theme 3 - a level business

Question 1

\swhat is Ansoff’s Matrix?

Answer 1

Ansoff’s matrix is a tool used by business managers to compare the level or risk of each stratergy which they may use to expand their business and to help to deicde which stratetgy is the best for that specific business. This may be usede in order to increase market share, maintain market share or grow a business

Question 2

what are some general overall advantages of Ansoff’s Matrix?

Answer 2

• dosen’t just lay out the potential stratergies which can be used for growth it also helps managers to think about hwat some of the potential risks which may be associated with a business moving in a paticular direction.

Question 3

what are some general disadvantages of manager’s using Ansoff’s matrix in order to decide what direction they want to move their business in?

Answer 3

• fails to show that market development and divertisification stratergies which are used for business development also mean that a business will need to change their day to day working and tactics significantly
• could be said by some that the matrix oversimplifies the tools which can be used for growth too far
• isn’t aa dynsamic tool as doesn’t take into account what a businesses competitiors are doing or the actions which may be taken by the competiton in response to the actions of the busines
• isn’t useful so much for large and multinational businesses as these businesses will normally operate in each of the four areas on the matrix (product development,market development,divertisification & market penetration
• is more useful for small or medium sized businesses

Question 4

what is divertisification on Ansoff’s matrix and what does it require?

Answer 4

divertificiation is the practice of developing a new product and introducing this new product into a new market, this stratergy is generally seen to be the most risky out of all of Ansoff’s stratergies on his matrix however this stratergy does have the potential for the most growth.
+ high potential for growth
- high financial capabilities needed for research and development costs & product development costs before the product is even launched as there is no revenue or profits coming in and often many products don’t even make it past this stage of development.

Question 5

what is market development ?

Answer 5

• market development involves launching the same products but to a new market or market segment, eg. this may be a new geographical market such as crisps to china or something like that

Question 5

what is product development and what does this require when used as a growth stratergy from Ansoff’s matrix?

Answer 5

product development - means to launch a new product into the same market by targetting the same market overall and the same market segments
+ lack of market research as already know the target audience really well, therefore reduces the costs of the product before it is even launched.
can help to build up a sense of brand loyalty as is often used by tech companies such as apple for their i-phones
works well for businesses which already have a strong competitve advantage

• lack of appeal to market and may therefore fail to generate a significant amount more of sales

Question 6

what is market penetration ?

Answer 6

market penetration involves launching existing products to existing markets in order to maintain market share by encoraging existing customers to buy more of the product.

+ don’t need to carry out new market research as already have an understanding of what the market likes and this helps to reduce the costs involved

• has the least potential for growth on Ansoff’s matrix as is largely used to maintain the market share of a business eg. macdonald’s monopoly or a cereal campaign that encorages customers to replace one of their meals a day with the cereal in order to ‘drop a dress size’

Question 7

what is a mission statement and what does it do ?

Answer 7

a mission statement helps to lay out the overall purpose of a business and their main corporate aims and helps to make all stakeholder’s of a business aware of business activity and to encourage employees to work towards the businesses aims

lay out the purpose of a business and what the business does

Question 8

what are some of the benefits and drawbacks of a mission statement?

Answer 8

+
give staff a sense of shared purpose, help to motivate staff and encorage staff to work towards a goal so that they have a direction for their work, encourages staff to be more cooperative which in turn helps the business to achieve it’s aims more easily

• businesses don’t have to prove that their mission statement is accurate however if a mission statement is found to be inaccurate or full of lies then this will damage the businesses overall reputation as a credible business, poor brand image may lead to less sales and in turn profits and revenue being made.

limited purpose as dosen’t go into detail about how a business will achieve it’s aims, dosen’t lay out any corporate stratergies or tactics

Question 9

what are business objectives?

Answer 9

objectives are set from a businesses mission statement and help to enable the business to achieve their mission. objectives can be broken down into levels

mission statement
corporate objectives
departmental objectives

Question 10

what are departmental objectives ?

Answer 10

departmental objectives are the objectives of each department
+ more detailed than corporate objecives and can help to motivate staff more on a lower level as the objevives feel that they are more within reach.

managers can make sure that everyone is working towards a goal and this will help to improve coordination within departments.

motivate employees more and can help with decicion making at a departmental level + can help managers to measure and compare the success of the business

• however any objectives which are set within the business need to align with the mission statement of the business otherwise the business risks loosing it’s credibility with their stakeholders which can damage brand image of the business which will likely reduce the overall success of the business

Question 11

how do you measure the effectiveness of business objecives?

Answer 11

need to set SMART objectives.
Specific,Measurable,Achievable,Realistic and timely objectives within a business.

Question 12

what is a strategy?

Answer 12

a strategy / strategic decision is a long term plan of action which is developed to achieve a businesses objectives & a corporate strategy is based off a businesses corporate objectives.
normally a strategy is just a sequence of decisions which are made over time with the aim of reaching a defined/ paticular goal and this doesn’t nessescarily need to be written down especially not so much in a smaller business.

Question 13

what are business tactics?

Answer 13

business tactics are short term plans which are tequniques that a business uses to achieve it’s overall strategy & can sometimes be used to react to an opportunity or a threat which is being faced by the business.

Question 14

what is the difference between strategy and tactics?

Answer 14

tactics are more short term plans of how a business will react to a stimulus whereas strategies are more long term and calculated decisions which are planned and sometimes even written down, the use of tactics and strategies may require a business to use human resources such as staff, physical resources such as production lines or technologies which a business may need or they may need financial decisions to be made by the business

Question 15

what are porter’s three main strategies used to gain advantage? and what do they involve?

Answer 15

cost leadership - this strategy requires a business to use the lowest cost of production possible in order to achieve a given level of quality. this stratergy is often used by large firms which have large machines and can therefore benefit from economies of scale as they can reduce their costs of production and add value to the product in order to gain a larger profit. this strategy will mean that the business can maintain competitive during times of price wars as they will have the lowest prices.

differentiation - product differentiation helps a business to gain a competitive advantage as they can charge higher prices for a unique product which customers will likely percieve as better than compettiots products. Innovative businesses and businesses which have strong branding and high quality products can benefit from this strategy.

focus - concentrates on niche markets by minimising costs or showing differentiation of the products in comparison to compeititors products. businesses which can benefit from this are usually ones with limited resources and few loyal customers

Question 16

what is a SWOT analysis?

Answer 16

a SWOT analysis is a four factor model that details the strengths the weaknesses, opportunities and the threats which are facing a business.

strengths and weaknesses are internal factors that affect a business

the opportunities and threats are external factors that affect a business

Question 17

what are the strengths and the weaknesses of using a SWOT analysis to analyse a business?

Answer 17

strengths -
- can help managers to make decisions in a way which considers a businesses’ individual circumstances in a factual and objective way
- helps to convert opportunities into strengths of the business and also helps to manage threats before they become out of control and threaten to destroy a business
- can easily be redone in a way which considers changing conditions and therefore allows a business to adapt their strategy accordingly
- also shows if the business has a competitive advantage over rivals

weaknesses
- oversimplifies the amount of data which is needed for decisions
- doesn’t provide solutions to the problems at stake
- time consuming to carry out - may be better off using another method/ tool that provides solutions to the problems at stake
- paralysis by analysis (collecting too much data)
- lack of prioritisation

Question 18

what is a PESTLE analysis and what does it do?

Answer 18

a PESTLE analysis looks at the external factors that present opportunities or threats to a business and help managers to take strategic and tactical decisions

PESTLE - political, economic,social,technological,legal and environmental factors

Question 19

what does porter’s five forces model show?

Answer 19

porter’s 5 forces shows the 5 forces which impact the nature of the competitive environment which a business is operating in, these 5 forces are:
- buyer/ customer bargaining power
- supplier bargaining power
- intensive rivalry/ competition within a market
- the threat of substitutes
- barriers to entry

Question 20

what is the definition of business growth?

Answer 20

Business growth is where a business needs to expand and has to explore ways to grow in order to generate profits

Question 21

what are the 4x objectives of business growth?

Answer 21

• achieve internal and external economies of scale
• increased market power over customers and suppliers
• increased market share and brand recognition
• increased levels of profitability

Question 22

what are economies of scale in the context of business expansion?

Answer 22

• economies of scale relates to how average costs of a business have fallen and the profit margins of a business have grown, or a business reduces their selling prices in order to gain market share.
• occurs when the average unit costs of a business fall as a result of the increase in the level of output of the business

+
more funds to buy stock and can get better deals as can buy in bulk

more funds to pay for specalist staff
better access to sources of finance as likely to have a better reputation

Question 23

how to calculate economies of scale ?

Answer 23

total costs of production = VC X output + FC

average cost per unit = total costs / output

Question 24

what are the benefits and drawbacks of increased market power over customers and suppliers in relation to business expansion?

Answer 24

• the larger a business is the more they can reduce the power of customers and suppliers as they can make it harder for consumers to change brand as the cost of switching may be too high as the business is now probally benefitting from economies of scale they can be more competitive on pricing
• is more likely to be a short/ medium term objective as firms are likely to enter and exit the market (the market is likely to be dynamic and therefore ever changing and not the same constantly)
• can achieve increased market power by having multiple suppliers,making it too expensive for customers to switch,forward or backwards vertically integrating or merging or taking over a supplier

Question 25

what is increased market share and brand recognition and what does this impact in relation to business growth?

Answer 25

• usually happens a lot in FMCG (fast moving consumer goods markets) eg. the UK supermarket market
• companies can achieve increased market share and brand recognition by merging or aquiring businesses in the same market in order to aquire recognised brands

Question 26

what is increased profitability in relation to business growth?

Answer 26

• higher profit margins mean that businesses can achieve greater levels of profit in the long run
  profit = revenue - total costs
• profitability relates to the levels of profit which can be achieved by a business, is otherwise known as a measurement of efficiency and shows how well a business has performed with it’s invesments

Question 27

what are some problems associated with business growth and what do they mean/ entail for a business?

Answer 27

• diseconomies of scale - occur when a business has expanded the scale of production beyond the minimum efficient scale and leads to unit costs rising
• overtrading - occurs when a business is operating beyond their means and accepts more orders than they can realisitically cope with, often leads to cash flow problems due to too many customers owing trade credit at once
• internal communication problems often occur as the size of the workforce grows there may be less face to face communication which can demotivate and alienate employees

Question 28

organic growth definition

Answer 28

organic growth - the process of business growth which comes from internally within a business and doesn’t involve the merging or taking over of other companies

Question 29

what are some methods of inorganic growth of a business?

Answer 29

• a merger
• a takeover/ aquisition
• a joint venture

Question 30

what are some ways which a business/organisation can carry out organic growth ?

Answer 30

• increase their product range/product portfolio
• open more stores or branches themselves or through the use of franchising
• taking on more staff,may be key for organisations such as the NHS who measure their size by employyes or other social care sectors
• increase production levels
• rent larger premisies

Question 31

what are some methods of organic growth?

Answer 31

• new product launches
• opening new stores
• expanding into new or foreign markets
• expansion of the workforce

Question 32

what are some advantages of organic growth?

Answer 32

• don’t have to borrow money from other sources of finance as normally use reinvested profits to carry out internal growth
• owners don’t experience a loss of control
• helps to maintain company culture and consistent brand image
• avoidas the risks associated with merging with other businesses
• higher production levels means that economies of scale and lower unit costs
• higher level of influence and market share means that the business can start to set prices for the industriy (lower consumer, supplier and competitor power)

Question 33

what are some disadvantages of organic growth?

Answer 33

• internal relationship issues may occur
• may lead to poor motivation levels
• high risk stratergy due to being capital intensive
• long period between investment and receiving a return on investment
• growth may be limited due to reliance on sales forcecasts
• new markets can be risky to enter if the business doesn’t already operate in a specifc market

Question 34

how do you calculate expected monetary value (EMV)?

Answer 34

EMV= success rate X monetary outcome value

Question 35

how do you calculate net gain?

Answer 35

net gain= total expected monetary value - upfront cost of decision

Question 36

what is sales forecasting? definition

Answer 36

sales forecasting - A method of predicting future sales through the use of statistical methods

Question 37

what can sales forecasting be used for ?

Answer 37

• manage cash flow
• make operational decisions
• manage the number of staff
• meet sales forecasts/ predictions
• ensure that marketing campaigns help to meet/ achieve sales forecasts

Question 38

what is time series analysis? definition

Answer 38

Time series analysis is a method which helps to predict future sales through the use of past sales figures

Question 39

what is a three point/four point moving average, and what are they used to do?

Answer 39

• a three/four point moving average helps to smooth out data so that it is easier to read and report on for managers
• is a calculation which is done by adding up three or four figures depending if you are calculating a three or four point moving average and divided by 3/4

Question 40

what is extrapolation? definition

Answer 40

extrapolation - the use of historical trends/ data to predict future trends or data

Question 41

what are some benefits and drawbacks of using extrapolation?

Answer 41

benefits -
- useful to predict the future when you have a lot of past years data and that data shows a constant trend througout
- can be used to aid decision making eg. by managers

Question 42

what would be considered a small/ micro business?

Answer 42

a business which has fewer than 250 employees would be considered a small business
- a micro business would be any business which has from 0-9 employees

Question 43

what are some ways which small/micro businesses can stand out in a competitive market?

Answer 43

• product differentiation/USPs
  -flexibility in responding to customer needs eg. carrying out market research or developing new products/services
• customer service eg. john lewis would be an example of a fairly large business competing/ attempting to stand out with regards to customer service
• e-commerce

Question 44

what is a merger?

Answer 44

a merger is where two or more businesses at a similar stage in their lifetime and of similar size come together to form one organisation under one board of directors

Question 45

what is a takeover?

Answer 45

• a takeover is a legal deal where one larger business purchases a smaller one, a takeover can also be known as an aquisition
• a takeover can be hostile (known as a black knight) when the smaller business is taken over by a larger business against their will, or it can be voluntary( a white knight) when the businesses mutually agree on the decision

Question 46

example of a hostile takeover and a non-hostile (fiendly) takeover

Answer 46

• sainsburys and argos (hostile)
• morrisons and safeway (friendly/ white knight)

Question 47

what are some tactical and strategic decisions for a merger or a takeover?

Answer 47

• increase of market share (tactical)
• better access to technology, staff or intellectual property (tactical)
• access to new markets (strategic)
• improved distribution networks (strategic)
• improved brand awareness (stratetgic)

Question 48

horizontal integration, definition and details

Answer 48

• horizontal integration is when a business in the same sector (primary,secondary or tertiary) merge or takeover the same section eg. if b&q took over homebase

Question 49

vertical integration, definition and details

Answer 49

• vertical integration happens when one business in one sector takes over or merges with a business at another sector of the supply chain
• backwards vertical integration (taking over a business which is before you in the supply chain)
• forwards vertical integration (taking over a business after you in the supply chain eg. a manufacturer taking over a store/ warehouse store

Question 50

what are the financial benefits and drawbacks of mergers and takeovers?

Answer 50

benefits
- increased levels of revenue
- benefit from economies of scale

drawbacks
- original purchase cost is often extremely capital intensive
- cost of changing into a new business
- redundancies of duplicate staff eg. having more than one marketing manager or more than one finance manager
- cost of failure/ if the business all goes wrong

Question 51

what are the problems of rapid growth?

Answer 51

• the business that have merged may outgrow premises in the short term
• employee motivation may decrase/fall if staff can’t cope with the extra work
• may also be a fall in productivity
• shortage of cash to meet expansion costs
• higher levels of pressure for staff if are taking on large amounts of new work - may also feel demotivated by this
• management may be operating more reactively than proactively
• quality of products or services may decrease
• clash of cultures
• potential for communication problems
• possible move away from core competancies or original business may lead to control issues
• unreliable merger partners
• diseconomies of scale
• lack of understanding of local markets may lead to the wrong promotional message being sent out to customers
• 75% of all mergers fail

Question 52

what is the CMA?

Answer 52

• the CMA is the competition and markets authority and they work to promote competition for the protection of consumers in the UK
• the CMA investigate mergers,investigate markets if there are competition or consumer problems,investigate cartels and anti- competitive behaviour within the UK markets
• currently investigating the dynamic pricing of oasis tickets (august 2024)