Theme 3 - Business objectives and stratergies Flashcards
1
Q
Corporate aims
A
Broad, long term ideas as to how the business should develop
2
Q
Corporate objective
A
A goal that a business strives to achieve in order to meet its long
term aim
3
Q
Mission Statement
A
A set of guiding principles which is often used to steer stakeholders in
order to achieve a business’s aims and objectives.
A formal summary of the aims and values of an organisation.
4
Q
What are the pros and cons of mission statements?
A
Pros:
- Mission statements can be used to communicate the nature of the organisarion to the stakeholders
- Mission statements can be used to focus stratergies and energy of the business in a specific direction
Cons:
- A mission statement is just a document written by a business so will be biased from their pov
- Crititics say that the mission statemnet are just a public relations tool and are not useful as a basis for corporate objectives
- Customers may not even know what the statements is so questionable to how useful they actually are
5
Q
Critical apprasial
A
Assesses if the corporate aims and mission statement continue to
reflect the current corporate vision
Asseses the effectivness of its corporate objectives in achieving its aims
6
Q
What is the purpose of mission statements?
A
- Make all stakeholders aware of what the business does and why
- Tell you the purpose of the business including its values, standards and how it will ahcieve its mission/who the customers are and what makes the business unqiue
- Gives clues about businesses beliefs
- Give staff a sense of share purpose, encourage them ro work towards a common goal
- More cooperarion more likley to achieve its aim
- Businesses dont have to prove thats what in their mission statement os accuratr and say what they think customers want to beliebe which can damage their reputation
- Mission statemets use is limited as it doesnt go into detail of how the mission will be achieved
7
Q
A
8
Q
What affects a businesses mission?
A
- The culture of the business
- Ethos and values of the business
- Shareholders
- Stakeholders - values of stakeholders inluding the communityand the employees
9
Q
What are department objectives?
A
Department objectives = objectives of each department
- More detailed than corporate and more specifc to each department
- Set objectives to help them achieve their corporate objectives and set departmental objectives to help them achieve it
10
Q
What is a stratergy?
A
A stratergy = a long term plan of action developed to achieve a businesses objectives
Can simply be a sequence of business decisons made overtime with the aim of reaching a particular goal
11
Q
What is a corporate stratergy?
A
Corporate stratergy = based on achieving corporate objectives
12
Q
Statergy for a large firm
A
- Small firms dont tend to be formally written down
- Can simply be a sequence of business decisons made overtime with the aim of reaching a particular goal
13
Q
Stratergy for a large firm
A
Stratergy is usually more clearly defined as it will influence the plan of individual departments
14
Q
What are tactical decisions?
A
Tactical decsions = Short term plans and consit of the techniques that a business will use to achieve its overall stratergy
Can be used to react to an opportunity or threat therefore may not always match the businesses stragery
15
Q
What human decisons impact resources within a business?
A
Human - A business may need to consider whether its staff are skilled enough to carry out the work needed for the new stratergies or tactics
16
Q
What physical decisions impact resources in a business?
A
Physical - A business might need to invest in a new or updated phsycial resources
17
Q
What financial decisons impact resources in a business?
A
Financial - A business would need to consider how to fund its decisions
18
Q
What is the ansoff matrix?
A
Ansoff matrix = a strategic tool to help a business analyse business growth, comparing the level of risk involved with different growth stratergies
Helps managers to decide on a direction for a strategic growth
19
Q
What
What is a strategic direction?
A
Strategic direction = describes how a business plans to get to where it wants to be in the long terms
20
Q
What are the pros and cons of ansoff matric?
A
Pros:
* It doesnt just lay out potential stratergies for growth and forces mangers to think about the expected risks of moving in a certain direction
Cons:
* It fails to show that market developmet and diversification stratergies also tend to requires significant change in day-to-day working or tactics of the business
21
Q
W
What is market penetration?
A
Market penetration = a growth stratergy where a business aims to sell existing prodycts into existing markets
- Helps to increase market share, by reducing customers purchases of substitute producrts
- Often through the use of competitive pricing stratergies advertising, sales promotion, widen product portfolio and encourage brand loyalty
22
Q
What is market canniabalism?
A
Market cannabilism= When a business competes againts itself by launching a product into a market they are already in
23
Q
Pros and cons of market penetration
A
Pros:
* Knows the market well, can exploit insights on what consumers want, dont need alor of market research so has low costs
Cons:
* May be hard to reach objective due to risk of market canniablism
24
Q
What is market development?
A
Market development = A growth stratergy where the business seeks to sell its existing products into new markets
* It can be done through repositioning - business focuses on a different segment of the market
* Aims of market development - extend a products market into new areas
* This can be done through - new geographical markets, new products,dimenisons, packagig , new distribution channels and different pricing stratergies, creating new promiton
25
Pros and cons of market development?
Pros:
-Planned expansion and client aqquisation
Cons:
- increased risk and expense
26
What is product development?
Product development = a growth stratergu where a business aims to introduce new products into existing markets
Aim to maintain competitive position by modifying and adding to a product range
Best when the market has good growth potential and high market share
It is done through researh and development abd innovation detailed insights into customer needs and how they change
27
What are the pros and cons of product development?
Pros:
* Plays to the strenhgh of a business, strong emphasis on effective market research, great way of exploiting the exisitng customer base
Cons:
* Important to have 1st mover advantage ( be first to market)
28
What is diversification?
Diversificaton = Growth stratergy where a business puts new products into new markets, most riskky as have no xp in market and less brand recognition
* Selling new products to new markets
* Used when a business really needs to reduce their dependance on limited product range or if high profits are likley which reduces the risk
* Done through product development and market development
* Can take place via organic growth e.g. vertical or horizontal integration
* Innovation, r&d, devleopment. aquistion
29
Pros and cons of diversification
Pros:
* If succesful overall risk of business is spread
Cons:
* Really riskky, initally no ecnomies of scale
30
What are distinctive capabilities ?
Distinctive capabilities = A skill or attribute possessed by a business
31
What is cost leadership?
The lowest cost of production at a given level of quality
Big firms with large and effcient production facilities benefitting from eos can use this stratergy
During price war firms can maintain profitability while competition suffers losses
Price declines firms can stay profitable due to low price
32
What is porters strategic mix?
Porters strategix mix = identifies the sources of competitive advantage that a business might achieve in a market
33
What is differentiation?
Differentiation = requires prodcuts with unqiue attributes which consumers take so they beliebe its better than rival products
Allows businesses to charge higher prices
Beneficial to businesses that are innovative , have strong branding and quality products
Risk of imitation by competitors and changes in trends
34
What is focus?
Focus = concentrates on niche markets and either mimising costs or showing differentiation suits firms with fewer resources who can target markets with specific needs
Firms usually have loyal customers hard for competition to enter
35
What is cost focus?
Cost focus (e.g. cornershops)
* Useful stratergy when the business wants to offer very low prices to small market segment
* Niche marketing but at a very low cost
* This stratergy can exploit the differences in cost behaviour in some segments
36
What is differentiation focus?
Differentiation focus
* Means that businesses seek to distinguish its products or services from that of competitors through advertising, product features, customer experience etc
* Useful stratergy wjen the business wants to offer product and services to a small market segment
* This stratergy can reduce the rivarly with competitors if they hace customer loyalty
37
What are the advantages and disadvantages of porters strategic mix ?
Pros:
* May help identify a business that hasnt got a clear cous and is therefore stuck in the middle and at risk of failure
Cons:
* Porters matrix oversiplifies the market structure
38
What is stuck in the middle
39
What is porters strategic matrix?
Porters strategic matrix = identifies the sources of competitive advantage that a business might achieve in a market
* Business placed in a particular section based on whether they are aimed at a narrow or broad market
* Whether it offers cheaper products than competitors or more unqiue, quality products
40
What were porters three generic corporate stratergies?
The three generic stratergies are competitive stratergies and are based on giving a business an advantage through low production costs, or product differentiation
41
# Porters stratergies
What is cost leadership?
| What businesses benefit from this stratergy
**Cost** **leadership** = a stratergy that seeks lower costs to allow a business to reduce prices and therefore increase sales and revenue
* Big firms with large and effcient production facilities benefiting from economies of scale can use this stratergy
42
# Porters three stratergys
What is differentiation?
| What businesses benefit from this stratergy?
**Differentiation** = stratergy requires a product with unqiue attributes which consumers value so they believe its better than rival products allowing them to charge higher prices
* Businesses that are innovative have strong branding and quality products can benefit from this stratergy
43
# Porters stratery
What is focus stratergy?
| What businesses benefit from this stratergy?
**Focus** = concentrates on niche markets and either mimising costs or showing differentiation
* This stratergy suits firms with fewer resources who can target markets with specific needs
* Firm using this stratergy usually has loyal customers making it very hard for others to compete
44
Market scope?
Market scope = is whether a business is aimed at a narrow or broad market
45
Competitive advanatage?
Whether the business offers cheaper products than competitors or unqiue and quality products
46
What are the pros and cons of porters straigeic matrix?
Pros:
* Helps identify a business that hasnt got a clear foxus and is stuck in the middle and at risk of failure
* Helps steer businesses into a more channeled direction
Cons:
* Oversimplifies the market structure
* Has a narrow focus on either cost leadership or differentiation and doesnt account for businesses that can achieve both
* Only tells a business where it currently sits in the matrix and doesnt give any information on how to improve
47
What is Kays model?
Kays model = a succesful business stratergy is one that is built on the businesses distinctive capabilities
48
What is a distinctive capability?
Distinctive capability = A skill or attribute possessed by a business
49
What is a benefit of distinctive capabilty?
* If a business succesfully takes advantage of a distinctive capability it will create added value for the business and give them a competitive advantage
50
What are the three distinctive capabilities?
Architecture, innovation and reputation
51
What is architecture
Architecture = describes the relationships a business has with its main stakeholders
* If a business can maintain a strong and stable relationship with stakeholders its more likley to be succesful
* Businesses will be better at communicating product and marketing information which will increase sales
52
What is reputation
Reputation = The operational factors concerned with premises, equipment and other resouces needed to meet customer needs
* Businesses can build reputation by keeping customers satisifed, this can be done through good customer service or by creating high quality products increasing brand loyalty
increases word of mouth marketing if they have good reputation
53
What is innovation
Innovation = developing a new product or process in the production of a product
54
What are sustainable capabilities?
Sustainable capabilities = means that once a business has achieved one of kays three capabilities it needs to mainatin this competitive advantage over time
55
What are approchiable capabilities?
Approachiable capabilities = means that one business is not able to copy the distinct capabilitty that another business has achieved
New ideas and inventions can be protected through trademarks and patents and advertising slogans and logos can be protected through taking out a copyright
56
What is the boston matrix?
Boston matrix compares market growth and market share
57
What is the boston matrix useful for?
The boston matrix is useful in helping a business assess where its individual products are in terms of their makret growth and their market share
- It can help a business come up with stratergies about product investment
58
What are the limitations of the boston matrix?
Limitations:
* Its a simplified model as it only shows high and low market share and growth and it doesnt account for products that may have a medium market share or growth
* Just because product has high markey share doesnt mean it has highly profitable as it may have high costs too - this is also true for high market growth as the growth stage can be very costly
* Growth rate and relative market share are the only indicators of profitability - profitablity may be influenced by other factors that arent covered by this model
59
What is SWOT analysis?
**SWOT analysis** = a strategic technique used to help a business identify its internal strenghths, weaknesses and its external opportunities and threats
60
What does SWOT stand for?
**S**trengths
**W**eaknesses
**O**pportunities
**T**echnqiues
61
What are internal and external factors?
**Internal factors** = people,marketing, finance and operations
**External factors **= Political, economical, social, technological, legal and enviromental **(PESTLE)**
62
What are the streghths and weaknesses?
**The streghths and weaknesses** are internal factors that the business can influence
63
What are the opportunities and threats?
**Opportunities and threats** are external factors that are beyond the control of the business and the business needs to be able to understand them
64
How does SWOT analysis help businesses?
* Very helpful within helping managers to make strategic and tactical decisions it considers the businesses indiviucal circumstances
* Managers will focus on opportunities that build on the businesses strenths, convering weaknesses into strenghs and on managing threats
* Can be easily redone to take into account changing conditions and can aadapt its stratergy using swot
* Lets businsses know where it has a competitve advanyage over its rivals
65
What is pestle analysis?
Pestle refers to the **political, economical, social, technological, legal and enviromental factors** that can influence a business strategry
66
What are Political factors?
**Political factors** = Regional, national and international laws and government polices that could affect a business such as regulations and subsidies
67
Economical
**Economical factors **= economic variables that can affect a business such as exhcange rates, inflation and interesr rares
68
Social factors
**Social factors **= demographic changes such as an aging population, changing lifestyles and tastes anf fashiom
69
Technological factors
**Technological factors **= The adaption of technologies that could affect a business such as new production porcesses, mobile technology and disruptive technologies such as electronic vehciles
70
Legal factors
**Legal factors **= legal requirements that a business must follow when operating in the country
71
Enviromental factors
**Enviromental factors**= Businesses have a general obligation to the enviroment and some businesses are closley monitored
72
Porters five force model
A framework for analysing the nature of competition within an industry.
It does this by looking at five main factors
Used to identify the potential profitability of a particular strategic decision
73
What are porters five models?
**Threat of substitutes
Threat of new entrants
Bargaining power of buyers
Bargaining power of suppliers
Competitive rivarlry**
74
Barriers to entry
Barriers to entry = a physical, technological and intellectual factor that makes it difficult for a rival business to enter the market
Stratergies:
* Existence of large companies can create barriers to entry as they dominate resources and networks
* High start up costs might deter new firms from entering the markets
* Patents or trademarks can be used to make it harder for new entrants to sell similar products
* Businesses may take control of distribution channels - vertical integration makes channel unavaliable to new entrants and makes the market less attractive
* Custimers are brand loyal to existing custiners
* Large businesses benefit from economies of scale and can threaten new entrants with a price war
* Levels of expertise in industires are very high
75
Bargaining power of buyers
Bargaining power of buyer is the powers buyers have to negotaite terms and prices. This might change as consumers gain greater access to information and greater choice between rival businesses
Buyer power is high:
* Few buyers and many sellers
* * Little difference between products offered by competitors
* Products are price sensistive
* Customers buy in large quantitties or regualr basis
* Easy for buyers to switch between competitors
This can cause pressure on cash flow due to prices forced low and credit terms demanded
Businesses should consider:
* Develop a USP
* Build switching costs into agreements
* Lower prices to attract/keep customers
* Promote benefits in comparison to substitute prodcuts
* Forward vertical integration
* Buying groups
76
Bargaining power of suppliers
Bargaining power of suppliers = the power suppliers have to negotiate terms and prices. May change if the supply of a commodity fluccuates
High supplier power:
* Few suppliers and lots of customers buying from them
* If costs of switching suppliers is high, gives suppliers more power
* Suppliers product is essential for production
* Supplier able to integrate certically forward and sell direct to the businesses customers
* Low avaliability or viable substitutes
This can lead to high production costs and unfavourable terms of supply
Stratergies:
* Build strong relationships with suppliers
* Agree longterm contract of supply with favourable conditions
* Backward vertical integration
* Businesses could develop new products and protect them with patents to gain supplier power
77
Threat of substitutes
Threat of substitutes = Substitutes is an alternative product that may deliver the same benefits to the customer
* May change with social trends
* Relative price and quality are important alternative prices fall
* Higher threat forr products lacking differentiation
Key problem: Buyers have bargaining power
Stratergies:
* Develop a USP
* Build switching costs into agreements
* Lower prices keep and attract customers brand loyalty
* Promote benefits in comparision to substitute porducts
78
Competitive rivarly
Rivarly in the market is the level of competiton and agressive rivarly between businesses within the market
* As markets grow, become more attractive new businesses may enter increasing competitive rivarly
* Is intense in a market with lots of equal sized competitors
* Industires with high fices costs are very competitve
* Easy to enter markers
* Easy for customers to switch
* Standaralised products
* Little growth or decline in the market
* Intense in young industries
Key problems: Profit margins are squeezed
Stratergies:
* Lower costs of production and prices to compete
* Develop a basis for differentiation takeover
* Takeover, merger or strategic alliance
* Bigger promotional campaigns
79
Threat of competition
The behaviour of competitors that may lead to a loss of market share
80
