Theories of corporate strategy 3.1.2

Question 1

What is meant by ‘corporate strategy’?

Answer 1

The ideas and plans a company has for its future business activities.

Question 2

What is ‘Ansoff’s Matrix’?

Answer 2

It is a marketing planning tool that aids the business in deciding its product and market growth strategy.

Question 3

What are the four parts to Ansoff’s Matrix

Answer 3

• Existing Market
• New Market
• Existing Product or Service
• New Product or Service

Question 4

What Market Penetration is and how it can be achieved?

Answer 4

Existing Products in Existing Markets.

+ Encourages customers to use products more regularly
+ Potential for Increase in sales and revenue
- Uncertainty if markets will like products
- Costs money for R&D

Question 5

What Market development is and how it can be achieved?

Answer 5

Existing Products in New Markets.

+ Gain share from competitors
+ Target market is known
- Effective in short term, because competitors will come up with new substitutes
- Will only work if there’s demand for the product, customers from other countries might have different tastes

Question 6

What product development is and how it can be achieved?

Answer 6

New Products in Existing Markets.

+ Gain a competitive advantage
+ First mover advantage
- Risk of cannibalisation
- Requires significant investment in R&D as well as the high risk involved

Question 7

What diversification is and how it can be achieved?

Answer 7

New Products in New Markets.

+ From new connections overseas and may improve relationships with international traders
+ Potential for rewards, increase in capital
- Huge investment in production, trade and R&D
- High risk because diversification takes business outside its area of expertise

Question 8

What is Porter’s Strategic Matrix?

Answer 8

Is a tool to help a business identify the sources of competitive advantage that a business might achieve in the market.

Question 9

What are the components in Porter’s strategic Matrix?

Answer 9

• Cost Leadership
• Differentiation
• Cost Focus
• Differentiation Focus

Question 10

What is meant by ‘cost leadership’ and the pros and cons?

Answer 10

The strategy of low-cost competitive advantage and broad competitive scope. Keeping costs low either to maximise profitability (maintaining price level) or increased revenue by reducing prices.

+ Low cost of production increases profit.
- Dependent on high-volume sales.
- Difficult to maintain perceptions of quality.

Question 11

What is meant by ‘differentiation’ and the pros and cons?

Answer 11

Businesses can defend themselves in the market by differentiating themselves from the competition e.g. adding value to their products through e.g. Quality, Design, and USP.

+ Businesses can charge premium prices.
- Requires intensive market research and Investment.

Question 12

What is meant by ‘cost focus’ and the pros and cons?

Answer 12

The strategy of low-cost competitive advantage to a niche market. Aim to offer the lowest price.

+ Entices customers
+ Large quantity of stock
- Requires innovation to come up with ideas to keep costs low.

Question 13

What is meant by ‘differentiation focus’ and the pros and cons?

Answer 13

The strategy of high-cost competitive advantage to a niche market.

+ Brand loyalty
- Very expensive to maintain

Question 14

What are the uses of the strategic matrix?

Answer 14

It establishes a clear direction for the business to go in.

identifies when a business may be in trouble.

Question 15

What are the limitations of Porter’s strategic matrix?

Answer 15

• Not as relevant in very dynamic markets.
• May not be useful in a crisis situation.
• Oversimplifies the market structure.
• Can be possible for a business to offer a range of products to a range of customers and not get stuck in the market.

Question 16

What is meant by portfolio analysis?

Answer 16

A method of categorising all products and services of a firm (portfolio) to decide where each fits within its strategic plans.

Question 17

What is the Boston matrix?

Answer 17

• The BCG is a matrix with a marketing planning tool which helps managers to plan for a balanced product portfolio.
• It looks at two dimensions, market share and market growth, in order to assess new and existing products in terms of their market potential.
• A business would place each individual product in its product portfolio (or product range) onto one of the quadrants of the Boston matrix.

Question 18

What are the components?

Answer 18

Star
Cash cow
Question mark
Dog

Question 19

What is the star?

Answer 19

• A product in this quarter will have a high market share and high market growth.
• This product may be in the growth phase of the product life cycle.
• Production of this product should remain consistent while profits are harvested.

Question 20

What is the question mark?

Answer 20

• Also known in some books as a problem child.
• A product in this quarter enjoys high market growth but low market share.
• This product may have just been launched on the market and is building its customer loyalty.
• Products should be invested in while their market share builds.

Question 21

What is the cash cow?

Answer 21

• Products in this quarter are reaching the maturity of their product life cycle but still have customer loyalty.
• Products should be produced until sales start to decline.

Question 22

What is the dog?

Answer 22

• Products in this quarter face declining sales in declining markets.
• Products may be in the decline phase of their product life cycle.
• For example video tapes or top hats.
• These products should be removed from sale.

Question 23

What are the uses of the Boston matrix?

Answer 23

• The BCG matrix is a good starting point when reviewing an existing product line to decide on future strategies and budgets.
• The market share is compared (relative to) the largest competitor in the industry.
• The BCG helps businesses analyse future opportunities or problems with their product portfolios.
• The conclusions drawn from such an analysis are to transfer the surplus cash from cash cows to the stars and the question marks, and too close down or sell off the dogs.
• In the end, question marks reveal themselves as either dogs or stars and cash cows become so drained of finance that they inevitably turn into dogs.

Question 24

What are the limitations of the Boston matrix?

Answer 24

• BCG matrix classifies businesses as low and high, but generally, businesses can be medium also. Thus, the true nature of the business may not be reflected.
• The market is not clearly defined in this model.
• High market share does not always leads to high profits. There are high costs also involved with a high market share.
• Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability.
• This four-celled approach is considered to be too simplistic.

Question 25

What are Kay’s distinctive capabilities?

Answer 25

These are the three distinctive capabilities that help a business to get added value and competitive advantage.

These are:

• Architecture
• Reputation
• Innovation

Question 26

What is architecture as part of Kay’s distinctive capabilities?

Answer 26

Relational contacts within or around the organisation with customers, suppliers and employees. This increases co-ordination within and around the business thus allowing the business to respond quickly to changes in the market.

Question 27

What is reputation as part of Kay’s distinctive capabilities?

Answer 27

This includes the customer’s own experience and word of mouth created by businesses providing good customer service as well as quality products. This creates loyal customers thus giving the business a competitive advantage over existing businesses and new entrants.

Question 28

What is innovation as part of Kay’s distinctive capabilities?

Answer 28

This is when a business creates new goods and inventions. This makes the business differentiated from its competition. However, it is only likely to last in the short term as similar products are released once other businesses see the invention.

Question 29

What is required to evaluate a businesses products according to their competitive position and potential growth rates?

Answer 29

1) Giving a full detailed overview of all the products and services in the current portfolio

2) Look at the performance of each by examining: current and projected sales and costs, competitor activity and future competition, risks that may affect performance.

Question 30

What is the difference between strategies and tactics?

Answer 30

Strategies set out the long-term direction that a firm will take to achieve its objectives whereas tactics are short-term responses to an opportunity or threat in the market.

Tactics are more responsive, individual from the ‘bigger picture.

Question 31

What are financial resources?

Answer 31

Funds the business uses to meet its obligations to various creditors. A lot like working capital.

Question 32

What are human resources?

Answer 32

people working to produce goods and services.

Labour

Question 33

What are physical resources?

Answer 33

Tangible items that are used to operate a business.

e.g. raw materials, machinery

Question 34

Explain how strategic decisions impact human, physical and financial resources.

Answer 34

Human - Considers bigger picture and therefore is likely to include workers and the impacts it has on them.

Physical - Likely to have a positive impact as strategies are surrounded around sustainability.

Financial - Positive in long term but may require investment so potentially damaging in short term.

ALL DEPENDENT ON THE EFFECTIVENESS OF DECISION MAKING

Question 35

Explain how tactical decisions impact human, physical and financial resources.

Answer 35

Human - Potentially negative as they are made quickly often without input from workers despite it directly affecting them

Physical - Potentially negative as may include over utilisation temporarily of resources if for example, two companies are competing for a large consumer for example

Financial - Tactical decisions mostly require cash so there is a loss in the short term however, can be lucrative in the long term if done correctly