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SOLUTION: STRATEGIC MANAGEMENT, NOV 2007 QUESTION 1 (a) Strengths Qualified and committed work force Track record

rd of good performance Competent engineers Market leader Weaknesses Lack of financial analysis Lack of product initiative Close product portfolio pportunities !vaila"ility of market #iversified product $rowth in the industry Threats Competition %ew technologies !vaila"ility of su"stitutes (") (i) Market #evelopment& This involves introducing present or e'isting products of the company into new geographic areas( This is "ecause the company has "een successful in the past and new untapped or unsaturated market e'ists( The industry in which the firm is operating is rapidly "ecoming glo"al in scope( (ii) )roduct #evelopment& This is a strategy that seeks increased sales "y improving or modifying present products in order to increase their market penetration within e'isting customer groups( *or e'ample+ re,launch of a range of products( The recommendation is "ased on the facts that the company is in a growing industry and competitors are offering -uality products at compara"le prices( The company competes in an industry that is characteri.ed "y rapid technological developments( Market )enetration& This strategy seeks to increase market share for present products in present market through greater marketing efforts( This can "e used as a lone strategy and in con/unction with other strategies( The approach includes e'tensive sales promotion and increasing advertising e'penditure( The reasons are the fact that the current markets are not saturated0 the firm could en/oy economies of scale(

(iii)

(c)

2'porting has many advantages+ including& (i) (ii) (iii) (iv) ffering the company an opportunity to learn and develop appropriate familiarity with international markets( The firm can try this on a small scale( 3elping the company reduce "usiness risk "y providing a "roader customer "ase that serves as a hedge against unfavoura"le domestic market( 2na"ling the company to achieve economies of scale "ecause of increased production volume( %ot re-uiring ma/or capital outlay as compared to esta"lishing a company there((

L4Q54#4T6 Current ratio& Current assets Current Lia"ilities Quick ratio& Current assets,stock Current lia"ilities

7889

788:

788;

1+7<7 = 7(7&1 :<> 1+7<7 @ :A8 = 1(7 :<>

1+7?7 = 7(7&1 :;< 1+7?7 @ :;7 = 1(? :;<

1+89> = 1(<&1 :9: 1+89> @ ;>? = 1(8 :9:

2**4C42%C6 *i'ed !sset Turnover& Sales *i'ed !ssets Stock Turnover (days)& Stock ' ?9: Cost of sales #e"tors Turnover (days)& #e"tors ' ?9: Sales

7889

788:

788;

1+888 = 1(1 ><1 :A8 ' ?9: 9A: = ?8>(7 days A77 ' ?9: 1+888 = 79?(: days

1+888 = 1(8 1+889 :;7 ' ?9: 997 = 7<>(> days 9>8 ' ?9: 1+888 = 7;>(7 days

1+888 = 8(> 1+7:7 ;>? ' ?9: 9:? = 7A8 days :>: ' ?9: 1+888 = 71?(: days

QUESTION 2 (a) The value claim concept views the firm as a chain of value,creating activities( By identifying the key activities and performing them "etter than competitors in terms of cost reduction or -uality improvement+ the firm creates a competitive advantage( 4n this part+ candidates must draw the model showing the specific activities of the organi.ation and e'plaining how cost can "e reduced or -uality improved through the value chain( The activities themselves may "e grouped "roadly into in"ound logistics+ operations+ out"ound logistics marketing and sales and service( These are supported "y technology+ human resource management+ procurement and firm infrastructure(

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QUESTION 3 a) Strategy formulation& This refers to the task of esta"lishing an organisationCs direction+ setting o"/ectives and selecting an appropriate strategy or strategies( (i) 2sta"lishing an organisationCs direction& This involves defining where the organi.ation "e headed to (vision) and clarifying e'actly what the companyCs "usiness is (mission)( (ii) Setting o"/ectives !n o"/ective is a specific result an organi.ation seeks to achieve( "/ectives convert an organisationCs mission into specific performance targets+ o"/ectives provide specific targets against which the success of the strategic plan could "e measured( "/ectives may "e set at the strategic level+ in each function area and in key result areas( (iii) (iv) (v) 2nvironmental scanning and analysis #etermining alternative strategies Strategic !nalysis and Choice

QUESTION 4 (a) !n in industry is said to "e attractive when it provides firms with the re-uisite resources+ and opportunity to achieve competitive advantage( *actors which make an industry attractive include a high growth potential+ moderate rivalry among competitors+ high entry "arriers+ few or no su"stitutes for products+ low potential for future risks+ among others( (1) 3igh $rowth !n industry with a high growth potential offers an opportunity for firms in that industry to do "etter "usiness and earn more profits through a high sales+ turn over( (7) Moderate rivalry When the intensity of competition is moderate rather than high+ firms are a"le to make more sales and therefore earn high profits( 4ntense competition in terms of price or -uality lowers profit margins and therefore total profits( *ew or no Su"stitutes The fewer the su"stitutes for an industryCs products the "etter it is for the firms in that industry( )lastics and fi"re as su"stitutes for glass reduce the potential of the latter to attract higher prices+ "ecause this gives "uyers a higher "argaining power( 3igh 2ntry Barriers 3igh entry "arriers in terms of high capital outlay+ prohi"itive government policy+ patents and the economics of scale en/oyed "y e'isting firms discourage new firms or make entry difficult for them( *uture Disks Where the industry is thought to "e facing potential risk in future it is clearly not an attractive "usiness to invest in( But where there are no foreseea"le risks in future+ then the industry is an attractive one to invest in+ provided other factors are favoua"le( 4t must "e noted that firms need the re-uired resources to "e a"le to take advantage of the industryCs attractive opportunities( (") 2ntry Barriers These are characteristics that restrict firms outside the industry from entering into "usiness relating to the industry( Some of these "arriers include $overnment policy+ patents and proprietary knowledge+ specific asset re-uirements and organi.ational economies of scale( ;

$overnment,created "arriers $overnment reduces competition through the granting of monopolies and through regulation( 4ndustries such as utilities @ water+ electricity are considered monopolies "ecause+ only one organi.ation is allowed to operate in the industry in each case( )atents and )roprietary Enowledge 4deas and knowledge that provide competitive advantages are treated as private property when patented+ preventing others from using the knowledge and thus creating a "arrier to entry( Specific !sset De-uirements When an industry re-uires highly speciali.ed technology or plants and e-uipment+ potential entrants are reluctant to invest in speciali.ed assets that cannot "e sold or converted when the venture fails( Such re-uirements therefore constitute a "arrier for entry "y new entrants( 2conomies of Scale Where e'isting firms are already producing at minimum cost levels new entrants are deterred "ecause they cannot compete with those who are already in the industry(

QUESTION 5 (a) Critical success factors for any "usiness are the limited num"er of areas in which the firm must "e competent in order to "e competitive or financially successful( ! critical success factor can "e technology,related such as e'pertise+ manufacturing,related such as low,cost production distri"ution,related such as fast delivery or skill,related such as superior talent( The "eerF"rewing industry( Eey successful factors& , , , , , , , utili.ation of "rewing capacity (to keep manufacturing costs low) a strong network of wholesale distri"utors (to gain access to retail outlets) clever advertising (to induce "eer drinkers to "uy a particular "rand) product attri"ute competencies competitive capa"ilities market achievements :

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