3.1 - Business Objectives & Strategy

Question 1

What is a business’s mission?

Answer 1

A business mission flows from its overall aim and is usually expressed in inspirational terms.

Question 2

What are corporate objectives?

Answer 2

Corporate objectives detail the achievable goals a business wants to achieve over a specified period.

Question 3

What is Ansoff’s Matrix?

Answer 3

It is a tool for businesses with a growth objective that considers four elements, broken down into two categories:
* Market Penetration (existing market, existing product)
* Product Development (existing market, new product)
* Market Development (new market, existing product)
* Diversification (new market, new product)

Question 4

What is market penetration?

Answer 4

It is the least risky strategy to achieve growth. It involves selling more products to existing customers by encouraging more regular use, increased use, and brand loyalty.

Question 5

What is market development?

Answer 5

It involves finding and exploiting new market opportunities for existing products by:
* entering new markets abroad
* repositioning the product by selling to different profiles
* seeking complementary locations

Question 6

What is product development?

Answer 6

It involves selling new or improved products to existing customers by:
* developing new versions or upgrades of existing successful products
* redesigning packaging and aesthetic features
* relaunching heritage products at commercially convenient intervals (e.g. Cadbury releasing Christmas-themed products with a subtle design change)

Question 7

What is diversification?

Answer 7

It is the most risky growth strategy as it involves targeting new customers with entirely new or redeveloped products

Question 8

What is Porter’s Strategic Matrix?

Answer 8

It identifies a range of strategies a business might adopt considering:
* its source of competitive advantage (cost or differentiation)
* the scope of the market in which it operates (mass or niche)

Porter argues that failing to adopt one of these strategies risks a business being ‘stuck in the middle’ and unable to compete successfully with rivals in the market

Question 9

Cost advantage in a mass market (Porter’s Strategic Matrix)

Answer 9

Cost Leadership - being the most cost-competitive business in a large market

Question 10

Differentiation advantage in a mass market (Porter’s Strategic Matrix)

Answer 10

Differentiation - being distinctive and standing out on quality, innovation, brand identity, or customer service

Question 11

Cost advantage in a niche market (Porter’s Strategic Matrix)

Answer 11

Cost Focus - being the most cost-competitive business in a small or specialised market

Question 12

Differentiation advantage in a niche market (Porter’s Strategic Matrix)

Answer 12

Differentiation Focus - deliver unique products that meet specific needs within a small market

Question 13

What is portfolio analysis?

Answer 13

It involves a business carrying out a detailed evaluation of its full range of products in order that appropriate strategies may be identified and pursued

Question 14

What is the Boston Matrix?

Answer 14

It is a portfolio analysis tool that considers the relative market share of a firm’s products and the rate of growth within the market in which each product is sold

Question 15

Where is a Star placed on the Boston Matrix?

Answer 15

A star has high market growth and high market share
* Stars require ongoing investment to maintain their market position and if managed well, they are likely to become cash cows in the future
* A market penetration strategy to increase sales revenue and maximise market share is likely to be appropriate

Question 16

Where is a Question Mark/Problem Child placed on the Boston Matrix?

Answer 16

A Question Mark/Problem Child has high market growth and low market share
* These require lots of investment if they are to improve their level of market share and become stars
* There is a risk that these could become Dogs when market growth rates slow

Question 17

Where is a Cash Cow placed on the Boston Matrix?

Answer 17

A Cash Cow has low market growth and high market share
* Cash Cows generate more cash than they need to maintain their market position and can be used to fund the development of other products in the portfolio
* Businesses mat seek new markets for these products if it is relatively risk-free

Question 18

Where is a Dog placed on the Boston Matrix?

Answer 18

A Dog has low market growth and low market share
* Dogs have little potential for future growth and should be divested so that finance and effort may be invested in other products

Question 19

What are distinctive capabilities?

Answer 19

• When a business has a particular strength that is very difficult for competitors to copy, it has a distinctive capability
• The nature of that distinctive capability will determine the aims and objectives of the business and the strategies it will pursue to achieve them

Question 20

What is strategic decision-making?

Answer 20

Strategic decision-making involves medium to long-term planning to achieve corporate and functional objectives. It establishes the actions that the business intends to take to achieve its goals. This will have an impact on a business’s human, financial, and production resources.

Question 21

How does the strategic decision to enter a new overseas market impact resources?

Answer 21

Human - Staff may be required to relocate
- Additional staff with language skills may be needed
- More staff in general may be needed
Financial - Marketing budgets will need to be increased
- Investment in overseas distribution and retail outlets may be required
Production - Products may require adaptations to meet the needs of overseas customers
- Increased output may require more capital investment in machinery

Question 22

How does the strategic decision to withdraw an obsolete product from the sale impact resources?

Answer 22

Human - Fewer workers may be required as output is likely to be lower and so redundancies may be needed
- The remaining staff may need to be retrained or redeployed to produce alternative goods
Financial - Finance spent on the withdrawn product can be used elsewhere
- Redundancy payments or retraining of staff may incur significant short-term costs
Production - Capacity utilisation is likely to be lower, increasing unit costs of production
- The remaining stocks of the withdrawn product will require disposal

Question 23

How does the strategic decision to merge with a competitor impact resources?

Answer 23

Human - Where staff roles are duplicated, redundancies or redeployment may be required
- Staff may have greater opportunities for promotion in a larger organisation
Financial - Shared financial resources may lead to improved cash flow and a healthier balance sheet
- Duplicated capital equipment and property may be sold to create income
Production - The production process may be initially incompatible and require reorganisation
- Techniques and knowledge can be shared between former rivals

Question 24

What are tactical decisions?

Answer 24

Tactical decisions are made to support the overall strategy and are usually short-term. Tactical decision-making will also have an impact on a business’s human, financial, and production resources.

Question 25

What are some examples of tactical decisions?

Answer 25

• Awarding production workers a one-off 25% bonus to complete a last-minute order
• Decorate the business premises following a series of negative secret shopper reviews

Question 26

What is SWOT analysis?

Answer 26

It is an analytical tool used by businesses to identify:
* internal strengths (what the business is good at) and weaknesses (what the business does poorly)
* external opportunities (options a business may exploit to enjoy further success) and threats (hazards that have the potential to damage business performance)

Question 27

How should each element of a SWOT analysis be used?

Answer 27

• Strengths should be harnessed
• Weaknesses should be eliminated
• Opportunities should be seized
• Threats should be mitigated

Question 28

What is PESTLE analysis?

Answer 28

PESTLE analysis examines the external factors that are likely to impact the activities and outcomes of a business. It is an acronym for:
* Political
* Economic
* Social
* Technological
* Legal
* Environmental

Question 29

How is PESTLE useful?

Answer 29

• It can support effective decision-making by senior managers who will better understand the complex content within which the business operates
• Managers can use the information gathered to understand the potential threats to the business’s performance and identify future difficulties so that action can be taken to help avoid and eliminate their effects

Question 30

What are some reasons for changes in the structure of markets over time?

Answer 30

• Businesses leave and enter the market + integration
• Changes in the regulatory framework
• Globalisation
• Changes in consumer tastes and preferences
• Growth of the internet

Question 31

What is Porter’s Five Forces?

Answer 31

Porter’s Five Forces identifies the key pressures on an industry that impact the ability of a business to compete with rivals. These are:
* Industry rivalry
* Buyer Power
* Threat of substitution
* Supplier power
* Threat of new entry
Porter argues that once a business fully understands these pressures in their context, they can take strategic decisions to achieve and sustain a competitive advantage

Question 32

What is industry rivalry (Porter’s Five Forces)?

Answer 32

• When there are many competitors selling similar products, the business will have little power
• When a business offers products in an industry with little or no competition, it has more power and can use premium pricing and dominate the market

Question 33

What is threat of new entry (Porter’s Five Forces)?

Answer 33

• If new competitors can enter an industry quickly and without investing a lot of money, then the barriers to entry is low and the threat of new entrants is high
• Where the barriers to entry are too high for new businesses to gain a foothold and compete in the market, the threat of new entrants is low

Question 34

What is buyer power (Porter’s Five Forces)?

Answer 34

• When a business sells to a small number of customers, those customers have significant power to negotiate lower prices
• Where a business has a high number of customers, those customers have less power

Question 35

What is supplier power (Porter’s Five Forces)?

Answer 35

• Where a business has a lot of choices over the suppliers from which it buys components, they will have more power as they can shop around for lower prices
• Where a supplier has significant power over a business as a result of offering a specialised component or where there is a small number of suppliers in the market, the business will have little choice over the source of its suppliers and will likely have to pay a high price

Question 36

What is threat of substitution (Porter’s Five Forces)?

Answer 36

• Where customers can easily swap a businesses products for those of a rival, the business has little power
• Where substitution is unlikely, a business has significant market power