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Strategic management > Week 5 > Flashcards

Week 5 Flashcards

1
Q

What are the different types of business strategy?

A

Generic strategies
-Cost, Differentiation, focus & hybrid

Interactive strategies (competiton)
- Cooperation, hypercompetitive, game theory
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2
Q

What is an Stragetic Business Unit? (SUB)

A

Suppiers goods and services for a distinct domain of activity.

Features include:
- Each SBU responsible for thier own strategy and profit performance. 
-Small businesses just have one SBU
-called "divisions" or "profit centers"
-SBU’s can be identified by:
	Market-based criteria
	Capabilities – based criteria
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3
Q

What are the three effects that SBU’s have on large organisations?

A
  • Increased accountability
  • allows them to vary their business strategies based on the market
  • they decentralise initiative to smaller units.
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4
Q

what is a competitive strategy?

A

How an SBU achieves compatitive advanatge in its activity domain.

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5
Q

How can a company achieve low-cost leadership.

A
  • Cost focused strategy.
  • Economies of scale
  • experience
  • inputs costs
  • product design
  • Parity (competitive parity)
  • proximity
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6
Q

What are some of the discussions about low cost leadership?

A
  • having the second cost structre leads to competitive disadvantage.
  • Cost above quality/
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7
Q

What are the pros and cons of Low cost leadership?

A

Effective when:

  • standardised procuts
  • homogenous prodcts
  • buyers use the products in the same way
  • low switching costs
  • price competition is vigirious

cons

  • price cut too large
  • not sustaibable
  • price is the only tool used.
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8
Q

How can you differentiate a product?

A
  • Lower the buyers’ costs of using the product
  • Raise the performance of the product
  • Increase intangible benefits from a product
  • Deliver value through the value chain
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9
Q

Pros and cons of differentiation.

A

Pros (Effecitve when)

  • Buyers and user needs are diverse
  • Few competitors following similar approach
  • Dynamic environment

cons

  • Differentiation does not benefit the buyer
  • Over-differentiation
  • Trying to charge too high a price for differences
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10
Q

what are the three factors that focus stratgies depend on?

A
  • Distinct segment needs
  • Distinct segment value chains
  • Viable segment economies
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11
Q

Pros and cons of focus strategy?

A

Pros (Effective)

  • Target market offers growth potential
  • Few rivals
  • An industry has many segments
  • Competitors do not have the specialised needs for the market

Risks of focused strategy

  • Low entry barriers
  • Niche market may not be long lived
  • Segment is very attractive
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12
Q

What does Porter say about the generic strategies?

A
  • Choose one and stick to it.
  • Danger to not choose on - stuck in the middle
  • Pure generic strategies = controversial - all strategies can be combines.
  • Organisational seperation - speperate SBU pursue seperate strategies
  • Technological and managent innovation - improve both cost and quality
  • Competitive failures - competitors also stuck in the middle = less competitive pressure to remove competitve disadvantage.
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13
Q

What is the strategy clock?

A

Focus on three zones of feasible strategies (cost, differentiation, hybrid)
focus and costs - incremental adjustments provide a more dynamic view on strategy
- gives more scope for hybrid strategies

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14
Q

The strategy clock

A

12 O’ clock - differentiation without premium - moderate prices - used to gain market share
1 O’ Clock - differentiation with premium - high precieved benefits at a price

9 O’Clock - Low price strategy (Low price and low precieved value) - Pariy with competitors.
7 O’Clock - Price sensitive market groups - low pice - low quality.
11 O’Clock - Hybrid - (low prices and differentiation strategies.- used to make aggresive bids for increased market space. - effective way of entering a market
- Non competitive strategies- low benefits and high price. - lead to failure unless firm is locked in.

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15
Q

What is a strategic lock in?

A

is where users become dependent on a supplier and are unable to use another supplier without substantial switching costs.

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16
Q

What is game theory?

A
  • encourages managers to get in the mind of competitors and think forwards and reason backwards.
  • “Prisioners Dilema”
  • Cooperative rather than aggressive competition

Key principles:

  • Detterence
  • ensure repetition
  • Signalling
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17
Q

What is scope?

A

Scope is how far the organisation should be diversified in terms of products and markets.

Increase scope through:

  • Increase scope engaging in market spaces or new products.
  • Verticle integration
  • related or unrelated
  • Outsourcing
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18
Q

Ansoff matrix - Diversification and value creation

A

Effeciency gaines from applying existing resouces and capabilities to new markets and products.

  • benefit from Economies of scope, and synergies
  • gain increased market power from diverse products.
19
Q

what is Diversification ?

A

increasing the range of products or markets served by an organisation.

20
Q

what is unrelated diversification?

A

expansion into new areas, unrelated to the existing operations of the firm - (aquisition)

21
Q

what is related diversification?

A

involves expanding into products or services with relationships to the existing business. (Internal development)

22
Q

what is market penetration?

A

increasing the share of the market with the current product range.
-market power over buyers and suppliers, experience curve benefits, economies of scale:

drawbacks:

  • price war retaliation from competitors
  • legal constrants (too much market power)
23
Q

what is retrenchment?

A

withdrawal from marginal activities in order to concentrate on the most valuable segments and products within their existing business.

24
Q

why are product development expensive?

A
  • New strategic capabilities – involve mastering new processes or technologies that are unfamiliar to the organisation.
  • Project management risk – projects are subject to risk of delays and increased costs due to project complexity and changing project specifications over time.
25
Q

what is market development

A

offering existing products to new markets.

  • Related diversification
  • New users, new geographies.
26
Q

what is conglomerate diversification?

A
  • goes beyond existing markets and products.
  • benefits from being part of a larger groups
  • increases organisations scope
  • helps reduce the cost of finance
  • can lead to “conglomerate discount” - beaucracy due to manager costs.
27
Q

what are some diversification drivers for growth?

A

1) exploiting economies of scope
2) streching managerial competences
- dominant logic - managerial capabilities accross protfolio of businesses
3) exploiting internal process
4) increasing market power
- mutual foberance - retaliate against competitors
- corss -subside - leveraging profits from other businesses to support aggressive bid to drive competitors out.

28
Q

What is a synergy?

A

the benefits gained where activities or assets complement each other so that their combined effect is greater than the sum of the parts.

29
Q

examples of value distroying diversification drivers.

A
  • Spreading risk - accros markets
  • Responding to market decline
  • Managerial ambition
30
Q

what is verticle integration?

A

means entering activities where the organisation is its own supplier or customer.

  • Backwards integration = Inputs
  • Foward Integration = Outputs.
31
Q

What are the dangers of verticle integration?

A
  • Level of finance needed

- involve different strategic capabilities

32
Q

benefits of outsourcing ?

A

Cost advantage - lower cost of inputs (economies of scale, distinctive competences)

strategic flexibility

  • technology change - obselete
  • demand uncertainity - excess capacity

distinctive competence - focus of value creating activities.

33
Q

The risk to intergrate or subcontract rests on which two factors?

A
  • relative strategic capabilities - contactor have the capabilities to do the work?
  • risk of opportunism - likely to take advantage of relationship over period of time?
34
Q

Market relationships fail in controlling subcontractor opportunism where:

A
  • there are few alternatives
  • product of service is complex or changing
  • investments made in specific assets.
35
Q

what is parenting advantage?

A

creating more value than your competitors would with the same business.

36
Q

examples of value adding activities

A
  • Envisioning
  • facilitating synergies
  • coaching
  • providing central service and businesses
  • Intervening
37
Q

value distroying activities

A
  • Adding management costs
  • adding beaucratic complexity
  • obscuring financial performance
38
Q

Explain components of corporate rational

A
  • Portfolio manager - small office. downwards, investing and interving
  • Synerger manager - big office. accross, faciliting cooperationg
  • Parental developer -big office. downward, providing parental capabilities.
39
Q

The BCG Matrix

A

Stars (high growth, high share)- (Nominal dividends, growth investors, low financial risk, high business risk)

Question market (Launch) (High growth, low share) - (Zero dividends, high business risk, low financial risk, venture capitalist)

Cash Cows (High share, low growth) -(high dividends, medium business risk, medium financial risk - retained earnings)

Dogs (decline) - (Zero dividends, low business risk, high financial risk, debt)

40
Q

What are the Problems with BCG matrix?

A
  • Capital market assumption ( assumes cash cows- no external sources)
  • definition vagueness (hard to decide with category)
  • unkind to animals
  • ignores commercial linkages (SBU)
41
Q

what is the directional policy GE matrix?

A

Categorises business units into those with good prospects and those with less good prospects. (looks at attractiveness of the market)

  • acknowledges the possibility of a difficult middle ground
  • if market is not attractive = Harvest or diverst.
  • 9 cells
  • faces same criticisms as BCG
42
Q

what is the parenting matrix?

A

(Look at the fit)
Introduces parental fit as an important criterion for including business in the portfolio.

Two dimensions:

  • Feel - looks at the fit between different BU and critical success factors.
  • Benefit - mesures the fit between pareting opportunities and needs of Busines.
43
Q

what are the four kinds of business’ along dimension of fell and benefit. (Parenting matrix)

A

Heartland business units - parents have the capabilties, there is an opportunity, should focus on this area (high feel and high benefit)

Ballast business unit - understands- but can do little.

Value trap - high opportunity - no parental capabilities does more harm than good)

Alient business (little opporuntity - not enough parental capabilities - shouls leave)

Strategic management (7 decks)

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