3.1 Business Objectives and Strategy Flashcards
How is Corporate Objectives defined?
The objectives of a medium to large sized business as a whole.
How is Departmental and Fundamental Objectives defined?
The objectives of a department within a business.
How is Mission Statement defined?
A brief statement, written by the business, describing its purpose and objectives, designed to encapsulate its present operations.
How is Objective (or goal) defined?
A target of or outcome for a business that allows it to achieve its aims.
How is SMART defined?
Acronym for the attributes of a good objective; specific, measurable, agreed, realistic, timed.
What are Business Aims?
- All businesses have aims – things they wish to achieve in the short and long term.
- ultimately, aims are what the business is striving to achieve
- The business aims will be less specific and more general; to grow; to make more profit;
- A business will communicate these aims through their mission statement
What is a Mission Statement?
- A mission statement declares the business’s overriding purpose, but may also reflect its goals and values
- considered to be the company’s core activities and such information as the markets in which it operates
- What its key commercial objective are, in what way it values its stakeholders or what its ethics involve
- a good mission statement lead to the decision making of the firm.
- a firm may share a mission statement to make a commitment to its customers or to be used to bring a company’s workforce together
What are Corporate Objectives?
- are objectives set by senior managers and directors for a company.
- they should be specific to the company, its particular history, visions of the future and sit well with its missions statement.
- should focus mainly on desired performance and results of the business over time (medium - long term), and may include such as goals as market share, profit levels, creation of new products or processes, resources usage and scale economics.
- to set successful corporate objective they must be SMART objectives.
What are SMART Objectives?
- Specific –> objectives clearly sets out what the business is aiming to achieve and refer to a particular aspect or function of the business ( easily defined)
- Measurable –> quantifiable and can be measured. Most corporate objectives will have a finance or quantifiable element because this makes it easier to measure the success of the business
- Agreed –> everyone responsible for achieving the objective agrees on what the target is and what needs to be done.
- Realistic –> ensure that the objective can be met within the resources available and the market conditions. if an objective is too unrealistic and it failing is likely to have a negative impact on the business
- Time - Bound –> based on explicit timescale. All objective must have an end point to ensure urgency and a point at which the objective can be assessed
What are Departmental and Functional objectives?
- these are more specific than corporate objectives which set the day-to-day goals and may include human resources, finance, operations, logistics and marketing.
- these all refer back up the hierarchy to the corporate objective and missions statements, so that the goals and activities of the business are consistent
What is the Objectives Hierarchy?
- it is a tool that helps analyse and communicate a project’s objectives
- Aims
- Mission Statement
- Corporate objectives
- Functional Objectives e.g. Finance, Marketing , Operations etc.
An objective will ultimately flow from the firm’s overall aim and be effective if it contributes to achieving the level above
What are the difference in objective set between small and large firms?
Small businesses may have a wide variety of objectives, such as:
- To ensure that the company breaks even at he end of the tax year
- to improve the firm’s liquidity in the next six months
- To increase sales by 10% over the next 3 years
- To hire 5 new staff with skills in marketing, and build a strong marketing department over the next year
By contrast, the objective of large firms and MNC tend to be most financial. This is because they have many stakeholders to satisfy, the for most being the shareholders.
- Financial objective are more objective and quantifiable therefore easier to communicate to a wide variety of interest parties.
Why may a business need to critically assess its missions statements and corporate aims?
- Mission statement must be constantly assessed to ensure than have continued relevance for the business
- Sometimes they are not appropriate anymore e.g. a company’s missions statement includes respect and integrity would not align if fraud were to be reported
- Many organisations may put in place a mission statement that is appealing to its customers, but they may need to consider the balance of the appeal of some of these objective to their customers if the organisation is not achieving profit for shareholders
How is Corporate strategy defined?
The plans and policies developed to meet a company’s objectives. It is concerned with what range of activities the business needs to undertake in order to achieve its goals. It is also concerned with whether the size of the business organisation makes it capable of achieving what is set.
How is Distinctive Capability defined?
A form of competitive advantage that is sustainable because it cannot easily be replicated by a competitor.
How is Diversification defined?
Developing new products in new markets.
How is Penetration defined?
Using tactics such as the marketing mix to increase the growth of existing products in an existing market.
How is Portfolio Analysis defined?
A method of categorising all the products and services of a firm to decide where each fits within the strategic plans.
How is Product Development defined?
Marketing new or modified products in existing markets.
What is Business Strategy?
- A Strategy is the medium to long term plan through which an organisation aims to attain its objectives.
- Strategies are plans which include details of what should be done to achieve the businesses objectives.
- Strategies should not be considered until the company’s corporate and functional objectives have been set.
- A successful strategy will give the firm an advantage in the competitive market place and fulfil stakeholder expectations
How is a Corporate Strategy developed?
- developing an effective corporate strategy requires a significant amount of time and research.
- the process of strategic ;planning involves looking critically at what the business has done before and what it may need to do in the future in order to achieve its corporate objectives.
- This is a very big task but there are numerous tools to help managers during the planning process, including value chain analysis, Ansoff’s Matrix, Porter’s Strategic Matrix and portfolio analysis
What is Ansoff’s Martrix?
- Ignor Ansoff was an applied mathematician and influential business strategist. He developed a strategic tool to help a business achieve growth
- Ansoff’s Matrix is a useful decision-making tool because it allows the owners of a business to consider a number of factors will determine its corporate strategy:
- the level of investment in existing and new products
- the exploitation of different markets
- the growth strategy for business
- the level of risk the business is willing accept.
Ansoff’s Matrix reveal four possible strategies that a business might adopt. The key issue is that risk becomes greater the further a firm strays form its core of existing products consumers
What does Ansoff’s Matrix look like?
- A Matrix with Product on the x-axis and Market on the y-axis. With Existing and New as the two titles
- From top left to bottom right the sections are:
- Market penetration
- Product devloepment
- Market development
- Diversification
What is Market Penetration in Ansoff’s Matrix?
the purpose of market penetration is to achieve growth in existing markets with existing products. there are several ways a business can achieve it:
- Increase the brand loyalty of customers so they use substitute brands less frequently e.g. loyalty scheme
- Encourage consumers to use the product more regularly e.g. encouraging people to eat cereal as a night-time snack
- encourage consumer to use more of the product e.g. offering a maxi-sized crisp packets rather than standard-sized
- this is the strategy with the lowest risk as it involves the lowest level of investment. in addition the business will have a good understanding of the product and how the market might respond
What is Product Development Ansoff’s Matrix?
- Product development is concerned with marketing new modified products in existing markets
- this might be an appropriate strategy to adopt where the product life cycle is traditionally short or where trends or technology change quickly
- This strategy is associated with product innovation and continuous development, which some businesses have gained a successful reputation from doing so e.g. Apple and Cadbury’s
- there is more risk involved in product development than product penetration and heavy investments in R&D and promotion are needed
What is Market Development in Ansoff’s Matrix?
- Market development involves the ,marketing of existing product in new market. The most basic form of the strategy is entering geographically new markets.
- This is not always simple as customers from different places may have different tastes and preferences.
- This strategy relies heavily on understand local, habits, tastes and needs.
- even where market development is appropriate and successful it is often necessary to make slight modification to suit the new market, even if this is simply changing the name to more acceptable or accessible in a different language, or labelling the product differently to meet international laws
What is Diversification in Ansoff’s Matrix?
- Diversification occurs when new products are developed for new markets. It enables a business to move away from reliance upon existing market and products, thus allowing the company to spread risk and increase safety.
- if one product faces difficulties or fails, a successful product another market may prevent the business overall facing problems.
- However, diversification will take a business outside its area of expertise, and for this reason it is the strategy with the highest risk.
- this might mean that its performance in new markets is relatively poor compared with more experienced operators.
What is Porter’s Strategic Matrix?
- developed by Michael Porter to identity the source of competitive advantage that a business might achieve in a market.
- Porter stated that any business that does not adopt one of these generic strategies is ‘stuck in the middle’ and unlikely to succeed
What does the Porter’s Strategic Matrix look like?
A triangle with the points labelled:
- Focus (cost focus and differentiation focus)
- Cost leadership
- Differentiation
What is Cost Leadership in Porter’s Strategic Matrix?
- This involves striving to be the lowest- cost provider in the market.
- This does not necessarily mean that the business will offer the lowest price, although this may be an option. Generally speaking, the firm that is able to operate as the lowest-cost provider in am market will compete in two ways.
1 - Increase profits, while still charging market level prices.
2 - Increase market share, while charging lower prices ( still marketing a profit since costs are reduced) - it is generally held by only one business as it requires significant market share
- the business can minimise costs by operating on a large scale it can leverage economies of scale, negotiation with suppliers, efficiency and streamlining operations.
- A cost leader will also offer a ‘ no frills’ product to minimise the cost and the level of service and variation in the product will he minimal and the scale associated with mass production
