Ratios Flashcards
Gross profit margin
Gross profit / revenue
Assesses profitability before taking overheads into account
Operating margin
Operating profit / revenue
Assesses profitability after taking overheads into accounts
Return on capital employed
Operating profit / equity + debt
Measure kf how effectively resources are used to generate profit
Gearing ratio
Debt / equity
Or debt / equity + debt
Assess reliance on external finance
Interest cover
Profit before interest payable / interest payable
Assess ability to pay interest charges
Trade receivable days
Trade rec / revenue * 365
Assess the average time taken to collect cash from credit customers
Inventory holding period
Inventory / cost of sales *365
Assess the average length of time inventory is held
Trade payable days
Trade payables / purchases * 365
Assess average time taken to pay suppliers
Strategy definition
Is the direction and scope of an origination over the long term, which achieves advantages for the organisation through its configuration of resources within a changing environment the meet the needs of the marketer and to fulfil stakeholder expectations.
What makes planning strategic
Considers long term
Considers whole organisation
Consider resources and external environment
Considers all stakeholders
Looks to gain a SUSTAINABKE COMPETITIVE ADVANTAGE
Strategic planning - rational approach
Traditional top down approach - formal and systematic process of identifying gold and then selecting strategies to achieve those goals
Merits / demerits (ads / dis) of strategic planning
Merits - provides a framework
Encourages long term planning
Goal congruence
Considers need of stakeholders
Optimise use of resources
Considers changes in the business environment
Monitors progress
De merits:
Lack of evidence to prove that it leads to success
Businesses may need to be more dynamic and reach to problems as they occur
Formal planning reduces imitative and innovative thinking
Political infighting can disrupt the process
Emergent strategies
Emergent strategies are behaviours which are adapted and which have a strategic impact. These are strategies thag emerge over time in response to environment
Different grades of strategy - Mintzberg
Mintzbers different grades of strategy:
Intended strategy so a conscious decision
Deliberate strategy - put into practice
Realised strategy - resultant strategy
Strategic advantage : resource based and positioning
Resource based (inside out): focus on developing internal resources and competences which are hard to imitate and find or create market to exploit these strengths
Risk of this is organisation may fail to react to long term industry trends and may find their existing resources and competences no longer valued by the customer
Positioning (outside in) : focus on analysing the external environment to identify customer needs and adapting to meet these needs
Risk is as customers need change over time the organisation is forced to constantly evolve and develop new competencies
Influence on strategy
Nature of ownership - shareholders may demand quick returns
Capital structure - banks may expect returns over long period to secure loans
Nature of industry - some industry may require high level of capital
Nature of business environment- fast changing industry strategies may need to be adaptable
Nature of management - managers may lack skill to manage long term goals
Benefits of being sustainable
Attracting customers who like it
Attracting and retaining staff
Building pos relationships with suppliers
Demonstrating to shareholders an ability to deliver reliable returns
ESG
Environmental - strategies in respect of harmful emissions, use of renewable energy, waste management
Social - workplace health and safety, labour standards in the supply chain, diversity
Governance eg exec pay, business ethics, internal controls
Ashridge college model for mission statements
Purpose - why the organisations exists and aim for stakeholders
Strategy - what resources competences or generic strategy give the company a competitive ad
Policies - what standards and behavioural patterns are adopted into the organisation
Values - what belief a do managers and employees share
Setting objectives - SMART METHODS
S - specific, clear easy to understand
Measurable - to enable control and communication down the organisation
Attainable - is it realistic
Relevant - appropriate to the mission and stakeholders
Timed - have a time period for achievement
Mendelows power interest stakeholder matrix
X is power and y is level of interest
Low power and level of interest is Minimal effort cns be directed
Low power high interest is keep informed
High power low interest is keep satisfied (gov, regularities)
High power high interest - key players, need participation
PESTEL
PESTEL is used to analyse the macro environment as part of strategic planning to identify opportunists and threats facing the industry
Political - eg taxation policy, gov spending, foreign trade regs
Economic - eg economic growth, interest rates, inflation
Social and demographic- eg tastes, attitudes, population demographics, income distribution
Technological - eg new products, production menthols, rate of obsolescence
Environmental - eg sustainability, pollution, climate change,
Legal - eg industry regulation, competition legislation, employment law
Porters diamond
Porters five forces identifies four key determinants of competitive advantage :
Demand conditions. - demanding local consumers force firms to become more innovative
Trend setting consumers
Factor conditions - availability of resources to operate (eg wine in France is easy as grapes there)
Include Human Resources, physical resources, knowledge capital and infrastructure
Related and supporting industry - access to components which reduces lead times
Knowledge sharing
The proximity of related and supported industries
Strategy structure and rivalry - if strong forces firms to become more efficient to survive
Strategies or structures in nations may give advantages eg decentralised structures promote innovation
Industry life cycle
Introduction - new prod or device
Growth - rapid, competitive rivalry low, market attractive to new entrants
Shakeout - growth begins to slow, weaker plays forced out
Maturity - stable period of low growth, price competition eg ec of scales
Decline - sales vol falls, firms leave industry
Porters five forces
Porters five forces can be used to assess the attractiveness of an industry in terms of long run profitability
It determines level of competitiveness and therefore the profitability of industry
Threat of new entrants. - how likely new people in market. High/low barriers to entry eg ec of scale, brand loyalty, capital requirements
Is it easy customer switching, few existing competitors, high profit margins
Threat of substitutes- different industries eg rail bus travel, sub industries mp3/cd,
Is price of sub low, can customers switch easily
Power of suppliers - do they have enough bargaining power to increase suppliers, what’s the providers of raw mats eg loads or not many, level of employee needed, can it be outsourced
Power of customers. - do customers have enough bargaining power to push prices down eg low switching costs, price transparency (high easier) number of customers
Competitive rivalry - how intense is competiton among players in market eg large number of existing competitors, growth level of industry, level of fixed costs, high exit barriers, importance of strategy
Critical success factors
Critical success factor are a small number of key goals vital to success of the organisation
What resources and core competencies do the business have that enable them to achieve the critical success factors
The 9M model for resources
Machines - premise location age of machines
Money (capital) - finance av
Material (raw) - relations with suppliers, access to key inputs
Markets (access to) - existing customers, locals where represented, distribution systems
Make up (structure) - attitudes, culture, structure
Management (leadership) - quality skills leadership styles of management
Men - number skills motivation potential
Methods (process) - activities and processes that the business has adopted
MIS (big data) - quality of systems, production, RD
Kay’s core competencies model
Used to assess competencies of an organisation
Core competencies = critical activities and processes which enable the firm to meet the critical success factors and therefore achieve a sustainable competitive advantage
Reputation - reason that customers are attracted to organisation
Competitive architecture - network of relationships within and around a business
Innovative ability - ability to develop new products and services
Then for competitive architecture-
Internal architecture - relationships with employees
External architecture- relationships with suppliers customers and intermediaries
Network architecture- relationships between collobarating businesses
Porters value chain analysis
Value chain analysis can be used to analyse the sequence of business activities which add value to the product or services produced by a company
The value is measured by difference between the cost of the activities and sales revenue created by sales to customers
Also non value adding activities can be identified and reduced or eliminated
Performing a value chain analysis
Cost leadership v differentiation
Primary activities - those that create value and are directly concerned with providing the product or deceive
Primary activities includes:
Inbound / outbound logistics
Operations
Marketing and sales
Service
Secondary activities- do no create value by themselves but enable the primary activity to take place with maximum efficiency
Procurement
Tencholofy development
Human resource management
Infrastructure
Harmony process strategy matrix
Strategic importance and process complexity and dynamics are the axis
Low strategic importance and high process complexity - outsource
High strategic importance and high process complexity - automate
Low process complexity and dynamics and low strategic importance- automate / outsource
Low process complexity and high strategic importuned - automate
Product life cycle
Analysis of product or services
Development
Introduction
Frowth
Maturity
Decline
Boston consulting group matrix
Developed to help conglomerate companies decide where to allocate their resources
High market growth high market share is star
High market growth low market share is problem child
Low market growth low market share is dog
Low market growth high market share is cash cow
SWOT Analyis when to use jr
Can be used to perform a corporate appraisal to evaluate the strategic position of the organisation
Gap analysis
Comparison between entity’s ultimate objective and the expected performance from projects
Porters generic strategies
Cost leadership - broad target lower cost
Differentiation - broad target differentiation
Cost focus - narrow target and lower cost
Differentiation focus - narrow target and differentiation
Porters suggest sustainable competitive advantage arises from selection of a generic strategy which best fits the organisations environment - porters five forces
Ansoff matrix
Market penetration existing market existing product
Product development existing marker new product
Market development - new maker existing product
Diversification- new market & product
Marketing mix
Product
Place
Promotion
Price
People
Process
Physical evidence
Price elasticity of demand
% change in demand / % change in price
Looks at degree to which demwnd is affected by changes in the selling prince
<1 is inelasric = increasing price will increase total Rev even though fewer units sold
>elastic = increasing price will cut total Rev and fewer units sold
Types of structures
Entrepreneurial = built around owner then then manager. For small companies, very centralised. Quick decision making, good control
But lack of career structure
Functional structure = organise business in smaller departments
Benefit from ec of scales, efficiency
Dis ad = slow to adapt, conflict between functions
Divisional structure = sim to functional but aligned with product divisions.
Enables product growth, training
Dis is loss of control duplication of effort
Divisionalised structure = grouping lf activities on basis lf location.
Enables geographic growth, clear responsibility
Dis is same as divisional structure dis
Matrix = departments managers mixed
Ads = improved cross functional communication, flexibility
Dis = conflict between managers time, functional authority
Flexible structure allows firm to adapt to changing circumstances
Ads = flexibility costs
Did = lack of creation, culture embedded may be hard
Mintzberg structural configurations
Six component parts of an organisation
Operating core = basic work
Strategic apex = higher management
Middle line = linking managers
Technistuctire = expects
Support = often outsides
Ideology = company’s values
Risk
Risk register
Risk > impact and likelihood > risk management
Lewin and Scheins iceberg model
For managing change:
Unfreeze - the trigger eg appointing external consultant
Move - means making the change eg presentation to communicate the change
Re freeze - means consolidation and reinforcement of new situation eg communicating benefits obtained from the change
Barriers to change
Power structures - affect of management and other in authority
Structural inertia - existing systems of planning and decision making
Group inertia - when changes are inconsistent with the norms of team working and departments
Personal barriers - fear of unknown
