Business 1.3 Flashcards
Vision statement
Describes a desired position for the company in the far future (“Where do we want to be?”)
Mission statement
Purpose of business, states what the business is and does
How the vision statement will be achieved (“How do we get there?”)
Mission statement
Purpose of business, states what the business is and does
How the vision statement will be achieved (“How do we get there?”)
Vision and mission statement are what
Positive, ideal goals
Parallel to business
Customer centric
Answers:
Where are we now?
Where do we want to be?
How do we get there?
How do we know we are there?
Criticisms of vision and mission statements
Being too vague, so therefore are rather meaningless and / or difficult to measure.
Being based on public relations (i.e., to make the organization “look good” - what the business aspires to and what it actually does on a regular basis may not align.
Being unquantifiable - mission and vision statements are not concerned with quantifiable goals but simply outline the aspirational purpose of an organization’s existence.
Vision statements (and many mission statements) are very long term, so may not ever materialise.
Virtually impossible to really analyse or disagree with, so may be ignored or not taken seriously by stakeholders such as employees.
Goals
what business wants to achieve in the long-term
Objectives
clearly defined short-term or medium-term tasks that a business sets in order to achieve goals
Strategies
medium-term or long-term plans, methods, approaches, schemes that are used to achieve goals and objectives
Tactics
short-term or medium-term actions that need to be taken in order to achieve objectives
define each letter in SMART acronym when setting objectives
Specific, Measurable, Agreed, Realistic, and Time specific. An example of a SMART objective for a multinational company might be “to achieve sales of €10 million in European markets by 2023.”
SMART is used when setting what?
Objectives
What are some common business strategies (not necessary)
Corporate strategy : long-term plan that outlines clear goals for a company
Generic strategy determines methods of achieving competitive edge (middle management)
Operational strategy determines what company needs to do on day-to-day routine level and how to make generic and corporate strategies happen (junior management)
Common business objectives
Profit
Growth
Shareholder value
Ethical objectives
Profit
Profit is the difference between revenues and costs (more in Unit 3)
Incentives for entrepreneurship: Profit provides incentives for entrepreneurs to take risks and start new businesses. It also incentivizes business owners to remain in business and pursue growth for greater financial returns.
Maximizing profit: For many businesses, profit maximization is the top priority as it ensures the highest possible difference between total revenue and total costs. This helps businesses operate at an optimal size that enables them to sell their output efficiently.
Financial stability: Achieving long-term profit is crucial to ensure the business’s financial stability and prevent bankruptcy or closure. This allows the business to continue operating and growing, without relying heavily on external sources of finance.
Growth
Growth means achieving an increase in one/some of the following: market share, total revenue, profit, capital employed, size of workforce, volume of output. Ultimately, growth results in higher profits
Benefits of growth
Benefits of growth:
Higher sales revenue and profit - as a firm grows, its sales revenue increases, thereby improving the changes of higher profits.
Economies of scale - these are cost-saving benefits for firms as they grow larger, such as being able to purchase raw materials in bulk at a discounted price from their suppliers.
Reduced risks - larger firms tend to be less vulnerable to changes in the external environment such as an economic recession in the economy.
Internal growth vs external growth
Internal growth uses the organization’s own resources, while external growth involves partnering with third-party resources and organizations.
Methods of measuring the growth of a business
Sales revenue - the monetary value of the products that the business has sold, per time period).
Sales volume - the number of products that the business sells, per time period).
Profits - the financial surplus that remains after all costs of production have been deducted from a firm’s sales revenue).
Customers - the more customers that the business has, the larger it tends to be).
Number of employees - the more people that are hired by the business, the larger it tends to be.
Market share - this measures the firm’s sales revenue as a proportion of the whole industry’s sales revenue.
Shareholder value
refers to what shareholders get through company’s ability to increase market capitalization (and thus share price) and/or dividends (through increasing the profits)
Survival: If a business cannot survive, it cannot generate any value for shareholders. Therefore, keeping the business afloat is crucial to maintaining shareholder value.
Profit: Generating profits is a primary goal of most businesses, as it directly impacts shareholder value by providing financial returns through dividend payments.
Growth: Enlarging the business can lead to increased sales revenue, profits, and customer loyalty, all of which can contribute to better shareholder value in the long run.
Market share: Gaining a larger market share can enhance brand awareness, value, and loyalty, which can help protect shareholder interests.
Ethical objectives and corporate social responsibility: Operating in a socially acceptable and responsible way can improve the corporate image of the company, which can ultimately benefit shareholders by safeguarding the company’s reputation and ensuring long-term profitability.
Ethical objectives
refer to the tasks/targets that go beyond profit-making and are in line with moral behavior, sustainability and SR
Strategic objectives with examples
Long term aims of a business organisation
-targets for the next couple of years
1)making as much profit as possible
2)growth
3)image and reputation
Ethical objectives
-They are moral principles that guide decision making strategy.
-Morals of concern of what is right and what is wrong
Examples:
Reducing pollution
increase recycling
friendly waste disposal
treating employees well
fairer trade conditions
Ethical objectives advantages
Do at home
Ethical obectives disadvantages
Do at home
Corporate social responsibility (CSR)
Corporate social responsibility (CSR) refers to the value, decisions, and actions taken by a business that impact society in a positive way. CSR is about an organization using ethical objectives to commit to behaving in a socially responsible way towards its internal and external stakeholders, not just to the owners or shareholders of the business
Csr advantages
Better employee recruitment and retention
Sense of value/purpose for employees
Boosts company’s image/reputation
Risk management against scandals, accidents, etc.
Appeases pressure groups
Brand differentiation and smoother operations
Customer loyalty & goodwill
CSR disadvantage
High compliance costs can lower profits
Forced to use materials that are specialized and may reduce profit
Ethics are not universal or unchanging anyway
Lower profits may decrease personal bonuses which may lead to greediness
What is good to know about CSR
Attitudes change over time; acceptable practices before are unacceptable today.
CSR objectives adapt to changes in social norms/hot issues (i.e. tattoos, dyed hair, jeans, single parents, gender bias, child labor, smoking, obesity, global warming, etc.)
Swot analysis advantages and disadvantages
Internal factors
Strengths – advantages that are basis for developing competitive advantage.
e.g. experienced management, patents, loyal workforce/customers
Weakness – negative factors
e.g. poorly trained workforce, limited capacity, obsolete equipment, etc.
External factors
Opportunities – potential areas for expansion of the business and future profits
e.g. political/economical policies, social statistics & trends, etc.
Threats – hindrances to the business
e.g. economic environment, market condition competitors.
What are the internal and external factors in SWOT
Internal: Strenghts and weakness
external: opportunities and threats
Role / features of mission statemewnt
It provides a sense of direction to the entire organization in terms of what to accomplish or pursue and which markets the organization will serve and how.
It reflects the corporate philosophy, identity, character, and image of the organization which can be used to communicate with external stakeholders such as customers, pressure group etc.
It could act as a motivator for employees by providing them with goals and a feeling of belonging to the organization.
It defines the overall aims and objectives of an organization.
Role of vision statament
A vision statement is a statement of an organization’s overall objectives designed to aid decision making. In this instance it will refer to future plans for growth and facilities.
A vision statement
provides strategic direction and describes what the owner or founder wants the company to achieve in the future.
