BST Flashcards
1
Q
Threshold v unique resources
A
Threshold resources are basic resources required by a company to compete in the industry
unique are those that provide a sustainable competitive advantage
2
Q
What is the 9Ms model
A
Men
Machines
Money
Materials
Markets
Management
Methods
Management info systems
Makeup (culture)
Can be used to identify resources which are available to business and those that need addressed to achieve CSFs
3
Q
What is human capital?
A
Human capital considers the collective attributes of an organisation’s
human resources. This includes the capabilities, creativity, skills and
knowledge of the workforce and how these combine to create economic
value.
An organisation’s workforce can be a unique resource and many organisations
develop programmes specifically to enhance the value attained from their workforce.
These typically involve:
Education and training
Allowing creativity
Infrastructure
Recognising the intellectual property
Motivation
Competition
Participation in activities.
Recent developments allow the workforce to be more flexible, which should
maximise the benefits generated from them.
These include:
Flexible workplace arrangements
Home working
Improvements in technology, such as cloud computing.
4
Q
Core competences
A
Core competences are the critical activities and processes which
enable the firm to meet the critical success factors and therefore
achieve a sustainable competitive advantage.
The core competences must be better than those of competitors and
difficult to replicate.
5
Q
Kays core competences model. (3)
A
Kay’s model can be used to assess the core competences of an organisation.
Kay outlined three main sources of competences:
Internal architecture (relationships with employees)
External architecture (relationships with supplies. customers and intermediaries)
Network architecture (relationships between collaborating businesses)
6
Q
Explain a value chain
A
A value chain identifies the relationships between the company’s
resources, activities and processes that link the business together and create a profit margin.
7
Q
Explain how you would implement porters value chain analysis
A
Value chain analysis can be used to analyse the sequence of business
activities which add value to the products or services produced by a
company.
The value (or margin) is measured by the difference between the cost of the activities and sales revenue created by sales to customers.
Also, non-value adding activities can be identified and reduced or eliminated.
Porters has primary acitviies such as inbound logistics, operations, outboung logiistics, marketing and sales, as well as support acitivies such as HR tech devlopments procurement, and firm infrastrucutre, to give margin.
8
Q
How to perform a value chain analysis? (2)
A
The start point for value chain analysis is to identify the generic strategy, ie cost leadership or differentiaiton
cost leaders should seek to achieve cost advantages in their value chain whilst differentiators should seek quality advantages through their value chain
Cost drivers: factors that cause costs to be incurred
Value drivers: potential sources of value
9
Q
Explain the primary activities in the value chain. (5)
A
The primary activities are those that create value and are directly concerned with providing the product or service.
Inbound logistics are activities concerned with receiving, storing and distributing the inputs to the product.
Operations transform these various inputs into the final product.
Outbound logistics relate to collecting, storing and distributing the final product.
Marketing and sales informing customers about the product, persuading them to buy it, and enabling them to do so.
Service: After sales services such as installation, repair, training and customer service.
10
Q
Explain support acitivites in the value chain. (4)
A
The support activities do not create value by themselves, but enable the primary activities to take place with maximum efficiency.
Procurement refers to the processes for acquiring the various resource inputs to the primary activities – not the resources themselves.
Technology development – All value activities have a technological content, even if it is just ‘know how’.
Human resource management which involves all areas of the business and is involved in recruiting, managing, training, developing and rewarding people within the organisation
Infrastructure refers to the systems of planning, finance, quality control, information management etc. and is crucially important to an organisation’s performance in primary activities. It also consists of the structures and routines that sustain the culture of the organisation.
11
Q
Explain linkages in the chain (value chain)
A
The value chain can used to examine linkages between activities and processes where value can be created.
Linkages can be a source of sustainable competitive advantage. As it may be easy for competitors to identify and copy a single activity, but a linkage (a number of activities working together) is much harder to identify and copy.
Internally – Linkages are where two or more activities in the chain impact each other. There are two key types of linkage:
– Co-ordination: Activities should be consistent with each other and work together to support the generic strategy.
– Optimisation: Strength in one area may enable the firm to commit fewer resources to another area e.g. high quality product design may enable fewer resources to be spent on after sales service as the likelihood of product faults is lower.
Externally – a business’s internal value chain will link to, and should be consistent with:
– the customer’s chain
– and the supplier’s chain.
12
Q
Ways to strengthen the value chain
A
Outsourcing – using an external provider to perform activities traditionally performed in-house. E.g. payroll
Automation – using automatic equipment to replace a process
Shared service centres – a number of internal activities, which had previously been conducted in a number of different departments are brought together into one site within an organisation.
13
Q
Harmons process-strategy matrix (4)
A
This can be used to analyse business processes to determine how it should be managed.
The table is strategic importance vs process complexity/dynamics
For low importance low complexity these are automated/outsourced
For low importance high complexity these should be outsourced (too complex to automate_
For high importance low complexity should automate eg checkout tills important to a shop but can easily use self checkout
For high importance high complexity should improve this area
14
Q
What are the main analytics tools for portfolio analysis?
A
Product life cycle
BCG matrix
The main thing with these is to have balance, to have products in different times of the cycle or different areas of the BCG to allow complimenting with other products eg cash cow can help invest in stars, mature market cash flows could help those in infancy of product life cycle.
15
Q
BCG matrix
A
Market growth vs Market share (note relative market share=your sales/largest competitors shares)
High market growth- high market share is a star
HIgh market growth - low market share is a problem child
Low market growth - high market share is a cash cow
Low market growth - low market share is a dog
16
Q
What are the implications of being a problem child
A
Lack of economies of scale limit cash flow and decision is either to invest to gain MS or divest
17
Q
What are the implications of being a star
A
high threat of new entrants requires constant investment to maintain market position, should company consolidate its current position or further invest to growth further?
18
Q
What are the implications of being a cash cow
A
Competitors less likely as not attractive market and large positive cash flow can be achieved
Should company milk the cow and enjoy the cash from minimal investment accepting that MS will fall, use this ot invest in stars or problem children?
19
Q
What are the implications of being a dog
A
Product lacks EoS and not attractive enough market to warrant investmene , when should the compnay put the dog down and divest?
20
Q
Development stage of product life cycle
A
-Negative cash flows – heavy investment in R&D and initial marketing
-Market research – will be key to ensuring the overall success of the product
21
Q
Introduction stage of product life cycle
A
Continued cash outflow – high marketing costs can outweigh initial sales
Initial demand – will determine pricing policy (price skimming vs penetration)
22
Q
Growth stage of product life cycle
A
New competition – quality improvements may be needed to compete
Economies of scale – may begin to emerge through mass production
23
Q
Maturity stage of product life cycle
A
Critical mass – should be achieved leading to cost efficiencies
Positive cash flow – maximum sales with minimum marketing and investment
24
Q
Decline phase of product life cycle
A
-Heavy price discounting – to utilise spare capacity and cover overheads
-Brand loyalty – may be key to retaining remaining customers
25
Define marketing
Marketing can be described as “the management process that
identifies, anticipates and supplies customer needs efficiently and
profitably”. (Institute of Marketing)
Ie market research -identify and anticipate customer needs
market segmentation - decide target market (B2B industrial segmentation v B2C consumer segmentation)
marketing mix - supply customers needs efficiently and profitably
26
Main info in marketing research and how can it be done (6)
Price
Product
Promotional research (how will you promote)
Place research (distn channels etc)
Main ways are:
desk research - secondary data
field research - primary data
27
Explain industrial segmentation (4)
Geographic - regions for sales/distn
Company size - large? small?
Company type - what type of business do you want to target?
Purchasing characteristics - average order size or frequency etc
28
Explain consumer segmentation (4)
Geographic - regions for sales/distn
demographic - age socio econimic, age etc
purchasing motivaiton - psychological characteristics eg security orientated or ego centred
Purchasing characteristics - average volume or frequency of orders
29
What are the 4P (7Ps) marketing?
Product (basic - core benefits of said product, actual -branding packagin labelling , augmented - additional value eg extra services product)
Promotion (push available when snd where customer requires them vs pull eg ads
Place (distribution, direct vs indirect selling)
Price (4Cs) and pricing strategies -diff flashcard
in services also have:
people-attitude, professionalism and knowledge etc of those delivering the service
process-appropriate systems and procedures to carry out services
physical evidence- customers can see or experience something when they use the service
30
4Cs of pricing. (4)
Costs- covering costs
Customers - how much will cusotmers pay, price sensitivity/elasticity
Competition - what are competitors charging
Corporate objectives - low prices may increase MS vs high prices consistent with premium brand
31
What are different pricing strategies? (6)
Price skimming- high prices initially to skim off customers willing to get product sooner eg new phones
Penetration - low price intially to increase MS
Price discrimination - diff prices charged to diff customer groups for same product eg train fares
Perceived quality - price reflects value placed on by customer eg expensive wine
Going rate - matching competition eg petrol station or meeting market conditions eg house prices in same region
Cost plus pricing - mark up on cost
32
Price elasticity of demand.
Essentially how reactive demand is based on price , inelastic products dont change as much where as elastic do change a lot based on price
PED = % change in demand/ % change in price
It is convention to ignore the sign of PED as it is almost always negative.
PED < 1 means inelastic
PED > 1 means elastic
PED = 0 perfectly inelastic
PED = infinity means perfectly elastic
Unitary elasticity is when PED=1
Factors impacting PED:
-availability of substitutes
-time- shorter term things tend to be less elastic
competitors pricing
-nature of the product eg luxuries tend to be more elastic and necessities less elastic
-proportion of income accounted for by good - if a good accounts for a large proportion of income the demand will tend to be elastic
33
Giffen and veblen goods
Both Giffen and Veblen goods have upward-sloping demand curves and positive price elasticity of demand.
Giffen:
Giffen looked at income effect on price changes and saw that increase price of bread but people still buy however people can no longer afford to buy more expensive foods so end up buying even more bread - bread is a giffen good
Veblen:
bought for ostentation so a higher price makes them more exclusive and desirable
34
What is good at combining internal and external analysis?
SWOT analysis
Strengths / weaknesses (internal)
Opportunities v threats (external)
35
Explain ansoffs matrix
This matrix looks at growth by considering opportunities to sell more existing products/develop new products and building market share in existing/new markets.
Therefore table is products (existing/new) vs markets (existing/new)
existing markets and products would be market penetration eg sofa companies bank hol sales
existing markets but new products would be product development eg new shaving product by gilette
new markets for existing products is market development
new markets and new products would be diversification
36
What are the two main forms of diversification?
Related diversification (concentric diversification)
Unrelated diversification (conglomerate diversification).
37
Related diversification
Related diversification involves integrating activities in the supply
chain (vertical integration-toward the marketplace forward or backward into the supply chain) or leveraging technologies or existing competences (horizontal integration).
38
What is vertical integration (related diversification)?
Vertical integration occurs when a company becomes its own supplier (backward) or distributor (forward)
39
Benefits of vertical integration? (5)
Economies of combined operations, e.g. proximity, reduced handling.
Economies of internal control and co-ordination, e.g. scheduling and coordinating operations should be better. Information about the market can be fed back to the production companies.
Economies of avoiding the market – negotiation, packaging, advertising costs are avoided.
Tap into technology – close knowledge of the upstream or downstream operations can give a company valuable strategic advantages. For example, pharmaceutical companies have undergone backwards integration into research to discover multiple possible uses for chemicals/compounds.
Guaranteed demand/supply.
40
Disadvantages of vertical integration. (4)
(a) Increases the proportion of the firms operating costs that are fixed (increased operating gearing). This is because if a firm purchases components externally all the costs are variable. If the components are purchased internally part of the costs will be variable and part will be fixed.
(b) Reduced flexibility to change partners – if in-house supplier or customer performs poorly or new products/technologies are developed outside the business, not easy to switch to outsiders.
(c) Capital investment needs – vertical integration will consume capital resources and must yield a return greater than, or equal to, the firm’s opportunity cost of capital, adjusting for strategic considerations, for integration to be a good choice.
(d) Differing managerial requirements – skills transfer from one type of business to another is not automatic.
41
What is horizontal integration? (2)
Involves a company utilising existing competences by entering into:
Complementary markets – e.g. Google’s acquisition of YouTube.
Competing markets – e.g. Honda motorcycles and cars
42
What is unrelated diversification?
The characteristic of conglomerate diversification is that there is no common thread.
However, it is still possible to achieve synergies through:
Management skills – e.g. Virgin Group.
Brand name – e.g. Yamaha motorbikes and keyboards.
43
Pros of unrelated diversification. (5)
Risk spreading: Diversified products and markets reduces variability of group
profits.
Can enter more attractive (more profitable) markets.
Can use surplus cash.
Utilise brand image in new markets.
Improve utilisation of central resources e.g. HR dept.
44
Cons of unrelated diversification. (3)
Lack of management experience in new products/markets.
Failure in one market could damage brand.
Often bad for shareholders as there is a lack of synergies available.
45
WHat is the rational approach to strategy? Emergent strategies?
This approach is also referred to as the traditional, formal or top-down approach.
It adopts a formal and systematic process of identifying goals and then selecting strategies to achieve those goals.
Emergent strategies are behaviours which are adopted and which
have a strategic impact. These are strategies that emerge over time in
response to the environment.
46
How to create strategic advantage
Resource based (inside out) focused on working on developing internal resources
Positioning (outside in) focused on identifying customer needs and adapting to these
47
How to write a mission statement. (4)
The Ashridge College model suggests that a successful mission
statement should contain the following elements:
Purpose – Why does the organisation exist and what does it aim
to achieve for its stakeholders?
Strategy – What resources, competencies or generic strategy give
the company a competitive advantage?
Policies – What standards and behavioural patterns are adopted
within the organisation?
Values – What beliefs do the managers and employees share?
48
What is mendelows stakeholder matrix
Interest vs power of stakeholders
High interest high power should keep involved, ie need to participate
High interest low power is keep informed
Low interest high power is keep satisfied
Low interest low power is minimal effort can be directed
49
What is PESTEL analysis
ENVIRONMENTAL EXTERNAL ANALYSIS
Political factors
Environmental
Social
Tech
Economic
Legal
50
Explain porters diamond. (4)
Can be used to explain competitive advantages of nations
Competitive advantage is driven by:
Demand conditions:
Demanding local consumers force firms to become more innovative.
Trend setting local consumers help local producers to anticipate future global trends.
e.g. German drivers demanded powerful cars from German car manufacturers
Strategy, structure and rivalry:
Two key possible advantages:
Strong domestic rivalry forces local firms to become more efficient to survive.
The strategies or structures that have become prevalent in a particular nation may give advantages in particular industries.
e.g. flat, decentralised organisation structures are popular in Japan and are believed to encourage innovation
Factor conditions -supply side :
The availability of the factors of production (the resources needed to operate).
These include human resources, physical resources, knowledge, capital and infrastructure.
e.g. French wine industry benefits from being able to grow good quality grapes
Related and supporting industry:
Proximity of related and supporting industries leads to:
Easy access to components, with reduced lead times and carriage costs.
Encourages knowledge sharing which increases innovation.
e.g. The finance sector in the UK is aided by large accountancy and legal firms
51
What are the key stages of the industry life cycle. (5)
intro- There can be significant first mover advantage for the first firms in the market (in terms of reputation and experience).
growth- rapid growth, low competitive rivalry as such big growth
shakeout - M&A time, weaker firms leave as growth slows
maturity - stable low growth, increased competition as it slows
decline - Sales volumes start to fall as demand for the industries
products decline Firms leave the industry and eventually it ceases to exist.
Industry lifecycles may mirror the underlying product life cycle (the industry ceases to exist when the product is discontinued).
However, industry life cycles can be expanded by product innovation.
52
Porter's 5 forces. (5)
The five competitive forces (below) determine the level of competition and therefore profitability of the industry.
The following are the 5 forces:
-threat of new entrants
-bargaining power of customers
-threat of substitutes
-bargaining power of suppliers
-competitive rivalry
53
Factors to consider for threat of new entrants
Is the market attractive?
High industry growth
High profit margins
Few existing competitors
Easy customer switching
Barriers to entry
Economies of scale
Brand loyalty
Capital requirements
Access to distribution
Patents
Government subsidies
54
Competitive rivalry - Porters 5 forces
How intense is the competition among existing players in the market?
This will be higher if there are:
large numbers of existing competitors
high levels of fixed costs
low industry growth
low switching costs
high exit barriers
high strategic importance
55
Threat of substitute - 5 forces
Are substitutes available and are consumers likely to switch to them?
Availability of substitutes
From different industries
(e.g. rail travel vs bus travel)
From sub-industries
(e.g. CDs vs MP3 downloads)
Increased likelihood
Price of substitute is low
Relative performance of the
substitute is comparable
Customers can switch easily
56
Power of customers - 5 forces
Do customers have enough bargaining power to push down prices?
This will be higher if there are:
small numbers of large customers
large numbers of competitors
low levels of product differentiation
low switching costs
the customers own profitability is low
high degree of price transparency in the market
57
Power of suppliers - 5 forces
Do suppliers have enough bargaining power to increase their prices?
Several different types of suppliers should be considered. These include:
Providers of raw materials
Service providers and outsourced services
Employees and hire workers
Their bargaining power will be increased if:
There are a few large suppliers
The supplier's products are differentiated
High switching costs for the customers (the industry being analysed)
The supplier has other buyers they can sell to instead
58
Handys shamrock organisation
Analyses how companies can improve efficiency and cut costs by considering staffing issues more flexibly.
Business should focus on a core of vital ‘permanent’ staff with support from part-time and outsourced staff.
As follows:
Professional core =
permanently employed
key staff
Flexible labour force =
temporary and part-time
staff used to cover peak
demand
Contractual fringe =
outsourced staff
performing non-core
services/core services
→ cheaper/more
economical than
company can do itself
Customers – may
perform some tasks
themselves – e.g.
booking on-line, setting
up a pc bought on-line
59
What is Mintzbergs structural configuration?(6)
Operating core – the basic work of the organisation – e.g. the shop floor.
Strategic apex – higher management – overall strategic, long-term planning and control.
Middle line – managers linking between the strategic apex and operating core (up and down communication).
Technostructure – accountants, computer specialists and engineers whose role is to design procedures and standards – expert co- ordination of processes. Can be outsourced (e.g. R&D to universities).
Support structure – provision of services to the organisation which support operations/production (catering, legal advice, press relations, etc.) – often outsourced.
Ideology – organisation’s values and beliefs (culture) – the ‘glue holding the organisation together'.
60
How did Minztberg link his structural configuration to business development?
Basically said depending on where their focus was you should focus on a specifc methods for BD such as:
Simple structures key operating block is the strategic apex and direct supervision would best help BD
Functional structures have the technostructure as their main block and should focus on standardisation of work for BD
divisional is the middle line and focus should be on standardisation of outputs
matrix is operating core and mutual adjustment should be the focus
61
Disadvantages of ROI . (4)
Relative measure.
Different accounting policies can make comparisons difficult.
ROI increases with the age of the assets:
– May discourage investment in assets.
– NBV may lead to assets being kept too long.
– May lead to inappropriate leasing/outsourcing in order to keep assets off
the Statement of Financial Position.
Can lead to dysfunctional decision making.
62
Residual income (RI)
RI = Controllable profit – (Capital employed × target % return)
Absolute measure
RI will also increase with the age of assets
Less likely to lead to dysfunctional decisions
63
Methods for setting transfer prices. (6)
There are various methods that can be adopted when setting transfer prices.
Cost plus pricing – transfer prices are set based on marginal or full-cost per unit plus a mark-up.
Opportunity cost – transfer prices reflect the opportunity cost of any work foregone by the supplying division in order to supply internally.
Negotiated prices – divisional managers negotiate a transfer price until a compromise is reached.
Two-part tariff – products or services are supplied at marginal cost but a fixed annual fee is charged by the supplying division to recover fixed costs.
Dual pricing – the supplying division is credited with a different price to the one which has been debited to the receiving division.
Market prices – products or services are supplied at the current market rate.
When selecting a transfer price the organisation should consider the impact on:
Goal congruence
Performance measurement
Combined tax liabilities.
64
Corporate governance
Corporate governance is the set of rules which governs the structure
and determines the objectives of an organisation and regulates the
relationship between the organisation’s management, its board of
directors, and its shareholders.
The general principles of good corporate governance are covered by the UK
Corporate Governance Code. These include:
Appropriate balance of power
No one individual should be awarded too much power e.g. different people
should hold the role of Chairman and CEO.
Independent NEDs
The board should consist of a sufficient number of independent Non-executive
directors to provide an objective opinion on key decisions.
Established committees
NED’s should form a nominations committee, remuneration committee and
audit committee.
Effective risk management
The board should maintain sound risk management and internal control
systems. This includes cyber security risk management.
65
Governance for not for profit organisations
Accountability
Responsible stewardship of public or donated money.
Stakeholders
Answerable to a wide range of stakeholders.
Openness and transparency
Improve public trust by avoiding making decisions ‘behind closed doors’.
Board structures
NFP boards may be elected or voluntary.
Monitoring performance
Increasingly NFPs are expected to measure their outcomes.
66
Miles and snow four different risk appetities
reactor- risk averse and only change if have to, often outdated
defender- low risk tolerance and incremental growth, ignore development outsidr of expertise
analyser-balanced risk attitude
prospector-risk seeking seek new markets and responsive to new trends
67
TARA model of risk responses. (4)
reduction
avoidance
transfer
acceptance/retention
68
How to produce a risk register
risk , impact and likelihood , risk management
eg.
risk : Poor customer
service may
lead to a loss of
key clients
impact and likelihood:
Significant impact on
profitability
Increased likelihood
due to new
competitors
Risk management:
Ensure that staff
receive regular
training
Monitor customer
feedback
69
Total profit =
Total contribution =
a) Total contribution – Total fixed costs
b) Units sold × Contribution per unit / revenue less variable costs
70
Finding the breakeven point
At breakeven total contribution=total fixed costs
therefore the breakeven in units is total fixed costs/contribution per unit
71
Sensitivity =
Estimated profit / Total value of the cash flow affected
eg sensivity of selling price if revenue is 60k and profit is 15k would be 15k/60k=25%
72
Natural capital
This considers the natural assets of the planet that provide the resources required by people and organisations to survive. These include timber, land, fisheries, energy and fresh water.
Increased focus on natural capital has moved businesses to improve their monitoring and reporting of the impacts of their operations. This allows greater transparency and allows more informed business decisions.
73
The 3 ethical tests
Transparency
Does the company mind others knowing about its decision?
Effect
Whom does the decision hurt? Are one or more stakeholder groups receiving a negative outcome?
Fairness
Would the company's decision be considered fair?
74
Differences between sustainability and ESG
Sustainability is about considering successful economies and fair societies based on what the natural world can afford.
ESG is a strategic business issue; if organisations address successfully the impacts they will have on society and the environment, they can enjoy financial success as a result.
75
Corporate Social Responsibility (CSR)
CSR is a belief that a firm owes a responsibility to society and
stakeholders. It is not just a public relations exercise; rather, it is a
strategically fundamental driver of value for an organisation.
The benefits of good CSR are that this may help to gain good publicity for the
business.
The risks of poor CSR are long-term damage to the reputation of the business
caused by upsetting customers or receiving negative publicity
76
Acquisition vs merger
An acquisition is the purchase of a controlling interest in another
company.
A merger is the joining of two separate companies to form a single
company.
77
Pros and cons to acquisition growth
Advantages
Quicker than organic growth
Synergies: Cost savings and efficiencies resulting from the combination
Lower risk as the target already has goodwill, brands and a customer base
Circumventing barriers to entry (e.g. acquiring
patents)
One less competitor
Target may be undervalued
Disadvantages
Possible lack of strategic fit
Lack of understanding of business/ management being acquired
Paying too much for expected efficiencies (synergies) that do not materialise
Failure to retain key staff/customers
Acquisitions may occur as a result of 'empire building'
Lack of governance and control over businesses being acquired
78
Porter’s tests for a successful acquisition. (2)
The better off test – The shareholders have DIY option of simply buying shares in the target company without a full merger or acquisition. The acquisition must generate extra benefits/synergies.
The cost of entry test – even if the market is attractive, there may be cheaper ways of entering it (e.g. organic growth, joint ventures, alliances etc.) What are the costs of delayed entry? (e.g. lack of brand re-enforcement).
79
Typical sources of synergy. (7)
-Market power – especially if the company buys a competitor.
-Economies of scale – e.g. bulk discounts for combined buying quantities.
-Rationalisation of shared activities – e.g. shared research and development.
-Surplus assets – e.g. don’t need two head offices/sets of central warehouses.
-Synergies of vertical integration – e.g. control over supply/distribution chains.
-Diversification of risk – if product ranges/markets are different.
-Additional finance options – e.g. large enough to consider flotation.
80
Joint venture vs strategic alliance
A joint venture is a contractual arrangement whereby two or more
parties undertake an economic activity which is subject to joint control.
A strategic alliance is a looser contractual arrangement than a joint
venture and no separate company is formed.
81
Pros and cons of joint ventures/strategic alliances
Pros:
Access to local resources/ expertise/brands
Reduction in nationalist sentiment
Shared risks (e.g. in R&D)
Shared finance
Learning experience for both parties
Attractive to smaller/risk averse businesses
Cons:
Shared profits
Disagreement over decision making (e.g. profit share, operating
decisions)
May have to share trade secrets with a potential competitor
Alliances may not allow new competences to be developed – each partner concentrating on existing core competences only
82
Franchising vs licensing
With both mechanisms, the franchisee/licensee is granted the rights to sell/ manufacture a branded product in return for fees.
Franchising is the purchase of the right to exploit a business brand in
return for a capital sum and a share of profits or revenue.
The franchiser also usually provides marketing and technical support to the purchaser of the franchise. (e.g. Burger King, Subway)
Licensing grants a third-party organisation the rights to exploit an asset belonging to the licensor.
Differs from franchise because there will be little central support.
(e.g. Guinness is brewed under licence by several breweries around the world)
83
Pros and cons to franchising and licensing
Pros:
Increases the number of distribution outlets without extensive capital investment
Local expertise and access to enthusiastic entrepreneurs
Economies of scale (e.g. marketing)
Rapid expansion
Risk sharing with franchisee
Cons:
Shared profit
Successful franchisees may set up
on their own in direct competition
Conflicts over operating decisions
Quality control
84
Agency arrangements
Agency arrangements use intermediaries to sell your products. (e.g. Ann Summers agents, Independent Financial Advisors, Avon reps)
Commonplace when exporting products.
Business may get cut off from direct customer contact.
85
Issues to consider when outsourcing. (8)
Competence of business to perform task internally.
Better risk management – e.g. build in penalty clauses for poor delivery by 3rd party.
Level of control and assurance over work outsourced.
Level of intellectual capital that may need to be disclosed to a 3rd party.
Track record of 3rd party.
Strategic aims and culture of 3rd party.
Cost (time and financial).
Quality of service and relationship required with 3rd party
86
Explain Lynchs expansion matrix
Development (internal/external) vs new location (domestic/abroad)
internal domestic is internal domestic development
internal abroad is overseas office, exporting, global operation
external abroad is joint venture, M&A, F&L
external domestic is joint venture, M&A, F&L
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Pros and cons to international expansion
Pros:
Sales growth can be achieved by expanding the potential market.
The product life cycle may be extended by selling the product in a market which is in the early stages of the life cycle.
Spread the risk by diversifying into more than one market.
A global image can enhance the businesses reputation.
Cons:
Lack of market knowledge may lead to an increased risk of making mistakes.
Cultural differences may require adaptations to products or services.
Exchange rates may move unfavourably and remove competitive advantage.
Logistical issues will need to be addressed to ensure effective control.
88
How to workout out gross profit margin
gross profit/revenue
89
How to workout out operating margin
operating profit/revneue
90
how to workout return on capital employed
operating profit/(equity+debt)
is a measure of how effectively resources are used to generate profit
91
How to calculate current ratio
current assets/current liabilities
Assess ability to pay current liabilities from current assets
92
How to calculate the quick ratio
current assets exc inventory/current liabiltiies
Assess ability to pay
current liabilities from
reasonably liquid assets
93
Gearing ratio
debt/equity or debt/debt+equity
94
interest cover
profit before interest payable/interest payable
Assess ability to pay
interest charges
95
trade receivables collection period
trade receivables/revenue *365
96
inventory holding period
inventory/cost of sales*365
97
trade payables payment period
trade payables/purchases or COS*365
98
Limitations of financial performance indicators. (5)
-Historical doesn't dictate future
-may encourage short term over long term thinking
-can be manipulated using accounting policies
-Financial information mostly reports internal performance and does not always consider external factors.
-Does not consider the whole picture. Financial results are only part of the business’s performance
99
What are the 4 elements of the balanced scorecard
Financial perspective
Innovation and learning perspective
Customer perspective
Internal business perspective
100
Benchmarking main categories (4)
The four main categories of benchmarking are as follows:
Internal benchmarking – against last year or between branches, divisions etc.
Competitive benchmarking – against competitors, sectors, industry (nationally or internationally).
Activity (best in class) benchmarking – comparisons are made with best practice (in the same activity) in whatever industry can be found.
Generic benchmarking– benchmarking against conceptually similar (but not identical) process.
101
What is the HR cycle
Selection->actual performance->appraisal->training (back to selection)//rewards (back to actual performance)
102
Key factors to consider with operations (4)
Key factors to consider are as follows:
Volume
Higher volumes of production may lead to more capital-intensive, automated production processes and division of labour.
Variety
Greater variety in operations (e.g. a diverse product range) will reduce the ability to standardise processes and will increase the range of skills required.
Variation in demand
Variations in the demand for the organisation’s products or services (i.e. due to seasonality) will be a key consideration regarding capacity planning.
Visibility
When an operation is highly visible, the employees will have to show good communication skills and interpersonal skills in dealing with customers.
103
Capacity planning (main approaches). (3)
made to stock-operating a constant level of stock accumulating during quiet periods so they are ready for busy periods
made to order-as customer requires using just in time
manipulate demand-customers encouraged to purchase at irregular times by adjusting pricing eg summer sales
Just in time:
Just-in-time manufacturing is an approach to planning and control based on the idea that goods or service should be produced only when they are ordered or needed.
This means that goods are only produced when they are needed, eliminating large inventories of materials and finished goods.
Just-in-time purchasing can also be adopted with regards to raw materials and other purchases. This requires close relationships with trusted suppliers.
The supplier subsequently will need to adopt their own flexible productions systems
104
What is the purchasing mix?(4)
quantity-sufficient ot meet future needs
quality- to void proudciton delays and reputation damage
price-negotiated to maximise profit
delivery-reliable and timely to avoid stockouts
note: A potential supplier may be rejected, despite being cheaper, due to ethical considerations.
105
Advantages of using a single supplier over multiple. (6)
Advantages include:
Strong relationship with supplier
Better commitment from supplier
Economies of scale
Better quality through Quality
Assurance programmes
Better communication
Confidentiality
106
Advantages of using multiple suppliers over single. (3)
Advantages include:
Reduced supplier power –
competition may drive down prices
Less disruption/spread dependency
if problems occur with one supplier
Access to a wider range of
knowledge and expertise
107
How does the finance function work as a business partner?(5)
Acting as a business partner enables the finance function to:
Provide ‘real time’ support in data and information needs
Enable business unit leaders to understand performance and devise strategies to improve
Help operational leaders put together credible business plans for increased investment, before they go to senior managers
Collaborate with business unit leaders in preparing budgets
Help design information systems that meet the needs of operationalmanagers.
108
The 4Vs of big data
Volume-does it have resources to store/manage data or finance to upgrade
velocity-are systems able to capture real time data, can the compnay provide timely analysis
veracity-can the compnay challenge TP data and is data representative of the population?
variety-can systems accept different types of data, is data legally owned by company or third party?
109
Barriers and limitations of Big Data. (6)
Data overload
Ability to verify the data
Representative data
Shortage of talent to analyse the data
Fear of cyber attack
Legal and regulatory compliance
110
What is a digital asset?
A digital asset is any text or data file that is formatted into a binary
source which includes the right to use it; digital files that do not carry
this right are not considered digital assets.
Two common types of digital asset are:
Media assets (images and multimedia)
Textual content (documents, PDF files)
A business needs to protect and manage their digital assets in the same way they would manage their tangible assets. If a logo was wrongly altered and then used within an advertisement it could damage the reputation of the company.
Businesses use methods such as encoding, encryption and watermarks to protect digital assets.
111
Companies looking to accept cryptocurrency as
a form of payment need to consider the following:
Impact on reputation – as cryptocurrencies can be sent anonymously they have been used by criminals as a way to transfer proceeds of crimes, leading to a negative reputation associated with it.
Capabilities required – the infrastructure to collect cryptocurrency needs to be in place. Intermediaries exist to collect currency such as Bitcoin and exchange for sterling. There is a charge for this service due to the fluctuations in value.
112
What is a denial of service attack?
Denial of Service (DoS) – an attempt by hackers to prevent legitimate use of a service. This is likely to result in frustrated customers and lost sales
113
Categories of change. (4)
tuning (proactive and incremental)
adaptation (incremental and reactive)
planned (transformationl and proactive)
forced (transformational and reactive)
114
What is Lewins force field analysis?(3)
Lewin’s force field analysis can be used to visualise the change process and to identify change management issues.
Shows current position with forces for change and barriers to change in order to move needle to desired position
To reach the desired position the driving forces must be promoted and the restraining forces (barriers to change) must be removed.
115
Forces for change derive from external and internal environment change. (6)
Changing markets
Globalisation
Increased competition
New technology
New personnel
Improved rewards
116
What are the two categories of barriers to change. (2)
cultural barriers:
Structural inertia – embedded
systems/procedures -The cumulative effect of all the procedures and systems which the company have previously installed acts as a barrier to change
Group inertia – skills/norms/
peer pressure - resistance to change social norms or threat of importance of their skills
Power structures – existing
decision-making structures -fear of losing power
personal barrier:
Habit
Security
Effect on earnings
Fear of the unknown
Selective information
processing
Psychological contract
117
Lewin and Schien's iceberg model . (3)
3 stage approach to managing to change:
Unfreeze
Involves a trigger, a challenge of existing behaviour, involvement of outsiders, or alteration to power structure
e.g. Appointing an external consultant.
Move
Means making the changes, communicating and encouraging adoption of the new situation
e.g. Presentations to communicate the change management plan.
Refreeze
Means consolidation and reinforcement of the new situation
e.g. Communicating the benefits obtained from the change
