Theme 3 Flashcards
Mission statement
A mission statement is a qualative statement of an organisation aims
Corporate objectives
This should follow the mission statement and corporate vision and is to please the shareholders
Department objectives
Is objectives which are set by each section of the business which will follow Coprate objectives
Benefits of a mission statement
Helps yo focus and involve all employees
Helps to motivate employees by giving worth
Helps to create an identity in a competitive market
Limitations of a mission statement
Can be unrealistic
Can be a waste of management time and resources
Can affect a business if it changes and the mission statement doesn’t
Can be ambiguous
Coprate timescales
Corporate timescales refers to strategy and the expectation of when a return will be achieved
Short termism
This is when a business only cares about making profit and is only interested in a quick fincail reward
Choosing a path which is good in the short term but may affect the business in the long term
Only focused on short term return on investments instead of investment which will give them a competitive advantage
Long termism
A whole business approach
• Incorporates CSR
• Considers ethical behaviour of the
business in decision making
• Research and development have long term goals
• Staff development is seen a long term objective of the business, to retain and develop staff
• Long-term technology investments secure data for the future
Evidence based descions making
Decisions relating to the business are based on evidence and data which is valid and trusted information and should be a combination of critical thinking and best available evidence
Subjective decision making
Descions relating to a business based on personal opinions
Shareholders / stakeholders
Shareholders are interested in the profitability and the dividend pay out
Stakeholders are interested in the business and the way it conducts it suppliers etc people’s and ethically
Csr defined
Corporate socail responsibility is a business approach that contributes to sustainable devolpment with economic socail and environmental benefits for stake holders
Advantages of csr approach
Happy staff
Good pr
Happy customers
happy suplliers
New products
New markets
Disadvantages of csr
It is a fad which people say consumers will get bored/tired of it and move onto someth else
Cost could just increase even with a csr approach it could not give you enough of a competitive advantage and would just result in a more expensive product
Swot analysis
Internal considerations:strength and weaknesses
External considerations:opportunity and threats
Internal factors for swot analysis
Internal strengths :factors within a business that can help it achieve its objectives
Internal weakness : factors which could prevent a business from reaching their objectives
C
Corporate strategy
The overall scope and direction of the business and the multiple business operations which are working together to achieve one central goal
Ansoffs matrix
Where a company looking for growth can chooses the right marketing strategy or new markets
Limitations of ansoffs matrix
It oversimplifies the market
Large Mncs have thousands of sub operations
Potters strategic matrix
He there were 3 businesses strategies to gain a competitive advantage:
Cost leadership
Differentiation
Focus
Cost leadership
Useful in a highly competitive market where homogeneous products are as consumers are constantly switching finding the best deal
Differentiation
Useful ina technological market where products and their features are rapidly changing and customers need are diverse
Cost focus
Useful strategy when a business wnat to offer a product/service which a low price for a small market segment
Differentiation focus
Useful strategy when a business wants to offers diffrneated and aimed products to a small niche market
Limitations of potters strategic matrix
It is relevant to dynamic markets
No useful in a crisis situation
Oversimplifies teh market structure
Boston matrix
Planning tool which helps the businesses to create a balanced product portfolio it looks at market share and market growth
Star - high both product normally in growth phase
Question mark-low share high growth normally just launched
Cash cow - high share and low growth normally at teh mauturity phase with customer loyalty
Dog - low both in the decline phase of its product life cycle
Limitations of bcg
Bcg shows business as either high or low but business can also be medium
High market share doesn’t equal higher profits
Kay’s distinctive capabilities
John Kay suggest that key to success and a strong business was to make sure you had good relationships with customers / employees /suppliers
He also said there a three distinctive capabilities which gives a business a competitive advantage:
Reputation: through their customer service
Architecture:relationships with customers / employees/ suppliers
Innovation - bringing products to the market
Strategic descion
Long term direction of the business
What the business wil do to meet their aims and objectives
Pro active descions making
Forward thinking / future planning
Tactical descions
Short or medium direction of the business
How the business will implement their strategy
reactive to competitors actions
Present day thinking what is happening now that needs dealing with
Objectives of growth
To achieve economies of scale
Increased market power over customers and suppliers
Increased market share and brand recognition i
Increased profitability
Problems arising from growth
Diseconomies of scale
Overtrading
Internal communication
Business growth
Business growth is the point at which a business a business needs to expand and seek options to genearate more profits
Bulk buying / economies
As the business grow they need to order large donations of products inputs as the order value increase the buy8mg power of the business increase
Technical economies of scale
Business with large scale production can use more advanced machinery .like mass production techniques
Managerial
As teh business grows larger they will need to take on specialist staff
Financial economies of scale
Small businesses often find it hard to obtain finance this is because small business are seen as risky compared to large business which find it easier to obtain finance
Marketing economies of scale
As the business grows larger it will be able to the spread it cost of marketing over a wider product portfolio
Risk bearing
Bigger companies can spread there risk by investing in more products and markets
Problems arise big from growth
Diseconomies of scale
Internal communication
Overtrading
Dis economies of scale
As a business grows they may expand the minus efficient scale and the this will lead to average cost per unit rising as production rises
Overtrading
This is when the business accepts more orders than it can complete
Internal communication
As teh workforce increase they will be less face to face communication and it will talk longer for messages to reach the correct staff as there are more layers of management this leads to mistakes made , more wastage which will lead to a higher unit cost
Merger
A meter is a legal deal to bring two business together under one board of directors
Take over
Thai is a legal deal where one larger business purchases a smaller one
Reasons for mergers and takeovers (tactical)
Attempt to ensure increased market share
Access to technology , staff ore intellectual property
Reasons for mergers and takeovers (strategic )
Access to new markets
Improved distribution networks
Improved brand awareness
Three sectors in business
Primary sector:farm or quarry
Secondary sector: clothes factory or cheese maker
Tertiary sector :eg banks insurance companies
Horizontal integration
Business operating in teh same sector merge or takeover another business in teh same sector
Vertical integration
Vertical integration is when one business in one sector takes over or ,edges with a businnes in another sector or parts of the supply chain
Financial risks of mergers and takeovers
Original purchase cost
Cost of change into a new business
Redundancies of duplicate staff
Problems with mergers and takeovers
Clash of cultures
Diseconomies of scale
Communication problems
Unrielable merger partners
Organic growth
Organic growth is the process of business growth which comes from within the business
Methods of growing organically
New product launches
Opening new stores
Expand to forgein markets
Expansion of workforce
Advantages of organic growth
Cheaper then merger
Higher production means eos
Retains the company culture
Disadvantages of organic growth
Is a very high risk strategy as it is capital intensive
Long period between investment and return on investment
Growth may be limited
What is quantitative sales forecasting
is a sastical strategy which anyalises to make predictions about the future
Uses of qsf
Organise production
Organises marketing
Organises resources on the business
Limitations of qsf
Past performance is no guarantee of he future
Business need to appreciate the swot and pestle factors that may affect future predictions
Investment appraisal
Investment appraisal attempts to determine the value of capital expenditure projects . It enables the business and its invest to compare projects so that the business
Ia descions makin
A business will have many ideas how will not have the funds to support all of them so ia is the planing process to chose which one they should invest in
Pay back
A business will have a table with all the project they want to invest in and payback table will show the, how quickly they will be oyed back
Arr
Arr system which looks at the average rate of return of the projects
Npv
Bet present value and it takes into account that money in the future is not short what it is today
Payback limitations
Very simple only looks at the speed of pay back
Arr limitations
Doesn’t take into account the effects of time on the value of money
Npv limitations
Very complex not used by small business , also results dependent on the rate of discount used
Critical path anyalsis
A management tool which helps a business to identify how long a project will take and what the critical takes in the project are
Uses of cpa
Can be used to schedule building projects
Launch a new product onto a markets
Instillation of new technology in a business
Advertising campaigns
Benefits of cpa
Stake holders will be able to see the total time frame for the projects comepletion
Very useful for business in the fast moving customer good markets where speed is important
Useful to know when to deliver resources or labour
Ratio
A ratio measures a company’s ability to meet financial obligations
Current ratio formula
Current assests / current liabilities
Know as working capital ratio
Acid test ration formula
Current assests - inventory/ current liabilities
The acid test ratio is also know as the quick ratio and is the most commonly used ratio to judge the financial health of a business
Gearing ratio formula
Non current liabilities/ capital employed x100
img ratio looks at the long term finance of the business and where it comes from
Roce ratio formula
Operating profit / capital employed x100
Roce mean return on capital employed and is a measure of the profitability of the business
Ratio limitations
The balance sheet is just the snapshot of the business in one day of the business and as the markets are dynamic the are changing all the time
Ratios are only good as the information provide d
Statement of comprehensive income
This used to be called profit and loss account , this is part of a legal documents that must be published each year by ltd or plc companies ( shows if a business has made a profit of loss
Revenue + calculation
Revenue is the money coming into the business for ordinary trading
Quanity x price
Gross profit
The cost of sales of the stoic that has been sold as of ordinary trading
Revenue - costs of sales
Operating profit
Is the overall profit the business makes after tax and overall costs
Pros and cons of critical path anylsis
Pros
Can find a critical path and focus on it reducing waste and improving efficiency
Improve and Switch production process which can increase cash flow by reducing production cost eg. Jit stock
Always the business to delegate tasks to different managers
Cons
Takes time and costs a lot
the estimates may be wrong ruining the project
Might become to obsessed with the cpa and neglect different ares of the business eg quality suffers by taking shortcuts leading to bad customer reputation
Ansoffs marrying four strategises
Market penetration -selling more of your existing product to existing consumers or markets (lowest risk )
Market development - this is entering new markets
Product development-devolping on your existing products
Diversification - entering new markets with a new product or service (highest risk )
Different stakeholders
Shareholders
Employees
Managers
Trade unions customers
Banks
Government
What share holders wnat
Want profitability depends on short term or long term (dividends to be high )
Share price to be high
What employees and managers want
Job security
Pay
Safe working environment
Managers
Status
Bonuses
Job security
What customers want
Quality
Degrees of choice
Value
What supplier want
Regular orders
Prompt payment
Fairness in price
What local community wants
Jobs
Coprate social responsibility
What government wnat
Expanding
Exporting
Making sure their sticking to laws
Managing relationships with stakeholders
Satisficing
Sequential attention -meet stakeholders need one at a time
Side payments - offer something less than want stake holders main wants
Excerise of power - force their descions
Porters five forces
5 competitive forces :
Supplier power
Buyer power
Entry threat
Rivalry
Substitute threat
