3.1- Business objectives and strategies Flashcards
What is a corporate objective
targets set for the whole firm to reach in a given time period
Name the 4 main purposes of corporate objectives
-provides strategic focus
-measures performance of the firm as a whole
-informs decision-making
-sets the scene for more detailed functional objectives
Name 2 benefits of having business aims
-employees -> more mtovated
-descisions made quicker
Name 5 typical corporate aims
-growth
-profit maximisation
-entering new markets
-surviving first 2 years of being in business
-improving communities they operate in
What is a mission statement
summary of why a business exists
Give one benefit of a business having a good mission
if employees resonate with businesses mission -> motivation without need for extra motivational techniques
-
What is a corporate strategy
medium to long term plan for achieving corporate objectives
Why are objectives set
-help evaluate performance of the business
-focuses the activities of those responsible for achieving them
Name 3 internal influences on objectives
-performance of business
-culture of the organisation
-short termism vs long termism
Name 3 external influences on objectives
-economic environment; recession, economic downturn
-actions of competitors
-relative power of different stakeholders - influential?
What is short-termism
when a business prioritises the short term rather than long-term performance
Name 5 things amanagement would focus on when taking a short-termist approach
-share price and market capitalisation
-revenue growth
-gross & operating profit
-unit costs & productivity
-
What should business targets be
SMART: specific, measurable, achievable, relevent, time bound
Name 3 influences on business missions
-purpose; why business exists
-values; what business believes in doing, how it should be done
-standards & behaviours; way ppl in business actually act
Describe Porters generic strategy matrix
identifies source of competitive advantage that a business may achieve
idea that any business that doesn’t adopt one of these strategies is ‘stuck in the middle’, won’t succeed
Name Porters 4 stratgies
-low cost
-focused low cost
-differentiation
-focused differntiation
What is Porters low cost strategy
-cutting costs allows business to undercut its rivals on price -> more profitable
-key to success; operational advantage -> better economies of scale than rivals
-> higher productivity
What is Porters differentiation strategy
business operating in a mass market but adopting a unique position
e.g.
business may add value to its product by having good quality, design brand identity or customer service
+ charge a premium price as customers value their USP.
-but ^ R&D & marketing costs
What is Porters focused low cost strategy
-focuses on being lowest cost provider within niche market
-operational efficiencies
-high productivity required
What is Porters focused differentiation strategy
offering specialiased products within the niche market
What is a distinctive capability and how does this lead to a competitive advantage
distinctive capability -> when a business has a strength thats very difficult for competitors to copy
-e.g. reputation & image, innovation, relationships
-> mrket leader
What is product differentiation
a businesses attempts to make its product stand out from rivals
-trhough marketing, design or quality
Explain Ansoff’s Matrix
existing product, existing market
market penetration
new product, existing market
product development
existing product, new market
market development
new product, new market
diversification
What is market penetration
-existing product, existing market
the commonest and lowest risk strategy -> involves boosting market share through selling more of the same product to the same target market
-methods for this:
+finding new customers within the target market
+taking new customers
+increasing use of the product
What is market development
-selling existing products in a new market
-must understand local habits & tastes
What is a major risk of market development
-company may not understand consumer behaviours in the new market
What is product development
-selling a new product to an existing market
-appropriate when product life cycle is short, associated with innovation, continouous development
-likely to have a good understanding of customer wants and needs
-need for invetment in R&D, promotion
What is a risk of product development
-new product in an existing market -> must ensure the new product meets customers exact wants and needs
What is diversification
selling new products to new markets
-selling new products to customers whose tastes you have no experience -> tough
-can bring very high rewards
Why is diversification risky
-selling new products to customers whose tastes you have no experience -> tough
Name 2 risks and rewards of market penetration
risks
-potential declines in product life cycle
-lack of ambition from staff
rewards
-know the customers & competitors
-returns on extra investment will be predictable
Name 2 risks and rewards of market development
risks
-subtle cultural differences add hugely to risk
-practical differences matter
rewards
-huge potential economies of scale
-potential for glocalisation
Name 2 risks and rewards of product development
risks
-most new products fail -> risk level is high
Name 2 risks and rewards of diversification
rewards
-can transform size and opportunities for the business
-exciting for workforce -> motivates
What is a SWOT analysis
-identifies businesses:
strengths, weaknesses, opportunities, threats,
What is a top-down approach in terms of SWOT analysis
uses external management consultants working directly with the boss of the business
Benefits and drawbacks of a top-down approach
+detachment from company culture may allow aspects of the business to be seen in new lights
-managers may fail to share all info with those conducting SWOT analysis to present business in a more favourable light
What is a consultative approach in terms of SWOT analysis
when a boss travels around the business
-more thorough analysis about what works well and what doesnt
-can do this by engaging with workforce, diff employees
Benefits and drawbacks of a consultative approach
+greater insight from wider range of contributors
+chance for boss to gain first hand understanding
-staff may feel less willing to point out issues
What are key performance indicators
measures of aspects of business’s performance that business considers to be main determinants of its commercial success
Name 6 examples of commonly used KPIs
-staff turnover
-brand recognition
-unit cost
-capacity utilisation
-market share
-like-for-like sales
Name the 5 key areas when looking at opporutnies and threats brought by the environment
-demography -> ageing pop -> opportunities to sell to retired
threats -> businesses turn these changes to their advantage
-new laws and regs -> changes in laws -> new opportunities
-technological factors ->
-competition
-commodity prices
What are commodities
basic goods, traded internationally and are generally basic, unprocessed raw materials
Give examples of threats and opportunities for the following:
-oil
-oil -> threat for: airlines- cost of fuel ^, opportunities -> supplier of alternative energy
What is lobbying
influencing key political decision-makers to act in the best inetrests of a business
When trying to understand the external environment what type of analysis may a firm carry out
Political
Economic
Social
Technological
Legal
Environmental
How do political factors impact a business
-> most significant: UK leaving EU
->harder to access EU markets
->more expensive imported materials
->
How do economic factors impact a business
-> state of the economy:
-link between economic growth and average incomes -> impacts sales depends on their income elasticity
->exchange rate-
->the rate of inflation- as it rises causes uncertainty -> leads to reductions in investment
->rate of unemployment
How do social factors impact a business
How do technological factors impact a business
How do legal factors impact a business
How do environmental factors impact a business
Porters 5 forces
Explain 4 characteristics where intensity of rivalry is low
-few companies dominate the market
-branding is important to customers
-little spare capacity
-no direct competition from abroad
Explain 4 characteristics where intensity of rivalry is high
-market growth is slow
-products are relatively undifferentiated
-low barriers to entry
-directly faces overseas competition
Meaning of barriers to entry
factors in a market that can make it hard for new companies to break into the market
Name 3 typical barriers to entry that make it hard for new companies entering the market
-patents and technical knowhow of staff
-strong brand identity and customer loyalty
-high costs to customers of switching supplier
What is The Bargaining Power of Suppliers in Porter’s Five Forces model
- Suppliers want to maximise the profit they make from their customers.
-The more power a supplier has, the higher the price it can charge, more profit
Name 4 ways limiting the power of the supplier can improve the competitive position of a business
- it can grow vertically ( backward vertical integration) either acquiring a supplier or setting it own business by growing organically upwards.
- Seek out new supplier to create more competition amongst suppliers
- engage in technical research to find substitutes for a particular input to broad then supply base
-it may also minimise the information provide to supplier in order to prevent the supplier realising its power over the customers
What is the Bargaining Power of Buyers in Porter’s Five Forces Model
- Buyers want supplies for the lowest prices
- If buyers have market power -> can decrease prices offered by suppliers
- One way to boost the power of buyers is through forwards vertical integration –> e.g. a car manufacturer might set up its own dealership, this could encourage other businesses to set up in its customer’s markets’ to reduce the power of existing customers
- Another way is to try to make it expensive for customers to switch to another supplier –> game console manufacturers keep game prices high as the console are technically incompatible with other machines
What is Porter’s Five Forces Model?
looks at nature and strength of the competitive environment in which a business operates.
- the success of the business will be governed by the strength of those forces. If the are in your favour, then a business would make above average returns
What are Porter’s Five Forces?
- The bargaining power of suppliers
- The bargaining power of buyers
- Threats of New Entrants
- Substitutes
- Rivalry among existing firms
What is the Threat of New Entrants in Porter’s Five Forces Model?
- If businesses can easily come into an industry and leave it again, if profits are low it makes it hard for existing businesses to charge high prices and make high profits
- Existing businesses are constantly under threat that if their profit, rise too much, this will attract new suppliers into the market who will undercut their prices
- business can counter this by inputting barriers to entry
- It can create strong brands which will attract customers loyalty and make customers less price sensitive
-Large amounts of advertising can be a deterrent –> represent a large cost for new entrants if they want to increase market share
- As well as the initial large sunk costs could be a deterrent to moving into a new market
What is the threat of substitutes in Porter’s Five Forces Model?
- the more substitutes there are for a particular product, the ^ the competitive pressure on a business making the product
-business with few/ no substitutes -> can charge high prices and make high profits
-A business can reduce the number of potential substitutes through R&D then patenting the substitutes itself
-Sometimes a business will buy the patent for a new invention from a third party and do nothing with it just to prevent it coming to market
- Businesses also use market tactics to stop the spread of substitute products e.g. predatory pricing
How can a business reduce the number of subsititues
-research & development
-patenting the substitutes
-predatory pricing
What is Rivalry among existing firms in Porter’s Five Forces Model?
-rivalry in a market will also determine prices and profits for any single firm
- If rival is fierce, businesses can reduce that rivalry by forming cartels or engaging in a broad range on anti-competitive practices –> this is illegal in UK and EU but it is not uncommon
- Businesses can also reduce competition by buying their rivals –> again competition laws may intervene to prevent this happening but most horizontal mergers are allowed
- In industries well there are relatively few businesses. often business dont compete on prices
–> this allows then to maintain high profitability and compete with new products or advertising instead thus creating strong brands - While this may make costs higher they can also charge higher prices than in a more competitive market creating high profits
What is Ansoff’s Martrix?
-strategic tool to help a business achieve growth
What is Boston Matrix
portfolio analysis tool that considers the market share of a firms products & rate of growth within the market
Detail the Boston Matrix
high market share, high market growth
star - (usually use market penetration)
high market share, low market growth
cash cows (usually seek new markets)
low market share, high market growth
question mark (require significant invetsment)
low market share, low market growth
dogs
What is the Aim of Portfolio Analysis?
it is a method of categorising all of the products and services of a firm (its portfolio) so as to decide where each fits within the strategic plans.
The product are then evaluated according to their competitive potential and potential growth - this involves a two step process:
Step 1 –> Give a full and detailed overview of all of the products and services in the current business portfolio
Step 2 –> look at the performance of each of these products and service by examining current and projected sales and cost competitors activity and future competitions risk that may affect performance
