Paper 2- Theme 3.1 Business objectives and strategy ✅

Question 1

define SWOT analysis

Answer 1

a method used to analyse a business’ internal strengths & weaknesses and external opportunities & threats, and help with strategic planning

Question 2

define Key Performance indicators

what are they used for

examples

Answer 2

• quantifiable measures of internal aspects of business performance that are determinants in whether the business is currently successful

• considered to ensure a robust identification of internal strengths and weaknesses
• can also be compared against previous years, competitors or industry averages

examples:
FROM ALL FUNCTIONS (hr, finance, marketing, sales, 
- sales volume
- unit cost
- market capitalisation 
- market share
- capacity utilisation
- staff turnover
- brand value

Question 3

define opportunity

Answer 3

favourable external factors, out of a business’ control, that could give the firm a competitive advantage or economic benefit, if pursued

• external

Question 4

define threat

Answer 4

external factors that may prove detrimental to business finance or provide competitive disadvantage, if not dealt with accordingly

• external

Question 5

define strengths

Answer 5

an aspect of business’ operations or performance that has competitive advantage or is superior to other aspects of their own business

• internal

Question 6

define weakness

Answer 6

an aspect of a business’ operations or performance that has competitive disadvantage or inferior to other aspects of their business

• internal

Question 7

examples of external influences

Answer 7

• fiscal policy (interest rates, inflation)
• legislation & protectionist measures
• monetary policy (government spending and taxes)
• unemployment rate
• external shocks (unpredictable natural disasters or war)
• changes in market - consumer trends, changes in demographic
• changes in competition
• technological changes
• supplier
• exchange rate

Question 8

strengths of SWOT analysis

Answer 8

•identify threats and encourage strategic planning to deal with

• highlight opportunities
—> first mover advantage

• identifying core SWOT leads to fact-based analysis
—> fresh perspectives new ideas

• encourages strategic planning of turning weaknesses to strengths (long termist)

• > or focus on maximising strengths (short termist)
• ——> however this could also create LT sustainable competitive advantage

• help understand where competitive advantage of business is

• > or where competitors are better
• — greater insight when using consultative approach

Question 9

weakness of SWOT analysis

Answer 9

• oversimplifies the factors influencing the opportunities or threats facing the business
—-> may lack comprehension in strategy

•success dependent on managerial skill to interpret and generate strategy
—> invest into recruitment and training for success

• time consuming and complicated
—.> not all might be used

•depends on accuracy of information

• –> if primary, higher costs
• –> if secondary, available to rivals and less reliable
• snapshot of current situation
• may restrict growth if mainly focusing on nullifying threats

Question 10

define market capitalisation

Answer 10

• how much it would cost to buy all shares in business

Question 11

define PESTLE analysis

Answer 11

a method used to analyse the external environment that a business operates in
- and the P E S T L and E factors that may influence business operations

Question 12

list PESTLE factors

Answer 12

Political
Economic
Social
Technological
Legal
Environmental

Question 13

define each PESTLE factor

Answer 13

Political - how government policies could affect business

Economic - how the state of the economy may affect business

Social - how factors about the demographic and behaviour of customers may affect business

Technological - how changes in technology may affect business

Legal - how legislation changes may affect business

Environmental - how environmental issues and damage may affect business

Question 14

political factors

Answer 14

• government spending
• industry regulations
• government policy
- competition policy
- monetary policy
- fiscal policy

Question 15

economic factors

Answer 15

• business cycle
• consumer spending
• employment rates
• exchange rates
• inflation
• interest rates
• economic growth

Question 16

social factors

Answer 16

• consumer tastes and trends
• demographic changes (currently ageing)
• changing lifestyles (healthy eating)
• pressure groups impact

Question 17

technological factors

Answer 17

• new production processes
• mobile technology
• disruptive technologies
• big data (used for finding solutions in masses of information as markets expand)

Question 18

define destructive technologies

Answer 18

• innovations with a product or service that is likely to create a new market and eventually transform an existing market

Question 19

legal factors

Answer 19

• legislation
• –> employment (wages, rights)
• –> health and safety
• –> environmental
• protectionist measures

Question 20

environmental factors

Answer 20

• pressure to become sustainable
• —> from media, pressure groups and because of resource depletion
• pressure to limit pollution and emissions
• pressure to dispose waste in a environmentally friendly way

Question 21

different between policies and legislation

Answer 21

policies are guidelines to achieve an outcome

legislation is law

Question 22

strengths of PESTLE analysis

Answer 22

• encourages research of wider business environment
1 ——> can anticipate future business threats ….. develop contingency plans
2 —-> can spot potential business opportunities ….. first mover advantage

• can assess possible implications of entering a new market
—> less risk

• more accurate overview of external influences than SWOT
—> used together to assess extent of opportunities and threats further

•provides simple, easy to use framework for analysis
—> minimal cost on training

•encourages development of strategic thinking in organisation
—> empowers workers as ideas may be used, increased motivation

Question 23

weaknesses of a PESTLE analysis

Answer 23

• time consuming and expensive, if use primary
• –> if use secondary may not be accurate to base strategies off
• constantly changing global dynamics may only provide snapshot (needs to be repeated)
• –> also hard to predict changes, due to pace of change of environments
• too much information collected may lead to ‘paralysis by analysis’ (struggle making decisions due to overthinking)
• –> or not enough information leads to oversimplification
• must provide critical and unbiased view about environment operated in
• —> must recruit and train highly skilled staff

Question 24

what does changing competitive environment mean

Answer 24

• means markets are constantly evolving

- many businesses enter and leave market

Question 25

define Porters 5 forces

Answer 25

a framework used to analyse the nature of competition in a market - it considers 5 competitive forces that affect the intensity of competition in an industry

Question 26

state porters 5 suggested forces

Answer 26

- threat of new entrants - bargaining power of suppliers - bargaining power of buyers - threat of substitute products - rivalry amongst competitors

Question 27

factors affecting how industries are different

Answer 27

- size - growth - structure - distribution - customer needs and wants - profitability

Question 28

position of each of the forces in a low profit industry (e.g. airlines)

Answer 28

- high threat of new entrants (low barriers to entry because no firm has huge profit margins) - strong customers - strong suppliers - high threat of substitutes - intense rivalry

Question 29

# define threat of new entrants effect of high threat of new entrants

Answer 29

potential effect of a new business entering the market (high barriers of entry = business in stronger position) - lose market share to them - increase rivalry - barriers of entry determine the strength of the position of the business in the current market

Question 30

# define barriers to entry examples

Answer 30

obstacles that a business has to face when it is considering establishing themselves and competing in a new market ---> reduces likelihood they enter market e. g. - economies of scale (must have bargaining power of supplier and have high output to compete in some markets) - brand loyalty to current businesses, and reputation - technology and innovation - current business' expertise and knowledge in current market - legislation - set up costs

Question 31

# define bargaining power of suppliers effect of high bargaining power of suppliers

Answer 31

how much negotiation power a supplier has over those who buy from them - may sell at higher price (reduce profits) - sell with less or no credit (worsen cashflow, limit working capital) ---> may restrict strategy ---> can't be a cost leader

Question 32

factors affecting the bargaining power of supplier

Answer 32

- number of big competing suppliers - scarcity or uniqueness of what they are supplying - size of supplier - size of business purchasing from them - cost of switching supplier is high (e.g. contracts in place) - ethical stance

Question 33

# define bargaining power of customers effect of high bargaining power of customers

Answer 33

extent to which customers are able to pressure businesses to drive down the price - forces businesses to drive down price - forces businesses to improve quality or differentiate from other firms

Question 34

factors affecting the bargaining power of customers

Answer 34

- availability of substitutes - necessity of product (e.g. normal goods) - volume of orders - cost of switching to other products/suppliers

Question 35

# define threat of substitute products effect of high threat of substitute products

Answer 35

another firm's product that meets the same customers needs, in the same market, as a businesses' own product - drive for differentiation - may drive costs down

Question 36

factors affecting the level of threat of substitutes

Answer 36

- price of their product in comparison - level of customer loyalty, reputation and industry expertise - availability of substitute products • technological change is rapidly increasing number of substitutes

Question 37

define rivalry amongst competitors

Answer 37

- the level of competition between existing firms in a market - ---- the central factor in Porter's Five Forces analysis

Question 38

effect on strategy for business in highly rivalled market

Answer 38

- spend on innovation and product improvements - price competition: competitive pricing OR - increase non price competition : advertising, sales promotion -----> all result in higher costs and lower profit margins

Question 39

determinants of the level of rivalry amongst competitors in a market

Answer 39

- numbers of competitors in the market (more competitors, higher competition) - ---> and substitutes - market growth (high rivalry in declining or slow growth markets, as they can only grow through taking each others market share) - structure of cost --> high fixed cost % makes it hard to exit market, so more competitors - --> high fixed costs % also leads to high competition on volume, as profit margins are lower - level of differentiation and brand loyalty - level of overseas competition

Question 40

strengths of Porter's Five Forces analysis

Answer 40

- used by business, in alignment with Ansoff's Matrix, to analyse the attractiveness of new industries - can assess the security of their market share and potential growth - ---> identify threats, or opportunities for a new market - help estimate current competition and risk in industry - --> inform decision making of where to protect and where to grow its products - identify opportunities to expand business {through vertical integration e.g (acquire supplier)}

Question 41

weaknesses of Porter's Five Forces analysis

Answer 41

- doesn't consider external forces that may affect market forces (assume they are static) - ----> e.g PESTLE - only provides snapshot of market, ALSO with increasing technology makes substitutes and threats to entry more dynamic - impractical for large firms who operate in many different markets, and have a large product portfolio - lack of statistical support as to which force is most important, subjective, up to management skillset