ST370: Business Strategy
Marking Scheme: May/June 2013
Question One
Michael Porter takes the view that firms must adopt one of three competitive strategies.
Is this framework relevant to companies such as H & M, Primark, Zara and IKEA?
Using firms from an industry of your choice, examine their competitive strategies applying Porter’s
framework.
Outline Answer One
The student should be able to recognise the three competitive strategies; cost leadership,
differentiation and focus. They will understand the attractiveness of the combination of strategies
and the difficulties of attempting this.
H&M, Primark, Zara and IKEA have been successful in combining discount store prices with fashion
appeal.
Combining low cost with differentiation advantage is an attractive combination for any company.
The challenge is to be successful at it. Differentiation typically adds cost—in improved design,
variety, quality, or in some other attribute. Hence, for a combination strategy to work requires that
the differentiation gains compensate the additional costs involved. For these companies the key is to
maintain the basic model of a low cost operator, but to add some of the distinguishing
characteristics of more differentiated competitors.
For example, in fashion retailing, H&M, Zara, and Primark produce copies of new styles introduced
by the leading fashion houses such as New York, Milan and Paris. IKEA trades out of large,
warehouse stores, but has contemporary European designs associated with more expensive
furniture makers. However, reconciling stylishness and low cost can be difficult. It requires
reconciling scale with speed and nimbleness. In fashion retailing for example, it requires fast-cycle
design, production and distribution and alertness to market trends. Major retailers such as Tesco,
ASDA and Marks and Spencer do not have systems that permit such speed and responsiveness.
Question Two
Why is diversification attractive to companies? What is meant by relatedness in diversification? If
academic theory suggests that businesses should ” stick closely to their knitting” what explains the
success of Richard Branson’s Virgin, Warren Buffett’s Berkshire Hathaway and the giant
conglomerate General Electric?
Outline Answer Two
Risk reduction, new opportunities, sharing resources and transferring capabilities, common strategic
characteristics. The ability to design corporate systems that allocate capital, monitor performance,
assess and reward managers, and create new business opportunities depend upon a similarity of
strategic characteristics across businesses. Virgin Group comprises start-up companies that supply
branded goods and services to consumers. The common denominator is the brand, Richard
Branson’s publicity skills and ability to structure a successful management. Most of Berkshire
Hathaway’s businesses are mature, stable, lowtech businesses that face limited international
competition. As such they fit well with the conservative, non-interventionist management approach
of Warren Buffett and Charlie Munger. GE’s businesses are mostly large scale, capital intensive, and
international. There strategic similarities allow them to benefit from GE’s highly sophisticated
systems of strategic and financial management and management development.
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Question Three
What is strategy? How does it contribute to the success of an organisation? What are the principal
ingredients of strategy development and implementation?
Outline Answer Three
This question gives the student the opportunity to consider definitions, levels of strategy, corporate
and strategic business unit strategy.
The merits of differences of Prescriptive and Emergent strategy
Types of analysis of the external environment including PESTEL, 5 Forces, market segmentation,
attractiveness, barriers to entry, rivalry, power of suppliers and buyers.
The relevance of industry life cycle.
Resources & competences and their link to Competitive strategy
The roles of stakeholders, leadership, planning and control
Question Four
Tesco has acquired restaurant chain Giraffe, in a £48.6 million deal, a move which will see the
supermarket open up a series of the child-friendly eateries in store. Tesco will look to fill some of the
space in its larger supermarkets with the restaurants as part of chief executive Philip Clarke’s bid to
make stores “warmer and less clinical”.
How can Tesco’s acquisition of Giraffe be justified as a strategic move?
Outline Answer Four
Opportunity for growth and diversification. Use of existing resources and competences.
Diversification into leisure.
Tesco is looking to create leisure destinations rather than simply shopping spaces. What other
leisure activities might be incorporated into the space?
Tesco's organic growth story over the last two decades has been built around a rapid expansion in
their number of locations. Inevitably the opportunities to continue opening new stores has
weakened. So takeovers of attractive businesses in different, but related markets might help build
momentum in the Tesco sales and profit growth record again.
Competitive advantage arising from attraction of customers.
Question Five
Organisations which choose to strategically address the significance of ethics have a competitive
advantage in the market.” Evaluate critically and discuss using examples to illustrate your answer.
Possible outline answer Five
Set out some of the key elements, of the recent debate on ethical issues of relevance to business.
For example carbon footprint, impact of corporate behaviour on land fill sites, relationship of major
corporations to their suppliers, impact of major corporations on local communities…
Set out the key elements of possible sources of competitive advantage, for example, better
motivated staff, material cost savings, customer advantage, new markets …which are, significant in
this regard.
Discuss using examples such as The Body Shop, Waitrose, Marks and Spencer, Tesco, The Co-Op, etc
Strategic models such as Porter’s Generic Choice can be used.
Question Six
Explain, using examples, the arguments for acquisitions, mergers and alliances.
Possible outline answer Question Six
An answer may include the following elements:Industry Restructuring, Increased market power, Access to new markets, Economies of scale &
scope, Capability Development, Exploitation of core competencies, Diversification, Blocking a
competitor, Porter’s three essential tests, Planning, Integration, Styles of integration, Risks
Examples: Daimler Chrysler, Walmart-ASDA, Kraft Cadbury, Intel and Microsoft
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