Handout 3- strategy and implementation Flashcards
what is a vision statement?
aspirational description of what an organisation would like to achieve in the medium to long term future.
what does a vision statement qs look like?
what are the businesses hopes and dreams?
what problem is the business solving for the greater good?
who and what are the business inspiring to change?
what is the role of the vision statement?
present a vision of where the business could be in an ideal world
source of inspiration and motivation
help direct strategic decision making across the business
what is a mission statement?
broad statement of its aims and values
defines the present purpose of the business and objectives
what is the role of the mission statement?
guide everyday operations and decision making of a business
main aim is cohesiveness
communicate the purpose of an organisation not only to employees but also to stakeholders
what do mission statement qs look like?
what do we do?
what do we serve?
how do we serve them?
Advantages of vision/mission statement (5)
describes core activities of business
concise and easy to understand
differentiates firm from competitors
communicates the purpose of a business to staff>staff more likely to be motivated
inspire those who read it
disadvantages of vision/mission statement
can be vague
doesnt always describe business accurately
may not be achieved
not a true reflection
unrealistic sometimes
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What is an aim?
What the business wants to achieve in the future
Tend to be quite generic and broad
Set out goals for business
Why does a business set aims?
So that everyone in the business has a clear focus on where the organisation is heading
Business can measure its progress in achieving its aims over time
Cooperate goals for the whole business
What are the 8 cooporate aims?
Profit maximisation- full usage of resources to the full with as Lottie wastage as possible
Growth-sell product/service to a large market
Survival
Sales maximisation- selling as many units of a good/service as possible, without making a loss to achieve rapid growth of market share
Environmental ethics
Increasing shareholder value- measured by the amount of dividend paid to shareholders and any increases in share price; involved in increasing the price of business shares.
Customer welfare
Employee benefits
What are objectives?
Measurable (quantitative) short/medium term targets of how to achieve business aims
What are the 2 different levels of objectives?
Corporate objectives
Functional objectives
What are corporate objectives? [ 4 points]
Company-wide goals that need to be achieved to keep the business on g track to achieve its aims
Set by senior managements
Objectives the entire business is working towards
Tend to be financial in nature> easy to quantify and measure
What are functional objectives? [ 2 points]
Targets or goals relating to 1 of the 4 functional departments in a business: [ HR, finance, R+D,marketing]
These 4 sets of objectives must match the organisations own corporate objectives
Objectives need to be (i)__________ and give a clearly defined (ii)__________
(I) practical
(Ii) targets
Objectives need to be SMART. What does SMART mean?
S- specific
M- measurable
A- agreed
R- realistic
T- time specific
What are the types of objectives a business can set? [4]
Growth objectives
Market share objectives
Profitability objectives
Branding objectives
Why are objectives important? (4)
Represent a clear statement of what need s to be achieved
Represent targets for groups and individuals [motivational]
Means of measuring performance
Used to implement the mission and the aims
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What is a strategy?
How a business sets out to achieve its aims and objectives
Long term business planning
what are the 2 sides to strategy?
Formulation
Implementation
What is formulation?
A similar process to constructing a business plan
What is a implementation?
Putting plan into practice
What are the 4 stages of developing a strategy
1] corporate strategy
2] strategic direction
3] divisional strategy
4] functional strategy
Explain corporate strategy (3)
Concerned with strategic decisions a business makes that effects the entire organisation
At corporate level the strategy is concerned with long-term planning; huge impact on entire business
High risk decisions are made by senior managers/leaders which can be costly and irreversible
Explain strategic decisions
Course of direction that aims to lead a business to its corporate strategy/goals
Strategic planning is what is used to establish the strategic decision; set out in broad terms how the objectives will be achieved
Strategic plan will contain a clear mission statement
Explain divisional strategy
Divisions of the business eg. Geographical
Contribute directly to corporate strategy
Explain functional strategy
Strategy for each department
What are tactics?
Include the action to support the strategy in the short-term to achieve specific objectives
May be in response to market conditions or demands of the moment
Carry medium level of risk
What is corporate planning?
Statement of organisational goals to be achieved in the medium to long term
Based on management assessment of market opportunities, economic situation, resources and technology available to the business
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what does SWOT stand for?
S- strengths
W- weaknesses
O- opportunities
T- threat
What is the purpose of a SWOT analysis?
to review the information collected through a firms internal and external audits
it uses internal strengths and weaknesses and external opportunities and threats
What is an audit?
the process of examining and evaluating your business’s financial statements.
What are the 3 things a SWOT analysis aims to discover?
What the business does better than the competitors
whether it is making the most of opportunities available
How a business should respond to changes in its external environment
What are the 4 stages to prepare a SWOT analysis?
- Complete an internal audit
- complete an external audit
- Divide the information gathered in step 1 and 2 into SWOT
- Use info in the SWOT to develop strategies
What is S in SWOT?
Strengths are internal and are things the business does
effectively or better than their competitors.
Examples
include: a strong brand, strong leadership, skills of
employees, strong R&D
what is the W in SWOT?
Weaknesses are internal and are negative features of a
business, they occur when a business performs poorly.
Examples include; poor quality, low productivity, low
capacity utilisation, low profitability, poor customer
loyalty
What is the O in SWOT?
Opportunities are features of the external environment,
identified in the external audit. Opportunities could
impact a business positively.
Examples of opportunities
include; changes in government policy, changes in market
trends, technology
What is the T in SWOT?
Threats are dangers identified in the external audit that
could have a negative impact on the business’s
performance/environment and reduces competitive
advantage.
Examples of threats include; increases to
national minimum wage, increased legislation
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What are porters 5 forces?
Competitive rivalry
Buyer Power
Supplier power
Threat of new entrants
Threat of substitutes
What is the purpose of porters 5 forces?
Porter’s Five Forces Framework is a tool to help businesses establish and maintain a competitive advantage.
Dr Porter suggested that five forces heavily influence the behaviour of businesses and the likely levels of profitability
for a business within a particular industry
What is competitive rivalry?
This force involves assessing the degree of rivalry or competition amongst existing firms in the industry. As a general
rule, the lower the level of competition, the higher the profit margins.
When is competitive rivalry high? [4]
There is perfect competition – many firms all selling similar products and services
When there are a few large competitors selling similar products and services (such as in an oligopoly)
There is little brand loyalty
There is little product differentiation
Is competitive rivalry is_____________
(a) Favourable [why]
(b) Unfavourable [what can we do to make it favourable?]
(b)
investing in R&D in order to develop a USP and therefore increasing the amount of product differentiation.
What is power of suppliers?
This involves assessing how easy it is for suppliers to drive up prices, this is important as the cost of supplies impacts profit.
If suppliers have high bargaining power, they will exercise that power and sell supplies for a higher price
When is power of suppliers high? [5]
There are only a few large suppliers
* The resource they supply is scarce
* The cost of switching suppliers is high
* The customer is small and unimportant
* There are few or no substitute resources available
Is power of suppliers_____________
(a) Favourable [why]
(b) Unfavourable [what can we do to make it favourable?]
(b)
by having multiple suppliers, through backwards vertical integration or tying suppliers into long term contracts.
what is power of buyers?
assessing how easy it is for buyers to drive down prices.
If buyer power is high customers will exert their power by demanding lower prices.
This will reduce industry profits
When is power of buyers high? [4]
- There are only a few buyers
- They purchase a significant proportion of a business’s output
- They can choose from a wide range of supply firms
- It is easy and inexpensive to switch to alternative suppliers who sell similar products
Is power of buyers_____________
(a) Favourable [why]
(b) Unfavourable [what can we do to make it favourable?]
(b)
N/A
What are threat of substitutes?
A substitute is an alternative product that meets the same need (but produced in a different industry), that a customer could switch to.
When is threat of substitutes high? [4]
There is a number of close substitutes
Switching to a substitute is quick and easy
The substitute compares well in terms of cost and performance
The consumer is willing to switch
is threat of substitutes_____________
(a) Favourable [why]
(b) Unfavourable [what can we do to make it favourable?]
(b)
N/A
What are threat of new entrants?
The threat of new entrants is determined by how easy it is for new competitors to enter the market.
If barriers to entry are high then the threat of new entrants will be low
What do barriers to entry include? [6]
investment costs (high costs will deter entry)
* Economies of scale available to existing firms (will make it difficult for new entrants to compete on price)
* Regulatory and legal restrictions (if existing products have patents it will make it difficult for new businesses
to replicate the products to compete)
* Product differentiation including brands (strong customer loyalty towards certain brands will increase
barriers to entry)
* Access to suppliers and distribution channels (lack of suppliers will deter entry)
* Access to factors of production
is high barriers to entry_____________
(a) Favourable [why]
(b) Unfavourable [what can we do to make it favourable?]
(a)
as it results in a low threat of new entrants and therefore limits the
amount of new competition entering the market.
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what is Ansoff’s matrix?
strategic tool used by businesses to achieve growth.
It is a marketing planning tool that helps a business determine its product and market growth strategy on a scale of risk.
What are the 4 ways of increasing market share, revenue and profit?
Market Penetration - Concentrating on sales
of existing products to existing markets
Product development - Developing new products
for existing markets
Market development - Finding and developing
new markets for existing products
Diversification - Developing new products for sale in
new markets
What is market penetration?
business focuses on selling more of its existing products to its existing markets.
What are the objectives and tactics used to achieve MP? [3]
Maintain or increase the market share of current products
-increase sales by adapting one or more elements of the marketing mix, for example, by changing pricing strategies, advertising
Increase usage by existing customers
-achieved through loyalty card schemes and offering promotions to increase monthly subscriptions
Attacking competitor sales
-likely in mature markets, where increased sales for a business will have to be taken from the competition
When is MP more successful? [4]
-The market is not saturated
- There is growth in the market
- Increased volumes lead to economies of
scale
- There is scope for selling more to existing
customers
What is Market development?
name given to a growth strategy where the business seeks to sell its existing products into new markets
What are the objectives and tactics used to achieve MD? [3]
New geographical markets; for example exporting the
product to a new country
Identifying new customers who would use a product in
a different way.
– For example a business selling food to the hotel or restaurant
market may start selling to consumers by repacking the product in small quantities
– Advertise to appeal to a different segment
New distribution channels (e.g. moving from selling via
retail to selling using e-commerce and mail order
When is MD most successful? [3]
The firm has excess capacity
Appropriate if the core competencies of the business are related to the product more than to the specific market segment
Existing markets are saturated or in
decline
What is product development?
name given to a growth strategy where a business aims to introduce new products into existing markets.
What are the objectives and tactics used to achieve PD? [3]
Targeting existing customers with new
products
Replacement products
New innovative products
Brand / product extensions
When is PD most used/successful? [5]
The firm has strong R&D capabilities
The market is growing
There is rapid change
The firm can build on existing brands
Competitors have better products
what is diversification?
name given to the growth strategy where a business markets new products in new markets
What are the objectives and tactics used to achieve diversification? [2]
if a business sees a new opportunity and has investment funds available
may follow this strategy if a new opportunity presents itself or if there is substantial pressure
on their existing products or markets, for example, due to declining sales
When is diversification appropriate? [4]
Attempted if a firm sees a new opportunity
Also used if the firm has investment funds available
– Requires innovation and R&D
May be forced into diversification because of saturation of products in existing markets, intense competition or falling sales (or other factors such as a recession)
Helps spread risk (allows a business to reduce its reliance
on existing markets and products)
outline which of the 4 ways are the riskiest to the least riskiest
Diversification
PD
MD
MP
what are the advantages of Ansoff’s matrix? [3]
Forces market planners and management to think about the expected risks of moving in a certain direction
It lays out possible strategies for growth
Indicates level of relevant risk to the business which helps creates a risk aware culture
what are the disadvantages of Ansoff’s matrix? [3]
Does not take into account the activities of external competitors
Accurate predictions are difficult due to unforeseen events
Fails to show that market development and diversification strategies require a change to every day running of the business
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what is growth and why would a business want to grow?
Growth is an aim of many private sector organisations
gain market share, economies of scale, increase future profitability, survival, reduce risk
How can growth be measured? [6]
Assets
Sales Revenue
Market Share
Value Added
Number of employees
Number of stores/outlets
what are the 2 types of growth?
organic
external
What is organic growth?
growth achieved through the expansion of current business activities.
internal
What are the strategies used to achieve organic growth? [4]
- Expanding the product range of a business further with related products
- Making the product available in more places by opening new distribution channels such as online, more retail outlets, through agents and distributors
- Targeting new markets by selling products to new market sectors. For example mobile phones were once just sold to business people, then the market become all adults, then teenagers were actively targeted.
- Opening more stores/factories or increasing capacity
What are the disadvantages of organic growth? [3]
Slow form of growth as firms need to build capacity/grow market, as a business cannot exceed the personnel, support and resources available
Limited by growth in the market as it can be hard to build market share if a business is already the leader or if the market is saturated
Can result in over cautious approach meaning the business has limited opportunities and might be thwarted by competition.
What is external growth?
business will grow with the involvement of other businesses (through mergers with another business or by acquisition or takeover of other businesses).
What is the reason for mergers and takeovers? [9]
• Access to new markets – especially overseas
• Increased market share leading to increased market power in the market
• Diversification (spreads risk)
• Acquiring new products, skills, distribution, assets and technology. A takeover is one way of acquiring technology
that may be protected by patent, or may be expensive or time consuming to develop internally
• Economies of scale are derived from becoming larger
• Cost Savings – takeovers are often followed by significant numbers of redundancies in the short term. In order to
convince shareholders that a takeover is in their interests, managers in the bidding business often promise that
cost savings will result from the merger and shedding staff is a principal way in which this is achieved.
• Underperforming management teams can be removed giving an immediate boost to performance
• Higher returns to shareholders.
• Synergy
What is synergy?
the value of two businesses brought together is higher than the sum of the value of the two individual businesses. i
What are the 2 kinds of synergy?
Cost synergy
Revenue synergy
What is cost synergy and what does it include? [3]
where cost savings are achieved as a result of external growth. This may include;
• Eliminating duplicated functions & services (e.g. combining the two accounting departments)
• Getting better deals from suppliers - which might be possible if combining two businesses gives them improved
bargaining power
• Higher productivity & efficiency from shared assets: can capacity utilisation of the combined businesses be
improved, perhaps by closing down spare capacity?
What is revenue synergy and what does it include? [5]
where additional revenues are achieved as a result of external growth. This may include;
• Marketing and selling complementary products
• Cross-selling into a new customer base
• Sharing distribution channels
• Access to new markets (e.g. through existing expertise of the takeover target)
• Reduced competition
What are the 4 types of mergers?
Horizontal integration
backward vertical integration
forward vertical integration
Conglomerate
What is horizontal integration?
Occurs when a business mergers with or acquires a business which is in the same line of business and at the same stage of the production process.
What is the advantage of horizontal integration? [4]
• Increase market share and economies of scale
• Reduce competition
• Increase sales and profits by
combining resources
• Fast access to resources and/or new markets
What are disadvantages of HI?
• Diseconomies of scale
• Potential culture clash
• Regulatory issues if a monopoly to be created
What is BVI?
when a business mergers with or acquires a business which is at an earlier stage of the production process (the move is closer to the raw materials)
What are the advantages of BVI? [2]
• Guarantee and control the supply of components and raw materials
• Removes the profit margin the supplier would demand.
What are the disadvantages of BVI? [2]
• May lack expertise in the sector (whether secondary or primary);
• Regulatory issues if erects barrier to entry for others
What is FVI?
Occurs when a business mergers with or acquires a business which is at a later stage of the production process (the move is closer to the consumer)
What are the advantages of FVI? [3]
• Eliminates the profit margin expected by the firm in the next stage of production.
• Gives the manufacturer confidence when planning production, knowing that there are retail outlets in which to sell.
• The manufacturer has more control over price and the advertisement of the product
What are disadvantages of FVI? [2]
• May lack expertise in the sector (whether secondary or tertiary);
• Regulatory issues if erects barrier to entry for others
What is conglomerate?
Occurs when a business merges with or acquires a business which has no connection with their current markets or products. A conglomerate therefore has a large number of diversified businesses
What are the advantages of conglomerate? [2]
• Can allow a business to enter a new rapidly growing market quickly
• Can allow the business to spread risk across different products or markets
What are the disadvantages of conglomerate [1]
• Managers may struggle to transfer their
knowledge and expertise of one industry, directly to another
