E4 Business growth strategies

Question 1

Describe the evaluation criteria

Answer 1

1. Appropriateness
   - help the entity to achieve its mission and objectives
2. Feasibility
   - availability to resources
3. Desirability
   - produce results in both long and short term
4. Competitive advantage

Question 2

Strategy evaluation tools and techniques (CICCI)

Answer 2

*Contribution to portfolio of the organization (BCG matrix)
- only useful if the organization has more than one business unit
*Investment appraisal
- shortest payback period between investments
*Cash flow forecasting
- flow of funds is recorded as income from a strategic option minus the outflow of funds.
*Cost-benefit analysis
*Impact analysis
- some options have serious financial and/or social consequences.

Question 3

Discuss the Boston Consulting Group matrix (BCG)

Answer 3

Determines whether the addition of an extra business unit will result in a cash producer or a cash user.
Units are classified as:
* Stars (H, H)
* Question marks (L, H)
* Cash cows (H, L)
* Dogs (L, L)
They are measured according to their relative market share and the industry growth rate

*Stars- kept and more investment should be made
*Question mark- wise to sell due to uncertainty
*Cash cows- strong cash providers and used to support the Q and S.
*Dogs- should liquidated.

Question 4

Growth strategies

Answer 4

Internal:
*Market penetration (concentrated growth)
- focus on existing products, services and market segments
*Market development
- expanding organization’s offering of existing products and services in non-traditional locations.
*Product development
- current customers offered substantially new and modified products

External:
*Diversification
- related or concentric
- unrelated or conglomerate

Question 5

Generic business-level strategies

Answer 5

*Cost leadership
- lower overall cost than competitor
- mass production
*Differentiation strategy
- unique products
*Focused cost leadership
- serves a particular market niche
*Focused differentiation
- serves a particular market niche
*Best cost strategy
- integrates features of cost leadership and differentiation into one strategy
- utilised to serve a broad or narrow target market