unit 6 Strategic management Flashcards
Strategic analysis
The process of conducting research into the business environment within which an organisation operates, and into the organisation itself, to help form future strategies
SWOT analysis
A form of strategic analysis that identifies and analyses the main internal strengths and weaknesses and external opportunities and threats that will influence the future direction and success of a business
Pest analysis
The strategic analysis of a firm’s macro-environment, including political, economincal, social and technological factors.
-Outside firm’s control
Benefits PEST
- provides understanding of wider business environment
- encourages future analysis of business environment
- linked with SWOT, identify opportunities or threats
Disadvantages PEST
- Need further critical analysis
- Might need regular updates (outdated)
- Only considers external environment
- Info might be based on inaccurate forecasting
Core competencies
Important capabilities essential for a business to gain a competitive advantage
INFO
Core competencies can be used to help generate a business strategy considering them may suggest other areas a business could successfully operate in
Mision statement
A statement of the business’s core purpose and focus, phrased in a way to motivate employees and to stimulate interest by outside groups
Effective mission statement should answer
What do we do?
For whom do we do it?
What is the benefit?
Vision statement
A statement of what the organisation would like to achieve or accomplish in the long-term
Boston matrix
A method of analysing the product portfolio of a business on terms of market share and market growth
Boston matrix:
HIghlights the position
analysing pp
highlight future strategies that need to be taken
Size of each circle is the revenue
Boston matrix does not provide strategic choises for business,
It analyses business’s product portifolio and highlights those prodcts that need action to be taken at a strategic level
Cash cow
Low market growth but high market share
The cash of this products can be ‘milked’ and injected back into some of the other products in the portfolio
Star
HIhg market growth and high maret share
Problem child
High market growth, but low market share
Consumes resources but generates little revenue
New products need heavy promotion
Dog
Low market growth and low market share
Building- Supporting the problem child
Holding- continue support to star
Milking- Take positive cash flow to reinvest in other products
Divesting- Identify dogs and stop production
Benefits Boston matrix
Analyse the performance and current position of existing product portifolios
Planning actions
Planning the intro
Limitations boston matrix
Cannot forecast what might happen
assumes high market share are always more profitable than lower
provides information but does not explain why it is their position
Limitations boston matrix
Cannot forecast what might happen
assumes high market share are always more profitable than lower
provides information but does not explain why it is their position
Strategic choice
is concerned with the identification of different strategic options and deciding between them
Ansoff Matrix
A model used to show the degree of risk associated with the four growth strategies of market penetration, market development, product development and diversification
The matrix allows. managers to analyse the degree of risk associated with each one
Market penetration
Achieving higher market shares in existing markets with existing products
Product development
The development and sale of new products or new developments of existing products inn existing markets
Market development
The strategy of selling existing products in new markets
Diversification
The process of selling different, unrelated goods or services in new markets
Ansoff matrix–> SWOT PEST
Recommendation based purely on ansoff will lack depth and hzrd environùental evidence
Corporate strategy ‘how we get from where we are now to where we want to be in the future’
A long-term plan of action for the whole organisation, designed to achieve a particular goal.
Tactic
Short-term policy or decision aimed at resolving a particular problem or meeting a specific part of the overall strategy
Strategic management
The role of management when setting long-term goals and implementing cross-functional decisions that should enable a business to reach these goals
Influences on strategy formation (4)
Strengths of a business
Competitive environment
Resources available
Objectives
Key stages of strategic management
strategic Analysis: Where is the business now?
Strategic choice: Identifying, choosing and deciding between options
Strategic implementation: Planning or and managing change
if business did not engage in strategic management it would fail to:
Plan for the future
Respond logically to the changing business environment
Make effective long-term decision based on clear objectives
When analysing strategic decisions analyse
External and Internal changes that make strategic change inevitable
Competitive advantage
A superiuority gained by a business when it can provide the same value product/service as competitors but at lower price, or can charge higher prices by providing greater value through differentiation
Michael Porter said Lower costs or differentiated products can lead to competitive advantage
Change is the only thing constant and strategic analysis attempts to identify how changes are affecting a business
Without vision and mission statements, planning new strategies will be like trying to steer a ship with no idea of where it is or the direction is it meant to be heading to
vision and mission statments must be applicable to the business, understood by employees and convertible to genuine strategic choices
Porter’s Five Force analysis
A framework that sets out 5 external influences that determine the intensity of competition in a market.
By understanding the forces that determine competitive rivalry, the following types of strategic decisions could be made more effectively.
- Which markets to enter and what are the potential barriers?
- Do we stay in existing markets?
- What actions can be taken to improve our competitive position?
Ways to improve competitive position
Product differentiation
Buying out some competitors
Target less competitive market segments
Collude with rivals
Porter’s Five forces
Barriers to entry
Supplier power
Consumer power
threat of substitutes
Competitive rivalry
Advantages PFF analysis
Enables a business to asses its position in the market or the potential for entry to a market
Considering the forces acting on a business–> enables a business to assess its chances of survival
highlight internal strengths and weaknesses
Indicates possible actions need to be taken to reduce threats
PFF Disadvantages
- Rapid changing markets
- Analysis out of date fast (short-term)
- Best for simple markets, meaning complex to use for market structure with many business
Prahalad & Hamal
“The key to competing the future is building, deploying, protecting and defending core competencies “
core competencies
Important business capability that gives a firm competitive advantage
To be of commercial value to a business, core competencies should:
Be able to offer recognisable benefits to consumers
Not be easy for other firms to copy
Be applicable to a range of products and markets
Core products
Product based on a business’s core competencies, but not necessarily for final consumer
Additional info about Core competencies
Depends on integrating multiple technologies and different product skills
Does not necessarily need R&D
Maybe difficult to apply to many businesses and valuable time and resources might be wasted.
Disadvantages of core competencies
Accurate but only short-term
If not updated, loss of good relationship and loss of competitive advantage
Possible to be MISTAKEN about the core compt. is and base strategy might be misleading
Force field analysis
Technique for identifying and analysing the positive factors that support a decision ( driving forces) and negative factors that constrain it (restraining forces’)
Provides overview of the balance between forces driving change and forces resisting change
Ansoff’s Matrix can be. useful in assessing risk, and helping to choose between strategic options, but this is only a starting point for strategic choice-Detailed use of qunatitative techniques such as investment appraisal and decision trees are needed to give a more in depth analysis
If restraining forces are more significant than the forces for change, it could be better not to take this strategic decision, however if management action can reduce the restraining forces and/or increase the forces for change, the decision might be worthwhile.
Force field in notes:
There are forces driving change and forces restraining it
No change when they are at equilibrium
Driving forces must exceed restraining forces for change
Examples of Forces drivign change
Internal: lack of innovation need for higher profits poor efficiency change culture change of leadership
External: competition Legalisation & taxes customer demand politcal environment
Limitations Force-field analysis
- Numerical values are subjective
- unskilled or inexperienced managers fail to identify relevant forces
Expected value
The likely financial outcome obtained
Profitability x forecast economic return
Decision tree
A diagram that sets out the options connected with a decision and the outcomes and economic returns that may result
Four main features of business decision
All options open to a manager
The different possible outcomes
chances of these outcomes occurring
The economic returns of tehse outcomes
The purpose of a decision tree is to show that option that gives the most beneficial expected value
Limitations of decision tree
High margin or error, economic returns probabilities based on assumptions and estimated
especially with one off projects
Qualitative factors such as objectives are not allowed
results are averaged results, assuming that the outcomes oocur more than once
Limitations of decision tree
High margin or error, economic returns probabilities based on assumptions and estimated
especially with one off projects
Qualitative factors such as objectives are not allowed
results are averaged results, assuming that the outcomes oocur more than once
Advantageous Decision trees
Systematic approach that requires managers to consider all options and outcomes
Identifies key aspect of a decision
Can be used to assess key assumptions through ‘what if analysis’
Strategic implementation
The process of allocating and controlling resources to support chosen strategies
Business plan
A document describing a new business or a development of an existing business, its objectives and strategies, the market it is in and the financial forecast
Strategic implementation
Strategic choices (3)
Ansoff matriX
Decision tree
Force field analysis
