ES194 - Engineering Business Management & Professional Skills Flashcards
Market
Collection of buyers
Industry
Collection of sellers
Environment
Everything that surrounds a system
Firm
A system with at least one input, transformation process and an output
Organisation
Part of a system which transforms inputs into outputs
System
A group or combination of interrelated, interdependent or interacting elements forming a collective identity
Production
The process of transferring inputs from human and physical resources into outputs wanted by customers
Environmental influences on production
- Political
- Economic
- Social
- Technological
Types of business
- sole trader
- partnership/LLP
- Ltd Co/PLC
Levels of business environment
- internal
- micro
- macro
Micro environment
- Comprises of all the organisations and individuals who directly or indirectly affect the activities of a company
- E.g. Suppliers, customers, stakeholders, competitors, intermediaries
Macro environment
Comprises of general forces and trends rather than specific organisations
Vision
- The aspirational future state that which a business strives to achieve
- Typically one line
- Inspirational
Mission
- Brief paragraph outlining:
- the company
- its direction
- values
- policies
Values
The guiding principles and ethical standards that govern how business is conducted
Objectives
Translate the vision, mission, and values into measurable outcomes and strategic initiatives
A good mission statement
- Credible definition of competitive scope
- Customer oriented POV
- Long timescale
- Key goals
- Inspire and motivate
- Realistic
(Clear Customers Lead Key Inspirational Roles)
Types of objective
- Open: cannot be measured
- Closed: can be measured, includes quantitative data
Strategic decisions for all levels
Consider a triangle:
- Top - Corporate Strategy
- Middle - Business Strategy
- Bottom - Functional/Operational Strategy
Core competencies
- Core competencies are the collective learning in the
organisation. They give the firm its key competitive
advantages because:- They provide potential access to a wide variety of markets
- They make a significant contribution to the perceived
customer benefits of the end product - They are difficult for competitors to imitate
Value chain
A system of manufacturers, wholesalers and retailers who add value to a product
Internal environment
Comprises of teams and functions within the organisation
5Ps of marketing mix
- Product
- Price
- Packaging
- Promotion
- Place
Product (5Ps)
- May be a physical entity or service
- Should offer some benefit to the customer –> if competitors cannot match this benefit, then the product has a USP
- Judged on: Quality, Durability, Brand
Price (5Ps)
- Usually set by the market
- Ability/Willingness of consumer to pay –> Affluent/Poor areas, Luxury branding
- Strategic Costing –> Loss leaders
Pricing strategies
- Price maker: set by the market leader
- Price taker: others in the market not as dominant as the market leader
- Cost plus pricing: Product cost + Profit margin = Selling Price
- Target pricing and costing: Target market price - Profit margin = Target cost
Packaging (5Ps)
Performs two principle functions:
- Catches the customer’s attention or conveys an impression of the product
- Ensures that the product is delivered in good condition
Promotion (5Ps)
- Any type of persuasive communication aimed to increase purchases
- Broader target than the current customer base
Forms of promotion
- Sales promotion
- Advertising - Narrowcast + broadcast
- Publicity
- Sales - Sales systems + personal selling
- Public relations
Place (5Ps)
- How the product is distributed/how the customer receives the product
First mover advantage
Market pioneers achieve the shortest time to market. This is an advantage as:
- they have the first mover advantage creating a temporary monopoly, giving rise to ‘Super-Normal’ profits
- network effects create a buzz between collages/peers, making more people want the product/service
- higher brand loyalty, reducing promotion costs
- higher switching costs for customers, also reduces promotion costs
- broader product ranges that pre-empt competition
- reduced costs through the experience curve and economies of scale
Risk and Uncertainty
- Risk is quantifiable
- Uncertainty cannot be calculated
Advantages of following
– Market uncertainties reduced - able to witness what the customers like/dislike about pioneer’s product
– Technological uncertainties reduced - able to improve reverse engineer from pioneer’s product, reducing R&D costs
- able to improve design by learning from pioneer’s mistakes
- able to exploit pioneer’s bad reputation for any design/safety problems
– Legal uncertainties reduced
- authorities may attack the pioneer only
- legislation more established, based on experience with pioneer
- followers may be encouraged to avoid a monopoly
Next bench syndrome
- To design a product to meet the needs of fellow engineers instead of the real customer
- Leads to a product becoming overengineered and therefore more expensive
Stages in product life cycle (PLC)
- Introduction
- Growth
- Maturity
- Decline
These are based on the number of adopters and maturity in years
Stages in product life cycle (PLC) using BCG matrix
- Problem child
- Star
- Cash Cow
- Dog
Based on Market growth rate and Relative market share
Problem Child: Introduction
1st stage
Marketing intense
- Create product awareness
- Establish clear identity for new product
- Create many trial or impulse purchases
Cash negative
- High demands to fund product development and marketing
- Low returns due to low market share
Possible actions
- Invest heavily to increase share
- Sell off
Star: Growth
2nd stage
Marketing needs to high
- Sustain marketing efforts to fend off new competitors and encourage repeat buys
Cash neutral or negative
- Large expenditures and sales, cash flows in balance
- Larger expenditure to maintain or increase leadership position
Actions
- Invest in marketing + production development to create cash cow
Cash cow: Maturity
3rd stage
Marketing needs to be low as
- Customers can be loyal
- Competitors begin to leave market
Cash positive
- High, steady sales
- Little product development needed
- Production equipment paid for, ‘sweating the assests’
Actions
- Invest profits + cash to find the next ‘cash cow’
- Maintain to ensure maximum cash
- Try to avoid standardisation and ‘commodity status’
Dog: Decline
4th stage
Marketing needs rise
- Customer loyalty decline
- Demand reduced/eliminated by new designs
Cash low positive or negative
- Slow growth or decline
Actions
- Continue, maximise cash flow
- Consider investment in ‘turnaround’
- Expand to specialise in ‘obsolete’ products
- Sell off
PLC limitations
- You may have a different demand pattern
- Your marketing activities may force a product into a life cycle stage
- Difficult to predict which stage a product is in
- An unconventional strategy can be successful
Objectives of a balanced portfolio approach
- Problem child can be converted into stars
- Stars have high growth rate and high market share to assure the future
- Cash cows supply funds for future growth
- Dogs generate some extra cash to help sell other products
