Strategy Block

Question 1

4 Common Elements of Strategy

Answer 1

1. Simple, consistent, long-term goals
2. Deep analysis of the competitive environment
3. Objectively & Efficiently Exploit Company Resources
4. Strong-willed leaders with solid decision making

Question 2

What is strategy about according to Michael Porter?

Answer 2

Strategy is about making choices; it’s about deliberately choosing to be different.

Question 3

What are the 2 types of strategy?

Answer 3

Corporate & Business Strategy

Question 4

What is corporate strategy?

Answer 4

Answers the question: Where do we want to compete?

Question 5

What is business strategy?

Answer 5

Answers the question: How do we want to compete?

Question 6

Scope of Corporate Strategy Top Managers

Answer 6

Vertical Integration, Diversification, M&A, Capital Intensive Investments, Allocation of Resources, Approve New Products and/or Services

Question 7

Why does a company need Business Strategy?

Answer 7

To gain a competitive advantage (implemented by Business Unit Managers or Division Heads)

Question 8

What 3 tools are used to outline a company’s purpose, goals, and values?

Answer 8

Mission Statement
Vision Statement
Values

Question 9

What question does a Mission Statement answer?

Answer 9

Why does the company exist?
What is the reason for the organization’s existence?

Question 10

What questions does a Vision Statement answer and what does one establish?

Answer 10

What do we want to achieve in the future?
What do we want to become?
Establishes Goals & Objectives

Question 11

What are Goals in relation to the Vision Statement?

Answer 11

Goals define what the company wants to achieve?
Generally expressed as #/%
Examples: Growth, Profitability, Efficiency

Question 12

What are Objectives in relation to the Vision Statement?

Answer 12

Objectives are the actions that achieve the goals.
Examples: “Acquire 5 new customers every month”, “Find cheaper office premises”, “Outsource Activities”

Question 13

What are Values?

Answer 13

Values define how the company will behave and what it believes in.
Places constraints on how the organization will persue its goals.

Question 14

What are the 4 stages of the Industry Lifecycle Model?

Answer 14

1. Introduction
2. Growth
3. Maturity
4. Decline

Question 15

Industry Lifecycle Model — Introduction Stage: Definition

Answer 15

Initial offering of products/services sold in the industry
Low consumer awareness
Usually spurred by a technological breakthrough that births an industry

Question 16

Industry Lifecycle Model — Introduction Stage: Company Behavior

Answer 16

Be a first-mover or a late-entrant.
First-mover is risky and has high capital needs but creates an experience advantage.
Late-entrants (generally join late Introduction or Growth Stages) are lower-risk due to entering when profits are higher but doesn’t provide the experience/knowledge of being a first mover.

Question 17

Industry Lifecycle Model — Growth Stage: Definition

Answer 17

Sales and revenues grow faster leading to higher profits (industry market is growing)
More companies are entering the market leading to increased competition and marketing spend
Consumer prices are still high due to no established standard/basic offering
Sellers market as consumers may have a hard time finding the product

Question 18

Industry Lifecycle Model — Growth Stage: Company Behavior

Answer 18

Late-entrants will enter during this stage due to quick cost recovery due to high prices/profits.
Companies expand geographically during this stage.
Goal is to expand marketshare and win as many first-time buyers as possible.

Question 19

Industry Lifecycle Model — Maturity Stage: Definition

Answer 19

Sales are peaking and can decline over the short-term.
Market has stopped growing so competition increases to gain marketshare from other players.
Competition leads to lower prices to gain marketshare.
There is dominant product design.
Customers are knowledgable
No new market entrants

Question 20

Industry Lifecycle Model — Maturity Stage: Company Behavior

Answer 20

Conslidation is common in this stage — combine market share for less cost
Optimization is common also to increase profits (counteracting lower prices/profits due to competition)

Question 21

Industry Lifecycle Model — Decline Stage:
Definition

Answer 21

Characterized by an absolute decline in sales for 3+ years
Customers begin to abondon this market due to changing tastes or emerging new industries
Market is shrinking

Question 22

Industry Lifecycle Model — Decline Stage: Company Behavior

Answer 22

Companies may have to deal with overproduction as market shrinks (more on hand with less buyers)
2 Approaches to Decline:
1. Abondon market & disinvest
2. The Harvesting Strategy
3. Be bold and win declining market
4. Execute a Niche Strategy

Question 23

Industry Lifecycle Model — Decline Stage: The Harvesting Strategy

Answer 23

Company will reduce investments and expenditure to find profits and generate cash flow

Question 24

The Industry Lifecycle Model — Decline Stage: Be Bold and Win the Declining Market

Answer 24

Work to win marketshare of market players that are abandoning the market.
Invest in marketing when others won’t respond because they are abandoning/harvesting (reducing investment)

Question 25

The Industry Lifecycle Model — Decline Stage: Execute a Niche Strategy

Answer 25

Execute a strategy that focuses on a specific segment of market consumers and exploit

Question 26

What are Porter’s 5 Forces?

Answer 26

1. The Threat of New Entrants
2. The Threat of Substitute Products
3. The Rivalry Among Existing Firms
4. The Bargaining Power of Suppliers
5. The Bargaining Power of Buyers

Question 27

Porter’s 5 Forces — The Threat of New Entrants: What happens when there is more companies in one market?

Answer 27

Lower expected profitability
Customers have multiple alternatives and companies compete to win clients
- Lower prices
- More spending on marketing

Question 28

Porter’s 5 Forces — The Threat of New Entrants: Definition

Answer 28

New entrants will be attrated to join a market when profits are high (generally growth stage)
If there are new entrants, a company will have to additionally compete with them to gain/win marketshare

Question 29

Porter’s 5 Forces — The Threat of New Entrants: Barrier Creating Techniques

Answer 29

Cost Advantages — secure low-cost raw materials (exploit government subsities, localized resources)
Economies of Scale — produce more so it is cheaper for you. New entrants will produce at small scale which is expensive
Product Differentiation — difficult to achieve but create a unique product rather than general
Access to Distrobution Channels — new entrants likely don’t have established distribution which can be costly
Government Regulation — licenses/permits/etc create a barrier of entry
Expected Retaliation of Current Players — if new entrants believe that existing companies will invest in marketing/promotions to keep customers, this can be a barrier

Question 30

Porter’s 5 Forces — The Threat of Substitute Products: Definition

Answer 30

Substitute Products are those that satisfy the same need as your product but are a different industry (think food: Domino’s Pizza vs Taco Bell Mexican)
Some industries have lower threat due to specialization (cigarettes) and others higher (think gas vs EVs/hybrid/HNG)
Difficult to respond because can be challenging to identify substitute products and low knowledge of outside industry

Question 31

Porter’s 5 Forces — The Intensity of Current Competition: Definition

Answer 31

More competition makes an industry less attractive
Look at concentration ratio (sum of top 4 market players; if >80%, highly concentrated
High concentration: harder to achieve leadership role in the market, consider a niche strategy
Low concentration: easier to invest heavily in marketing to achieve leadership role

Question 32

Porter’s 5 Forces — The Bargaining Power of Suppliers: Definition

Answer 32

Suppliers can pressure buyers by:
- Raising Prices
- Lowering Quality
- Reduce Availability
When supplier market is concentrated, their bargaining power is high.
If suppliers are vertically integrated, their bargaining power is high.
Bargaining power is often deterined by availability of substitute products.
The easier it is to circumvent a supplier, the more bargaining power a company has.

Question 33

Poerter’s 5 Forces — The Bargaining Power of Customers: Definition

Answer 33

The less concentrated/more fragmented a customer base is, the less bargaining power they have.
If customers have multiple alternatives, their bargaining power increases.
High switching costs for buyers decreases their bargaining power (if limited other options)