business policy and strategy lesson notes
TRANSCRIPT
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PROFESSIONAL STUDIES,
ACCRADIPLOMA LEVEL 200
Facilitators;
Danaa Natognmah, Sam Tuffour, Kwame Fosu-Boateng
Business policy and Strategy 1
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Course synopsis
This course will introduce students to therelationship between strategic planning andhuman resource planning. Issues to bediscussed include budgeting, control,
business strategy and policy and appropriateorganizational design with particularemphasis on the relationship of theseaspects to labour power planning and human
resource development. The main theoreticalapproaches to the study of strategy andpolicy will be taught and understanding oftechniques used to explain policy formulation,evaluation and policy change
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Week 1- Introduction
Business policy and strategy andsynonymous to strategic management orstrategic planning.
The goal is to understand how companiesgain competitive advantage.
This requires companies to set out a mission,vision and corporate values for themselves.The formulation of these things will require itsimplementation and subsequent evaluation.
Stages in strategic management; Formulation
Implementation and
Evaluation
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Strategic Management
defined Strategic Management (SM)is the art andscience of formulating, implementing and
evaluating cross-functional decisions thatenable an organization to achieve its
objectives. Hence SM focuses of integrating the
following towards achieving organizationalsuccess Management
Finance
Marketing
Accounting
Production
Research and development
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Strategic Management defined
(contd) SM could also be defined as the set of
management decisions and actionsthat determines the long-run
performance of an organization. Strategy refers to a comprehensive
master plan that tells us how theorganization is going to achieve its
objectives Strategy=game plan=compass=road
map=ploy
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Strategic Management defined
(contd) What makes a decision strategic in
nature;
When;
It involves top level managers It affects the long term directions of the entire
organization
It requires the commitment of the largeproportion of the firms resources
It involves gaining competitive advantage
It addresses changes in the businessenvironment
It focuses on building on the resources andcompetences
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Strategic Management defined
(contd) Levels of strategy;
Corporate level
Business level
Functional level
The classification of decisions falling
under these different levels differ
among organizations but mostlyinfluenced by size.
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Strategy Formulation
Some issues considered at theformulation stage;
Identification of new business
opportunities Decision of which business to abandon
Allocating resources across the
organization
Decision of expansion into new markets
Decision on mergers and acquisitions
etc
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Strategy Implementation
Some issues considered at theimplementation stage; Division of responsibilities/task
Mobilization of employees andmanagement
Consensus building on how to achievethe goal/target set
Acquisition of resources needed toimplement tasks
Acquisition of resources needed
etc
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The Strategic Management
Model The model consists of the following
sequential activities; Identification/formulation of vision, mission
and objectives or the organization
Assessment of the external businessenvironment
Assessment of the internal businessenvironment
Establishment of long term objectives
Generate, evaluate and select appropriatestrategies
Implement selected strategies
Measure and evaluate performance
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Benefits of Strategic
Management Helps in identifying opportunities Facilitates an objective review of managerial
problems
Improves coordination
Minimizes the influence of adverse conditions on the
organization Facilitates the formulation of decisions that better
support the corporate objectives
Enhances effective communication
Enhances effective allocation of time and resources
Helps to effectively blend individual responsibilities Encourages forward thinking (pro-activeness)
Encourages favourable attitudes towards change
It provides discipline and formality to themanagement of the business
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Risks of Strategic
Management Why some firms do no strategic
management; Poor appreciation of the benefits
Fire fighting attitude
Too expensive Time consuming
Laziness
Complacency with current successes
Fear of failure
Over-confidence Fear of the unknown
Prior bad experiences
Conflict of interest between top management and
the organizations utmost goal
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WEEK 2 &3STRATEGY
FORMULATION Vision is the desired future state of an
organization. It is what we want to become
Vision should shared. Thus it should; Provide commonality of interest
Provide opportunities and present achallenge to employees
Reduce monotony
(HINT REFER TO THE VISION STATEMENTS OF REA LCOMPANIES AND DISCUSS)
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STRATEGY FORMULATION
(Contd) Mission statement is an enduring
statement of purpose that distinguish
one business from other similar firms.
It identifies the scope of a firmsoperations in terms of product and market
It answers questions like;
What is our business? Why do we exist?
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STRATEGY FORMULATION
(Contd) Why mission statement?
It helps in mobilizing resources
It helps in setting policy guidelines
It sets the company apart from othercompetitors in terms of product and
business philosophy
Mission statement=businesscreed=business purpose
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Features of a strong mission
statement It should be broad in scope Reconciles interest of diverse
stakeholders Finely balanced between specificity and
generality It must arouse positive feelings and
emotions It must motivate readers to action It must generate a good image of the
firm to outsiders Must be dynamic in nature Must provide a sense of how the
company wants to grow
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Hints in writing a mission
statement It should be broad It should not be too lengthy
It must be inspiring
It must describe the products/serviceprovided by the firm
It must reveal the corporate social
responsibility philosophy of theorganization
It must be enduring
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Business Ethics (contd) Merely having code of ethics documented could
serve as a public gimmick, set of platitudes or awindow dressing act.
Documented code of ethics only become effectivewhen followed by periodic ethics workshops to
sensitize people on; its composition
Essence
Punishments for non-adherence
There is the need to create an ethics culture. Todo so business strategies could consider aninteractive fun/computer-game using ethicalsituations like Citicorp
Managers have the responsibility of ensuring
ethical leadership
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Important point in implementing
Business Ethics
The manager is solely responsible for how ethical theorganization is If a persons lacks character and integrity, no mater how
knowledgeable, how brilliant, how successful, he ends updestroying
He destroys people (the most vital resource of the organization) He destroys the spirit of the organization (the spirit of the
organization rests at the top)
He destroys performance
No one should ever think of being a businessstrategist unless he/she is willing to have his/her
character serve as the role model. Every ethics workshop should include messages from
the CEO emphasizing ethical business practices andthe need to report unethical behaviours
C t S i l R ibiliti
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Corporate Social Responsibilities
(CSR) defined
CSR refers to the duty that a corporate entity hasto create wealth by using means that avoids harmand also to protect or enhance societal assets(Steiner and Steiner, 2000).
A companies actions that contributes tosustainable development through the companyscore/business activities, social investment andpublic policy debate.
Principles of CSR;
Charity (organizations should give to the needy as aresponsibility)
Stewardship (organizations should consider theinterest of all persons who are affected by decisions
and policies of the company or business)
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Theories of CSR
Stakeholder theory ( the society is astakeholder to the organizations
hence their needs should be met)
Social contracts (every organizationhas a contractual obligation with
society)
Legitimacy theory (the society decidesor grants legitimacy to the
organizations i.e they allow good
organizations to exist)
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Arguments for/against CSR
FOR Against
It balances corporate power with
responsibility
It lowers economic efficiency and
profits
It discourages government
regulations
It imposes unequal costs among
competitors
It promotes long term profits It imposes higher cots which are
passed to consumers
It improves business value and
reputation
It requires social skills which
businesses may lack
It corrects social problems caused
by businesses
It places responsibility on business
instead on individuals
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Dimensions of CSR
Economiccompanies have a responsibilityto produce goods and services that society
needs
Legal companies have responsibility to
obey law
Discretion Companies have to exhibit
voluntary roles driven by social norms; i.e
companies have to exhibit behaviour andethical norms beyond what is required
Ethical companies have to exhibit
behaviour and ethical norms beyond what is
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Making CSR profitable
Companies ask the followingquestions when formulating their CSRpolicy;
To whom should we be sociallyresponsible?
To extent should we be sociallyresponsible towards them?
What is the nature of our products andmarket?
How much resources do we have toinvest in CRS
What issues constitute CSR?
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Aligning CSR to Strategy
Identify the stakeholders of the company Understand the expectation of the
stakeholders from the company
Reconcile identified claims of the different
stakeholders to the vision and strategy of thecompany
Assign priorities to the various claims
Coordinate the claims with other elements ofthe companies mission and planimplementing the CSR activities.
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Why the heightening concern for
CSR today? Common sense approach that
companies should be able to do well
by doing good
Resurgence of environmentalism Increasing buyer/consumer power
Globalization of businesses
CSRs effect on the mission statement
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Implication of CSR for firms Better risk management
Gain government approval
Stronger reputation
Improved productivity
CSR activities confer benefits beyondenhanced reputation (Smith, 2003)
CSR activities can be tools to attract, retainand develop managerial talents (Hempel
&Porges, 2004) Doing good leads to making more money
(Pearce & Doh, 2005)
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Concluding thoughts of CSR
CSR rests on a continuum The strategic aim of business is to earn a return on
capital and if in any particular case the return in thelong run is not satisfactory, then the deficiency shouldbe corrected or the activity abandoned for a more
favourable on (Sloan, 1964) A good company delivers excellent products and
services and a great company does all that and strivesto make the world a better place (Ford, 2003)
The actions of a company to benefit society beyondthe requirement of the law and the direct interests ofshareholders (Pearce and Doh, 2005)
WHERE WOULD YOU PLACE YOUR COMPANYON THE CONTINUUM?
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WEEK 4EXTERNAL
ENVIRONMENTAL ANALYSIS The external environment consists of all elementsoutside the domain of an organization which
has/can have an influence of the competitiveposition of an organization
The essence of conducting an externalenvironmental analysis/audit is to develop a finitelist of opportunities that could be of benefit andthreats that should be avoided
Thus it is not aimed at developing an exhaustive
list of every factor that could influence a businessrather it is aimed at identifying key variables thatoffer actionable responses (offensive or defensive)in strategy formulation.
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Tools for conducting External
Environmental Analysis Immediate External Environment
(Industry)
To conduct analysis in this environment,
the Porters Five Forces is used The Remote External Environment
To conduct analysis in this environment
the PESTEL is used.
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PORTERS FIVE FORCES
[INDUSTRY ANALYSIS]
Rivalryamong
competingfirms
Potentialdevelopmentof substitutes
Bargainingpower of
Consumers
Potentialentry of newcompetitors
BargainingPower ofsuppliers
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Porters Five Forces contd Industry competitors: Rivalry among existing competitors takes many
familiar forms, including price discounting, new product introductions,advertising campaigns, and service improvements. High rivalry limits theprofitability of an industry. The degree to which rivalry drives down anindustry's profit potential depends, first, on the intensity with whichcompanies compete and, second, on the basis on which they compete.
New Entrants: New entrants to an industry bring new capacity and a desireto gain market share that puts pressure on prices, costs, and the rate ofinvestment necessary to compete. Particularly when new entrants arediversifying from other markets, they can leverage existing capabilities andcash flows to shake up competition, as Pepsi did when it entered the bottledwater industry, Microsoft did when it began to offer internet browsers.
Substitute: A substitute performs the same or a similar function as anindustry's product by a different means. Videoconferencing is a substitutefor travel. Plastic is a substitute for aluminium. E-mail is a substitute forexpress mail. When the threat of substitutes is high, industry profitabilitysuffers. Substitute products or services limit an industry's profit potential byplacing a ceiling on prices. If an industry does not distance itself fromsubstitutes through product performance, marketing, or other means, it will
suffer in terms of profitability - and often growth potential.
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Porters Five Forces contd Buyers: Powerful customers - the flip side of powerful suppliers
can capture more value by forcing down prices, demanding betterquality or more service (thereby driving up costs), and generallyplaying industry participants off against one another, all at theexpense of industry profitability. Buyers are powerful if they havenegotiating leverage relative to industry participants, especially ifthey are price sensitive, using their clout primarily to pressure price
reductions.
Suppliers: Powerful suppliers capture more of the value forthemselves by charging higher prices, limiting quality or services, orshifting costs to industry participants. Powerful suppliers, includingsuppliers of labour, can squeeze profitability out of an industry that
is unable to pass on cost increases in its own prices. Microsoft, forinstance, has contributed to the erosion of profitability amongpersonal computer makers by raising prices on operating systems.PC makers, competing fiercely for customers who can easily switchamong them, have limited freedom to raise their prices accordingly.
PESTEL
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PESTEL
[Remote Environmental Analysis] PESTEL stands for Political, Economic, Socio-cultural,
Technological, Environmental, (or ecological and Legal
Political: Political factors include change in governments may belimited to home country but other , international bodies such asECOWAS, and EU with corresponding changes in policies andpriorities may have an impact the organization and how it operates.
Economic: Economic factors may also be limited to the homecountry, but as global trade continues to grow, economic difficultiesin one nation tend to have broader impact. For instance the 2008financial crisis was as a result of USA mortgage crisis but it endedup affecting many nations including Ghana.
Socio-cultural: These are factors that arise as a result ofdemographic change or changes in consumer behaviour patterns,cultural norms and even religious considerations
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PESTEL Contd Technological: this is a result of the development of technology.
There are two types of technological change, which aredevelopments in IT and developments in technology specific to anindustry or market. The identification of technology that provideopportunity for the growth of the organization is very critical if anorganization is able to recognize the potential that earlier.
Legal: It is vital to consider factors arising from changes to the law.Some legal issues may originate from the national government butothers, may operate across a broader spectrum. One issue whenconsidering the legal element of the PESTLE analysis is torecognise laws that have an impact upon the organization eventhough the originated from countries other than that in which the
organization is based. Recent examples are the changes tointernational financial compliance regulations, such as the Sarbanes-Oxley Act in the USA and the Basel II Accord.
Environmental (or ecological): Is about the concerns with regardto the 'green issues'. There are increasing concerns about
packaging and the increase of pollution.
WEEK 5 INTERNAL
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WEEK 5- INTERNAL
ENVIRONMENTAL ANALYSIS
Aside the external forces, there areelements within the organization that can
serve as a hindrance or catalyst to gaining
competitive advantage. To do this kind of analysis, three tools will
be considered;
SWOT Analysis Resource Based View [RBV]
Value Chain Analysis [VCA]
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SWOT Analysis
This is an acronym that stands for Strength,Weakness, Opportunity and Threat
Strength: The internal positive capabilities of an
organization which enables it to do business
easily
Weakness: Internal negative aspects of the
organization that will diminish the chances of
successOpportunity: External factors that present strong
basis for gaining competitive advantages
Threat: External factors that have the potential to
harm the organization
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SWOT Summary
Strengths-willaid the
developmentof the
organization
Weaknesses-will undermine
thedevelopment
of theorganization
Opportunities-available to begrasped by the
organization
Threatspresentingpotential
problems forthe
organization
SWOT may sometimes run the following risks; (1) risk ofoveremphasizing internal strengths and downplayingexternal threats; (2) it can be static and ignore changingcircumstances; (3) it can overemphasize single strengths;(4) a strength may not necessarily be a source ofcompetitive advantage
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Resource Based View (RBV)
The resource-based view (RBV) as a basisfor the competitive advantage of a firm liesprimarily in the application of a bundle ofvaluable tangible or intangible resources atthe firm's disposal to transform a short-run
competitive advantage into a sustainedcompetitive advantage
It seeks to find the set of Resources (and notopportunity or threat) that are critical toattaining the sustained competitiveadvantage.
Such critical resources then getmanagementsprime attention
Hence RBVs basis for conducting internal
analysis differs from the SWOT approach
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RBV contd A critical resource should possess the following or it should be
VRIN Valuable: A resource must enable a firm to employ a value-
creating strategy, by either outperforming its competitors orreduce its own weaknesses
RareTo be of value, a resource must be rare by definition. In a
perfectly competitive strategic factor market for a resource, theprice of the resource will be a reflection of the expecteddiscounted future above-average returns
In-imitableIf a valuable resource is controlled by only one firm itcould be a source of a competitive advantage
Non-substitutableEven if a resource is rare, potentially value-
creating and imperfectly imitable, an equally important aspect islack of substitutability
The VRIN characteristics mentioned are individuallynecessary, but not sufficient conditions for a sustainedcompetitive advantage hence a critical resource shouldpossess all four qualities
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VCA A value chainis a chain of activities that a firm operating in a
specific industry performs in order to deliver a valuableproduct or service for the market
The idea of the value chain is based on the process view oforganizations, the idea of seeing a manufacturing (or service)
organisation as a system, made up of subsystems each withinputs, transformation processes and outputs. Inputs,transformation processes, and outputs involve the acquisitionand consumption of resources - money, labour, materials,equipment, buildings, land, administration and management.How value chain activities are carried out determines costs
and affects profits.
VCA therefore analyses the internal operational chain toascertain which part of the chain adds the most value to theend product. Its is not on findings a critical resource or SWOTbut improving efficiency in the operational chain
WEEKS 6&7 Establishing Long Term
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WEEKS 6&7Establishing Long-Term
Objectives
Long-term objectives are results or targetsexpected from pursuing certain strategies over along term period (beyond 2 years).
Strategies are actions to be taken to accomplishlong-term objectives.
Nature of long-term objectives; They should be
Quantifiable
Realistic
Understandable
Challenging Hierarchical
Obtainable
Congruent with the organizations vision and strategy
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Generic Strategies These are fundamental philosophies by which
organizations believe they can attain sustainablecompetitive advantage.
The are basically three different (but not mutuallyexclusive) once
Low cost leadership strategy (attaining sustainablecompetitive advantage through offering very affordableproducts)
Differentiation strategy (attaining sustainablecompetitive advantage through the offering of superior
quality products beyond what is common to themarket)
Focus strategy (offering unique products to a selectedtarget market whose needs have hitherto not beenmet. It is also called nitch marketing strategy)
Alternative Strategies for achieving
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Alternative Strategies for achieving
Long-term objectives
There are over ten alternative strategies also called grand strategiesthat companies can pick from. They are;
Forward Integration (gaining ownership or increasing control overdistributors or retailers
Backward Integration (seeking ownership of increased control of a firmssuppliers)
Horizontal Integration (seeking ownership or increased control overcompetitors)
Market Penetration (Seeking increased market share for presentproducts or services in present markets through greater marketingefforts)
Market Development (Introducing a present product or service into a newgeographical area)
Product Development (Seeking increased sales by improving productsand services or developing new ones)
Related diversification (adding new but related products/brands
Unrelated diversification (adding new unrelated products, services orbrands.
Alternative Strategies for
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Alternative Strategies forachieving Long-term objectives
contd Related diversification (adding new but related products/brands Unrelated diversification (adding new unrelated products, services or
brands.
Joint venture (strategy that occurs when two or more companies for atemporary partnership or consortium for the purpose of capitalizing onsome identified opportunity that is beyond the strength of any of the
individual firms) Merger/Acquisition (A merger occurs when so firms of similar size unite
to form one entity and an acquisition occurs when a larger firmpurchases/acquires a smaller firm or vice-versa)
Outsourcing (transferring the functional operations such as HR,marketing, accounting, payroll, customer service among others to otherfirms at a fee)
Retrenchment/turnaround (regrouping through cost and asset reductionto reverse declining sales and profit
Divestiture (Selling a division or part of an organization)
Liquidation (selling all of a companys assets in parts for their tangibleworth)
All selection of any of the above strategy for a company will be
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WEEK 8ORAL PRESENTATION ON
THE CASE STUDY ON YAHOO
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WEEK 9 - INTERIM ASSESSMENT
WEEKS 10&11 STRATEGY
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WEEKS 10&11 - STRATEGY
ANALYSIS AND CHOICE
This involves making subjective decisions based on objectiveinformation. It seek to determine course of action that couldbest enable the firm to achieve its mission and objectives.
The firmspresent strategies, mission and objectives coupledwith information resulting from the external and internal
environmental audit provide the basis fir generating andevaluating feasible alternative strategies
Unless a desperate situation confronts a firm, alternativestrategies will likely represent those that move the firm fromits present position to a desired future position.
To conduct the strategic analysis, the SWOT matrix will beused. Other tools like the SPACE matrix, Boston Box and
Ansoff Matrix also exists
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SWOT MATRIX
Use strategies that enablesoptimal use of companysstrengths to capitalize on
opportunities
Employ strategies that enables afirm to use its strength to avoid orreduce the impact of the external
threats
Use strategies that improvesworks on the weaknesses and
positions the firm in a position thatenables it to take advantage of
opportunities
Employ defensive strategies andtactics directed towards reducing
internal weaknesses and avoidingthe impact of external threats on the
organization
Strengths
Weaknesses
To
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The Boston growth-share
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The Boston growth share
Box/matrix contd
The Boston growth share
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The Boston growth-share
Box/matrix contd
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WEEK 12 - REVISION