Strategic Planning Competition No. 3: Preparation Questions
1. What is Strategic Management?
Strategic management is a systematic approach that relates the enterprise to its environment, establishing its position to ensure continued success.
2. Define Strategic Business Unit (SBU)
A Strategic Business Unit (SBU) has the following characteristics:
- It is a single business enterprise or a set of interrelated businesses, for which the company can plan separately from the rest of the company.
- It has its own competitors.
- The unit is headed by a manager responsible for operating and financial results, to whom the home base assigns strategic planning objectives and resources.
3. What are the criteria for defining an SBU?
Each SBU faces a particular set of competitors, which it tries to overcome. Each SBU can set goals and chart its strategies independently of other areas of the firm. Therefore, the definition of an SBU responds to external conditions rather than internal characteristics of the firm. However, there can be common elements or activities, such as the same equipment, technology, or delivery service, to exploit advantages like economies of scale.
4. What is Portfolio Analysis (BCG Matrix or Growth-Share)? How are businesses classified and accounted for?
The BCG matrix graphically displays the differences between divisions in terms of their relative market share and the industry’s growth rate. It allows an organization to manage its business portfolio by analyzing these factors for each division in relation to all other divisions.
BCG Matrix
Question Marks
These businesses have a relatively small market share but compete in a high-growth industry. They generally need a lot of money but generate little cash. The organization must decide whether to reinforce them through an intensive strategy (market penetration, market development, or product development) or sell them.
Stars
These businesses represent the best opportunities for long-term growth and profitability. They have a considerable market share and a high industry growth rate. They must attract enough investment to maintain or strengthen their dominant positions.
Cash Cows
These businesses have a large market share but compete in a low-growth industry. They generate more money than they need and are often “milked.” Many of today’s cash cows were yesterday’s stars.
Dogs
These businesses have a low relative market share and compete in a low-growth industry. Due to their weak internal and external position, they are often settled, dismissed, or cut through retrenchment.
Development Criteria
The growth-share matrix is based on two main dimensions:
- Industry Growth Rate: The annual growth rate of the industry market to which the enterprise belongs.
- Relative Market Share: The market share of the SBU relative to its leading competitor, expressed on a logarithmic scale.
5. Explain Just-In-Time (JIT)
JIT contributes to materials management to increase business efficiency. It frees capital stuck in unwanted stock, making it available for the value chain. Inventory adds cost to the product without adding value for the client.
6. Explain the Value Chain
Value chain analysis, a technique from Michael Porter, helps gain competitive advantage.
Definition: It represents the theoretical increase in value over the initial cost. This value must be greater than the cumulative costs added throughout the production process. Real value-added activities are those necessary to provide the output the customer expects. Some activities required by the company do not add value from the customer’s perspective. Other activities, like storage, do not add value.
7. What is the objective of the value chain?
The value chain technique identifies activities within a value system, which consists of:
- Suppliers’ value chain
- Other business units’ value chain
- Distribution channels’ value chain
- Customer value chain
Value is the sum of perceived benefits minus the costs levied on the customer. The value chain analyzes a business by decomposing it to identify sources of competitive advantage in value-generating activities. Competitive advantage is achieved when a company develops and integrates its value chain activities more cheaply and with better differentiation than rivals. A generic value chain consists of:
- Primary Activities: Product development, production, logistics, marketing, and after-sales services.
- Support Activities: Human resources, procurement, technology development, and firm infrastructure.
- Margin: The difference between total value and total costs.
8. Explain the value chain as a management tool
Value chain analysis identifies sources of competitive advantage. Exploiting these opportunities depends on the company’s ability to develop crucial competitive activities along the value chain better than its competitors.