Business planning and functional strategies

Question 1

Purpose of a business plan

Answer 1

Business plans are typically produced when a business is applying for funding. They
are a critical document for a potential investor.

The aim of a business plan is to provide the potential investor with sufficient details
about the business and its future strategies so that they can make an informed decision regarding the finance that the business would like to receive.

Question 2

Overview of the contents of a business plan

Answer 2

The contents of a business plan will vary, depending on the individual circumstances
of the investment required.
However, below is a suggested pro-forma containing common sections contained
within a business plan.

 Cover page
 Contents
 Introductions and terms of reference
 Executive summary
 Management team
 Products or services
 Market information
 Business operations
 Details of finance required
 Appendices

Question 3

Detailed contents of a business plan
Management team

Answer 3

 Manager’s expertise
(previous experience etc.)
 Other advisors
(consultants, accountants)
 Future appointments
(succession planning etc.)

Question 4

Detailed contents of a business plan
Products or services

Answer 4

 Competitive edge
(USP, patents etc.)
 Product profitability
(cost, price, margins)
 Product development plans
(future launches, R&D)

Question 5

Detailed contents of a business plan
Market information

Answer 5

 Market analysis
(trends, challenges etc.)
 Competitor analysis
(names, size, strengths)
 Marketing plan
(4Ps/7Ps)

Question 6

Detailed contents of a business plan
Business operations

Answer 6

 Production methods
(processes, capacity)
 Non-current assets
(cap ex budgets)
 Employees
(perm vs temp, skills etc.)

Question 7

Detailed contents of a business plan
Details of finance required

Answer 7

 Amount required
(and how this will be spent)
 Other sources of finance
(level of owner’s investment)
 Exit routes
(flotation plans, repayments)

Question 8

Detailed contents of a business plan
Appendices

Answer 8

 Financial projections
(P&L, SFP, cash flow)
 Copies of contracts
(customer contracts, leases)
 Supporting documents
(manager’s CVs etc.)

Question 9

Functional strategies

Answer 9

Functional strategies are a key part of the implementation stage of strategic planning,
as they are the point when the overall strategy is translated into instructions for the
individual functions of the business.

Question 10

Key functions of a business

Answer 10

Marketing

Information technology

Research and development

Procurement

Operations

Human resource management

Finance

Question 11

Human resource management

Answer 11

Human resource management is a strategic and coherent approach
to the management of an organisation’s most valued assets: the people
working there who individually and collectively contribute to the
achievement of its objectives for sustainable competitive advantage
(Armstrong).

Question 12

The human resource cycle: General

Answer 12

HRM strategies must consider the various stages of human resource management.

Question 13

The human resource cycle (Devanna)

Answer 13

Selection
Actual performance
Appraisal

Appraisal -> Actual performance

Appraisal -> Training -> Selection

Question 14

Human resource planning

Answer 14

HR planning may include the following individual plans:

Recruitment plan
Training plan
Productivity plan
Redevelopment plan

Question 15

Recruitment
plan

Answer 15

This considers the balance between the forecast supply and demand of human resources.

Question 15

Training plan

Answer 15

This ensures that skills remain up-to-date, relevant
and comparable with the best in the industry.

Question 16

Productivity
plan

Answer 16

This sets out how productivity will be improved and
how performance will be measured

Question 17

Redevelopment
plan

Answer 17

This considers how staff can be retrained and
transferred internally, including succession planning.

Question 18

Types of research

Answer 18

Product research
Focusing on the development of new
products or adaptations to existing products

Process research
Focusing on how goods/services are produced, to improve efficiency and quality

Question 19

Innovation planning

Answer 19

Innovation is concerned with the generation of new ideas of how to do business. It is
primarily a creative activity.

Question 20

Generating and maintaining a creative environment involves the following aspects:

Answer 20

Leadership – setting and communicating a vision which encourages new ideas.

Culture – nurturing a creative culture which views failure as a learning process.

People – adopting a team-based approach that encourages participation.

Structure – embracing working methods and flexible organisational structures.

Communication – greater openness in communication and sharing of ideas.

Question 21

Operations

Answer 21

Operations involve the transformational process of changing inputs into
outputs in order to add value.
Operations management involves the design, creation,
implementation and control of these processes

Question 22

Operations
Key factors to consider are as follows:

Answer 22

Volume
Higher volumes of production may lead to more capital-intensive, automated
production processes and division of labour.

Variety
Greater variety in operations (e.g. a diverse product range) will reduce the
ability to standardise processes and will increase the range of skills required.

Variation in demand
Variations in the demand for the organisation’s products or services (i.e. due to seasonality) will be a key consideration regarding capacity planning.

Visibility
When an operation is highly visible, the employees will have to show good
communication skills and interpersonal skills in dealing with customers.

Question 23

Capacity planning

Answer 23

There are three general approaches to capacity planning:

Made to stock
Operating a constant level of
activity will accumulate stock
during quiet periods which can
be utilised during busy periods

Made to order
Products are made as the
customer requires them through the
adoption of Just-In-Time production methods

Manipulate demand
Customers are encouraged to switch to off-peak periods by using discrimination pricing to adjust the selling price at different times

Question 24

Operations: Just-in-time methods

Answer 24

Just-in-time manufacturing is an approach to planning and control based on the
idea that goods or service should be produced only when they are ordered or
needed.
This means that goods are only produced when they are needed, eliminating large
inventories of materials and finished goods.
Just-in-time purchasing can also be adopted with regards to raw materials and
other purchases. This requires close relationships with trusted suppliers.
The supplier subsequently will need to adopt their own flexible productions systems.

Question 25

Quality management
There are two key aspects of quality management:

Answer 25

Prevention
Quality assurance
Procedures and standards
are devised with the aim of
minimising defects.

Detection
Quality control
Checking and reviewing
work that has been done in
order to detect defects

Question 26

Total Quality Management

Answer 26

Total Quality Management (TQM) is the continuous improvement in
quality, productivity and effectiveness obtained by establishing
management responsibility for processes as well as outputs.
When adopting this approach, all internal processes are treated as internal suppliers
or internal customers to each other. Some organisations even create formalised
service level agreements between these internal operations.
All parts of the organisation need to work together and a quality culture needs to be
adopted across the whole firm.

Question 27

Procurement (purchasing)

Answer 27

Purchasing is the acquisition of material resources and business
services for use by the organisation.

Question 28

Purchasing mix

Answer 28

The purchasing manager is responsible for obtaining the best purchasing mix.

Quantity
Sufficient amounts to meet
future needs

Quality
To avoid production delays
and reputation damage

Price
Should be negotiated to
maximise profit

Delivery
Reliable and timely
delivery to avoid stock-outs

Question 29

Ethical procurement

Answer 29

A potential supplier may be rejected, despite being cheaper, due to ethical
considerations.

Treatment of employees
Health and safety
Environmental protection
Transparency of contracts
Fraud and corruption

Question 30

Supply chain management

Answer 30

Supply chain management is the management of all supply activities
from the suppliers to a business through to delivery to customers.

Question 31

Supply chain management
Key factors to consider

Answer 31

Responsiveness
Is the supplier capable and flexible enough to be able to supply goods whenever they are required?

Reliability
Can the supplier consistently meet the organisation’s needs in terms of
quality and delivery times?

Relationships
Long-term relationships with
regular suppliers will strengthen trust and improve integration.

Question 32

Sourcing strategies*

Answer 32

For each input, it is also important to decide whether to build a relationship with one single supplier or whether to use multiple suppliers

Question 33

Sourcing strategies
Advantages include:
Multiple supplier

Answer 33

Advantages include:
 Reduced supplier power –
competition may drive down prices
 Less disruption/spread dependency
if problems occur with one supplier
 Access to a wider range of
knowledge and expertise

Question 34

Sourcing strategies
Advantages include:
Single supplier

Answer 34

 Strong relationship with supplier
 Better commitment from supplier
 Economies of scale
 Better quality through Quality
Assurance programmes
 Better communication
 Confidentiality

Question 35

Finance function as a business partner

Answer 35

The role of the finance function in an organisation has evolved over time; no longer
is its purpose simply to report historic financial performance. The modern finance
function has evolved to become an important business partner for operational units
of the organisation.

Question 36

Acting as a business partner enables the finance function to:

Answer 36

 Provide ‘real time’ support in data and information needs
 Enable business unit leaders to understand performance and devise
strategies to improve
 Help operational leaders put together credible business plans for increased
investment, before they go to senior managers
 Collaborate with business unit leaders in preparing budgets
 Help design information systems that meet the needs of operational
managers.