Business models and thories Flashcards
1
Q
Give 10 models and theories and a small description of them relating to strategy and decision making
A
SWOT Analysis – Strengths, Weaknesses, Opportunities, Threats
PESTLE Analysis – Political, Economic, Social, Technological, Legal, Environmental
Porter’s Five Forces – Competitive rivalry, threat of new entrants, supplier power, buyer power, threat of substitutes
Ansoff’s Matrix – Market penetration, market development, product development, diversification
Porter’s Generic Strategies – Cost leadership, differentiation, focus
Bowman’s Strategic Clock – Strategic positioning for competitive advantage
Investment Appraisal Methods – Payback period, Net Present Value (NPV), Average Rate of Return (ARR)
Decision Trees – Probability-based decision-making
Critical Path Analysis (CPA) – Managing complex projects efficiently
The Experience Curve – More experience = lower costs & higher efficiency
2
Q
5 marketing models
A
The Marketing Mix (4Ps & 7Ps) – Product, Price, Place, Promotion (+ People, Process, Physical Evidence)
Product Life Cycle – Introduction, Growth, Maturity, Decline
Boston Matrix – Stars, Cash Cows, Question Marks, Dogs
Market Segmentation, Targeting & Positioning (STP) – How businesses select and reach target customers
Price Elasticity of Demand (PED) & Income Elasticity of Demand (YED) – Sensitivity of demand to price/income changes
3
Q
7 operations management models
A
Lean Production – Minimizing waste, maximizing efficiency
Kaizen (Continuous Improvement) – Small, continuous improvements
Just-In-Time (JIT) Production – Reducing stock holding to lower costs
Economies of Scale – How larger businesses reduce average costs
Capacity Utilization – Relationship between output & max potential output
Quality Management – Total Quality Management (TQM), Quality Assurance (QA), Quality Control (QC)
The Greiner Growth Model – Business growth stages & challenges
4
Q
6 financial models
A
Break-Even Analysis – Understanding fixed costs, variable costs & contribution
Investment Appraisal – Payback Period, Net Present Value (NPV), Average Rate of Return (ARR)
Ratio Analysis – Gross Profit Margin, Net Profit Margin, ROCE, Current Ratio, Gearing Ratio
Elkington’s Triple Bottom Line – Profit, People, Planet (Sustainability)
Carroll’s CSR Pyramid – Economic, Legal, Ethical, Philanthropic Responsibilities
Balanced Scorecard Model (Kaplan & Norton) – Financial & non-financial performance measures
5
Q
9 Human resources and leadership models
A
Maslow’s Hierarchy of Needs – Psychological to self-actualization needs
Herzberg’s Two-Factor Theory – Motivators & Hygiene factors
Hackman & Oldham’s Job Design Model – How job design affects motivation
Taylor’s Scientific Management – Pay-based motivation
Mayo’s Human Relations Theory – Importance of teamwork & social factors
Blake Mouton Grid – Leadership styles based on concern for people & production
Tannenbaum Schmidt Continuum – Leadership ranging from autocratic to democratic
Kotter & Schlesinger’s Resistance to Change Model – Reasons for resistance & overcoming it
Lewin’s Change Management Model – Unfreeze, Change, Refreeze
6
Q
2 models linking to stakeholders
A
Corporate Social Responsibility (CSR) Models – Stakeholder vs Shareholder approach
Mendelow’s Stakeholder Matrix – Power vs Interest of stakeholders
7
Q
What is the far right part and far left part of Tannenbaum Schmidt Continuum
A
- Area of freedom for subordinates
- Use of authority by managers
8
Q
What are the 4 sections of the Tannenbaum Schmidt Continuum
A
Tells, Sells, consults, joins
9
Q
when can you use the Tannenbaum Schmidt Continuum
A
When discussing the influences on and impact of different management and leadership styles
you might want to consider:
- the advantages and disadvantages of each approach
- the factors that determine what style is adopted by a manager/leader
- when a given style might be appropriate eg you might consider how different styles might
be appropriate in different situations or when making different types of change.
10
Q
5 sections of blake mounton grid
A
High concern for people, high concern for the task - Team leader
low concern for people, high concern for the task - Produce or perish
High concern for people, low concern for the task - Country club
Low concern for people, low concern for the task - Impoverished
11
Q
When can you use blake mounton grid
A
When discussing the influences on and impact on different management and leadership
styles you might want to consider:
- the advantages and disadvantages of each approach
- the factors that determine what style is adopted by a manager/leader.
12
Q
What are the stages of scientific decision making and an overview
A
- Set objectives
- Gather data
- Analyse data
- Select
- Implement
- Review
- A model that highlights the different stages in a scientific, data based approach to decision
making. It outlines a logical sequential process.
13
Q
What are the shapes needed to draw a tree diagram and what do they mean
A
- A square represents that a decision has to be made.
- The lines coming from the square represent the possible choices.
- The circles show that there are outcomes as a result of a choice.
- The lines coming from a circle show the expected outcomes.
14
Q
What are the sections of stakeholder mapping
A
High power, high interest - Manage closely
High power, low interest - Keep satisfied
low power, high interest - Keep informed
Low power, low interest - Monitor (min effort)
15
Q
When can I use stakeholder mapping
A
When discussing the power and influence of stakeholders, how stakeholders may affect
decision making and how managers may treat different groups you might want to consider:
- the factors that affect the power and influence of different stakeholder
groups - how a business might treat different groups according to their power and interest (eg
how much information they provide) - how stakeholders might increase their power (eg employees coming together in a trade
union).
16
Q
What influences the price elasticity of demand
A
Demand is likely to be more price inelastic if:
- the product is heavily branded so customers are not especially sensitive to price
changes - there are few substitutes
- a relatively low proportion of income is spent on this product so customers are
less sensitive to a price change - someone else is paying so customers are less sensitive to a price change because it
does not affect them directly - in the short-term customers may not find it easy to find alternatives; over time they
have longer to find alternatives and demand will be more price elastic.
17
Q
What are the marketing process
A
- Segmentation
- targeting
- Positioning
18
Q
When can you use marketing process
A
When you can use this:
When discussing market analysis and making marketing decisions you could consider:
- how markets are segmented
- what makes a segment attractive to a business
- why a business might target relatively few or
many segments - how a business might decide to position its products (this links with market mapping)
- the nature of the marketing mix because this must link back to the target market and
positioning of the product.
19
Q
key points for market mapping
A
Key points
Managers must:
- analyse a market to identify the segments that exist
- select which segments they think the business should target (depending on eg
relative strengths) - decide where in the targeted markets the products should be positioned relative
to competitors.
20
Q
7Ps of marketing mix
A
- Process
- Product
- Promotion
- Price
- Place
- People
- Physical environment
21
Q
What are the sections of the boston matrix
A
Low market share, low market growth - dogs
High market share, low market growth - Cash cows
Low market share, high market growth - Problem child
High market share, high market growth - Stars
22
Q
What actions should be takes if a business has a dog
A
Managers may need to revive these dogs or stop producing them
23
Q
What actions should be takes if a business has a cash cows
A
These are well established products, which mean they will be generating revenue
but may not need heavy investment to promote.
- Managers may say ‘milk’ these products, ie use the money they generate to finance
other products.
24
Q
What actions should be takes if a business has a problem child
A
- The market is attractive as it is growing but this product is not well established.
- Managers may invest in these products to help promote and distribute them. These
products may provide significant income in the future (assuming they thrive).
25
What actions should be takes if a business has a stars
These products are doing well in fast growth markets.
* They may need some investment to support them and maintain market share;
these funds may come from the cash cows.
26
What are the different sections of the product life cycle
Development: this is what happens as the product idea is turned into a reality. Money
will be invested developing, testing and trialling products. Many product ideas will never
actually make it to launch. This is a time when there are likely to be relatively high
outflows with no money coming in yet.
* Launch: this is when the product is put on to the market. It may take time to get
distributors and for the product and brand to develop.
* Growth: this is when sales are growing fast as the product becomes better known and
distribution increases.
* Maturity: sale growth now slows and the business will start to look ahead and decide
what action to take.
* Decline: this is where sales fall.
27
Explain the key points of inventory control chart
- lead time is the time between the re-order level and min stock level
- Buffer stock is the difference between min stock level and 0 stock level.
- Re-order quantity is half way between max stock level and min stock level
When you can use this
When considering inventory management and factors affecting:
* the level of buffer stock
* re-order quantities
* re-order levels
* usage rates
* lead times.
You could also consider:
* what happens if usage rates increase unexpectedly
* what happens if inventory is too high or too low.
28
What are the 3 sections of the hackman and Oldham's model of job design
- Core job characteristics:
Skill variety
Task identity
Task significance
Autonomy
Feedback from the job
- Critical psychological states
(The first 3 core job characteristics) link with experienced meaningfulness of work
Experienced responsibility for the outcomes of work
Knowledge of actual results of work activities
- Outcomes
High internal work motivation
High quality work performance
High satisfaction with work
29
Key points, and when can you use the Hackman and Oldham's model of job design
Key points
Highlights five aspects of the design of a job that can influence how motivating it is and
highlights the impact of job design on individuals on their performance.
When you can use this
When discussing job design and the impact of motivation you could consider the different
intrinsic aspects of a job and therefore link motivational theorists such as Herzberg.
30
What does motivation of employees affect
* the commitment shown to a task
* the creativity shown in relation to a task
- the degree of cooperation if change is happening
* retention rates
* labour turnover rates
31
What are the Herzberg motivation
Herzberg identified three states of mind that employees might have:
* motivated (or satisfied)
* not motivated (or not satisfied or dissatisfied)
* demotivated (or dissatisfied).
32
What are the sections of Maslow theory
Self-actualisation needs
* Detail: the need to achieve something for yourself.
* Managers’ actions: they can delegate to give an employee responsibility
Ego (or esteem) needs
* Detail: the need to be acknowledged and respected.
* Managers’ actions: they can recognise the work of employees – this could be through
praise, a certificate, a mention in the company bulletin.
Social (or belonging) needs
* Detail: the need to be part of a group or team.
* Managers’ actions: this could be met through creating teams or even through social
occasions at work.
Security needs
* Detail: the need to feel safe.
* Managers’ actions: this may be met by offering full-time employment or a contract
Physiological needs
* Detail: the need to survive.
* Managers’ actions: this may be fulfilled through basic pay which enables employees
to buy the essentials.
* Note: the work of Taylor and Maslow does not necessarily conflict. Taylor’s study focused
on a workforce that was likely to be at the lower end of the hierarchy and therefore basic
pay met their physiological needs.
33
Give the sections of SWOT analysis and key points
- Internal strengths
- Internal weaknesses
- External weaknesses
- External threats
Key points
A SWOT analysis will be unique to each business (and for different parts of the business). It will
change over time as conditions change and so the analysis needs to be undertaken regularly.
However SWOT analysis does not guarantee that a strategy is successful. For example,
conditions may change faster than the business has realised, the wrong strategy may be
selected or it may be poorly implemented.
34
Explain what is meant by Strengths, weaknesses, opportunities and threats
Strengths and weaknesses
Strengths and Weaknesses are internal features of the present position of a business.
For example:
* strengths might include a good distribution network, a good cash flow position or well
trained staff
* weaknesses might include an over-emphasis on the UK market or a weakened brand
due to several product recalls
Opportunities and threats
Opportunities and Threats are the possible consequences of a change in the external
environment of a business.
For example:
* opportunities might include new markets opening up or economic recovery
* threats might include increased competition or greater regulation of the industry which
impacts negatively.
35
What are the key points on Kaplan and Norton's balanced scorecard model
Overview
Highlights the range of influences on the success of a business beyond that of the traditional
view of looking at profit. It combines non-financial measures alongside financial measures.
Model/theory
The model looks at the business from the point of four different perspectives; each one
should be assessed using quantifiable data:
* financial perspective
* customer perspective
* internal business process perspective
* learning and growth perspective.
36
Explain what is meant by Elkington's triple bottom line
Planet - Environmental performance
People - Social performance
Profit - Economic performance
The intersection of all three are sustainability
37
Key points and when can you use Elkington's triple bottom line
Key points
The Triple Bottom Line was a phrase introduced by John Elkington in 1994. The model
highlights that business performance may be measured in a number of ways: in
relation to its finances, its environmental impact and how socially responsible it is in
relation to employees. Elkington argued that only a company that was measuring performance in all three areas
was measuring the full costs of its activities. The significance of this is that if you measure
all these areas employees are likely to pay attention to them and change their behaviour
accordingly (rather than just focusing on profit).
However, in reality it can be difficult to find or agree ways of measuring the impact of
business on the planet and people.
When you can use this
When discussing objectives, Corporate Social Responsibility and the social environment
you could consider what factors might influence the objectives a business sets and why
more businesses may be setting objectives linked to the planet and people as well as
profit in recent years.
38
What are the key points of Carroll CSR model
CSR - Corporate social responsibility
Key points
According to Carroll, ‘corporate social responsibility involves the conduct of a business so
that it is economically profitable, law abiding, ethical and socially supportive’. Carroll
produced a pyramid that identifies the different types of obligations that society expects
of businesses
39
Explain the different layers of the pyramid Carroll CSR model
The layers of the pyramid are:
Economic responsibilities:
These include providing rewards to the owners, paying employees fairly and selling products
at a fair price to consumers. A business has an economic responsibility to survive.
Legal responsibilities:
This means that businesses should follow the law and not act illegally.
Ethical responsibilities:
A business will have responsibilities over and above their legal requirements. Managers may
decide to do the ‘right thing’.
Philanthropic responsibilities:
This focuses on businesses actively trying to help society, for example, by improving the
quality of each employee’s working life.
40
When can you use Carroll CSR model
When discussing the responsibilities a business might accept, you might discuss what
determines whether a business only accepts economic responsibilities or whether it adopts
a philanthropic approach and if so why?
41
What are the sections of porter;s 5 forces and what do they mean
The degree of rivalry in the industry:
If rivalry is intense, ie existing businesses compete fiercely with each other this is likely to
push prices down and reduce the profits of the businesses.
Buyer power:
If the customers of the businesses are very powerful (perhaps because there are only a few of
them so they know the businesses need them as customers) they will be able to push down
prices and reduce the profits of the businesses in the industry.
Supplier power:
If the businesses supplying the established firms are powerful (perhaps because there
relatively few of them and so they know their customers need them) they may be able to
push up prices increasing their profits and reducing the profits of the established
businesses that now have higher costs.
Entry threat:
If it is relatively easy for new firms to enter the industry this will tend to drive down profits
within the industry – if established businesses earn high profits others will enter and this will
bring prices down reducing profits.
Substitute threat:
A substitute in Porter’s model is a product that performs the same function as the one in
the industry, eg if we are examining the aluminium can industry then a glass bottle would
be a substitute. If there are a large amount of substitutes, this would lead to a more
competitive environment and they’re likely to reduce profitability.
42
When can you use porter's 5 forces
When you can use this
* Consider why the profits of some industries may be much higher than others (in
Porter’s study soft drinks earned much higher profits than hotels and airlines).
* Consider the effect of changing some of the forces in relation to the impact on industry
profits.
* Consider how businesses might change their strategy to change the forces, eg how can
they may reduce the entry threat.
43
What are the 3 investment apprasial and what is needed to be considered
When considering investment options managers will consider factors such as:
* the initial costs
* the expected returns each year
* the number of years of returns
* the timings of the returns
* the risk involved.
Three methods of investment appraisal are:
* payback: this measures how long it takes to repay the initial investment
* Average Rate of Return: this measures the average annual profit as a percentage of the
initial investment
* Net Present Value: this takes account of the ‘time value of money’ which recognises
that £1 earned in five years’ time is not the same as £1 earned today.
44
What is payback
This method is valuable if managers want to know how long it takes to repay the
investment. If managers are worried about liquidity they will look for a short payback.
45
How would you calculate payback
Take the cost of the project. call it x
Count the number of years it will take to get as close to x as possible.
Find the difference of the next year and the value that is closest to x. Do the difference / by the inflow that year. Then * it by 12 to get the month.
46
What is average rate of return
This method considers the total returns of the project. It then calculates the average return
per year and calculates this as a percentage of the initial investment.
47
How to calculate ARR
Add up the cost of inflow and each year of inflow. call this x / total return
do x / number of years to get total return/ number of years call this y
Then do y / cost of investment *100 to get ARR
48
Give an advantage and disadvantage of payback
- The advantage of the payback method is that it is easy to understand and relatively easy to
calculate
- However,
this method does not look at the overall returns
49
Give an advantage and disadvantage of ARR
- The advantage of ARR is it considers the total returns of a project and calculates an average
rate of return; this can be compared with the rates of return on other projects or the cost of
borrowing.
- However, the ARR method does not take account of when the returns occur
50
What is net present value
This method takes account the time value of money. It considers the value of expected
future returns in today’s terms.
51
To calculate NPV
Multiply the inflow by discount factor
Then do the new value - the cost of investment
52
4 sections of Ansoff matrix
- Existing product existing market - Market penetration strategy
- Existing product new market - Market development
- New product existing market - Product development
- New product new market - Diversification
53
What is Porters strategies and the sections of it
- Explains the basic types of competitive advantage a firm can have
- Lower cost, Broad target - Cost leadership
- Differentiation, Broad target - Differentiation
- Lower cost, Narrow target
- Cost focus
- Differentiation, Narrow target - Differentiation focus
54
Cost leadership
When adopting a cost leadership strategy a business aims to become the low cost producer
in its industry. It may try to achieve this position through economies of scale, patented
technology that makes its processes more efficient or by gaining control over supplies. If a
firm can achieve and sustain overall cost leadership, then it will achieve above average profits
if it can charge similar prices to its rivals.
55
Differentiation
If a business adopts a differentiation strategy it seeks to be unique in its industry. It
chooses one of more benefits that buyers value and seeks to meet these better than
competitors. In return, it charges a premium price.
56
Focus
If a business adopts a focus strategy it concentrates on one segment within the market. The
target segment may be different from the rest of the market because buyers have unusual
needs
57
Key points and what is Bowman's strategic clock
1- Low price, low added value
3 - Hybrid
4 - Differentiation
5 - Focused differentiation
7 - Strategies destined for ultimate failure
This model shows that:
* Different strategies can be competitive: for example, a business can charge a high
price if it offers a high level of benefits and be competitive. If it offers relatively low
benefits it needs a low price to compete.
* Some combinations of benefits and price are not competitive, eg low benefits and
high price is unlikely to be competitive. These are shown by the shaded area
58
Greiner’s model of growth
Overview
Highlights the challenges that typically occur in managing businesses as an organisation gets
older and bigger. It shows typical crisis points in the development of a business.
When you can use this
* when analysing growth
* when considering how structures and systems might change as a business develops
* when examining issues such as centralisation and decentralisation
* when considering change and how it might affect a business.
59
Overview of Bartlett and Ghoshal’s international, multidomestic, transnational and global strategies
This model examines the different approaches to managing businesses that operate in
several countries. It highlights two key factors in choosing how to manage an international
business: the potential cost gains from being globally integrated (such as marketing,
production or research economies of scale) and the pressures to respond to local market
conditions.
The 4 sections of the model are:
- International strategy
- Multi-domestic strategy
- Global strategy
- Transnational strategy
60
International strategy
An international strategy occurs when there are similarities between markets and little gains
from globally integrating. The result is a business operating abroad but run very much from
the home country. The head office and main decisions will be based at home.
61
Multi-domestic strategy
A multi-domestic strategy occurs when there are considerable variations between market
demands and few benefits from globally integrating.
The result will be a portfolio of relatively independent companies running themselves and
producing for their own markets.
62
Global strategy
A global strategy occurs when there are significant economies of scale and where there
are similarities in terms of market demand. The business develops standardised products
which are sold globally. The subsidiaries abroad are likely to be rather weak and the full
range of business activities will only exist in the home market. The products are designed
and developed in the domestic country
63
Transnational strategy
A transnational strategy occurs when there is pressure to meet local needs and also
benefits from integrating globally. The organisation is regarded as a network with each
subsidiary given responsibility appropriate to its capabilities. There is a balance of
centralisation and decentralisation and a culture of sharing within the global
organisation. Staff move around the business globally which helps build shared values
and shared knowledge.
64
Describe Lewin’s force field analysis
Driving force --> Present state / desire state <-- Restraining forces
65
Key points and when can you use Lewin’s force field analysis
Highlights that at any moment there are forces for and against change. Change may be
brought about if the forces for change increase (eg due to more competitors, worsening
results, more customer complaints) or less restraining forces (eg funds become less of an
issue, employees understand the need for change more).
When discussing the issues involved in bringing about change, eg introducing a new strategy
you might want to consider:
* how the pressure for change might increase (eg worsening financial results, more
complaints or more competition)
* how to reduce the forces resisting change (eg through more incentives to
change or providing more finance).
66
What are the key points of Kotter and Schlesinger’s reasons for
resistance to change
The study highlights four reasons why people resist change:
1. Self-interest – they would be worse off if the change occurred, eg lose their job
2. Fear and misunderstanding – they do not trust the managers’ motives
3. Different assessments – they understand the reasons for the change but disagree with
them; they may think they have a better plan
4. Prefer things as they are; they do not like change
67
What are the 6 sections of Kotter and Schlesinger’s model of
overcoming resistance to change
- Education
- Participation
- Facilitation
- Negotiation
- Manipulation
- Coercion
68
What are the sections of Handy’s culture
- Power culture
A centralised culture which focuses on key decision makers. May occur in small businesses
where the founder dominates; may come under stress if a business grows and cannot all
be run from the centre.
- Role culture
More formalised culture with jobs having clear rules and procedures. Individuals know their
position within the hierarchy. May be appropriate for a medium to large business in a stable
environment; however, may lead to ‘silo’ mentality where individuals and departments do
not communicate or share information.
- Task culture
This is a culture where there is a focus on specific tasks and projects. Individuals are brought
in to work on tasks as and when they are required, sharing ideas across functions. It may
occur in organisations such as design and advertising agencies.
- People or person culture
Individuals have considerable freedom to act independently. It may occur in organisations
such as legal or medical practices where individuals have high levels of specialist technical
expertise.
69
Overview of Hofstede’s national cultures
All culture differences link to:
- Power distance
- Uncertainty avoidance
- Individualism and collectivism
- Masculine / Feminine
- Long-term orientation
70
Individual and collectivism (IDV)
This considers the extent to which individuals believe they should look after themselves
rather than be team players.
71
Power distance index (PDI)
This refers to the extent to which a society accepts that power is distributed unequally. In
countries where PDI is low they will usually have decentralised organisations, whereas
countries with a high PDI usually accept more centralised, hierarchical structures.
72
Uncertainty avoidance index (UAI)
This is the extent to which employees feel threatened by ambiguity and the extent to which
they like rules and a well-defined career structure.
73
Masculinity (MAS)
This refers to the dominant values in the organisation. Are these mainly ‘masculine’
(focusing on assertiveness and money) or are they more ‘feminine’ (focusing on concern
for others and the quality of relationships)?
74
Long-term orientation (LTO)
This refers to how long-term employees are in their thinking, which will affect their planning
and attitude to investment.
75
When can you use Network analysis
This topic links well to concepts of efficiency and lean production. By using network
analysis managers can save time and order resources so they arrive just in time. This can
improve cash flow.
* The topic also links to delegation. Managers can delegate particular activities to others;
they know when to start, how long they have and what to be finished. Progress can be
monitored relative to targets.
* You can consider what happens if a particular activity overruns and the consequences
of this for the business.
76
Key points of strategic drift
The diagram above by Johnson and Scholes highlights how, as change in the environment
increases, the business’s strategy may become increasingly inappropriate.
The business will end up in a state of flux, ie managers are uncertain what to do as they have
fallen so far behind the trends in the market. At this point, they must either make major
transformational change or the business will probably die.
Examples of strategic drift include Kodak, Nokia and Blockbuster videos
