3.7 strategic position Flashcards
(281 cards)
1
Q
what do the mission and corporate objectives of a business outline
A
what the business aims to achieve
this means they guide the actions and strategy of a business and act as the measures by which we can assess the overall success of the business
2
Q
mission statement
A
sets out the purpose of a business existing
the mission relates to all stakeholders
3
Q
what things does the mission usually focus on
A
the values of the founders
the industry of the business is in
the views of society
the size of the business and type of ownership
the culture of the business
4
Q
corporate objectives
A
quantify the mission of a business and set specific and measurable targets for the whole organisation
5
Q
focus of corporate objectives
A
innovation
sustainability
growth
shareholder value
social responsibility
profitabilty
market standing
6
Q
internal factors affecting corporate objectives
A
poor performance
new leadership
business ownership
business culture
business growth
7
Q
external factors affecting corporate objectives
A
economic conditions
social change
technological change
global prices
actions of competitors
8
Q
short termism
A
the pressure on achieving short term gains over long term success
sometimes short termism and the pressure for instant success can influence corporate objectives and decision making as any other internal or external factor
9
Q
what is a strategy
A
a long term plan or approach that a business will take to achieve its objectives
strategies involve a major commitment to resources
clear strategies guide tactical decisions- a business may have a strategy to become a market leader by having the widest range of innovative products on the market
10
Q
tactics
A
the day to day decisions taken by middle managers
they are frequent and involve fewer resources byt are taken to achieve the strategic direction of the business
11
Q
the objectives hierarchy
A
aims
mission statement
corporate objectives (establish brand in a new international market or to maximise shareholder value)
functional objectives ( finance marketing operations people)
12
Q
aims
A
the overall goal or purpose of the organisation
13
Q
mission statement
A
a statement that commuicates the aim and purpose of the business to the stakeholders of the business
14
Q
corporate objectives
A
set by the directors of the company- sets measurable targets for the whole organisation in order to meet the aims such as become market leader by 2017
15
Q
functional objectives
A
objectives set by the functional managers/directors of the business that support and contribute towards achieving the corporate objectives
16
Q
what do mission and corporate objectives guide
A
business strategy
17
Q
what do functional objectives guide
A
tactical decisions made by managers on a day to day basis
18
Q
what do tactics support
A
the business strategy
19
Q
what is SWOT analysis
A
a strategic tool a business can use to analyse its current position and the external factors that might affect it
20
Q
what does SWOT stand for
A
strengths
weaknesses
opportunities
threats
21
Q
strengths
A
helpful- to achieving the objective
internal origin- attributes of the organisation
22
Q
weaknesses
A
harmful-to achieving the objective
internal origin- attributes to the organisation
23
Q
opportunities
A
helpeful- to achieving the objective
external origin- attributes of the environment
24
Q
threats
A
harmful- to achieving the objective
external origin- attributes of the environment
25
eg of strengths
having a strong brand image or a highly skilled workforce
a business will develop a strategy around its strengths
26
eg of weaknesses
poor cash flow- a business will try to eliminate these or avoid strategies that require the use of these
27
eg of opportunities
a fast growing geographical market
a business will attempt to exploit these with its strategy
28
eg of threats
a new competitor entering the market- a business will attempt to protect itself against these
29
benefits of SWOT analaysis
assists strategic thinking in a structural way
low-cost, simple approach
can be combined with other decision making models such as PESTLE
30
limitations of SWOT analysis
subjective- depends on opinions of managers
does not offer clear solutions
classification may depend on perspective
31
what will a business do to support its stakeholders in decision making
a range of financial documents
32
what are two key documents a business must produce
income staement
balance sheet
33
income statement
will communicate the revenue generated by a business and then its profit at various levels following a series of expense and exceptional incomes
34
areas found on an income statement
cost of goods sold
administration/rent/salaries
operating profit
net profit
gross profit
exceptional expenses and income
35
cost of goods sold
the direct costs associated with the production and sale os the product or service
36
administration/rent/salaries
operation costs (overheads) are then deducted from gross profit
37
operating profit
the profit left after pther indirect operating costs (overheads) have been deducted
38
net profit
the bottom line- what a business has left to reinvest or return to shareholders/owners after tax has been deducted
39
gross profit
the profit after direct costs have been deducted
gives a broad indication of the success of a business's trading activity
40
exceptional expenses and income
these could be expenses or incomes not associated with he direct activity of the business
they may be one off items
they are kept seperate to gve an indication of the quality of profit
41
what can an income statement be used to calculate
profitability ratios such as gross profit margin, operating profit margin and return on capital employed (ROCE)
42
what can we find out from an income statement
changes in sales revenue
changes in the direct costs of sales
how well a business is managing its operating costs
the profitability of a business
identify unusual incomes/expenses during the year
43
balance sheet
a financial document that records the assets and liabilities of a business
gives a snapshot of the value and financial strength of a business
44
what is seen on a balance sheet
non current assets
current assets
net current assets
net assets
current liabilities
non current liabilities
total equity
45
non current assets
also known as fixed assets
used to operate the business and include land and machinary (tangible or fixed assets) and brands and patents (intangible)
46
current assets
assets that the business expects to use or sell within the year
these can be converted into cash to pay off liabilities
47
net current assets
current assets - current liabilities = the working capital a business has available
48
net assets
total assets - total liabilities = the value of a business
49
current liabilities
payments due within 1 year
50
non current liabilities
debts that a business does not expect to pay within a year
51
total equity
will always balance with net assets- it represents how a business has been financed
52
what can a balance sheet be used to calculate
financial ratios such as liquidity ratios gearing ratios and efficiency ratios
53
what can we find out from a balance sheet
the value of a business (equity)
the current assets a business holds
short term liabilities the business will need to pay within the year
the liquidity of a business
the long term debts of a business
how a business has been financed
54
types of financial ratios
liquidity ratio- assessed the ability of a business to pay its debts
gearing ratio- assesses the extent to which a business is based on borrowed finance
efficiency ratio-provides an indication of how well an aspect of a business has been managed
profitability ratio-provides a key measure of success for a business comparing profit to revenue and investment
55
profit margin ratios
compare a type of profit to the revenue that it was generated from over a trading period
56
gross profit margin formula
gross profit divided by revenue x100
57
net profit margin formula
net profit divided by revenue x100
58
operating profit formula
operating profit divided by revenue x100
59
profitabiltity
is a key measure of success for most businesses and these ratios allow managers to compare performance over time
it is also useful to compare these ratios as doing this will give an indication of the wuality of profit and how well the business is managing various aspects of the business such as its direct and indirect costs
60
ROCE return on capital employed
ROCE ratio compares operating profit earned with the amount of capital employed by the business
also known as the 'primary efficiency ratio'
shows how effectively the business was able to generate a profit from the investment placed within the business
can be compared to previous years and the general rate of interest
a business can improve its ROCE by increasing operating profit or reducing capital employed
61
capital employedR
total equity + non current liabilitie
62
ROCE formula
operating profit divided by capital employed
63
current ratio
a key liquidity ratio
compares current assets with current liabilities
in doing so it assesses whether a business has sufficient working capital to pay its short term debts
64
current ratio formula
current assets divided by current liabilities
65
interpeting the current ratio
the current ratio is expressed as a ratio
if the ratio is less than 1 eg 0.5:1 the business may struggle to pay its short term debts
66
gearing ratio
gearing analyses how a business has raised its long term finance
the ratio represents the proportion of a firms equity that is borrowed
67
gearing ratio formula
non current liabilities divided by total equity + non current liabilities x100
68
interpreting the gearing ratio
a higly geared business has more than 50% of its capital in the form of loans
a highly geared business is vulnerbale to increases in interest rates
a low geared business may have the opportunity to borrow funds in order to expand
businesses with secure cash flow or considerable assets may be able to borrow more for this purpose
69
how to use finanical ratios
benchmarks and industry average
the economic environment
performance as a trend
70
how can financial ratios be used for benchmarks and industry average
manufacturers typically have lower operating profit margins than service businesses
understanding the industry norm is important
71
how can financial ratios be used for the economic environment
poor performance might be less significant if the business is operating in a tough economic climate
72
how can financial ratios influence performance as a trend
financial information in isolation often holds little value
understanding the trend might be more significant
low profitability might be accpetable if it is improving gradually
73
inventory turnover ratio
measures a companys success at converting inventories into revenue
it compares the value of inventories ( at cost-cost of goods sold) with the sales achieved
the faster a business sells its inventories the faster is generates profit
74
inventory turnover calculation
cost of goods sold divided by average inventories held
75
interpreting inventory turnover
the lower the number the more efficient the business is
this ratio is only really relevant for manufacturers
the turnover rate will be determined by the nature of the product
perishable goods such as food will have a much faster turnover than manufactured goods such as blu ray players
76
recievables days ratio
calculates the time it takes for a business to collect debts that it is owned
the shorter the period the faster cash is flowing into the business
77
recievables days formula
recievables divided by revenue x365
78
interpreting recievables days ratio
the shorter the period the easier the firm will find it to meet its short term cash needs
however businesses that offer trade credit to customers will experience long payment periods
businesses can use a range of techniques to reduce the length of time debtors take to pay
79
payables days ratio
calculates the time it takes for a business to pay its creditors
the longer the period the longer the business is retaining cash within the business
80
payable days ratio calculation
payables divided by cost of sales x365
81
interpreting payable days ratio
the longer the priod the easier the firm will find it to meet its shrt term cash needs
however businesses that delay payments to suppliers or creditors may damage the business relationship and this may cause problems when making future deals
82
how are financial accounts used
shareholders- to assess the return they may recieve on their investment
government- to calculate the tax liability of the business (HM revenue and customs)
potential investors and leaders- to assess the security and liquidity of the business
managers- to assess the performance of the business and whether resources are being used efficiently
83
advantages of ratio analysis
allows a business to calculate and compare trends over time
shows greater insight than finacial accounts on their own
information can be used against benchmark data-such as an industry average
can be used to assess the performance of other functional areas of the business- operations and human resources
84
disadvantages of ratio analysis
does not take into account qualitative issues such as brand image or customer service performance
does not take into account the impact of long term decisions such as investmentss today may lower profitability but boost it in the long term
economic climate- ratios dont take into account economic conditions or the performance of other businesses
85
window dressing
involves a business manipulating is finacial accounts to make them look more favourable to stakeholders eg delaying payments to a later financial period to boost short term profit
window dressing can limit the value and validity of information interpreted from financial accounts
86
what do the internal measures other than financial analysis used to measure success relate to
marketing
operations
human resources
87
marketing as a measure of internal performance
product information- this may include future sales forecasts, product portfolio analysis and details on market share
market research data- may include customer opinions such as brand recognition and satisfaction levels
88
opeartions as a measure of internal performance
quality- quality can be difficult tomeasure, but a business may use factors such as customer repeat purchases, product defects or satisfaction levels
capacity utilisation- maximum output relative to existing output- a key measure of efficiency
productivity- indludes single productivity measures such as labour productivity and capital productivity or multifactor productivity
89
human resources as a measure of internal performance
productivity-including single productivity measures such as labour productivity and capital productivity or multifactor productivity
labour turnover, retention and absenteeism- may give an indication of employee happiness/motivation and the effectivenessof recruitment
unit labour costs- calculates labour costs relative to output
90
core competence
the unique abilities a business possesses that provide it with a competitive advantage
are developed over a period of time through the learning and skills developed within a business relating to the production of its goods and services
91
benefits of core competencies
core competencies give a business uniqueness
core competencies add value to a business's product
core competencies are difficult for competitors to imitate
core competencies allow a business to enter a variety of markets
byfocusing on its core competencies a business will develop key efficiencies
aspects of a business that are not a corecompetence could be outsourced to a thirdparty so the business can focus on its strengths
92
criticisms of core competences
as markets and environments evolve businesses might be able to develop new skills and strengths- they cant rely on core competencies
outsourcing areas of the business can lead to a fragmented workforce
core competencies take time to develop and nurture- not all businesses have core competencies or they mght not have the rightones
93
what measures help give a business perspective on its long term performance
research and development R&D
profit quality
employee engagement
sustainability
94
research and development
investment in R&D might give an indication of the likely impact of product development and innovation in the future
however there is no direct link between r&d spending and the level of innovation within a business
95
profit quality
firms may choose to focus on profits that they believe they will be able to sustain in the future
net profit doesnt alwas give a good indication of this where exceptional items are included
96
employee engagement
high levels of employee engagement are likely to return rewards in the future and lead to greater levels ofproductivity andinnovation
97
sustainability
a sustainable aproach to business is onethat can be conducted in the long term
a business can measure its sustainability through a corporate social responsibility audit or report
98
short term measures of performance
cash position
revenue
productivity
profit
99
what are two models that help managers understand their business performance
kaplan and nortons balanced scorecard
elkingtons triple bottom line
100
kaplan and nortons balanced scorecard
a planning and management tool to match a businesses activities to its vision and strategy
it aims to improve internal and external communications and monitor organisation performance against strategic goals
101
what are the 4 areas on kaplan and nortons balance scorecard
financial-'to succeed financially how should we appeal to shareholders'
internal business processes- 'to satisfy our shareholders and customers what business processes must we excel at'
learning and growth-'to achieve our vision how will we sustain our ability to change and improve'
customer-' to achieve our vision how should we appear to our customers'
102
what may be included in the financial section of a balance scorecard
revenues
profit
ROCE
cash flow (working capital)
103
what might be included in the internal business processes section of a balance scorecard
productvity
quality
efficiency
104
what might be included in the learning and growth section of a balance scorecard
effectivenessof training
employee engagement
R&D investment
number of new products developed
105
whats included in the customer section of a balanced scorecard
customer loyalty
satisfaction levels
meeting customer needs
106
elkingtons triple bottom line
looks at the impacy of a business against three key areas
107
what are the three areas in elkingtons triple bottom line
people-social performance
planet- environmental performance
profit- economic performance
108
profit section of elkingtons triple bottom line
monitoring the financial performance over time
this might typically involve using information from financial accounts and financial ratios
109
people section of elkingtons triple bottom line
measures how socially responsible the business is to all involved
measures might include health and safety figures, fairpay fair trade and customer satisfaction
110
planet section of the tripplebottom line
covers the impact the business has on the environment
this will include reducing carbon emmisions waste and use of non renewable sources of energy
111
the valueof alternative measures
the value of the balanced scorecard and the tripple bottomline comesfrom the fact they consider all stakeholders and not just the shareholders/owners of the business
for this reason they encourage businesses to approach internal analysis of performance from a long term perspective considering the impacy they have on the community environment and economy
112
the political environment
covers the actions taken by national and international authorities
their actions are designed to maximise economic activity whilst protecting businesses individuals and the environment
113
factors influenced by the political environment
enterprise
environmental issue
international trade
national infrastructure
regulating markets
114
what EU and UK decisions are aimed at encouraging an enterprise friendly environment for businesses
making finance accessible for small businesses
providing funding for research and development
support on establishing new businesses
guidance on running a new business
115
specific policies created by UK and EU to encourage an enterprise friendly environment for businesses
enterprise allowance
funding for lending
enterprise finance guarantee
116
how may government spending on infrastructure benefit businesses
speeding up communication
making transportation of goods faster and cheaper
allowing access to new markets
attracting new business to the uk- potential customers and suppliers
117
eg of recent infrastructure plans in the uk
investment in a high speed rail line connecting the south and north (HS2)
118
what is the aim of regulators estavlished by the uk and eu
to support businesses with compliance and conducting business in an appropriate way
119
what do particular regulators focus on
promoting free competition between businesses
regulation of specific industries such as financial conduct authority FCA
regulators privatised monopolies such as british gas
self regulation businesses agreeing and operating a code of conduct
120
how can regulation be negative for businesses
can limit the actions of a business and slow down the speed at which stratgeies can be implemented
however regulation also creates a stable environment for businesses to operate in
121
environment opportunities
similarto regulation the government may develop policies to protect the environment
this can create a number of opportuntieis for businesses that specialise in environmental products eg renwable energies, recycling and developers of old 'brownfield' sites
122
international trade
the uk government implements a number of policies to support uk exporters
increased exports bring revenue and employment opportunities
international trade initiatives include
open to export initiative
uk trade and investment
the world trade organisation
123
benefits for businesses of increased international trade
makes it easier for uk businesses to sell their products particularly high quality specialist products
124
the legal environment
covers the laws that govern how our society operates
businesses must abide by legislation set out by the uk government and eu
125
factors influenced by the legal environment
environment
labour
competition
126
competition legislation
put in place to protect the interests of consumers and businesses
127
what does competition legislation aim to control
cartel activity- businesses working together to manipulate the market and limit competition
abuse of market power-such as imposing unfair conditions on small suppliers
anti competitive practices- such as anti competitive mergers and acquisition
128
eg of uk legislation governing competition
the Competition Act 1998
the enterprise act 2002
the enterprise and regulatory reform act 2013
129
labour market
labour laws aim to prevent exploitation of workers at an individual level and a collective level
they legislate for issues such as pay, working conditions and grievances
legislation also governs the powers of trade union and has diminished those powers over the past 30 years
consequentially trade union membership has fallen
130
individual labour laws
working tine directive regulations 1998
the national minimum wage act 1998
equality act 2010
131
collective labour laws
trade union act 1984
employment relations act 1999
132
environment legislation
aims to internalise any negative externalities associated with business activity
therefore businesses are made to pay for the full cost of production, such as the cost to clean up or repair damage caused by pollution
much of the uk environment legislation comes from eu directives
133
specific environmental legislation
the envirionmental protection act 1990
the environment act 1995
134
the political and legal impact on business decision making
political and legal change can impose costly change on businesses which might have to adapt their products and processes in order to meet legal standards
where a business fails to implement the necessary changes this could limit competitiveness, damage the businesses reputation or worse eg could lead to bad publicity and loss of trust in a business that has been fined for breaking the law
ultimately businesses prefer a stable political and legal environment so that they can carry out business activity
however political and legal change can create new opportunitites for some businesses
135
the economic environment
includes a range of economic variables such as GDP inflation unemployment and consumer confidence
governments use a range of policies to influence activity ad=nd economic change creates a number of opportunities and threats for businesses that will have an impact on strategic and functional decisions
136
gross domestic product
a measure of a countrys total output of goods and services over a period of time
GDP changes over time are represented by the business cycle
137
what is shown on the y axis of a business cycle
GDP growth
138
what are the 4 things that can be seen on a business cycle
boom
recession
slump
recovery
139
boom
high rates of economic growth and production
140
recession
output starts to fall
growth declines
141
slump
prolongued period of economic decline
142
recovery
economy starts to pick up after a period of decline
143
features of a boom
high profits
low unemployment
high inflation
shortages in supply
144
features of a recession
production declines as demand falls
governments use policies to stimulate growth
consumer/business confidence starts to fall
145
features of a slump
high levels of unemployment
high rates f business failure/closure
low interest rates
low levels of spending and investment
146
features of recovery
increases consumer confidence
businesses start to invest/take on new employees
spare capacity is used up
147
impact of a boom on functional and strategic decisions
firms make strategic decision to expand into new markets through market development
functional decision to expand workforce/increase recruitment
businesses seel opportunitities for efficiecies and cost reductions as a result of economies of scale
148
impact of a recession on functional and strategic decisions
expansion plans are 'shelved'
market penetration strategies become more attractive as they are low risk
businesses stockpile products
functions try to increase efficiency and cut costs such as flexible workig implemented
149
impact of a slump on strategic and functional decisions
businesses adopt a strategy of rationalisation
functional decisions may include redundancies scale down of production and reduction in capacity
businesses reduce prices and focus on their most profitable product lines
businesses may decide to cease trading or leave certain markets
150
impact of recovery on startegic and functional decisions
new business start ups emerge
business investment rises- product development strategy
businesses take on new employees and increase contracts to meet growth in demand
functional decisions focus on ways to increase productivity- training, growth in production, increased marketing activity
151
exchange rate
the price of one currency expressed in terms of another
they change due to fluctuations in demand for a currency, economic growth and interest rates
152
if the pound increases in value
if the pound increases in value against other currencies it is said to strengthen
the pound can buy more euros or fewer pounds are needed to buy one euro
153
if the pound decreases in value
if the pound decreases in value agains other currencies its said to weaken
the pound buys fewer euros or more pounds are needed to buy one euro
154
exchange rates and decision making
business will try avoid uncertainty when exchange rates are volatile- businesses may set an agreed rate for future transactions
a business may choose to target a specific international market (or economy) when the exchange rate is favourable
155
importers
may switch international suppliers when the exchange rate is less favourable
stockpile raw material and products when currency is strong
156
exporters
lower price to limit the impact of a strong currency
increase promotion in foreign markets when currency is weak
157
inflation
the general rise in prices over time
inflation is measured by the consumer price index
a low rate of inflation can be managed by businesses but a high rate of inflation will increase costs and reduce demand
158
deflation
a fall in pries as measured by CPI
deflation is relatively rare in the UK
short term falls can boost sales for businesses
prolongued deflation can have severe consequences for businesses as consumers postpone purchases whilst waiting for prices to fall further
159
high inflation
businesses may increase prices to pass costs on to consumers or may decide to absorb the cost rises
businesses will look to reduce internal costs to protect profits
price rises may fuel further unflation
160
low inflation
businesses feel confident in a stable economic environment
businesses may look to invest and grow
161
deflation
businesses may struggle to pay debts- assets may have to be sold tp pay off debts if deflation persists
low demand may lead to redundances and rationalisation
162
fiscal and monetary policy
a government will use fiscal and monetary policy to influence economic actvitiy to maintain growth and limit negative factors such as high levels of inflation, unemployment and the negative extenalities of growth
163
monetary policy
the policy to adjust the amount of money in circulation and therefore influence spending anc economic activity
164
what is the main form of monetary policy
interest rates- the cost of borrowing money and the reward for saving
165
what does monetary policy generally include
manpiluating interest rates
influencing the exchange rate
quantitative easing
forward guidance
166
impact of high interest rates on business activity
consumer and business spending falls
inflation falls
stronger £
167
impact of low interest rates on business activity
consumer and business spending rises
inflation may rise
weaker £
168
fiscal policy
involves government spending and taxation as a means of controlling economic activity
the difference between government income (mainly taxes) and expenditure in a fiscal year is known as the budget balance
169
expansionary fiscal
reduces direct and indirect tax to increase dispoasable income , increases borrowing (PSNCR)
increases spending in areas such as health and education- spending stimulates demand for businesses and creates jobs- budget deficit may rise
170
contractionary fiscal
reduces spendingin areas such as health and education- pressure on inflation slows- budget deficit may fall or reach a surplus
increases direct and indirect taxes to slow down growth and reduce the budget deficit
171
taxation
income tax
national insurance payments
VAT
corporation tax
customs
excise duties
172
government expenditure
infrastructure
human capital
goods
services
173
supply side policies
a range of measures intended to improve the efficiency and effectiveness of free markets
174
supply side policies include
manipulating the labour market- training, free movement of labour, tax cuts for low incomes
privatisation- transferring organisations (or part) to state ownership to encourage competitoon
reducing 'red tape' and regulations- making it easier for businesses to operate
175
protectionism
involves protecting domestic business and home industries against foreign competition and limitng the number of imports into a country
176
how can open trade benefit all countries
by creating oppprtunities for growth and economic prosperity
free trade encourages specialism leading to greater efficiencies and lower prices
it is also a key factor in reducing poverty in many countries
for this reason protectionism is sometimes criticised and may provoke a retaliation from trading partners
177
protection in practice
factprs affecting exports
soft loans- generous loan agreements offeref to exporting businesses to help them compete in foreign markets
subsidies- grants given to support exporting businesses so they can lower their prices in order to compete internationally
state procurement- favouring domestic businesses as suppliers over foreign competition
178
protectionism in practice
factors affecting imports
technical barriers- such as rules and regulations governing the standard of products entering the country
qutas- physical limit set on the number of units that can be imported into a country
tariffs- tax on imports increases price of imported goods, raises government income and makes domestic businesses more competitive
179
risks of protectionism
protectionism may force businesses to use more expensive domestic suppliers therefore making them less competitive
it may also encourage businesses to move abroad to avoid trading barriers
180
globalisation
the process by which the world is becoming increasingly interconected as a result of massively increased trade and cultural exchange
globalisation involves the movement towards worldwide markets
181
what does the process of globalisation allow businesses to do
enter new markets
access new skills
resources and the expertise
technology and experience of international business and industries
182
benefits of greater globalisation
support/encouragement by governments and businesses
lower costs of transportation and better infrastructure
improved communications technology
society becoming more culturally aware
reduction in trading barriers
growth in international trading blocs
183
multinational companies
globalisation has also been driven by large multinationals such as Toyota Mcdonalds and HSCBC
not only do they standardise their products and make them available all over the world, they also influence governments and make the process of globalisation more possible
gloablised corporations also encourage the movement of labour between countries
184
emerging markets
emerging markets are low income countries experiencing high rates of growth eg BRIC countries
emerging markets hold significant potential for UK and European businesses in terms of resources, labour and market growth
eg 80% of growth in the airline industry over the next 30 years is expected to come from BRIC nations
there are alos a number of risks involved when operating in emerging markets
185
opportunities of globalisation
new markets- opportunity for businesses to move into new markets or operate on a global scale
cheaper resources- access to raw materials
labour- cheaper labour and access to skills
economies of scale- growth of business leads to an advantage of size
186
threats of globalisation
competition- home markets can be targeted by foreign competitors
downward pressure on prices-cheaper materials and labour may force prices down and therefore potential profits
threat of takeovers- some businesses will face takeover pressure from foreign competitors looking to enter the market
economic risks- inflation and recession in other countries
political risks- developing countries have less stable political systems and government
187
social change
relates to the changing demands of society for different goods and services
it also includes the way society spends money (increased spending on luxury products) and accessess products and services (subscription box trend)
all businesses must keep up with the changing demands of society if they are to remain competitive
188
demograpic change
demography is the study of nthe human population (such as profiling postcodes by the demographic make up of its residents
there are a lot of demographic trends businesses are having to adapt to
these create new changes and opportunities for businesses
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key demographic changes
mirgation
urbanisation
age
growth
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migration as a key demographic factors
migration varies from countri to country but a siginificant and growung proportion of the UK and EU are migrants
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urbanisation as a key demographic factor
a growing trend in developed countries of people moving from rural areas to towns and cities
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growth as a key demographic factor
the population in many countries is growing at a considerable rate increasing the demand for products and services
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age as a key demographic factor
the general population is getting older as people live longer
increasing demand in the 'grey' market
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lifestyle changes
consumers lifetsyles affect their buying behaviour including what, when and how they buy products and servces
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key lifestyle changes in recent years
technology
single occupancy
time
on demand culture
luxuries
health and well being
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technology as a lifestyle change
consumers are increasingly using technology to access products and services such as growth in online shopping and consuming services via mobile devices
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single occupancy as a lifestyle change
more people living on their own than ever before
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time as a lifestyle change
in a busy world consumers time is precious
consumers want products and services that save time
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luxuries as a lifestyle change
people spend a greater proportion of their income on luxury items
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health and well being as a lifestyle change
consumers are more health conscious than ever before
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on demand culture as a lifestyle change
consumers are accessing products and services instantly or when it suits them including TV and online shopping
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technological change
developments in technology create opportunities for new products and services and advancements in the way businesses prduce products and deliver them to the consumer
technology can completely reshape a market (uber) and businesses can be left behind if they dont keep up with technological advances eg kodak
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online business
online business has grown considerably in the last 10-15 years as bandwidth speeds have increased along with the sophistication of e-commerce websites and the security of online payments
online business creates a number of opportunities and drawbacks for business
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effects of online business
cutting out retial
acess to a global market
fraud
growth of direct delivery
reducing business overheads
opportunities for small business start ups
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cutting out retail
online businesses offer lower prices for consumers but this can cause retailers ti close and add to the declinng state of the uks high streets
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access to a global market
the interest allows businesses to reach a global market
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fraud
a considerable amount of business fraud takes place through bogus ecommerce sites costing businesses and consumers millions of pounds each year
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growth of direct delivery
online businesses require fast and effective delivery servicesto get products to their customers
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reducing business overheads
online businesses have lower overheads if expensive premises are not important
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opportunities for small business start ups
little capital required to start up an online business
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key technological changes
number of advancements in technology are changing the way businesses operate and will create a number of opportuntiees in the future
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emerging technologies
3D printing
wearable technology
smartphone/mobile technology
renewable energies
virtual reality
the 'internet of me' (personalisation) of online experience
cloud computing
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opportunities of technological advancements
innovating products
access to new markets
improving internal efficiencies
streamlining operations
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risks of technological advancements for businesses
at times technological advancement can become a threshold resource tha businesses have to keep up with if they are to remain in a market and compete
new technologies also make some products and services obselete
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what can have an impact on strategic and functional decisions
social and technological change
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trategic decisions
constant social and technological change means business models cant stay static
the trategic direction of business will shift to meet these needs and businesses will have to develop different core competencies
as the needs of society change businesses will inevitably have to change their position in the market
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functional decisions
marketing
finance
operations
human resources
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marketing functional decisions
as society changes market research must keep up with these trends to ensure the business understands the needs of its customers
technology also gives a business new ways of communicating and interacting with its customers
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operations functional decisions
the growing trend for instant access to products and services mean business have to find ways to get their products to customers in a way faster, more efficient and simple way
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finance functional decisions
as technology grows exponentially businesses must think very carefully about where they want to invest their money
online retail also offers businesses the opportunity to reduce their investment in expensive capital such as retail premises
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human resource functional decisions
fleixble working conditions mean employees no longer need to operate from a single place of work
human resources face the challenge of managing this and the impact nomadic working can have on teamwork and motivation
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corporate social responsibility
the belief that a business should act responsibly and protect the interetsts of all its stakeholders
going beynd following rules and regulations, CSR dictates that a business should operate in a way that actually benefits society and the environment not just to behave as a 'god citizen' but for the long term sustainability and prosperity of the business
CSR shapes the ethics that guide most modern day businesses
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what does CSR involve businesses doing for customer stakeholers
fair prices
tranparency
honesty
reliable after sales service
safe products
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what does CSR involve businesses doing for employees stakeholders
fair pay
good working conditions
job security
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what does CSR involve businesses doing for suppliers stakeholders
fair prices
frequent and regular orders
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what does CSR involve business doing for local community stakeholders
employment opportunities
investment in infrastructure
minimal negative externalities
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shareholder concept
the belief that a business's prime function should be to satisfy its shareholders
this means maximising profitability
profits will support the long term success of the business and economic prospertiy
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stakeholder concept
where businesses cater for the needs of all stakeholders not just shareholders
in doing so businesses create long term prosperity and avoid unsustainable business practices
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enlightened shareholder value
many businesses now adopt the principles of enlightened shareholder value (ESV)
ESV involves focusing on shareholder value with a long term perspective not just short term profitability gains
as businesses adopt a long term perspective consideration of other stakeholders becomes more agreeable-such as the investment in training to improve the skills of the workforce
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levels of the corporate social responsibility pyramid
philanthropic responsibility
ethical responsibility
legal responsibility
economic responsibility
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philanthropic responsibility
be a good corporate citizen
contrbute resources to the community; improve quality of life
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ethical responsibility
be ethical
obligation to do what is right, just and fair
avoid harm
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legal responsibility
obey the law
law is societys codification of right and wrong
play by the rules of the game
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economic responsibility
be profitable
the foundation upon which all others rest
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carrolls CSR pyramid
this business model sets out 4 responsibilities that all businesses should meet in order to be socially responsible
the responsibilities are hierarchical with economic responsibility at the base
without first meeting this responsibility a business will fail and will therefore be unable to meet its other responsibilities
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the problem with CSR
there is sometimes a short term contradiction between the first step of the pyramid and the following three
the pressures for a business to be legally, ethically and philanthropically responsible can require significant financial investment therefore having an impact on short term profitability
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what impacts can appropriate CSR practices have on the competitiveness of a business
bad publicity can be shared easily through social media, damaging its reputation
ethically orietnated customers may choose a business based on its CSR recird
good CSR will help attract the best employees
supporting developing countries through effective CSR policies supports long term sustainability and growth in these markets
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the competitive environment
refers to the factors within a market that determine how businesses operate and compete in that market
a business must respond and make functional and strategic decisions based on these factors
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what presents a framework for analysing the competite environment
Michael Porters five forces model
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what are the five competitve forces according to the five forces model
competitive rivalry
barganing power of suppliers
barganing power of buyers
threat of substitutes
threat of new entrants
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what other odels can porters five forces model be used alongside
SWOT
PEST-C
to analyse the key issues facing a business and how that business might repsond to these competitive forces
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rivalry within the market
this is the level of competition and aggressive rivalry between businesses within the market
as markets grow and become more attractive new businesses may enter the market, increasing the competitive rivalry
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competition is fierce if
easy entry to market
easy for customers to switch
little differentiation of products
little growth or decline in the market
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options for businesses to consider if competition is fierce
lower costs of prodyction and prices to compete
develop a basis for differentiation
takeover, merger or strategic alliance
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bargaining power of suppliers
the power of suppliers have to negotiate terms and prices
the bargaining power of a supplier may change if the supply of a comodity such as wheat or copper fluctuates
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supplier power is high if
few suppliers
suppliers product is essential for production
the supplier is able to integrate vertically forward and sell direct to the business's customers
low availability of viable substitutes
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key problems with high supplier power
high production costs and unfavourable terms of supply
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options for businesses to consider if supplier power is high
build strong relationships with suppliers
agree long term contract of supply with favourable conditions
backward vertical integration
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buyer power
the power buyers have to negotiate terms and prices
this might change as consumers gain greater access to information and greater choice between rival businesses
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buyer power is high if
there is little difference between products offered by competitors
products are price sensitive
customers buy in large quantities on a regular basis
it is easy for buyers to switch between competitors
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key problem with high buyer power
prices forced low and credit terms demanded so there is pressure on cash flow
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options for businesses to consider if buyer power is high
develop a USP
build switching costs into agreements
lower prices to attract customers
forward vertical integration (if buyer is another business)
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threat of substitutes
a substitute is an alternative product that may deliver the same benefits to the customer
the threat of substitutes may change with social trends
eg health trends
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threat of substitutes is high if
alternative products exist
alternative prices fall
custoimers can easily switch to a substitute
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key problem with a high threat of substitutes
buyers have high bargaining power
competition exists outside of the market
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options for businesses to consider if threat of subtitutes is high
develop a USP
build switching costs into agreements
lower prices to attract/keep customers
promote benefits in comparison to substitute products
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barriers to entry
a physical technological and intellectual factor that makes it difficult for a rival business to enter the market
the existence of large companies can create barriers to entry as they dominate resources and networks
however disruptive technology and innovation can give small businesses leverage to enter a new market
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barriers to entry exist when
capital investment to enter the market is very high
customers are brand loyal to existing businesses
levels of specialist knowledge and expertise in the industry are very high
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key problem of barriers to entry
if few barriers to entry exist it is easy for new competitors to enter the market and increase competitve rivalry
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options for businesses to consider when there are barriers to entry
innovation- continous development of new products can keep the business ahead of any new competition
build strong relationshhips wih buyers making it difficult for new entrants
growth- economies of scale can keep prices low and make it difficult for small businesses to enter the market
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investment appraisal
a series of techniques designed to assist businesses in judging the desirability of investing in particular projects
investment appraisal may use a range of techniques including financial and non financial methods
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investment appraisal may be used to aid businesses in making decisions when investing in
non current assets
launching new products
new technology
expansion
infrastructure
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financial methods for investment appraisal
payback
average rate of return
net present value
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payback
calculates the length of time it takes for an investment to recoup its original cost
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average rate of return
calculates the annual average return over the life on an investment in order to compare the investment with other alternatives
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net present value
can be used alongside other techniques and considers the future value of an investment by discounting the decreased future value of the money
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what is payback
a quick and simple investment appraisal tool
focuses on the time taken to recoup the initial investment and consideers the cash inflows over a number of years
it is useful for firms who need a quick return and may be facing liquidity problems
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what formula is used if payback falls between two years
amount remaining to recover divided by amount recovered in following year
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what is ARR
useful because it measures the profit achieved on an investment over time which can be compared to other unvestments or the zero risk strategy of leaving money in a bank account
however profits may fluctuate considerably over the life of a project and this isnt taken into account
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ARR formula
average annual profit divided by assets initial cost
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how to caluclate ARR
1. total income from investment - cost of investment = total profit from investment
2. total profit from investment divided by expected lifespan of asset = average annual profit
3. average annual profit divided by cost of investment x100= ARR
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net present value
takes into account the future value of money by discounting cash flows
NPV considers time taken in an investment and follows the principle that the value of money depreciates over time
NPV is good for considering opportunity cost of an investment but identifying the appropriate discount factor can be difficult
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what financial criteria might a business consider when making investment decisions
the rate of interest- using current rate of interest as a benchmark to judge investments against
ROCE- is there an expected minimum % return on the investment
cost- can the firm finance the investment
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non financial factors a business may consider when making investment decisions
corporate objectives- does the investment support business stratgey
ethics- does this investment support CSR policy
industrial relations- what till be the impact on employees
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risk and uncertainty
risk id the chanve of an adverse outcome and the impact it might have
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what factors might determine the level of risk associates with a particular investment
timescale of the investment
knowledge/expertise of the business in the investment
if the investment is in a new market
stability of the external environment (legal, politial, social etc)
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how can a business reduce the impact of any negative outcomes from investment decisions
agreeing prices in advance, providing allowances for revenue and costs, ensuring the firm has sufficient financial assets and developing contingency plans
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sensitivity analysis
involves using variations in forecasting to allow for a range of outcomes
it allows a business to ask 'what if' questions and put in place plans to deal with these scenarios
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egs of sensitivity analysis
comparing NPV using a variety of discount factors
allowing for a 20% fluctuation in sales and costs
building in contingency for unforeseen expenses
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why is sensitivity analysis useful
for identifying the possible risks involved in an investment if only a few variables are considered
the value of it depends on the accuracy of the data on which it is based
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