Theories of corporate strategy

Question 1

Define the term corporate strategy.

Answer 1

The overall scope and direction of a business and the way in which its various business operations work together to achieve particular goals

Question 2

Name the different parts of Ansoff’s matrix.

Answer 2

Existing market and New market (vertical)

Existing product or service and New product or service (horizontal

Question 3

Explain the risk associated with different boxes of Ansoff’s matrix.

Answer 3

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)

Question 4

Explain market penetration in Ansoff’s matrix.

Answer 4

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

Question 5

Explain product or service development in Ansoff’s matrix.

Answer 5

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

Question 6

Explain market development in Ansoff’s matrix.

Answer 6

Existing product or service sold to new market e.g. Colouring books sold to adults

Question 7

Explain diversification in Ansoff’s matrix.

Answer 7

New product or service sold in new markets (new to the company)

Question 8

What are the uses of Ansoff’s Matrix?

Answer 8

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

Question 9

What are the limitations of Ansoff’s Matrix?

Answer 9

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

Question 10

Name the different parts of Porter’s strategic matrix.

Answer 10

Broad target, narrow target (vertical); competitive scope

Lower cost, differentiation (horizontal); competitive advantage

Question 11

What are the different boxes in Porter’s strategic matrix called?

Answer 11

B.T + lower cost= cost leadership

B.T + differentiation= differentiation

N.T + lower cost= cost focus

N.T + differentiation= differentiation focus

Question 12

Explain Porter’s strategic matrix.

Answer 12

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”

Question 13

Explain cost leadership in Porter’s strategic matrix.

Answer 13

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

Question 14

Explain differentiation in Porter’s strategic matrix.

Answer 14

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

Question 15

Explain cost focus in Porter’s strategic matrix.

Answer 15

Useful strategy when the business wants to offer very low prices to a small market segment

Niche marketing but at very low cost

Question 16

Explain differentiation focus in Porter’s strategic matrix.

Answer 16

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

Question 17

What are the uses of Porter’s strategic matrix?

Answer 17

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

Question 18

What are the limitations of Porter’s strategic matrix?

Answer 18

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

Question 19

Name the different parts of the Boston martix.

Answer 19

high market growth, low market growth (vertical)

High market share, low market share (horizontal)

Question 20

Explain the Boston matrix.

Answer 20

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)

Question 21

What are the uses of the Boston Matrix?

Answer 21

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.

Question 22

What are the limitations of using the Boston Matrix?

Answer 22

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

Question 23

What are Kay’s distinctive capabilites?

Answer 23

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

Question 24

What are the characteristics of a strategic decision?

Answer 24

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

Question 25

What are the characteristics of a tactical decision?

Answer 25

Short or medium term decisions. They are reactive.

How the business will implement its strategy
Reactive to competitor actions

Present day thinking, what is happening now that needs dealing with

Question 26

Explain the impact of strategic decisions on human resources.

Answer 26

Hiring new staff as part of a long term strategy to improve productivity

Training staff to achieve the business objective of long-term efficiency and growth

Question 27

Explain the impact of tactical decisions on human resources.

Answer 27

Having to hire a new network manager because the old one has quit

Having to train staff because a new IT system has been introduced

Question 28

Explain the impact of strategic decisions on physical resources.

Answer 28

Moving a factory location to another country to achieve the long-term objective of cost cutting and profit maximisation

Question 29

Explain the impact of tactical decisions on physical resources.

Answer 29

Moving a factory layout around to accommodate a new product being manufactured

Question 30

Explain the impact of strategic decisions on financial resources.

Answer 30

Issuing shares to raise capital to achieve a long-term objective of growth and expansion

Allocating budgets to new R&D projects which help the business to achieve the long-term objectives of expanding the product portfolio

Question 31

Explain the impact of tactical decisions on financial resources.

Answer 31

Agreeing an overdraft with the bank to cover a shortfall in a cash flow forecast

Arranging a bank loan to buy some office furniture to replace some that is old and broken