ACA Business Strategy 2 — Questions and Answers
Question 1: A UK company is considering expanding into a developing market. According to the stakeholder theory, whose interests should the board consider?
- Only the shareholders
- Only the employees and shareholders
- All stakeholders including employees, customers, suppliers, communities, and the environment (Correct answer)
- Only the interests of the CEO
Correct answer: All stakeholders including employees, customers, suppliers, communities, and the environment
Stakeholder theory, reinforced by Section 172 of the Companies Act 2006, holds that directors should consider the interests of all stakeholders — not just shareholders. This includes employees, customers, suppliers, the community, and the environment, as these relationships affect long-term company success.
Question 2: What is the purpose of a SWOT analysis in strategic planning?
- To calculate the company's financial ratios
- To identify internal Strengths and Weaknesses and external Opportunities and Threats (Correct answer)
- To determine the optimal capital structure
- To set individual employee performance targets
Correct answer: To identify internal Strengths and Weaknesses and external Opportunities and Threats
SWOT analysis is a strategic planning tool that identifies internal factors (Strengths the company can leverage, Weaknesses it needs to address) and external factors (Opportunities it can exploit, Threats it needs to mitigate or avoid). It provides a structured overview to inform strategy formulation.
Question 3: According to the BCG Matrix, a product with high market share in a low-growth market is classified as a:
- Star
- Question mark
- Cash cow (Correct answer)
- Dog
Correct answer: Cash cow
In the BCG (Boston Consulting Group) Matrix, a cash cow has high relative market share in a low-growth market. These products generate strong cash flows with minimal reinvestment needed, providing funds that can be invested in stars and question marks.
Question 4: Which of the following is a characteristic of a mechanistic organisational structure?
- Decentralised decision-making
- Flexible job roles and descriptions
- Highly formalised rules, procedures, and a clear hierarchy (Correct answer)
- Emphasis on lateral communication
Correct answer: Highly formalised rules, procedures, and a clear hierarchy
Mechanistic structures are characterised by high formalisation, centralised authority, rigid hierarchies, narrow spans of control, and specialised job roles. They work well in stable environments but can be slow to adapt to change. Organic structures have the opposite characteristics.
Question 5: Under UK competition law (Competition Act 1998), which of the following practices is prohibited?
- Offering volume discounts to large customers
- Agreements between competitors to fix prices (Correct answer)
- Entering into exclusive supply contracts with a single customer
- Advertising products at below cost price for a promotional period
Correct answer: Agreements between competitors to fix prices
Price-fixing agreements between competitors are prohibited under Chapter I of the Competition Act 1998 (and Article 101 TFEU where applicable). Such agreements are considered 'by object' restrictions — they are presumed to be anticompetitive regardless of their actual market effect.
Question 6: What is the primary purpose of scenario planning as a strategic tool?
- To predict the future with certainty
- To prepare the organisation for multiple possible futures by developing flexible strategies (Correct answer)
- To eliminate all business risks
- To create a single definitive strategic plan
Correct answer: To prepare the organisation for multiple possible futures by developing flexible strategies
Scenario planning involves developing multiple plausible future scenarios (not predictions) and considering how the organisation would respond to each. This helps develop strategic flexibility, identify early warning signals, and avoid being caught off guard by unexpected changes in the business environment.
ACA Business Strategy 2
A UK company is considering expanding into a developing market.
According to the stakeholder theory, whose interests should the board consider?