Business Objectives And Strategy Flashcards
Organisational aims
The business’ goal for the future
Corporate objectives
Goals that relate to the business as a whole.
They are usually set by the top management and provide the focus for setting more detailed objectives for each functional area.
Strategic objectives
The long term organisational goals which help set and shape the strategy of the business.
Tactical objectives
The shorter term goals of the business.
Operational objectives
Targets that a business sets for its day-to-day operations
Examples of operational objectives
Cost and volume
Quality
Efficiency and flexibility
Environmental
What does SMART stand for?
Specific
Measurable
Achievable
Relistic
Time bound
What is the importance of setting SMART objectives?
It makes objectives clear and easy to understand, whilst making sure they provide clear goals for a business.
What is the hierarchy of objectives?
Mission
Corporate
Functional
Unit / team
Individual
What is the importance of setting aims and objectives?
Setting aims and objectives help with decision making.
Allows the business to decide what their main focus should be.
They show key stakeholders the direction the business is planning to take, which could make them more likely to support new projects.
Factors that affect a business’ aims and objectives
The sector the business is in
Business size and scale
Internal influences on operational objectives
Finance
Human Resources
Marketing issues
External influences on operational objectives
Economic environment
Competitor efficiency flexibility
Technological change
Legal and environmental change
Examples of internal communication
Emails
Video conferences
Corporate intranet platforms
Company notice board
Business memos
Examples of external communication
Press releases
Marketing materials
Published financial information
Letters, emails and phone calls with suppliers and customers
Reports to government and other agencies
Impacts of poor communication
Stress in the workplace
Unmet needs and expectations
Arguments
Low morale and high turnover
Dissatisfied clients
Stakeholder
Any person, group of people, or organisation with an interest in the business
Mission statement
A formal statement which describes the overriding purpose and values of a business.
Advantages of having a mission statement
They clarify purpose and determine direction
They can motivate employees to demonstrate the values
They provide a template for decision-making
They can send out a powerful message to the general public
Disadvantages of having a mission statement
They are often seen as a marketing tool, rather than a meaningful statement of intent
They can be too vague and the information is not measurable
They can be too ambitious which can be damaging for employees if they cannot meet the public’s high expectations
What is the impact of changing a mission statement?
It can help the business to be dynamic and relevant to the community that it is working in
Corporate social responsibility
When firms integrate social and environmental concerns into their business operations and their interactions with stakeholders.
Advantages of CSR
Better brand recognition
Positive business reputation
Increased sales and customer loyalty
Better ability to attract and retain staff
Easier access to capital
Disadvantages of CSR
Impact of being in the public eye
Costs money to implement
Conflicts with objectives relating to profit
Competitive disadvantage
Customers are wise to greenwashing
Business plan
A written document that describes a new or existing business, including their strategy, aims and objectives, marketing and financial plan.
The purpose of a business plan
Helps the business to understand how to set and achieve their objectives
Helps to make employees aware of the business’ direction
Helps when discussing with future investors and lenders.
Things included in a business plan
The business idea
The business aims and objectives
Target market
Revenue forecast
Projected costs and profit
Cash flow forecast
Sources of finance
Location
Marketing mix
Advantages of having a business plan
Enables owners to review their ideas and see if they will have a profitable future
Reduces risk
Allows businesses to measure success against plan
Helps ensure finance is available
Helps to set objectives in order to achieve aims
Helps co-ordinate actions
Disadvantages of having a business plan
Predicted statistics will never be fully accurate
Business plans need to be reviewed and updated regularly
Does not guarantee the success of a business
Takes time and effort which may be expensive
New opportunities may be missed if they are not included in the business plan
‘Plan-Do-Review’ cycle
A framework that allows for a continuous loop of planning where businesses are enabled to constantly solve problems and manage change.
How can the Plan-Do-Review cycle improve a business’ performance
The cycle allows a business to meet objectives and analyse performance on a regular basis and adjust activities accordingly.
What is the aim of business planning?
To minimise the impact of significant foreseeable events and plan how the business will return to normal operations after the event.
Advantages of contingency planning
Saves time and money
Could save lives
Allows for a quick recovery time
Minimises damage
Avoiding negative press
Reassures staff
Allows for a quicker response
Disadvantages of contingency planning
Can be time consuming
Resources can be wasted planning for an event that could never happen
Plans may become outdated
Not all crises are foreseeable
Crisis management
Dealing with unwelcome and usually unexpected events.
What is Porter’s five forces model?
A framework for analysing the nature of competition in an industry.
The 5 forces in Porter’s five forces model
Threat of new entrants to a market
Bargaining power of suppliers
Bargaining power of customers
Threat of substitute products
Degree of competitive rivalry
What are Porter’s generic strategies used for?
Porter’s generic strategies are four business strategies that can be followed in order to achieve a competitive advantage.
What are Porter’s generic strategies?
For broad range of market or industry segments: differentiation and cost leadership
For a narrow market or industry: differentiation focus and cost focus
Competitive advantage
An advantage over competitors gained by offering consumers greater value, either by means of lowering prices or by providing greater benefits and service that justifies higher prices.
Cost leadership
With this strategy, the objective is to become the lowest-cost producer in the industry.
This typically involves production on a large scale which enables the business to exploit economies of scale.
Cost focus
With this strategy a business seeks a lower-cost advantage in just one or a small number of market segments.
Differentiation focus
Differentiation focus is the classic niche marketing strategy.
A business aims to differentiate within just one or a small number of target market segments.
Differentiation leadership
With differentiation leadership, the business targets much larger markets and aims to achieve competitive advantage across the whole of an industry.
Explain the relationship between objectives, strategy and tactics
Objectives are the long term goals that are set in order to achieve the business’ aim. A business strategy is the plan set to achieve the objective and tactics are operational activities undertaken on a regular basis to implement the strategy.
Risk
The probability that hoped for outcomes will not occur
Reward
All of the monetary, non-monetary and psychological benefits that come as a result of an event.
What is the relationship between uncertainty and risk?
Uncertainty occurs when there is a lack of knowledge on future outcomes. This is likely to lead to higher risk as the probability of success is unknown.
Quantifiable risk
Risks that can be measured
(Eg a potential loss of overseas sales due to a strengthening pound)
Unquantifiable risk
A risk that cannot be measured
(Eg reputation of brand)
Ways a business can reduce its level of risk
Create a business plan
Watch it’s cash flow
Get insured
Ensure they have contracts with suppliers, partners, and employees
Protect confidential information
Set up a risk-management team
Create prevention plans
Consequences of poor risk management
Late-running projects
Overspent budgets
Unhappy clients
Damaged reputation
Uncertainty
The unpredictable and uncontrollable events that affect business decisions.
Examples of causes of business uncertainty
Social changes (eg consumer trends, habits, preferences, and working styles)
Economy (eg changing GDP, unemployment, and the strength of the pound)
Competition (eg being unable to keep up with competitors’ improving technology)
How does uncertainty affect businesses?
Harder to predict performance
Harder to make decisions
Opportunity cost
The cost of missing out on the next best alternative. (Ie the benefits that could have been gained from taking another decision)
Examples of opportunity costs
Work-leisure choices (the opportunity cost of deciding not to work an extra ten hours a week is that lost wages given up)
Government spending priorities (the opportunity cost of spending an extra £10 billion on investment in the NHS might be £10 billion less available for education)
Trade-offs (where having more of one thing potentially results in having less of another)
Examples of financial measures of performance
Final accounts
Ratio analysis
Gearing
Cash flow
Budgets
Variance analysis
Final accounts
The accounts prepared to illustrate the profit or loss
Ratio analysis
Involves the calculation and interpretation of key financial performance indicators to provide useful insights.
Gearing
The ratio of a company’s debt to equity.
It measures the proportion of assets invested in a business that are financed by long-term borrowing.
Cash flow
The movement of money in and out of a business over a period of time.
Budgets
A financial plan for the future concerning the revenues and costs of a business.
Variance analysis
Looking into the difference between predicted and actual performance.
Liquidity
The ease and cost with which assets can be turned into cash and used immediately as a means of exchange.
Profitability
The ability of a business to generate profits from its activities.
Efficiency
A measure of how well a company utilises its resources to make a profit.
Examples of non-financial measures of business performance
Market share
Resource utilisation
Environmental impact
Quality
Customer satisfaction
Resource utilisation
The measure of how much of your available resources you are currently using.
Advantages of using financial measures of business performance
Creates more certainty and confidence in decision making
Easily understood by shareholders
Easy to calculate
Easy to interpret
Easy to identify trends
Disadvantages of using financial measures of performance
Could be manipulated
It does not allow two projects of different scales to be easily compared
Does not give reasons behind figures
Advantages of non-financial measures of performance
Can highlight issues that need addressing
Can help to understand customer wants and needs
Disadvantages of non-financial measures of performance
Time consuming to collect and analyse
Based around opinions (which may be biased)
Forecasting
Business forecasting involves making informed guesses about business metrics or the economy as a whole.
Advantages of forecasting
Can efficiently allocate resources for future growth
Can estimate revenue and accurately plan future investment
Can discover issues in the work process
Can plan overall business goals
Can improve decision making and facilitate growth
Disadvantages of forecasting
It is based on assumption so can give the wrong results if assumptions are faulty
Can lead to disappointment if forecasts are too optimistic
It is difficulty to source reliable information to forecast correctly
It cannot be applied to a long period
It is costly and time consuming
It requires skill
Qualitative forecasting
Forecasting that relies on judgement and opinions rather than data.
Quantitative forecasting
Making estimates on future performance using past data.
Structured data (forecasting)
Highly specific data that is stored in a specific format. (Eg Delphi technique and expert opinion)
Unstructured data (forecasting)
A compilation of various types of data that are stored in their native formats. (Eg brainstorming and intuition)
Delphi technique
Involves getting a group of market experts to provide an opinion on the forecasting task. (Eg to estimate future sales growth in a market)
How is Delphi technique different to expert opinion?
Delphi technique is more accurate as the opinions come from a group of market experts, rather than one individual.
Variation
Difference between actual sales and 3 year moving average
Cyclical variation
Any change in economic activity that is due to some regular cause, such as the business cycle.
Seasonal variation
A regularly repeating pattern over a fixed number of months.
How to calculate cyclical variation
Add up the variation for each cycle point (eg all cycle point 1s), then divide by the number of cycle points (eg 3).
Extrapolation
Involves the use of trends established by historical data to make predictions about future values
Advantages of using extrapolation
A simple method of forecasting
Not much data required
Quick and cheap
Disadvantages of using extrapolation
Unreliable if there are significant fluctuations in historical data
Assumes last trends will continue into the future
Ignores qualitative factors (eg changes in tastes and fashions)
Time series analysis
Involves looking at what has happened in the recent past to help predict what will happen in the near future
Advantages of using time series analysis
Helps to identify patterns
Helps to smooth out fluctuations in data
Can predict future performance
Disadvantages of using time series analysis
Must have data over time
Consistency of measures over time
Results may depend on assumptions
Does not give qualitative reasons behind patterns
Decision making
The process of choosing a logical choice from the available options
Why is decision making important?
Allows for better utilisation of resources
Better able to face problems and challenges
Allows for business growth
Enable s objectives to be achieved
Increases efficiency
Facilitates innovation
Can motivate employees
Factors which need to be taken into account when making business decisions
Level of risk
Nature of risk
Accuracy of forecasts
Volatility (when a market experiences sharp price movements)
Potential for bias
Decision tree
A mathematical model used to help managers make decisions
Use of decision trees
To use estimates and probabilities to calculate likely outcomes
To decide whether the net gain from a decision is worthwhile
Advantages of using decision trees
Choices are set out in a logical way
Potential options and choices are considered at the same time
Use of probabilities enables the risk of the options to be addressed
Likely costs are considered as well as potential benefits
Easy to understand
Tangible resukts
Disadvantages of using decision trees
Probabilities are just estimates (prone to error)
Uses quantitative data only - ignores qualitative aspects of decisions
Assignment of probabilities and expected values are prone to bias
Decision-making technique doesn’t necessarily reduce the amount of risk
Ansoff’s Matrix
A marketing planning model the helps a business to determine its product and market growth strategy
The four quadrants in Ansoff’s Matrix
Existing products, existing markets = market penetration (lower risk)
Existing products, new markets = market development (medium risk)
New products, existing markets = product development (medium risk)
New products, new markets = diversification (high risk)
Advantages of Ansoff’s Matrix
It is easy to understand
Businesses can use it for short term and long term planning
It considers all possible alternatives
It helps analyse the risk associated with each strategy
Disadvantages of Ansoff’s Matrix
Competitors are ignored
Does not consider the cost-benefit analysis
It is difficult to predict the impact of each strategy
