3.1/3.2 Flashcards
Mission statement and its aim
Written description of business aims- aim is to make stakeholders aware of what a business does and why.
Benefits of a mission statement
-makes the business unique
-sense of shared purpose
-encourages employees to work towards common goals
Drawbacks of a mission statement
- Businesses don’t have to prove that what’s in the statement is accurate
-therefore it is bad practise and business reputation may become damaged
-Doesn’t go into detail of how the mission is going to be achieved - doesn’t set corporate strategies or results
Corporate objective
Goals of the business as a whole
Strategy
More long-term plan of action developed to achieve a business’ objectives.
tactics
Short-term plans.
4 sections in Ansoffs matrix
Market penetration, product development, market development, diversification
market penetration
Means trying to increase your market share in an existing market.
Product development
Selling new products in existing markets.
market development
Selling existing products to new markets.
Diversification
New products to new markets
One adv and dis adv of ansoffs matrix
+ doesn’t just lay out potential strategies of growth it also forces mangers to consider the expected risks.
-fails to show that market development and diversification strategies also tend to require significant change in the day-to-day workings or tactics of the business
Porters 3 strategies
Cost leadership, differentiation, focus
Cost leadership
Calls for lowest cost of production for a given level for quality.
Differentiation (porter)
This strategy requires a product with unique attributes which consumers beehive is better value then competitors. Can charge premium prices- business must have strong branding, innovative, and good quality products
Focus
Concentrates on niche markets and either minimising costs or differentiation. Suits firms with lower resources who can target specific needs. Relies on customer loyalty
benefits and limitations of the boston matrix
+ helpful in assessing where individual products are in their market growth and share
+helps business come up with strategies about product investment and if they need to apply an extension strategy
-simplified, only shows high and low share and growth- doesn’t account for the median products
- because a product has high market share does not mean its high in profits as it may have high costs.
-More factors that hint profitability not just growth and share
SWOT analysis
four factor model that assess strengths, weaknesses, opportunities and threats
benefits of SWOT analysis
-can be redone to take into account changing conditions which means the business can adapt to sudden changes
- lets the business know what their competitive advantage may be over rivals
PESTLE analysis
Political - governmental policies on taxation and industry regulations can affect the business. e.g lowering corporation tax to help smaller businesses grow
Economic - include changes in consumer spending, interest and exchange rates
Social - changes in social trends may lead to changes in demand
Technological - have an influence on decision making, e.g decision to invest in new machinery may be delayed if there is a more efficient version coming out. Could also mean production processes or products that were previously not available now are
Legal - changes in law can impact the business e.g pollution laws
Environmental - customers more becoming conscious of damage to the environment, business may need to adapt to retain customers
Porters 5 forces model
shows an industry being influenced by 5 competitive forces, analyses state of the market and helps owners figure what is the best strategy to gain a competitive advantage.
Barriers to entry (porter)
How easy it is for new firms to enter the market
its in the interest of existing firms to make it hard for new firms to enter
High start up costs may be a deterrent
e.g use of trademarks , (vertically integrate) taking control of distribution channels so this becomes unavailable for new entrants , price wars with new entrants- well established business can afford to do this
Buyer power (porter)
Buyers want as low as price as possible
Buyer have increased power when there’s fewer buyers and more sellers.
Buyers have more power when goods are standardised- business doesn’t have USP
Strategies to influence buyer power:
increases quantity of product they are buying will increase buyer power as it will hit the business more if they go to a rival and lose revenue
Forming a buyer group- buying bigger volumes so can demand better deal
Supplier power (porter)
Suppliers want to get as high price as possible
Increased power when few suppliers and large customer base
Strategies to influence supplier power:
long term contracts
develop new products and protect them with patents- can charge premium
Threat of substitutes (porter)
how likely customers are to buy an alternative
Strategies to reduce threat of substitutes:
Make it expensive or difficult for customers to switch e.g apple phone you are likely to use apple games
brand loyalty
design product around needs of customers
Rivalry (porter)
How much competition there is
Strategies to reduce the effects of rivalry:
big promo campaigns
make it easy to customers to switch between goods e.g helping someone switch their debit card
Reasons for growth
- increase profits
- increase market share
-more recognisable - econ of scale
Inorganic growth
external, mergers or takeovers.
Merger
when two businesses join together to form one business.
Takeover
when one businesses buys over 50% shares so it now has control of the other business
Horizontal integration
happens when a business combines with another business in the same production stage and industry. Reduces competition in the market
Vertical integration
when a business combines with another business in the same industry but at different stages in the production process.
Organic growth
expansion within a business
benefits of organic growth
+can maintain current management style
+less risk
+can control how much the business will grow by
+efficiency, productivity and motivation stay high as there is less disruption
limitations of organic growth
- takes a while to grow a business organically
-market size isn’t affected ; can only increase market share
-may miss out on opportunities for ambitious growth
Problems with growing
- suffer from diseconomies of scale this where unit costs increase as the scale of production increases
-harder to motivate as less close contact and staff may value themselves as less of an asset
-internal communication slower and harder as the chain of command is longer - increases risk of overtrading as the business will have less working capital as cash will be tied up in stock
Problems with quick organic growth
- different businesses that have merged may have different cultures and objectives this could lead to clashes.
-staff of merged business may need to learn new skills and adapt
-staff redundancies as job roles may be duplicated
-taking on liabilities of the other merged business
-if takeover part of diversification strategy then the business may lack experience in new market. mistakes lead to losses in profit
Reasons for staying small
- highly differentiated products or bespoke services may be unable to grow due to production processes not being suited to mass production and result in loss of USP
-stating small can mean money can be invested in innovation rather than production
-response to customer needs is easier as communication is quicker
-close contact with staff means motivation levels can be easily monitored and the business objectives are always clear
