Chapter 4: Introduction to business strategy 1 Inthe home computer market, laptop computers are an example of a: A product form 8 brand C product class D generic product lod 2 Nevinworks for Dorchester plc. Nevin's manager has asked him to undertake an internal analysis of the company as part of a strategic planning review. Which three of the following analytical techniques will be useful in this context? Value chain analysis Porter's five forces analysis The BCG Matrix PESTEL analysis Analysis of distinctive competencies Ansoff's Matrix LO 1b amoo@> 3. Sharma is carrying out a PESTEL analysis for her employer, Decron ple. During her research Sharma has realised the ageing of the UK's population is a potentially important strategic issue for the company. In which section of her analysis should Sharma record this matter? AP BOS CHa DL LO1b 4 The Marketing Director of Birstall plcis formulating whether one of the company's products, which is aimed ata small niche market, should be differentiated from its close competitors. Atthis stage she is unsure how such differentiation would be achieved in practice. The decision on whether to differentiate or not is a decision concerning the company's: A functional strategy 8 business strategy > competitive strategy D_ product/market strategy Sample Exam LO 1¢ 20 Business, Technology and Finance: Question Bank ICAEW 2020Cassion plc has entered a market and achieved a reasonably dominant position in just under a year. Cassion plc is pleased that the threat of new entrants into the market seems to be relatively low. Which of the following factors is most likely to have contributed towards this situation? A Lowi Acustomer base consisting of a few large customers I capital costs Ahighly competitive supplier market ‘The market is for services rather than manufacturing LO1b 208 With regard to Porter's Five Forces Analysis and new entrants into a market, which of the following pairs of statements is correct? Encourages new entrants Erects a barrier to new entrants A. High competition Low capital costs 8 —Amonopoly supplier of a vital component High competition C One large customer ‘A monopoly supplier of a vital component D__ Low competition High capital costs LO 1b Inthe past a major stakeholder in Justin plc has exerted considerable influence over the environmental impact of the company's manufacturing operations. Specifically, a production facility was temporarily closed down for three weeks as a result of one recent campaign orchestrated by this stakeholder. The stakeholder writes regularly to the company's chairman about a range of environmental issues involving the company. Interms of Mendelow's matrix which of the following strategies should Justin plc pursue for this stakeholder? ‘A Keep this stakeholder informed at all times about the company 8 Keep this stakeholder satisfied with regard to the company and its strategies Take minimum effort with regard to this stakeholder as he always complains D Treat this stakeholder as a key player when formulating future strategies. LO 1b, 6 Seago ple provides exclusive scuba-diving holidays for people over 60 years of age. In terms of Michael Porter's generic competitive strategies, this represents a strategy of: A. differentiation B costleadership C cost focus D differentiation focus LO 1¢, 14, 1e Icaew 2020 Chapter 4: Intraduction to business strategy 279 Martinis a Product Manager with Mangrove ple. He is preparing an assessment for the company's directors of each of the company's product lines. In preparing his assessment, Martin is making use of the BCG matrix. He has classified one particular product, the Pluton, as having a low market share in a high growth market. Martin should recommend to the directors that, with regard to the Pluton, the company should pursue: A. either ahold ora divest strategy B either ahold ora harveststrategy either a build ora harveststrategy D- abuild strategy LO tb, te 10 Nextron ple manufactures washing machines. Ithas a 20% share of the UK market. The company wants to increase its revenues so has decided to add tumble dryers to its range of products. In terms of Ansoff's matrix, this represents a growth strategy of ‘A market penetration B market development C product development D diversification LO 1b, 16, 14 11. The board of directors of Swinson pcs evaluating whether to pursue 2 new strategic option for a major strategic business unit. The final decision should be judged against which three of the following criteria? A Acostof entry test B Anacceptability test CC Asuitability test D_ Afeasibility est E Anattractiveness test F Apayoits test Lomb 12 Arto ple manufactures the Zulon. The Zulon's dominant market share has continued for over five years, but market growth has now almost ceased. Zulon's product manager does not believe that the product merits further significant financial support. In terms of the BCG matrix, which of the following strategies should the product manager recommend? A Hold B Harvest C Divest D Build LO 1b, te 22 Business, Technology and Finance: Question Bank Icagw 202013. Which of the following statements about a product life cycle diagram is true? A. Thelife cycle iagram predicts when the decline phase will start Sales growth always follows the introduction of a product Profits are normally highest during the maturity phase vae8 ‘The mature phase usually lasts about 10 years tot 14. Millward Ltd sells garden sheds. It has a number of local competitors who regularly use. price cuts and other sales promotions to win business. Its competitors have noticed that Millward Ltd responds to price cuts by matching prices and then launching a leafleting campaign to houses in the local area. In terms of Philip Kotler's competitor reaction profiles, Millward Ltd is: A. laid back B atiger C selective D stochastic LO 1b, 1¢, 1d 15. Manson Ltd aims to pursue a differentiation strategy for its Portex sliding-door product. Which three of the following will form part of this strategy? A Action to minimise labour and overhead costs B Action to improve productivity Improved product features and benefits D__ Promotion of the Portex brand E Use of higher quality materials in the manufacturing process LO 1b, 1e 16 Glenway Ltd sells package holidays from a chain of retail outlets. Brantham Ltd sells new and used cars from a chain of car dealerships. Glenway Ltd and Brantham Ltd are: A. brand competitors B industry competitors generic competitors D form competitors LO 1b, 1¢, 1d ICAEW 2020 Chapter 4: Introduction to businessstrategy 2317 Hairdooz Lid operates a large chain of hairdressing salons. Peter, a Management Consultant, has undertaken a review of the company's activities in providing its services to customers. In terms of Porter's Value Chain, Peter has been asked to focus on the primary activities of the company. Peter will, therefore, be analysing which three of the following? Inbound logistics Procurement Firm infrastructure Marketing and sales moagp Service Lob 18 A consultant has told Nag ple's board that the strategic planning process should result in a strategic plan, a business plan and an operational plan. The consultant gave the board two definitions. Definition 1A business plan sets out the markets the business intends to serve, how it will serve each market and what finance is required Definition 2. Astrategic plan sets out how overall objectives are to be achieved, by specifying what is expected from specific functions, stores and departments Ave these defi ons accurate or inaccurate? Definition 1 Definition 2 A Accurate Inaccurate B Inaccurate Inaccurate Cc Accurate Accurate D Inaccurate Accurate Sample Exam LO if 19. Simian plc operatesin the financial services sector. Its marketing director is developing the firm's marketing plan. An external marketing consultant has recommended that the PESTEL framework should be used as part of this process. Which of the following statements correctly describes the reason why the PESTEL framework might prove useful? A. Itwill identify Simian ple’s strengths and weaknesses B twill allowa detailed analysis of the structure of the financial services industry C_Itwill act asa detailed checklist to assist in understanding the different influences in Simian ple's environment D__ twill help to identify the relative levels of interest and power of Simian ple's stakeholders LO 1b 24 Business, Technology andFinance: Question Bank Icaew 202020 Asif plcis a large supermarket chain which manages all its distribution internally. Each of the 120 stores isa profit centre. As part of its strategy development process, Asif pic has identified the following two strategies. Strategy (1) Offer its distribution capability from warehouse to stores as a service to other supermarkets Strategy (2) Train some store staff in the handling of personal safety issues Identify whether each strategy is a corporate strategy. Strategy (1): A corporate strategy; Strategy (2): Not a corporate strategy B Strategy (1): Not a corporate strategy; Strategy (2): Not a corporate strategy C__ Strategy (1): A corporate strategy; Strategy (2): A corporate strategy D__ Strategy (1): Not a corporate strategy; Strategy (2): A corporatestrategy «LO Te, 1f 21. The specialist services division of Klaxon ple uses highly-qualified professional staff to provide its government-accredited service to its customers. The company has prepared 2 draft Five Forces Analysis The following two statements are included in the draft analysis: Statement (1) Government subsidies for existing providers will be removed, so there will be increased rivalry Statement (2). Two key customers of the specialist service will merge, so there will be increased rivalry Identify whether each staternent is accurate. A. Statement (1) accurate; Statement (2) inaccurate B Statement (1) inaccurate; Statement (2) inaccurate C Statement (1) accurate; Statement (2) accurate D__ Statement(1) inaccurate; Statement (2) accurate Sample Exam LO 1g 22. Simone, the strategy director of Principle plc recently undertook a review of a number of the company's product lines using the BCG matrix to develop recommendations. For one particular product, ZD737, the model recommended that e ‘harvest’ or ahold’ strategy should be adopted. Which of the following did the BCG matrix classify the ZD737 as? A Adog 8B Aquestion mark © Acash cow D LO 1b, te Astar Ieaew 2020 Chapter 4: Intraductionto business strategy 25Answer BankChapter 4: Introduction to business strategy 1A. Laptop or desktop computers are both examples of product form (A). Home computers would be referred to as either a product class or a generic product (C and D) since those two terms can be used interchangeably. A particular manufacturer's brand version of a home computer would be B, 2 ACE Options B and D are methods of analysing the company's external environment -B analyses the task (or market) environment, whilst D analyses the macro environment. Fis a means of assessing potential growth strategies of the company. 3B Ageis a demographic factor that falls under the Social aspect of PESTEL analysis (B). P = political, T= technological, L ~ legal. 4 C Competitive strategy (C) is concerned with how the business will compete in terms of source of competitive advantage (cost or differentiation) and extent of competitive scope (broad or narrow). A functional strategy (A) would be concerned with the role of the marketing function itself within the company. Business strategy (B) is concerned in particular with how the marketing mix would be adjusted in due course ifa competitive strategy of differentiation was decided upon. Product/market strategy (D) is concerned with how the business will grow (Ansoff's Matrix). SAMPLE EXAM 5B The relatively concentrated customer base (B) means that existing players have a distinct advantage, and it also gives the customers higher bargaining power, so makes the sector less attractive to new entrants. Low initial capital costs (A) reduce risk in a project by decreasing the break-even point, allowing time to build up a large customer base. This can encourage new entrants. C may increase rivalry but it does not affect new entrants; D has no effect. 6 D__Lowlevels of competition in an industry make it more attractive for new entrants. High capital costs involve risk and fund raising challenges which can act as a barrier to new entrants. 7 D__Interms of Mendelow's matrix, this stakeholder clearly possesses both a high level of interest in the company's affairs and a high level of power (influence) over them. In such circumstances, the recommended strategy is one of treating the stakeholder concernedas a key player. 8 D__ The exclusivity of the holidays indicates an emphasis on generating competitive advantage through differentiation rather than low cost, whilst their specialist nature and precise target market (age 60+) indicate a focus strategy rather than a broad competitive scope. 9 C With a low market share of a high growth market, the Pluton would be classified as a ‘Question mark within the BCG matrix, for which the possible recommended strategies are Build or Harvest. Option A relates to a Dog, option B to a Cash Cow and option D toa Star. 10 C The company is introducing a new product but clearly targeted at the same market as its existing products, hence growth by means of product development. 1 BCD Gerry Johnson and Kevan Scholes recommend evaluating strategies against the following criteria: Suitability - does the strategy fit the strengths, objectives and image of the company? IcAew 2020 Chapter 4: Introduction to business strategy 111~ does the company have the necessary resources to pursue the strategy effectively? Acceptability ~is the strategy acceptable to the company's stakeholders? 12. B_ With ahigh market share ina low/no growth market, the Zulon is clearly a Cash Cow. “The two strategy options are Hold (which implies continuing to support the product financially to maintain its position) or Harvest (which implies running down investment in the product and just managing the product for cash flow during its final years). The product manager appears to rule out the Hold strategy (withdraw investment), hence Harvest is the key (8) 13. C The maturity phaseis the phase during which profits from the product are usually maximised (C). The decline phase starts after the maturity phase ends, but the diagram, will not predict when that will be (A). Sales growth is never guaranteed - the introduction could be a lop (B). There is a vast range of mature phase lengths and it cannot be said that they are usually 10 years (D). 14 B Millward Ltd is consistently aggressive in ts responses to competitor actions - a ‘tiger’ reaction profile (B), 15 CDE Differentiation means distinguishing your products and services from competitors’ offerings in ways that target customers will value. Therefore, better products using superior component parts (E), distinctive branding (D) and improved features and benefits (C) can all help. Options A and B would most ikely underpin a competitive strategy based on low cost rather than differentiation. 16 C_ The companies offer distinctly different products that satisfy different needs but which are highly likely to be competing for the same disposable income. They are, therefore, generic competitors (C) 7 ADE Band C are both support activities in the value chain model. 18 A Abusiness plan sets out the market{s) to be served, how they will be served and the finance required, so Definition 1is accurate. A strategic plan sets out the business's overall objectives and how to achieve them, but its the operational plan which specifies what is expected of each function in a business, so Definition 2 is inaccurate. SAMPLE EXAM 19 C_ APESTELanalysis (C) reveals the key influences in the organisation's macro- environment (rather than its market or task environment). Strengths and weaknesses (A) would be revealed by a SWOT analysis; the structure of an industry would be revealed by a Five Forces Analysis (B); and helping to identify the relative levels of interest and power (D) refers to stakeholder mapping. 20 A Training store staffis very muchan operational issue that does not constitute a corporate strategy, but offering its capability to other supermarkets is a fundamental long-term ‘directional’ decision which commits the company's resources. 21 C. Aconcentration of customers will increase rivalry since the power of customers is. thereby increased, Removal of government subsidies creates a more level playing field amongst competitors hence also increasing rivalry. SAMPLEEXAM 22 C_ Harvest orhold are the specific strategy options for a product classified as a cash cow. Note that harvest or build apply to a product classified as a question mark. 112. Business, Technology and Finance: Answer Bank ICAEW 2020