Theme 3 Flashcards
What is a corporate objective?
- corporate objectives are those that relate to the business as a whole, usually set by the top management of the business and provide the focus for setting more detailed objectives for various functions.
How do businesses develop corporate objectives from mission statements/corporate aims?
- create corporate objectives using the values of which the mission is based upon.
- create corporate objectives as smaller steps to achieve corporate aims.
what is a critical appraisal?
- the process of assessing the trustworthiness, value and relevance of a piece of information e.g. a mission statement.
what does a critical appraisal of mission statements/corporate aims involve?
- involves assessing whether the benefits of creating a mission statement outweigh the costs.
- will it be put to good use or be ignored by the majority of stakeholders.
- how will the sentiments be implemented within the org.
- will it change as the organisation changes.
What is ansoffs matrix?
- Ansoff’s matrix is a marketing planning tool that helps a business determine its product and market growth strategy.
What is porters strategic matrix?
- porters strategic matrix provides 4 generic business strategies that could be followed in order to gain a competitive advantage.
- he called the strategies cost leadership, differentiation, and focus.
- he then divided focus into two parts, cost focus and differentiation focus.
what are the 2 matrix methods of developing corporate strategy?
- ansoffs matrix
- porters matrix
What are the advantages and disadvantages of Ansoffs matrix?
+ forces management to think of expected risks of strategic plan, creating a risk aware culture.
+ lays out possible strategies for growth which can be presented to stakeholders.
- doesn’t take into account activities of external competitors.
- accurate predictions are difficult due to unforeseen events.
What are the advantages and disadvantages of Porters matrix?
-
What is portfolio analysis?
- An analysis of elements of a company’s product mix to determine the optimum allocation of its resources.
What are the aims of portfolio analysis?
- to determine the optimum allocation of resources.
- to decide which products/services should be developed and which should be discontinued.
- to set objectives for individual products/services.
What is competitive advantage?
- A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.
How do distinctive capabilities allow a business to achieve competitive advantage?
- operational skills within a business such as a highly talented R&D department could lead to differentiation being a viable future.
- companies ability to learn from mistakes and success so the business is always moving forward.
- all about sticking to strengths of the business e.g. mentality, operational skills.
What impact do strategic decisions have on Human, physical and financial resources?
- strategic decisions are long term and often irreversible.
- restructuring organisation can lead to redundancies and high staff turnover.
- closure of stores will create long term impacts on physical resources.
- change in strategic direction may cause business to encounter unexpected costs having an impact on financial resources.
What impact do tactical decisions have on physical resources?
- tactical decisions are short term and can be reversed easily.
- decisions may create large amounts of work and disruption short term for staff but is unlikely to impact careers.
- hiring extra equipment to deal with demand will have short term impact on physical resources.
- tactical decisions may have a short term impact on financial resources.
What is SWOT analysis?
- a way of investigating a companies current strengths and weaknesses and using them to help force future opportunities and threats.
In SWOT analysis what internal considerations need to be considered?
- strengths and weaknesses of the business e.g. market share, capacity utilisation, revenues.
What is PESTLE and what does it stand for?
- an effective way to analyse key features of the external environment. stands for: Political Economic Social Technological Legal Ethical/environmental
How can external influences such as politics impact business strategy?
- competition policy
- industry regulation
- govt spending & tax policies.
- business policy & incentives
How can external influences such as the economy impact business strategy?
- interest rates
- consumer spending and income.
- exchange rates.
- economic growth (GDP)
How can external influences such as social trends impact business strategy?
- Demographic change
- impact of pressure groups
- consumer tastes
- changing lifestyles
How can external influences such as technology impact business strategy?
- disruptive technologies
- adoption of mobile technology
- new production processes
- big data and dynamic pricing
How can legal external influences impact business strategy?
- employment law
- minimum/living wage
- health & safety laws
- environmental legislation.
How can environmental/ethical external influences impact business strategy?
- sustainability
- tax practices
- ethical sourcing (supply chain)
- pollution & carbon emissions.
How can the changing competitive environment be an external influence on business strategy?
The change in competitive environment can cause:
- shorter product life cycles (due to technological developments).
- rapid changes in consumer taste.
- globalisation
- profit pressures on companies from takeovers and investors.
What are Porters five forces?
- a theory which aims to help businesses to achieve and sustain a competitive advantage.
The five forces are: - Rivalry among existing competitors
- Threat of new entrants
- Changes in the buying power of customers.
- Changes in the selling power of suppliers.
- Threat of substitutes.
How do porters five forces present an external influence on business strategy and what impact do they have?
- the five forces can be used as analytical tool and can be intertwined with SWOT analysis.
- investigation of each of the forces may reveal one serious weakness within the business.
- allows to realise opportunities and threats, tackle weaknesses and build on strength.
What are the 4 objectives of growth?
- to achieve economies of scale
- increase market power
- increase market share and brand recognition
- increase profitability
Why would a business want to achieve economies of scale?
- increase the productive capacity
- causes cost per unit to fall
- helps to raise profit margin.
Why would a business want to achieve increased market power over customers and suppliers?
- increased market dominance can allow a business to have pricing power.
- power can be used as a barrier to entry for new businesses.
- can take advantage of buying power.
Why would a business want to achieve increased market share and brand recognition?
- jobs are made safer and promotion prospects are better.
- taking sales from competition undermines their ability to finance growth.
- brand recognition can be a cause and effect of rising market share as a strong marketing campaign will boost recognition and therefore increase sales while increasing market share through innovation and investment will lead to more brand recognition.
Why would a business want to achieve increased profitability?
- to achieve higher profits and provide better returns for shareholders.
- increase the stock market valuation of the firm which is influenced by expectations of future sales. A fall in share price could open the risk of a hostile takeover.
What 3 problems can arise from growth?
- diseconomies of scale
- poor internal communication
- overtrading
What problems can diseconomies of scale cause?
- can lead to poor employee motivation as their is reduced personal contact between staff and management, staff may also feel their efforts go unnoticed.
- can lead to poor managerial coordination, if the leader does not delegate workload will be too heavy however delegating to multiple managers could lead to them heading in different directions.
What problems can poor internal communication cause?
- can cause productivity to deteriorate as motivation is low.
- lack of verbal communication could increase staff turnover.
- increase in written communication will cause more mistakes as it is less detailed.
What problems can overtrading cause?
- cash flow problems caused by expanding too quickly as additional outflows will occur before the cash inflow arrives.
What is economies of scale/diseconomies of scale?
- economies of scale is factors that cause average costs to fall as the scale of output increases.
- whereas diseconomies of scale is factors that cause average costs to rise as the scale of output rises.
What is a merger?
- The combination of one or more corporations or other business entities into a single business entity.
What is a takeover?
- A takeover is when an acquiring company makes a bid in an effort to assume control of a target company, often by purchasing a majority stake.
What are the reasons for a merger or a takeover to take place?
- Growth
- cost synergies (savings due to EOS)
- diversification (enter different markets)
- market power (2 business in the same market combined = more power)
What is the distinction between a merger and a takeover?
- a merger is where companies roughly of equal size combine, often by agreeing 50/50 ownership.
- a takeover may be ‘friendly’ (agreed between both companies) or ‘hostile’ (bid rejected by the company), in both cases the target company will either sell its shares or won’t.
What is horizontal integration?
- businesses in the same industry and which operate at the same stage of the production process are combined.
What is vertical integration?
- where a business takes over or merges with another at a different stage in the production process, but in the same industry.
What are the reasons for horizontal integration?
- huge scope for cost cutting by eliminating duplication of sales force, distribution and marketing overheads, and improved capacity utilisation.
- opportunities for economies of scale.
- reduction in competition could allow to push up prices.
What are the financial risks and rewards of mergers?
+ economies of scale lower cost per unit
+ avoids duplication of departments = lower salary costs.
- diseconomies of scale if motivation is poor turnover will increase as well as recruitment costs.
- conflicts between management could result in poor decisions which could impact finance.
What are the problems of rapid growth due to mergers and takeovers?
- the scale of operation will dramatically increase in a short period of time.
- management and assistants will have lesser roles = demotivating.
- large workload for boss
- managers focus less on customer service and more on gaining promotion within the organisation.
What is the distinction between inorganic and organic growth?
- organic growth is known as internal growth, where a business expands its own operations rather than relying on takeovers and mergers.
- inorganic growth is known as external growth where a business expands its operations externally through mergers and takeovers.
What are methods of growing organically?
- increasing capacity
- development of new products.
- entering new markets
- marketing to grow customer base
What are the advantages of organic growth?
- less risk than inorganic growth (overtrading, debt).
- financed through internal funds such as retained profit.
- builds on existing business strengths.
- allows business to grow at a steady rate long term.
What are the disadvantages of organic growth?
- Growth can be impacted by the growth of the overall market.
- hard to build market share if business is already the leader.
- shareholders may not have patience for slow growth rates.
- franchises (if used) can be hard to manage.
How are small businesses able to survive in competitive markets?
- innovation and product differentiation
- being quick to respond to changes in markets.
- avoiding diseconomies of scale
- act as a supplier to much larger companies in the industry.
What are reasons for businesses wanting to stay small?
- maintaining product differentiation and USPs.
- flexibility in responding to customer needs.
- customer service
- e commerce.
How does product differentiation and USPs allow small businesses to survive in competitive markets?
- allows them to avoid direct competition with mass market.
- aims towards a niche market.
- however it may stifle growth as in order to expand a small business will need to sell into mass markets.
How does flexibility in responding to customer needs allow small businesses to survive in competitive markets?
- adapting to changes in the market quickly is essential to maintain popularity with consumers.
- allowing shop floor assistants to report to managers on consumer behaviour will allow the company to adapt quickly, in large businesses this doesn’t happen as there are too many layers of management that the messages do not reach the top.
How does customer service allow small businesses to survive in competitive markets?
- staff clearly understand their role to the business, meaning they are motivated and provide good customer service.
- small business also allows the employees work to be recognised.
How does e-commerce allow small businesses to survive in competitive markets?
- allows businesses with small workforces to reach a global market.
- this reduces labour costs.
- m commerce which is the purchase of goods/services on the move using smartphones is also able to reach a wide ranging audience.
What is quantitative sales forecasting?
- estimating possible future sales figures on the basis of available primary or secondary quantitative data.
What are 2 methods of quantitative sales forecasting?
- moving averages
- extrapolation
- correlation
How do you work out moving averages of data?
- The aim is to take out the extremes of data from period to period.
- to find the period moving average take the moving total of each month (add the value, the one below and above).
- then divid this number by 3 to find the centred average.
- when calculating a 5 period moving average take the sum of the original value and the 2 values below and 2 values above to find the moving total.
How do you interpret and extrapolate a scatter graph/trend?
- Extrapolation involves the use of trends established by historical data to make predictions about future values.
- The basic assumption of extrapolation is that the pattern will continue into the future unless evidence suggests otherwise.
What are the advantages of using moving averages for quantitative sales forecasting?
- helps point out the growth trend as anomalies are smoothed out.
- accurate as uses calculations to determine averages, no biased or estimation.
What are the disadvantages of using moving averages for quantitative sales forecasting?
- slow to respond to rapid changes as the averages cause the changes to blend.
- not very useful for short time frames.
What are the advantages of using extrapolation for quantitative sales forecasting?
- easy to interpret and carry out.
- not adopt of data is required.
- quick and cheap.
What are the disadvantages of using extrapolation for quantitative sales forecasting?
- unreliable if there are fluctuations in the data.
- ignores qualitative factors such as change in tastes and fashions.
- assumes past trends will continue in the future.
What is investment appraisal?
- the process of analysing whether investment projects are worthwhile through estimating the value of an investment and assessing non financial factors.
What are the 3 methods of investment appraisal?
- payback period
- average rate of return
- net present value
What is the simple payback period investment appraisal technique?
- focuses on how long it takes to get your money back on an investment.
- the calculation is:
payback = sum invested/net cash per time period
What is the average rate of return investment appraisal technique?
- compares the average annual profit generated by an investment with the amount of money invested in it.
- the calculation is:
(average annual return/ initial cost) x 100
What is the NPV Discounted cash flow investment appraisal technique?
- takes into account of the time value of money to estimate the net present value of future cash flows associated with an investment project.
What are the benefits of using simple payback?
- allows to compare with competing projects.
- emphasises speed of return.
- simple to calculate and easy to understand.
- focuses on cash flows which is good for businesses where cash is scarce.
what are the limitations of using simple payback?
- ignores cash flows after the payback has been reached.
- does not account for the time value of money.
- ignores qualitative aspects of decision.
- does not actually create a decision for investment.
What are the benefits of using average rate of return?
- provides % return which can be compared with a target return.
- looks at the whole profitability of the project.
- focuses on profitability which is key for shareholders.
What are the limitations of using average rate of return?
- does not take into account cash flows only profits.
- does not take into account time value of money.
- treats profits arising late in the project in the same way as those which may arise early.
What are the benefits of using discounted cash flow?
- takes into account time value of money.
- has a decision making system where all negative NPV projects are rejected.
- looks at all cashflows through the life of the project.
- reduces impact of long term less likely cash flows.
What are the limitations of using discounted cash flow?
- more complicated and harder to understand than other methods.
- difficult to set accurate discount factor.
- NPV calculation is very sensitive to the initial cost.
What are decision trees?
- diagrams that set out all the options available when making a decision, plus an estimate of their likelihood of occurring.
How do you construct and interpret a simple decision tree diagram?
- on a decision tree you need to know that a square shows a decision and a circle (node) shows a chance event.
- this means to start with there is a square with various decisions leading out with each line representing an option.
- for every decision option there needs to be a node with probabilities of success and failure.
- then information should provide the cash flow generated from a success/failure.
- then calculate the expected value which is equal to the sum of cash flow x probability for each individual option.
- a rational decision can then be made using the net gain, the option with the highest net gain will most likely be used.
what calculations are needed to generate valuable figures using decision trees?
expected value for each individual option = sum of (estimated cash flows generated x probability)
What are the benefits of using decision trees?
- choices set out in logical way.
- potential options and choices can be considered at the same time.
- use of probabilities take into account risks of each option.
- costs are considered as well as benefits.
What are the limitations of using decision trees?
- probabilities are just estimates.
- uses quantitative data only ignores qualitative aspects.
- assignment of probabilities could be bias.
What is critical path analysis?
- a project management tool that uses network analysis to identify the critical path - the activities that require the most careful time management scrutiny.
How do you construct a critical path analysis diagram?
- the CPA network consists of 2 components:
the activity - represented by a line shows the duration of each part of the project.
the node - each node is the start/finish of an activity it has a number, an earliest start time and latest finish time. - the network must start and end on a single node.
- no line should cross each other.
- every line represents an activity.
What is the purpose of critical path analysis?
- determines which activities are critical (on the longest path) and which have total float (can be delayed without making the project longer).
- this allows to identify he critical path which determines the shortest time possible to complete the project.
How can you identify the critical path using critical path analysis?
- the critical path comprises of the activities that take the longest duration to complete, they determine the length of the whole project.
How do you calculate the earliest start time, latest finish time and the total float using critical path analysis?
- the earliest start time is found by adding the previous EST and the duration of the activity (working from left to right).
- the latest finish time is found by taking away the duration from the previous LFT (working from right to left)
What are the benefits of critical path analysis?
- reduces risk and costs of complex projects.
- allows to identify float which could lead to better allocation of resources.
- provides managers with an overview of complex project.
- allows everyone to understand requirements and deadlines.
What are the limitations of critical path analysis?
- reliability of CPA based on estimates and assumptions.
- doesn’t guarantee success of project it still needs to be managed properly.
- too many activities could make the network diagram complicated.
- resources may not be as flexible as expected.
What are the 2 corporate timescales?
- short termism
- long termism
What is short-termism?
- when a business prioritises short term rather than long term performances.
What is long termisim?
- when a business prioritises long term rather than short term performances.
Advantages of short-termism?
- focuses on increasing share price attracting investment.
- focus on reducing unit cost which increases profitability.
- focuses on ROCE
Disadvantages of short-termism?
- future market share may suffer.
- quality may suffer if unit costs decrease.
- brand reputation may be harmed as not developing employees or focusing on customer service.
Advantages of long-termism?
- focus on building brand reputation through customer service and developing employees.
- focus on market share could lead too dominance.
- improving quality of products increasing customer satisfaction and reputation.
Disadvantages of long-termism?
- steadier growth may not attract as much investment.
- cost per unit may increase if quality improves.
- more focus on developing employees could distract from profitability.
What are the 2 types of decision making?
- evidence based
- subjective
What is evidence based decision making?
- where decisions are based on objective, numerical data as opposed to intuition.
What is subjective decision making?
- where decisions are based on intuition rather than objective, numerical data.
What are the advantages and disadvantages of evidence based decision making?
+ objective approach prevents irresponsible decisions.
+ based on numerical data which can prevent bias.
- management may feel they have a lack of control over decisions which is demotivating.
- incomplete data could provide unreliable results.
What are the advantages and disadvantages of subjective decision making?
+ managers feel their judgment is trusted which is motivating.
+ allows to add context to a situation.
- could lead to irresponsible decisions.
- decisions are not backed by evidence therefore could be bias.
What are the features of a strong and weak corporate culture?
strong: - focusing on customers needs. - allowing staff to make decisions. - staff show long term commitment. weak: - staff follow a script when dealing with customers. - lack of cohesion between departments. - cynical view among staff doubting companies ethos.
What is a corporate culture?
- the attitudes, behaviours and the ethos of an organisation which is embodied in the people who work there.
What are the classifications of company cultures?
Four ways of classifying business culture:
- power
- role
- task
- person
How does power classification influence corporate culture?
- power is held by just a few individuals whose influence spreads throughout the organisation.
- There are few rules and regulations.
- What those with power decide is what happens.
- Employees are generally judged by what they achieve rather than how they do things or how they act.
- A consequence of this can be quick decision-making.
How does role classification influence corporate culture?
- Based on rules they are highly controlled, with everyone in the organisation knowing what their roles and responsibilities are.
- Power in a role culture is determined by a person’s position in the organisational structure.
- built on tall organisational structures with a long chain of command.
- decision-making is often painfully-slow and the organisation is less likely to take risks.
How does task classification influence corporate culture?
- Forms when teams in an organisation are formed to address specific problems or progress projects.
- power within the team will often shift depending on the mix of the team members and stage of task.
- Whether the task culture proves effective will largely be determined by the team dynamic.
- can be incredibly productive and creative.
How does person classification influence corporate culture?
- individuals see themselves as unique and superior to the organisation.
- The organisation simply exists in order for people to work.
- a collection of individuals who happen to be working for the same organisation.
How is a corporate culture formed?
- leadership style (moulded to personality of leader).
- type of ownership (plc have many external shareholders).
- recruitment policies (age, gender).
Wha are the difficulties in changing an established culture?
- long term staff may have set attitudes that can be hard to overcome.
- managers need to fully believe in the change in order to influence staff.
- may take a long period of time to allow culture to become embedded.
Who are internal stakeholders?
- directors
- managers
- employees
Who are external stakeholders?
- government
- local community
- media
What are common internal stakeholder objectives?
- directors and managers = salary, share options, job satisfaction, status.
- employees = salaries, job security, job satisfaction, motivation.
What are common external stakeholder objectives?
- government = operate legally, tax, receipts, jobs.
- community = environment, local jobs, local impact.
- media = ethical decisions, impact nationally.
What influences do stakeholders have on businesses?
- can influence the mission of the business, preventing mergers and takeovers.
- force more ethical decisions.
What influences do shareholders have on businesses?
- can force short termism thinking.
- can also put pressure on owner and force decisions such as takeovers.
What common conflicts can arise between stakeholders and shareholders?
- conflicts between shareholders and environmental pressure groups can occur if a business is operating successfully oversees.
- also if a business is taking land for industrial use, the local community with have conflicts over this.
- a business not abiding by legislation set by the govt could result in conflict.
What is business ethics?
- the moral principles that underpin decision making within a business.
What are trade-offs?
- often known as an opportunity cost, it is something which involves a sacrifice which must be made in order to gain in another aspect.
What can businesses often have a trade-off between?
- between profit and ethics, profit is needed to keep up with new technology, finance growth and compete against other businesses however in order to achieve this ethics may have to be sacrificed.
- a business has to decide which profit they need and want, and try to maintain ethics to improve brand reputation.
What is corporate social responsibility (CSR)?
- a term intended to sum up the ethically driven activities of a business.
- often it is an extension of the PR department, making sounds that signify nothing.
What are the costs of being an ethical business?
- Reduced profitability (unable to exploit cheap Labour or low cost suppliers).
- Reduced growth prospects (may have turn down opportunities to invest in projects).
- Rejection of CSR as a tool of PR (unable to cover up unethical behaviour).
- Rejection of CSR as a distraction from a moral purpose.
What are the rewards of being an ethical business?
- Marketing advantages
- positive effects on the workforce
What are the 2 forms of financial statements?
- statement of comprehensive income/profit and loss statement.
- statement of financial position/balance sheet.
What is a statement of comprehensive income?
- known as a profit and loss account.
- records all revenues and costs within a trading period.
What key information is on a statement of comprehensive income/profit and loss account?
- revenue
- gross profit
- operating profit
- net profit/after taxation.
Why may stakeholders be interested in statements of comprehensive income/profit and loss statement?
- shareholders are able to assess profitability.
- govt use to calculate the liability of a business to corporation tax.
- suppliers need to know the financial position of the companies they deal with to establish their reliability.
- potential shareholders and banks to assess profitability.
- staff may be interested due to their profit related bonuses.
What is a statement of financial position?
- also known as a balance sheet.
- shows where a business has obtained its finances and also its liabilities.
What key information is on a statement of financial position/balance sheet?
- current liabilities
- current assets
- total assets
- total equity.
Why may stakeholders have an interest in a statement of financial position/balance sheet?
- bankers will be able to assess whether to invest, lend money or buy the organisation.
- allows suppliers to see where the business obtains its finances.
- govt may use to make sure the business is obtaining finances legally.
What 2 ratios are used for ratio analysis assessing competitiveness?
- ROCE (return on capital employed).
- gearing ratio
How do you calculate the ROCE?
= (operating profit/capital employed) x 100
What is the ROCE?
- return on capital employed measures the efficiency with which the business generates profit from the funds invested in the business.
What is the gearing ratio?
- it measures the long term liabilities as a proportion of a firms capital employed.
- basically measures the level of debt.
How do you calculate the gearing ratio?
= (non current liabilities/capital employed) x 100
What are the benefits and limitations of ROCE?
+ tells us what returns the business has made from the resources available to it.
+ reliable using objective data.
- a business could lease or hire a lot of its production capacity which would not be included as assets.
- the figure needs to be compared with previous to see if there is a trend occurring.
What are the benefits and limitations of gearing?
+ based on objective numerical data, non bias.
+ proves to potential investors or shareholders the amount of borrowed finance.
- high gearing is not always bad as a large loan could be borrowed however this money could be invested in a project providing enough profit to pay back quickly.
What is labour productivity?
- a way of comparing the number of workers with the output they are generating.
How do you calculate labour productivity?
= output per period/number of employees
What is labour turnover and retention?
- turnover is the measure of the rate of change of a businesses workforce.
- retention is the ability to keep highly skilled staff within the workforce.
How do you calculate labour turnover and retention?
= (number of staff leaving the firm per year/average number of staff) x 100
What is absenteeism?
- the proportion of employees not at work on a given day or over a period of time.
How do you calculate absenteeism?
= [total absence (hours or days) in the period/possible total] x 100
What are 4 human resource strategies to increase productivity and retention and to reduce turnover and absenteeism?
- financial rewards
- employee share ownership
- consultation strategies
- empowerment strategies
What are the advantages and disadvantages of financial rewards?
+ will improve retention if employees are money driven.
+ improve productivity using financial incentives.
- at a cost to business, reducing profitability.
- the motivation will not last or be remembered, status and recognition are more effective long term.
What are the advantages and disadvantages of employee share ownership?
+ allows employee to feel valued, increasing likelihood of retention and long term involvement.
+ could improve relations between management and employees as they are all working towards a common goal, having a shares in the same business.
- employees will still have very little control over business decisions.
- may feel devalued or cause conflict if some employees are given larger shares than others.
What are the advantages and disadvantages of consultation strategies?
+ allows employees to feel their opinions are valued during consultations.
+ the employees will gain recognition in the form of how the business is run if they have contributed.
- opinions may not be listened to or implemented.
- in large workforce individuals will be outspoken.
What are the advantages and disadvantages of empowerment strategies?
+ delegating power to decide how to tackle a task and what task they would like.
+ encourages creativity and innovation which is self motivating for employees.
- could cause stress if employees are handed too much responsibility.
- some employees may prefer financial rewards.
What are 5 causes of change in a business?
- change in organisational size
- poor business performance
- new ownership
- transformational leadership
- external (PESTLE) factors.
How does a change in organisational size change in a business?
- causes short term disruption as balance between spending for growth and spending for survival changes.
- winners and losers as hierarchies are reorganised and staff feel unfairly treated.
- downsizing could lead to a lot of job losses.
How does poor business performance cause change in a business?
- if objectives are not achieved the directors will place pressures on CEO and management, from this a demand for change may come.
- the job of directors is to make sure poor performance is not tolerated.
How does new ownership cause change in a business?
- when ownerships change, policies also change meaning internal operations can change massively.
- alternative focuses can also be implemented as different owners will react differently to situation based on the same evidence.
How does transformational leadership cause change in a business?
- transformational leadership is usually needed when a company is on its arse.
- may require flattening the hierarchy to create more empowerment and generate more creative thinking.
- could also be focused on finding new efficiencies to cut costs and improve competitiveness.
How does the market and other external factors (PESTLE) cause change in a business?
- changes in a combination of business, economic and social factors.
- political change e.g. corp tax
- economic change e.g. recession
- social change e.g. trends
- technological change e.g. innovative machinery
- legal change e.g. min wage.
- environmental change e.g. landfill tax
What are the 4 main things which change can impact?
- increased competitiveness e.g. through differentiation and added value.
- increased productivity e.g. through higher motivation and retainment.
- improved financial performance e.g. higher profitability.
- impacts stakeholders e.g. better customer service, improved financial position = more reliability from suppliers.
What are the key factors in managing change within a business?
- organisational culture
- size of organisation
- time and speed of change
How can organisational culture be key in managing change within a business?
- organisational culture must not be dramatically different from the previous regime if a smooth transition is to be achieved.
How can the size of an organisation be key in managing change within a business?
- logically a large business should be harder to change than a small one however there is no evidence that suggests this.
- in a large organisation however it is necessary to:
rely on upward info from middle managers.
find a compromise between different views.
rely on cascading of info from top to bottom.
How can time/speed of change be key in managing change within a business?
- may be a better transition when speed of change is slow (incremental change) as it is predictable and steady.
- making it easier to adapt for staff.
- disruptive change occurs very dramatically and makes it nearly impossible to manage change.
How can resistance to change be managed within a business?
- education and communication to break down resistance.
- participation and involvement.
- negotiation and agreement e.g. incentives.
What is scenario planning?
- visualising possible futures for a business, then planning how to get the best out of the opportunities and how to deal with the threats.
What key risks can you identify through risk assessment?
- natural disasters (helps when planning location)
- IT systems failure (threat of hacking)
- loss of key staff (change in CEO can change organisation)
How can you plan for risk mitigation?
- business continuity
- succession planning
What is business continuity?
- means planning how to restore things to normal after a setback.
It has several aspects: - must be strong enough financial position to withstand short term shock.
- a continuity committee that meet when disasters occur may be needed.
- clear line of authority showing who is responsible for key decisions.
What is succession planning?
- means thinking and planning ahead for when a leader leaves and must be replaced.
- a successful succession plan would have identified the right person to be groomed for the role and set up a suitable training plan for them.
- advantage of this is that the person will fully understand company policy and strategy and will prevent the panic of hiring a CEO externally.
What are the 4 main influences on business mission?
- purpose (why company exists)
- Values (what the company believes in)
- Standards and Behaviours (policies and behaviour patterns expected of company employees)
- Strategy (the competitive position of the company)
What is a business mission?
- an aim expressed in a particularly inspiring way.
What is a mission statement?
- a text that sums up an organisations mission, it may be displayed on walls throughout the business and placed prominently on its website.
What are the 4 sections of ansoffs matrix?
- market penetration
- Product development
- market development
- diversification
What is market penetration?
- business focuses on selling existing products into existing markets.
- aims to maintain or increase the market share of current products.
- Secure dominance of growth markets
- Restructure a mature market by driving out competitors.
- Increase usage by existing customers – for example by introducing loyalty schemes
What is product development?
- where a business aims to introduce new products into existing markets.
- requires the business to develop modified products which can appeal to existing markets.
- emphasis on research & development and innovation.
- Detailed insights into customer needs.
- Being first to market.
What is market development?
- where the business seeks to sell its existing products into new markets.
possible ways to approach: - New geographical markets
- New product dimensions or packaging
- New distribution channels e.g. e-commerce.
- Different pricing policies.
What is diversification?
- where a business markets new products in new markets.
- This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.
- must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.
- However, for the right balance between risk and reward, a marketing strategy of diversification can be highly rewarding.
What is the cost leadership business strategy?
- the objective is to become the lowest-cost producer in the industry.
- The traditional method to achieve this objective is to produce on a large scale which enables the business to exploit economies of scale.
- If the selling price can equal the average for the market, then the lowest-cost producer will enjoy the best profits.
- This strategy is usually associated with large-scale businesses offering “standard” products with relatively little differentiation that are readily acceptable to the majority of customers.
- To have lower costs businesses need:
- High levels of productivity and capacity utilisation.
- Bargaining power
- Lean production methods (e.g. JIT)
- Effective use of technology in the production process
What is the differentiation focus business strategy?
- a business aims to differentiate within just one or a small number of target market segments.
- The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers.
- business needs to ensure customers do have different needs and wants.
- Differentiation focus is the classic niche marketing strategy.
- many small businesses also use this strategy to create added value.
What is the cost focus business strategy?
- a business seeks a lower-cost advantage in just one or a small number of market segments.
- The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers.
- Such products are often called “me-too’s”.
What is the differentiation leadership strategy?
- the business targets much larger markets and aims to achieve competitive advantage through differentiation across the whole of an industry.
- This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria.
- This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer.
- Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products.
- This can be achieved by having the following things:
- superior product quality
- Branding
- Industry-wide distribution across all major channels (i.e. the product or brand is an essential item to be stocked by retailers).
- Consistent promotional support – often dominated by advertising, sponsorship etc.
What are distinctive capabilities?
- ways a firm operates that cannot easily be copied by rivals.
How can you conduct a SWOT analysis?
top down process:
- carried out by management consultants has the advantage soft no emotional connection with business.
consultive process:
- boss spending time with each department, could also be democratic delegation where managers conduct their own SWOT.
What is the purpose of SWOT analysis?
- discover what the business does better than competition.
- discover what competitors do better.
- discover whether it is making the most of opportunities available.
- discover how a business should respond to changes to its external environment.
What are the 2 sections of SWOT analysis?
- internal factors
includes strengths and weaknesses of the business which are determined internally. - external factors
includes opportunities and threats to the business which are externally impacted.
What can SWOT analysis be used to do?
- to support strategic decisions.
- to exploit strengths and opportunities
- to convert weaknesses into strengths.
What external considerations need to be considered in SWOT analysis?
- opportunities and threats e.g. changing demographic, new laws and regulation, technological factors, commodity prices, economic factors.
What is benchmarking?
- comparing your own performance with that of rivals, to try to identify and learn from best practice.
What is lobbying?
- the term originated in the lobby between the house of commons and house of lords; it was where electrons came to talk to their local MP.
What is demography?
- factors relating to the population, such as changes in the number of older people or in the level of immigration.
Limitations of porters five forces?
- could be various other forces.
- it is very static, it ignores the importance of trends in market size.
- underestimates the the force of change, the five forces should be updated every year.
What is the difference between backward and forward vertical integration?
- Backward is where a business acquires another earlier in the supply chain.
- Forward is where a business acquires another further up in the supply chain.
What is conglomerate integration?
- This involves the combination of firms that are involved in unrelated business activities.
What are the advantages and disadvantages for Backward vertical integration?
+ closer links with suppliers (more control over quality and timing + aid product development).
+ absorbing the suppliers profit margins may cut supply costs.
- having bought the supplier, its staff may become complacent if they know they are producing for you.
- costs may rise and delivery and quality could therefore become slack.
What are the advantages and disadvantages for Forward vertical integration?
+ control of competition as you’re able to prominently display your own brand in retail outlets.
+ the business is in direct contact with consumers.
- consumers may resent the dominance of a firms products in retail outlets.
- worries about image may restrict retail decision making.
What are the financial risks and rewards of mergers?
+ increase speed of growth and therefore profitability.
+ economies of scale = lower cost per unit.
- high takeover price could lead to borrowing and large debt.
- disruption caused by resistance to change could limit profits.
What are the advantages of using correlation for quantitative sales forecasting?
- calculates strength of a relationship between variables.
- does not require a lot of data.
- quick and easy to interpret.
What are the disadvantages of using correlation for quantitative sales forecasting?
- correlation does not help to establish the causation.
- relationship may not be linear.
What is the sales forecasting method of correlation?
- Correlation looks at the strength of a relationship between two variables.
how do you calculate the net present value?
- multiply the estimated cashflow by the discount factor.
- shows the present value of future cash flows.
How do you calculate the discount factor?
- based on current and future interest rates which impact the net present value of future cash flows.
- a firm may base it on their own criteria.
What other factors can affect investment decisions?
- non financial factors in investment appraisal (e.g. corporate objectives, company finances, confidence in the data, social responsibilities).
- investment criteria (e.g. financial targets).
- risk and uncertainty
What is the float time?
- the spare time available for the completion of any activity.
What are the causes of short termism?
- investors focus on latest financial performance
- reliance on bonuses based on short term performance (including to attract new management).
- frequent changes in leadership and strategy e.g. through takeover
