Chapter 4 - Introduction to Business Strategy

Question 1

What is the definition of strategy according to CIMA Official Terminology?

Answer 1

‘Strategy is a course of action, including specification of the resources required, to achieve a specific objective.’

Question 2

What are the three key aspects strategy is concerned with?

Answer 2

HOW, WHERE, WITH WHAT? 1. The long-term direction (objectives) of the business.
2. The environment in which it operates.
3. The resources at its disposal.

Question 3

At what levels can strategy exist within a business? 3

Answer 3

Corporate Strategy, Business Strategy, and Functional (Operational) Strategy.

Question 4

What is Corporate Strategy?

Answer 4

Corporate Strategy is generally determined at the main board level for the business as a whole.

Question 5

What are the main areas of focus in Corporate Strategy? 5

Answer 5

1. Determining the overall corporate mission and objectives.
2. Overall product/market decisions (e.g., expand, close down, enter a new market, develop a new product).
3. Major investment decisions (e.g., IT development).
4. Overall financing decisions (obtaining funds at lowest cost).
5. Relations with external stakeholders (shareholders, lenders, government).

Question 6

What is Business Strategy? 1

Answer 6

Business Strategy forms in strategic business units (SBUs) and relates to how a particular market is approached or how an SBU acts.

Question 7

What is Functional (Operational) Strategy? 1

Answer 7

Functional Strategy refers to the main functions within each SBU (e.g., production, finance, IT, HR, marketing) and how they deliver the strategies determined at the corporate and business levels.

Question 8

What is strategic management?

Answer 8

Strategic management involves taking decisions about a business’s scope, its long-term direction, and the allocation of resources.

Question 9

What are the three main areas involved in strategic management? 3

Answer 9

1. Taking decisions about a business’s scope.
2. Taking decisions on the long-term direction of the business.
3. The allocation of resources.

Question 10

What are the key questions a business must answer when developing a strategy? 4

Answer 10

1. What is it good at?
2. How might the market change?
3. How can customer satisfaction be delivered?
4. What might prevent the plan from coming into being?

Question 11

What are the characteristics of strategic decisions, as summarized by Johnson and Scholes? 7

Answer 11

1. They concern the scope of the business’s activities.
2. They match activities to capabilities and the environment.
3. They revolve around resource allocation.
4. They set off a chain of ‘lesser’ operational decisions.
5. They are based on senior management values and expectations.
6. They dictate the long-term direction of the business.
7. They lead to changes in the business.

Question 12

What determines the order of stages in strategic planning?

Answer 12

The order of stages in strategic planning depends on whether the business takes a positioning-based or a resource-based view.

Question 13

What are the stages in the strategic analysis and choice process? 7

Answer 13

1. External analysis. And 2. Internal analysis. - BOTH SAME LEVEL
2. Corporate appraisal.
3. Mission, goals, and objectives.
4. Strategic choice.
5. Identifying and addressing the gap.
6. Strategy implementation.

Question 14

What are the three types of strategies a business should have at the end of the strategic planning process?

Answer 14

1. Competitive strategies: Generic strategies for competitive advantage, determining how the business competes.
2. Product-market strategies: Determine where it competes and the direction of growth (e.g., which markets to enter or leave).
3. Institutional strategies: Determine the method of growth (e.g., relationships with other businesses).

Question 15

What is strategy implementation?

Answer 15

Strategy implementation is the conversion of chosen strategies into detailed plans or objectives for operating units.

Question 16

What is environmental uncertainty, and what are the key characteristics of static and dynamic environments?

Answer 16

Environmental uncertainty refers to a business’s inability to predict the future with certainty. Static environments are characterized by slow changes, single products/markets, simple technology, and safety. Dynamic environments are characterized by fast changes, diverse products/markets, complexity, and risk.

Question 17

What is PESTEL analysis, and what are the six factors it considers?

Answer 17

PESTEL analysis is a framework for analyzing the general environment of a business. The six factors it considers are:
1. Political factors
2. Economic factors
3. Social/demographic factors
4. Technological factors
5. Ecological factors
6. Legal factors

Question 18

What framework is used for analyzing the general environment of a business?

Answer 18

PESTEL analysis is a framework for analyzing the general environment of a business. The six factors it considers are:
1. Political factors
2. Economic factors
3. Social/demographic factors
4. Technological factors
5. Ecological factors
6. Legal factors

Question 19

What is Porter’s Five Forces model used for?

Answer 19

Porter’s Five Forces model is used to analyze the competitive environment of a business by assessing the attractiveness of an industry.

Question 20

What are the five forces in Porter’s model?

Answer 20

1. Threat of new entrants
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threat of substitutes
5. Rivalry among existing competitors

Question 21

What are Philip Kotler’s four types of competitors?

Answer 21

1. Brand competitors: Firms offering similar products (e.g., McDonald’s vs. Burger King).
2. Industry competitors: Firms with similar products but differing in range or markets (e.g., Tesco vs. Amazon).
3. Generic competitors: Compete for the same disposable income (e.g., a DVD store vs. a bookstore).
4. Form competitors: Different products satisfying the same need (e.g., matches vs. lighters).

Question 22

What are brand competitors?

Answer 22

1. Brand competitors: Firms offering similar products (e.g., McDonald’s vs. Burger King).

Question 23

What are industry competitors?

Answer 23

2. Industry competitors: Firms with similar products but differing in range or markets (e.g., Tesco vs. Amazon).

Question 24

What are generic competitors?

Answer 24

3. Generic competitors: Compete for the same disposable income (e.g., a DVD store vs. a bookstore).

Question 25

What are form competitors?

Answer 25

4. Form competitors: Different products satisfying the same need (e.g., matches vs. lighters).

Question 26

Once you have identified the type of competitor (e.g. brand, industry, generic and form) what does this indicate?

Answer 26

All these are combined in a competitor reaction profile. This indicates the competitor’s vulnerability and the right ‘battleground’ on which to fight. Kotler lists four reaction profiles: Laid back, tiger, selective, stochastic

Question 27

What are Philip Kotler's four competitor reaction profiles?

Answer 27

1. Laid back: Does not respond to competitors' moves. 2. Tiger: Responds aggressively to all opposing moves. 3. Selective: Reacts to some threats in some markets but not all. 4. Stochastic: Unpredictable behavior.

Question 28

What aspects of the business should be analyzed after examining the external environment? 4

Answer 28

After analyzing the external environment, a business should analyze: 1. Its resources and competencies (using a position and resource audit). WHAT IT HAS 2. Its 'value chain.' HOW IT USES THESE 3. Its supply chain.HOW IT FITS IN WITH SUPPLIERS AND CUSTOMERS 4. Its products and markets (using the product life cycle and BCG matrix). ITS FIT WITH THE MARKET

Question 29

What is a position audit, and what areas does it examine? 6

Answer 29

A position audit is part of the planning process that examines the current state of the entity in respect of: 1. Tangible and intangible resources and finance. 2. Products, brands, and markets. 3. Operating systems (production and distribution). 4. Internal organization. 5. Current results. 6. Returns to shareholders.

Question 30

What are the factors included in the 9 Ms model for a resource audit? IMPORTANT

Answer 30

The 9 Ms model includes the following factors: 1. Machinery: Age, condition, utilization, value, replacement, technological relevance. 2. Make-up: Culture, structure, patents, goodwill, brands. 3. Management: Size, skills, loyalty, career progression, structure. 4. Management information: Ideas, innovation, information systems. 5. Markets: Products and customers. 6. Materials: Sources, suppliers, waste, cost, availability, future needs. 7. Men and women: Skills, wage costs, proportion of costs, efficiency. 8. Methods: How activities are carried out. 9. Money: Credit, cash flow, surpluses/deficits, finance, gearing.

Question 31

What is Porter's value chain, and how does it help businesses?

Answer 31

Porter's value chain is a model that provides a bird's eye view of a business's activities. It helps identify how competitive advantage arises from the way activities are organized and performed.

Question 32

What are value drivers and cost drivers in the context of Porter's value chain?

Answer 32

Value drivers are elements of a product or service that increase the value consumers place on it, such as product features or branding. Cost drivers are activities that affect the cost of a product or service.

Question 33

What are the primary and support activities in Porter's value chain? 5, 5

Answer 33

Primary activities: Inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities: PHIT. PRINCE HARRY IS TALL. Firm infrastructure, human resources, technology development, and procurement.

Question 34

What are the primary activities in Porter's value chain? 5

Answer 34

Primary activities: Inbound logistics, operations, outbound logistics, marketing and sales, and service.

Question 35

What are the support activities in Porter's value chain? 5

Answer 35

Support activities: PHIT. PRINCE HARRY IS TALL. Firm infrastructure, human resources, technology development, and procurement.

Question 36

Inbound logistics

Answer 36

Anything that comes into business

Question 37

Operations

Answer 37

Conversion actvities

Question 38

Outbound logistics

Answer 38

Sendings things out

Question 39

Service

Answer 39

After care, chasing for debts credit control

Question 40

Procurement

Answer 40

How we buy - quantity, volume, discounts

Question 41

Technology Development

Answer 41

Use of technology - e.g. bespoke MI system

Question 42

Human Resources

Answer 42

Policies, way we recruit

Question 43

Firm Infrastructure

Answer 43

The makeup. The capital struture, location of operation, the management

Question 44

What is supply chain management (SCM), and what aspects does it involve?

Answer 44

Supply chain management (SCM) involves optimizing the activities of businesses working together to produce goods and services. It focuses on managing the chain from input resources to consumers.

Question 45

What are some key practices in supply chain management to improve efficiency and focus? 4

Answer 45

Key practices in SCM include: 1. Reducing the number of suppliers and fostering close partnerships with remaining ones. 2. Focusing resources on customers of high potential value. 3. Early supplier involvement in product development and design. 4. Joint problem-solving among supply chain partners.

Question 46

What is the product life cycle, and why is it useful for businesses?

Answer 46

The product life cycle is a model that shows how a product demonstrates different characteristics of profit and investment over time. It helps businesses examine their portfolio of goods and services as a whole.

Question 47

What are the stages of the product life cycle? 5

Answer 47

The stages of the product life cycle are: 1. Product development 2. Introduction 3. Growth 4. Maturity 5. Decline

Question 48

Define phased shakeout

Answer 48

During the shake-out phase, sales continue to increase, but at a slower rate, usually due to either approaching market saturation or the entry of new competitors in the market. Sales peak during the shake-out phase. Although sales continue to increase, profit starts to decrease in the shake-out phase.

Question 49

What is the BCG matrix, and what does it analyze?

Answer 49

The BCG matrix, developed by the Boston Consulting Group, is a tool that assesses a business's products or services in terms of potential cash generation and expenditure requirements. It categorizes products based on market growth rate and relative market share.

Question 50

What are the four categories in the BCG matrix, and how are they defined?

Answer 50

1. Market Leader: Stars: High market growth, high market share. >10 market gross per annum is high. BUILD 2. Cash Cows: Low market growth, high market share <10 market gross per annum is low. HOLD (MAINTAIN) OR HARVEST (MAX SHORT TERM GAIN AT THE EXPENSE OF LONG TERM) 3. Everybody else : Question Mark: High market growth, low market share. >10 market gross per annum is high. BUILD OR INVEST 4. Dogs: Low market growth, low market share. <10 market gross per annum is low. DIVEST (get rid off: sell or shut it down) OR HOLD - Maintain complete a product portfolio.

Question 51

What does a star mean in the BCG matrix?

Answer 51

1. Market Leader: Stars: High market growth, high market share. >10 market gross per annum is high. BUILD

Question 52

What does a cash cow mean in the BCG matrix?

Answer 52

2. Cash Cows: Low market growth, high market share <10 market gross per annum is low. HOLD (MAINTAIN) OR HARVEST (MAX SHORT TERM GAIN AT THE EXPENSE OF LONG TERM)

Question 53

What does a question mark mean in the BCG matrix?

Answer 53

3. Everybody else : Question Mark: High market growth, low market share. >10 market gross per annum is high. BUILD OR INVEST

Question 54

What does a dog mean in the BCG matrix?

Answer 54

4. Dogs: Low market growth, low market share. <10 market gross per annum is low. DIVEST (get rid off: sell or shut it down) OR HOLD - Maintain complete a product portfolio.

Question 55

How is relative market share calculated in the BCG matrix?

Answer 55

Relative market share is calculated by dividing the entity's sales of a product/service in a specified market by the sales of the biggest competitor in that market. If the ratio is greater than 1, the entity is the market leader; if below 1, it has low market share.

Question 56

What is corporate appraisal, and what does it involve?

Answer 56

Corporate appraisal brings together the analyses to date, involving the critical assessment of a business's strengths, weaknesses, opportunities, and threats (SWOT analysis) to establish its condition before preparing a long-term plan.

Question 57

What is internal analysis in corporate appraisal?

Answer 57

Internal analysis appraises the business's strengths and weaknesses.

Question 58

What is external analysis in corporate appraisal?

Answer 58

External analysis appraises the opportunities and threats facing the business.

Question 59

What is SWOT analysis, and what is its purpose?

Answer 59

SWOT analysis is a critical assessment of strengths, weaknesses, opportunities, and threats related to internal and environmental factors, helping to establish the business's condition and inform long-term planning.

Question 60

What are the two approaches to using SWOT analysis in corporate appraisal?

Answer 60

1. Positioning-based approach: SWOT is used as a summary or synthesis of prior examination of resources and environment. 2. Resource-based approach: SWOT is used as the first stage of strategy-making to establish the nature of the business's core competencies.

Question 61

What stage is SWOT used in a positioning-based approach?

Answer 61

1. Positioning-based approach: SWOT is used as a summary or synthesis of prior examination of resources and environment.

Question 62

What stage is SWOT used in a resource-based approach?

Answer 62

2. Resource-based approach: SWOT is used as the first stage of strategy-making to establish the nature of the business's core competencies.

Question 63

Why is stakeholder analysis important in the strategic planning process?

Answer 63

Stakeholder analysis is important because the needs and objectives of different stakeholders often conflict. It helps businesses focus on the most dominant stakeholders while considering the impact of all stakeholders on the business's objectives.

Question 64

What is Mendelow's power/interest matrix, and what are its four categories?

Answer 64

Mendelow's power/interest matrix is a tool to categorize stakeholders based on their level of interest and power: 1. Category A: Minimal Effort (Low power, low interest). e.g. neighbours (local households) 2. Category B: Keep Informed (Low power, high interest). e.g. employees, general suppliers and customers, local government 3. Category C: Keep Satisfied (High power, low interest). e.g. instituional shareholder, national government 4. Category D: Key Player (High power, high interest). e.g. major shareholder or customer

Question 65

What type of power and interest does a minimal effort category have as defined by mendelow's matrix?

Answer 65

Mendelow's power/interest matrix is a tool to categorize stakeholders based on their level of interest and power: 1. Category A: Minimal Effort (Low power, low interest). e.g. neighbours (local households)

Question 66

What type of power and interest does a keep informed category have as defined by mendelow's matrix?

Answer 66

Mendelow's power/interest matrix is a tool to categorize stakeholders based on their level of interest and power: 2. Category B: Keep Informed (Low power, high interest). e.g. employees, general suppliers and customers, local government

Question 67

What type of power and interest does a keep satisfied category have as defined by mendelow's matrix?

Answer 67

Mendelow's power/interest matrix is a tool to categorize stakeholders based on their level of interest and power: 3. Category C: Keep Satisfied (High power, low interest). e.g. instituional shareholder, national government

Question 68

What type of power and interest does a key player category have as defined by mendelow's matrix?

Answer 68

Mendelow's power/interest matrix is a tool to categorize stakeholders based on their level of interest and power: 4. Category D: Key Player (High power, high interest). e.g. major shareholder or customer

Question 69

What are strategic objectives, and how are they determined?

Answer 69

Strategic objectives are the primary goals of a business, such as making a profit for shareholders. They also include other major objectives addressed to stakeholders.

Question 70

When does a business need to choose a new corporate strategy?

Answer 70

A business needs to choose a new corporate strategy if there is a gap in its current strategy. If there is no gap, the business can continue with its current corporate strategy.

Question 71

What are Porter’s three generic competitive strategies?

Answer 71

Porter’s three generic competitive strategies are: 1. Cost leadership 2. Differentiation 3. Focus (niche)

Question 72

What is cost leadership in Porter’s strategies?

Answer 72

Cost leadership involves producing at the lowest cost in the industry as a whole, allowing the business to compete freely on price.

Question 73

What is differentiation in Porter’s strategies?

Answer 73

Differentiation involves providing a product or service perceived by the industry as unique.

Question 74

What is focus (or niche) in Porter’s strategies?

Answer 74

Focus (or niche) restricts activities to a segment of the market by: 1. Providing goods/services at a lower cost to that segment (cost-focus). 2. Providing a differentiated product/service to that segment (differentiation-focus).

Question 75

What is Ansoff's matrix, and what does it describe?

Answer 75

Ansoff’s matrix describes how a business’s activities in current/new markets and with existing/new products can lead to growth strategies.

Question 76

What are the four strategies in Ansoff’s matrix?

Answer 76

The four strategies in Ansoff’s matrix are: 1. Market penetration: Consolidate, penetrate (e.g., loyalty schemes), or withdraw. 2. Product development: Sell more to existing customers. 3. Market development: Explore new segments, territories, or uses. 4. Diversification: Introduce related/unrelated, vertical/horizontal products; the most risky strategy.