business paper 3 Flashcards
1
Q
business objectives and strategy
A
business objectives are what a business hopes to achieve, and a business strategy is what a business does to achieve those objectives
2
Q
corporate aims
A
what the business wants to achieve in long term
3
Q
mission statement
A
a statement of the aims of a business designed to give stakeholders a sense of direction
4
Q
corporate objectives
A
short term targets which are set to help achieve overall goals-
5
Q
Mission statement BENEFITS
A
- can create and help support a shared vision for employees which can lead to the greater motivatio and engagement as they understand the aims of the business and as a result there might be increased productivity
- stakeholders will form a better impression/image of the business as a result of readin its mission statement and this might attract investors, which can help a business develop more products and make a bigger portfolio
- customers may agree with the business values and choose them over other competitiors, which gives them a better brand image and a competititve advantage as they differentiate from others.
6
Q
Mission statement DRAWBACKS
A
- often its too vague and general or merely statements of the obvious, which does not add to any different aspect of a business and it can seem bland and as it does not have its unique selling point which can put off customers and potential investors.
- unrealistic statements can be demotivating for employees, as they might think they are not good enough to achieve the overall goal for the business, therefore their performance might be bad which can influence companies brand image and therefore not meet the needs of the customers.
7
Q
Ansoff’s matrix
A
its a decision making model that can be used to help businesses analyse its strategic options and opportunities for growth.
8
Q
Market penetration
A
- same product, same market
its a safest option and its useful if the brand is well known for its porducts therefore they have higher revenue on the same products.
it can increase bran loyalty.
encourage customers to use the product more ofter
its useful if the marekt is growing, there is a good understanding for the product, there can be value added therefore price put higher
the company already has market share and customer base
9
Q
market development
A
- same product, new market
existing products may not fit the new market
changes may have to be made to adapt to the new market which can be costly
different pricing policies to attract new customers
tastes and preferences may be different
new customers, have to get their trust, time consuming
cheaper than product development
10
Q
product development
A
- same market, new product
suitable for short product life cycle or dynamic markets (trends change quickly)
connected to product innovation and incrased improvement
same market therefore there are customers and this can help extend the life cycle of the product
its costly as there is a higher investment in research and development,
higher risk if the product will be successful
11
Q
diversification
A
- new product, new market
highest risk, it takes business outside its area of expertise
well known businesses can take more risks, so its suitble for those businesses
if one product fails, a successful product in another market may prevent the overall business facing problems
might perform poorly compared with more experienced operatiors and gain a bad reputation.
12
Q
usefulness ansoff’s matrix
A
+ clear, graphical representation of a corporate strategy and it can help to show risk and potential reward for a given strateg, which can motivate employees in the business, and potential lower the % of mistakes as the strategy is clear and easy to understand.
+ can help a business to assess the degree of risks or resources requieremnet for each option, which can help them be successful and avoid the risk shown
+ helps to identify different ways of growing (organic inorganic?)
13
Q
drawback ansoff matrix
A
- just one decision making model, others may be used and could give different readings of the situation and provide more in depth data that would be more useful for the business as it looks at every aspect. Formal market reseach in each market may give better indications of the needs of each new marekt. More research needed to understand the market conditions and customers preferrences.
- it is a theorethical and simplistic tool that takes no accound of changing economic and marekt conditions. Does not considure figures, or actions of competitiors and its subject to external factors that cannot be planned for such as COVID 19.
14
Q
Porters strategic matrix
A
method that can be used in the development of a corporate strategy, it helps to identify the sources of competitive advantage that a business might achieve in a market.
15
Q
cost leadership
A
- striving to be the lowest cost provider in the mass market
aim is to keep prices the same, but gain higher profit margins
lowering prices to gain market share
companies need a large market share to achieve cost leadership, economies of scale and negotiating with suppliers, to lower the cost
16
Q
Benefits C.L.
A
+ can increase demand if price is competiitve (low cost)
+ increased profit margin
16
Q
Drawbacks C.L.
A
- can result in poor bran image if prices are lower, customer may think that the quality is bad and they might trust other brands more
17
Q
differentiation
A
- operating in a mass market with a unique position (customers value the product a lot)
companies need to offer a level of differentiatoin from the competitors. to add value:
quality, design, custome service, brand, sponsorships
18
Q
focus
A
- targeting a narrow range of customers (niche)
it is used by small or very specific companies - cost focus:
focused on cost minimisation within a niche market - differentiation focus:
differentiation within a niche market
18
Q
A
18
Q
Benefits F.
A
+ as they are focusing on a narrow segment of the market they are able to gain an advantage of understandin its customers well and building relationships which will ensure loyalty and customer base. High level of customer satisfaction and products are specific to their needs.
+ less competitiors and higher profit margins as they can put the prices higher
19
Q
Benefits D.
A
+ can charge premium prices (USP)
20
Q
Drawbacks D.
A
- high cost for reasearch and marketing to hilhglight unique product and to do marketing and promotion
- others may copy the usp
21
Q
Focus
A
- targeting a narrow range of customers (niche market)
its used by smalls or specific companies - cost focus
cost minimasation within niche market - differentiation focus
differentiation within a niche market
22
Benefits F.
+ as they are focusing on a narrow segment of the market they are able to gain an advantage of understanding its customers well, which leads to high level of customer satisfaction and loyalty products specific to their needs.
+ they have less competitiors and higher profit margins
23
Drawbacks. F.
- low bargaining power with suppliers, because their product might be really specific
also niche market so they do not order in bulk, therefore no economies of scale.
not a lot of suppliers to make the product therefore they can increase the prices.
24
Limitations of porters strategic matrix
- ignores other external factors, profit margins and profitability.
- it is only one tool, a business could also use ansoff or portfolio analysis.
- markets are dynamic, while this matrix is generic and not flexible (rigid), therefore it might not show the correct
25
Portfolio analysis - Boston Matrix
- a method of categorizing all of the products of a firm (portfolio) to see where each one fits within the strategic plans.
Boston Matrix - products evaluated according to competitive position in the market and potential growth rates.
26
Benefits B.M.
+ visual representation of situation, associated problems or opportunities which can be helpful than just relying on figures. In addition, as market share may be gained though investment in marketing, the matrix helps to focus on a promotion strategy of new ranges and designs to increase sales. It anaylises the current portfolio to help with strategies and growth.
+ its an analysis and it contributes to planning, for example products that have potential for future are identified and business can invest more into them, while products with little or no potential in market place can be withdrawn or re lauched.
27
Drawbacks B.M.
- it may be too simplistic, compared to financial analysis (or any other). In addition, its only a snapshot of the current portfolio. It has a little or no predictive value and does not take into the account external factors such as compeitiors or changes in trends.
- the positioning of products into the boston matrix and interpretation of positions, needs skill and experience which if one does not have can lead to mistakes, which is costly and it can cause a firm to lose money trying to sustain an old product that has been out dated by changes in trends.
-
28
Boston Matrix possible conclusion (depend on)
- market share and market growth is just one way of measuring the performance of a product, other factors such as, brand strength, competitive advantage or customer loyalty may be more important for some products. Business considering the overall business may be more important than analysis of individual products.
29
strategy
- stratgey is more longer term and relates to achieving an overall goal
30
tactical
- tactics are shorter term actions that help to achieve the strategy (day to day decision)
31
effect of strategic and tactical decisions on human, physical and financial resources
human resources - impact on the workforce, recruitment, training, redundancy
physical - impact on land, machines, tools, equipment...
financial - impact on financial resources such as raising funds externally/internally, sources of finance
- workers may have to be specially trained. which is more complex and costly, they might feel more motivated to do work because the company is tkaing care of them, or they might feel stressed because they have to fulfill expectations of the company.
- business has to invest more to buy more equipment, more storage , move to a new location
- big companies will have funds however, small bussines no, therefore it is not suitable for them
32
SWOT analysis
- it allows the business to gather information to then help make decisions regarding strategy
Internal consideration - strengths and weaknesses
External consideration - opportunities and threats
33
Benefits
+ by identifying its strengths a business will know which areas to further develop
+ areas of the weakness can be identified and addressed and improved
+ possible threath can be identified and planned for, and business can try and lower the effect of them on the business
+ potential opportunities can be explored and developed
34
Drawbacks
- its time consuming to do the swot analysis and it might delay the introduction of the product to the market, because business wants to make sure they are prepared for everything and can improve the product as much as they can before they put it on the market so the customers are satisfied. However, it does generate a lot of ideas, and information therefore it can be hard to decide. It does not prioritise actions or actually make a decision.
35
PESTLE
- a framework used for assessing key features of the external environment facing a business.
It can enable the business to identify external factors that will impact positively or negatively.
36
Political
- competition policy, industry regulatoins, government spendint and tax policiese
37
Economic
- interest rates, consumer spending and income, exchange rates, GDP
38
Social
- demographic change, consumers tastes and fashion, chanigng lifestyle
39
Technological
- adoption of mobile technology, new production processes, big data and dynamic pricig
40
Legal
- employment law, minimum wage, health and safety laws, environmental legalisation
41
Environment
sustainability, pollution and carbon emission
42
Porters Five Forces
- framework for analysing the nature of competition within the industry.
Identified 5 factors that act together to determine the nature of competition within the industry.
43
1. potential entrants
- if someone new comes they will gain market share and rivavrly, meaning the existing companies will have less market share.
44
2. bargaining power of suppliers
- they can sell their product at hihger price, especially if the market is niche and there is only a few suppliers.
Powerful if costs of the alternative is way higher
45
3. bargaining power of customers
- they can exert pressure to drive down prices or increase the required quality for the same price, therefore profits of the industry are reduced. Smaller number, greater power
- if there is not a big number of alternative suppliers, there is less power for the customers to shop around.
46
4. threat of substitute products
- produced in different industry but it satisfies the same need. If there are many the price will be limited and will reduce industry profits.
Depends on: how willing is the customer to switch and their loyalty and cost of switching (if they are tied into using supplier's products)
- if there is a threat from a rival product the firm will have to improve the performance of their products by reducing costs and prices or increasing quality (differentiation)
47
5. industry competitors
- if there is a intense rivarly in an insutry, it will encourage business to encage in: LIKELY TO REDUCE PROFITS AND INCREASE COSTS
1. price wars - competitive price
2. investment in innovation and new products
3. intensive promotion - higher spending on adds
48
5 forces Benefits
+ its beneficial to analyse the threat of new entrants/substitute products and the impact it might have on the market share of the business. These strategies need to protect the business against new entrants and others by trying to increase barriers to entry and they should increase brand loyalty, to have customer power on their side against other competitors. This will ensure that the business has competitive advantage over others in the market and can lead to higher market share and profits.
+ it helps identify strengths and weaknesses in reference of how competitive the market is, this helps the business put strategies into the place and they can take advantage of their strong position and help it avoid poor strategic decision in the future, which can ensure their success.
49
5 forces Drawbacks
- its only a managment tool which relies on the skills of the person being able to analyse the competitive environment. If the analysis is done wrongly, the wrong strategy can be choosen which can lead to mistakes and higher costs for the business.
- some businesses may not have access to market data such as small and start up businesses, or be able to apply the model to such a unique product, therefore they will not need to use this model to analyse rivarly amongst existing competitiors and its not useful tool.
- 5 forces is a model managment and decision making tool which must be used in conjunction with other decision making tool such as PESTLE or SWOT analysis to increase its effectiveness.
50
Growth
Objectives of growth
- to reach economies of scale
- to increase market power over customers and suppliers
- to increase market share and brand recognition
- to increase profitability
51
organic growth
- expansion from within the business itself based on its own resources rather then expanding through takeover or merger.
52
ways of growing organically
- new product launches, bigger portfolio, product innovation
- opening new stores/expanding/overseas markets
- launching existing products directly into new international markets
- expansion of the workforce, investing into additional production, market development, increasing capacity or new technology to allows increased output and higher sales volume.
- franchising
53
Organic growth Benefits
+ its less risky than inorganic growth, as it can be achieved by extending practices that are well known and understood. This will prevent an risks and mistakes to happen, therefore avoiding additional costs.
+ its cheaper, as it can be financed from retained profits and there is no need to take out any long term loans that will need to be paid back in the future.
+ it avoids diseconomies of scale, as business is able to plan effectively for its growth. Business can control steady and measured growth, therefore no sharp increases in unit costs are likely to occur.
54
Organic growth Drawbacks
- slow growth, it might be too slow for some stakeholders, which can make them mad, and therefore they can leave the company as they want higher paychecks, or dividents
- its not appropriate if the market that the business operates in is growing rapidly as they might be behind other competitors and lose customers.
55
Inorganic growth
Merger - where 2 or more business agree to join forces and form a new business
Takeover - involves one business taking control of another business following a buyout of their shares
56
Inorganic growth Benefits
+ its more quick as it can buyout company or merge with another which makes the business growth quicker as market position is acquired immedietly, compared to organic growth
+ benefits from taking over the workforce from the other business which means greater pool of skills and experiences, as well as getting sales, assets, customers.
+ competition is reduced as they have become a bigger one
57
Inorganic growth Drawbacks
- more expensive than organic growth, might have to get a loan which is bad in long term, as it needs to be paid back with interest.
- its difficult to combine different organisational cultures and manegment styles, can affect staff negativelly, might leave which can increase labour turnover. This can lead to bad reputation of the business
- depending on what business they take over they might lose sales and customers, lead to bad image
- When they takeover a busienss they takeover all of their loans and low sales, which can affect their current situation
- overtrading, trying to fund a large volume of a neww businesses without sufficient resources, might not have enough capital such as cash to buy the resources it needs, therefore might be in debt which can lead to higher costs.
58
Quantitative sales forecasting
- making future predictions based on trends identified from past data.
59
Benefits
+ the data is more likely to be reliable when forecasting is for short period of time such as seasons and they are revised frequently so they are not outdates.
60
Drawbacks
- past performance cannot guarantee the future one, as trends and preferences can always change and therefore its risky. Business needs to consider additional factors such as internal and external ones that can affect future predictions.
- not suitable for dynamic and fast changing markets as it is not likely to be accurate and mistakes can happen which can increase costs of the company.
61
Investment appraisal
- a set of techniques that can be used to determine wheather a capital investment project should have been undertaken or not.
62
simple payback
- the payback period refers to the amount of time taken for a project to recover the initial cost. Project with the shortest payback is the best
63
Payback Benefits
+ its simple and easy to calculate and understand. its straight forward to compare copmeting projects therefore its quick and can save time
+ tells the payback period which helps planning for finances in the future
64
Payback Drawbacks
- does not create a decision for the investment
- ignores qualitative aspects of a decision, its too simple and it does not take into account other opinions
65
ARR
- compares the average profit of the year generated by an investment with the amount of money invested in it.
66
Benefits
+ it focuses on profitability, which is a key issue on shareholders of the projects
+ it can be used to identify opportunity cost, and which products are most profitable, leading to strategic planning.
67
Drawbacks
- does not take into account cash flows, only profits which can lead to inaccurate assessments and mistakes which can be costly as planning is not done in depth.
68
NPV
- how much money a project is forecasted to return over time and compares that to how much money would have to be simply invested into a savings account today in order to earn the same return. Should they invest in the project/bank
69
Benefits
+ it correctly accounts for the volume of future earnings by calculating present values, and this can be beneficial as the business can chose the best and most appropriate strategy for their project, which is most likely to lead to success and profit.
+ the calculations are more complex than the other methods, user may find it hard to understand which can lead to bad interpertations and mistakes which can results in higher costs.
70
May depend on...
- current interest rates, and economical situation of the business
71
Decision trees
- diagram that shows the possible outcomes for a project. Its based on probability
72
Benefits
+ it will lead to a decision based on a logical sequence of considered answers to questions involved in a decision, rather than making a random decision without the consideration. Therefore preventing mistakes and ensuring success as it gives justification to the decision.
+ they are simple to construct and easy to interpret, they are likely to be used more frequently than more complicated tools. It also forces the business to consider chances of failure as well.
73
Drawbacks
- not suitable for the businesses in the dynamic market as time lags often occur and by the time the decision is made some of the numerical data might be outdated, therefore there is no use.
- may be good for making tactical short term decisions, however not suitable for long term strateginc decisions. Its limited to the data that is used and its based on predicted data, it doesnt take into account unforeseen costs therefore there is a high risk of making a strategic decision based on a deicison tree, as it can lead to mistakes.
74
Critical path analysis
- a project managment tool that uses network analysis to help project managers handle complex and time sensitive operations.
- purpose is to plan projects in a way that limits the use of limitated resources and enables a project to be completed in the shortest time possible. It schedules a range of activities that make up a project.
75
Benefits
+ hlps with planning which is essential when a business wants to complete a project as soon as possible
+ helps to identify the shortest and most effective route to complete the project and is useful if it has number of different stages.
+ costs waste and time can be minimized by identifying and following the critical path
+ if there is a deadline it reduces the risk of time being lost. It knows when someone is needed.
76
Drawbacks
- its based on predictions, and its only valid if the data that is being used is valid. It doesnt take into account external shocks and cannot always deal with uncontrolable problems.
- the value of CPA depends on all teams working to plan and taking the plan seriously.
77
Contribution
- its a financial factor taken into account when making strategic and tactical decisions.
78
Usefulness of contribution
1. business may receive orders from a lot of customers and they do not have capacity, contribution helps to decide to take the ones that have highest contribution for the business which increases revenue.
2. it can be used to decide wheather a new product is a good idea. Higher contribution margins indicate a greater porportions of revenue avaliable to cover fixed costs and contribute to the profit. As a result business can see the impact on breakeven and if its achiavble in reasonable time frame then product does have potential to be financially viable.
+ if contribution is high shareholders have higher dividents, and it mght attract more as they are satisfied.
79
Contribution may not chose order with highest contribution why?
1. the nwe order might help with business image, which increases brand awarness
2. if the order is from a new customer they may still accept it if the contribution is low, in hope ot get repeat orders in the future.
If contribution is low there is a need of huge amount sold for even a small profit, which impacts dividents, investments and expansion
80
Corporate culture
- business culture is the unwritten code that affects the attitude and behaviour of staff. The values, beliefs and typical behaviours of one organisation.
81
power,role,task,person
strong/weak culture
Difficulties in changing the established culture
- staff may feel angry or resist the change, might leave if they dont like it, therefore labour takeover is increased.
- time consuming to change the culture its a long term process. As culture is defined as unwritten code of conduct its not official.
82
Business ethics
- concept of trade off, as its not possible to be both profitable and ethical, therefore ethical dimensions have to be sacrificed.
83
pay and rewards
- used to attract more employees with right skills and experience. higher paid jobs with rare skills.
- to reaward and motivate current staff, to work best of their abilities, which increaes motivationa and productivity.
84
Benefits
+ marketing purposes, it will have a positive social impact and the brand image will increase, might attract more customers as current trend is to be more aware of the planet. Number of investors might increase.
85
Drawbacks
- if ethical, the costs are higher and if they break the law they will have high fees to pay.
86
Corporate Social Responsibility
Impact the business has on environment all about ethics
- how well they treat their staff?
- how well do they perform on those issues?
- how ethical they are?
- % recycled/ raw materials used/health safety issues
87
statement of comprehensive income
- stakeholder interest:
looking at the whole document and learning about the business's profitability owners or potential investors want
focusing on specific sections, expenses for managers and workers, particularly if labour costs make up a large part of them.
88
statement of financial position
- suppliers would want to see wheather a business can pay its bills on time
- potential investors or owners if business had an ability to distribute cash in form of dividents.
89
Human resources
- strategies to increases productivity and retention and to reduce turnover and absenteeism
90
financial rewards (bonus)
employee share ownership
consultation strategies (ask staff)
empowerment strategies (giving authority)
motivation increased, profitability, loyalty, performance, engagement, power, productivity, work life balance
91
non financial rewards.
- empowering female leaders programme, regular meetings, informed about events, feel important, have to ensure that managment time all of these strategies effectively for all the employees.
92
Managing change
- change managment: the driver of change comes from the managment, rather than the managment dealing with other reasons for the change
93
Contingency planning
* a backup plan designed to reduce risk if things go wrong or problem arise.
94
Identifying key risks through risk assessment
- natural disaster, IT system failure, loss of key staff,
Planning for risk:
- take out insurence, business continuity, data is backed up, succession planning
95
ration analysis Profitability
To improve:
- decrease costs (be more efficient, negotiate with suppliers, cut workforce)
- increase price, innovate to meet needs, add value to the products, have loyal customers, that will repurchase and therefor bring sale.
- assess the profitability of each product and focus on it which has the highest
96
2. Liquidity
to improve:
- decrese current liability (debts payed withing 1 year), can do it with factoring sell debts to someone else.
- increase current assets, make cash flow be higher, have discounts, delayed payments, inventory sold. Maintain enough cash to cover short term obligations.
97
3. Capital employed
- money business managed to raise for the investment.
98
4. Gearing ratio
- gearing measures the porportion of a business that is financed from long term borrowing. (debts)
1. High gearing ratio, indicates a greater vulnerability to interest raes changes. It can influence liquidity badly as they have to payback more money. If business is poor in cash it can struggle to survive.
- Low gearing ratio is good as it means that business doesnt rely on money from debts, however if they use their retained profits shareholders might not be happy with that because they see their dividents is not given and it could be more.
99
5. Return on capital employes (ROCE)
- can help understand how well a company is generating profits from its capital as it is put to use.
It tells u what profits the business has made on the capital they have raised form non current liabilites, share equity or retained profit. The highe the better.
100
Usefulness:
+ it can be used to compare the performance of a business over time or with similar businesses, it identifies areas of stength, it can see trends, use them and gain competitive advantage.
It can produce extra information from published accounts and indicate areas for action such as costs, debts, revenue...
101
Limitations:
- they need to be compared over a long time period to gain an understanding of trends, might be hard to get further historical information if a new business is in the market, therefore its not useful.
- they are only as useful as the financial documents on which they are based. Balance sheets only a snapshot, its subject to change, outdated data and mistakes which leads to increased costs.
