Theories of corporate strategy Flashcards
Define the term corporate strategy.
The overall scope and direction of a business and the way in which its various business operations work together to achieve particular goals
Name the different parts of Ansoff’s matrix.
Existing market and New market (vertical)
Existing product or service and New product or service (horizontal
Explain the risk associated with different boxes of Ansoff’s matrix.
E.M + E.P= market penetration (Low risk)
E.M + N.P= product or service development (moderate risk)
N.M + E.P= Market development (moderate risk)
N.M + N.P= diversification (high risk)
Explain market penetration in Ansoff’s matrix.
Increase sales to the existing market, or penetrate it more deeply - sell more to the same customers – encourage them to order more often – loyalty schemes e.g. Boots Advantage card
Explain product or service development in Ansoff’s matrix.
New product or service developed for existing market: means R&D of new products to sell to your existing customers e.g. Herbal essences new shampoo
Explain market development in Ansoff’s matrix.
Existing product or service sold to new market e.g. Colouring books sold to adults
Explain diversification in Ansoff’s matrix.
New product or service sold in new markets (new to the company)
What are the uses of Ansoff’s Matrix?
A business can identify all their current products or services and their markets, then consider their future options for expansion using the matrix shown, considering opportunities, associated costs, benefits and risks
Ansoff’s matrix helps to identify potential new markets or marketing strategies for a business
What are the limitations of Ansoff’s Matrix?
The Ansoff’s matrix has some limitations;
- It only shows part of the picture
- It oversimplifies the market
- Large MNCs may need thousands of sub options and strategies
Any organisation using Ansoff’s matrix as an analysis tool to help decide on a company strategy should also conduct a SWOT and a PESTLE analysis to get a better idea of the whole picture, to see the issues from more than one angle
Name the different parts of Porter’s strategic matrix.
Broad target, narrow target (vertical); competitive scope
Lower cost, differentiation (horizontal); competitive advantage
What are the different boxes in Porter’s strategic matrix called?
B.T + lower cost= cost leadership
B.T + differentiation= differentiation
N.T + lower cost= cost focus
N.T + differentiation= differentiation focus
Explain Porter’s strategic matrix.
Porter suggested that there were 3 generic business strategies that would get competitive advantage. These were:
Cost leadership; making products at the lowest cost, may include outsourcing, lean management, standard no frills low cost products
Differentiation; the product or service is unique and the USP adds value to the product
Focus; the product or service will serve a very small specific niche, high costs are passed on to customers, no close substitutes (Divided into cost focus and differentiation focus)
He also said that if a business failed to select one of these strategies that they would be in danger and “stuck in the middle”
Explain cost leadership in Porter’s strategic matrix.
Useful in highly competitive markets where there are homogenous products
Customers may frequently switch supplier to gain best value
New entrants to the market will use a slow process to build a customer base
Explain differentiation in Porter’s strategic matrix.
Useful strategy in highly technological markets where there are rapidly changing and evolving features of products and services
Where customers needs are very diverse
Where the competitors in the market are all following a similar differentiation strategy
Explain cost focus in Porter’s strategic matrix.
Useful strategy when the business wants to offer very low prices to a small market segment
Niche marketing but at very low cost
Explain differentiation focus in Porter’s strategic matrix.
Useful strategy when the business wants to offer products and services to a small market segment
Products or services will be differentiated and aimed at a niche market
What are the uses of Porter’s strategic matrix?
Those in support of Porter’s Strategic matrix (generic strategies) say that it establishes a clear direction for the business to go in
Identifies when a business may be in trouble
What are the limitations of Porter’s strategic matrix?
This is only a tool for a business to look at their strategy and as such has some limitations;
- Not as relevant in very dynamic markets
- May not be useful in a crisis situation
- Over simplifies the market structure
Can be possible for a store or business to offer a range of products to a range of customers and not get stuck in the middle e.g. Debenhams
Name the different parts of the Boston martix.
high market growth, low market growth (vertical)
High market share, low market share (horizontal)
Explain the Boston matrix.
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 based on the product’s relative market share and the product’s market growth in the industry
There are four possible results from using the Boston matrix; cash cow, star, dog and problem child (also known as question mark)
What are the uses of the Boston Matrix?
The BCG matrix is a good starting point when reviewing an existing product line to decide future strategy and budgets
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 to 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.
What are the limitations of using the Boston Matrix?
BCG matrix classifies businesses as low and high, but generally businesses can be medium also. So, the true nature of business may not be reflected
High market share does not always lead to high profits. There are high costs also involved with 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 approach is considered as to be too simplistic
What are Kay’s distinctive capabilites?
Kay argued that some outstanding businesses got their strength from their relationships with their employees / customers / suppliers
Key to success was the continuity and stability of relationships with these three groups
He also argued that there were 3 distinctive capabilities (DC) that could create added value and give a business competitive advantage. These were:
Architecture – relationships with employees, suppliers, customers
Reputation – through the customer experience
Innovation – bringing inventions to market
What are the characteristics of a strategic decision?
Long term direction of the business. They are proactive.
What the business will do to meet its aims and objectives
Pro-active decision making
Forward thinking, future planning
