Topic 7 - Analysing The Strategic Position Of A Business

Question 1

What is a business mission statement?

Answer 1

Aims to set out the organisation’s purpose

Question 2

What are the factors affecting a businesses mission statement?

Answer 2

Culture
Ethos and values
Shareholders
Stakeholders

Question 3

Investors who hold stock in a business are primarily concerned with profits. They apply pressure on the business’ CEO to create a mission which suits this.

What is this known as ?

Answer 3

The influence of shareholders

Question 4

What are corporate objectives ?

Answer 4

Corporate objectives are overall business objectives designed to steer a business towards achieving its overall mission (ways of meeting the mission statement)

Question 5

What factors effect a businesses corporate objectives ?

Answer 5

Short-termism
Business ownership
Internal business environment
External business environment

Question 6

How does short-termism effect corporate objectives?

Answer 6

Pressures for short-termism, of focussing on short-term gains at the expense of long-term gains, can influence corporate objectives as managers may seek short-term profit at the expense of long-term investment in research and development.

Question 7

How does business ownership effect corporate objectives?

Answer 7

Business ownership may influence corporate objectives as owners in the private sector are likely to place emphasis on profit maximisation as where public sector organisations are likely to place emphasis on providing for a societal need.

Question 8

How does internal business environmental effect corporate objectives?

Answer 8

The internal business environment may influence corporate objectives as managers respond to changes in the internal environment.

Question 9

How does external business environmental effect corporate objectives?

Answer 9

The external business environment may influence corporate objectives as managers respond to changes in the external environment.

Question 10

If you focus on short-term profits, what are you most likely you sacrifice ?

Answer 10

Long term competitive position

Question 11

What are strategic approaches?

Answer 11

long-term plans which require many resources and can be difficult to reverse once implemented

Question 12

What are tactical approaches?

Answer 12

short-term plans which often require few resources and can be stopped or reversed if this is required

Question 13

What is the link between a mission, corporate objective and strategy ?

Answer 13

A business mission will inform the choice of corporate objectives as corporate objectives will be designed in such a way to meet the overall mission.
Businesses can use strategies to work towards their overall corporate objectives.

Question 14

What is the way Google link between a mission, corporate objective and strategy ?

Answer 14

Google’s mission is to organise the world’s information.
This informs Google’s objectives which include improving user experiences and a strategy to support this objective is investing in long-term research and development to discover new technologies.

Question 15

What is the difference between strategic and functional decisions ?

Answer 15

Strategic decisions made by businesses will influence departmental or functional decision making as every function within a business must support the overall organisation.

Question 16

What is SWOT analysis ?

Answer 16

A business can use a SWOT analysis to explore:
internal strengths and weaknesses
external opportunities and threats facing the business

Question 17

In SWOT analysis, what is an internal strength ?

Answer 17

An internal strength may include a trusted and reputable brand which is recognised by many

E.g. Uber 110 million users and 69%

Question 18

In SWOT analysis, what is an internal weakness ?

Answer 18

An internal weakness may include cash flow concerns or lower profit margins than others within the industry

Question 19

In SWOT analysis, what is an external opportunity ?

Answer 19

An external opportunity may include an expanding market nationally or internationally.

Question 20

In SWOT analysis, what is an external threat ?

Answer 20

An external threat may include a declining market or increased competition.

Question 21

Use SWOT analysis to analyse Uber

Answer 21

Uber - Strengths
A famous brand name. Uber is perceived by most consumers as innovative.
110 million users in the world
69% market share in 2019 in the USA

Uber - Weaknesses
There are lots of other taxi-ordering services like Lyft, MyTaxi, Kapten, Hailo etc.
There are lots of other food delivery services like Just Eat and Deliveroo.
Uber is not very profitable. As of 2020, Uber’s net profit margins were below 0%.

Uber - Opportunities
Uber has already tried to expand internationally with its taxi service, so there is not a growth opportunity there. However:
It already offers taxis and food delivery in the USA, where it has a big market share. It could offer more services, like grocery delivery, or it could create an Uber banking app and give you food & taxi credits on there for using it. Kinda like Venmo or PayPal.
Uber also has a great app with lots of data on traffic and people’s movement. It could offer this to delivery or postal businesses like Royal Mail, Deutsche Post or UPS (in the USA).

Uber - Threats
Businesses that make cars, like Daimler (which owns Mercedes) have invested in taxi-rental apps.
Self-driving (autonomous) cars could mean that Uber’s network of drivers is no longer a big advantage in being able to offer consumers rides or food delivery quickly.

Question 22

What do businesses use to assess their financial performance?

Answer 22

financial ratios

Question 23

What are the types of financial ratios ?

Answer 23

Return on Capital Employed
Current Ratio
Gearing calculations
Payable days
Receivables days

Question 24

What does return on capital employed (ROCE) calculation allows a business to compare, and how do you solve it ?

Answer 24

The return on capital employed (ROCE) calculation allows a business to compare operating profit with the total capital employed by the business.

ROCE can be calculated using: (operating profit ÷ total capital employed) × 100

Capital employed can be calculated using: total equity + non-current liabilities.

Question 25

What does current ratio allow a business to explore, and how do you solve it ?

Answer 25

The current ratio calculation allows a business to explore its liquidity by comparing current assets with current liabilities.

Current ratio can be calculated using:
Current assets ÷ current liabilities

Question 26

What do gearing calculations allow you to calculate, and how do you solve it ?

Answer 26

Gearing calculations can be used to calculate the proportion of long-term funding which comes from debt.

Gearing can be calculated:
(Non-current liabilities / capital employed) x 100

Question 27

What do payables days allow you to calculate, and how do you solve it ?

Answer 27

Payables days can be used to calculate the time taken for a business to pay those it owes money to.

Payables days can be calculated:
(Payables ÷ cost of sales) × 365

Question 28

What do receivables days allow you to calculate, and how do you solve it ?

Answer 28

Receivables days can be used to calculate the time taken for a business to collect the money that it is owed.

Receivables days can be calculated:
(Receivables ÷ revenue) × 365

Question 29

What are the advantages of using financial ratios ?

Answer 29

Using financial ratios allows a business to compare performance across years.

Using financial ratios allows a business to compare its performance to competitors but only if their information is available.

Question 30

What are the disadvantages of using financial ratios ?

Answer 30

Using financial ratios does not take into consideration non-financial information such as changes in the external environment.

Question 31

What’s an example of an issue with using financial ratios ?

Answer 31

A sole trader may use ratios to calculate performance, but these will not reflect the possible risk of a competitor opening within the next month on the same street.

Question 32

What are ways non-financial data can be collected ?

Answer 32

From the operations function
From the marketing function
From the human resources function

Question 33

What are ways non-financial data from the operations function used to asses a businesses strengths and weaknesses ?

Answer 33

Labour productivity can be used
Capacity and capacity utilisation can be used
Quality measures can be used

Question 34

What are ways non-financial information from the marketing function is used to asses a businesses strengths and weaknesses ?

Answer 34

Sales forecasts can be used
Brand loyalty and satisfaction data can be used

Question 35

Why is data comparison important ?

Answer 35

Data from different departments, teams or divisions may be compared to indicate performance.
Data from different years may be compared to indicate performance.
Data from the business may be compared to competitor data, if available, to indicate performance.
Data from the business may be compared to the industry to indicate performance.

Question 36

What are other forms of non-financial data that asses a businesses strengths and weaknesses?

Answer 36

Absenteeism rates can be used to provide information on a business’ strengths and weaknesses.
Labour costs per unit of production can be used to provide information on a business’ strengths and weaknesses.
Labour turnover can be used to provide information on a business’ strengths and weaknesses.
Employee costs can be used to provide information on a business’ strengths and weaknesses.

Question 37

What are the issues of non-financial information ?

Answer 37

Using non-financial information to assess performance may not provide a full overview of business performance.
Non-financial information may need to be combined with financial information in order to get an overview of the business’ performance.
Using financial and non-financial information to assess business performance may not take into account additional factors such as the business’ impact on the environment, or its employee’s wellbeing

Question 38

What are core competences ?

Answer 38

Core competences refer to a business’ ability to combine its skills, knowledge, and processes to provide it with an advantage over competitors, known as competitive advantage

Question 39

How do core competences help a business to have a competitive advantage?

Answer 39

A business’ combination of skills, knowledge and processes will often deliver a unique selling point which is difficult to imitate by competitors.

Question 40

What are the advantages of core competences ?

Answer 40

Core competences allow businesses to attract and retain customers, even in a competitive market.
Core competences allow businesses to add value throughout their production process.

For example, Apple’s reputation as an innovative technology manufacturer allows it to add value to the products it creates, as customers are usually happy to pay a higher price for a product associated with the brand.

Question 41

Why is there disadvantages of outsourcing? (non-core competences)

Answer 41

Outsourcing products can lead to quality issues as some production processes are passed to third parties who may seek to cut costs during production at the expense of quality.

Question 42

How was the term ‘core competence’ derived ?

Answer 42

The term ‘core competence’ was first used by Hamel & Prahalad’s 1990 paper.
They argued that big businesses should be viewed as a collection of core competences (ability to do stuff), rather than a group of businesses or industries.

Question 43

What did Rumelt (1974) previously argue about core competences ?

Answer 43

Rumelt (1974) had previously argued that diversified businesses who operated in lots of industries performed better if the same core competences or core activities were shared across all the industries

Question 44

What is the reason for Kaplan and Norton’s balanced scorecard ?

Answer 44

Kaplan and Norton’s balanced scorecard seeks to provide managers and leaders with a framework with which business performance can be assessed.
(Performance assessment)

Question 45

What are four areas of business performance to be assessed according to Kaplan and Norton

Answer 45

financial performance
customer performance
internal process performance
learning and growth performance

Question 46

When assessing performance using the balanced scorecard, financial performance is measured including what ?

Answer 46

revenue
cash flow
profit
profitability

Question 47

When assessing performance using the balanced scorecard, customer performance is measured including what?

Answer 47

brand loyalty
customer retention
customer satisfaction

Question 48

When assessing performance using the balanced scorecard, internal process performance is measured using data about what ?

Answer 48

productivity
capacity
quality

Question 49

When assessing performance using the balanced scorecard, learning and growth performance is measured including what ?

Answer 49

employee engagement
labour turnover
retention
training
induction provision

Question 50

How did Kaplan and Nortons balanced score card come into around ?

Answer 50

As Kaplan and Norton state that a business must consider its performance in all four of these areas, it is suggested that profit and financial performance alone is not the only measure of business performance which should be considered by managers and leaders.

For example, if Foxconn assessed its performance using the balanced scorecard, employee engagement concerns may be identified which affect the business’ overall performance, despite profit and profitability data indicating greater performance within the area of finance.

Question 51

What’s the advantage of Kaplan and Norton’s balanced scorecard ?

Answer 51

The balanced scorecard provides leaders and managers with a framework to assess and measure the performance of different aspects of the business.

Question 52

What is Elkington’s Triple Bottom Line ?

Answer 52

Elkington’s Triple Bottom Line theory also provides managers and leaders with a framework to assess business performance based upon the business’ profit, but also on its impact on people and the planet:

Question 53

What is a business profit in Elkington’s Triple Bottom Line ?

Answer 53

In Elkington’s Triple Bottom Line, the business’ profit is considered as an important element of determining the business’ overall performance; however Elkington states that such profit should also be used to support the community.

Question 54

What is a businesses impact on people in Elkington’s Triple Bottom Line ?

Answer 54

In Elkington’s Triple Bottom Line, the business’ impact on the people affected by the business, such as employees and customers, is considered as an important element of determining the business’ overall performance.

Question 55

What is a businesses impact on the planet in Elkington’s Triple Bottom Line ?

Answer 55

In Elkington’s Triple Bottom Line, the business’ impact on the planet is considered as an important element of determining the business’ overall performance.

Question 56

What are the three elements to Elkington’s Triple Bottom Line (that should be used to asses business performance) ?

Answer 56

Profit
Impact on people
Impact on the planet

Question 57

Assess the usefulness of break-even analysis when making decisions as a new business.

Answer 57

Explain the break-even point
The break-even point states how many products a business must sell so that the revenue it generates covers its’ costs. At the break-even point, the business does not make a profit or a loss. A business only makes a profit if it sells more than this number of units. Often, a new business’ aim is to survive and to do this the business should be trying to sell enough products to meet the break-even point.

Argument that it is useful
This suggests that break-even analysis is useful for businesses who have the goal of survival. Break-even can also be used to conduct ‘what if’ analysis. The owner of the business could manipulate the inputs to the breakeven calculation to see the impact of the changes on the break-even point. For example, when deciding which property to rent, the fixed cost value could be changed to see the break-even point in different locations/premises. Alternatively, when deciding what price to charge, this analysis tool could be used, alongside market research, to again see how many products would need to be sold. A new business may not have this data, so making decisions with the aim of reaching breakeven can be helpful.

Argument that it is useless
One significant assumption of the break-even analysis is that the selling price remains constant and all products are sold at the same price. If a business sells a product at a discount or uses promotional techniques such as BOGOF (buy one get one free), then the number of units that need to be sold will be different to the analysis. A new business needs to attract customers and, in order to do this, they may use promotional techniques such as BOGOF, money off first spend vouchers, or free samples to entice customers. During the first few weeks or months, the owner can gather data on the success of their products. As a result of this they may wish to modify the pricing. Break-even analysis cannot account for the complexities of operating as a responsive business and this reduces the usefulness of the tool.

Question 58

New furniture manufacturer:
Receivables days 34
Payable days 17

Competitor:
Receivables days 20
Payable days 45

The table shows efficiency ratio analysis for a relatively new garden furniture manufacturer in comparison to a more established, but similar-sized competitor. Analyse the impact of efficiency on the business’ cash flow.

Answer 58

Explain efficiency ratios
Efficiency ratios focus on how well the business is using the resources it has. It is important to note that figures should be contextualised by comparing with previous years or competitors. Receivable days calculates the number of days a business waits to receive payment from a customer after delivering the product. Trade receivables show the number of days between the business receiving the product and paying the supplier. Ideally, for cash flow, businesses want to have a lower receivable days figure and to negotiate a higher payable days number.

Receivable days
The manufacturer waits 34 days to collect payment from debtors, which is much higher than the competitor who only has to wait for 20 days. As a new business, cash is incredibly important as the chance of insolvency is higher than when a business is established and profitable. Perhaps, at the moment, the business does not have the power to force quicker payments and may attract customers by offering longer trade credit terms. Over time, the business should try to reduce the receivable days to ensure the stability of its cash flow.

Payable days
As with receivables, the manufacturer is not as efficient as the competitor as it pays creditors much quicker (17 days in comparison to 45). The business may not have established relationships with suppliers for them to allow longer trade credit terms and they may be trying to develop these over time. The businesses needs to be cautious as for every time they receive payment, they are paying out twice to suppliers. This will negatively affect the liquidity and cash flow position, potentially leading to a shortfall of cash. To improve this the manufacturer needs to negotiate longer payable days and shorter receivables.

Question 59

What are external environment changes that businesses need to be ready to respond to ?

Answer 59

Political changes
Environmental changes
Social changes
Technological changes
Legal changes
Ethical changes
Competitor changes

Question 60

What is the impact of political and legal changes ?

Answer 60

Political and legal changes can present businesses with opportunities and threats.
Political and legal changes can affect decision making at the corporate level and functional or departmental level.

For example, the introduction of the National Living Wage presented a threat for many businesses as total costs increased.

Question 61

How does the legal environment affect decision making ?

Answer 61

Legislation about competition and competitive practices can affect a business. Competition laws ban businesses from acquiring or taking over other businesses if competition will be substantially reduced.
Legislation about employment regulations can affect a business. Working time regulations and the equality act state provisions a business must make for supporting and protecting employees.
Legislation related to environmental protection can affect a business. Laws around pollution provide guidance in terms of the pollution created by businesses and these laws must be complied with.

Question 62

What are examples of the impact of environments laws ?

Answer 62

VW was accused of an environmental scandal which failed to comply with environmental regulations.

In 2016 Three’s takeover of mobile operator, O2 was banned on the basis that competition would be reduced substantially and this could lead to the exploitation of consumers.

Question 63

How the political environment affects decision making ?

Answer 63

Enterprise is a political factor which involves national and local schemes to support new, start-up businesses.
Regulators exist to ensure businesses are following industry rules so that consumers are not taken advantage of. Infrastructure is a political factor and relates to the transport systems and communications networks used to support trade and supply.
International trade is a political factor and refers to the trading of goods and services internationally.

Question 64

What factors in the economic environment can affect a business’ strategic and functional decision making ?

Answer 64

Gross Domestic Product
Taxation
Exchange rates
Inflation
Government policies
Trade

Question 65

How can gross domestic product effect a business’ strategic and functional decision making ?

Answer 65

Gross Domestic Product (GDP) is the value of goods and services produced by a country during a certain period.
Changes in GDP can affect a business’ decision making as GDP growth is likely to coincide with an increase in demand which businesses must respond to.
For example, in a GDP boom, a business may make a strategic decision to diversify and enter a new market.

Question 66

How does taxation effect a business’ strategic and functional decision making ?

Answer 66

Taxation refers to the tax paid by businesses on any profits made.
Changes in taxation can affect a business’ decision making. For example, increased taxation will reduce profit after tax which can affect strategic investment decisions.
If there is less money left over to invest, then the business is likely to have to prioritise better.

Question 67

How does inflation effect a business’ strategic and functional decision making ?

Answer 67

Inflation refers to the general increase in price levels and the reduction in the real value of money.
Changes in inflation can affect the decision-making process of a business because rising costs may mean that a business has to increase its prices to maintain its profits at the same level.

Question 68

How do government policies effect a business’ strategic and functional decision making ?

Answer 68

Fiscal policy refers to the use of government expenditure and taxation to influence demand.
Changes in government expenditure and taxation can increase or decrease demand which businesses may need to respond to.

Monetary policy (MPC not government) refers to the controlling of money supply and interest rates to control economic activity.
Increasing interest rates may affect business decision making as consumers may increase their savings and therefore decrease spending which can affect demand for a business’ products.

Question 69

How does trade effect a business’ strategic and functional decision making ?

Answer 69

Open trade and protectionism refer to the ability of countries to trade either with or without barriers to trade.
Protectionist measures can reduce international trade which can affect a business importing and exporting goods and services.
For example, banana sellers are affected by protectionist measures governing the trade of bananas and this affects supply and cost.

Question 70

What is globalisation ?

Answer 70

Globalisation is the increasing trend for individual markets to become unified and worldwide

Question 71

What is the advantage of globalisation?

Answer 71

Globalisation offers businesses opportunities to expand and target international markets

Question 72

What is a disadvantage of globalisation?

Answer 72

Globalisation increases competition for local businesses and this can reduce market share and sales revenue.

Question 73

What are the advantages of targeting emerging economies ?

Answer 73

Targeting emerging economies can help a business to extend the product life cycle for its goods and services.
Emerging economies offer business new markets to target which can increase sales volume.
Emerging economies offer businesses increased access to labour resources often at a reduced cost compared to the labour market in the business’ home country.
For example, a clothing manufacturer can benefit from offshoring production to an emerging economy as labour may be cheaper.

Question 74

What is glocalisation?

Answer 74

Glocalisation (a word made by combining globalisation & localization)
TNCs use glocalisation to help spread globalisation. This means that they adapt their products to the needs of local consumers.

For example, lots of global food TNCs offer a different menu in India where beef is not eaten.
Since 2012, McDonald’s has served the McVeggie and McSpicy Paneer in India.

Question 75

How is glocalisation sometimes caused be laws

Answer 75

Sometimes, glocalisation reflects the different laws in different countries.

For example, BMW makes right-hand drive cars for the UK because we drive on the left whereas, in Germany, cars are left-hand drive.

Question 76

How do TNCs use the development of new markets to benefit from glocalisation ?

Answer 76

As countries develop and their populations have higher disposable incomes to spend on ‘luxury’ items, TNCs are able to access new markets and sell their products in these countries.

Question 77

How do TNCs take advantage of economic liberalisation?

Answer 77

They take advantage of the removal of barriers to trade to earn more profit and increase their market share.

TNCs use outsourcing and offshoring to make sure that they are able to maximise their profits by minimising the costs of producing their goods.

Question 78

How are bananas a case study for world trade ?

Answer 78

Bananas are mainly grown within the tropics and production is centred on Latin America (80% of exports), West Africa and parts of Asia.
Other producers include Asian countries (e.g. the Philippines) and west African countries (e.g. Cote d’Ivoire).
Production is dominated by large American TNCs (e.g. Chiquita and Del Monte)
Some production is sold directly to supermarkets.
Organic and Fairtrade produce is sold at a higher price.
The largest importers are the EU countries and the USA.

Question 79

How are cars a case study for world trade ?

Answer 79

During 2016, global car exports amounted to over US$720 billion.
World production of cars is dominated by huge TNCs, based in the USA, Germany, Japan and South Korea.
The main importers and exporters of cars are all developed countries (Europe, USA) or emerging economies (India, China, middle eastern countries).
The leading importer is the USA.
The leading exporter is Germany.
The bulk of world trade in cars is between rich countries where people have high disposable incomes.
China and India are major producers of cars, but do not export significant amounts.

Question 80

What is offshoring ?

Answer 80

Offshoring is when a TNC moves part of its production overseas

Question 81

How do BT use offshoring ?

Answer 81

BT outsources some of its call centre work to India to benefit from lower labour costs there.
The large English-speaking population of India means that it is possible to have the call-centres of a British TNC in another country.

Question 82

How does Nike take advantage of offshoring ?

Answer 82

Nike produces all of its trainers in various locations abroad.
China has the most factories but there are also production plants in Thailand, South Korea, Vietnam and India.

Question 83

How might lower interest rates in the UK affect consumer spending and impact a business like Daimler (which owns Mercedes)?

Answer 83

Explain interest rates
Interest can either be charged on consumers’ borrowing on things like mortgages, or it can be earned on savings held with banks. People with more savings want high interest rates so that they earn more interest on their savings. Whereas, borrowers want lower rates as this reduces the interest that they have to pay to the financial institutions that have lent them money.

Explain interest rates in the UK
In the UK, the Bank of England uses monetary policy to control inflation and stabilise the UK’s economy. One of the main tools it uses is the Bank Rate, which is the interest rate that the Bank of England offers to financial institutions. This rate affects the rate that financial institutions (banks) then offer to the public. When interest rates are low, people spend more and the opposite is true when rates are increased.

Analysis for individuals who are saving
When interest rates decrease, people with savings receive a smaller reward for saving. Therefore, the incentive to save money is lower. This is particularly true if the interest rate is lower than inflation. If inflation is higher than interest rates, the amount of real goods that one can buy with their savings falls over time. As a result, low interest rates encourage people to spend their disposable income. There will be increased demand for luxury goods, such as Mercedes cars, during this time.

Analysis for individuals who are borrowing
Low interest rates allow consumers to borrow money and pay back a relatively small charge. This makes credit more affordable. This can make people feel wealthier. For luxury businesses, this is positive as consumers are more likely to spend money. The car industry promotes using credit when buying a car. So lower interest rates makes buying a car more affordable because interest payments will be lower. Therefore, not only are consumers more inclined to purchase a car, they are likely to purchase a more extravagant brand.

Judgement
Reducing interest rates will have a positive impact on Mercedes sales and on Daimler. Regardless of an individual’s circumstances, low interest rates encourage people to spend their disposable income and even take out more credit. During periods of low interest and high consumer confidence, consumers feel increased wealth and are more likely to splash out on non-essential luxury goods, such as cars.

Question 84

What’s urbanisation, and why does it occur ?

Answer 84

Urbanisation describes people moving from rural areas to urban areas.
People usually move to urban areas because there are more job opportunities there.

Question 85

What is migration, and why does it occur ?

Answer 85

Migration describes people moving from one country to another, with the intention of residing and accessing employment.

For example, increasing migration has increased demand for cultural food shops and this can reduce demand for groceries from established retailers.

Question 86

How do consumer lifestyle changes effect businesses ?

Answer 86

Consumer lifestyle changes occur when buying habits or spending patterns change.
For example, Morrisons has introduced online grocery shopping to respond to changes in consumer expectations.

Question 87

What are some social changes that effected all businesses?

Answer 87

Social changes can include the growth of e-commerce and the changes in buying habits as people begin to expect the availability of e-commerce platforms to complete online transactions.

Question 88

Why’s the impact of an aging population on businesses ?

Answer 88

The UK’s population is ageing, and as healthcare improves and people live longer, demand for products and services can change.

For example, Saga holidays, which targets over 50s with holiday packages, may need to increase its capacity as demand from over 50s increases for its holiday products.

Question 89

How do rising birth rates effect businesses ?

Answer 89

The UK’s population is expanding as birth rates continue to increase.
An expanding population will increase demand for products and services and businesses must be able to respond to these increases to maintain market share.

For example, as the population increases, food producers must be able to increase production to meet demand.

Question 90

How does migration effect businesses ?

Answer 90

Migration, the movement of people between countries, can affect demand for products and services.

Question 91

How does emphasis on healthy eating effect businesses ?

Answer 91

As consumer awareness of healthy eating continues to increase, consumers may demand healthier food options.
For example, McDonalds must respond to these changes in demand and in June 2018 introduced a healthier children’s menu.
Burger King introduced a new Whopper made with artificial meat from the company Impossible Foods.

Question 92

How does emphasis on wellness effect businesses?

Answer 92

As consumer awareness of wellbeing and fitness continues to increase, consumer demand for fitness products is likely to increase.
For example Fitbits, will increase, and this may affect businesses such as Vue as consumers change their hobbies and habits.

Question 93

How does e-commerce effect businesses?

Answer 93

As consumers take advantage of advancements in e-commerce, demand for online shopping will increase and businesses must be responsive to these changes.

For example, Morrisons only introduced online shopping several years after their competitors did. They initially partnered with Ocado to do their online food retail business.

Question 94

How does social media effect businesses ?

Answer 94

As social media use continues to grow, businesses must adapt customer service procedures to reflect changes in consumer expectations.

For example, consumers expect to be able to contact businesses through social media and businesses must respond by updating their processes to offer this contact method if they are to maintain competitiveness.

Question 95

Hello Fresh is a company where you can order healthy meals online and get the ingredients delivered to your door. Which trend is this business responding to?

Answer 95

E-commerce

Question 96

What is Corporate social responsibility (CSR) ?

Answer 96

Corporate social responsibility, known as CSR, is a term used to describe an approach whereby businesses seek to exceed basic legal requirements by considering their impact on society

Question 97

What are some of the CSR objectives ?

Answer 97

Satisfying employees
Satisfying customers
Satisfying shareholders
Satisfying suppliers
Satisfying the community

Question 98

In Corporate social responsibility, how can firms satisfy employees ?

Answer 98

by offering job security, safe working conditions and fair wages

Question 99

In Corporate social responsibility, how can firms satisfy customers ?

Answer 99

by offering reliable products, fairly priced, which exceed legal safety requirements.

Question 100

In Corporate social responsibility, how can firms satisfy shareholders?

Answer 100

by increasing share price and through payment of stable and regular dividends.

Question 101

In Corporate social responsibility, how can firms satisfy suppliers ?

Answer 101

through paying fair prices, making regular on-time payments and offering exclusivity

Question 102

In Corporate social responsibility, how can firms satisfy the community ?

Answer 102

Businesses focussing on their social responsibilities may seek to satisfy the community by offering employment and funding restoration projects and community facilities.

For example, XEROX offers several initiatives to support local communities including the Green World Alliance, the Electronic Industry Citizen Coalition and the XEROX Community Involvement Program. These commitments to social responsibility indicate the value XEROX places on social responsibility above and beyond its pursuit of profit and its obligation to meet basic legal requirements.

Question 103

In Corporate social responsibility, how can firms satisfy the community ?

Answer 103

Businesses focussing on their social responsibilities may seek to satisfy the community by offering employment and funding restoration projects and community facilities.

For example, XEROX offers several initiatives to support local communities including the Green World Alliance, the Electronic Industry Citizen Coalition and the XEROX Community Involvement Program. These commitments to social responsibility indicate the value XEROX places on social responsibility above and beyond its pursuit of profit and its obligation to meet basic legal requirements.

Question 104

What are disadvantages and advantages of CSR ?

Answer 104

CSR can increase a business’ costs through paying for initiatives, offering employees fair wages and agreeing to pay suppliers fair prices.
CSR, though initially increases costs, can attract customers to the business and increase market share and sales revenue in the long-term.

Question 105

To support businesses wishing to fulfil their social responsibilities, what can be used by managers and leaders ?

Answer 105

Carroll’s Corporate Social Responsibility pyramid

Question 106

What are the responsibilities in Carrols CSR pyramid?

Answer 106

1. Economic
2. Legal
3. Ethical
4. Philanthropic

Question 107

In Carrols CSR pyramid what is a business first responsibility and what does it lead to ?

Answer 107

The first responsibility a business should fulfil is its economic responsibility; being profitable is the foundation of the hierarchy and allows the business to move through additional responsibilities.

Question 108

In Carrols CSR pyramid what is a business second responsibility ?

Answer 108

The second responsibility a business should fulfil is its legal responsibilities, for example, paying employees the national minimum wage.

Question 109

In Carrols CSR pyramid what is a business third responsibility ?

Answer 109

The third responsibility a business should fulfil is its ethical responsibilities; ethical responsibilities see a business making moral decisions such as, for example, agreeing to pay employees more than the legal requirement in order to support their standard of living.

Question 110

In Carrols CSR pyramid what is a business fourth responsibility ?

Answer 110

The final responsibility a business should fulfil is its philanthropic responsibilities; here the business supports society and the community through, for example, supporting charitable events and sponsoring public facilities.

Question 111

What is the shareholder concept ?

Answer 111

The shareholder concept states that businesses have a responsibility only to raise value for shareholders through increasing share prices and paying dividends and that profit maximisation is the only focus of the business.

Question 112

What is the stakeholder concept ?

Answer 112

The stakeholder concept states that as well as satisfying shareholders’ needs, the business must place equal emphasis on satisfying the needs of all other stakeholders, including employees, customers and suppliers.

Question 113

What is porters 5 forces ?

Answer 113

Porter’s five forces is a model that allows you to analyse the competitiveness of a business environment. The 5 forces model presents five different forces impacting the competitiveness of a business environment

Question 114

What are porters 5 forces impacting the competitiveness of a business environment?

Answer 114

Bargaining power of suppliers
Barriers to entry
Substitutes
Rivalry

Question 115

How does the bargaining power of suppliers impact the competitiveness of a business environment in porters 5 forces ?

Answer 115

The bargaining power of suppliers relates to how much power suppliers in the market have. If suppliers have more power, the market may be less attractive, as suppliers can charge higher prices.
The bargaining power of buyers relates to how much power buyers in the market have. If buyers have more power, the market may be less attractive, as buyers can demand a lower price.
Often bargaining power is the relative number of people. If there is 1 supplier, they are likely to have more power than if there are 100 suppliers.

Question 116

How do barriers to entry impact the competitiveness of a business environment in porters 5 forces ?

Answer 116

Barriers to entry relate to how easy it is for a new business to enter the market. If barriers to entry are low, the market will be more competitive as new businesses are likely to enter.

Question 117

How do threats of substitutes impact the competitiveness of a business environment in porters 5 forces ?

Answer 117

The threat of substitutes relates to whether customers are likely to buy an alternative product. If this threat is high, the market is less attractive, as customers are more likely to shop elsewhere.

On a hot day, ice cream and lemonade might be substitutes.

Question 118

How do rival competitors impact the competitiveness of a business environment in porters 5 forces ?

Answer 118

Rivalry amongst existing competitors refers to how much competition currently exists within the market. The greater the competition, the less attractive the market may be to other businesses.
How intensely Coca-Cola and PepsiCo compete would be covered in this force.

Question 119

What are the advantages of porters five forces ?

Answer 119

Porter’s five forces model allows businesses to understand the competitiveness of a market and make decisions about their own competitiveness.
Porter’s five forces model allows new entrants to consider how profitable a market may be.
It is a good framework to identify strengths, weaknesses, opportunities and threats.

Question 120

What are 3 positives of the 5 Forces theory?

Answer 120

People use it and most other frameworks have died out - Argyris & McGahan (1993)
It provides a checklist for thinking through what matters for a business.
It is useful for big businesses that are at the top of an industry, but not for tiny businesses. It is only good for big businesses because they can affect the 5 Forces - Brandenburger (2002)

Question 121

What are 2 negatives of the 5 Forces theory?

Answer 121

Businesses, especially Japanese businesses don’t have a single strategy. The 5 Forces oversimplifies strategy - Pascale (2006)
The 5 Forces focus too much on your current industry. The framework would not have driven Apple to develop the iPhone, or Facebook to develop Virtual Reality. They are too focused on 1 small industry.

Question 122

In 2013, Ferrari reduced the number of cars it produced by 4% in order to keep its brand exclusive. Which of the 5 Forces is this most likely to be an example of?

Answer 122

Barriers to entry
Rivalry between existing competitors

Question 123

What does investment appraisal refer to ?

Answer 123

The process of appraising or working out, whether an investment is likely to meet the business’ project objectives

Question 124

What is investment appraisal used for ?

Answer 124

To work out whether an investment is profitable enough, or whether it pays back quickly enough.

Compare one project with another project and decide which project is the most suitable for the business’ needs.

Question 125

How does investment appraisal help with finding risks ?

Answer 125

Investments carry risk for businesses as all investments require a financial commitment.
Investments involve taking risks in the hope of a possible reward, or profit.
Investment appraisal allows businesses to decide whether any potential return is worth the risk associated with an investment.

Question 126

What are the three investment appraisal techniques?

Answer 126

Net Present Value
Average Rate of Return
Payback

Question 127

What does net present value (NPV) show ?

Answer 127

Net Present Value is expressed using a real value in pounds and pence.
A negative NPV suggests that a project will not make a business any money whereas a positive NPV suggests that a project will produce a return for the business.

Question 128

What does average rate of return (ARR) show ?

Answer 128

Average Rate of Return is expressed as a percentage and is calculated using:
(Average net return ÷ investment) × 100
The higher the ARR percentage, the higher the project return in comparison to the original investment.
The ARR can be used to compare the project with other projects, including investing the money in a bank account and accruing interest.

Question 129

What does payback show ?

Answer 129

Payback is expressed as a period of time. It is the amount of time for cash flow to be equal to the initial cost of a project.
The shorter the payback, the quicker the business recovers its original investment.
The payback period can be used to compare the project with other projects and businesses with liquidity concerns may choose a project with the quickest payback.

Question 130

Project 1 - Initial Investment of £15,000,000
Y1 Cashflow = £8 million
Y2 Cashflow = £7 million
Y3 Cashflow = £7 million
Y4 Cashflow = £7 million
Y5 Cashflow = £5 million
Y6 Cashflow = £4 million
What’s the ARR ?

Answer 130

The average net return is £38,000,000 ÷ 6 = £6,333,333.33.

The investment was £15,000,000, so (£6,333,333.33 ÷ £15,000,000) × 100 gives an ARR of 42.22%

Question 131

If a business wants to maximise profit, all else being equal, which payback period will be most attractive for a business?

Answer 131

As short a time as possible