Business Mock Dec Flashcards
What is a mission statement
Formal summary of the aims and values of an organisation
What is the hierarchy of business objectives
Mission statement and general aims —> corporate objectives —> department objectives
What are the benefits of a mission statement
Can be used to communicate the nature of the organisation to the stakeholders
- can be used to focus strategies and energy of the business in a specific direction
Mission statement drawbacks
- biased, from their point of view
- just a public relations tool and are not useful as a basis for corporate objectives
- customers may not even know or care about the mission statement (are they even useful?)
What are corporate objectives
Flow from the mission statement and corporate vision
Usually set by senior management or directors for the whole company
Aimed at satisfying the shareholders so may be related to profit or dividends
Objectives need to be smart
Example of corporate objective
Increase operating profit 4% over the next 24 months
Or
Increase dividends by 2% over the next three years
What are smart corporate objectives
Specific
Measurable
Achievable
Realistic
Time bound
What are department objectives
- in larger businesses they might divide up the work or objectives into departments or functions e.g. sales, marketing, Human Resources, operations, finance etc
- each department will set their own objectives, that should flow from the corporate objectives
Uses of mission statements
Focus- helps to focus and involve all employees in the business
Profitability- helps to motivate employees to become more efficient which could have an impact on profitability
Identity- helps to create an identity in a competitive marketplace, shows how the company’s products or services align with their core values e.g. innovation
Limitations of mission statements
- unrealistic & over optimistic
- waste of management time and resources
- lead to conflicts & inconsistencies when not properly written
- ambiguous
Reasons for businesses to grow and expand
- achieve economies of scale
- Increased market power over customers and suppliers
- increased market share and brand recognition
- increased profitability
What is organic growth
Process of growth which comes from internally within the business
Difference between organic and inorganic growth
Inorganic growth means a business has grown by a merger, a takeover, a joint venture
Organic growth means the business has grown internally; through increasing product range, opening more branches, taking on more staff, increasing production
What are methods of growing organically
- new product launches= increased revenue and profits
- opening new stores or branches=
- expanding into foreign markets= could extend product lifecycle and expand organically by selling into new foreign markets
- expansion of the workforce= taking on new staff, as the business expands it will need more capacity to produce or provide the product or service . Taking on new staff will also spread workload.
Advantages of organic growth
- avoids all the risks and pitfalls of merging with another business
Cheaper than merging
Retains company culture
Higher production levels means economies of scale and lower average costs
More influence comes with more market share, can start setting prices for the industry
Disadvantages of organic growth
- very high risk strategy, opening multiple stores and taking on new staff is very risky and capital intensive
- long period between investment and return on investment
- growth may be limited and is dependent on reliability of sales forecasts
- new markets and countries can be dangerous to enter into without buying a business already operating in that company
What is a shareholder
A person, business or organisation that owns at least one share of a company
What is a stakeholder
Anyone who has an interest in the business, or who may be affected by the activities of the business
What is an internal stakeholder
Those inside a business who may be affected by corporate decision making ; employees, managers, owners
How are employees impacted by business decisions
Employees directly involved in the running of the business
Satisfaction of employees is a way to judge how well a company stra is working
Employees carry out the tasks given them by managemtn
How are managers impacted. By business decisions
They are told the strategic direction of the business by the directors and must translate this in pro operational objectives and goals
They then need to communicate this to the employees so the strategy is carried out
How are owners impacted by business decisions
Considered initial investors who are mainly interested in the business value and profitability
Board of directors is usually made of the top most management of the organisation and they are the policy makers of the company
What are external stakeholders
Outside the organisation who are affected by sections made by the business:
- customers= primary stakeholders because they face risk if the business fails to perform
- competitors = remain competitive by being aware of the practices and products of their rivals and responding properly
- suppliers = interested in the excellent performance of the business since it assures them of regular orders and prompt payments which keep them in the business
- local community= have a duty to ensure the safety, health and economic development of the communities around them
- pressure groups- can influence activity and policies of companies e,g, environmentally friendly
- unions = organised group of employees who act in the common interest of all the employees of the business
- government = collects taxes from the business, also protects needs of the employees through employment legislation
- shareholder
Stakeholder mapping steps 1-3
- Identify stakeholders of the business, these will be internal and external
- Rank the stakeholders power over decisions, either low, medium or high
- Rank the stakeholders level of interest in the business; low medium or high
Stakeholder mapping step 4
Place info into a matrix
Stakeholder mapping step 5
Draw a quadrant diagram
Stakeholder mapping step 6
Place this information into a quadrant diagram
Step 7
Tactics of how the business engaged with the stakeholder will depend on the quadrant they are put in
A - minimal effort, contacted using newsletters , email
B - should be kept informed of corporate decisions
C- kept satisfied
D- key players in the business and should be involved in the governance and decision making and should be engaged with on a regular basis
Why could their be a possible conflicts
Customers want low prices- owners want high profits
Suppliers want high prices for their supplies- owners want high profits so low prices paid for supplies
Government want taxes paid - tax erodes profit
Unions want good working conditions and pay- owners want high profits which means cost cutting a low wages as possible
Employees what good pay and job security- owners want high profits and this may be driven by 0 hour contracts
Managers want budgets and promotion- directors may want to appoint from outside to get fresh ideas
What is a merger
Legal deal to bring 2 businesses together under one board of directors
What is a take over
Acquisition
Legal deal where one larger business purchases a smaller one
Tactical reasons for mergers and takeovers
- attempt to ensure increased market share
- access to technology, staff or intellectual property
Strategic reasons for mergers and takeovers
- access to new markers
- improved distribution networks
- improved brand awareness
What is a friendly takeover
White knight takeovers
Business acquires a target company close to being taken over by a ‘black night’
What is a hostile takeover
When a company attempts to takeover another business against thr wishes of the management
What is horizontal integration
Businesses operating in the same sector merge or take over another business in the same sector
What is vertical integration
When one business in one sector takes over or mergers with a business in another sector or part of the supply chain
What are the three sectors in business
Primary
Secondary- manufacturing
Tertiary- sell goods
What are the financial risks of mergers and takeovers
- original purchase cost
- cost of change into a new business
- redundancies of duplicate staff
- cost if it all goes wrong
Financial rewards or mergers and takeovers
Increased revenues
Economies of scale
Short term problems of rapid growth
Business that have merged may outgrow their premises in the short term
Morale may drop if staff cannot cope with extra work
May be a shortage of cash to meet expansion costs
Taking on more work to generate more income places additional pressure on the premises and staff
Problems with mergers and acquisitions
Clash of cultures
Possible communication problems
Loss of control issues
Unreliable merge partners
Diseconomies of scale
Lack of understanding of local markets leading to wrong promotional message
What is NPV
Net present value
Takes into account that money in the future is not worth what it is today
So adds in a discount table to make it more realistic
How to calculate npv
Take a discount table
Multiply each cash inflow by the discount = present value column
NPV is all the values added together minus initial cost
Interpretations for NPV
You are looking for the highest value of the investment funds in the future
NPV limitations
Very complex
Not used by small businesses
Results depend on rate of discount used, the higher the rate, the more likely it is that the project will be rejected as unprofitable
How to calculate simple payback
Simple payback = cost of initial investment/ average yearly net cash flow
Interpretations for simple payback
Want the least number of years to payback then the investment funds used in that project can be used in another project
Payback limitations
Very simple
Only looks at speed of payback and does not look at profitability
What is a trade off
Having more than one thing potentially results in having less of another
What are ethical decisions
Businesses want to appear to be doing the right thing but this is not always possible if they wish to make profit
Trade off between ethics and profitability
Ethical trading is expensive and this will have an impact on costs and therefore profitability
Shareholder interests
- interested in profit performance of the business
- less concerned with costly ethical issues and may even discourage ethical initiatives on financial grounds
Stakeholder interests
- interested in the way that suppliers of materials and components to the business are treated
- pressure groups are interested in the use of child labour & sweatshops in the production process
What is CSR
Corporate social responsibility
- business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders
Impact if csr
Business considers impact its decisions have on us as citizens
Also considers responsibilities they have towards society as stakeholders
Advantages of csr approach
Happy customers - more loyal
Happy staff- more motivated and productive
Happy investors- more funding and investment will become availble
New products new markets - stimulate innovation
Good PR- public relations which show the business in a positive light
Happy community - trusted relationships built with local communities
Happy suppliers - may choose business because of their ethical stance
Cost reductions- not having to re hire staff, in energy saving in reducing waste, in keeping loyal customers
Disadvantages of CSR approach
Fad
Motive-some business may have CSR policy for the good PR that it creates
Cost- could be larger than the benefits for a business
Care- do consumers care
What is a corporate culture
Norms and values of a business
Features of a strong culture
Good communication with their employees
Focus on core values
Culture is based around the history, tradition and founders of the business
Features of a weak culture
Often leads to business failure
Exhibit a demotivated workforce
Inconsistent customer service
Poorly managed
Lack flexibility to respond to dynamic markets
Handys company culture
Power- spider web, strong owner or manager at the heart of the business- main decision maker
Role- bank, clear rules and procedures- individuals aware of their position in the hierarchy
Task- grid diagram, series of work teams in a large organisation- team work
Person- circle filled with smaller circles, individuals have freedom to act independently- grouping of similar skilled people to share expertise and knowledge
How is corporate culture formed
Leadership style= may be moulded to personality of the founders
Type of ownership= PLC’s have many external shareholders who seek ‘shareholder value’
Recruitment policies= middle and senior management, some firms represent monoculture, this may lead to a culture in which they know best
Difficulties in changing an established culture
Strong cultures are hard to change because a culture consists of interlocking:
Set of goals
Roles
Processes
Values
Communication practices
Attitudes
Assumptions
