3.1a business objectives and strategy Flashcards
what is an aim?
a long-term goal (1 year +)
what is an objective?
a short-term goal that helps a business to achieve its aim
what do corporate objectives and mission statements do?
outline what the business aims to achieve:
↳ it guides the actions and strategy of business
what is a mission statement?
it explains the purpose of a business (why it exists)
who does the mission statement relate to?
(+ examples)
all stakeholders
(investors, customers, employees, society)
what does the mission statement focus on?
-the values of the business
-the importance of different stakeholder groups
-the impact the business intends to have on society
-the aims of the business
what is a mission statement not intended to be?
-a statement of objectives or what the business does
-a statement of how the business intends to compete / position itself in the market
hierarchy of objectives:
-aim
-mission
-corporate objectives
-functional objectives
-business unit / individual target
some of the influences on a mission statement?
-the values of the founder(s)
-the industry the business is in
-the size of the business
what makes a good mission statement?
-a clear sense of business purpose
-excites, inspires, motivates, guides
-easy to understand & remember
-differentiates business from competitors
-for all stakeholders
what can mission statements be used to develop?
corporate objectives
EXAM TIP!! what may i be asked to do with mission statements in a test?
-critical appraisals
-assess the importance of
critical appraisal of nike’s mission statements:
‘to bring inspiration and innovation to every athlete in the world’
-may be outdated
-nike is seen more as an everyday fashion brand now
common criticisms of mission statements:
-not always supported by the actions of the business
-often too vague
-can be outdated
-can be unmemorable
where do corporate objectives fit in on a hierarchy?
mission
→
vision
→
aims or goals
→
corporate objectives
what is the vision of a business?
the overall aspiration (hope/ambition) of the business
what is a corporate objective?
it quantifies the mission of a business and sets measurable targets for the whole business
hierarchy of business objectives:
(increasingly strategic)
-mission
-corporate / strategic
-functional
-team
-individual
(increasingly detailed)
example of corporate objective:
market share of 12%
example of a functional objective:
sales per customer of £45
example of a unit objective:
shop sales of £500,000
what is the purpose of corporate objectives:
-to measure the performance of the whole business
-to inform decision-making
what are functional areas of a business?
marketing, operations, HR and finance
examples of key focuses for corporate objectives:
-market standing
-innovation
-productivity
-resources
-profitability
-management
-employees
-public responsibility
key areas: market standing
market share, customer satisfaction, product range
key areas: innovation
new products, better processes, using technology
key areas: productivity
optimum use of resources, focus on core activities
key areas: physical and financial resources
factories, business locations, finance, supplies
key areas: profitability
level of profit, rates of return on investment
key areas: management
management structure:
-promotion
-development
key areas: employees
organisational structure, employee relations
key areas: public responsibility
compliance with laws; social and ethical behaviour
what are functional objectives?
-they are set for each key business function
-they ensure that the corporate objectives are achieved
SMART
S - specific
M - measurable
A - achievable
R - realistic
T - time bound
how can functional objectives help support corporative objectives:
corporate objective: increase sales
functional objective: successfully launch five new products in the next two years (marketing )
how can functional objectives help support corporative objectives:
corporate objective: reduce costs
functional objective:
increase factory productivity by 10%
(operations)
how can functional objectives help support corporative objectives:
corporate objective: increase cash flow
functional objective: reduce the average time taken by customers to pay invoices from 75 to 60 days
(finance)
how can functional objectives help support corporative objectives:
corporate objective: improve customer satisfaction
functional objective:
achieve a 95% level of high customer service (people)
internal influences on corporate objectives:
-who are the business owners & what do they want to achieve?
-attitude to profit
-ethical stance
-organisational structure
-leadership
-stakeholder influence
external influences on corporate objectives:
-short termism
-economic environment
-political/legal environment
-competitors
-social & technological change
external influences: what is short termism?
is there external investor pressure to focus on and achieve short term objectives at the expense of long term strategy
external influences: examples of economic factors
-economic growth
-consumer spending
-interest rates
what is strategic direction?
it involves a business choosing which markets it will operate in and which products it will provide
why is strategic direction important?
because the external environment is constantly changing and businesses must develop and compete in areas that make the best use of their strengths and core competencies
what is ansoff’s matrix?
a planning tool that businesses can use to determine its product and market strategy
what does ansoff’s matrix offer?
four strategies based on the products’ newness and the firm’s understanding of the market
existing products & existing markets
market penetration
what is market penetration?
a strategy to boost sales of current products in the current market
aim of market penetration:
-to increase market share
-get existing customers to buy more
possible approaches of market penetration:
-increase promotional activities
-changing the pricing model if the product is price sensitive
-build brand image
-focus on increasing repeat purchase by developing customer loyalty
benefits of market penetration:
-low risk
-the product and market are familiar to the business → unlikely to need significant market research
-limited investment requirement
drawbacks of market penetration:
-possibly limited growth potential
-business becomes vulnerable if it doesn’t innovate
new products & existing markets
product development
what is product development?
a business introduces new products into existing markets
possible approaches of product development:
-conduct market research with existing customers to identify areas for improvement/innovation
-divert funds into product development
benefits of product development:
-the business is familiar with customers (a great way of using brand identity)
-responds to customer needs
drawbacks of product development:
-product development takes time and can be expensive
-market cannibalization (a drop in sales and demand for a product when the company introduces a new one)
new markets & existing products
market development
what is market development?
taking existing products in to new market segments (demographic or geographic)
approaches to market
development:
-use penetration pricing to enter a new market
-use new distribution channels (eg: retail, e-commerce, intl agent)
-heavy promotion targeting new customers
-strategic alliance of a business operating in the market already
benefits of market development:
-potential for considerable growth
-no need for expensive product development
-a logical strategy if existing markets are saturated or in decline
drawbacks of market development:
-the business has limited understanding of new customer needs
-the business will be competing with established businesses
-often more risky than product development (especially intl markets)
-existing products may not suit new markets (localisation encouraged)
new products & new markets
diversification
what is diversification?
a business offers new products to new customers in a new market
possible approaches of diversification:
-innovation and r&d
-acquire an existing business in the market
benefits of diversification:
-spreads business risk by engaging in different markets
-business can use some of its core competencies and apply them to a new market
drawbacks of diversification:
-no recognition or expertise in the market
-extremely high risk strategy
what is the aim of product portfolio?
to categorise a company’s products with specific characteristics to make strategic decisions about them
example of portfolio planning models:
-the product life cycle
-the boston matrix
simple evaluations of portfolio analysis models:
-they are useful to help apply strategic decision making to a range of products
-the sometimes oversimplify complex realities
what is the aim of a business?
(strategic positioning)
to strategically position itself differently from its competition
what are porter’s strategies?
three positioning strategies a business should follow in order to compete within its market
what did porter believe that a business must have to compete with rivals?
a distinguishable focus
what are porter’s strategies based on?
the source of the competitive advantage and the scope within the market
what 3 things did porter state that businesses compete on?
-on price
-on differentiation
-on a very specific customer (market segmentation)
what are the different market scopes?
(porter’s strategic matrix)
broad & narrow
what are the competencies?
(porters strategic matrix)
uniqueness & low cost
which strategy should be chosen if the scope of the market is narrow?
market segmentation
what is market segmentation?
it involves targeting a specific group of customers (niche) and not the whole market
how can segmentation be achieved?
through either cost leadership or differentiation
what is the basis of a segment?
-its unique needs
-geographic or demographic characteristics
-a specialist product or service
benefits of market segmentation:
-it’s easier to target a narrow segment of the market as communications and marketing can be focused
-it’s possible to develop a better understanding of customer needs as the segment has narrower interests, needs and characteristics
drawbacks of market segmentation:
-customer loyalty is vital if sales are to be maintained (every customer counts)
-the market may disappear (or no longer be a viable option) if it shrinks in size
what is competitive advantage?
it exists where a business creates unique value for its customers that is greater than that offered by competitors
which areas of practice can lead to a sustainable competitive advantage?
-innovation
-architecture
-reputation
why can the last 3 areas of practice lead to a sustainable competitive advantage?
it is unique, not easily copied and may take a long time to achieve
which strategy should be chosen if the market is broad and the competency is uniqueness?
differentiation
what is differentiation?
when a business competes by offering a unique product or service to the market
examples of bases for differentiation:
-quality
-customer service
-branding
-speed and efficiency
-aesthetics
benefits of differentiation:
-it can make the business stand out
(competitive advantage)
-a differentiation helps develop a unique brand image
-differentiation adds value and therefore higher prices can be charged
drawbacks of differentiation:
-other businesses may be able to copy the strategy if it is not sustainable or defensible
(e.g. a product is defensible if it is under copyright)
which strategy should be chosen if the market is broad and the competency is low cost?
cost leadership strategy
what is low cost strategy?
achieving an advantage by being the lowest cost operator in the market
how do businesses usually become the lowest-cost operator?
the method usually involves production on a large scale, which enables the business to exploit economies of scale
suitable markets for cost leadership strategy:
-standard products
-little product differentiation
-when branding is restively unimportant
ways to achieve cost leadership strategy:
-operate at a scale that keeps average costs low (mass production)
-by using economies of scale
-have unique access to technology (patented technology)
-have unique access to skills or raw materials
benefits of cost leadership strategy:
-can help to achieve high profit margins as cost per unit is kept low
-it can acquire market share
drawbacks of cost leadership strategy:
few businesses can operate as the cost leader within a market as multiple businesses cannot directly compete on cost
(may lead to price wars)
factors to consider when choosing a strategy:
(porters strategic matrix)
-the expected cost
-anticipated returns
-risk aversion
-core competencies
-external environment
-stakeholders
factors affecting strategy:
the expected cost
product development and diversification are likely to be considerably more expensive than the other strategies
factors affecting strategy:
anticipated returns
a business will conduct investment appraisal in order to consider the potential reward of the strategy
what is risk aversion?
the willingness of the owners/ managers to take risks
factors affecting strategy:
core competencies
a business will look to choose a strategy that makes use of the strengths and advantages possessed by the business
factors affecting strategy:
stakeholders
apart from financial returns, a business will consider the impact of its strategy on its stakeholders
what is a strategy?
-a long-term approach that a business will take to achieve its objectives
-they involve a major commitment to resources
what do strategies guide?
tactics
what are tactics?
-the day-to-day decisions taken by middle managers
-they are frequent and involve fewer resources
-they are taken to achieve the strategic direction of the business
achieving competitive advantage through distinctive capabilities
what are distinctive capabilities?
when a business has a particular strength that is very difficult for competitors to copy
what do distinctive capabilities drive?
the aims and objectives of the business and the strategies it will pursue to achieve them
examples of distinctive capabilities:
-operational skills and expertise within the business
-relationships and networks established within and around the business
-reputation and image of the business
-innovation and the ability to change
explanation of distinctive capabilities: operational skills and expertise within the business
-a business may have an outstanding and committed design team
-this may mean that product development is a suitable strategy
explanation of distinctive capabilities: relationships and networks established within and around the business
-a business may have developed close trading relationships with key suppliers
-this may mean that a low cost strategy is possible
explanation of distinctive capabilities: reputation and image of the business
-a business may develop an excellent reputation for quality
-a differentiation strategy is likely to be appropriate
explanation of distinctive capabilities: innovation and the ability to change
-a business may be particularly effective at responding to external change (a market development strategy is likely to be suitable)
the effects of strategic decisions on resources
what does strategic decision making involve?
medium- to long-term planning to establish the actions that a business will take to achieve corporate and functional objective
what will strategic decision-making impact?
a business’s human, financial and production (physical) resources
examples of the impact of strategic decisions on resources:
strategic decision: enter a new overseas market
impact on HR:
-staff may be required to relocate
-additional staff with language skills may be required
-more staff may be needed to achieve increased output
impact on financial resources:
-marketing budgets will need to be increased
-Investment in overseas distribution and retail outlets may be required
impact on production resources
-products may require adaptations to meet the needs of overseas customers
-increased output may require more capital investment in machinery
examples of the impact of strategic decisions on resources:
strategic decision: withdraw an obsolete product from sale
impact on HR:
-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
impact on financial resources
-finance spent on the withdrawn product can be used elsewhere
-redundancy payments or retraining of staff may incur significant short-term costs
impact on physical resources
-capacity utilisation is likely to be lower, increasing unit costs of production
-the remaining stocks of the withdrawn product will require disposal
examples of the impact of strategic decisions on resources:
strategic decision: merge with a competitor
impact on HR:
-where staff roles are duplicated, redundancies or redeployment may be required
-staff may have greater opportunities for promotion in a larger organisation
impact on financial resources
-shared financial resources may lead to improved cash flow and a healthier balance Sheet
-duplicated capital equipment and property may be sold
impact on physical resources
-the production process may be initially incompatible and require reorganisation
-techniques and knowledge can be shared between businesses
why are tactical decisions made?
to support the overall strategy and are usually short-term
what will tactical decisions impact?
a business’s human, financial and production resources
the impact of the tactical decision to award production workers a one-off 25% bonus to complete a last-minute order from a key customer
impact on HR
-improved staff motivation due to higher pay
-overworked staff may be more likely to make mistakes
impact on finance
-increased cost as wage costs increase
-future sales to the customers are more likely (higher sales revenue)
impact on physical resources
-machinery will be operative for a long time so may not be serviced
-quality checks will need to be completed quickly