Chapter 7- Strategy and implementation Flashcards
1
Q
Why is planning an important tool?
A
For the future success of a business
2
Q
What tools are used when planning?
A
- various tools are used such as Decision trees, critical path analysis, and investment appraisal in any discussion about strategic planning
3
Q
What must future objectives fit in with?
A
- The future plans of the business
- Risks will be taken but it is through future planning that risks are minimised
- Businesses that do not plan ahead are likely to be overtaken by rivals
4
Q
definition of objective
A
- Set by a business in an attempt to reach a particular goal e.g. survival, break even, profitability
5
Q
Definition of strategy
A
- An action plan that the business puts in place to help achieve the objectives e.g. To use marketing to increase awareness/sales
6
Q
Definition of tactic
A
- A method used to achieve a strategy e.g. target audience with emails
7
Q
What is the relationship between objectives, strategy and tactics?
A
- The tactics make it possible to achieve a particular strategy and if the strategy/strategies are successful a business will achieve the objective that it has set
8
Q
Developing a strategy
A
- To formulate a strategy information needs to collected on all aspects of the business
- Both internal and external
- This called an audit
- Should be executed on a regular basis
9
Q
What does an internal audit look at?
A
- The strengths and weaknesses of the business
10
Q
What does an external audit look at?
A
- The opportunities and threats in the trading environment
11
Q
Internal audit
A
People
- Labour turnover
- Motivation
- Absenteeism
- Productivity
Marketing
- Sales
- Advertising
- Sales staff performance
Financial
- Budgets and variances
- Profitability
- Cash flow
- Investment appraisals
Operations management
- Productivity
- Delivery
- Stock control
12
Q
Internal audit (explanation)
A
- Allows a business to assess it strengths and weaknesses in relation to its competitors across the whole of the business
- Many businesses employ external organisations to complete these surveys although it is impossible for management to do them for their own departments
- Aim is to get accurate information on each of a businesses department
- Best to use statistical or numerical data for this
13
Q
External audit (explanation)
A
- Looks at the opportunities and threats it faces in the external environment
- All environments are constantly changing and a business needs to be aware of these
- they need to know how these changes will affect them
14
Q
External audit
A
- Technological change
- Competition
- EU
- Law
- Economic issues
- Political influences
- Customer bias
- Social issues
- Environmental issues
- Culture
- Pressure groups
- Ethics
15
Q
What does PEST analysis stand for?
A
- Political
- Economic
- Social
- Technological
- Competition
- Culture
- Ethics
- Pressure groups
- Environment
16
Q
Political
A
- Actions of the government can have a major impact on the way in which a business operates
- Legislation on employment, health and safety, competition, and taxation are all examples of government policies that have an impact on employers and businesses
17
Q
Economic
A
- Economy and government economic policy are key areas of concern for all businesses because of the impact which they have on consumer demand
- Inflation, interest rates, value of the currency, unemployment and the economic cycle will play their part in influencing the success of the business and in determining its actions
18
Q
Social
A
- Characteristics of the population are important factors for business demand
- Changes in the distribution or spending habits of consumers are constantly changing making it vital that businesses are aware of these changes and act accordingly
19
Q
Technological
A
- Changes in technology offer businesses new opportunities but also create new risks
- A successful business must be ready to implement new procedures and train staff in their use
- They also need to recognise situations where existing processes and machinery have become obsolete
- Successful and innovative businesses will already be preparing for the next product in such a cycle
20
Q
Competition
A
- The extent of the competition and the threat which it poses will have a considerable impact on the success of the business
- May be necessary to change the price or product range in response to competition
21
Q
Culture
A
- Businesses need to take into account of the characteristics of the local population and their shopping habits
22
Q
Ethics
A
- businesses must be aware of the demand for ethical trading and its effect on customer demand
23
Q
Pressure groups
A
- They can exert pressure on businesses
24
Q
Environment
A
- They are becoming increasingly important (environmental factors)
25
Using the information
- Once the audits are complete, the business needs to put the information into a summarised format
- Best to place the information into is a SWOT analysis
- This shows the strengths, weaknesses, opportunities and threats for the business
- Its important to not use a SWOT analysis in isolation
- A SWOT analysis only gives part of the picture and should be viewed alongside information which a business might gather e.g. market research, ratio analysis and other financial data
26
Stakeholder objectives and strategic management
- A stakeholder is a person or party that has an interest in the success of a buisiness
- Stakeholders want to see a business succeed because they will benefit from its success
- Stakeholder objectives can be used to create framework to see how the busin ess is operating
- Can also be used to analyse the setting of a businesses objectives and the tragedy it develops to reach them
- Staekholders can affect the business and the business can affect the stakeholders
- How do stakeholders view change or success
- How do the objectives of the different stakeholders affect the strategic decisions of the business
27
Definition of stakeholder
- A person or party with an interest in the success of the business
28
Stakeholder objectives
- Stakeholders benefit, but they may not do so equally
- Stakeholder objectives have to be addressed because:
Employees- who feel valued will be more productive, less resistant to change and less likely to leave
- there are different types of employee
- At different levels will have different objectives e.g. ( directors and managers)
Customers- Who do not feel exploited and like the standard of the product and service will generate repeat custom (don’t want to feel exploited)
Suppliers- who are treated as true stakeholders rather than ‘suppliers’ are more likely to be loyal and committed because they have a stake in the business.
- Has important implications for the short term (needing a quick delivery) and also for the successful implementation of strategy (need to be seen as a true stakeholder)
- Owners- Will want a return that they feel is satisfactory
- If the business is a company shareholders will expect (at least) the sort of dividend that investors in a similar business have received
- they will also be expecting a rise in the share price over time
- If these are not forecoming, they will sell their shares
- this will drive the share price down and could leave the business open to a takeover
Local community- if not treated correctly can generate negative publicity
29
Stakeholder conflicts
- Business must take into account stakeholder objectives when making strategic decisions
- Conflict between stakeholder will always exist
- Trade-offs will have to be made between the different groups
- E.g. profits needs to be increased through cost cutting, shareholders may be happy but employees not due to being laid off
30
Stakeholder influence
- In any given business some stakeholders will have a greater influence than others
Employees
- How many are there? Is there a union? Is there a high level of turnover
Shareholders
- if dividends is low, they can vote directors off the board, where as employees cannot
Suppliers
- is the supplier in a monopoly position or not?
Local community
- How will bad publicity affect the business?
Creditors
- How likely are they to allow missed payments?
31
Key stakeholders
- One (s) with a large amount of influence on the business
- A key stakeholders views will play an important part in strategic decision making
32
The legal situation
- Whereas previously shareholders took precedence this has changed in the companies act 2006
- It states that directors must act in good faith (honestly) to promote the success of the company
- Director must now ‘have regard’ for a number of factors that include:
- Likely consequences of any decisions in the long term
- Interests of the employees, relationships with customers and suppliers
- Impact of operations on the environment/community
33
Companies Act 2006
- This has put into law for the first time a statutory statement of director’s duties and responsibilities
- This includes having regard for employees, suppliers, and the environment
34
Porters five forces model
- It’s a system for analysing the level of competition in an industry
- It looks at the forces that determine the level of competitive intensity and the attractiveness of the industry in terms of profitability
35
What is porters five forces?
1. Threat of new entrants to the market
2. Bargaining power of suppliers
3. Bargaining power of consumers
4. Threat of substitute products entering the market including changes in technology
5. Degree of existing competitive rivalry
36
Threat of new entrants
- New entrants will take a share of the market and increase the competitive intensity
- the greater the barriers to entry, as in a monopoly, the smaller the threat will be
37
Bargaining power of suppliers
- Suppliers who can increase their prices will mean a cut in profits
- Lack of bargaining power of suppliers to supermarkets in the uk increases profitability of the supermarkets and lowers the competitive intensity
38
Bargaining power of customers
- Strong bargaining power of customers will drive done prices and reduce likely profitability
39
Threat of substitutes
- Substitute products entering the market can effect sales e.g. mobile phones
40
Degree of competitive intensity
- High competition means innovations, price wars and more spending on promotion which all reduce profit
41
Using the model
- When a business is looking to enter a new sector the model is good to use to see things clearly
- It can include people doing the job themselves instead of using professionals
- The problem with the model is that it is difficult to obtain all the required information about threats that exist
42
Models of strategic choice
Porters generic strategies show how a company can achieve competitive advantage
He considered 3 strategies, together with a fourth ‘stuck in the middle’ which is unlikely to result in any competitive advantage
1. Cost leadership
2. Differentiation
3. Focus or niche
43
Cost leadership
- Aim to be the lowest cost producer in the market, need economies of scale particularly by reducing production costs and passing those savings on to the consumer
44
Differentiation
- Producing goods that are seen to be different to that of its competitors
- It will allow a firm to charge a premium for the product
45
Focus or niche strategy
Aim to produce for a particular segment of the market who will pay the price
46
‘Stuck in the middle’
- In trying to adopt all three strategies will not achieve success
47
Management by objectives
- its a system by which managers and employees define and agree a series of objectives for the business
- Peter Drucker defined the term MBO
- It involves measuring employee performance against a standard set
48
Advanatges of MBO
- Improves the motivation of employees
- Everyone is working towards the same target
- If employees are involved then more likely to accept them and achieve them
- Management and employees are communicating about targets
49
Disadvantages of MBO
- A holistic view of the organisation needs to be taken
- Meeting the targets at any cost can mean poor quality
- The goals become more important than having a cohesive and achievable plan
50
If a firm wants to achieve a competitive advantages what should they do?
- They should look at each of these strategies to see if they can be applied to the businesss particular situation
