ACA Business Strategy — Questions and Answers
Question 1: According to Porter's Five Forces framework, which of the following would INCREASE the bargaining power of buyers in a UK industry?
- High switching costs for buyers
- Low concentration of buyers
- Availability of many substitute products (Correct answer)
- Strong brand loyalty among customers
Correct answer: Availability of many substitute products
When many substitute products are available, buyers have more alternatives and can more easily switch away from a supplier's products, increasing their bargaining power. High switching costs, low buyer concentration, and strong brand loyalty all reduce buyer power.
Question 2: In Ansoff's Growth Matrix, which strategy involves selling new products to existing markets?
- Market penetration
- Market development
- Product development (Correct answer)
- Diversification
Correct answer: Product development
Product development involves creating new products or services for existing markets. Market penetration focuses on existing products in existing markets, market development takes existing products to new markets, and diversification involves new products in new markets.
Question 3: Under the UK Companies Act 2006, what is the primary duty of company directors?
- To maximise short-term share price
- To act in a way they consider would be most likely to promote the success of the company for the benefit of its members as a whole (Correct answer)
- To follow all instructions from shareholders without question
- To maximise their own remuneration
Correct answer: To act in a way they consider would be most likely to promote the success of the company for the benefit of its members as a whole
Section 172 of the Companies Act 2006 requires directors to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, having regard to various factors including the long-term consequences of decisions.
Question 4: What does a PESTEL analysis examine?
- The internal strengths and weaknesses of a company
- Political, Economic, Social, Technological, Environmental, and Legal external factors (Correct answer)
- The competitive position of a company relative to its rivals
- The financial ratios of a company over time
Correct answer: Political, Economic, Social, Technological, Environmental, and Legal external factors
PESTEL analysis is a strategic tool for analysing the macro-environmental factors that affect an organisation. Each letter represents a category of external influence: Political, Economic, Social, Technological, Environmental, and Legal factors that could impact the business.
Question 5: Which of the following best describes a 'cost leadership' strategy as defined by Michael Porter?
- Charging the highest prices in the market for premium products
- Becoming the lowest-cost producer in the industry while maintaining acceptable quality (Correct answer)
- Targeting a small niche market with specialised products
- Rapidly diversifying into unrelated markets
Correct answer: Becoming the lowest-cost producer in the industry while maintaining acceptable quality
Cost leadership involves achieving the lowest cost of production in an industry, allowing the company to either undercut competitors on price or earn higher margins at market prices. This requires economies of scale, efficient operations, and tight cost control, while maintaining quality acceptable to customers.
Question 6: In the context of UK corporate governance, what is the 'comply or explain' principle?
- Companies must comply with all governance codes or face legal penalties
- Listed companies should comply with the UK Corporate Governance Code or explain why they have not (Correct answer)
- Companies can ignore governance requirements if they explain their business model
- Only the largest companies need to comply with governance rules
Correct answer: Listed companies should comply with the UK Corporate Governance Code or explain why they have not
The UK's 'comply or explain' approach means that listed companies should either comply with the provisions of the UK Corporate Governance Code or, where they do not comply, explain their reasons to shareholders. This allows flexibility while maintaining transparency and accountability.
ACA Business Strategy
According to Porter's Five Forces framework, which of the following would INCREASE the bargaining power of buyers in a UK industry?