Strategy and Implementation Flashcards
Component 2: Business, Analysis and Strategy
1
Q
What is a vision 👀 statement?
A
Aspirational description of what an organisation would like to achieve in the medium to long term future.
2
Q
What is the role of a vision 👀 statement?
A
- To present vision of where business could be in ideal world.
- source of inspiration and motivation
- describes future of organisation and industry in which hopes to effect change.
- VS provides clear guide to senior management of future direction and help direct strategic decision making.
- no set way of writing VS but should all have same purpose of defining core values and direction business is heading.
3
Q
What is an example of a vision statement?
A
Google: “ To provide access to the world’s information in one click”.
4
Q
What is a mission statement?
A
- Broad statement of organisations aims and values.
- guide everyday operations and decision making of business.
- focuses on what business wants to do in present.
5
Q
What is the purpose of a mission statement?
A
- make clear statement of businesses purpose.
- give organisation cohesiveness so everyone in organisation has common goals to work towards.
- used to communicate purpose of organisation to all shareholders.
- some MS can vary between different organisations, some are vague and ambitious but some are specific and measurable.
- however, can be vague and express ambition instead of reality in which organisation needs to have reality.
- can be hard to achieve i.e. to end all poverty.
6
Q
What is an example of mission statement?
A
Google: “ To organise the world’s information and make it universally accessible and useful”.
7
Q
State the difference between Vision and Mission statements.
A
Vision:
- describes where organisation is going in future
- communicates purpose and values of business for inspiration
- talks about future.
- helps shape understanding of working within organisation.
- should be clear and unambiguous, memorable, engaging and aligned with organisational values and culture.
Mission:
- describes organisations purpose on present and where it wants to be
- describes primary aims of organisation to inform stakeholders.
- primary audience internal to define key measures of organisations success to leadership team and shareholders.
- present leading to future.
- should contain purpose of organisation, who are main stakeholders and what are organisation responsibilities to stakeholders.
8
Q
What are the BENEFITS of having clear Vision and Mission statements?
A
- ensures managers and leaders make strategic decisions in line with what company is trying to achieve overall (mission).
- having clear mission statement, goals of company are communicated to all staff - staff feel more motivated and involved giving organisation cohesiveness.
- clear mission statement means all departments are encouraged to work together to achieve common goal rather than pursuing different and conflicting objectives.
9
Q
Criticisms of Vision and Mission statements.
A
- mission statements of business not always supported by actions
- Too vague and general or obvious - can be unrealistic and never achieved missions.
- sometimes seen as PR exercise by staff = regarded cynically.
10
Q
Evaluate Vision and Mission Statements
A
- must be supported wholeheartedly by senior management
- communicated by staff
- put into practise in day to day policies and actions and embedded into firm’s culture
- reflected in departmental policies
11
Q
Stakeholders and Vision and Mission statements.
A
- Customers = help to understand core values of business
- Suppliers = benefit if mission leads to success for business, more repeat orders
- Management = assists to set aims and objectives in line with overall mission
- Shareholders = to see purpose of business and general direction
- Community = provides clear picture of business and its purpose to local people
- Employees = the better they understand the business’ purpose the better they will contribute and more involved.
12
Q
What is meant by Aims?
A
- What business wants to achieve in future and they tend to be quite generic and broad.
- They set out goals of business.
- organisations will set out aims so everyone has clear focus on where business is heading.
- means business can measure progress in achieving its aims over time.
- corporate aims refer to aims for organisation as a whole and will generally fall into one of categories.
13
Q
What are the Corporate aims?
A
- Profit maximisation
- Growth
- Survival
- Sales maximisation
- Corporate social responsibility / environmental ethics.
- Increasing shareholder value
- Profit satisfying
14
Q
Explain what is meant by Profit maximisation ?
A
- means that business will want to use resources to full and have little wastage as possible.
- higher profits enable firm to pay higher wages, more dividends to shareholders, survive economic downturn, finance R&D, make firm less vulnerable for takeover.
- objectives such as corporate image and increasing market share can be way to maximise long term profit.
15
Q
Explain what is meant by Growth ?
A
- Allow business to sell product/service to larger market and become better known.
- Growth will offer business increased security (spread risk)
- likely to aim when firm been established in current market and making sufficient profits to finance expansion.
- involve mergers and takeovers.
- more market share increases monopoly power and ability to be price setter.
16
Q
Explain what is meant by Survival?
A
- business world competitive, can difficult for firms to survive during difficult economic conditions.
- survival means firm need to break even and go on to make profit.
17
Q
Explain what is meant by Sales maximisation?
A
When firm involves selling as many units of good/service as possible without making loss to achieve rapid growth of market share.
- means sacrificing short term profit with view to achieving longer term gain.
- sales maximisation involves business charging lower price for product contrasted with profit maximisation.
18
Q
Explain what is meant by Corporate social responsibility/ environmental ethics?
A
Concern for these has become increasingly important.
- firms can be environmentally friendly by encouraging customers to reuse plastic bags in supermkerts, enhancing environment around business e.g. langscaping, planting trees, sponser schools which draw attention to environmental ethics - raising awareness.
- may ensure suppliers in developing countries have good wage and working conditions.
- sourcing raw materials from sustainable sources.
- business has legal obligations not to damage environment.
- can gain positive corporate image by working towards achieving this aim.
19
Q
Explain what is meant by increasing shareholder value?
A
measured by amount of dividends paid to shareholders and any increases in price.
- aims is concerned with increasing price of business’ shares on stock market.
- senior management may have bonus scheme related to increasing share prices and dividends so may also have interest in increasing shareholder value.
20
Q
Explain what is meant by Profit satisfying?
A
Owner of business focus on achieving acceptable level in terms of revenue and profit - to make owners comfortable - aim of smaller businesses whose owners don’t want to work long hours.
21
Q
What is meant by Objectives?
A
Measurable (quantitative) medium/short term targets of how to achieve business aims.
Objectives need to be practical and give clearly defined target using SMART.
There are 2 different types of objectives:
Corporate and functional objectives.
22
Q
Corporate objectives
A
Whole business/ wide company goals that need to be achieved to keep business on track to achieve its aims.
- They need to be SMART
23
Q
Functional objectives
A
Targets/goals relating to one of four functional departments within business, and they must match organisations own corporate objectives.
24
Q
What does SMART stand for?
A
Specific (what exactly is to be achieved)
Measurable (able to measure achievement)
Agreed (have approval of everyone involved)
Realistic (able to be achieved by business with given resources)
Time specific (time which should be achieved by)
SMART helps to ensure organisation meets objectives and achieves its aims.
25
What are the objectives that a organisation can set?
- Growth objectives
- Market share objectives
- Profitability objectives
- Sales objectives
- Branding objectives
26
What is the importance of objectives?
- represent clear statement of what needs to be achieved
- represent targets for individual and group achievement (motivational)
- means of measuring performance
- implement mission and aims of business
27
What is a strategy?
how business sets out to achieve its aims and objectives.
- decided by board of directors
- seen as long term business planning and typically cover period of about 3-5 years.
- 2 sides to strategy: formulation (similar process of constructing business plan) and implementation (putting plan into practise).
- strategy important in ensuring objectives are achieved , so should be devised in consideration of current business environment, resources available and skills of management and employees.
28
What is the strategy process?
1. Corporate strategy
2. strategic direction
3. divisional strategy
4. Functional strategy
29
What is 1. Corporate strategy?
- strategic decisions business makes tat affect the entire organisation.
- at corporate level, strategy concerned with long term planning which could have significant impact on organisation.
- decisions are high risk and can be costly and not easily reversible.
- Corporate strategy usually made by senior management, boarder director and plans and policies to meet companies objectives.
e. g. allocating resources to different business divisions, HR planning, proposed mergers and acquisitions, moving production abroad/expansion into new markets/products.
30
2. Strategic direction
- aims to lead business to corporate strategy/goals.
- once corporate strategy planned, strategic planning used to establish strategic direction.
i. e. how objectives will be achieved.
- plan will contain clear mission statement but describes business' objectives, which divisions or functions need to be focused on to achieve them and clear methods.
31
3. Divisional strategy
strategy of division within a business.
32
4. Functional strategy
- strategy of department within a business.
- each of department will specialise in completing certain type of task.
- business usually divided into 4 main functional areas: marketing, finance, HR and operations.
- departments should plan how they will achieve objectives.
33
What is a TacTic
actions taken to support strategy in short term to achieve specific objectives.
- may be in response to market conditions or demands of moment.
- can be decided by department heads for implementation by junior managers and employees.
34
What are the types of decisions that business organisations make?
Strategic and Tactical
35
Explain what is a Strategic decision?
- top of hierarchy
- general direction and overall policy of the business.
- far reaching & can influence performance of organisation.
- Long term effects of business.
- whether right decision made will not be know for several years.
- High risk as outcome of decision unlikely to be known.
- difficult to reverse and made by senior management.
- Long term - affect business for period of more than 1 year.
- when deciding strategy need to consider impact on stakeholders.
36
Explain what is a TacTical decision?
- less far reaching.
- tactical because calculated and outcome more predictable.
- used to implement strategic decisions.
- Medium level of risk as outcome easier to predict.
- made by middle managers, can be problematic to reverse.
- medium term, affect business for less than 1 year.
37
What is Corporate planning?
statement of organisational goals to be achieved in medium to long term.
- based on management assessments of market opportunities, economic situation and resources and technologies available to business.
- outline objectives and map out corporate strategies required to achieve these objectives.
- should identify risks which may affect firms abilities to achieve their goals and probabilities.
- has a process
38
What is the process of corporate planning?
1. Setting objectives
2. carry out internal and external audits
3. conduct SWAT analysis
4. Develop plans to achieve objectives.
5. implement plan
6. monitoring and evaluating results.
39
Evaluate Corporate planning
+ enables management to think through business in logical and structured way to set out stages in achievement of business objectives.
+ enables to plot progress against the plan.
+ ensures both resources and times required to carry out strategy are identified.
+ makes employees aware of business' direction.
- opportunity cost of setting aside time for this process rather than other activities which may be more important in short term.
- discourage creative thinking once plan been decided, so business less responsive to changing market requirements.
- may not anticipate external events i.e. recession, technological change or competitors activity.
- not all employees may be aware of plan.
40
What does SWOT stand for?
Strengths
Weaknesses
Opportunities
Threats
41
What is the purpose of SWOT analysis?
to review info collected through firms INTERNAL and EXTERNAL audits so can be used to direct business in future.
- Audits will generate large volume of info which needs summarising so firm can act upon it when devising strategies and plans.
- Looks at Internal strengths and weaknesses and external threats and opportunities.
- enables business to examine competitive strength.
42
What does SWOT aim to discover?
- what business does better than competition
- whether its making most of opportunities available
- how business should respond to changes in external environment
- what competitors do.
43
What are the 4 stages to preparing SWOT analysis.
1. complete internal audit
2. complete external audit
3. divide info collected in in previous steps into SWOT
4. use info in SWOT to develop strategies.
44
What happens when an effective SWOT analysis has been completed?
Will allow business to build on strengths, resolve weaknesses, exploit opportunities and avoid threats.
45
What is Porter's 5 forces framework?
tool to help businesses establish and maintain competitive advantage.
- suggested that 5 forces heavily influence behaviour of businesses and likely levels of profitability for business within particular industry.
- model can be used to better understand industry.
- each of forces can be favourable and unfavourable, aim of business managers should be to devise strategies that change forces that are unfavourable to favourable,
46
What are the 5 forces that Porter proposed?
- Competitive Rivalry
- Buyer power
- Supplier power
- Threat of substitutes
- Threat of new entrants
47
Competitive Rivalry
- assesses degree of rivalry/competition amongst existing firms in industry.
- as general rule, lower level of competition = higher profit margins. Because intense rivalry will encourage: price wars, investment in innovation, new products, intense promotion. These will increase cost and reduce profit.
- if products similar with competition = little power
- if product different = higher power.
Competitive rivalry is higher when:
> perfect competition (many firms sell similar products)
> when few large competitor selling similar product i.e. oligopoly
> little brand loyalty
> little product differentiation
If competitive rivalry high then unfavourable, business would need to consider strategies to change this. e.g. invest in R&D to develop USP and increase amount of product differentiation.
48
Power of suppliers
assessing how easy its for suppliers to drive up prices.
- important s cost of suppliers impacts profit.
- of suppliers have high bargaining power, they will exercise that power and sell supplies for higher price - reduce profit.
- how easy it is for suppliers to drive up prices influenced by number of suppliers, uniqueness of product and cost of switching suppliers.
```
Suppliers are powerful when:
> only few large suppliers
> resource they supply is scarce
> cost of switching high
> customer small and unimportant
> few substitutes or no resource available.
```
If supplier power high then unfavourable.
49
Power of Buyers
how easy its for buyers to drive down process. If buyer power high, customers will exert their power by demanding lower prices = reduce industry profits.
- influenced by number of buyers, importance of each individual buyer and cost of buyer switching.
- customer powerful when:
> only few buyers
> purchase significant proportion of business' output
> choose from wide range of supply firms
> easy and inexpensive to switch to alternative suppliers who sell similar products.
If buyer power high = unfavourable as business will maintain low prices which could squeeze their profit margins.
50
Threat of substitutes
Substitute = something that meets the same need.
- when many substitutes buyers ave many alternatives to choose from to fulfil same need. Affected by ability of customers to find different way of doing what business does.
- if substitution easy then business in weak position.
```
Threat of substitute high when:
> there is number of close substitutes
> switching to substitute quick and easy
> substitute compares well in terms of cost and performance
> consumer willing to switch.
```
If threat of substitute high then unfavourable.
51
Threat of new entrants
determined by how easy it's for competitors to enter market.
- if barriers to entry is high then threat of new entrants will be low. This is because there will be factors that will make it difficult/impossible for new competitor to enter market and build share.
- if barriers to entry are low then new competitors can enter market quickly with little investment.
Barriers to entry include:
> Investment cost (higher cost deter entry)
> Economies of scale available to existing firms
> regulatory and legal restrictions
> product differentiation
> access to suppliers and distribution channels
> access to factors of production.
Higher barriers to entry is favourable
52
What is the Ansoff's Matrix?
strategic tool used by businesses to achieve growth, marketing planning tool that helps business determine its products and market growth strategy.
- allows business to consider different options available if they wish to grow in order to increase revenue and profit in future.
53
What are the 4 marketing options for Ansoff's Matrix?
- Market penetration
- Market development
- Product development
- Diversification
54
What is Market Penetration
- Existing product in existing market
- aims to increase sales within its present market.
- business as usual
- strategy will require much investment in market research.
- not suitable for brands going into decline.
This can be implemented by:
> maintain/ increase market share of current products (adapting marketing mix: pricing strategy, sales promotion, personal selling etc)
> increase usage by existing customers (loyalty card, promotions, subscriptions).
> Attacking competitor sales (often happens in mature markets, increased sales of business will have to capture from competitors; adapting marketing mix).
55
What is Market penetration?
- existing products in new market
- identify customers in different markets which have similar requirements to those in existing ones i.e. selling in different country.
- requirements may be different so have to adapt product to meets tastes and requirements.
- target different segment of market with same product i.e. selling product via different distribution channels.
e. g. IPhone X in Korea or in new countries.
56
What is Product development?
- new product in existing market.
- suitable for business where product needs to be differentiated to remain competitive.
- to achieve product development usually involves introducing new product that complement existing ones or new products that appeal to existing products.
- successful product development places emphasis on
> R&D and innovation
> detailed insights into customer needs (how they change)
> being first to market
57
What is Diversification?
- new product in new market
- higher risk strategy as business moving into new market with little/no experience.
- risk assessment needed (risk and reward)
- related and unrelated diversification
e.g. Taxi Uber and Ubereats, Samsung having themepark in Korea, Coca-Cola clothing line.
58
Evaluate Ansoff's Matrix
+ forces market planners and management to think about expected risks of moving in certain direction.
+ lays out possible strategies for growth
+ assess all options and alternatives and shoes opportunity cost
+ indicates level of relevant risk to business which helps create risk aware culture.
- fails to show that market development & diversification strategies require change to every day running of business.
- doesn't take into account activities of external competitors.
- accurate predictions difficult due to unforeseen events.
- matrix can tell one part of story but imperative to look at other strategic models like SWOT and PESTLE to view how strategy of organisation is formulating and might change in course of its future.
59
Growth
implies on increasing one of below.
- rare that industry will remain same size for any length of time, most will begin from small and grow large.
- aim to grow is to: gain market share, economies of scale, increase future profitability, survival, reduce risks.
- 2 ways that company can grow: organic and external.
Business size can be measured by:
```
> assets
> sales revenue
> market share
> value added
> operating profit
> number of employees
> number of stores/outlets.
```
60
What is organic growth?
- Internal growth
- can be slow to achieve
- business grows by selling more of its products without other businesses.
- strategies business can use to achieve organic growth include:
```
> developing new product range
> launching existing products
> new business location
> expanding distribution
> opening more stores/ increasing capacity i.e. LEGO focus on innovation and new product development.
```
61
Evaluate Organic Growth
+ makes best use of existing resources, capitalises on existing experience as businesses utilise their inputs - leads to efficient way of managing costs and smoothly executing project activities.
+ less risky , allows business to move forward in more sustainable and steady way.
+ can be financed internally through retained funds, doesn't add to debt or drain profits with interest payments.
+ with strong management and effective planning, business will be known inside and out - lead to firm moving quickly to take advantage of changes in market place.
- Slow form of growth as need to build capacity, can't exceed personals support and resources available - shareholders may prefer.
- Limited growth in market, can be hard to build market share if business already leader/ market is saturated.
- business may have limited resource for growing.
62
What is external growth?
- 'inorganic growth'
- business will grow with involvement of other businesses.
- faster method of growth and takes place through mergers, acquisitions or takeovers.
63
What is a merger.
When 2 companies usually of equal size join together to form 1 large business.
64
What is an acquisition/takeover
When 1 business buys control of another, either agreed or hostile basis.
- can be extremely expensive and mean substantial debt for business, also have high failure rate.
- Takes place when business sells over 50% of their shares
65
What is Synergy?
associated with external growth
- happens when value of 2 businesses brought together is higher than the sum of the value of 2 individual businesses.
- 1+1= more than 2 as whole is greater than the sum of parts.
- 2 main types of synergy: cost and revenue synergy.
66
What is Cost Synergy
where cost savings achieved as result of external growth.
- may include:
> eliminating duplicated functions/services ( combining 2 accounting departments)
> getting better deals from suppliers - possible if combining 2 businesses gives them improved bargaining power.
> higher productivity and efficiency from shared assets: capacity utilisation combined but may not be utilised.
67
What is Revenue synergy?
Where additional revenues are achieved due to external growth.
Includes:
> marketing and selling complementary products
> cross selling into new customer base
> sharing distribution channels (more access, availability)
> access to new markets (existing expertise or takeover target)
> reduced competition (no price wars)
> new geographical markets.
68
State the reasons for mergers and takeovers
- access to new markets - overseas
- increased market share = increased market power
- diversification
- acquiring new products/technology
- economies of scale are derived from becoming larger.
- cost savings
- underperforming management teams can be removed giving immediate boost to performance
- higher returns to shareholders.
69
State the reasons for Growth
- gain market share = more customers (Increase in sales, market share, profits)
- Economies of scale = buy in bulk (discounts, reduce cost, higher profits)
- Increase in future profitability (positive cash flow, spread risk, competitive advantage)
- survival (competition, external factors)
- reduce risk (wider product portfolio, more sales, spread risk.
70
What are the types of mergers and takeovers/ integration?
- horizontal integration
- Backward vertical integration
- Forward vertical integration
- Conglomerate
71
What is Horizontal integration?
- when business mergers / acquires business which is in the same line of business and at the same stage of production process.
e. g. Adidas & Reebok, Walt Disney & Pixar
+ less likelihood of failure
+ increase market share & economies of scale
+ reduce competition
+ increase sales & profits by combining resources
+ fast access to resources / new markets
- diseconomies of scale
- potential culture clash
- regulatory issues if monopoly to be created.
72
What is Backward Vertical integration?
- When business mergers/ acquires business which is at earlier stage of production process.
e. g. Zara, Ikea, Starbucks supply own coffee
+ guarantee and control supply of components and raw materials.
+ removes profit margin supplier would demand
+ saves money
+ power
- may lack expertise in sector (secondary/primary)
- regulatory issues if erects barrier to entry of others.
73
Forward Vertical Integration
- When business mergers/acquires business which is at later stage of production process.
e. g. Disney bought retail shops to sell own products
+ Eliminates profit margin expected by firm in next stage of production (no profit taken)
+ Gives manufacturer confidence when planning production, knowing that there are retail outlets in which to sell
+ Guaranteed sales
- Lack expertise in sector (secondary or tertiary) regulatory issues if erects barrier to entry for others.
74
Conglomerate
- when business mergers/ acquires business which has no connection with their current markets or products.
- takes place when wish to diversify
e. g. TATA group, Samsung theme park military.
+ Can allow business enter new rapidly growing market quickly
+ can allow to spread risk across different products or markets.
- Managers may struggle to transfer their knowledge and expertise of one industry, directly to another.
75
Evaluate External growth?
+ quick access to resources the business needs i.e. land, premises and equipment.
+ Helps spread risk i.e. horizontal integration, risk spread across more products and markets.
+ reduces competition i.e. taking over rival = having more market power.
+ Wider range of products/ geographical spread.
+ economies of scale and market share can be increased quickly. As business has lower unit to spread high cost of marketing campaigns and overheads across larger sales.
- acquisitions can be expensive and result in business acquiring substantial debt if they overpaid for acquired business or sales were lower than predicted.
- clash of culture. Companies' fundamental ways of fundamental ways of working are different and easily misinterpreted. They result in poor shareholder results, layoffs and complete dissolution of merger.
- deals made under mistaken assumption that customer remain loyal. Customer may be upset (less choice/price competition) and find alternative/ reduce quantity purchased.
- higher revenue rate
- may experience diseconomies of scale i.e coordination and control which will increase average cost in long run and reduce profitability.
76
What is Franchising
Franchise is a legal right to use the brand name, products and business style of existing business in exchange for a fee.
- principle of growth method is more fast.
e. g. businesses grown through franchise = McDonald's, Dominos, Tony and Guy, Cash Converters,
77
What is a Franchisor
owner of brand name, products, business style, who licenses to the franchisee the right to use these.
78
What is a Franchisee
Individual or firm who buys or leases the right to use the brand name, products and trading style developed by the franchisor.
79
What happens in the Franchise agreement
Franchisor and Franchisee sign legal contract (franchise agreement) which clearly sets out the rights and obligations of both the franchisor and franchisee.
- it will determine length of time the franchise agreement will last and renewal options.
- Franchisee will pay initial fee to franchisor, together with ongoing fees and % of revenue generated by franchise.
- Franchisor will support franchisee through offering training advice, support and through developing new products and advertising them along with the brand.
80
Evaluate growth through franchising
+ fast method of growth, as financed by franchisee also means less risk for franchisor.
+ Franchisor receives % of revenue = means have regular income.
+ Franchisee will benefit directly from success of franchise = more motivated and hard working.
+ economies of scale happen quickly
- cost involved in monitoring franchisees and providing ongoing support and training.
- franchisor will only receive % of revenue even if franchise successful and not benefit from all profit.
- if franchisee does not adhere to policies and procedures then reputation and brand of whole business is put at risk.
- growth may occur to quickly and result in diseconomies of scale.
81
Who is Franchising for?
Possible for established, successful businesses with strong recognisable brand.
