3.1 Objectives and Strategy Flashcards
Mission Statements
>These tell you about a business’ intentions.
>The mission of a business is its overall purpose or corporate aims, the mission statement is a written description of these aims. They are intended to make all stakeholders aware of what the business does and why and to encourage employees to work towards these.
Mission statements
>They can include info regarding its values, standards, how it will achieve and who the customers are.
>They can give staff a sense of shared purpose.
>Businesses can just write what the consumer wants to hear and not carry this out however reputation might be damaged through this.
Corporate objectives:
>Businesses set objectives at different levels.
>Businesses set objectives to enable them to achieve their mission.
>Corporate objectives are goals for the whole business. The objectives depend on the business and size.
}A new shop owner might focus on survival whilst big firms might focus on growth and diversity.
Departmental objectives:
>These are more detailed objectives specific to a department. Businesses need to set these to help achieve corporate objectives.
>This makes sure everyone is working towards a common goal, co ordination between departments improves work ethic.
>Objectives should be aligned with the mission statement otherwise credibility could be lost.
>Mangers can compare performance with their objectives to measure success.
Objectives should be SMART
>Specific - Makes them more achievable with a direct purpose.
>Measurable - Need to know if it has been achieved or not.
>Agreed - Everyone involved needs to know about it and agree on it, agreement allows motivation to flourish in trying to achieve.
Realistic - There’s not point setting too ambitious objectives this will just demotivate staff. They must be actually achievable.
Timely - There should be a specific time frame to follow and guide others as to where they are at in achieving the following goal. With no time limit staff might be nonchalant in completing it as it can just be done whenever, till it’s too late.
Strategies are plans for achieving objectives:
>A strategy is a long term plan of action developed to achieve an objective.
>This can only be put in place once aims and objectives have been outlined.
>All businesses have strategy in small firms these may not be formally written down however in larger firms they’re more clearly defined to influence the plans of departments.
Tactics or Tactical decisions.
>These are short term plans a business will use to achieve the overall strategy.
>These can be used to react to an opportunity or threat which means they might not always correspond with the business strategy.
}If a competitor cuts its prices the business might cut the prices too however the strategy is to increase profit.
The distinction between strategic and tactical decision can be important especially managers as it will give a rough time frame for the decision.
It also indicates how likely the decision is to change tactics are more likely to change with external influences.
Can impact different resources:
>Human - A business needs to consider is their staff are skilled enough to carry out the work needed for strategies or tactics - this may require recruitment of new staff.
>Physical - A business might need to invest in new or update its physical resources.
>Financial - A business needs to consider how to fund its decisions.
}Growth might need to be financed through change of ownership.
Ansoffs Four different options for strategic growth.
- Market penetration - Means trying time increase your market share in your existing market through promo, pricing and advertising. Works best in a growth market.
- New product development - Selling new products in your existing market. Might require strong R and D and works best when the market has good growth potential.
- Market development - Selling existing products to new markets. The business focuses on a different segment of the market they may need to re asses promotion and channels of distribution to attract a new target market.
- Diversification - Selling new products to new markets. This is a risky strategy as it may involve moving into markets you have no experience in. Risk is reduced with high profits and expanding product range.
Ansoffs matrix can be used to look at different growth strategies.
>It compares the level of risk with the different strategies it helps managers decide on the best direction.
>Product development is less risky than diversification and works best for business with a strong competitive advantage.
>Market penetration is the least risky - so most business opt to start with this approach.
-Fails to show how market development and diversification will require significant day to day change.
-Ansoffs matrix over simplifies the options available for growth.
-Isn’t dynamic doesn’t account for competitors
-Isn’t as useful for large businesses who are likely to already be operating in all quadrant
+Doesn’t just lay out strategies includes expected risks of moving in that direction.
Porters three generic strategies to gain advantage:
1) >Cost leadership - the lowest cost of production for a given quality. Big firms with efficient production facilities benefiting from economies of scale can use this.
1) >In a price war the firm can maintain profitable if prices decline whilst competition suffers.
2) >Differentiation - requires products with unique attributes which consumers value, allowing a business to charge premium prices.
2) >Businesses that are innovative have strong branding and quality products can benefit from this.
2) >Risks include imitations from competitors and change in consumer taste.
3) >Focus strategy concentrated on niche markets either minimising costs or showing differentiation.
3) >This strategy suits firms with few resources who can target specific needs. A firm using this strategy has loyal customers making it hard for competition.
Porters generic strategies can be put into a matrix:
Broad Cost Leadership Differentiation
Narrow Cost, Focus Differentiation
Focus
Cost advantage Differentiation
advantage
Competitive advantage
+This may help a business identify its focus and steer it in the correct direction away from risk of failure.
- The model oversimplifies the market structure it has narrow focus on either cost leadership or differentiation however some businesses successfully offer a range of products.
- It only tells a business where it sits not how to improve from this, therefore won’t help in a dynamic market where needs are often changing.
Kays model of three capabilities for a business success:
>A distinctive capability is something a business is good at which also sets it apart from its competitors.
>If a business utilises this to its advantage it will creat added value and give it a competitive advantage.
>The three distinctive capabilities are:
architecture, reputation and innovation
> Architecture - this describes the relationship a business has with its main stakeholders. This will allow success through better communication and marketing info increasing sales.
Reputation - Can be built through custsomer satisfaction which can go along way to loyal customers and strong branding.
Innovation - A business bringing out new exciting products is likely to gain a competitive advantage.
Capabilities need to be sustainable and appropriable:
>Sustainable means that a business needs to maintain its competitive advantage over time.
>Appropriable means a business is not able to copy another business’ distinct capability. This can be through trade marks and patents also advertising and slogans can be protected through copy rights.
> The Boston matrix a product portfolio analysis can help a business assess where it individual products are in terms of market growth and share.
It can show what products to invest in and what are coming to the end of their lifetime.
- It’s a simplified model.
- High market share doesn’t mean high profit as the product might have high costs.
- Growth rate and share aren’t the only indicators of profitability.
Swot analysis
>This is a four factor model that details the strengths, weaknesses, opportunities and threats.
>The strengths and weaknesses are internal factors the business can control.
>The opportunities and threats are beyond the business they must be understood in order for a successful reaction to take place.
>External factors might refer to PESTLE.
Can help businesses plan strategy
>Very useful in making strategic and tactical decisions done on a factual and objective basis.
>Managers focus on turning weaknesses to strengths and threats to opportunities.
>It can be altered to take into account changing conditions, business can adapt its strategy based on this.
>Let’s business know it’s competitive advantage the business can use this as a focus
PESTLE Analysis
Political - A government might reduce corporation tax to help new businesses but introduce come on unhealthy products which harms business selling these types of product.
Economic - Can include changes in consumer spending, interest and exchange rates and growth.
Social - Changing social trends can result in change in demand.
Technological - Technology change can influence business decision making, may reconsider investment plans for better production etc.
Legal - Law changes can impact a business activities. Pollution bans reducing petrol and diesel demand.
Environment - Consumers are becoming more concerned with preserving the environment. Business may need to change their stance on environmental impacts to keep customers keen
Porters 5 force model
> Shows an industries influence.
>Helps figure the best strategy in that market.
>Can show potential profitability of new markets.
1) Barriers to entry
>New entrants will want to sell similar products its existing firms jobs to make this hard.
>High start up costs might deter new firms from entering existing markets.
2) Buyer Power
>A suppliers main customer might be able to negotiate special deals
>Buyers have more power with less buyers and more sellers
>Buyers have more power with differentiated goods.
3) Supplier Power
>Suppliers have more power with less suppliers and more buyers.
>If it costs customers to switch suppliers then they have more power.
4) Threat of substitutes
>A factor effecting competitiveness
>Relative price and quality is important.
>For products with little differentiation the threat is higher.
5) Rivalry with the Industry (competition)
>Rivalry is intense in standardised good and also young markets with people trying to fill the market share majority.
>Industries with high fixed costs are competitive in order to achieve a profit.
Dynamic competitive environment
>Pestle and Porters 5 forces are good at examining external influences but only give them at a given time.
>Businesses need to be aware these may be dynamic and change over time must be revisited to ensure up to date.
>It’s all relative to the economy a struggling economy may mean people are less worried about quality products and go for substitutes.
