Strategic analysis (07) Flashcards
What is Strategic analysis?
Strategic analysis is the process of conducting research into the environment that the business operates in, and into the business itself, to help form future strategies.
Note: Effective strategic analysis will lead to clearer and more relevant objectives, better quality decisions and less risk for the business as it is better prepared for the future.
What are the three ways a business typically define their purpose?
- Vision
- Mission
- Values
Note: The strategic purpose should address two related questions: how does the business make a difference; and for whom
does that business make that difference.
What is a Vision?
A vision is a statement about what a business ultimately wants to accomplish, and it captures the aspirations of the business.
It is concerned with what the business seeks to create, and typically expresses an aspiration that will enthuse, gain commitment and stretch performance.
Note: (Benefits of a vision)
Employees in visionary companies tend to feel part of something bigger than themselves. An inspiring vision helps employees find meaning in their work.
Beyond monetary rewards, it allows employees to experience a greater sense of purpose, and have an INTRINSIC MOTIVATION to make the world a better place through their
work.
This in turn leads to better work performances.
What is a Mission?
A mission, also known as mission statements, describes what a business actually does, and why it does it.
It aims to provide employees and stakeholders with clarity about what the business is fundamentally there to do.
Note:
Mission statements are not meant to be detailed working objectives, but they help to establish what the business is about in the eyes of stakeholders.
However, mission statements are often criticised for being too vague and general, and is a public relations exercise to make stakeholders feel good about the business.
What are Values?
Values define the ethical standards and norms that should govern the behaviour of individuals within the business.
Values communicate the underlying and enduring core principles that guide the strategy of the business, and define the way that the business should operate
What are the two important functions of values?
1) the ethical standards and norms underlay the vision and provide stability to the strategy, thus laying the foundation for long term success
2) once the business is pursuing its vision and mission in its quest for CA, value serve as guardrails to keep business on track
What is Corporate Governance?
Corporate governance is concerned with the structures and systems of control by which managers are held accountable to stakeholders of the business.
It is a system of mechanism to direct and control a business to ensure that it pursues its strategic goals legally and successfully
What is the importance of corporate governance?
-SHAREHOLDER RECOGNITION:During Annual General Meetings (AGMs), minority
shareholders are brushed aside to make way for the interests of majority shareholders and the board of directors. Good corporate ensures
that all shareholders have a voice and can participate at AGMs. This is critical in MAINTAINING SHARE PRICE of the business.
-STAKEHOLDER INTEREST: Taking time to address the concerns of stakeholders can help the business establish a positive relationship with the community and the media.
-PREVENT LAWSUITS: Unethical behaviour to earn higher profits can result in legal problems. For example, underpaying and abusing employees, or causing harm to the environment can result in massive lawsuits.
-PROMOTE SHAREHOLDER TRUST: Financial statements and annual reports should be prepared without exaggeration or ‘creative’ accounting. Attempts to falsify financial records could cause the business to be investigated and charged.
Hence, business transparency is crucial in promoting shareholder trust.
What are Business ethics?
Business ethics is an agreed-upon code of conduct in business, based on societal norms
Note: Ethical conduct builds trust among individuals and promotes confidence in business relationships.
What is an ethical issue?
An ethical issue is an identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as ethical or unethical.
Ethical issues include conflict of interest, as well as fairness and honesty among others
What is conflict of interest?
A conflict of interest exists when an employee must choose whether advance his or her self interest, or those of others.
Note:
An employee is supposed to ensure the business is profitable so that shareholders receive a return on their investments.
If the employee makes a decision that gives him more power or money , but does not benefit the business, then the employee has a conflict of interest
To avoid conflicts of interest, employees must be able to separate their personal interests from their business dealings.
Note:
Insider trading is an example of conflict of interest. Insider trading is the buying and selling of shares by insiders who possess information not made public.
What are some of the issues related to Fairness and Honesty?
-DISHONESTY
-COMPETITION: Businesses may try to gain control over markets by using
questionable practices that harm competition.
-DISCLOSURE: This relates to the disclosure of potential harm caused by product use.
Note:
Maintaining a strict ethical code of conduct in decision-making can be expensive for businesses in the short term.
For example, disclosing the harmful effects of a product can result in a large decrease in sales revenue.
However, in the long term, a business can benefit substantially by acting ethically.
For example, ethical businesses are more likely to be awarded government contracts, and potential well-qualified employees may be attracted to work for companies that are renowned for their business ethics.
What is Corporate Social Responsibility?
Businesses undertake Corporate Social Responsibility (CSR) by considering the interest of society by taking responsibility for the impact of their decisions and activities on customers, employees, communities, and the environment.
What are the common methods in which businesses carry out CSR?
-Reduce carbon footprint
-Improve employment policies
-Participate in fair competition
-Donate to charities
-Volunteer in the community
-Craft company policies that benefit the environment
-Invest in socially and environmentally conscious projects
Note:
By embarking on CSR, businesses can benefit in many ways by making decisions and using policies that consider the well-being of stakeholders and take a
broader perspective beyond short-term profits. In some situations, due to CSR policies, businesses could end up becoming more profitable.
However, critics believe that businesses that embark on CSR are not using resources efficiently to generate returns for shareholders due to the costs involved for CSR
projects. In addition, it is suggested that businesses embark on CSR as a form of public relations exercise to avoid damage to their reputation and revenue stream, instead of being genuinely concerned for society and the environment.
On the whole, in the short run, businesses that embark on CSR such as donating to charities might have reduced profit as it can be costly. However, in the long run, the
benefits of CSR policies such as positive publicity and employee motivation could result in higher profits generated.
What are Capabilities?
Capabilities are the organisational skills required to deploy resources strategically to achieve the desired results.
They are expressed in the form of structure, process, and culture of a business.
What are Core competencies?
Core competencies are business-specific strengths that allow a business to gain CA.
Examples of core competencies include an innovative product (due to excellent product strategy), high productivity and efficiency (due to improvement methods), and a quality product (due to quality control/assurance)
What are Activities?
Activities are specific business processes such as order taking, physical delivery of goods, or invoicing customers. Each activity enables businesses to add value by transforming inputs into goods or services.
What are activities crucial for adding value and creating competitive advantage?
-Inbound logistics
-Production
-Outbound logistics
-Marketing and sales
-Services
Note: Businesses develop core competencies through the interplay of resources and capabilities, whereby resources reinforce core competencies, while capabilities
allow managers to orchestrate their core competencies.
What is SWOT?
-Strength
-Weakness
-Opportunity
-Threats
Note: Strength
They might include experienced management, product patents, loyal workforce and good product range.
Note: Weakness
Weaknesses might include poorly trained workforce, limited production capacity and ageing equipment.
What are some common ways to analyse the external environment?
-SWOT
-Porter’s Five Forces
-PESTLE
What are Opportunities?
These are the potential areas for expansion of the business and future profits.
Examples include technological advancements, export markets expanding faster than domestic markets, and lower interest rates increasing consumer demand.
What are Threats?
Examples of threats are new competitors entering the market,
globalisation driving down prices, changes in the law regarding the sale of the products by the business, and changes in government economic policy.
What are the weaknesses of SWOT?
-A limitation of SWOT analysis is that of subjectivity, where managers may assess the business differently.
-SWOT analysis is a qualitative form of assessment, hence the costs of overcoming a weakness cannot be measured against the potential profit
from pursuing an opportunity.
What is Porter’s Five Forces?
The five forces are:
1) Barriers to entry
2) Power of Buyers
3) Power of Suppliers
4) Threat of Substitutes
5) Competitive rivalry
What are the indicators of low barriers to entry?
- Industry has low economies of scale.
- The technology required to enter the industry is relatively cheap.
- It is easy to access distribution channels. For example, retailers are not owned by any manufacturers in the industry.
- There is no legal or patent restriction.
- Product differentiation is low, thus new businesses need not advertise
extensively to gain acceptance.
What are the indicators of high buyer power?
- There are many undifferentiated small supplying businesses. For example, many small farmers supply fruits and vegetables to large supermarket chains.
- The cost of switching suppliers is low.
- Customers can realistically and easily buy from other suppliers.
What are the indicators of high supplier power?
- The cost of switching is high. For example, replacing office computers from Windows-based desktops to Apple iMacs.
- The product produced by the supplier is well-established and popular.
- Suppliers are capable of creating their own forward-integration operations.
- Customers have little bargaining power because they are small businesses scattered around the country, such as neighbourhood convenience stores.
What are the signs of high threat of substitutes?
- Other options are made available due to technological advancements, such as video streaming in place of cable TV.
- Price competition forces customers to consider alternatives. For example,
commuters may switch from taking the MRT to taking buses if bus fares are lowered. - A major new product results in high consumer spending, leading to less cash available to be spent on goods. For example, more young consumers are spending on the latest smart phone models, hence have less cash to splurge on apparels.
What contributes to high competitive rivalry?
- It is cheap and easy for new businesses to enter the industry.
- There is high threat from substitute products.
- Suppliers have a lot of power.
- Buyers have a lot of power.
What are the criticisms of Porter’s Five Forces?
- It is a static analysis as it analyses an industry at a particular point. Many
industries, however, are constantly evolving due to globalisation and
technological advancements. - It can become an extremely complex model if it is used to analyse business structures such as joint ventures, or businesses with multiple product range or different market segments within the same industry.
SUMMARY
In summary, the following are covered in this topic:
- Strategic purpose includes the vision, mission and values of a business. The vision captures the aspiration of a business, while the mission describes what a business actually does, and why it does it. Values define the ethical standards
and norms that should govern the behaviour of individuals within the business. - Corporate governance is concerned with the structures and systems of control by which managers are held accountable to stakeholders of the business. As
part of corporate governance, businesses are increasingly considering ethics and corporate social responsibility in their decision-making. - Business ethics is an agreed-upon code of conduct in business, based on societal norms. Business ethics consider ethical issues such as conflict of interest, and fairness and honesty.
- Corporate social responsibility refers to businesses considering the interests of society in their decisions and activities, beyond legal requirements.
- A business can analyse its internal environment by assessing its resources, capabilities, core competencies and activities. It can also use SWOT analysis to evaluate its internal strengths and weaknesses.
- A business can analyse its external environment by using SWOT analysis to evaluate external opportunities and threats. It can also use the Porter’s Five Forces framework to analyse its competitive environment.
