3.1 business objectives and strategy Flashcards
(27 cards)
Define a mission statement
Sets out the purpose of a business and is a long term aim
What does a mission statement focus on
- values of the business
- the importance of different stakeholder groups
- long-term aims of the business
How will the mission statement be influenced
- by the value of the founders
- by the industry it is in
- by the views of society
- by the size of the business and type of ownership
- by the culture of the business
Define corporate objectives
Set measurable targets for the whole organisation
The focus of these may include:
- innovation
- sustainability
- shareholder value
- profitability
What internal and external factors may affect corporate objectives
Internal:
- poor performance
- new leadership
- business ownership
- business culture
External:
- social change
- economic conditions
- actions of competitors
- technological change
What is short-termism
The pressure of achieving short-term gains over long-term success
What should be done to the mission statement and corporate objectives
They should be reviewed regularly so that they fit with the direction of the business and its stakeholders
Define ansoff matrix
A strategic tool that businesses can use to help choose the market they wish to operate in and the products they sell within that market
What is market penetration
An existing product in an existing market
This is a strategy to boost sales they may do this by:
- increase promotion
- build brand image
- focus on developing customer loyalty
Ads:
- low risk
- limited investment required
Dis:
- limited growth potential
- can become vulnerable if not innovative
What is product development
This is a new product in an existing market
How can businesses approach this:
- conduct market research with existing customers
- Use product portfolio tools to manage product range
Ads:
- builds on innovation, become more competitive
- responds to customer needs
Dis:
- Can take time and be expensive
What is market development
An existing product going into a new market
What approaches may a business take using this:
- Use of penetration pricing to enter the market
- Heavy promotion
- develop new channels of distribution to reach new customers
Ads:
- spreads the risk by engaging in different markets
Dis:
- Can be extremely high risk
- No reputation or expertise in the market
What was porter’s strategy
Suggested that a business should be in one of the three positioning strategies of segmentation, differentiation and cost leadership
What is the cost-leadership strategy of Porter
Achieve an advantage by being the lowest cost operator in the market E.G. Ryanair
Ways to achieve this:
- achieve economies of scale
- Have unique access to technology, skills and raw materials
- control the supply of the product
Ads:
- achieve high profit margins
- can maintain market price
- can lower price and acquire market share
Dis:
- Few businesses can operate as cost leader due to multiple businesses not being able to compete on cost
What is the differentiation strategy of Porter
Businesses compete by offering a unique product or service to the market
This might be done by:
- quality
- customer service
- brand personality
- after-sales service
Ads:
- Create a unique brand image
- adds value and cause higher price to be charged
Dis:
- other businesses may be able to copy if it isn’t defensible
What is the segmentation strategy of Porter
This can be achieved through cost leadership or differentiation, involves targeting a specific group of customers
Ads:
- Marketing can be targeted specifically
- Can develop a better understanding of customer needs
Dis:
- Customer loyalty is vital if sales are to be maintained
How can a competitive advantage be sustained
Innovation, create new and unique processes and products
Architecture, relationships within a business that create understanding between suppliers, employees and customers
Reputation, brand values are hard to replicate and can years to develop
What factors should be considered when choosing a strategy
- The expected cost, some strategies are more expensive
- Expected returns, can use investment appraisal to consider the potential reward of the strategy
- Risk aversion, the willingness of owners to take risk
- Stakeholders, will consider the impact of the strategy on stakeholders
- External environment, new legislation may make a strategy less attractive
Define strategy
A long term approach that a business will take to achieve its objectives
What do strategies and tactics do for a business
strategies guide tactical decisions
Tactics are the day-to-day decisions taken, these are frequent and taken to achieve the strategic direction of the business
What is the objectives hierarchy
Aims
Mission statement
Corporate objectives
Functional objectives
Ads and dis of SWOT analysis
Ads:
- assists strategic thinking
- Low-cost, simple approach
Dis:
- Doesn’t offer clear solutions
- Can be subjective and depend on opinions of managers
What are Porters 5 forces
Rivalry
Barriers to entry
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitutes
What is rivalry in Porter’s 5 forces
Level of competition between businesses in the market
Business should consider:
- lower costs of production and prices to compete
- takeovers or mergers
What is bargaining power of suppliers
This is the power suppliers have to negotiate terms and prices
This is high if:
- supplier’s product is essential for production
- few suppliers
- low availability of substitutes
Businesses should consider:
- building strong relationships with suppliers
- backward vertical integration
- agree long-term contract of supply
