Theories of Corporate Strategy (Edexcel A Level Business)

Development of Corporate Strategy

• 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 directly 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

Aim of Portfolio Analysis

• 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

Achieving Competitive Advantage Through Distinctive Capabilities

• 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

The Effects of Strategic Decisions on Resources

• 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

• 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: Enter a new overseas market

Strategic Decision: Withdraw an obsolete product from the sale

Strategic Decision: Merge with a competitor

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