Theme 3 Flashcards
1
Q
An Objective should be …. (SMART)
A
Specific
Measurable
Agreed
Realistic
Timely
2
Q
Types of resources to consider when making a strategy
A
- Human = Skilled workers
- Physical = Update machinery
- Financial = Funding
3
Q
Ansoffs matrix and when is the strategy used
A
Market penetration
- Works well in emerging markets NOT SATURATED
- Gain market share by sales promotion , advertising
Market development
- New promotions
- New distribution channels
- Expanding
Product development
- Research and development
- Competitive advantage
Diversification
- Risky
- Used when business depend on limited product range
4
Q
Porters three generic strategies
A
- Cost leadership - low production costs
- Differentiation - Unique attributes allow firms to charge higher prices
- Focus - Niche market must either lower costs or show differentiation
5
Q
Kays three capabilities to success
A
- Architecture = stakeholder relationship
- Reputation = customer satisfaction
- Innovation = Research and development
6
Q
Purpose of Kay’s three capabilities
A
Build a business a DISTINCTIVE capability
- Set buiness apart
- Added value
- Competitive advantage
7
Q
SWOT analysis
A
Strengths - Internal
Weakness - Internal
Opportunities - External
Threats - External
8
Q
PESTLE analysis
(external business influence on business strategy)
A
Political
Economical
Social
Technological
Legal
Envioromental
9
Q
Porters five forces model (decide how to gain competitive advantage )
A
Barrier to entry
- Patents / trademarks
- Price war / predatory pricing
Buyer Power
- Low buyers in high market = high buyer power
Supplier Power
- It will cost a firm to change suppliers
Threat of substitutes
-Ensure little differentiation
- Relative price and quality the same
Industry rivalry
- Big promotional campaigns to bring awareness
10
Q
How can a business gain internal economies of scale
A
- Big firms negotiate prices with their suppliers
- Big firms hire specialist managers which improve efficency which then reduces costs
-Newest machinery will improve efficiency and reduce costs
11
Q
Inorganic growth
A
Mergers and takeovers
- Will generate more revenue/ cost savings by benefiting from EOS
- Gains access to new markets
- Gains access to new technology
12
Q
Organic growth
A
Expansion from WITHIN the business
- Reinvest profits into business
- Done when market is going quickly or the business is outgrowing its competitors
13
Q
Advantages of Organic growth
A
- Management style doesn’t have to change
- Less risk by using refined profit
- Easier to control
- No changes are felt by workers so productivity and efficacy remains high
14
Q
Disadvantages of Organic growth
A
- Long
-Market size is unaffected as if the market doesn’t grow then its market share is restricted
15
Q
Problems large businesses may face
A
- Diseconomies of scale
- Hard to motivate people
- Weak internal communication
- Reduced working capital
16
Q
Financial risks with quick inorganic growth
A
- Mergers may have different objectives
- Adjustment period may lead to poor customer service
- Duplicate roles may lead to lay offs
- If one business is diversified the other business must not make mistakes
17
Q
Why might business restrict their growth
A
- Maintain culture
- Harder to manage
- May require additional finance
18
Q
Kays distinctive capabilities (remaining small in a competitive market )
A
Product differentiation
- Offer a unique service
Responding to customer needs
- Small communication allowing quick response
Customer service
- Offer a personal experience
- Help reach corporate objectives
19
Q
How to calculate cyclical variation on a scatter graph
A
Total value - Moving average (line of best fit value)
20
Q
Three methods a business looks at before deciding to invest
A
- Payback period
- Calculating average rate of return
- Discounted cash flows
21
Q
Payback period calculation
A
amount invested
—————————-
annual net cash flow
Lower payback the more favourable it is
22
Q
Average rate of return calculation
A
Average Net return
————————— x 100
Investment
Higher the ARR more favourable the project
23
Q
Advantages of Payback period
A
- Easy to calculate
- Good for short term return projects
24
Q
Disadvantages of Payback period
A
- Ignores cash flow
- Ignores time value of money
25
Advantages of Average rate of return
- East to claulcaute
- Takes cash flow into account
26
Disadvantages of Average rate of return
- Ignores the timings of the cash flows
- Ignores time vale of money
27
Advantages of Discounted cash flow
- Takes in the time value of money
- Adjusts cash value to the present value
28
Disadvantages to discounted cash flow
- Hard to calculate
- Hard to calculate discount since they can’t be certain of the interest rate
29
Probability definition
Likelihood of an event happening
30
Advantages of using a decision tree
- Works out the probability using REAL figures
- Quantitive and objective
31
Disadvantages of using a decision tree
- Ignores qualative data (employee opinions )
- Hard to make accurate
- There is a wider range of outcomes than the diagram shows
32
What does the square and circle represent on a descion tree
Square = Decision
Circle = Possible Outcome
33
Total float time definition
Length of time you can delay an activity without compromising the completion deadline of thee project
34
Advantages of critical path analysis
- Identifies critical activities
- Can measure float times
- Critical paths can forecast cash flow
- Critical at his give a competitive advantage
35
Disadvantages of critical path analysis
- Esitmates
- Long planning time
- Sets tight deadline which could lead to employees cutting corners
- Doesn’t account delay factors ie weather or illness
36
Short - termism definition
Business increases financial performance over short periods
37
Short - termism purpose
- In limited companies = keep shareholders happy
- Manager bonus
- Used in VERY new businesses
- Lack of investment
- Short term contacts to allow flexibility
38
Long- termism definition
Business focuses on reaching long term goals
39
Long - termism purpose
-Concentrates on businesses overall performance
-Investing in R&D , staff training and long term projects
40
Evidence based descions making (advantages )
- Can be justifies by facts
- Use valid descions making tools ie critical pathway
- Record to show how a decision was reached
41
Evidence based descions making disadvnatges
- Long time to reach a descion
- Different interpretation are made
- Facts may overlook ethics
42
Subjective descions making advantages
- Quick descions making
- Used when a opinion is needed
- Used when there is a lack of data
43
Subjective descions making disadvantages
- Biased opinions can lead to a poor decision
- Hard to justify
- Snap decsions can be made without thinking of consequences
44
Corporate culture
Way people do things in a firm and the way they expect it to be done
45
Strong corporate culture
When employees agree with corporate values , which leads to less supervision due to staff loyalty.
Employee motivation will increase and they’ll work more productivily
46
Weak corporate culture
Employees don’t share corporate values and are FORCED to COMPLY with them
47
Four types of corporate culture
Power
Role
Person
Task
48
Power culture
- Authority is limited to a small number of people
- Usually resistant to change due to limited opinions or little faith in manager
49
Role culture
- Authority is based off of job title
- Poor inter department communication
- Slow response to change
- Avoid risk
50
Person culture
- Objectives are based on personal aims/ ambitions
- Joint descions making
- Workers when deciding on change will look at personal benefit rather than what’s best for the firm
51
Task culture
- Get specific tasks done
- Small teams
- Objectives are made for specific departments
- Used to change
52
Factors affecting corporate culture formation (7)
- Business founders
- Business history
- Nature of buiness and products
- Business enviormonet
- Recruitment and promotion of staff
- Working conditions
- Custoner service attitudes
53
Why might a manager want to change the corporate culture
- Familiarty
- To be more competitive
54
Why is changing corporate culture difficult (4)
- Employees can resist change
- Staff behaviour changes
- Expensive
- HR might need to change their system to adapt
55
Internal stakeholders (3)
- Manger
- Shareholdrs
- Employees
56
External stakeholders (5)
- Customers
- Supplers
- Local community
- Government
- Pressure groups
57
Shareholder v stakeholder objective conflicts
Shareholder wants to maximise profits to revaive a greater dividend
A stakeholder may want the business to pay workers above minimum wage or make the products ethically sourced
58
Ethics
Behaviours that are considered morally acceptable by society
59
Trade-off between ethics and profit
If a business acts ethically it wont be as profitable or it will have to charge higher prices risking reduced sales
60
CSR Corporate social responsibility
Business should go above and beyond from what is required by the law to help society ie
- Donte to charities
- Host or sponsor community events
61
CSR advantages
- Improves brand loyalty
- Improved staff moral = more motivated
- Good public opinion
62
CSR disadvantages
- Cost of shareholders gaining smaller funds
- Customers might have to pay more
- Makes small business look bad as they can’t afford to do it
63
Stakeholders that are interested in a businesses profit-loss account
- Managers
- Employees
- Suppliers
- Loan provides
- Shareholders (interested in net after tax for their dividend payout)
64
Solvency v Liquidity
Solvency is the ability for a business to pay its debts
Liquidity is how quick assets can be turned into cash
65
Gearing ratio shows ..
The proportion of the firms finance that’s not from non-current liabilities (long term debt)
66
Gearing ratio % calculation
non-current liabilities
—————————— x 100
capital employed
Over 50 is high geared , less than 50 is low geared
67
Capital employed calculation
Non current liabilities + total equity
68
Benefits of high gearing (3)
- Extra funds for expansion
- Attractive growth phase in product life cycle
- Growth will led to high profits even after loan repayment
69
Risks of high gearing (2)
- Not affording the repayments
- Interest rates may go up higher than estimated
70
Return on capital employed % calculation
operating profit
———————- x 100
capital employed
71
Return on capital investment (ROCE) shows..
The comparison of how much money is made over the amount being put into the business
The higher the ROCE the better
72
Uses of ROCE
- Good way for stakeholder to look at firms performance
- Can make business decisions
- Compare other firms finances
73
Limitations of ROCE
- Only as good as the data provided
- Internal strength isn’t shown (staff skill)
- External factors aren’t assessed
- Future changes (technological advances aren’t considered)
74
Labour productivity calculation
Output per period
————————— — x 100
Number of employees
75
Labour turnover calcaultion
Number of staff leaving
———————————————— x100
Average number of staff employed
76
Differnce between labour turnover and labour productivity
Labour turnover = number of staff leaving
Labour productivity = Output per employee
77
Labour retention calculation
Number of staff employed at start - number who left
————————————————————————— x100
Number of staff at start period
78
Absenteeism calculation
Number of staff absebsce days in time period
—————————————————————- x100
number of staff employed x time period
79
Difference between labour retention and absenteeism
Labour retention = Business ability to keep employees
Absenteeism = Proportion of days missed by employees
80
Strategies to improve HR figures
Financial rewards - motivation
Employee share ownership - reduces staff turnover
Consultation strategy - involve in descions making
Empowerment strategy - more responsibility
81
Internal causes for business change (4)
- Change in organisational size
- New ownership
- Poor business performance
- Transformational leadership
82
How can change in organisational size affect business
- More workers = more productivity = EOS = competitive advantages
- Bad management of increase in workers can lead to slower production = diseconomies of scale
- More workers = harder communication
- Cash flow can be badly managed
83
How can new ownership affect business
- Change in management style
- Stakeholder may notice a change - to ensure satisfaction good communication has to be maintained
- EOS could occur
- Finical performance may be affected
84
How can poor business performance affect business
- Reduces competitiveness
- Negative productivity and efficiency
- Affects stakeholders
- Share value decreases
85
How can transformational leadership affect business
- Change business ethos (aim , principles)
- Affect stakeholders (employee motivation or quality of customer service )
- Employees are resistant to change
86
External causes to business change
Political
Economic
Social
Technological
Legal
Environmental
87
How can “the market ” affect business change
- Change objectives
- New entrants can cause a loss in market share
- Removal of a competitor can improve a business financial performance
- Acting quickly is advantageous
88
Key factors in change success (4)
- Change in organisational culture (power, job, person , task)
- Change in organisational size (communication )
- Changes speed (gradual or sudden)
- Resistance to change (lack of understanding , lack of skills)
89
Methods to overcome resistance to change (5)
- Raise awareness for reasoning
- Involve stakeholders in descions making
- Listen to concerns
- Bargain by offering incentives
- Manipulate the information
90
Risk mitigation definition and it’s forms
A plan that’s looks at reducing the probability of a risk
- Risk acceptance
- Risk avoidance
- Risk limitation (reduce risk)
- Risk transference (send to third party)
91
Scenario planning
Business considers future events that may happen and plan how they would operate if the event occurred
92
Business continuity planning
A recovery plan for a unspecified event , to allow a business to see how they would reach a mimimim acceptance level to resume to normal business
93
Succession planning
Identification and development of staff that could fill key roles to allow a business to migrate risks free another staff has left
