3.1.2 Theories of corporate objectives

What is Corporate Strategy?

This is the course or route that a business has chosen to follow in order to achieve its corporate objectives

What does a corporate strategy help to provide?

A competitive advantage

What are Corporate Strategy influenced by?

• Corporate objectives

• distinctive capabilities

• Competitive environment

• Leaders’ attitudes to risk

• Local, national and global economic environment

What is The Ansoff Matrix?

• The Ansoff Matrix is a tool for business with a growth objective

• It is used to identify an appropriate corporate strategy and 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

What does Market Penetration involve?

• This involves selling more products to existing customers by encouraging:

  • More regular use of the product

  • Increased use of the product

  • Brand loyalty of customers

  • This is the least risky strategy to achieve growth

What does Market Development involve?

• This involves finding and exploiting new markets opportunities for existing products by

  • Entering new markets at home or abroad

  • Depositing the product by selling to different customer profiles (selling to other businesses as well as directly to consumers)

  • Seeking complementary locations

What does Product Development involve?

• This 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

What does Diversification involve?

• It is the most risky growth strategy, as it involves targeting new customers with entirely new or redeveloped products

  • Examples of diversification include

    • easyJet diversifying from flights alone into easyJet Holidays, a package holiday business offering flights, hotels and transfers

    • Greggs launching a range of themes clothing products

What is the Matrix useful for?

• Can be useful for spotting ‘gaps’ in your corporate strategy

• Supports the development of new corporate strategies → helps achieve corporate objectives

• Encourages leadership to think ‘more creatively’ about potential strategies

• Focuses managers on strategy + helps to build consensus across the functions

• Simple and easy to understand

What are limitations of the Ansoff Matrix?

• Simplistic: only shows part of the picture - large PLCs need far more analysis than a basic 2×2 grid, with many possible sub-strategies; it doesn’t tell you which strategy to pick

• Static in a dynamic world: growth takes time, and markets change - an “empty” market may fill up with competitors by launch, and long-term forecasts can become inaccurate

• Needs pairing with other tools: should be used alongside PESTLE for a fuller picture, since the best strategic answers usually come from combining tools

• Doesn’t address implementation: it may suggest a “good” strategy, but doesn’t conform the company has the capabilities (finance, people) to actually achieve it

What is Portfolio analysis?

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

What is 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

Explain the Star products

• Star products are 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

Explain the Cash Cow products

• 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 they are relatively risk-free

Explain the Question Mark products

• 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

Explain the Dog products

• Dogs are skid in high-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

What is 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

Explain Cost Leadership

• Mass market and low cost

• The firm uses economies of scale, efficient operations and bargaining power over suppliers to become the lowest-cost producer, then competes on price across the whole market

• For example: a discount supermarket like Aldi

Explain Differentiation Leadership

• Mass market and differentiation

• The firm makes its products stand out (branding, quality, innovation, design) to justify a premium price, while selling to a broad, mass-market customer base

• For example: Apple

Explain Cost Focus

• Niche market and low cost

• The firm targets one narrow customer segment and wins within that segment by being the cheapest option, rather than trying to compete on price across the whole market

• For example: A local no-frills budget gym

Explain Differentiation Focus

• Niche market and differentiation

• The firm tailors a distinctive, often premium product specifically to the needs of one narrow segment, rather than trying to appeal broadly

• For example: A bespoke luxury tailor

What is a distinctive capability?

• When a business has a particular strength that is very difficult for competitors to copy

• 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

• 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 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