Analysing Strategic Position

Question 1

Mission Statement

Answer 1

What the business does; it’s purpose; reason for existing

Question 2

Vision Statement

Answer 2

What the business aims to be; it’s aspirations

Question 3

Strategy

Answer 3

The plan to achieve it’s vision; how it will get there

Question 4

Corporate Objectives

Answer 4

Targets within the plan and measures of success; how the business will know when it has arrived; medium- to long-term goals established to coordinate the business

Question 5

Influences on a business’s mission

Answer 5

-The values of the founders of the business
-The values of the business’s employees
-The industry of which the business is part
-Society’s views
-The ownership of the business

Question 6

Strategic decisions

Answer 6

Judgements made by the senior managers that are long term, involve a major commitment of resources and are difficult to reverse

Question 7

Areas of business activity where businesses could set corporate objectives

Answer 7

-Market position
-Innovation
-Financial resources: amount of capital available
-Physical resources: buildings, land, equipment, technological resources
-Human resources
-Productivity
-Social responsibility: stakeholders needs
-Profits

Question 8

External influences of corporate objectives and strategic decisions

Answer 8

-State of the economy
-Global prices
-Technological changes
-Migration

Question 9

Internal influences of corporate objectives and strategic decision

Answer 9

-Poor performance
-New leader
-Business culture

Question 10

Short-termism

Answer 10

The pressure to deliver quick results to the potential detriment of the longer term development of a company

Question 11

Culture

Answer 11

Encompasses the values, attitudes and beliefs of those who work for a business

Question 12

Strategy and tactics

Answer 12

Strategy is the long-term plan to achieve the business’s vision through attaining its corporate objectives

Tactics are short-term decisions, usually involving relatively few resources, that are made to implement strategy

Question 13

SWOT analysis

Answer 13

A management technique used to identify a business’s strengths and weaknesses, as well as the opportunities and threats to which it will be exposed

Question 14

Benefits of SWOT analysis

Answer 14

-Low-cost and straightforward technique
-Assist to think in a structured way focusing on internal operations and the external environment
-Encourages logical plans for the business’s current position, whilst promoting a forward-looking approach
-‘Threat’ helps recognise areas of risk important for strategic decisions
-Can be combined with PEST-C analysis
-Can be used within a business’s functions

Question 15

Limitations of SWOT analysis

Answer 15

-Only covers issues classified as strength, weakness, opportunity, threat. Difficult to address two-sided factors
-Unlikely to offer solutions and will require further analysis depending on quality of interpretation
-Offers no assistance in judging importance of strengths, weaknesses, opportunities, threats in development of strategy. May underestimate importance
-Can be subjective depending on who collects data
-Only as good as the data on which it is based - if data is poor, analysis likely to be poor

Question 16

Financial statements

Answer 16

Balance sheet: records assets and liabilities

Income statements

Question 17

Assets and Liabilities

Answer 17

Assets are items owned by a business, such as cash in the bank, vehicles and property

Liabilities represent money owed by the business to individuals, suppliers, financial institutions and shareholders

Question 18

Examples of assets

Answer 18

-Current assets: likely to be converted into cash
-Non-current assets: not purchased for purpose of resale
Tangible assets:
-Land and property
-Machinery and equipment
Intangible assets:
-Patents and other rights
-Goodwill
-Brands

Question 19

Examples of liabilities

Answer 19

-Current liabilities: short term (within one year) debts
-Non-current liabilities: long term debts
-Total equity: shareholders hope for repayment of investment

Question 20

Net assets

Answer 20

(non-current assets + current assets) - (non-current liabilities + current liabilities)

Question 21

Working Capital

Answer 21

Current assets - current liabilities

Measures the amount of money available to a business to pay its day-to-day expenses such as bills

Question 22

Capital

Answer 22

The money invested into a business and is used to purchase a range of assets including machinery and inventories

Question 23

Mortgages and debentures

Answer 23

Mortgages are long-term loans, repaid over periods of up to 50 years, used to purchase property

Debentures are loans with fixed interest rates which are long term and may not even have a repayment date

Question 24

Factors influencing the amount of working capital

Answer 24

-The volume of sales
-The amount of trade credit offered by the business
-Whether or not the firm is growing
-The length of the operating cycle
-The rate of inflation

Question 25

Depreciation

Answer 25

The reduction of the value of an asset over a period of time

Question 26

Why does resale value decline?

Answer 26

-Equipment lose value as a result of wear and tear
-Availability of more modern equipment would mean that the desirability of this ‘older’ style equipment would lessen
-Poor or inadequate maintenance of equipment may mean expensive repairs are necessary, further reducing the equipment’ s value