BST Flashcards
What is a mission statement?
- An organisation’s mission is ‘the most generalised type of objective
- written communication of mission to internal and external stakeholders.
- usually a brief statement set out in general terms which doesn’t include a timescale or commercial terms.
What are the four features of an effective mission statement?
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?
Advantages for mission statements
- Help resolve stakeholder conflict
- Set the direction of the organisation and so help formulate strategy.
- Help communicate the values and direction of the organisation to stakeholders.
Criticisms of mission statements
- Often full of meaningless terms like ‘the best’, which give staff little idea of what to aim at.
- Often ignored by managers.
- Often considered to just be a public relations exercise.
What is Mendelow’s Matrix used for?
Used to identify different stakeholders power interests and identify an appropriate response
What are the two axes of the matrix?
Level of interest and power of stakeholder
What to do with stakeholder with low interest and low power?
Minimal effort, can be directed
What to do with stakeholder with high interest and low power?
Keep informed
What to do with stakeholder with high interest and high power?
Key players, need participation
What to do with stakeholder with low interest and high power?
Keep satisfied
How should a stakeholder question be laid out?
- each stakeholder has a sub heading
- outline the interest of the stakeholder, clearly explaining what they are interested in
- outline the power of the stakeholder, clearly explain how the exercise this power
- recommend a response according to Mendelow’s Matrix
- include practical advice about executing the response
What is Porter’s diamond?
Can be used to explain why some nations have a competitive advantage in certain industries
What are the 4 determinants of national competitive advantage (Porters Diamond)?
- Demand conditions
- Related and supporting industry
- Factor conditions
- Strategy, structure and rivalry
Explain 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
Explain related and supporting industries
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
Explain factor conditions
- The availability of the factors or production (the resources needed to operate).
- These include human resources, physical resources, knowledge, capital, infrastructure.
- e.g. French wine industry benefits from being able to grow good quality grapes
Explain 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
What is Porter’s Five Forces used for?
Used to assess the attractiveness of an industry in terms of long run profitability.
What are the Porters five forces?
- Threat of new entrants
- Bargaining power of suppliers
- Threat of substitutes
- Bargaining power of customers
- Competitive rivalry
What makes a market attractive to new entrants?
- High industry growth
- High profit margins
- Few existing competitors
- Easy customer switching
What are barriers to entry of a market for new entrants?
Economies of scale Brand loyalty Capital requirements Access to distribution Patents Government subsidies
What is competitive rivalry?
How intense the competition is between existing companies in the market
What makes competitive rivalry higher?
large numbers of existing competitors high levels of fixed costs low industry growth low switching costs high exit barriers high strategic importance
What is the threat of substitutes?
Availability:
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
What is the power of the customer and what makes them more powerful?
Are the customers powerful enough 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
What different suppliers should be considered when talking about the power of suppliers?
Providers of raw materials
Service providers and outsourced services
Employees and hire workers
What factors increase the power of suppliers?
There are a few large suppliers
The suppliers’ products are differentiated
High switching costs for the customers (the industry being analysed)
The supplier has other buyers that they can sell to instead
What is a value chain?
Identifies the relationships between the company’s
resources, activities and processes that link the business together and create a profit margin.
What is the purpose of a value chain analysis?
Used to analyse the sequence of business activities which add value to the products or services produced by a company.
What are the possible generic strategies a company can take?
Cost leadership - Seeking to be the lowest cost
producer in the industry
Differentiation - Creating tangible and intangible product features that the customer is willing to pay more for
How should the generic strategy affect a company’s value chain?
- value chain should be consistent with generic strategy
- cost leader should seek cost efficiencies throughout
- differentiator should seek quality advantages throughout
What are the primary activities in the value chain?
Inbound logistics - activities concerned with receiving, storing and distributing the inputs to the product.
Operations - transform inputs into the final product.
Outbound logistics - 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.
What are the supporting activities of the value chain?
Procurement - 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 - involves all areas of the business and is involved in recruiting, managing, training, developing and rewarding people within the organisation.
Infrastructure - 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.
What do the primary activities do?
Create value and are directly concerned with providing the product or service.
What do the secondary activities do?
Do not create value by themselves, but enable the primary activities to take place with maximum efficiency.
What is the importance of linkages in the chain?
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.
What are internal linkages?
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.
What are external linkages?
A business’s internal value chain will link to, and should be consistent with:
the customer’s chain
and the supplier’s chain.
What should you do for each activity?
Make it clear how that activity has helped the organisation to achieve its competitive advantage, commenting on any linkages/consistency between the activities.
What are the key analytical tools for performing portfolio analysis?
Product life cycle
Boston Consulting Group (BCG) Matrix.
What is the product life cycle?
Application of life cycle theory to product or services
What are the 5 stages of the product life cycle?
- Development
- Introduction
- Growth
- Maturity
- Decline
What are the features of development?
Negative cash flows – heavy investment in R&D and initial marketing
Market research – will be key to ensuring the overall success of the product
What are the features of introduction?
Continued cash outflow – high marketing costs can outweigh initial sales
Initial demand – will determine pricing policy (price skimming vs penetration)
What are the features of growth?
New competition – quality improvements may be needed to compete
Economies of scale – may begin to emerge through mass production
What are the features of maturity?
Critical mass – should be achieved leading to cost efficiencies
Positive cash flow – maximum sales with minimum marketing and investment
What are the features of decline?
Heavy price discounting – to utilise spare capacity and cover overheads
Brand loyalty – may be key to retaining remaining customers
What is the overall objective of the product life cycle?
The overall objective is to achieve a balanced portfolio.
Too many products in any one phase can lead to problems (e.g. cash flow and product succession).
What are the two axes of the BCG matrix?
- market growth
- market share
What is a product with high market growth and share?
Star
- Dominant position in an attractive market.
- High threat of new entrants requires the company to continue to invest to defend market share.
- Should the company consolidate its current position or invest further to seek additional growth?
What is a product with low market growth and high share?
Cash cow
- Dominant position in a low growth market.
- Competitors will decide not to attack our market share as the market does not warrant the investment.
- Large positive cash flow can be achieved.
- Should the company ‘milk the cow’ and enjoy positive
cash flows from minimum investment, accepting that market share may eventually fall?
What is a product with low market growth and low share?
Dog
- Low share of unattractive market
- Product may lack economies of scale but the market is not attractive enough to seek growth
- When should the company ‘put the dog down’?
What is a product with high market growth and low share?
Problem child
- Attractive market but firm does not have the share to be competitive
- Lack of economies of scale limit cash flow
- Should the company invest further?
What is a SWOT analysis?
A technique that can be used to perform a corporate appraisal to evaluate the strategic position of the organisation. Strengths, Weaknesses, Opportunities, Threats
What questions can be addressed when evaluating a SWOT analysis?
Can the strengths of the organisation be matched to opportunities?
e.g. Current distribution channels may be used to launch new products
What weaknesses need to be addressed before pursuing opportunities?
e.g. New staff may need to be employed to overcome capacity constraints
Does the organisation have sufficient strengths to minimise threats?
e.g. Existing customer loyalty may reduce the impact of new competitors
Can the organisation’s weaknesses be converted into strengths?
e.g. Businesses with a narrow product range may become a niche seller
Can potential threats be converted into new opportunities?
e.g. ‘Budget range’ products could be introduced in times of economic decline
What is competitive positioning?
Porter suggests that sustainable competitive advantage arises from the selection of a generic strategy which best fits the organisation’s environment (Porter’s 5 Forces) and then organising value-adding activities (Value Chain Analysis) to support the chosen strategy.
What are Porter’s Generic strategies?
Cost leadership – seeking to be the lowest cost producer in the industry.
Differentiation – creating tangible and intangible product features that the customer is willing to pay more for.
Focus – utilising either of the above in a narrow profile of market segments (sometimes called niching).
What are common methods for achieving cost leadership?
Economies of scale – e.g. Primark’s large stores
Seek cheaper sources of supply – e.g. budget supermarkets
Reduced labour cost – e.g. manufacturers who outsource overseas
Use value chain to identify and reduce non key activities – e.g. Ryan Air
What are the possible benefits of a cost leadership?
Business can earn higher profits by charging the same price as competitors.
Firm remains profitable in a price war.
Economies of scale create entry barriers.
What are the risks of adopting a cost leadership strategy?
Only room for one cost leader – no fallback position if the cost advantage is eroded.
Cost advantage may be lost because of inflation, movements in exchange rates, competitors using more modern manufacturing technology or cheap overseas labour, etc.
Customers may prefer to pay extra for a better product.
How do you become a differentiator?
Strong branding – e.g. designer clothing
Product innovation – e.g. Apple, Dyson
Quality – e.g. M&S clothing
Product performance – e.g. BMW
What are the possible benefits of differentiation?
Products command a premium price so higher margins.
Product has fewer perceived substitutes due to product uniqueness and brand loyalty.
Therefore:
There is less direct competition.
Demand is less price sensitive (more inelastic).
What are the risks of adopting a differentiation strategy?
Cheap copies.
Being out-differentiated.
Customers unwilling to pay the extra (e.g. in a recession).
Differentiating factors no longer valued by customers (e.g. due to changes in fashion).
How do you achieve a focus (niche) strategy?
Identify a segment of consumers/customers with similar needs.
Choose whether to adopt a differentiation or cost focus approach.
Develop products and services to meet the needs of the segment.
Develop a marketing strategy to specifically target the chosen segment.
What are the potential benefits of a focus strategy?
Smaller segment and so smaller investment in marketing/production is required to develop competitive advantage.
Less competition.
Entry is cheaper and easier.
Risks of adopting a focus strategy?
If the segment is too small then it may be difficult to achieve sufficient sales.
If the segment is too large then the large players may become interested.
What is the purpose of Ansoff’s matrix?
The matrix looks at growth by considering opportunities to sell more existing products/develop new products and building market share in existing/new markets.
What are the axes of the matrix?
Existing and new:
- Markets
- Products
What is the method of growth using an existing product in an existing market?
Market penetration
More sales of existing products to existing markets
e.g. Sofa companies’ ‘Bank holiday’ sales
What is the method of growth using a new product in an existing market?
Product development
Developing new products for existing markets
e.g. Gillette launched a range of shaving products
to compliment razor sales
What is the method of growth using a new product in a new market?
Diversification
Developing new products for new markets
e.g. BT Sport
What is the method of growth using an existing product in a new market?
Market development
Finding new markets for existing products
e.g. Trivial Pursuit junior edition, Tesco stores in
Europe
How do you achieve market penetration?
Competitive pricing, advertising or sales promotion.
Improving competitive advantage through adjustments in the value chain.
What are the potential challenges of market penetration?
Greater market strength and economies of scale.
Lack of diversification.
How do you achieve product development?
Invest in research and development.
Existing distribution channels may be used.
What are the potential implication of product development?
The business should already have good knowledge of their customers.
Product failure may damage the brand.
How do you achieve market development?
New geographical markets or market segments.
Using new distribution channels (e.g. selling direct to consumers).
What are the potential implication of market development?
Market research may be needed to overcome lack of market knowledge.
Customers’ awareness may need to be generated in the new market.
What are the 2 forms of diversification?
Related diversification (concentric diversification)
Unrelated diversification (conglomerate diversification).
What is related diversification (vertical / horizontal integration)?
Involves integrating activities in the supply chain (vertical integration) or leveraging technologies or existing competences (horizontal integration).
What are the benefits of vertical integration?
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.
What is vertical integration?
Where a company becomes its own supplier (backward) or distributor (forward).
What is market research?
“the systematic gathering, recording and analysing of data about problems relating to the marketing of goods and services.”
What are the 4Ps which identify the information that a company would like to gather?
Product research – e.g. lab testing, product safety, durability, adaptability etc.
Pricing research – e.g. understanding likely cost structure for TAC + pricing, methods of likely payment, discount structures, likely pricing strategies etc.
Promotional research – e.g. which media likely to be used?
Place research – e.g. which distribution channels to be used?
What are the two main methods of market research?
Desk research – the gathering and analysis of existing
(secondary) data.
Field research – the collection of new (primary) information directly from respondents.
What are some of the ways that information can be gathered when doing desk research?
existing company records – e.g. loyalty cards, management accounts, sales trends etc
general economic data – e.g. Government surveys, census
specific market intelligence– e.g. trade journals
What are some of the ways that information can be gathered when doing field research?
questionnaires
internet surveys
interviews
observation – e.g. what items do customers look at in a retail store, do they purchase them, do they look at the price of the item before deciding?
test marketing (small, self-contained, representative and adequate promotional facilities) – e.g. Marks and Spencer trial lines
experimentation – e.g. limited edition Kit Kats
trial testing – e.g. blind testing
What are the issues to consider when picking a method of market research?
Cost – desk research is likely to be less costly.
Historic vs future – it may be difficult to predict future actions from historic data.
Reliability – effective field research relies on reliable responses.
Adaptability – existing data may not be relevant to future plans.
What is market segmentation?
“the division of the market into homogeneous groups of potential customers who may be treated similarly for marketing purposes.”
What are the two types of segmentation?
- Industrial - B2B
- Consumer - B2C
What four sections can industrial segmentation be split into?
- Geographical
- Company size
- Company type
- Purchasing characteristics
What four sections can consumer segmentation be split into?
- Geographical
- Demographic
- Purchasing motivation
- Purchasing characteristics
What are the 4Ps for a product?
Product
Promotion
Place
Price
What are the additional 3Ps for services?
People
Process
Physical evidence
What issues are there to consider when pricing the product?
4Cs - cost, competitors, customers, corporate objectives
Pricing strategies
- penetration pricing
- price skimming
- going rate
- premium pricing
- price discrimination
Define branding
- Brands add value to the product by making them recognisable and attractive to customers
- A brand’s ability to create future value is known as brand equity
hat is the brand matrix and what are the 4 sections?
Matrix comparing price and quality: H price L qual = cowboy brand H price H qual = premium brand L price H qual = bargain brand L price L qual = economy brand
Define organisational structure
defines how the various functions of an organisation are arranged.
A successful strategy requires the organisation of people and decision making.
What are the different types of structure?
- entrepreneurial
- functional
- divisional
- matrix
- flexible
What are the features of an entrepreneurial structure
Structure is built around the owner-manager – typical of small companies (early stages of development).
The structure is totally centralised with all key decisions being made by the strategic leader (often the owner in an owner-managed business).
What are the advantages and disadvantages of an entrepreneurial structure?
Adv: Fast decision making More responsive to market Good control Close bond to workforce
Disadv:
Lack of career structure
May be too centralised
Cannot cope with diversification/growth
What are the features of a functional structure?
Outgrown the entrepreneurial structure, need to organise the business on a functional basis (economies of scale/specialisation).
Smaller companies with few products and locations and exist in a relatively stable environment.
What are the advantages and disadvantages of a functional structure?
Adv:
Economies of scale
Standardisation/efficiency
Specialists more comfortable
Disadv: Empire building Slow to adapt to market changes Conflicts between functions (e.g. impairs cross department communication and innovation) Cannot cope with diversification
What are Mintzberg’s building blocks and what should you do with them?
- operating core
- middle line
- strategic apex
- support staff
- technostructure
Identify the key one to the business and explain the ones lacking
Define ethics
The moral principles governing or influencing conduct which is deemed to be acceptable in the society or context in question.
What are the three ethical tests?
- Transparency
- Effect
- Fairness
Describe transparency
Does the company mind others knowing about the decision it has made?
Describe effect
Whom does the decision hurt? Are one or more stakeholder groups receiving a negative outcome?
Describe fairness
Would the company’s decision be considered fair?
What is important about any ethical scenario?
To ascertain the facts before making any response
Different types of risk
- strategic
- operational
- financial
What are strategic risks?
Risks associated with the long term strategic objectives of the business
What are operational risks?
The risks on how the business will operate
Good things to consider when talking about risk
Operational gearing
- proportion of fixed costs to variable
Financial gearing
- proportion of debt to equity
What is knowledge management?
a range of strategies and tools that capture all of the knowledge that is valuable to an organisation, and deliver it to the people in such a way that it can be acted on quickly, to the competitive advantage of the business.
What are the methods of implementing knowledge management?
Designing and installing techniques and processes to create, protect and use explicit knowledge.
Designing and creating environments and activities to discover and release tacit knowledge.
What are the stages of implementing a knowledge management strategy?
- Identify the knowledge that exists within the organisation
- Capture and document existing knowledge
- Disseminate knowledge to appropriate people
- Determine ways that knowledge can be developed and tracked
- Ensure that key strategic knowledge is kept secure and confidential
What are the 3 main factors to consider with a change?
- pace
- manner (forced or welcomed?)
- scope of change (minor or far-reaching?)
What are the categories of change?
Nature
- incremental
- transformational
Management role
- reactive
- proactive
What are the 2 barriers to change?
- cultural
- personnel
What are 3 cultural barriers?
Structural inertia
- cumulative effect of all procedures and systems
Group inertia
- norms or skills of people are challenged
Power structures
- existing decision makers losing power
What are the 6 personnel barriers?
Habit Security Effect on earnings Fear of the unknown Selective information processing Psychological contract
What are 6 driving forces for change?
Changing markets Globalisation Increased competition New technology New personnel Improved rewards
What is Lewin and Schein’s iceberg model for managing a change?
Unfreeze
Trigger, challenge of existing behaviour, involvement of outsiders, or alteration to power structure
Move
Making the changes, communicating and encouraging adoption of the new situation
Refreeze
Consolidation and reinforcement of the new situation
Practical management styles that assist the process
- communication
- education
- participation
Four perspectives of balanced scorecard
- Financial
- Internal business
- Innovation and learning
- Customer perspective
What are the 9Ms?
For a resource audit:
- Men
- Money
- Management
- Market
- Make up
- Material
- Machines
- Management information systems
- Methods
What are needed for critical success factors
Resources (9M model) and Competencies (Kay’s Core competencies)
What are Kay’s Core Competencies
Reputation - reason customers attracted to organisation
Innovative ability - new products/services
Competitive architecture/relationship (internal - with customers, external - with suppliers, customers and intermediaries, network - with collaborating businesses)
What is a PESTEL analysis?
Used to identify opportunities and threats in an industry
What does PESTEL stand for?
- Political
- Economic
- Social and demographic
- Technological
- Ecological/environmental
- Legal
HRM strategy key points
- recruitment plan
- training plan
- productivity plan
- redevelopment plan
What are the two types of research in an R&D functional strategy?
- Product research
- Process research
What is an operational strategy?
Design, creation and implementation of controls around the transformational process of changing inputs into outputs
What are the key factors to consider for an operational strategy?
- Volume
- Variety
- Variation in demand
- Visibility
What are the 3 capacity planning approaches?
- Made to order - JIT
- Made to stock - constant stock level
- Manipulate demand - peak and off peak
What is supply chain management?
Management of all supply activities from supplier to customer
What are the 3 factors to consider for supply chain management?
- Responsiveness
- Reliability
- Relationships
What is the price elasticity of demand formula
Price elasticity = (change in demand)/(change in price)
Define elastic and in elastic
Elastic is >1 and means that it is price sensitive
Inelastic is <1 and means that it is not price sensitive
What is a giffen product
Staple profits like bread where an increase in price means that other expensive items are not bought resulting in an increase in demand
What is a Veblen product
Products where a higher price makes them more exclusive and desirable (inelastic)
