Core Activity B: Evaluate the business ecosystem and business environment

Question 1

What is Porter’s generic strategy?

Answer 1

Suggests that competitive advantage arises from the selection of a generic strategy which best fits the organisation’s environment and then organising value-added activities to support the chosen strategy.

Question 2

What is cost leadership?

Answer 2

being the lowest cost-producer. Approach is based upon a business organising itself to be the lowest-cost producer

Question 3

What is differentiation?

Answer 3

creating a customer perception that the product is superior to that of competitors so that a premium can be changed

Question 4

What is focus?

Answer 4

utilising either of the above in narrow profile of market segments, sometimes called niching.

Question 5

What is included in Ansoff growth strategies?

Answer 5

Market penetration
Product development
Diversification
Market development

Question 6

What is market penetration?

Answer 6

existing product and existing market. Main aim is to increase market share using existing products within existing markets. First attempt to stimulate usage by existing customers then attempt to attract non-users and competitor customers.

Question 7

What is product development?

Answer 7

new product in existing market. Focuses on the development of new products for existing markets. Offers the advantage of dealing with known customers/consumer bases.

Question 8

What is diversification?

Answer 8

New product in a new market. Appropriate when existing markets are saturated or when products are reaching the end of their life cycle.

Question 9

What is market development?

Answer 9

existing product in a new market. Aim is to increase sale by taking the present product to new markets.

Question 10

What are the drivers of environmental change?

Answer 10

• Technology
• Unpredictable demand
• Globalisation
• Emerging economies
• Geopolitics
• Changing demographics
• Customer empowerment
• Automation
• Sustainability

Question 11

What is the PESTEL framework?

Answer 11

• Analyses the general macro-environment, identifying key drivers of change and hence sources of risk.
• Particularly good at identifying whether a market is growing/declining and why.
• Political, Economic, Social, Technological, Environmental, Legal

Question 12

What is Porter’s 5 forces?

Answer 12

• Examines an organisation’s industry
• Five forces determine profit potential, both for the industry as a whole and for individual firms/SBUs
• Threat of new entrants – depend upon the extent to which there are barriers to entry
• Bargaining power of buyers – high when there is a concentration of buyers
• Bargaining power of suppliers
• Threat of substitutes
• Competitive rivalry

Question 13

What is the four things included in boston consulting group?

Answer 13

Cash cows
Stars
Question marks
Dogs

Question 14

What is cash cow?

Answer 14

these products have a high market share in a low-growth market. Usually reached the maturity stage of their life cycle. Hold or harvest

Question 15

What is a star?

Answer 15

High market share in an attractive, high growth market. Most likely in the growth stage of their life cycle. Hold or build.

Question 16

What is a question mark?

Answer 16

low market share in an attractive, rapidly growing market. May be at the growth or introduction stage of their life cycle. Build or divest.

Question 17

What is a dog?

Answer 17

Low market share of a slow growing market. Product that has entered the decline stage of their life cycle. Harvest or divest.

Question 18

What are the stages of the product life cycle?

Answer 18

Introduction
Growth
Maturity
Decline

Question 19

What is the introduction?

Answer 19

product new to the market. Price elasticity of demand will influence the pricing strategy.

Question 20

What is growth?

Answer 20

Market grows rapidly. Sales for the market as a whole increase, new segments may be developed, demand becomes more sophisticated, competition level increase. Market becomes profitable and cash flows increase to recover the initial investment in development and launch costs.

Question 21

What is maturity?

Answer 21

Market growth slows or even halts. High levels of competition, price becomes more sensitive, demand reaches saturation.

Question 22

What is decline?

Answer 22

Number of customers fall. Competition reduces as players leave, price falls to attract business, slow harvesting must be balanced with straight divestment.

Question 23

What is brand competitor?

Answer 23

sell similar products to the same customers we serve e.g. coke and pepsi

Question 24

What is industry competitor?

Answer 24

sell similar products but in different segments e.g. BA and Easyjet

Question 25

What is form competitor?

Answer 25

sell products that satisfy the same need as ours though technically very different e.g. speedboat and sports car

Question 26

What is generic competitors?

Answer 26

compete for the same income e.g. home improvements and golf clubs

Question 27

What is porters diamond?

Answer 27

Suggests why some nations are more competitive than others and why some industries within nations are more competitive than others and why some industries within nations are more competitive than others

Question 28

What are the four things included in Porters diamond?

Answer 28

Demand conditions Related & supporting industry Factor conditions Strategy, structure and rivalry

Question 29

What is demand conditions?

Answer 29

Sophisticated home demand can lead to the company developing significant advantages in the global marketplace. Demanding consumers set high standards for products.

Question 30

What is related & supporting industry?

Answer 30

advantage conveyed by the availability of superior supplier industries

Question 31

What is factor conditions?

Answer 31

Supply of production factors that convey advantage. Provide initial advantage which is then subsequently built upon to develop more advanced factors. Include human, physical, knowledge, capital and infrastructure.

Question 32

What is straregy, structure and rivalry?

Answer 32

Different nations have different approaches to business in terms of structure and the intensity of rivalry that can take place.

Question 33

What is a resource audit?

Answer 33

Audit identifies that resources that are available to an organisation and seeks to start the process of identifying competencies.

Question 34

The M's model suggest that the items in a position audit can be categorised into factors

Answer 34

Manpower Money Management Machinery Markets Materials Methods Management Information Make-up

Question 35

What is resources?

Answer 35

can be grouped under four headings: Physical or operational resources, human resources, financial resources, intangibles.

Question 36

What is core competencies?

Answer 36

Things that you are able to do that are difficult for your competitors to emulate. Form basis of competitor advantage.

Question 37

What is threshold competencies?

Answer 37

Things that you do well that simply enable you to compete in the market. Do not give competitor advantage.

Question 38

What are the support activities with Porter's value chain?

Answer 38

Firm infrastructure, HR Management, Tech department, procurement

Question 39

What are the primary activities in porters value chain?

Answer 39

Inbound logistics Operations Outbound logistics Marketing & sales Service

Question 40

What are some methods of dealing with conflict?

Answer 40

Exercise of power Satisficing Sequential attention Side payment

Question 41

What is exercise of power?

Answer 41

when a deadlock is resolved by a senior figure forcing through a decision simply based on the power they possess.

Question 42

What is satisficing?

Answer 42

involves negotiations between key stakeholders to arrive at an acceptable compromise.

Question 43

What is sequential attention?

Answer 43

management focus on stakeholder needs in turn

Question 44

What is side payments?

Answer 44

where a stakeholder’s primary objectives cannot be met so they are compensated in some other way.

Question 45

What are some sources of power?

Answer 45

Positional Power Resource Power System Power Expert Power Personal Power

Question 46

What are the four perspectives on a balanced scorecard?

Answer 46

Financial Perspective Internal Business Process Learning and Growth Customer Perspective

Question 47

What is the performance pyramid?

Answer 47

Model to understand and define the links between objectives and performance measures at different levels in the organisation. Performance pyramid is designed to ensure that the activities of every department, system and business unit support the overall vision of the organisation.

Question 48

What are the three levels of the performance pyramid?

Answer 48

Top - vision through which the organisation describes how it will achieve long-term success and competitive advantage Second level - business unit, includes the CSF in terms of market-related measures that need to be achieved to meet the overall vision Lowest level - department and work centres, contain the day-to-day operational measures that can be used to monitor the status of the level three measures.

Question 49

What is the building block model?

Answer 49

* Dimensions – goals for the business and suitable measures must be developed to measure each performance dimension. Profit, competitiveness, Quality, Resource utilisation, Flexibility, Innovation. * Standards – These are the measures used. Vital that employees view standards as achievable and fair and take ownership of them. Ownership, achievability, Equity.

Question 50

What are the three types of benchmarking?

Answer 50

Internal - another branch or department is used Process - Focus upon a similar process in another company which is not a direct competitor Competitor - Uses a direct competitor with the same or similar process

Question 51

What is EVA?

Answer 51

* Estimate of true economic profit after making corrective adjustments to GAAP accounting * Refers to profit less a charge for capital employed in the period * Adjustments made to avoid the immediate write-off of value-building expenditure such as R&D expenditure

Question 52

What is SVA?

Answer 52

* Shareholder Value Analysis * Variation along the same theme as EVA * Main aim of the organisation is to add value to shareholder wealth * Shareholder value is the total return to the shareholders in terms of both dividends and share price growth, calculated as the present value of the future free cash flows of the business discounted at the weighted average cost of capital of the business less the market value of its debt

Question 53

What are the seven value drivers to maximise future cash flow? (SLOWCAT)

Answer 53

Sales growth rate Life of the project Operating margin Working capital Cost of capital Asset investment Taxation

Question 54

What is TBL?

Answer 54

Triple Bottom Line Expands traditional accountancy reporting systems looking at social and environmental performance. Three areas: Profit, People, Planet

Question 55

What are the advantages and disadvantages of TBL?

Answer 55

Advantages: attracting ethically aware customers, attracting better quality staff, cost reductions, reduced change of government legislation. Disadvantages: Difficult to quantify, management conflict

Question 56

What is integrated reporting?

Answer 56

Seen as a key strategic communication tool and helps management adopt suitable incentives for good performance Management accountant expected to produce information that is a balance between quantitative and qualitative, links pasts present and future performance, considers regulatory impacts on performance, provides and analysis of opportunities and risks, considers how resources should be allocated

Question 57

What are the eight content elements of integrated reporting?

Answer 57

1. Organisational overview and external environment 2. Risks and opportunities 3. Strategy and resource allocation 4. Business model 5. Future outlook 6. Performance 7. Governance 8. Basis of preparation and presentation

Question 58

What are the 6 capitals?

Answer 58

1. Financial 2. Manufactured 3. Intellectual 4. Human 5. Social and relationship 6. Natural

Question 59

What is political risk?

Answer 59

Risk faced by a company that has invested in overseas operation that its host government will take some adverse action

Question 60

What is currency risk?

Answer 60

Risk that arises from possible future movements in exchange rate. Transaction risk, Translation risk, Economic risk

Question 61

What is translation risk?

Answer 61

Arises when a company has assets or liabilities denominated in foreign currencies. Risk is that exchange rate volatility will cause the book value of assets to fall or liabilities to change, potentially resulting in currency gains and losses in the company’s financial statements.

Question 62

What is transaction risk?

Answer 62

Risk related to buying or selling on credit in foreign currencies. Danger that between time of transaction and date of cash flow exchange rates will move adversely.

Question 63

What is economic risk?

Answer 63

Change in economy, home or abroad, which can affect the value of transaction before a commitment is made.

Question 64

What is interest rate risk?

Answer 64

Risk of gains or losses on assets and liabilities due to changes in interest rates. It will occur for any organisation that has assets or liabilities on which interest is payable or receivable.

Question 65

What is internal methods of transaction risk management?

Answer 65

Home currency Leading/Lagging Matching/Netting Countertrade

Question 66

What is leading/lagging?

Answer 66

Leading means making a payment before it is due, and lagging is delaying a payment for as long as possible.

Question 67

What is matching/netting?

Answer 67

Matching involves matching assets and liabilities in the same currency. Netting normally involves the use of foreign currency bank accounts. If company knows it will be receiving and paying in foreign currency it can reduce exchange risk by using foreign receipts to cover the foreign payments.

Question 68

What is countertrade?

Answer 68

parties exchanging goods and services of equivalent value

Question 69

What is external methods of transaction risk management?

Answer 69

Forward contracts Money market hedges Currency futures Currency options Currency swaps

Question 70

What are forward contracts?

Answer 70

agreement to buy or sell a specific amount of foreign currency at a given future date using an agreed forward rate. The company is able to fix in advance and exchange rate at which a transaction will be made

Question 71

What are money market hedges?

Answer 71

markets for wholesale lending and borrowing, or trading in short-term financial instruments. Many companies are able to borrow or deposit funds through their bank in the money markets. Basic idea is to create assets and liabilities that ‘mirror’ the future assets and liabilities.

Question 72

What are currency futures?

Answer 72

Similar to hedging the critical difference is that whereas forward contract requires the preparation of a special financial instrument for the transaction currency futures are standardised contracts for fixed amount of money for a limited range of future dates.

Question 73

What are currency options?

Answer 73

Right but not an obligation to buy or sell a currency at an exercise price on a future date. If there is favourable movement the company will allow the option to lapse. Right will only be exercised to protect against adverse movement.

Question 74

What are currency swaps?

Answer 74

Contract to exchange payments of some sort in the future. Currency swap allows a company to swap a currency it currently holds for a different currency for a fixed period and then swap back at the same rate at the end of the period. Company’s counterparty would generally be a bank.