Podcast
Questions and Answers
What is a potential advantage of vertical integration?
What is a potential advantage of vertical integration?
What is a primary consideration when choosing between integration and outsourcing?
What is a primary consideration when choosing between integration and outsourcing?
What risk is associated with outsourcing?
What risk is associated with outsourcing?
What is the main focus of market penetration strategies?
What is the main focus of market penetration strategies?
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What does outsourcing involve in a business context?
What does outsourcing involve in a business context?
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Which of the following best describes conglomerate diversification?
Which of the following best describes conglomerate diversification?
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Why might a company choose to outsource rather than integrate?
Why might a company choose to outsource rather than integrate?
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What is one of the main constraints organizations face when pursuing greater market penetration?
What is one of the main constraints organizations face when pursuing greater market penetration?
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What is one of the dangers of vertical integration?
What is one of the dangers of vertical integration?
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What is a key characteristic of product development?
What is a key characteristic of product development?
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When assessing transaction costs, which aspect is important?
When assessing transaction costs, which aspect is important?
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What is essential for market development strategies to be successful?
What is essential for market development strategies to be successful?
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Which factor is NOT typically considered when deciding to outsource?
Which factor is NOT typically considered when deciding to outsource?
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Which strategy involves less risk than product development?
Which strategy involves less risk than product development?
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What can market development involve beside geographical expansion?
What can market development involve beside geographical expansion?
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What is a potential risk in product development due to project complexity?
What is a potential risk in product development due to project complexity?
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What does corporate strategy primarily focus on?
What does corporate strategy primarily focus on?
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Which company is mentioned as an example of diversification in the content?
Which company is mentioned as an example of diversification in the content?
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What is a key question for corporate strategy regarding business units?
What is a key question for corporate strategy regarding business units?
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What does the Ansoff product/market growth matrix help to identify?
What does the Ansoff product/market growth matrix help to identify?
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What is 'related diversification'?
What is 'related diversification'?
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An organization starting in zone A of Ansoff's matrix has which primary option?
An organization starting in zone A of Ansoff's matrix has which primary option?
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Which of the following is NOT a consideration for corporate strategy?
Which of the following is NOT a consideration for corporate strategy?
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What mainly occurs when an organization diversifies?
What mainly occurs when an organization diversifies?
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What is the primary characteristic of conglomerate diversification?
What is the primary characteristic of conglomerate diversification?
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What is backward integration in the context of vertical integration?
What is backward integration in the context of vertical integration?
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Which of the following best describes forward integration?
Which of the following best describes forward integration?
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What challenge do market developers often face when entering new markets?
What challenge do market developers often face when entering new markets?
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What is a key difference between vertical integration and diversification?
What is a key difference between vertical integration and diversification?
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Which of the following is NOT an example of conglomerate diversification?
Which of the following is NOT an example of conglomerate diversification?
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How can conglomerate diversification create value for businesses?
How can conglomerate diversification create value for businesses?
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Study Notes
Business Strategy
- The presentation covers business strategy, specifically corporate strategy and diversification.
Strategic Choices
- The presentation discusses corporate strategy and diversification decisions.
- Organizations may choose to enter new product and market areas.
- As organizations expand with new units and capabilities, strategies may no longer focus solely on competitive strategies within a single market.
- Corporate strategy focuses on deciding which business areas to be active in, which business units to acquire, and the overall direction and resource allocation across multiple business activities.
Introduction
- Organizations may enter many new product and market areas.
- Strategies may no longer be solely about competition within a single market as businesses grow.
- Corporate strategy dictates which business areas to operate in and determines acquisition targets.
- Efficient resource allocation across multiple business activities is crucial for effective corporate strategy.
Introduction (Tata Group Example)
- Tata Group transitioned from a trading organization to a diversified enterprise, including, hotels, textiles, steel, motors, consultancy, technology, tea, chemicals, power, and communication sectors.
- Corporate strategy questions include whether to add, exit, or consolidate more businesses and how to integrate existing businesses.
Introduction (Strategic Directions)
- Scope of the business portfolio – how broad should it be?
- Corporate parenting – how should the parent company add value?
- Portfolio matrices – which subsidiaries should be invested in?
- Strategic directions and corporate-level strategy
Strategy Directions
- Determining which growth areas is a critical corporate strategy choice.
- Ansoff's product/market growth matrix is a common framework for organizational growth, outlining four basic directions.
Strategy Directions (Ansoff's Matrix)
- The matrix visually represents various growth strategies using a two-by-two grid.
- The possible growth options include existing and new markets and products/services, resulting in four zones.
Strategy Directions (Types of Diversification)
- Diversification: Increasing the range of products or markets served.
- Related diversification: expanding into products or services related to the existing business, often to leverage existing resources and capabilities
- Unrelated diversification: Expanding into unrelated products or services, potentially leveraging the larger organization.
Market Penetration
- For an undiversified business, the most effective growth strategy is often expanding existing market share with current products.
- This involves an expanding proportion of current markets with existing product ranges.
- Constraints include competitors' potential retaliation or legal restrictions.
Market Penetration (Constraints)
- Potential retaliatory actions from competitors (price wars or aggressive marketing campaigns)
- Legal limitations imposed by regulatory bodies on mergers and acquisitions or other business practices.
Product Development
- Creating new or enhanced products or services for existing markets
- Resource and capability requirements may be significant and the associated costs can be high
- Risk of project delays and increased costs is common.
Market Development
- Entering new markets with existing products.
- Strategies can be more attractive because they can be cheaper and faster than developing entirely new products.
- Form of market development: New user segments or new geographical locations.
Market Development (Challenges)
- Strategies need to address the specific, possibly unfamiliar, needs of the new market.
- Marketing skills and brand recognition may be lacking for success in new markets.
Conglomerate Diversification
- Broadening the scope of the organization by adding both new products and services in new markets that have no direct links to the firm's current business.
- Conglomerate strategies can enhance value for businesses by leveraging the strength of a larger company or group.
Vertical Integration
- Entering stages of the value chain that are either upstream (supplying activities) or downstream (customer-facing activities).
Forward and Backward Integration
- Backward integration involves moving upstream into activities, such as acquiring a supplier.
- Forward integration moves downstream, for example, a manufacturer selling products directly (retail).
- These moves can capture profits and enhance value, but significant investment and potentially different strategic capabilities are required.
- Relatedness within a value network influences vertical integration decisions.
To Integrate or to Outsource
- Outsourcing non-value-adding activities can be beneficial.
- This relates to previously in-house activities that are now performed externally through contractors or suppliers.
- This can involve manufacturing, IT, customer support, or HR.
- Evaluating the merits of integration vs outsourcing involves comparing specialist capabilities with internal resources and considering transaction costs and potential opportunism by external partners.
- Outsourcing decisions are balanced against maintaining relative strategic capabilities and the risk of opportunistic behavior.
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Description
This quiz explores the concepts of business strategy with a focus on corporate strategy and diversification. It covers how organizations decide which business areas to enter and how to allocate resources effectively. Understanding these strategic choices is essential for navigating multiple markets and optimizing business performance.
