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Theme 3 2025 Flashcards

1
Q

What is a mission statement?

A

Sets out the purpose of a business and why is exists. The mission relates to stakeholders.

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2
Q

What does a mission statement include?

A

The values of the business
The scope of the business
The importance of different stakeholder groups
The impact the business intends to have on society
The long term aims of the business

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3
Q

What influences a mission statement?

A

The values of the founders
The industry the business is in
The views of society
The size of the business and the type of ownership
The culture of the business

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4
Q

What are corporate objectives?

A

Quantify the mission statement and set targets for the whole organisation. They should provide specific and measurable steps that a business should take

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5
Q

What are the focuses of corporate objectives?

A

Market standing
Innovation
Sustainability
Growth
Shareholder value
Social responsibility
Profitability

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6
Q

What internal factors affect corporate objectives

A

Poor performance
New leadership
Business ownership
Business culture
Business growth

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7
Q

What external factors affect corporate objectives

A

Economic conditions
Social change
Actions of competitors
Global prices
Technological change

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8
Q

What might a business consider when reviewing its mission statement and objectives?

A

What is the intended purpose of the mission statement
What is the target audience
Does the strategy fit with the mission statement
Are the aims and objectives realistic and achievable

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9
Q

What is short termism?

A

The pressure of achieving short term gains over long term success
> this pressure for instant success can influence corporate objectives and decision making as much as any other internal or external factor

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10
Q

What is strategic direction? Why is this important?

A

Involves a business choosing which markets it will operate in and which products it will provide
> the external environment is constantly changing and businesses must develop and compete in areas that make the best use of their strengths and core competencies

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11
Q

What is the ansoff matrix?

A

A strategic tool that business can use to help choose the market they wish to operate in and the products they will sell within that market. The model offers 4 distinct strategies based on the products degree of newness and the firms experience in that market

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12
Q

Describe or draw the ansoff matrix

A

4 quadrants:
Top left - existing products in existing markets
> market penetration
Top right - new products in existing markets
> product development
Bottom left - existing products in new markets
> marketing development
Bottom right - new products in new markets
> diversification

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13
Q

What is market penetration

A

Existing products in existing markets
> a strategy to boost the sales of current products in current markets

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14
Q

What are some possible approaches to market penetration

A

Increase promotional activities
Change pricing model if product is price sensitive
Build brand image
Focus on increasing repeat purchase by developing customer loyalty
Incentivise customer affiliations

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15
Q

What are the benefits and limitations of market penetration?

A

Low risk
Product and market are familiar to the business
Limited investment required

Possibly limited growth potential
Business becomes vulnerable if it does not innovate

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16
Q

What is product development?

A

New products in existing markets
> develops new products for existing customers

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17
Q

What are some possible approaches to porosity development (ansoff)?

A

Conduct market research with existing customers to identify areas for improvement and innovation
Use product portfolio tools to manage product range (Boston matrix)
Divert funds into R&D and product development

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18
Q

What are the benefits and drawbacks of product development (ansoff)?

A

Familiar with customers
Builds on/innovates currents products
Responds to customer needs

Product development takes time and can be expensive
Product cannibalisation

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19
Q

What is market development?

A

Existing products in new markets
> take existing products into new market segments demographically or geographically

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20
Q

What are some possible approaches to market development?

A

Use of penetration pricing to enter new markets
Heavy promotion to target new customers
Strategic alliance or takeover of a business already operating in the market
Develop new channels of distribution to reach new customers such as an international agent

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21
Q

What are the benefits and drawbacks of market development?

A

Potential for considerable growth
No need for expensive product development

Limited understanding of new customers needs
Competing against established businesses

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22
Q

What is diversification?

A

New products in new markets
> offer new products to new customers in a new market

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23
Q

What are some approaches to diversification

A

Often applies to conglomerates with considerable financial power and economies of scale
> this power might allow them to adopt such a strategy
Businesses may have a particular asset such as a patent that allows them to be competitive without having particular expertise
Could be achieved through external growth
> mergers or takeovers

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24
Q

What are the benefits and drawbacks to diversification?

A

Spreads the business risk by engaging in different markets
Business can utilise some of its core competencies and apply them to a new context

Can be extremely high risk
No reputation or expertise in the market

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25
26
What is the aim of product portfolio analysis
To categorise a companies products with specific characteristics in order to make strategic devious about them. > Boston matrix and product life cycle
27
How are products assessed when doing portfolio analysis?
Current and projected sales Current and projected costs The level of competition Unique characteristics and strengths Risks that may affect performance
28
Describe or draw the Boston matrix
4 quadrants Top left - high market share high market growth > rising star Top right - low market share high market growth > question mark Bottom left - high market share low market growth > cash cow Bottom right - Low market share low market growth > dog
29
What is a star?
High market share and high market growth > possibly a leading brand in the market, distribution must be effective to ensure product availability
30
What is a question mark?
High market growth but low market share > fast growing market but not yet an established product, normally requires heavy investment to develop and ensure success > usually lots of competition from rival brands
31
What is a cash cow?
High market share low market growth > successful product in a mature market, cash cows generate high revenue for a business that can be invested in other areas with relatively little promotion required
32
What is a dog?
Low market share, low market growth > invest to revitalised or discontinue
33
What are the limitations of product portfolio analysis?
Can oversimplify a very complex reality
34
What are porters strategies?
Porter suggested that a business should follow one of there positioning strategies in order to compete within a market. These strategies help a business to have a distinguishable focus meaning it can compete with rivals > the strategies are based around the source of competitive advantage and scope within the market
35
What did porter maintain?
That companies should compete on either price (cost), perceived value (differentiation) or by focusing on a very specific type of customer (market segmentation)
36
Describe or draw porters strategic matrix
Three quadrants: the one on the top double the length of the two below Y axis: market scope > narrow at the top broad at the bottom X axis: competency > uniqueness on the left, low cost on the right Segmentation > narrow market scope > unique and low cost Differentiation > broad market scope > unique Cost leadership > broad market scope > low cost
37
What is cost leadership?
Broad market scope and low cost > achieve an advantage by being the lowest cost operator in the market
38
How can a business achieve a cost leadership strategy?
Operate at a scale that keeps avg costs low Acheive economies of scale through growth Have a unique access to technology Have unique access to skills or raw materials Control the supply of a product
39
What are the benefits and drawbacks of a cost leadership strategy?
Can help to acheive high profit margins as cost per unit is kept low It can maintain market price and gain high profit margins Can lower price and aquire market share Few businesses can operate as the cost leader within a market as multiple businesses cannot compete directly on cost
40
What is differentiation strategy (porter)?
Broad market scope and uniqueness > compete by offering a unique product or service to the market or a niche
41
What’s the basis for differentiation strategy?
Quality Customer service Brand personality Customer experince After sales service Speed and efficiency Meeting the unique needs of a specific market niche
42
What are the benefits and drawbacks of differentiation strategy?
Can make the business stand out Differentiation helps to develop a unique brand image Differentiation adds value and therefore higher prices can be charged Other businesses may be able to copy the strategy if it is not sustainable or defensible > eg under copyright
43
What is segmentation strategy?
Narrow market scope but unique and low cost > can be achieved through either cost leadership or differentiation as it involves targeting a specific group of customers and not the whole market
44
How can segmentation strategy be achieved?
Both cost leadership and differentiation can be achieved through targeting the whole market or a specific segment of the niche > the basis of the segment could be its unique needs, demographic or geography or a specialist product or service
45
What are the benefits and drawbacks of segmentation strategy?
Easier to target a narrow segment of the market as communications and marketing can be focused Possible to develop a better understanding of customer needs as the segment has narrower interests, needs and characteristics Customer loyalty is vital if sales are to be maintained - every customer counts The market may disappear or no longer be a viable option if it shrinks in size
46
47
What is a competitive advantage?
Exists where a business creates unique value for its customers that is greater than that offered by competitors
48
What is a sustainable competitive advantage?
One that is unique, can not be easily copied and takes a long time to acheive
49
What are the 3 ways a business can achieve a competitive advantage?
Innovation Architecture Reputation
50
What factors should a business consider when choosing a strategy?
The expected cost Anticipated returns Stakeholders External environment Core competencies Risk aversion
51
What is a strategy?
A long term plan or approach that a business will take to achieve its objective > involves a major commitment to resources
52
What do clear strategies do?
Guide tactical decisions > a business may have a strategy to become a market leader by having the widest range of innovative products on the market. However, a tactical decision to support this target might divert an extra £5 million into research and development and headhunt some of the most innovative designers in the industry
53
What are tactics?
Day to day decisions made by middle managers They are frequent and involve fewer resources but are taken to acheive the strategic direction of the business
54
What is the objectives hierarchy?
Aims Mission statement Corporate objectives Functional objectives
55
What are aims
The overall goal or purpose of the organisation
56
57
What does SWOT stand for?
Strengths, weaknesses, opportunities, threats
58
How could a business conduct a swot analysis on their business?
An internal audit to collect options of opinions assessing skills or shortages or reviewing different departments An external audit to investigate the economy, market conditions and the actions of competitors
59
What are the benefits of SWOT?
Assists strategic thinking in a structural way Low cost and simple approach Can be combined with other decision making models such as PESTLE
60
What are the limitations of SWOT?
Subjective Does not offer clear solutions Classifications are perspective dependent
61
How can SWOT be used in an exam?
To asses a case study
62
What is PESTLE?
Political Economic Social Technological Legal Environmental
63
What does the P in SWOT mean?
Political > covers actions take by national and international authorities > Their actions are designed to maximise economic activity, while protecting businesses, individuals and the environment > political decisions have a direct impact on market regulations, enterprise initiatives, national infrastructure and international trade
64
What does the first e in PESTLE stand for?
Economic - the general state of the economy
65
What does the S in PESTLE stand for?
Social > changing demands for goods and services > can include changes in demographics and lifestyle changes
66
What does the T in PESTLE stand for?
Technological > developments in tech create opportunities for new products and services as well as advancements in production and delivery > businesses can be left behind if they don’t advance
67
What does the L in PESTLE stand for?
Legal > the framework within which businesses operate
68
What does the E in PESTLE stand for?
Environmental > government tries to ensure businesses pay for the total cost of production, including the external costs such as pollution > society is increasingly worried about he environment and the effects on it from industry and business > businesses may benefit from being environmentally friendly
69
How does the competitive environment changes
New entrants New products Consolidation (businesses failing leaving available market share)
70
What are the three different market structures?
Highly competitive markets Uncompetitive markets Oligopolies and monopolies
71
72
What is competitive rivalry?
The factors within a market that determine how businesses operate and compete. A business must respond and make functional and strategic decisions based on these factors
73
What are porters 5 forces?
Competitive rivalry Bargaining power of suppliers Bargaining power of buyers Threat of substitutes Threat of new entrants
74
What is rivalry within the market?
The level of competition and agressive rivalry between businesses in the market > as markets grow and become more attractive, new businesses may enter the market which increases the competitive rivalry
75
When is competition fierce? (5 forces)
Easy entry to the market Easy for customers to switch Little differentiation of products Little growth or decline in the market > may cause profit margins to be squeezed
76
What options can businesses consider when competition in a market is fierce?
Lower costs of production and pricing to compete Develop a basis for differentiation Takeover, merger or strategic alliance
77
What is bargaining power of suppliers (5 forces)
The power supplies have to negotiate terms and prices Bargaining power may change if the supply of a commodity such as wheat or copper fluctuates
78
When is supplier power high (5 forces)
Few suppliers Suppliers product is essential for production The supplier is able to integrate vertically forward and sell direct to the businesses customers Low availability of viable substitutes > can cause high production costs and unfavourable terms of supply
79
What are some options for businesses to consider to change bargaining power of suppliers (5 forces)
Build strong relationships with suppliers Agree long term contracts of supply with favourable conditions Backward vertical integration
80
What is porters 5 forces used for?
Analysing the competitive environment
81
What is bargaining power of buyers?
The power buyers have to negotiate terms and proves > might change as consumers gain greater access to information and greater choice between rivals
82
When is buyer power high? (5 forces)
There is little difference between products offered by competitors Products are price sensitive Customers buy in large quantities on a regular basis It is easy for buyers to switch between competitors > prices forced low and credit terms demanded so there is pressure on cash flow
83
What are some options for businesses to consider in terms of bargaining power of buyers?
Develop a USP build switching costs into agreements Lower prices to attract customers Forward vertical integration (if buyer is another business)
84
What is threat of substitutes? (5 forces)
A substitute is an alternative product that may deliver the same benefits to the customer. The threat of substitutes may change with social trends.
85
When is the threat of substitutes high and what are the problems of this?
Alternative products exist Alternative prices fall Customers can easily switch > buyers have high bargaining power > competition exists outside of the market
86
What are some options for businesses to consider to mitigate the threat of substitutes? (5 forces)
Develop a USP build switching costs into agreements Lower prices to attract or keep customers Promote benefits in comparison to substitute products
87
What are barriers to entry (5 forces)
A physical technological or intellectual barrier that makes it difficult for rival businesses to enter the market. The existence of large companies can create barriers to entry as they can dominate resources and networks
88
When do barriers to entry exist and what problems can this cause (5 forces)
Capital investment to enter the market is very high Customers are brand loyal to an existing business Levels of specialist knowledge and expertise in the industry are very high > if few barriers exist it is easy for competition to enter meaning there is more rivalry
89
What options should a business consider in terms of barriers to entry (5 forces)
Innovation to stay ahead of competitors Build strong relationships with new buyers making it difficult for new entrants Growth as economies of scale can keep prices low
90
How might a business choose to grow organically?
Market penetration Product development Market development
91
How may a business choose to grow in organically?
Mergers Takeovers Joint ventures
92
How are inorganic and organic growth different
Organic growth is steady and gradual whereas inorganic growth is sudden and can bring about significant change in an organisation
93
Which is a lower risk option: organic or inorganic growth?
Organic but inorganic is faster
94
What are some objectives of growth?
Synergies > external growth can bring businesses together that complement one another’s strategies Economies of scope > operating with a large number of products in a wide range of markets > reduces costs and risk Economies of scale Experience > big businesses using past experience to benefit them
95
What are economies of scale?
When a businesses unit costs fall as the business expands
96
What are internal economies of scale?
Purchasing economies Technological economies Financial Managerial External economies Labour Cooperation
97
What are purchasing economies of scale?
Bulk buying
98
What are technological economies
Larger businesses being able to invest in the best technology
99
What are financial economies of scale
Larger businesses have more collateral and can raise more capital and receive better rates of interest and terms of payment
100
What are managerial economies of scale
Lather businesses can employ specialists to manage a particular aspect of the business which helps to improve efficiency in different business functions
101
What are external economies of scale?
Benefits a while industry gains as it grows
102
What are labour economies of scale
A concentration of firms in one area may encourage a build up of skilled labour force
103
What are cooperation economies of scale?
Where firms are concentrated together they are more likely to work together and collaborate
104
Whats a benefit of growth?
Unit costs fall
105
What’s a drawback of growth?
Diseconomies of scale where unit costs start to rise as the business starts to lose some it the efficiencies it gained from growth
106
What are diseconomies of scale?
Where unit costs rise as businesses expand Commutation problems Control Flexibility Motivation
107
Why are communication problems a diseconomy of scale
It becomes harder to communicate a clear message across the organisation
108
Why can control become a diseconomy is scale?
In order to control the organisation layers of management are added which slows down decision making and quality becomes harder to manage
109
Why can flexibility become a diseconomy of scale?
Owing to issues of communication and control the business may be less flexible in its ability to adapt to the changing business environment
110
Why can motivation become a diseconomy of scale
Workers in large organisations find it difficult go see the impact they have and feel less significant
111
What is over trading? When does it occur?
When a business grows too fast and becomes overstretched in their financial resources. A business may also face logistical problems if it cannot manage operations. Overtrading can lead to business failure. A business may accept a profitable order but fail to manage the timing of cash flows associate with the order
112
What can a business do to reduce size when it gets too big?
Redundancies Closure of branches Discontinuing product lines Pulling out of international markets Delaying Reallocating business resources Cancelling expansion plans Outsourcing aspects of business operations
113
What is a takeover?
An acquisition > one business will acquire another along with its assets > can be hostile which makes it risky > just 51% of shares will make the predator business have full control >15% stake can also be a controlling interest
114
What is a merger?
Two businesses come together in a joint venture for mutual benefit > this may be to share strengths or with the purpose of business survival > the business will seek synergies out of the merger and a new name will be created from the joining companies
115
What are the 4 type of growth?
Backward vertical Forward vertical Horizontal Conglomerate
116
What is backward vertical growth?
Taking over a supplier
117
What is forward vertical growth?
Taking over a customer such as a retailer
118
What is horizontal growth?
Merging with a business as the same level of the supply chain such as another wholesaler
119
What is a conglomerate?
Taking over an unused business in another market
120
What are the rewards of inorganic growth?
Speedy Higher remuneration for senior staff Rewards for previous owners Greater profitability of the merger or takeover is sucessful
121
What are the risks of inorganic growth?
Regulatory intervention if the move is anti competitive Resistance Financial strain
122
What is organic growth?
When a business grows naturally by selling more of its products and reinvesting the profit to expand into new areas > uses a business retained profit
123
What is franchising?
A business Licensing individuals or companies to trade under its brand using the goods or services it provides
124
How can creating a new business model be a form of inorganic growth?
Moving from being a retailer to an e tailer or the other way around
125
What are the advantages of inorganic growth?
Less risk Controlled pace Cheaper than external growth Diseconomies of scale minimised
126
What are the disadvantages of organic growth
Slow pace External expertise lost More competition (less ability to dominate the market)
127
What are some reasons for staying small?
Personal service Costs Convenience as a USP (serving local communities) flexibility Control and efficient Owner preferences
128
How can staying small be a USP?
Can provide products different to the mainstream Provide specialist advice and accessories
129
How can customer service as a result of staying small be a USP?
Smaller businesses often find it easier to provide a personalised service which is partly due to the workers and owners being about to build relationships with a smaller number of customers
130
How can business that choose to stay small still benefit through e commerce?
Small business no longer need to expand to be able to operate on a regional, national or local level. Operations can exist and reach customers via their own or third party e commerce websites. Products can then be distributed globally without the need for investment in expensive retail space and the risks associated. > small businesses like consultants and trainers can operate online to a larger target audience
131
How can flexibility in responding to customer needs be a reason for saying small?
Small businesses are more flexible because decisions (like changes in prices and product ranges) they make can be implemented very quickly and operations adapted. In large companies this can take months > this means smaller businesses can be the first to adapt to the competing environment and customer needs
132

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