Discuss the usefulness of strategic choice techniques for the directors of AC, as they decide between Option A and Option B. Option A - Production of luxury chocolates Option B - Purchase land and farm cocoa beans Capital cost (m): Option A = 2, Option B = 1.5 Lead time to set up project (years): Option A = 1, Option B = 3 Probability of success (%): Option A = 70, Option B = 80 Estimated annual economic return if successful (m): Option A = 0.8, Option B = 0.6 Driving forces: Option A: Use of own processed chocolate powder; Control over marketing of final product Option B: Secure cocoa bean supply; Good transport links with Factory S Constraining forces: Option A: Lack of expertise in chocolate final processing and retailing Option B: Lack of expertise in farming cocoa beans Opportunities: Option A: Growing market for chocolate products in the home country and worldwide Option B: Growing demand for cocoa beans from AC and other companies Threats: Option A: Competition from well-known brands Option B: Weather and crop disease; Over-supply in market for cocoa beans

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. Knowledge: Meaning of strategic choice as part of strategic management
2. Knowledge: Strategic choice techniques such as Ansoff Matrix, Decision trees, Force Field Analysis and investment appraisal
3. Knowledge: Reference to strategic analysis techniques when preparing for choice such as SWOT, PEST, Boston matrix, Porter's Five Forces, Core competencies and others.
4. Knowledge: Ansoff encourages management to consider risk of each option
5. Application: Use of the techniques / factors for two options – appendix 3 examples
6. Application: Ansoff's matrix – Option A – product development as new products being sold in existing market but also possibly diversification into new markets
7. Application: Option B - diversification market penetration / market development as secure cocoa bean supplies may enable more sales of chocolate powder to existing and possibly new markets
8. Application: Option B has higher probability of success. Less risk.
9. Application: Option A has higher annual economic return – link to shareholder returns
10. Application: Option A capital cost is $0.5 m greater – link to gearing
11. Application: Force field analysis – what is the balance between driving and restraining forces?
12. Application: Both options face restraining force of lack of expertise
13. Application: Option B will give AC security of supply of cocoa beans link to competitive advantage for AC
14. Analysis: How techniques may be used and the advantages and disadvantages
15. Analysis: Better decision making by considering the quantitative aspects of the choices
16. Analysis: Use of probabilities in decision trees therefore reducing risk for AC of option choice
17. Analysis: Payback gives focus on time to recover investment which is important to business faced with issues of working capital / liquidity
18. Analysis: ARR enables AC to choose option with highest return which may be important to shareholders
19. Analysis: NPV takes account of the time value of money
20. Analysis: The use of techniques to analyse aspects of the options
21. Evaluation: Justification of most useful technique with supporting argument
22. Evaluation: Effective integration of analysis and choice techniques will be important
23. Evaluation: Other information that could be useful?
24. Evaluation: Impact of management objectives and attitudes
25. Evaluation: Long and short term impacts