UNIT 6. Chapter 36. Strategic choice Flashcards Preview

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Flashcards in UNIT 6. Chapter 36. Strategic choice Deck (13)
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1

What is strategic choice?

Identification of different strategic options and deciding between them.

2

Def. Ansoff's matrix

A model used to show the degree of risk associated with the four growth strategies of: market penetration, market development, product development, and diversification.

3

Market penetration

• Def: Achieving higher market shares in existing markets with existing products
• Least risky as there are fewer 'unknowns'
e.g. Aer Lingus reduced fares to European air routes down to $15 to gain market shares.

4

Product development

• Def. The development and sale of new products or new developments of existing products in existing markets
e.g. Development of Diet Pepsi by Pepsi

5

Market Development

• Def: The strategy of selling existing products into new markets
• Includes both exporting goods into overseas markets or selling to a new market segment
e.g. Lucozade was promoted as a health tonic for people with colds, which then repositioned into the sports drink market - appealing to younger range of consumers.

6

Diversification

•Def: The process of selling different, unrelated goods or services in new markets.
• The most risky out of the 4 strategies, though it can be balanced out with the benefits of either high profits, entering rapidly expanding industries, or reduction of overall business portfolio risk.
e.g. Tata Industries in India invested into a wide range of products - from steel to tea bags.

7

Benefits and limitations of Ansoff's Matrix

Benefits:
• Allows managers to analyse the degree of risk associated with the options
Limitations:
• Only considers the products and markets, as recommendations lack depth and environmental evidence - needs to be considered with SWOT and PEST.

8

Def. Force field analysis

Technique for identifying and analysing the positive factors that support a decision ('driving forces') and negative factors that constrain it ('restraining forces').

9

Brief of conducting force field analysis

• List all of the factors driving, and constraining factors
• Allocate a numerical score for each e.g. 1 = extremely weak and 10 = extremely strong and put them in a diagram
e.g. Become more capital intense. Driving factor: lower direct costs (+2), less salary and training costs (+2). Constraining factors: redundancy (-3)

10

Benefits and limitations:

Benefits:
• Quantitative approach
Limitations:
• Unskilled and inexperienced managers can fail to identify the right forces
• Subjective - two managers can come up with different answers

11

Def. Decision trees

A diagram that sets out the options connected with a decision and the outcomes and economic returns that may result.
Pg. 637 on how to construct decision trees

12

Def. Expected value

The likely financial results of an outcome obtained by multiplying the probability of an event occurring by the forecast economic return if it does occur.

13

Benefits and limitations to decision trees

Benefits:
• A logical approach that considers that possible outcomes, the chances of the outcomes occurring and economic returns.
• Managers can minimise risks involved
• Quantitative approach
Limitations:
• Data may not be accurate as values used are estimates - less reliable especially if the managers are inexperienced
• Estimated data can be based on past data which would not be reliable due to change of circumstances
• Does not consider the external risks (qualitative risks)