Chapter 1: The Directions Of Strategy Development Flashcards
(58 cards)
1
Q
Synergy definition
A
Refers to the benefits gained where activities or assets complement each other so that their combined effect is greater than the sum of their parts (2+2=5 effect)
2
Q
What are the strategic decision levels?
A
- Corporate Strategy
- Business Strategy
- Functional Strategy
3
Q
Corporate Strategy Concept
A
What are the businesses/markets we will focus on?
4
Q
Business Strategy Concept
A
How do we compete better on each business/market to generate advantage?
5
Q
Functional Strategy Concept
A
How do departments support busines-level strategies?
6
Q
Abell’s Matrix characteristics
A
- Defines the boundaries of the industry
- Shows company’s position and allows to compare with competitors
- Shows industries, businesses and segments
7
Q
Abell’s Matrix Dimensions
A
- Customer groups (WHO)
- Functions (WHAT)
- Technology (HOW)
8
Q
Growth characteristics
A
- Increase in assets
- Indicator for business health
- Necessary in competitive environments
- Associated with managerial capabilities
- Pressure from financial markets
9
Q
Development characteristics
A
- Refers to qualitative changes in the firm’s activities
- Accompanied by growth
- Should be geared towards value creation for the whole company
10
Q
Organic growth characteristics
A
- Investments in the firm’s resources and capabilities
- Slower growth
- Prefered choice for specialization in a growth phase
- Innovation capabilities or financial resources
11
Q
Inorganic growth characteristics
A
- Carried out through mergers and acquisitions
- May be used to increase market share
- Capabilities of external firms may be acquired
- Greater one-off payment
- Faster
12
Q
Ansoff Matrix combinations
A
- Existing products/markets: Market penetration
- Existing markets/new products: Product development
- New markets/existing products: Market development
- New markets/products: Diversification
13
Q
Why do companies initiate new development directions?
A
- Mission and goals of companies change
- Environment changes
- Resources and capabilities change
14
Q
Possible environment changes
A
- General environment changes (PESTLE)
- Technology evolves
- Consumer behaviour changes
15
Q
Possible resources and capabilities changes
A
- Availability of R&C
- More scope require more R&C
16
Q
Business Development directions
A
- Consolidation
- Expansion
- Diversification
- Vertical integration
- Restructuring
17
Q
Consolidation characteristics
A
- Description: Current business is maintained on similar levels of sales and market share
- Activities: No change. No development
- Stage: Maturity/decline
18
Q
Expansion characteristics
A
- Description: Close relationship with current products/markets
- Activities: Change along one of the axes
- Stage: Growth/maturity
19
Q
Diversification characteristics
A
- Description: Both new product and new market
- Activities: Change along both axes
- Stage: Growth
20
Q
Vertical integration charateristics
A
- Description: New activities along the value chain
- Activities: Change of area of activity
- Stage: Growth/maturity
21
Q
Restructuring characteristics
A
- Description: Redesign of business portfolio
- Activities: Change sometimes
- Stage: Decline
22
Q
Market penetration definition
A
It implies increasing share of current markets with the current product range
23
Q
Market penetration characteristics
A
- Builds on established strategic capabilities
- Means an organization’s scope is unchanged
- Leads to a greater market share and increased power
- Provides greater economies of scale
- Normally due to intensive marketing
- Reinforces competitive strategy
24
Q
When to adopt market penetration?
A
- When there’s expected growth of the industry
- Unsatisfied clients in an industry
- Take advantage of companies leaving the industry
25
Constraints on market penetration
- Retaliation from competitors
- Legal constraints
- Economic constraints
26
Product development definition
It is where an organisation delivers modified or new products to existing markets
27
Product development characteristics
- Products usually serve the same purpose
- Can be expensive and high risk
- Can be done through tech innovations or extending ranges
- May require new resources and capabilities
- Typically involves project management risks
28
Advantages of product development
- Better satisfy customer needs
- Offer a picture of innovation
- Generate synergies
29
When to apply Product Development
- Industries whose products have short life cycles
- Client needs change rapidly
- Strong R&D capabilities
30
Risks of Product Development
- Costs of creating new products
- Innovation not part of your capabilities
- Products not accepted by consumers
31
Market development definition
Involves offering existing products to new markets, understood as:
- New industry segments
- New uses for the same product
- New geographic locations to sell your products
32
Market development characteristics
- Markets not saturated
- Production capacity underutilised
- International key markets
- Meeting the critical success factors of the markets
- New strategic capabilities
33
When to apply Market Development
- New and trustable distribution channels
- High efficiency and efficacy rates in current markets
- Productive capacity underutilised
34
Risks of Market Development
- Not enough resources or knowledge to expand
- New competitors approaching your core market
35
Diversification definition
Involves simultaneously increasing the range of products and markets served by an organisation
36
Other diversification drivers
- Exploting economies of scope
- Stretching corporate management competences
- Exploiting superior internal processes
- Increasing market power via mutual forbearance
37
Value destroying diversification drivers
- Responding to market decline
- Spreading risk
- Managerial ambition
38
Types of diversification of activities
- Related diversification involves expanding into products or services with relationships to the existing business
- Unrelated diversification involves diversifying into products or services with no relationships to existing businesses
39
Benefits from related diversification
- Sharing intangible resources such as core competencies in marketing, distribution, logistics…
- Sharing tangible resources such as production facilities, distribution channels and via vertical integration
40
Benefits from unrelated diversification
- Value creation derived from the corporate office
- Brand image
- Leveraging support activities
- HR
- Technology development
- Infrastructure
41
Risks of unrelated diversification
- Absence of synergies
- Lack of focus
- Difficulties managing and coordinating the company
- Difficulties to overcome entry barriers
42
Risks of related diversification
- Success is based on each SBU level, and not on Company Level
- Diversification does not always mean profitability
- Adapt the company’s management structure to a diversified reality
- Diversification costs can be greater then synergies
43
Vertical integration definition
It describes entering activities where the organisation is its own supplier or customer
44
Backward integration definition
Refers to development into activities concerned with the inputs into the company’s current business
45
Forward integration definition
Refers to development into activities concerned with the outputs of a company’s current business
46
Conditions previous to vertical integration
- Quality of suppliers and distributors
- Is the current value chain a viable source of future profits?
- Level of competence of the company to execute vertical integration strategies
- Risk of negative impacts for stakeholders
47
Transaction costs before vertical integration
- Search costs
- Negotiation costs
- Contract costs
- Monitoring costs
- Enforcement costs
- Administrative costs of coordination
48
Reasons behind vertical integration
- Cost reductions
- Improvement of competitive position
49
Types of reorganization of activities
- Retrenchment
- Restructuring
50
Retrenchment definition
Refers to a strategy by which an organisation focuses defensively on their current markets with current products
51
Restructuring definition
Refers to a strategy of withdrawal from marginal activities in order to concentrate on the most valuable segments and products within their existing business
52
Reasons for restructuring
- Negative results of one or several businesses (Retrenchment)
- Lack of synergies (Restructuring)
- Crises on the business portfolio (Either)
53
Causes of crisis in business portfolio
- Inefficient management
- Excessive growth
- Inappropriate competitive strategy
- High costs
- Entry of new competitors
- Structural change in demand conditions
- Organizational inertia
54
Options following crisis in business portfolio
- Recovering the business
- Abandoning the business
55
Business retrenchment measures
- Change management
- Redefinition of competitive strategy
- Sale of assets
- Refinancing of debt
- Cost reductions
56
Business retrenchment problems
- Poor analysis of root causes
- Only short term solutions are adopted
- Focus does not return to competitive advantage
- Risk of losing critical assets
57
Reasons for restructuring of the business portfolio
- The whole business portfolio shows a low performance
- The redesign of the portfolio is envisioned
58
Exit strategies when restructuring
- Sale or divestment: total or partial recovery of investment
- Harvest: operate until bankruptcy
- Liquidations: assets are sols on the market and depends on their characteristics
