3.1.2 Theories of Corporate Strategy

Corporate Strategy

🔗 The plans and policies developed to meet a company's objectives. Essentially how objectives are going to be met.

📌 Internal Influences On Strategy

• Objectives
• HR
• Finance

📌 External Influences On Strategy

• PESTLE

Porter's Theory

• Warns against taking up a position in the middle of the market
• Believes long-term success is best built either with a super low-price position or positioning based purely on product differentiation for competitive advantage
• Doesn't take into account other factors (two-dimensional)

Porter's Generic Strategic Matrix

Cost Leadership

📝 E.G Aldi

• Economies of scale -> Attracts value-conscious customers and gives competitive advantage (far end of low-price spectrum makes products more distinct)
• Low profit margins, reliant on high sales volume -> Higher breakeven point of output

Differentiation

📝 E.G Dyson

• Gives products unique selling point -> Attracts more customers -> Able to charge higher prices from inelastic PeD due to brand loyalty
• High cost of differentiating/modifying product -> Requires large investment -> Investment has to be constant if the market is dynamic (E.G Technology) -> Financial burden

Cost Focus

📝 E.G Supreme

• Increases profit margins -> Able to maintain or raise prices to maximise profits, especially with customer loyalty in a niche market
• Difficult to achieve lower cost per unit due to no benefit of economies of scale -> Market not large enough. Switching to cheaper raw materials could be detrimental to quality -> Lower customer satisfaction

Differentiation Focus:

📝 E.G Tesla

• Substantially different products -> Strong brand image with inelastic PeD -> Higher prices without loss of demand from customer loyalty -> Increased market share
• High cost of differentiating (Research required, product development) -> Large amount of time to cover for investment due to low sales volume in the market

Ansoff's Matrix

🔗 A model which illustrates the risks involved in strategic decisions.

Market Penetration

📝 E.G Aldi opening new stores

• Increases strength of brand and customer loyalty -> Encourages customers to remain with the business with assured quality and reliable products. Safest strategy
• Business may stagnate with competitors developing and modifying products -> At risk of being overtaken -> Reduced brand strength and customer retention -> Lower market share

Market Development

📝 E.G Tesco's move to America (failed)

• Increases resilience of the business -> More markets to fall back on and less dependence on one revenue stream -> Spreads risk
• Increases exposure and reputation of the business on an international scale -> Increases strength of the global brand
• What worked in their home country may not be effective in another country -> Negative impact on reputation -> High financial costs and brand appeals less to customers
• High cost of adapting the brand to a new market (E.G Consumer preferences/culture may vary) -> Financial burden on business in the short term

Product Development

📝 E.G Apple iPhone XS

• Helps business target different demographics and gives existing loyal customers more choice -> Increases business' brand strength and customer satisfaction -> Higher customer retention
• Increases the business's resilience and spreads risk -> More potential revenue streams to fall back on -> More collateral for business
• Cost of developing a new product (research and physical development) -> Higher risk for business -> Opportunity cost if the benefit doesn't exceed the cost

Diversification

📝 E.G Dyson's new electric cars

• Spreads risk and increases the resilience of the business -> More revenue streams and product lines to fall back on -> Less dependence on one product/market
• Increases portfolio of the business -> Strengthens brand and global image of the business
• High risk -> Extensive research into market and product required -> High financial cost and burden in the short term
• Failure or underwhelming success of the product could have a negative knock-on effect onto business' other markets/product lines -> Reducing strength of the brand

Portfolio Analysis

Portfolio Analysis

🔗 A method of categorising all of the products and services of a business to decide where they fit in the strategic plans.

Two-Step Process

1. Give a full and detailed overview of all goods and services in the portfolio.
2. Look at the performance of each product and service based on:

• Current and projected sales
• Current and project costs
• Competitor activity and future competition
• Risks that could affect performance

Distinctive Capabilities, Strategies and Tactics

🔗 Competitive advantage – A set of unique features of a company and its products that are perceived by customers as significant and superior to the competition.

🔗 Distinctive capability – A form of competitive advantage that is difficult for competitors to understand and imitate. Can be a sustainable competitive advantage.

Three Types of Distinctive Capability

• Reputation – Brand image and positive association built around characteristics such as quality, reliability, honesty. Characteristics can't be built overnight.
• Architecture – The contracts and relationships within an organisation (E.G employees, suppliers, customers). Business becomes more efficient with open transfer of knowledge,
• Innovation – Developing a new product or process of production. Requires considerable investment, but could potentially create a whole new market or industry.

Strategies and Tactics

🔗 Strategies – A method that sets out the long-term direction a firm will take to achieve its objectives.

• Well thought out, planned and therefore risk minimised

• Day to day activities collectively contribute to overall effort to achieve objective 🔗 Tactics – Short term responses to an opportunity or threat in the market. E.G Buy a large amount of stock that is at a low price.

• Short term and don't view the bigger picture.

• Most day-to-day decisions are tactical, as they are responsive.

• Can be made at manager level or other low levels in the business.

• Can backfire due to speed with which they have to be made, no planning (E.G Business exaggerates a product's benefits in an advert leading to social media backlash).