Chapter 7- Strategy and implementation Flashcards
Why is planning an important tool?
For the future success of a business
What tools are used when planning?
- various tools are used such as Decision trees, critical path analysis, and investment appraisal in any discussion about strategic planning
What must future objectives fit in with?
- The future plans of the business
- Risks will be taken but it is through future planning that risks are minimised
- Businesses that do not plan ahead are likely to be overtaken by rivals
definition of objective
- Set by a business in an attempt to reach a particular goal e.g. survival, break even, profitability
Definition of strategy
- An action plan that the business puts in place to help achieve the objectives e.g. To use marketing to increase awareness/sales
Definition of tactic
- A method used to achieve a strategy e.g. target audience with emails
What is the relationship between objectives, strategy and tactics?
- The tactics make it possible to achieve a particular strategy and if the strategy/strategies are successful a business will achieve the objective that it has set
Developing a strategy
- To formulate a strategy information needs to collected on all aspects of the business
- Both internal and external
- This called an audit
- Should be executed on a regular basis
What does an internal audit look at?
- The strengths and weaknesses of the business
What does an external audit look at?
- The opportunities and threats in the trading environment
Internal audit
People
- Labour turnover
- Motivation
- Absenteeism
- Productivity
Marketing
- Sales
- Advertising
- Sales staff performance
Financial
- Budgets and variances
- Profitability
- Cash flow
- Investment appraisals
Operations management
- Productivity
- Delivery
- Stock control
Internal audit (explanation)
- Allows a business to assess it strengths and weaknesses in relation to its competitors across the whole of the business
- Many businesses employ external organisations to complete these surveys although it is impossible for management to do them for their own departments
- Aim is to get accurate information on each of a businesses department
- Best to use statistical or numerical data for this
External audit (explanation)
- Looks at the opportunities and threats it faces in the external environment
- All environments are constantly changing and a business needs to be aware of these
- they need to know how these changes will affect them
External audit
- Technological change
- Competition
- EU
- Law
- Economic issues
- Political influences
- Customer bias
- Social issues
- Environmental issues
- Culture
- Pressure groups
- Ethics
What does PEST analysis stand for?
- Political
- Economic
- Social
- Technological
- Competition
- Culture
- Ethics
- Pressure groups
- Environment
Political
- Actions of the government can have a major impact on the way in which a business operates
- Legislation on employment, health and safety, competition, and taxation are all examples of government policies that have an impact on employers and businesses
Economic
- Economy and government economic policy are key areas of concern for all businesses because of the impact which they have on consumer demand
- Inflation, interest rates, value of the currency, unemployment and the economic cycle will play their part in influencing the success of the business and in determining its actions
Social
- Characteristics of the population are important factors for business demand
- Changes in the distribution or spending habits of consumers are constantly changing making it vital that businesses are aware of these changes and act accordingly
Technological
- Changes in technology offer businesses new opportunities but also create new risks
- A successful business must be ready to implement new procedures and train staff in their use
- They also need to recognise situations where existing processes and machinery have become obsolete
- Successful and innovative businesses will already be preparing for the next product in such a cycle
Competition
- The extent of the competition and the threat which it poses will have a considerable impact on the success of the business
- May be necessary to change the price or product range in response to competition
Culture
- Businesses need to take into account of the characteristics of the local population and their shopping habits
Ethics
- businesses must be aware of the demand for ethical trading and its effect on customer demand
Pressure groups
- They can exert pressure on businesses
Environment
- They are becoming increasingly important (environmental factors)
Using the information
- Once the audits are complete, the business needs to put the information into a summarised format
- Best to place the information into is a SWOT analysis
- This shows the strengths, weaknesses, opportunities and threats for the business
- Its important to not use a SWOT analysis in isolation
- A SWOT analysis only gives part of the picture and should be viewed alongside information which a business might gather e.g. market research, ratio analysis and other financial data
Stakeholder objectives and strategic management
- A stakeholder is a person or party that has an interest in the success of a buisiness
- Stakeholders want to see a business succeed because they will benefit from its success
- Stakeholder objectives can be used to create framework to see how the busin ess is operating
- Can also be used to analyse the setting of a businesses objectives and the tragedy it develops to reach them
- Staekholders can affect the business and the business can affect the stakeholders
- How do stakeholders view change or success
- How do the objectives of the different stakeholders affect the strategic decisions of the business
Definition of stakeholder
- A person or party with an interest in the success of the business
Stakeholder objectives
- Stakeholders benefit, but they may not do so equally
- Stakeholder objectives have to be addressed because:
Employees- who feel valued will be more productive, less resistant to change and less likely to leave - there are different types of employee
- At different levels will have different objectives e.g. ( directors and managers)
Customers- Who do not feel exploited and like the standard of the product and service will generate repeat custom (don’t want to feel exploited)
Suppliers- who are treated as true stakeholders rather than ‘suppliers’ are more likely to be loyal and committed because they have a stake in the business. - Has important implications for the short term (needing a quick delivery) and also for the successful implementation of strategy (need to be seen as a true stakeholder)
- Owners- Will want a return that they feel is satisfactory
- If the business is a company shareholders will expect (at least) the sort of dividend that investors in a similar business have received
- they will also be expecting a rise in the share price over time
- If these are not forecoming, they will sell their shares
- this will drive the share price down and could leave the business open to a takeover
Local community- if not treated correctly can generate negative publicity
Stakeholder conflicts
- Business must take into account stakeholder objectives when making strategic decisions
- Conflict between stakeholder will always exist
- Trade-offs will have to be made between the different groups
- E.g. profits needs to be increased through cost cutting, shareholders may be happy but employees not due to being laid off
Stakeholder influence
- In any given business some stakeholders will have a greater influence than others
Employees - How many are there? Is there a union? Is there a high level of turnover
Shareholders - if dividends is low, they can vote directors off the board, where as employees cannot
Suppliers - is the supplier in a monopoly position or not?
Local community - How will bad publicity affect the business?
Creditors - How likely are they to allow missed payments?
Key stakeholders
- One (s) with a large amount of influence on the business
- A key stakeholders views will play an important part in strategic decision making
The legal situation
- Whereas previously shareholders took precedence this has changed in the companies act 2006
- It states that directors must act in good faith (honestly) to promote the success of the company
- Director must now ‘have regard’ for a number of factors that include:
- Likely consequences of any decisions in the long term
- Interests of the employees, relationships with customers and suppliers
- Impact of operations on the environment/community
Companies Act 2006
- This has put into law for the first time a statutory statement of director’s duties and responsibilities
- This includes having regard for employees, suppliers, and the environment
Porters five forces model
- It’s a system for analysing the level of competition in an industry
- It looks at the forces that determine the level of competitive intensity and the attractiveness of the industry in terms of profitability
What is porters five forces?
- Threat of new entrants to the market
- Bargaining power of suppliers
- Bargaining power of consumers
- Threat of substitute products entering the market including changes in technology
- Degree of existing competitive rivalry
Threat of new entrants
- New entrants will take a share of the market and increase the competitive intensity
- the greater the barriers to entry, as in a monopoly, the smaller the threat will be
Bargaining power of suppliers
- Suppliers who can increase their prices will mean a cut in profits
- Lack of bargaining power of suppliers to supermarkets in the uk increases profitability of the supermarkets and lowers the competitive intensity
Bargaining power of customers
- Strong bargaining power of customers will drive done prices and reduce likely profitability
Threat of substitutes
- Substitute products entering the market can effect sales e.g. mobile phones
Degree of competitive intensity
- High competition means innovations, price wars and more spending on promotion which all reduce profit
Using the model
- When a business is looking to enter a new sector the model is good to use to see things clearly
- It can include people doing the job themselves instead of using professionals
- The problem with the model is that it is difficult to obtain all the required information about threats that exist
Models of strategic choice
Porters generic strategies show how a company can achieve competitive advantage
He considered 3 strategies, together with a fourth ‘stuck in the middle’ which is unlikely to result in any competitive advantage
1. Cost leadership
2. Differentiation
3. Focus or niche
Cost leadership
- Aim to be the lowest cost producer in the market, need economies of scale particularly by reducing production costs and passing those savings on to the consumer
Differentiation
- Producing goods that are seen to be different to that of its competitors
- It will allow a firm to charge a premium for the product
Focus or niche strategy
Aim to produce for a particular segment of the market who will pay the price
‘Stuck in the middle’
- In trying to adopt all three strategies will not achieve success
Management by objectives
- its a system by which managers and employees define and agree a series of objectives for the business
- Peter Drucker defined the term MBO
- It involves measuring employee performance against a standard set
Advanatges of MBO
- Improves the motivation of employees
- Everyone is working towards the same target
- If employees are involved then more likely to accept them and achieve them
- Management and employees are communicating about targets
Disadvantages of MBO
- A holistic view of the organisation needs to be taken
- Meeting the targets at any cost can mean poor quality
- The goals become more important than having a cohesive and achievable plan
If a firm wants to achieve a competitive advantages what should they do?
- They should look at each of these strategies to see if they can be applied to the businesss particular situation