Theme 3.1 Business Objectives And Strategy Flashcards
What is a mission/corporate aim?
An organisations aims/long term intentions, its ultimate purpose.
What is a mission statement?
Sets out the purpose and primary objectives of a business in the present
What are the characteristics of a mission statement?
-provide a clear sense of purpose
-differentiates the business
-defines the brackets the firm operates in
-excites, inspires, motivates and guides
Advantages of a mission statement
-focuses energy and clarifies purpose
-helps attract people and resources
-can be a great PR tool
-should motivate stakeholders
Disadvantages of a mission statement
-not always supported by actions of the business
-often too vague and general
-often states the obvious
-often seen as a PR exercise
-not a true reflection of reality
-must be supported by senior management
What influences a mission statement?
-purpose
-strategy
-values
-standards and behaviour
-size of the business
-competition
-social responsibility
What are corporate aims?
Give a business direction and provide a purpose for what is done everyday
What are corporate objectives?
Should flow from the mission statement and corporate vision
What is a SMART target?
Specific
Measurable
Achievable
Realistic
Time related
What are functional objectives?
Departments/functions (HR, marketing, finance and operations) set their own objectives which should flow from the corporate objectives
What is ansoff’s matrix?
shows the strategies that a business can use to expand, according to how risky they are
What are the key features of product development?
-new product/service for existing market
-means R&D innovation
-can respond to customer needs
-good where product needs to be differentiated
What are the key features of market development?
-existing product sold in a new market
-new geographical market/ new channel of distribution/ new demographic
What are the risks of product development?
-not knowing product
-high R and D costs
-competition reactions
-risk cannibalisation
-may shorten lifecycle of existing product
-damage brand
What are the rewards of product development?
-launch substantially improved version of product
-introduce complementary products
-new product innovation
What are the risks of market penetration?
-competition reaction
-relatively short term
-market may already be saturated
-cannibalisation
-low risk limited reward
What are the rewards of market penetration?
-gain share from competition
-encourage customer buy/consume more
-create changes to marketing mix
-allows extension strategies
What are the key features of market penetration?
-trying to sell more of existing product to existing market
-steady, safe growth
-encourage them to order more often
What are the risks of market development?
-product may not be accepted/desired/understood
-lack of knowledge of customer
-business may not understand new market and alienate customers
What are the rewards of market development?
-enter new market; not reliant on one
-allows business to change promotional tactics
-new distribution channels
What are the risks of diversification?
-relies on heavy investment
-cultural differences
-brand name may be diluted
-very high risk strategy
What are the rewards of diversification?
-allows for R and D into new products and market research
-acquisition of other businesses
-spread risk
-gives balance to products with high return
What are the key features of diversification?
-new product sold in a new market
-need a clear idea of what the business expect to gain and honest risk assessments
Uses of Ansoff’s Matrix
-identify all your current products/services and their markets, then consider options for expansion
Limitations of Ansoff’s Matrix
-only shows part of the picture and is in its purest form
-not the whole picture: SWOT and PESTLE needed for a view from more then one angle
What is competitive advantage?
It is gained over competitors by offering greater value e.g. lower prices
What is SWOT analysis?
Helps a business assess its competitive strength and the nature of its external environment
Use of SWOT analysis
-logical structure
-focuses on strategic issues
-encourages analysis of external environment
Limitations of SWOT analysis
-too often lacks focus
-independent?
-can quickly become outdated
What does PESTLE(C) stand for?
Political
Economic
Social
Technological
Legislation
Environmental
(Competitor behaviour)
What is Porter’s Matrix?
Shows the strategy a business is best placed to use based on its competitive advantage
Uses of Porter’s Matrix
-can gain competitive advantage
-gain higher profits if use cost leadership
-differentiated products = less elastic than competitors
-focus strategy can gain a higher degree of customer loyalty
Limitations of Porter’s Matrix
-cost leadership could be used by competitors; risk customer loyalty
-differentiation = higher costs
-products being copied will eliminate differentiation
-focus strategy = little opportunity for growth
How can low cost be achieved?
-lower cost
-production on large scale to exploit EoS
-can offer lower prices
-little product differentiation
How can differentiation be achieved?
-doing something different; USP = customers will pay more
-target larger market to achieve competitive advantage across whole market
-superior quality
-branding
-wide distribution
-sustained promotion
How can focus be achieved?
Differentiated focus
-brand, image, quality
-aims to differentiate in 1(+) small segments
Cost focus
-seek to develop a lower cost advantage
-lowest cost producer will enjoy EoS
-e.g. budget food items low cost regional airline
Advantages of low cost strategy
-high profit margins
-maintain market price and gain higher profit margins
-lower price and acquire market share
-high levels of productivity
-high capacity utilisation
-EoS
-bargaining power to negotiate lower prices
-lean production
Disadvantages of low cost strategy
-few can operate as cost leader as multiple businesses cannot directly compete on cost
-standard product
-branding relatively unimportant
Advantages of differentiation strategy
-brand makes business stand out
-helps develop a unique brand image
-adds value = higher price can be charged
-gives higher profit
Disadvantages of differentiation strategy
-other businesses may be able to copy the strategy if it is not sustainable or defensible (e.g. patents, copyrights)
Advantages of focus strategy
-easier to target a narrow market as communication and marketing can be focused
-possibly develop a better understanding of customer needs
Disadvantages of focus strategy
-customer loyalty is vital if sales are to be maintained
-the market may disappear (or no longer be a viable option) if it shrinks in size
What are distinct capabilities?
The competitive advantage a business achieves through developing a unique quality of the business through: reputation, innovation, architecture (relationships)
What is architecture?
The way a business is organised- clear corporate objectives
What is reputation?
How customers and potential customers see the company
What is innovation?
Source of competitive advantage- difficult to maintain
what are strategic decisions?
-long term direction of the business
-what the business will do to meet its aims and objectives
-proactive decision making
-forward thinking and future planning
What are tactical decisions?
-short/medium term
-how the business will implement its strategy
-reactive to competitors actions
-present day thinking, what happens now that needs dealing with
What is PESTLE analysis?
An analysis tool that aims to look at external factors and how they may have an impact on the business
What are political and legal factors?
The governments actions and changes to the law that impact on strategic and functional decisions made by a business
-a change in government
-government intervention policies
-influence of the the EU on trading
-tax rates (e.g. VAT)
-tariffs (when importing)
What are economic factors?
-an increase in interest rates
-an increase in inflation
-unemployment rates
-recession (temporary decline in economic activity)
-the business cycle
What are social factors?
Are influenced by the make-up of humans within a specific area/business.
-change in demographics (characteristics) and its impact on products produced and markets
-cultural mix has changed
-social trends e.g. vaping
Examples:
Growing population
Changing family structure
What are technological factors?
The ongoing development of invention, innovation and sharing of technology/ processes
-automation, new robotics and how it can improve productivity
-innovations of industry
-research and development in industry
-new computer systems
-trading online
Benefits of technology
-improved efficiency
-more product innovation
-reduce wastage
-replace labour with capital
-more efficient marketing
-faster, easier, more efficient communication
-efficient stock management
Limitations of technology
-cost
-shorten life of existing products
-require training
-security risk of fraud and data
-need regular update
-downtime needed and potential faults
-increased risk of job cuts which could damage reputation
How does technological change support the functional areas?
Marketing
-social media
-personalised adverts
-big data
Finance
-payment methods
-banking apps
-less paper
Operations
-robotics
-stock control
-automation of product lines
HR
-automated messages
-shared documents
-online meetings
What are environmental factors?
Customers, investors, and the government can put pressure on a business to be more eco-friendly
-climate change
-weather (e.g. tourism)
-sustainable production and corporate social responsibility
-disappearance of wildlife
What is Porter’s five forces?
Threat of new entrants
Threat of substitute products
Buyer power
Supplier power
Intensity of rivalry with industry
Examples of barrier to entry
Patent
High capital cost
Customer loyalty
Government policies and regulations
EoS
Access to resources/ distribution channels
What are the characteristics of markets where rivalry is low?
-small number of firms within clear market leader
-low fixed costs
-brand loyalty
-high consumer switching costs
-no excess production capacity
What are the characteristics of markets where rivalry is high?
-Entry in to industry is straight forward
-easy for customers to move to substitute
-little differentiation
-competitors similar size
-costly to leave industry
-market not gaining
Benefits of Porter’s five forces
-Evaluate competitive forces that influence the business
-can help support strategic decisions
Limitations of Porter’s five forces
-backward looking
-only looks at individual companies, not the industry as a whole
-doesn’t consider globalisation and technological advances
What are the strategies of buyer power?
-look for new customers (geographical/segments)
-differentiate products to make it less easy for customers to switch
-drive rivals out of the market place
-promotional tactics
-price wars
What are the strategies for supplier power?
-joint venture: work closely with supplier (possibly merge/ vertical integration)
-maximise EoS (e.g. place large order)
-become more attractive
-seek out new suppliers
What are the strategies for the threat of new entrants?
-barriers to entry
-patent/copyright; increase cost for new entrants
-maximise EoS; produce cheaper— pass on to customer and reduce price
-Brand loyalty
-threat of retaliation
What are the strategies for the threat of substitute products?
-develop a strong brand name
-promotions; give reasons to keep coming back
-low cost producer
What are the strategies for the intensity of rivalry within the industry?
increase power
-differentiate
-low cost producer
