Strategic planning Flashcards
three main processes of strategic planning
Strategic analysis
Strategic choice
Strategic implementation
questions asked when strategic planning
1) Where do we want to go? (views of SH, stakeholders are incorporated into a mission statement)
2) What constraints exist on our resources?
think of 6Ms:
money,machinery,manpower,markets,materials,make-up.
3) What are the key threats from the external environment? (use porter 5 forces or PESTEL)
3 SUBHEADINGS of strategic choice, by johnsons and cole?
1) On what basis do we decide to compete?
2) Which direction should we choose?
3) How are we going to achieve the chosen direction?
on what basis do we decide to compete?
-use porter’s generic strategy
-porter said there are two choices to gain competitive advantage.
choice 1: lower cost and same price as competitor, in turn superior profitability OR differenciate, add value, so customer is ok to pay premium.
CHOICE 2) what is the scope of comp. advantage? is it industry wide or restricted to a specific niche?
the answers to this are the 3 generic strategies.
3 generic strategies are
1.cost leadership
2. differenciation
3. focus
what is cost leadership
To achieve cost leadership in an industry, a company aims to be the lowest-cost producer. This helps them compete on price and earn higher profits per unit. Here’s how to do it:
- Build mass production facilities for economies of scale.
- Invest in the latest technology for better quality and less labor.
- Secure access to raw materials.
- Design products for automation.
- Reduce overhead costs through bargaining.
- Focus on productivity and efficiency improvements.
- However, keep in mind the need to stay updated with technology and changing consumer preferences.
what is differentiation strategy?
Differentiation strategy means making your product or service unique and valuable to customers. It can be achieved in various ways:
1) Image Differentiation: Creating a unique image or appearance for the product, often through marketing or cosmetic changes.
2) Support Differentiation: Offering additional services or support with the product, like 0% financing or fast delivery.
3) Quality Differentiation: Making the product better in terms of reliability, durability, or performance.
4) Design Differentiation: Creating a unique design that stands out from competitors, like Apple’s iMac.
Differentiation can lead to higher prices for products because customers are willing to pay more for the added value it offers.
what is focus strategy?
A focus strategy involves targeting a specific market niche rather than the entire market. There are two main types:
Cost Focus: The company focuses on a niche market by providing products at low costs. This strategy keeps expenses down by offering a limited range of products or serving a small geographical area.
Differentiation Focus: The company targets a niche market by offering unique and differentiated products, often in the luxury goods category. This strategy aims to stand out within the chosen niche.
what are the alternatives options for a business other than the 3 general strategies aka cost, focus, differentiation?
1- Do Nothing: Maintain the current strategy without immediate changes.
2- Withdrawal: Sell or exit a business to maximize returns or focus on other ventures.
3- Market Penetration: Increase market share in the current market through improved quality, productivity, or marketing.
4- Product Development: Introduce a new product into the existing market by modifying or enhancing existing products.
5- Market Development: Apply current products to new market segments, expanding revenue.
6- Diversification: Introduce entirely new products in new markets, which can be related or unrelated and is the riskiest option.
what is related diversification?
Related diversification involves developing within the same industry with three main types:
1) Backward Diversification: Expanding into businesses that provide inputs to the current operations, such as moving up the supply chain to raw materials.
2) Forward Diversification: Expanding into activities related to the company’s outputs, often downstream integration, such as moving into distribution activities.
3) Horizontal Diversification: Entering activities that compete with existing operations, often to enhance market access or technology capabilities.
what is unrelated diversification
This involves movement into industries that bear little relationship to the present one and is often the result of a profit motive.
ansoff product market mix?
options to implement a chosen strategy?
1-internal development (when no finance/less disruption/govt not allowing because it might harm competition/safety issues)
2-external development/acquisition (finance needed. easy entry and economies of scale)
3-joint development: A formal agreement between two cos. to start a new venture together – for example, Airbus (spreading of cost).
methods of joint development
1.Consortia. Two or more firms working together to share the costs and benefits of a business opportunity.
2. Joint venture. A separate business entity whose shares are owned by two or more business entities.
3. Strategic alliance. A long-term agreement to share knowledge, technology or business opportunities.
4. Franchising. The purchase of the right to exploit a business brand in return for a capital sum and a share of profits or turnover. The franchiser also usually provides marketing and technical support to the purchaser of the franchise.
5. Licensing. The right to exploit an invention or resource in return for a share of proceeds. Differs from franchise because there will be little central support.
how to assess the appropriateness of an option before choosing?
consider:
1. Suitability: This means checking if a strategy makes sense based on the analysis. You ask questions like: Does it fix the problems we identified? Does it use our strengths and opportunities? Does it match our mission? Does it keep our portfolio balanced?
- Feasibility: This is about seeing if you can actually do the strategy. You look at your resources, like money, people, and materials, and see if they’re enough to make the strategy work.
- Acceptability: This means thinking about whether the strategy is okay with the important people in your company. You think about things like risk and the rewards the strategy might bring. If everyone’s happy with it, it’s more likely to work.
