Introduction To Business Flashcards
What is the purpose of companies?
To create and deliver value while generating profit for owners and shareholders
Achieved by efficiently utilising resources, innovating and meeting market demands
Aim to balance profit generation with social, environmental and ethical responsibilities
Friedman’s view
The social responsibility of business is to increase its profits
BlackRock
Global investment management corporation established in 1988 by Larry Fink. As of 2023 manages over $9 trillion in assets. Has argues for importance of ESG. “Climate risk is investment risk”
Stakeholder theory
Group or individual affected by decisions made by an organisation or someone who can influence the organisation.
Articulating purpose
Companies use mission statement to explain what they are for
Companies use vision statements to explain where they are going
These statements should define purpose and direction, build identity and guide decision making
But these are broad and little guidance
Objectives
An organisations performance targets- the specific results management wants to achieve
Mission statement
Conveys an organisations purpose in language specific enough to give the organisation its own identity
Strategic vision
Describes managements aspirations for the future and delineates the organisations strategic course and long term direction.
Strategy
The long-term goal for an organisation and how it plans to reach them
What is porters generic strategies based on
Competitive scope-> narrow or broad
Competitive advantage-> lower cost or differentiation
Lower cost broad target
Cost leadership
Differentiation broad target
Differentiation
Narrow target lower cost
Cost focus
Narrow target differentiation
Focussed differentiation
Porters five forces
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitutes
Threat of new entrants
Rivalry among existing competitors
Incumbents
Current players (firms) of an industry that compete against each other
Rivalry between existing competitors
Number of competitors-> many players intensifies competition for market share
Market growth-> slow growth increases rivalries
Product differentiation-> commoditised industries face higher price based competition
Exit barriers-> high barriers to leaving the industry increase pressure to compete aggressively
Threat of new entrants
Barriers to entry-> high entry costs, economies of scale
Access to resources-> new players struggle to secure key inputs
Brand loyalty-> strong customer allegiance reduces threat
Response from incumbents-> established players aggressive defence strategies can discourage new entrants
Bargaining power of suppliers
Supplier concentration-> less suppliers increases power
Switching costs-> high costs to switch suppliers increases supplier power
Inputs importance-> critical or unique inputs give control
Threat of forward integration-> suppliers entering the market directly to sell raises power
Bargaining power of buyers
Buyer concentration-> few, large buyers have power
Price sensitivity-> cost conscious buyers push for lower prices or better value
Switching costs-> low switching costs give more power
Product differentiation-> undifferentiated or commoditised products increase buyer power
Threat of substitutes
Availability of alternatives
Price performance trade off
Switching costs-> low costs to substitutes increase the threat
Customer loyalty-> strong brand loyalty weakens the substitute threat
Blue ocean strategy
Model to help organisations move away from highly competitive red oceans ( saturated markets with intense competition) into blue oceans (untapped markets with little to no competition)
Purpose of blue ocean model
Break free from competition
Innovate value proposition
Achieve differentiation and cost leadership
Encourage long term growth
Action frameworks of blue ocean
Eliminate factors the industry take for granted but add little value
Reduce aspects that are valued but over-delivered
Raise elements that are valued but under-delivered
Create new factors that haven’t been offered before
Process of strategic planning
Evaluating the enterprises environment
Evaluating the enterprises internal strengths and weaknesses
Identifying short and long term objectives
Implementing a plan of action for attaining these goals
5 key aspects of the environment
The economy, the role of the state, technology, labour, culture and institutions
Formal institutions
Openly codified, they are established and communicated through channels that are widely accepted as official
Informal institutions
Socially shared rules, usually unwritten, that are created, communicated, and enforced outside of officially sanctioned channels
What do institutions do
- govern how individuals behave
- reduce uncertainty, increase predictability of behaviour
- affect decision making
- provide rules for transactions
What is the government
- prime minister, the cabinet and other ministers
- non political civil servants
- political party that wins most GE seats
- it sets rules, benefits to business by infrastructure, educated workforce, healthcare system
What is the parliament
Made up of the House of Commons and the House of Lords. parliamentary committees can investigate areas of the governments work and ask people to answer questions
Other bodies
Office of budget responsibility-> created in 2010 to provide independent and authoritative analysis of the UK’s public finances
Bank of England-> promoting the good of the people of the UK by maintaining monetary and financial stability
Low context culture vs high context culture
- context is the situation or environment where interaction takes place
- low context-> communication is direct and can be taken at face value
- high context-> relies on the underlying, unspoken messages and context, potentially as much as the words themselves
Hofstede cultures
- individualism vs collectivism
- power distance
- short termism vs long termism
- masculinity vs femininity
-uncertainty avoidance
Pestel
Political
Economic
Social
Technological
Environmental
Legal
Limitations of Pestel
Static model
Over generalised
Ignores competitve response
Time sensitivity
Competitive advantage
Created by exploiting internal resources and capabilities rather than external factors
Tangible
Physical, deteriorate over time
Intangible
No physical presence, purchase or create
Capability definition
The capacity of a firm to perform some activity proficiently
Resource definition
A competitive asset that is owned or controlled by an organisation
Resource based view
Internal focus; RBV emphasises a firms internal resources and capabilities as the key drivers of sustained competitive advantage, rather than external market conditions
Heterogeneity; firms differ in their resources
Imperfect mobility; resources are difficult to transfer between firms
Strategic resources; to provide competitive edge, resources must be valuable, rate, imitable and useful
Business strategy
-best to build on intangible assets
- need to be forward looking
- must keep looking externally as well
- consider adding new competencies
- leverage resources into all markets possible
- continual reassessment of the company scope
Sustainable competitive advantage
Advantage over competition rivals that lasts over time
VRIO framework
Value
Rarity
Imitability
Organisation
