ACCA Strategic Professional · Strategic Business Leader

Strategic choices: formula sheet

Full chapter guide

Key formulas

Porter's generic strategies: Source of advantage (lower cost or uniqueness) × Scope (broad market or narrow segment); Gives cost leadership, differentiation, cost focus and differentiation focus.
Differentiation test: Price premium > extra cost of the differentiating features; If not, margin falls even though customers like the product.
Bowman's clock: failure routes: Positions 6, 7 and 8 = high risk; Increased price/standard value, increased price/low value, and low value/standard price. Focused differentiation (position 5) is a viable strategy and is not on this list. Failure routes work only with a monopoly or high customer lock-in.
Sustainability of advantage: Valuable + hard to imitate + hard to substitute; Use this to judge whether the advantage will last against rivals.
Penetration: Existing products + existing markets; Lowest risk. Increase share or usage, or consolidate by acquiring rivals.
Market development: Existing products + new markets; New geography, segment or use. Risk is in understanding the new customers.
Product development: New products + existing markets; Needs investment and capability. Risk is product failure.
Diversification: New products + new markets; Highest risk. Split into related (linked) and unrelated (conglomerate).
Risk ordering: Penetration < Market or product development < Diversification; A general guide, not a law. Risk depends on the case facts.
Three methods of pursuing strategy: Organic (internal) development | Mergers and acquisitions | Alliances (joint ventures, strategic alliances, licensing, franchising); Use this as your answer structure. Always compare at least two methods in an advice question.
Evaluation lens: Suitability + Acceptability + Feasibility; Apply to each method. Suitability is strategic fit, acceptability is return, risk and stakeholder reaction, feasibility is resources, skills and time.
Typical reasons acquisitions fail: Overpayment, poor due diligence, weak strategic fit, culture clash, poor integration; A checklist, not a law. Pick the ones the scenario supports.
Joint venture vs strategic alliance: Joint venture = separate jointly owned entity | Alliance = cooperation with no new entity; Do not mix them. Licensing and franchising are usually treated as contractual alliances.
Relative market share: Relative market share = Unit's market share ÷ Share of its largest competitor; Above 1 means the unit is the market leader. Below 1 means it trails the leader. The BCG axis is usually shown on a log scale.
BCG classification: Star = high share, high growth | Cash cow = high share, low growth | Question mark = low share, high growth | Dog = low share, low growth; Relative share is high when it is about 1 or more. The growth cut-off is judged against the market, not fixed by the model.
Parenting value test: Parent adds value if benefits of parenting > costs of parenting (including centre costs and value destroyed); Judge it unit by unit, not for the group as a whole.
Ashridge categories: Heartland | Edge of heartland | Ballast | Value trap | Alien territory; Based on parenting fit with critical success factors and scope for the parent to add value.
Porter's diamond determinants: Factor conditions + Demand conditions + Related and supporting industries + Firm strategy, structure and rivalry (plus government and chance); Four core determinants and two outside influences. Always link each one to the facts in the case.
CAGE framework: Cultural + Administrative + Geographic + Economic distance; Use it to compare countries. Distance raises cost and risk, but its effect depends on the industry.
Global integration versus local responsiveness: Global: high cost pressure, low local pressure. Multi-domestic: low cost pressure, high local pressure. Transnational: both high; Choose the approach by which pressure is stronger in the industry.
Entry mode spectrum: Exporting → Licensing → Franchising → Joint venture → Acquisition → Wholly owned subsidiary; Moving right generally means more control, more investment and more risk.
SAF framework: Good option = Suitable + Acceptable + Feasible; All three tests must be considered. An option that fails one needs a fix or should be rejected.
Net present value: NPV = Σ [cash flow in year t ÷ (1 + r)^t] − initial investment; Use the cost of capital as r. Accept if NPV is positive. A positive NPV adds to shareholder value.
Return on investment: ROI = annual profit ÷ capital invested × 100%; Use the same definition of profit and capital for every option you compare.
Payback period: Payback = years until cumulative cash inflows equal the initial outlay; Shows how quickly money is recovered, a liquidity and risk measure. It ignores cash flows after payback.
Gearing (debt-based): Gearing = debt ÷ (debt + equity) × 100%; Used for feasibility and acceptability of debt funding. Lenders may have covenant limits.
Business model canvas blocks: Customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, cost structure; Nine blocks. Pick the blocks the case changes rather than listing all nine.
Four actions framework (blue ocean): Eliminate – Reduce – Raise – Create; Which factors the industry takes for granted should go, fall below, rise above the industry standard, or be newly offered.
Value innovation: Value innovation = differentiation + low cost, pursued together; This breaks the usual trade-off between value and cost.
Disruptive innovation pattern: Low-end or new-market entry → performance improves → mainstream customers switch; Check the case follows this path before using the label.
Open vs closed innovation: Open = internal and external ideas and routes to market; Closed = internal only; Weigh speed and cost against control and IP risk.

Quick revision

Porter's generic strategies: cost leadership, differentiation and focus; being stuck in the middle is a risk.
Competitive advantage must be sustainable and hard to copy.
Ansoff: market penetration, product development, market development, diversification (the riskiest).
Methods: organic is slower but controlled; acquisition is fast but costly and risky; alliances share risk and control.
Acquisitions often fail on integration, culture and overpaying.
BCG matrix: stars, cash cows, question marks, dogs, based on market share and market growth.
GE matrix uses industry attractiveness and business unit strength.
Corporate parents add value through synergies, central services and support, and can also destroy value through cost and interference.
International choices balance global integration against local responsiveness.
Suitability: does it fit the analysis and objectives? Acceptability: do stakeholders and returns accept it? Feasibility: can we deliver it?
A business model describes how value is created, delivered and captured.
Always finish with a justified recommendation tied to the case.

Common mistakes

Describing the models without applying them to the case. Fix: Open each point with a case fact, then link the model. Never write a theory paragraph with no scenario detail.
Calling a low-priced firm a cost leader. Fix: Check the cost base. A firm can price low and still have high costs, which means thin margins and a weak position.
Defining the four boxes with no link to the case. Fix: Use named products, markets and facts from the case in every paragraph.
Misclassifying a new geography as diversification. Fix: If the product is unchanged and only the location or customer group is new, it is market development.
Giving generic lists of advantages and disadvantages Fix: Tie every point to a scenario fact, such as the firm's low cash or its weak local knowledge.
Confusing joint ventures with strategic alliances Fix: Remember a joint venture creates a separate jointly owned entity. An alliance is cooperation without one.
Using absolute market share instead of relative market share. Fix: Compare the unit's share with the largest rival's share. Divide and then classify.
Saying all dogs must be sold and all question marks must be funded. Fix: Treat them as starting points. A dog may give strategic or cash benefits. A question mark with no path to leadership may need exit.
Describing Porter's diamond as a theory of firm strategy rather than national advantage. Fix: Say it explains why a nation's firms succeed in an industry. Apply it to the home country or the target country, not just the firm.
Listing the four CAGE dimensions without scoring or comparing countries. Fix: For each dimension give the case evidence, state whether distance is high or low, and say what it means for the entry decision.

Exam tips

Always quote case facts when naming a strategy. Marks go to application, not definitions.
Use Porter for what the firm does and the strategy clock for how customers see price and value. Pick the one that suits the requirement, or combine them briefly.
Link generic strategies to sustainability. Ask whether rivals can copy the advantage, and say why.
Finish with a recommendation and a risk. This shows commercial acumen and judgement for professional skills marks.
Keep answers in the format required, such as a short report or email, and make each paragraph one clear point.
Always tie each box to named products and markets in the pre-seen case. Generic definitions earn little.
Use Ansoff as one part of a wider answer. Link it to suitability, acceptability and feasibility, and to the method of growth.
When a question asks you to evaluate, weigh risks against benefits and give a recommendation. Description alone is not enough.