Strategy Formulation and Implementation

Question 1

strategic management

Answer 1

the set of decisions and actions used to formulate and implement strategies that aim to give an organisation its competitive advantage

Question 2

strategy

Answer 2

a plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage and attaining goals

Question 3

competitive advantage

Answer 3

those characteristics that set the organisation apart from others and provides it with a distinctive edge in the marketplace

Question 4

strategic elements to achieve a competitive advantage

Answer 4

• target customers
• exploit core competencies
• build synergy
• deliver value

Question 5

corporate-level strategy

Answer 5

the level of strategy concerned with the question: What business are we in?’ It relates to the organisation as a whole and the combination of business units and product lines that make it up

Question 6

business-level strategy

Answer 6

the level of strategy concerned with the question: ‘How do we compete? It relates to each business unit or product line within the organisation

Question 7

functional-level strategy

Answer 7

the level of strategy concerned with the question: ‘How do we support the business-level strategy?’ It relates to all of the organisation’s major departments

Question 8

strategy formulation

Answer 8

the stage of strategic management that involves the planning and decision making that lead to the establishment of the organisation’s goals and of a specific strategic plan

Question 9

strategy implementation

Answer 9

the stage of strategic management that involves the use of managerial and organisational tools to direct resources towards achieving strategic outcomes

Question 10

SWOT analysis

Answer 10

analysis of the strengths, weaknesses, opportunities and threats that affect organisational performance

Question 11

strengths

Answer 11

positive internal characteristics that the organisation can exploit to achieve its strategic performance goals

Question 12

weaknesses

Answer 12

internal characteristics that may inhibit or restrict the organisation’s performance

Question 13

threats

Answer 13

characteristics of the external environment that may prevent the organisation from achieving its strategic goals

Question 14

opportunities

Answer 14

characteristics of the external environment that have the potential to help the organisation achieve or exceed its strategic goals

Question 15

three approaches to understanding corporate-level strategy

Answer 15

• the portfolio strategy
• BCG matrix
• diversification strategy

Question 16

the portfolio strategy

Answer 16

a type of corporate-level strategy that relates to the organisation’s mix of strategic business units and product lines that fit together in such a way as to provide the organisation with synergy and competitive advantage

Question 17

BCG matrix

Answer 17

a concept that evaluates strategic business units with respect to the dimensions of business growth rate and market share

Question 18

diversification strategy

Answer 18

the strategy of moving into new lines of business

Question 19

five competitive forces

Answer 19

Porter’s five force analysis is a way to understand where power lies in a business situation. It assumes there are five important forces that determine competitive power

1. Potential new entrants. This looks at how easy it is for competitors to enter the market. If there are few economies of scale in place or little protection of kew products and ideas, then new competitors can quickly enter the market and take away customers
2. Bargaining power of buyers. This looks at how easy it is for buyers to drive price down. It is driven by the number of buyers, the importance of each individual buyer and the cost of them switching from the business’ product to another. If there are a few potential buyers, then the power lies with them and not the business
3. Bargaining power of suppliers. This looks at how easy it is for suppliers to drive prices up. It is driven by the number of suppliers of each key input, uniqueness of the product and how many suppliers are in the industry. The more a business needs help from suppliers the more power a supplier has
4. Threat of substitute products. This looks at how easy it is for customers to find a product or service similar to the one provided by the business. If substitution is easy then power and influence is reduced
5. Rivalry among competitors. This area focuses on the number and capability of competitors. If there are many competitors with equally attractive products and services, then the business will have limited power as suppliers and customers can go elsewhere. If the product is unique then the business has a great deal of power..

Question 20

differentiation

Answer 20

the differentiation strategy is where a business looks to implement something unique that is valued by customers. By implementing differentiation, the business gains a competitive advantage because the business’s product is in demand from customers. The business is rewarded by being able to charge a higher price

Question 21

differentiation strategies

Answer 21

• making the product using high quality materials
• providing better support for customers
• using good marketing
• providing training for employees
• offering products that other businesses do not offer

Question 22

advantages of differentiation

Answer 22

• provides the business with a strong competitive advantage in markets with ‘brand loyalty’
• can charge premium pricing as the cost is not such as important consideration to customers

Question 23

disadvantages of differentiation

Answer 23

• does not appeal to ‘price sensitive’ consumers

- the ‘unique features’ can be copied by other producers which destroys the business’s competitive advantage

Question 24

cost leadership

Answer 24

the cost leadership is where a business looks to lower its cost to become the low cost producer in the industry. The business can increase its profit margins or sell the product at a lower price while maintaining strong profit margins to gain a competitive advantage

Question 25

cost leadership strategies

Answer 25

• use assets efficiently by minimising idle stock on shelves and not stocking products that do not sell
• lower operating costs by sourcing supplies from cheaper suppliers

Question 26

advantages of cost leadership

Answer 26

• provides the business with a strong competitive advantage in markets with ‘price conscious’ consumers

Question 27

disadvantages of cost leadership

Answer 27

• customers could potentially associate lower price with lower quality
• lowering costs can be difficult to maintain in the long term as other businesses implement cost leadership strategies

Question 28

focus

Answer 28

with a focus strategy, the organisation concentrates on a specific regional market or buyer group. The organisation will use either a differentiation or low-cost approach, but only for a narrow target market

Question 29

strategic thinking

Answer 29

to take the long-term view and to see the big picture, including the organisation and competitive environment, and consider how they fit together

Question 30

resources

Answer 30

all assets, capabilities, organisational processes, firm attributes, information, etc, controlled by a firm that enable it to conceive and implement value-creating strategies

Question 31

intraorganisational “hard factors” (materialistic/technological)

Answer 31

• processes
• physical infrastructure
• equipment + tools

Question 32

intraorganisation “soft factors” ( humanistic/symbolic)

Answer 32

• culture
• identity
• people (skills, knowledge, attributes)
• social networks

Question 33

extraorganisational “hard factors” (materialistic/technological)

Answer 33

• ecosystem structures

Question 34

extraorganisation “soft factors” ( humanistic/symbolic)

Answer 34

• image

- legitimacy

Question 35

the VRIO framework

Answer 35

the “acid test” questions for resources’ contribution to a sustainable competitive advantage.

valuable?: does it allow the organisation to exploit opportunities, neutralise threats, improve efficiency/effectiveness, applicable to wide variety of products/services/markets/etc.? NO?: competitive disadvantage

rare?: how many organisations have the resource? NO?: competitive parity

imperfectly imitable?: can others copy you easily? what keeps them from it? NO?: temporary competitive advantage

organised?: are you organised to capture the value of your resources? Do you put your resources to work? NO?: unused competitive advantage. YES?: sustained competitive advantage

Question 36

core competencies

Answer 36

resources and capabilities that generate sustainable competitive advantage for an organisation.

Question 37

problem associated with the adoption of more than one strategy

Answer 37

in his studies, Porter found that some businesses did not consciously adopt one of these three strategies and were stuck with no strategic advantage. Without a strategic advantage, businesses earned below-average profits compared with those that used differentiation, cost leadership or focus strategies