but originate from only a limited
number of core Microsoft operations centres.

(2) Multi-domestic = low activity co-ordination and dispersed activity configuration = a range of activities are strategically placed outside of the domestic country of origin to maximise local efficiency and resources = often local products are then produced locally within different international centres.
E.g., Heinz will adapt its core product of Baked Beans to suit the eating habits of different markets.

(3) Complex export = high activity co-ordination and concentrated activity configuration = most activities are located in a single country, but that might not be the domestic country of origin = marketing in particular is focused and co-ordinated to ensure that products and/or services are driven into a linked range of appropriate destinations.
E.g., many clothing brands that originated in the UK and are still perceived as being ‘UK’ are assembled within non-UK countries and then sold throughout the world.

(4) Global strategy = high activity co-ordination and dispersed activity configuration = highly co-ordinated activities dispersed around different countries of the world, often producing replicated entire businesses in different countries, but sometimes locating different activities in countries offering the best cost advantage for that activity.
E.g., Amazon is establishing fulfilment centres in many different countries throughout the world