Question Model

Factors contributing to competitive

advantage Porter's 3 Generic Strategies
CSF
Value drivers
Strategies to expand business Ansoff
Analyse ways the org. has expanded its
business Lynch
Analyse growth strategy
Marketing strategy Marketing mix
Evaluate Strategy SAF
Ansoff
Decision making (with probability) Decision tree
Change management issues Barriers
Lewin
Gemini 4R
Supply chain management issues 3R
Analyse existing structure General: Mintzberg, Shamrock (if flexible)
Specific: Simple, Divisions (by what), Matrix,
etc
Develop global strategy Porter's Diamond
Lynch
Factors encouraging firms to act globally Ohmae's 5C's
Pricing strategy 4C's
Pricing principles
Price and quality Positioning model (Price vs perceived quality)
Brand positioning (cowboy, etc)
Bowman's strategy clock
Risk response strategy TARA
Impact of external factors on competitiveness Porter's 5 Forces
PESTEL
Advise on action to be taken for ethical issues TEF
Ethical principles
Decide whether abandon/replace product BCG matrix
Analyse product portfolio PLC
Corporate governance of listed companies UKCG Code
Corporate governance of non-listed co. General governance principles
Capacity management/planning Supply side and demand side
Stakeholders power-interest Mendelow's matrix
Analyse interest and influence of
stakeholders
Approach to performance measurement Balanced scorecard and KPI for each
Public sector: 3Es
Factors to decide how to choose suppliers Quantity, Quality, Price, Delivery
Big data & data analytics 4V's
Mission statement Ashridge model
Verb in question Answer plan
Evaluate ideas Pros & cons
Costs and benefits
Advantages and
disadvantages
Benefits and problems
Positives & Negatives
-Suggest which one
Prepare risk register Identify risk
Impact & likelihood
Response strategy
-in table form preferably
Explain benefits
Assess plans or proposals (non-
numeric) Theory
Specific to case
Conclusion (viable or not)
Advantages and
Discuss merits disadvantages
Conclude/Recommend
External Analysis Internal Analysis
-PESTEL -Resource audit
-Porter’s 5 Forces -Distinctive competencies
-Competitor Analysis -Value chain
-Supply chain
-Product life cycle
-BCG matrix
Corporate Appraisal Mission, Goals & Objectives
-SWOT analysis -Mendelow’s matrix
-TOWS matrix -Mission statement
Strategic Choices (Option generation)
Competitve advantage Product/market strategy Development strategy
-Porter’s Generic strategy -Ansoff’s matrix -Lynch matrix
-Bowman’s strategic clock
Strategic Choices (Option evaluation) Performance measurement
-SFA -Data analysis
-CSF (KPI) -Measure of resource performance (3Es)
-Risk analysis -Balanced scorecard
- Mendelow’s matrix
External Analysis

(1) PESTEL

Political -Social welfare policy

-Taxation policy
-Regulations
-Government stability

Economic -Globalisation
-Business cycles
-Interest rates
-Inflation
-Unemployment
-Exchange rates

Social -Income distribution

-Social mobility
-Levels of education/health
-Size of population
-Location
-Age distribution
-Lifestyle changes
-Consumerism
-Attitudes to work and leisure
-Green consumers

Technology -Government investment and R&D policy

-New discoveries: products & methods of production
-Speed of technology transfer
-Levels of R&D spending by competitors
-Developments in other industries that could transfer across

Ecological -Sustainability issues

-Pollution
-Green issues

Legal -Competition legislation

-Environmental protection laws
-Employment law
-Consumer protection
-Health & safety regulations
(2) Porter’s 5 Forces

- Baforieenfsy
rice Quality
{
.

(
switching
costs .

( market
share

( market
share

Limitation of the 5 Forces model

-Ignores role of the state (gov)
-Not helpful for not for profit organisations
-It is a positioning view, not resource-based
-Assume management is only required to maximise shareholders’ wealth
-Ignores potential for collaboration to raise profitability
-Dynamic industries may require a greater focus on risk management
Add on: Porter’s Diamond

Porter’s Diamond (4)

Why certain industries within a particular nation are competitive internationally

Natural
resources Launch pad for
] ambition
( global

modem -

communication
) ( Innovation
Labour
skill level

5 Cs Framework (4)
Reasons which encourage firm to act globally
Customer Are customer tastes converging (same)
Company Gaining economies of scale (EOS)
Competition Global competitors encourage others to be global
Currency volatility Setting up overseas reduces this risk (operates in other country)
Country Gaining cheaper access to resources (cheap labour)
(3) Competitor analysis
Internal Analysis

(1) 9M’s Resources Audit

Resources Sources of competences

Men & women Number of people, skills, motivation, adaptability

Machines Number, productive capacity, age, condition, location

Money Sources, uses, CF forecasts, relationship with SHHs, bankers

Materials Suppliers reliability, flexibility, costs, distribution systems

Markets Market status, position & market share, brand image,

customer loyalty, customer goodwill, distribution system

Management Quality, skills, ability of senior management

(good corporate governance & managing risk)

Methods Activities & processes used outsourcing, capital or

labour-intensive production methods

Management Information System Quality, timeliness

Make up Structure, culture

(3) Porter’s Value Chain Model
Worked example: Maple plc
Hairdresser X Ltd
The Value System

Outsourcing
Define as: Use of outside resources to perform activities traditionally by internal staff and resources.
(4) Supply Chain Management (SCM)
Management of all supply activities from the suppliers to a business through to delivery to
customers

Theme Description
Responsiveness ability to supply customers quickly (JIT)
Reliability ability to supply customers reliably
Relationships use of single sourcing and long-term contracts better to integrate the buyer and
supplier
(5) Product Life Cycle
International Trade Life Cycle
(6) BCG Matrix
BCG Matrix & Product Life Cycle

General Electric (GE) Business Screen

Function: Compare market attractiveness with business strength
Corporate Appraisal

(1) SWOT Analysis

Terms Description
Matching Strengths which do not match any available opportunity are of limited use while
opportunities which do not have any matching strengths are of little immediate
value
Conversion This requires the development of strategies which will convert weaknesses into
strengths to take advantage of some particular opportunity, or converting threats
into opportunities which can then be matched by existing strengths.

(2) TOWS Matrix

Strategies Description
SO employ strengths to seize opportunities
ST employ strengths to counter or avoid threats
WO address weaknesses so as to be able to exploit opportunities.
WT defensive, aiming to avoid threats and the impact of weaknesses
Mission, Goals & Objectives

(1) Mendelow’s matrix

Type of stakeholders Description

Minimal Effort They can simply be directed
Keep Satisfied Must be treated with care
Business should intervene with these stakeholders & keep them satisfied
Keep Informed Do not have great ability to influence strategy
Their views can be important in influencing more powerful stakeholders
They should therefore be kept informed by education & communication
Key Players Strategy must be acceptable to them, at least
Ideally, they should participate in it

(2) Mission Statement

Element Descriptions
Purpose Why does the organisation exist? Who does it exist for?
- To create wealth for shareholders who take priority over all other stakeholders?
- To satisfy the needs of all stakeholders, including employees, for example?
- To reach some higher goal such as the advancement of society?
- To alleviate the poverty of the needy?

Strategy the competitive position and distinctive competence of the organisation.

Policies & the policies and behavioural patterns underpinning its work
standards of
behaviour
Values what the company believes in, which is replicated in employees' personal
values.
Strategic Choices
Competitive Advantages

Porter’s Generic Competitive Strategy (1)

Strategy How to achieve?

Cost Leadership -Setting up production facilities to obtain EOS
-Reduce costs and/or enhance productivity
-Exploit learning curve effect
-Concentrate on improving productivity
-Minimise overhead costs
-Use latest technology
-Get favourable access to source of supply
-Relocate operations to cheaper countries
-Use value chain to streamline activities & reduce non value adding activities
Differentiation -Build up a brand name
-Give product special features to make it stand out
-Exploit other activities of the value chain
‘-Use IT to create new services or product features
Niche Cost-focus
-Aim to be cost leader in particular niche

Differentiation-focus
-Pursue differentiation for a chosen niche
Extra: Generic Strategies & 5 forces
(2) Bowman’s strategic clock

Strategy Descriptions
Price-based (1) No frills - aimed at the most price-conscious
- can only succeed if this segment of the market is
sufficiently large
- used for market entry, to gain experience and build volume
(2) Low price - offers better value than competitors
- can lead to price war and reduced margins for all
Hybrid (3) -Seek both differentiation and lower price than competitor
- cost base must be low enough to permit reduced prices and reinvestment
to maintain differentiation
- leads to growth in market share
- differentiation rests on core competences and costs can be reduced
elsewhere
- low price approach is suited to a particular market segment
- used as a market entry strategy
Differentiation (4) Come in whether a price premium is charged
2 variants competitive price is accepted to build market share
Focused seeks a high price premium in return for a high degree of differentiation
differentiation (5)
Failure (6,7,8) - likely to result in failure
- there is little perceived added value to compensate for the premium on
price
Product/market strategy

(1) Ansoff matrix

Strategy Descriptions
Market - Maintain or to increase its share of current markets with current products
penetration (competitive pricing, advertising, sales promotion)
- Secure dominance of growth market
- Restructure a mature market by driving out competitors
- Increase usage by existing customers (airmiles, loyalty cards)
Market - New geographical areas and export markets
development - Different package sizes for food and other domestic items
- New distribution channels to attract new customers
- Differential pricing policies to attract different types of customer
- create new market segments
Product - company can exploit its existing marketing arrangements
development - company should already have good knowledge of its customers
- Competitors will be forced to innovate
- cost of entry to the market will go up (newcomers may be discouraged)
Diversification Growth
- New products and new markets should be selected which offer prospects for
growth which the existing product-market mix does not
Investing surplus
- not required for other expansion needs
- the funds could be returned to shareholders
Types of Diversification
Related Conglomerate
Integrating activities in the supply chain/ Development of a portfolio of
leveraging technologies/competences businesses with no commercial
similarity/ links between them
Vertical Horizontal
Forward Backward
Development strategy

(1) Lynch matrix

External development
Strategy Descriptions
Joint venture - Attractive to smaller or risk-averse firms
- 2/more org. set up third org. to share control
- Very common in entering normally closed market

Merger Joining of two separate companies to form a single company

Acquisition Purchase of a controlling interest in another company
Strategic Firms enter long-term strategic alliances:
alliances - They share development costs of a particular technology.
- The regulatory environment prohibits take-overs (eg, most major airlines are in
strategic alliances because in most countries there are limits to the level of
control an 'outsider' can have over an airline).
- Complementary markets or technology.
Franchise Mechanism
- The franchiser grants a licence to the franchisee allowing the franchisee to use
the franchiser's name, goodwill, systems.
- The franchisee pays the franchiser for these rights and also for subsequent
support services which the franchiser may supply.
- The franchisee is responsible for the day-to-day running of the franchise..
- Capital for setting up the franchise is normally supplied by both parties.
- The franchiser will typically provide support services, including national
advertising, market research, research and development, technical expertise, and
management support.
Licensing - licence grants a third-party organisation the rights to exploit an asset belonging
to the licensor
- Licences can be granted over use of brands and recipes, patent or technology
- Licensees will pay an agreed proportion of the sales revenue to the licensor for
the right to exploit the license in a given geographical area or for a given range of
products
Glosary Description
Organic growth Benefits
- gives the firm the best understanding of the market and the product
- might be the only sensible way to pursue genuine technological innovations
- no suitable target for acquisition
- can be planned and financed easily from the company's current resources and
the costs are spread over time
- same style of management and corporate culture can be maintained
- Less disruption & resistance to change
- provides career development opportunities for managers
- Could be cheaper as there is no acquisition premium
- Less risky
Drawbacks
- may intensify competition
- too slow if the market is developing very quickly
- firm does not gain access to the knowledge and systems of an established
operator
- No synergies
- Lack of EOS
- May be prohibitive barriers to entry in new markets
- Very risky, no guarantee in will work
International Reasons supporting
Expansion - Profit margins may be higher abroad.
- Increase in sales volume from foreign sales may allow large reductions in unit
costs.
- The product life cycle may be extended if the product is at an earlier stage in
the life cycle in other countries.
- Seasonal fluctuations may be levelled out (peak periods in some countries
coinciding with troughs in others).
- It offers an opportunity of disposing of excess production in times of low
domestic demand.1
- International activities spread the risk which exists in any single market
(eg, political and economic changes).
- Obsolescent products can be sold off to international customers without
damage to the domestic market.
- The firm's prestige may be enhanced by portraying a global image
Reasons for avoiding
- Profits may be unduly affected by factors outside the firm's control
(eg, due to fluctuation of exchange rates and foreign government actions).
- The adaptations to the product (or other marketing mix elements) needed for
international success will diminish the effects of economies of scale.
- Extending the product life cycle is not always cost effective. It may be better
to develop new products for the domestic market.
- Opportunity costs of investing abroad – funds and resources may be better
utilised at home.
- In the case of marginal cost pricing, anti-dumping duties are more quickly
imposed now than in the past.
Strategic Choice (Option evaluation)

(1) SFA

Suitability Exploit company strengths and distinctive competences?

Rectify company weaknesses?
Neutralise or deflect environmental threats?
Help the firm to seize opportunities?
Satisfy the goals of the organisation?
Fill the gap identified by gap analysis?
Generate/maintain competitive advantage?

Feasibility Is there enough money?

Is there the ability to deliver the goods/services specified in the strategy?
Can we deal with the likely responses that competitors will make?
Do we have access to technology, materials and resources?
Do we have enough time to implement the strategy?
Will the strategy deliver results within an appropriate timeframe?

Acceptability Returns – the likely benefits that stakeholders will receive

(to stakeholders) Risk – the likelihood of failure and its associated consequences
Financial considerations (ROI, Profits, Growth, EPS, CF, P/E, Market Cap)
Customers may object to a strategy if it means reducing service
Banks are interested in the implications for cash resources, debt levels etc
Government: a strategy involving a takeover may be prohibited under
monopolies and mergers legislation
(2) CSF – KPI

CSFs should be identified:

-The structure of the particular industry
-Competitive strategy & position of the firm
-Environmental factors
-Temporary factors
-Functional management issues

KPIs used to measure CSFs

CSF (what need to be good at) KPI (what measure to check)

Short queue Measure average queue length over a period
In stock Measure number of stock outs per line over a period
National coverage Measure the number of new shops opened in lowest coverage
regions in a year
Innovative product range Measure the number of new lines introduced each month
Share price Measure share price movement each year compared to national
coverage
Availability of product Stock turnover, No. of new products added, Shelf occupancy
Product range No. of product types, No. of segments, Different brands
Shopping experience Queue time, Customer feedback, No. of counter open at a time
Freshness of perishable Shelf life, No. of complaints, Products turnover
Coverage + Location No. of branches, no. of visitors, distance from population
(3) Risk Analysis

Classes of uncertainty Descriptions

Clear enough futures - future can be assessed with reasonable accuracy because it follows on
from the past without major change
- Eg, the forecasts of bread sales made by management of a bakery
Alternative futures - Outcomes depend on an event
- eg, the value of rights to make national football team merchandise
depends on whether they qualify for the World Cup or not
Range of futures - Outcome varies according to a number of variables that interact
- eg, hotel operator's forecasts of sales of holiday accommodation
depend on level of temperature, prices of flights, levels of disposable
income etc
True uncertainty - Very high uncertainty due to the number and unpredictability of the
variables influencing the outcome
- eg, investment in emerging economies where the outcome will be
determined by political events, global economic developments, natural
and man-made disasters, cultural and religious change etc

Risk management model

Risk appetite Descriptions

Defenders - Low risk tolerance
- Decision taking is relatively formalised
- There is a stress on 'doing things right', that is, efficiency
Prospectors - organisations where the dominant beliefs are more to do with results
- Risk seeker
- Doing the right things, that is, effectiveness
-eg; APPL
Analysers - Risk neutral
- use a core of stable products and markets as a source of earnings to move into
innovative prospector areas
- Analysers follow change, but do not initiate it
-eg; Samsung
Reactors - Risk averse
- Make change when forced to do so
Risk Identifications
Type of risks

Systematic risks Unsystematic risks

Business risks Financial risks Compliance risks Cyber Risks

Operational risks Strategic risks Hazard risks

Risk Analysis (Risk profiling)

Risk evaluation and response

Specific ideas for combating IT risks and IT security

- Business continuity planning
- System access control
- System development and maintenance
- Personal security
- Security organisation
- Computer and network management
Risk monitoring
- Regular review of projects against specific costs and completion milestones.
- Systems of notification of incidents (eg, accidents at work, near misses of aircraft).
- Internal audit functions (eg, financial, systems security, compliance with health and safety).
- Employment of compliance monitoring staff.
- Skills assessment and medical examinations of staff and managers to assure competence and
fitness to work.
- Practices and drills to confirm readiness (eg, fire drills, evacuations, disruption to operations).
- Use of embedded IT 'intelligent agents' to monitor risks (eg, bad debts, unusual costs or revenue
entries, attempts to access restricted files).
- Intelligence gathering on occurrences elsewhere (eg, experiences of frauds, equipment failures,
outcomes of legal cases).
- Monitoring of the regulatory framework of the industry to ensure compliance.

Risk Reporting
- Reporting on the principal risks facing the company and how they are managed or mitigated
- Reporting on whether the directors have a reasonable expectation that the company will be able to
continue in operation and meet its liabilities as they fall due
- Reporting on the going concern basis of accounting
- Reporting on the review of the risk management and internal control system and the main features
of the company's risk management and internal control system in relation to the financial reporting
process.

Review process and feedback

Effective and efficient communication

Decision making

Sensitivity analysis ‘What if’ questions

- What will happen to profits if the price of components increases by 10%?
- What would happen to demand and profit if the selling price were to be
increased by 15%?
- What would happen to sales revenue if the business's market share drops
by 5% etc?
Breakeven analysis
and margin of safety

Scenario building Approaches to choosing scenarios as basis for decisions

Assume - common sense but puts too much faith in the scenario
the most process and guesswork
probable - less probable scenario may be one whose failure to occur
Hope for - scenario most attractive to the firm
the best - Wishful thinking is usually not the right approach
Hedge - chooses the strategy that produces satisfactory results
under all scenarios
- Low risk, low return, vice versa
Flexibility - firm plays a 'wait and see' game
- firm waits to follow others
- more secure, but sacrifices first-mover advantages
Influence - firm will try to influence the future
- influencing demand for related products
- favoured scenario will be realised in events as they unfold

Decision tree
Performance measurement

(1) Data Analysis

Measuring performance
Financial performance Resource use

Growth: Economy:
-Sales Revenue -measure of the actual resources used (inputs)
-Market share -eg, cost of labour, rent per sq. metre
-Profitability
-Number of goods/services
-Number of outlets/sites
-Number of employees
-No. of countries biz operates

Profitability: Efficiency:
-Gross profit margin -measure of productivity
-Net profit margin -considers the Goods or services produced (outputs)
-Gross profit mark up relationship between resources used to produce them (inputs)
-Return on capital employed -eg, output per person or per £ of labour, sales per square metre

Liquidity & gearing: Effectiveness:

-Current ratio -measure of the impact achieved
Short -Stock turnover ratio -considers outputs in relation to objectives
term -Debtor days -eg, percentage of products delivered without faults, market share
-Creditor days
Long -Gearing ratio
term -Interest cover

Formulae
Measurement Formula
ROCE Gross profit/revenue OR (Profit for the period x 100%)/average CE
Residual income (RI) Divisional profit – (Net assets of division x required rate)
GPM Gross profit/revenue
NPM Net profit/revenue
Mark up (SP – COS)/COS
Current ratio Current asset/current liabilities
Stock turnover ratio COS/average stock held
Debtor days Trade debtors/revenue x 365
Creditor days Trade payables/COS x 365
Gearing ratio Debt/equity OR Debt/(debt+equity)
Interest cover EBIT/interest
 Type Description
Financial position of the business Key financial ratios (profitability/liquidity/gearing)
Performance of the business Financial & non-financial (KPIs/balanced scorecard)
Use of resources Economy, Efficiency, Effectiveness
Product/market positioning Market growth/market share/BCG/life cycle
Risk Breakeven calculation, best & worst case scenario
Financial impact of new strategy Analyze the effect by considering incremental contribution
Evaluate overall impact of strategy Financial and non-financial
Operational & resource data over time Units of output, number of branches, floor-space
Forecasts & Budgets Reflect expected impact of strategy
Used to monitor a strategy after implementation

Data Analysis may cover:

Additional information may be required
Given Additional info required
Summary Breakdown by product, country, business unit
Data at 5-yearly intervals Data for the years in between
– assess trend more accurate
Average figures Actual prices/volumes/data
– Properly identify which products under/over performing
Current results & past results Compare with budgets accordingly and between current & past
Business units Compare with one another
Industry/sector information Use as benchmark
Market leader/competitors Compare with business performance
Approach to data analysis Questions

Step 3 & 4: 3W, 1H analysis

(2) Measurement of resources performance (3Es)

*3Es are often used as an approach for measuring 'Value for Money' (VFM) in the public and
not-for-profit sectors

Element Descriptions
Economy - measure of the actual resources used (inputs)
- eg, cost of labour per employee or the rent per square metre
- example: the total cost of the IT function
Efficiency - measure of productivity
- considers the relationship between the goods or services produced (outputs)
and the resources used to produce them (inputs)
- eg, output per person or per £ of labour, sales per square metre
- example: the amount spent on IT per user
Effectiveness - measure of the impact achieved
- considers outputs in relation to objectives
- looks at the extent to which the processes used by the business deliver the
right results
- eg, percentage of products delivered without faults, market share
- example: competence of the users
(3) Balanced scorecard

Balanced Scorecard

Developing balanced scorecard

Example:
Tesco ‘Corporate Steering Wheel’ (adapted balanced scorecard)

Balanced scorecard for computer manufacturing company