Theories of Corporate Strategy (Edexcel A Level Business)

• A successful corporate strategy helps to provide a competitive advantage
• Effective corporate strategy development requires careful consideration of a range of internal factors and the external environment in which the business operates
  • Internal factors include the human and capital resources available
  • External factors include the economic and political environments
    
    
• Two strategic models used to develop a corporate strategy are Ansoff's Matrix and Porter's Strategic Matrix
   

Ansoff’s Matrix

• Ansoff’s Matrix is a tool for businesses with a growth objective
• It is used to identify an appropriate corporate strategy and identify the level of risk associated with the chosen strategy
• The model considers four elements, which are broken down into two categories
  • The market - existing and new markets
  • The product - existing and new products
     

Ansoff’s Strategic Matrix

• The least risky strategy to achieve growth is to pursue a strategy of market penetration 
  • This involves selling more products to existing customers by encouraging
    • More regular use of the product
    • Increased usage of the product
    • Brand loyalty of customers
      
      
• Market development involves finding and exploiting new market opportunities for existing products by
  • Entering new markets abroad
  • Repositioning the product by selling to different customer profiles (selling to other businesses as well as direct to consumers)
  • Seeking complementary locations
    • E.g. M&S Food has achieved significant growth since teaming up with fuel retailers such as BP and Applegreen and providing express retail outlets
       
• Product Development involves selling new or improved products to existing customers by
  • Developing new versions or upgrades of existing successful products
  • Redesigning packaging and aesthetic features
  • Relaunching heritage products at commercially convenient intervals
    • E.g. Cadbury relaunches Christmas-themed products each year, often with a subtle design change, to recapture the interest of customers
       
• Diversification is the most risky growth strategy as it involves targeting new customers with entirely new or redeveloped products
  • Examples of diversification include
    • Tesco launching a range of financial products including current accounts and credit cards
    • Greggs launching a range of themed clothing products

Porter’s Generic Strategic Matrix

• Porter’s Generic Strategic Matrix identifies a range of strategies a business might adopt considering
  • Its source of competitive advantage (cost or differentiation)
  • The scope of the market in which it operates (mass or niche)
     
• Porter argues that failing to adopt one of these strategies risks a business being ‘stuck in the middle and unable to compete successfully with rivals in the market
   

Porter’s Generic Strategic Matrix

• Businesses operating in the mass market should adopt either a cost leadership or a differentiation strategy, depending on what it is that makes them stand out from their competitors
  • Businesses that have a significant cost advantage over competitors should exploit this as much as possible to achieve success - this is called cost leadership
  • Businesses that are unable to operate as the most competitive on cost should adopt a strategy of differentiation 
     
• A business that operates in a niche market should adopt a focus strategy that closely meets the needs of its specific group of customers
  • A cost focus involves being the lowest cost competitor within the market niche
  • A differentiation focus involves offering specialised products within the niche market

• Portfolio analysis involves a business carrying out a detailed evaluation of its full range of products in order that appropriate strategies may be identified and pursued
  
  

The Boston Matrix

• The Boston Matrix is a portfolio analysis tool that considers the relative market share of a firm's products and the rate of growth within the market in which each product is sold
   

The Boston Matrix

• Stars are products sold in high-growth markets and have a high level of market share
  • Stars require some ongoing investment to maintain their market position and if managed well they are likely to become cash cows in the future
  • A market penetration strategy to increase sales revenue and maximise market share is likely to be appropriate
    
    
• Cash Cows are sold in lower-growth markets and have a high market share
  • Cash cows generate more cash than they need to maintain their market position and can be used to fund the development of other products in the portfolio
  • Businesses may seek new markets for these products if it is relatively risk-free 
    
    
• Question Marks are sold in high-growth markets and have a relatively low market share
  • Question Marks require significant investment if they are to improve their level of market share and become Stars
  • There is a risk that Question Marks will become Dogs when market growth rates slow
    
    
• Dogs are sold in low-growth markets and have a relatively low market share
  • Dogs have little potential for future growth and should be divested so that finance and effort may be invested in other products

• When a business has a particular strength that is very difficult for competitors to copy, it has a distinctive capability
• The nature of that distinctive capability will determine the aims and objectives of the business and the strategies it will pursue to achieve them
  
  

Examples of Distinctive Capabilities

Distinctive Capability	Explanation
Operational skills and expertise within the business	A business may have an outstanding and committed design team This may mean that product development is a suitable strategy
Relationships and networks established within and around the business	A business may have developed close trading relationships with key suppliers This may mean that a low cost strategy is possible
Reputation and image of the business	A business may develop an excellent reputation for quality A differentiation strategy is likely to be appropriate
Innovation and the ability to change	A business may be particularly effective at responding to external change A market development strategy is likely to be suitable

• Strategic decision-making involves medium- to long-term planning to achieve corporate and functional objectives
  • It establishes the actions that the business intends to take to achieve its goals
  • It establishes the actions that the business intends to take to achieve its goals
    
    
• Strategic decision-making will have an impact on a business's human, financial and production resources
  
  

Examples of the Impact of Strategic Decisions on Resources

Strategic Decision	Impact on Human Resources	Impact on Financial Resources	Impact on Production Resources
Enter a new overseas market	Staff may be required to relocate Additional staff with language skills may be required More staff may be needed to achieve increased output	Marketing budgets will need to be increased Investment in overseas distribution and retail outlets may be required	Products may require adaptations to meet the needs of overseas customers Increased output may require more capital investment in machinery
Withdraw an obsolete product from the sale	Fewer workers may be required as output is likely to be lower and so redundancies may be needed The remaining staff may need to be retrained or redeployed to produce alternative goods	Finance spent on the withdrawn product can be used elsewhere Redundancy payments or retraining of staff may incur significant short-term costs	Capacity utilisation is likely to be lower, increasing unit costs of production The remaining stocks of the withdrawn product will require disposal
Merge with a competitor	Where staff roles are duplicated redundancies or redeployment may be required Staff may have greater opportunities for promotion in a larger organisation	Shared financial resources may lead to improved cash flow and a healthier Balance Sheet Duplicated capital equipment and property may be sold to create income	The production process may be initially incompatible and require reorganisation Techniques and knowledge can be shared between former rivals

 
Examples of the Impact of Tactical Decisions on Resources

• Tactical decisions are made to support the overall strategy and are usually short-term
• Tactical decision-making will also have an impact on a business's human, financial and production resources
   

The impact of the tactical decision to award production workers a one-off 25% bonus to complete a last-minute order from a key customer
 

The impact of the tactical decision to decorate the business premises following a series of negative secret shopper reviews