Theme 3 Flashcards
Definition of Mission Statement
is a qualitative statement of an organisations aims. A mission statement sets out the purpose and primary objectives of a business in the present.
Hierarchy of business objectives
Mission Statement
Corporate Objectives
Department Objectives
Mission Statement
Is a short way of a business expressing their main intent eg Nike’s mission statement is to bring inspiration and innovation to every athlete”
Criticisms of Mission Statements
Critics say missions statements are merely a public relations tool
Corporate Objectives
Are SMART objectives usually set by senior management and is aimed to fulfil called a corporate need eg satisfying shareholders by handing out more dividends through schemes of increasing profit
SMART objectives
Specific
Measurable
Achievable
Realistic
Time-Related
Department Objectives
Objectives set by individual departments that stem from the corporate objectives. Eg marketing may choose to increase revenue by 2% each year.
Departments within a business
Sales
Marketing
Human Resources
Operations
Finance
Purpose of a mission statement
Is to outline the purpose and visions of the business
Uses of mission statements
Focus
Profitability
Identity/ distinguish company from competition
Limitations of mission statements
Unrealistic and over optimistic
Can lead to conflicts and inconsistencies if written wrong
Overly ambiguous
Owners perspective on mission statements
Will want to maximise shareholder value of the business
Manager perspective on mission statements
Look for core aims and objectives to lead staff with
Employee perspective on mission statement
Look for motivational statements that make them feel proud to work for the company
Pressure group perspective on mission statements
Look for a clear environment and ethical message
Customers perspectives on mission statement
Look for ethical business principles
Competitors perspective on mission statements
Will look to see if a business is visionary, competitive, innovative and organised
Corporate Timescales
Refers to strategy and the expectation of when a return will be achieved
Short termism regarding quick financial reward
Means that a business is only interested in quick financial reward eg monthly profits over quarterly sales figures
Historical roots of short termism
Idea of short-termism coms from a history where we didn’t live long enough to worry and simply were concerned about the present eg overspending, smoking and drug abuse are examples of short-termism
Lack of development in short-termism
Short termism makes businesses fail to innovate and stagnate hence why they should be looking to invest in research projects that will give the business the competitive advantage.
Long Termism
Is a business approach that incorporated corporate social responsibility and considers ethical behaviour of the business in regards to the environment and employees as well as focus on long term tech.
Evidence based decision making
A form of decision making which is made based on scientific research, organisational facts and figures and benchmarking as well as multiple sources of evidence to increase the probability of a favourable outcome
5 steps of evidence based decision making
Step 1: translate a problem into a question
Step 2: acquire the evidence
Step 3: appraise to the evidence
Step 4: apply the evidence to the problem
Step 5 assess the outcome of the decision
Subjective decision making
Decision relating to a business which are based on personal perspectives, feelings and opinion aka qualitative research
Ethics
Moral principles that govern a person’s behaviour or the conducting of an activity
Ethical decision
Often up in a trade-off with profitability and is where a business chooses to make a decision that acts upon corporate social responsibility
Ethics vs Profitability and the Deepwater Horizon
2010 oil rig caught fire resulting in millions of gallons of oil to spill into the Gulf of Mexico and 11 lives lost all due to the results of cost-cutting. Putting profits ahead of ethics
Executive Pay
Refers to a remuneration package specifically designed for business leaders, senior management and executive members
Employee Pay
Is the compensation employers pay to employees for the work they do
Banker’s Bonuses
Are paid to individuals who work in the finance sector in return for behaviour that has gained the bank profit
Sponsorship
Is the use of a public figure to promote the image of a business eg Cristiano Ronaldo and Nike
CSR in relation to stakeholders
Is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders
6 ways to implement CSR
Reduce Climate Change
Reduce negative environmental impact
Positive regard for humans right in employment
Positive links with community
Using sustainable resources
Ethical trading policies
Advantages of CSR
Customers more loyal to a CSR business
Staff more motivated and productive as they are proud for who they work for
Trusted relationships built with the local communities
Reduced costs as higher staff retention and energy saving
Disadvantages of CSR
Many business writers speculate CSR is just a trend that will blow over and soon consumers will demand something else
Do consumers care about the background of a product or will they jus purchase the more aesthetically pleasing one
Stakeholder
A stakeholder is anyone who has an interest in the business, or who may be affected by the activities of the business
Shareholder
A shareholder is a person, business or organisation that owns shares of a company
Internal Stakeholders
Employee
Owners
Managers
What is an employees interest in a business
Concerned with wages and job security
What is an owners interest in a business
Are concerned with strategy and profits
What is a managers interest in a business
Are concerned with budgets, promotion and bonuses
External Stakeholders
Customers
Community Groups
Unions
Suppliers
Competitors
What is a customers interest in a business
Interested in product availability, prices and discounts
What is community group’s interest in a business
Interested in the effect on locals when opening a store
What is a union’s interest in a business
Interested in pay rates and worker’s rights
What is a competitors interest in a business
Interested in market share, market size, promotions and customer loyalty
Stakeholder Mapping Steps
Step 1: Identify the stakeholders of the business, these should be internal and external
Step 2: Rank the stakeholder’s power either low, medium or high
Step 3: Rank the stakeholder’s level of interest in the business; low medium or high
Step 4: Rank the stakeholders value to the business; low, medium or high
Step 5,6 and 7: plot the different stakeholders on the quadrant
Step 8: the way how the business interacts with the stakeholder will depend on what quadrant you put them
Stakeholder Mapping Quadrants
A: Stakeholders in this quadrant require minimal effort, and can be contacted using newsletters, mail shots and information on the company website
B: Stakeholders should be kept informed of corporate decisions and could be a potential supporter of the business in the future
C: Stakeholders should be kept satisfied, any communication should be to try to increase the level of interest in the business
D: Stakeholders in this quadrant are key players in the business and should be very involved in the governance and decision making and should be engaged with regularly
Possible conflicts between customer and business
May lower prices whereas business may want to raise them
Possible conflicts between supplier and business
May demand high prices for supplies however the business may want lower prices
Possible conflicts between unions and business
Looking for good working conditions and good pay however business may want to cut wages to increase profit
Possible conflicts between employee and business
May demand for pay and job security however business may be looking for more temporary contracts to cut costs
Possible conflicts between manager and business
May want budgets and promotion however business may recruit externally to bring in fresh ideas
Possible conflicts between competitors and business
Board may want to continue opening stores however other stores see them as a threat
Corporate Culture
A company culture is the norms and values of a business
Strong Culture
Strong culture is a culture which develops good communication and core values which stem from the traditions and of the founders of the business and their history
Eg.IKEA and Google
Weak Culture
A weak culture is now which breeds failure and poor characteristics eg poor managements, demotivation and failure.
Eg Amazon and Ryanair
Charles Handy’s 4 main company cultures
Power Culture
Role Culture
Task Culture
Person Culture
Power Culture
Represented by a spider on a web which symbolises a very strong owner or manager at the heart of the business. There is a central figure that will make decisions and there is competitive attitude amongst employees to gain power
Role Culture
Represented by a drawing of a bank or Greek temple. This symbolises bureaucracy, red tape and paperwork systems in this very rigid organisation eg The Civil Service
Task Culture
Is represented by a matrix of grid diagram. This symbolises a series of work teams in a large organisation eg Marketing branch may all work together on a marketing task
Person Culture
Represented by a petri dish or a circle filled with smaller circles. This symbolises employees in an organisation that are all autonomous, skilled individuals. Eg web designers, lawyers and doctors who work on a client by client basis
How is corporate culture formed
Heroes/Founders
Language
Mottos
Norms
Nature of the business and the product it sells
The business environment when it started
Difficulties in changing an established culture
Set of goals
Roles
Communications practices
Attitudes
Corporate Strategy
The overall scope and direction of a business and the way in which its various business operations work together to achieve particular goals
Igor Ansoff
Coined the Ansoff’s Matrix. Which is a strategy which allows a business to analyse the opportunities and risks involved in relation to a product or service in an existing or new market with a new or existing product
Ansoff’s Matrix
Has 2 Axis on the x and y:
Existing product or service
New product or service
Existing market
New market
4 Ansoff Matrix Strategies
Market Penetration (low risk)
Market Development (moderate risk)
Product or Service Development (moderate risk)
Diversification (high risk)
Market Penetration
Existing Product or Service + Existing Market
Increased sales to the existing market to penetrate it more deeply. Sell more to the same customers and encourage them to buy more often eg Loyalty Cards, Saver Schemes and BOGOF
Market Development
Existing Product or Service + New Market
Existing product or service sold to new markets eg colouring books sold to adults
Product or Service Development
New product or service + existing market
New product or service developed for existing market eg R&D of new products to sell to your existing customers
Diversification
New product or service + New market
New product or service sold in new markets known as a Conglomerate
Uses of Ansoff’s Matrix
Helps a business identify objectives and strategies
Highlight opportunities, risks, benefits and drawbacks of a business decision
Limitations of Ansoff’s Matrix
It oversimplifies the market
Large MNCs may need thousands of sub options and strategies
Porter’s Strategic Matrix
Is a strategy matrix which suggests there are 3 generic business strategies that would get competitive advantage:
Cost Leadership
Differentiation
Focus
Cost Leadership
Making products at the lowest cost, may include outsourcing and lean management
Useful in highly competitive markets where there are homogenous products
Differentiation
The product or service is unique and the USP adds value to the product
Useful in markets with rapid changing features of products and services and customers needs are very diverse
Cost Focus
Where a business offers a low price to a small market segment. Niche marketing but at very low cost
Differentiation Focus
When a business wants to offer products and services to a small market segment
Products will be differentiated and aimed at a niche market
Uses of Porter’s Strategic Matrix
It established a clear direction for the business
Identified when a business may get into trouble eg “getting stuck in the middle”
Limitations of Porter’s Strategic Matrix
Not relevant in dynamic markets
May not be useful in a crisis or a moment of urgency
SWOT
Strength
Weakness
Opportunity
Threat
What can opportunities arise from
Change in technology and markets
Change in social patterns, population, lifestyle changes
What is SWOT used for
Can be used as a tool to formulate a strategy of growth
Can be used as a tool to compete and defend by minimising market threats
Can be used as a tool to improve and attack markets or coin new products
Can be used to identify change and retreat
External Influence
An external influence is any factor outside of the business that has an impact on normal trading
PESTLE
Political
Economic
Social
Technological
Legal
Environmental
Political
A change in government
Government laws
Tax rates
Economic
Increase in interest rates
Inflation
Unemployment
Social
Change in demographics
Culture mix changes
Social trends
Technological
Automation
Innovations in the industry
Research and development in the industry
Legal
Health and safety at work
Sales of Goods act
Sex discrimination act
Minimum wage
Environmental
Climate change
Weather
Sustainable production and CSR
Porter’s 5 Forces
In 1985 Porter argued that there were 5 forces (or factors) which determine the profitability of an industry.
Bargaining powers of suppliers
Bargaining powers of customers
Threat of new entrants
Threat of substitutes
Rivalry amongst existing firms in the industry
Business Growth
Business growth is the point at which a business needs to expand and seeks options to generate more profits
Objectives of growth
To achieve economies of scale
Increased market power over customers and suppliers
Increased market share and brand recognition
Increased profitability
To achieve economies of scale
Growth enables a business to benefit from economies of scale through the impact on cost of production. If production is cheaper because average costs have fallen then they can increase profit margins or reduce prices to gain more market share
Benefits of economies of scale
Can benefit from bulk buying. This gives them the ability to:
-Have more purchasing power
-Have more funds to pay for specialist staff
-By having a better reputation so banks are willing to lend
Economies of scale and average costs
EOS occur when unit costs or average costs fall as a result as an increase in the level of output of the business
Cost of production equation
Variable costs x output + fixed costs
Cost per unit equation
Total costs/ output
Types of economies of scale
Financial
Marketing
Technical
Managerial
Risk-Bearing
Financial Economies of Scale
Large firms can benefit from cheaper loans and wider sources of cheap finance
Marketing of Economies of Scale
Large firms can attract specialist buyers who don’t waste money buying stock that won’t sell. They also benefit from specialist sellers/marketing staff who ensure goods will sell
Technical economies of scale
Advantages that revolve around production, productivity and average costs
Managerial Economies of Scale
Can attract specialist managers who are productive and efficient. That make effective business decisions and increase efficiency
Risk-Bearing Economies of Scale
Where a business has a diversified product range and spread out markets to reduce risk of fall in demand
Increased market power over customers and supplier
Reduce the power of suppliers and customers. This means that these stakeholders will act in any way the business wants them to
Increased market share and brand recognition
In dynamics and competitive markets businesses may seek to grow to achieve increased market share
Increased profitability
Where a business increases their output and their production becomes cheaper per unit
Profit vs Profitability
Profit is the total sum of money that remains after all costs are paid however profitability is a measure of efficiency
Problems arising from growth
Diseconomies of scale
Internal communication
Overtrading
Diseconomies of Scale
.Lack of motivation through DEOS
-Reduced productivity
-Lower output per worker
-Increased unit costs
.Lack of co-ordination
-Workers may need monitoring which can add to costs. This means more managers and therefore increases costs per unit
Overtrading
Causes cash flow problems as a business accepts more orders than it can cope with
Internal Communication
Less effective communication means mistakes are made which results in more wastage therefore a higher average unit cost
Merger
A merger is a legal deal to bring 2 businesses together under one board of directors
Takeover
This is a legal deal where one larger business purchases a smaller one
Tactical reasons for mergers and takeovers
Attempt to ensure increases marker share
Acess to technology,staff or intellectual property
Strategic reasons for mergers and takeovers
Access to new markets
Improves distribution networks
Improved brand awareness
Merger defined
A merger is when 2 businesses have agreed to join forces to make a third company
Friendly Takeover
A business may be struggling with cash flow problems and invite a takeover from a stringers business known as a white knight as they come in to rescue the struggling business
Hostile takeover
The board of directors will try and resist the takeover but if another business gets 51% shares they can takeover management and control
Primary Sector
Businesses involved in digging, fishing, mining and raw materials
Secondary sector
Businesses that are involved in manufacturing the raw materials into products
Tertiary sector
Are businesses that sell goods to the customers eg Shops, Banks etc
Horizontal Integration
Business operating in the same sector merge or takeover another business in the same sector
Vertical Integration
Is when one business in one sector takes over or mergers with a business in another sector or part of the supply chain
Financial risks of mergers and takeovers
Original purchase cost
Redundancies of duplicate staff
Cost if plans fall through and it is a poor investment
Financial rewards of mergers and takeovers
Increased revenue
Economies of scale
Short term problems of rapid growth
The businesses that have merged may outgrow their premises. There may not be enough space for everyone to work efficiently
-Morale of workers may drop
-Shortage of cash to meet expansion costs
Problems of rapid growth on management pressure
Management may be under pressure operating reactively rather than proactively
-The quality of the products and services could drop, causing an increase in customer complaints
-May lose customers to competitors
