business unit 3 part 2 Flashcards

Question

what is a type of vertical forward?

Answer 1

when a business take over another business further up to the chain of production

Answer 2

lateral is when a business takes over a firm in the same sector but in a similar industry.

Answer 3

an investment occurs when a business uses either internal or external sources of finance to purchase capital goods in order to help them meet their objectives. appraisals are a tool used to weigh up the strengths and weaknesses of a project.

Answer 4

if the source of finance of use is external they do requires a quicker payback period, than internal sources of finance. As time goes on there is less chance of payback as there is more risk of external politics. The shorter the produce life cycle the quicker the pay back period should be.

Answer 5

plan and machinery transport buildings human resource training marketing strategies ict systems

Answer 6

They often meet their objectives this could include sales growth increase profitability expansion to new markets relocation or training its existing workforce. whatever the reason a business will at some time have to spend money in an attempt to take the business forward. A business may also need to invest just to keep up with its competitors, they may have no choice but to invest otherwise they may well fall behind and start loosing customers. Large amounts of money are often invested in the hope that this will give a profitable return on the investment however there is a risk with investment as there is no certainty that the investment will result in increased profits and could even result in a reduction of future revenue.

Answer 7

investment appraisal is a technique used to evaluate planned investment by a business and measure its potential value to the business.

Answer 8

* Considers a wide range of benefits and costs. * Impacts on society and the community are included. * Puts a value to external benefits and costs that would normally be ignored by private sector businesses. * Can be used to rank possible major projects in order of public cost. * It shows that a firm cares about the local community and the environment, which can be good for public relations

Answer 9

* The valuation of intangibles will be difficult – how do you put a value on the effect of pollution or the improved traffic flow of a new road? * Valuations will often include value judgements – one person’s or manager’s calculation of an intangible benefit is likely to differ from another person’s calculation, who has a different set of views on what is important for a business. * If the social costs and benefits are incorrectly calculated, then the wrong choice could be made. * Will all stakeholders be included in the calculation of social costs and benefits?

Answer 10

definition - : Cost benefit analysis (CBA) is a method for measuring, in financial terms, the costs and benefits of an investment project. It includes a consideration of the external costs and benefits to society as well as the costs and benefits to just the business Cost benefit analysis is often used by governments when they are considering a public project, such as the building of a new motorway, rail bridge or hospital. Many different options can be ranked in order When carrying out a cost benefit analysis there are a wide range and variety of costs and benefits to be identified and given a value. These can be divided into two groups: * Private Costs and Benefits * Public Costs and Benefits.

Answer 11

These are costs external to the business making the investment. * A building company will have an environmental impact as it builds houses – increased traffic, noise etc. * A farm extracting water from a river to irrigate its crops leaves less water further downstream for fishing. * A new factory may involve the loss of open space, increased traffic congestion and so on.

Answer 12

* These are benefits external to the business that result from making the investment. * An obvious external benefit from a large-scale investment would be jobs created by the business. * Other public benefits include further jobs created outside the business as a result of increased business activity and an increase in tax paid by employees to the government. * In areas where unemployment is high, crime and social problems might be reduced.

Answer 13

Social Benefit (private benefit + public benefits) – Social Cost (private costs + public costs) * If the social benefits are greater than social costs, then go ahead with proposal. * If the social costs are greater than social benefits, then do not go ahead with proposal.

Answer 14

These are costs that the business making the investment must accept. * They include training and recruitment costs, the p

Answer 15

* These are benefits that the business gains from as a result of making the investment. * These benefits will include things such as increased productivity, increased sales, brand values and increased profits

Answer 16

payback average rate of return ( arr) discounted cash flow ( dcf)

Answer 17

Before an investment is agree an investor ( external or internal) will require assurances that they will actually get their investment back and within a favourable timescale. We call this the ' payback period'. A business has to calculate the length of time that an investment project will take to ' pay back' it initial investment before they agree to whether or not is should take place.

Answer 18

For example if a project costs £20000 and the net cash flows generated by the project are £10000 each year the project costs will be covered after two years. so the payback period is 2 years. Where there are a number of different investment options for a business the payback period method will select the one that returns the initial costs of the investment in the shortest time frame. In other words this is the amount of time taken for the net cash flow resulting from an investment to match or equal the initial costs of the investment.

Answer 19

simple to use easy to calculate -effective to use when technology is changing at a fast rate such as hit teach projects in order to recover the costs of investment as quickly as possible. -help with managing cash flow

Answer 20

-ignores flows of cash over the lifetime of the project -ignores the total profitability the focus is just on the speed to which the initial outlay in repaid.

Answer 21

income needed in period / contribution per month

Answer 22

investment Appraisal is a technique used to evaluate planned investment by a business and measure its potential value to the business. There are several different IA methods used to compare projects that may be competing for a business’ investment capital. * Payback period * Average rate of return (ARR) * Discounted Cash Flow (DCF)

Answer 23

* Does the investment match the strategy and objectives of the business? * Impact on staff. Can staff handle the changes brought about by the investment? Can staff be trained to use new technology? Will there be redundancies as a result of the investment? * Impact on existing products. Will managers concentrate on new products/

Answer 24

* The state of the economy. Is the economy booming? Or is there a recession, which is likely to reduce demand, on the way? * Action of competitors. Are they investing in/improving their products? * Does the investment have any ethical considerations? Would the investment damage the environment?

Answer 25

* Is there sufficient funding available to invest in the project? Would the investment put the business at risk by reducing cash flow or increasing borrowing? * Availability of new technology. New technology is one of the main factors that encourage further investment. * Confidence of managers. Optimistic managers are more likely to invest

Answer 26

This is an investment appraisal technique which calculates the average annual profit of an investment project, expressed as a percentage of the sum of money invested. The option/project that has the highest average rate of return is chosen

Answer 27

arr = average annual return/ initial outlay x 100

Answer 28

* Uses all the cash flows over life of the project. * Focuses on profitability. * Easy to make comparisons (compare % returns on different investments). * Allows comparison with costs of borrowing for investment.

Answer 29

* Ignores timings of the cash flows. * Does not allow for effects of inflation on values of future cash flows.

Answer 30

First is formulation the formulation of strategy is basically the same thing as constructing a business plan. Implementation is putting the plan into practise. The second is implementation. A plan should not be rigid it should be sufficiently flexible to allow for changing circumstances. It should include a feedback loop to regularly check if the plan if working and adapting as and when necessary.

Answer 31

Strategic decisions concern the general direction and overall policy of a business. Tactical decisions tend to be medium term decisions that are less far reaching than strategic decisions. Operational decisions are admirative decisions that will be short term and carry little risk.

Answer 32

Corporate level strategy is concerned with the strategic decisions a business makes that affect the entire business. At a corporate level strategy is concerned with setting objectives for overall financial performance, proposed mergers or acquisitions, long term human resource planning and the allocation of resource to different business decisions.

Answer 33

This is a course of action that ultimately leads to the achievement of the stated goals of the corporate strategy. Once the corporate strategy is established then the strategic planning that follows is used to establish the strategic direction i.e set out in broad terms how the objectives will be achieved.

Answer 34

The strategic plan created will normally contain a clear mission statement but beyond this describes the business objectives which divisions or functions need to be focused on to achieve these objectives and make clear methods of measuring achievement of objectives.

Answer 35

The next level of business strategy is concerned with directing the divisions within the organisation. The overall corporate strategy will be communicated to the divisional managers. This information shapes the plans the divisional mangers create. For example if the corporate strategy focuses on rapid growth in demand for the company product or services the strategies the divisional managers generate would be tailored to meet this demand. In this scenarios the sales division strategy may include growth in sales teams the production strategy including increased need inputs and production capacity.

Answer 36

This relates to a single functional operation such as production marketing or hrm and the activates involved within each of these functions. The decisions made at this level of strategy are guided and limited b the higher level corporate and divisional strategies and will support these strategies.

Answer 37

The first is formulation. The formulation of strategy is basically the same thing as constructing a business plan. Implementation is putting the plan into practise. The second is implementation. A plan should not be rigid, it should be sufficiently flexible to allow for changing circumstances. it should include a feedback loop to regularly check if the plan is working and adapting it as and when necessary.

Answer 38

A corporate plan will be based on management assessments of both internal and external factors that will affect the business.

Answer 39

A corporate plan will be based on management assessments of both internal and external factors that will affect the business.

Answer 40

Some of the internal influences that would include helping to plan and prepare the resources needed have the workforce requirement along with the operational capacity. The plan will also take into account the mission and vision of the business that have been decided upon.

Answer 41

Some of the external factors that will affect what goes into a corporate plan would include the current market conditions and opportunities available to the business, the economic situation the political and legal environment the social environment and the technologies available to the business.

Answer 42

A corporate plan would make clear measurable objectivities and formulate strategies for achieving these objectives. It will also include a methods for monitoring the achievement of objectivities' and tactical decisions made to achieve these objectives.

Answer 43

strategic thinking and planning shared with employees potential investors other stakeholders joined up thinking and planning common sense of direction

Answer 44

-slow or limited responsiveness to change must be flexible cannot predict future can limit spontaneity cannot avoid the unexpected

Answer 45

attracting customers who have not yet become regular users but are occasional users by increasing bran loyalty. This can be a successful strategy where there is fast market growth and new customers are just testing the water.

Answer 46

attacking customers sales. this would often happen in a mature markets where increased sales for a business will have to be captured from competitors. The strategy in this case would be an adjustment of the marketing mix altering one or more of the elements such as price or promotion techniques. Tesco has been successful in this type of strategy over the last ten years taking customers from all its supermarket rivals. Internet service providers are continually trying to win customers from competitors through pricing strategies and promotional activities.

Answer 47

Increasing consumption among existing users perhaps by reducing the price or offering promotions. This can work very well for services, consumption goods and consumer durables. In consumer durable markets the introduction of new and rapidly changing technologies can encourage further purchases. This is now clearly seen in the mobile phone market where a model only remains on the market for as little as six months.

Answer 48

qualitive factors production factors- will new machinery be compatible with the existing machinery? will new supplier be reliable? ( spaces after sales service etc personnel factors will new machinery or network suit the staff? ( training/ safety/ redundancies/ moral/ motivation

Answer 49

Image - gaining prestigious Olympic order, good pr better quality product aims of the organisation - if pitch ltd places a high value on social issues it might reject a profitable investment if it considered to exploit the workplace or damage the environment.

Answer 50

-Firms which are unprofitable eventually go out of business. -reliability of qualitative data based on market research and predictions. Figures predicted 5 years ahead may be inaccurate, undermining investment appraisal.

Answer 51

recessions/ booms The economy can impact upon qualitative predictions. A rise in interest rate will require a project to be more profitable in the future.

Answer 52

An intuition is an experienced manager is often able to predict sales based on intuition or a hunch. The use of intuition is cheap and fast. But gut feeling and experience should not be the only guide.

Answer 53

A sales forecast acts as a goal against which a firm can measure its progress. It also drives many other decisions within the firm. For example: planning production levels and scheduling; planning cash flows; planning human resources (through workforce planning).

Answer 54

speed decision making can be instant rather than waiting for the result of scientific data analysis based on personal experience data isn't always reliable and a manager may feel more comfortable with the gut feeling if it seems to contradict the results suggested by data

Answer 55

Intuition and hunch is pretty unsuitable for certain business decisions particularly those that involve a higher degree of risk for a business e.g a new product, takeover, or other major investment.

Answer 56

Often intuition and hunch are combined with scientific approaches to reach a sensible decision. A good example is investment appraisal. The scientific element involves identifying and quantifying the investment costs and returns. The intuition is based on determining the appropriate discount factors to apply and managerial judgement to interpret the results.

Answer 57

a merger involves a new firm being created A takeover involves one firm being acquired by another

Answer 58

2010: British Airways and Iberia merge to form IAG 2000: Glaxo Wellcome plc and SmithKline Beecham plc merge to form GSK plc

Answer 59

Where is the business trying to get to in the long-term (strategic direction) Which markets should a business compete in and what kind of activities are involved in such markets? How the business perform better than its competition in those markets?

Answer 60

What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? What external, environmental factors affect the businesses' ability to compete? What are the values and expectations of the stakeholders who have interest in and power over the business

Answer 61

Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. The output from the Ansoff product/market matrix is a series of suggested growth strategies which set the direction for the business strategy

Answer 62

It is a growth strategy where a business aims to sell existing products into existing markets.

Answer 63

Aim to increase market share By selling more existing products to the same target customers Get existing customers to buy more widen the range of exsisting porducts.

Answer 64

-Business focuses on markets and products it knows well -can exploit insights on what customers want ( and competitors -unlikely to need significant new markets research -But will the strategy allow the business to achieve its growth objectivises? .

Answer 65

It is a growth strategy where a business aims to introduce new products into existing markets

Answer 66

- A strategy that often plays to the strengths of an established business -Strong emphasis on effective market research ( insights into customer needs and successful innovation - A great way of exploiting the existing customer base -being first to market is usually important

Answer 67

It is a growth strategy where the business seeks to sell its existing products into new markets

Answer 68

-New geographical markets e.g exporting to emerging markets -New distribution channels e.g using e commerce and mail order -different pricing policies to attract new customers in different segments.

Answer 69

-Starbucks expansion into china is a classical example of a successful market development strategy -Tesco market development strategy to enter the us grocery supermarket sector was a disaster for shareholders

Answer 70

- A logical strategy where existing markets are saturated or in decline -often more risky than product development - particular expansion into international markets -Existing products could not suit new markets depends on customer needs

Answer 71

It is a growth strategy where a business market new products in new markets

Answer 72

Great example of a fixed takeover and diversification bought by itv for £175 m sold fold £25m and hen closed Retailer HMV diversified into the live entertainments market with the £40m purchase of several live music venues. Exited the market soon after

Answer 73

Inherently risky strategy -no direct experience of the product or market -few economies of scale ( initially ) -However if successful overall risk of the business is spread

Answer 74

-innovation to research and development develop new solutions -acquire an existing business in the market -extend an existing brand into a new market

Answer 75

The Ansoff Growth matrix is another marketing planning tool that helps a business determine its product and market growth strategy. Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets.

Answer 76

The output from the Ansoff product/market matrix is a series of suggested growth strategies which set the direction for the business strategy

Answer 77

A market penetration marketing strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.

Answer 78

Market penetration does seek to achieve four main objectivise one of them is to maintain or increase market shares of current products this can be achieved by a combination of competitive pricing more resources pricing strategies advertising sales promotion and perhaps more resources dedicated to personal selling

Answer 79

-Retailed and development and innovation -Detailed insights into customer needs ( and how they change) -Being first to market

Answer 80

This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.