Using Objectives and Strategies
corporate objectives: a quantifiable statement of a business's goals which should include measurable targets.
1.) establish long term goals for the organisation
2.) make the reason for these goals clear to stakeholders in the business
3.) established after the mission and the corporate aims
4.) should be measurable so progress can be assessed
FIVE.) should be clear so employees are aware of what is trying to be achieved.
functional objectives: a quantifiable statement of a department's goals which should enable it to contribute to the achievement of the business objective.
1.) should use corporate objectives to set own targets so all plans can be focused on same long term goals
2.) all functional objectives must be coordinated and success depends on this
3.) all functional objectives need to be discussed and coordinated so time and effort isn't wasted and conflict doesn't arise.
Using objectives and strategies II
functional strategy: the plan by which the department intends to achieve its functional objectives on a day to day basis.
1.) plans must be specific and quantifiable so progress and success can be measured
2.) should be the result of consultation with those involved in implementing the plans
3.) not following the above steps could lead to delay and demotivation as indicate channels of communication are ineffective.
Understanding financial objectives
Financial objectives: monetary goals a business sets itself to achieve in a given time period (often a financial year)
1.) provide target for business to aim for and a way to measure performance
2.) most plc's prime financial objective is to maximise shareholder return
3.) set on an annual basis, but large businesses set short (focused) and long term (broader) objectives
4.) aim to maximise shareholder return by maximising profits and undertake financial strategies to widen the gap between revenue and costs.
Cash flow targets: a financial objective focused on maintaining a healthy cash balance
1.) firms must first meet the fundamental objective of survival, so must focus on a healthy cash flow and profitability.
2.) a firm without a healthy cash flow target may struggle to survive liquidity problems
3.) although cash is the oxygen, there is an opportunity cost related to holding too much cash.
Understanding financial objectives II
Cost minimisation: the process by which businesses attempt to maximise profits by keeping costs low.
1.) if they can minimise costs without a negative effect on revenue, profit margins will be improved.
2.) should look at all costs for areas where savings can be made without affecting abilit to operate/customers opinion
3.) could be achieved through a tactical decision e.g. changing suppliers/relocating abroad.
ROCE targets: the minimum percentage return a business strives to achieve from the capital employed in business activities
1.) are a measure of return achieved by the business
2.) business states the minumum percentage return it deems appropriate on its total investments
3.) set in relation to industry standards/amount of risk being taken
4.) normal to see ROCE target set above rate of interest it would achieve sitting in the bank.
Understanding financial objectives III
Shareholders' returns: the financial rewards to a shareholder in return for their investment, can include dividends paid and increased share value.
1.) prime financial objective to serve the interest of the shareholder, important as ultimately, shareholders own the business
2.) if shareholders sell shares, will be freely available on the market at a reduced price, make business vulnerable to takeovers
shareholder value/shareholders' return:
a.) market value of the share itself, i.e. how much would shareholder get
b.) the dividend paid, i.e. how much recieve from profits as a reward
shareholders have the power not to reappoint members of the board of directors, so in the interest of directors to keep shareholders happy :)
Characteristics of the firm:
1.) size, status and age of firm influence financial objectives
2.) small/medium firms have an objective of satisficing
3.) plcs have an objective of maximising shareholder returns
Understanding financial objectives IV
1.) dependent upon relationship between owners and directors and number of owners and their owners.
2.) if business is floated likely that many shareholders will be pension/investment funds so interested in short term maximisation of return
3.) if involved as executive directors (member of the board of directors who holds a position of responsibility on a day to day running) or non executive directors (member of BoD who doesn't work for the business on a day to day business) then may be willing to set objectives that maximise future potential returns.
1.) if owners are private investors, profit maximisation may be set
2.) public sector organisation may focus more on service and have a financial objective to maintain a positive cash flow.
Understanding financial objectives V
1.) business often forced to set a specific financial objective
2.) if trying to gain market share through aggressive pricing strategy, competitors will be forced to set an objective of cost minimisation to maintain competive prices.
1.) if the economy is unstable and degree of activity may decline in the future, directors may be more cautious when setting financial objectives.
2.) fall in economic may mean fall in consumer confidence and willigness to spend, so set profit objective at a lower level
3.) when setting ROCE targets, look at current and predicted RoI and if there is a suspected future rise, may lead to setting a higher ROCE target.
Using financial data to measure and assess perform
Companies are required to produce an annual report. It outlines its performance in the previous year. Give financial report and explains business mission and management philosophy. Summarise the performance and list financial highlights.
Produced for and set to shareholders but also intersts potential investors, banks and employees. 2 main documents: income statement and balance sheet.
Income statement: financial document that summarises business's trading activity and expenses to show whether it has made a profit or loss.
1.) normally an annual report but some businessses produce interim accounts.
2.) key points to consider: gross profit, operating profit, profit margins, profit quality and profit utilisation.
Gross profit: profit after cost of sales has been deducted i.e. direct labour
Operating profit: profit after other expenses have been deducuted.
removing tax from profit calculations can give a good impression of a company's profits from year to year as tax fluctuates.
Using financial data to measure and assess perform
Gross profit margin: gross profit/sales revenue x100
Operating profit margin: operating profit/sales revenue x100
Profit quality: the sustainability of profit, what percentage is from day to day activity as opposed to e.g. selling off assets.
Profit utilisation: how profit is being used i.e. if being reinvested or distributed to shareholders.
1.) worth considering long and short term objectives of shareholders
2.) income statement is a summary of the financial performance, which help directors assess performance of the company
Balance sheet: a financial document that summarises the net worth of a business, balances total assets with total equity and liabilities.
1.) non current assets ( items of value owned by the business that are likely to be kept by the business for more than a year) and current assets (resources owned by the business whose value varies due to daily business activities).
2) intangible assets: purchased items without physical form e.g. goodwill.
Using financial data to measure and assess perform
Current liabilities: financial obligations of the business payable within 12 months
Non current liabilities: debts the business has more than 1 year to repay.
assets and liabilities can be looked at in terms of net current liabilities (current liabilities plus current assets ) and net assets (total assets minus total liabilities).
Working capital: a measure of the firms ability to meet day to day expenses.
1.) if a business cannot generate enough cash to pay current liabilities, then may be forced to liquidate fixed assets in order to continue trading.
Depreciation: an accounting practice which allows the value of a fixed asset to be spread over its useful life.
1.) shown as an expense
2.) what's shown in the balance sheet is a true and fair reflection of their worth.
3.) in line with matching concept: matching the cost of an asset to its usage.
Gearing: an indication of how reliant a firm is on borrowing and how at risk it is from interest rates. A highly geared firm may find it difficult to forecast accurate budgets as a small rise in interest rate could have a huge impact.
Using financial data to measure and assess perform
Trade receivables: amounts owed by debtors to the business.
1.) if high, may show fierce competition in the market or a sign of internal weakness, shows credit control needs improving.
Trade payables: amounts owed by the business to creditors
1.) if high, business may want to consider whether it could improve cash flow with suppliers.
2.) also could keep creditors low and enjoy discounts for prompt payments.
Using financial data:
1.) between different firms, likely to include comparison with competitors.
2.) may use benchmarking, would form integral part of takeover plans
1.) within the business, may inc. different locations
2.) identify where most efficient and allow to improve overall performance by sharing good practice.
Using financial data to measure and assess perform
1.) track performance over time to see if operating efficiently and extrapolate
1.) all influenced by current financial situation or impact on future financial performance.
2.) financial data always forms an integral part of the decision making process.
Strengths and weaknesses:
1.) valuable source of information but should be read with care and with the annual report to get a better understanding of the company's performance. Also receive details on objectives, cash flow etc.
2.) income statement should be a true and fair representation of business's worth at the time, BUT only a snapshot, only accurate at the time
3.) biggest problem is window dressing (manipulating accounts to make them look more favourable, inc. valuation of tangible assets.
4.) window dressing is legal by can be identified by reading the notes to the accounts which explain how financial decisions were made.
Interpreting published accounts
Liquidity: a business's ability to meet short term cash payments on time.
Current ratio: current assets/current liabilities
ideally, the result should be 2:1
Acid test ratio: (current assets minus stock)/current liabilities
ideally, the result should be 1:1
Profitability: the relationship between business's profits and sales revenues
Operating profit margin: operating profit/sales revenue x100
1.) a declining OPM may show that costs need to be managed more efficiently or there is a fall in sales.
ROCE: a measure of how efficiently a business using its capital to generate profits.
operating profit/(total equity plus non current liabilities) x100
1.) important to compare this to the bank interest rates.
Interpreting published accounts II
Financial efficiency ratios:
Asset turnover: a measure of how effectively a business is using its assets to generate sales.
asset turnover: sales/net assets
1.) a highly technical business will have a lower asset turnover than a service industry.
Inventory turnover: a measure of how many times per year a business turns over its stock through sales.
inventory turnover: cost of sales/inventory
1.) depends on the business
2.) the higher the stock turnover, the more frequently they are selling stock.
Payables days: a measure of the average number of days taken to pay suppliers
payables days: (payables x 1 year)/credit purchases
1.) often look for as long a credit payment term to help with cash flow
2.) some firms have internal targets to pay debts on time
3.) suppliers would be interested to see whether firms pay debts on time.
Interpreting published accounts III
Receivables days: a measure of the average number of days taken by a business to collect the debts from customers.
receivables days: (receivables x 1 year)/revenue
1.) often look to negotiate short debtor payment terms to help with cash flow
2.) some businesses offer discounts for prompt payments
Gearing ratio: the percentage of capital employed that comes from non current liabilities.
gearing: non current liabilities/(total equity plus non current liabilities) x100
1.) a firm too low geared appears cautious
2.) a firm too highly geared is at risk from interest rates.
Dividend per share: the number of pence per share received by shareholders.
DPS: total dividends/number of issued shares
1.) a shareholder may be willing to accept a lower DPS if they are interested in the long term investment.
Interpreting published accounts IV
Dividend yield: a measure of the return received on an investment, expressed as a percentage of the current market price of the share.
dividend yield: (dividend per share/market share price) x100
1.) shareholders would compare this to other businesses and the bank interest rates
2.) yield can go up or down with the share prices
Value and limitations of ratio analysis:
1.) provide structure and put figures into context , so we can make meaningful comparisons of a firms performance.
2.) the financial documents may have been manipulated.
3.) the balance sheet is only a snapshot, only true on day it was drawn up, may disguise under performing branches or departments.
4.) only takes into consideration the financial performance of the firm, wouldn't inform about their ethical behaviour, future plans or green credentials.
Selecting financial strategies
Financial strategy: long term financial plan of action to achieve the financial objectives of the business.
Sources of finance: the range of options available to firms to fund business operations including banks, venture capitalists and share capital.
1.) the largest source of finance for many companies is retained profit
2.) there are 2 other long term finance are equity share capital and debt (loans)
1.) exists for an unlimited term
2.) carries a voting right
3.) dividends payable dependent on company performance
4.) dividends don't affect tax liability
FIVE.) ordinary shareholders are towards the bottom of the list when payments are being made following the closure of a company
SIX.) not secured.
7.) decide upon maximum amount of needed capital, additional finance can be issued by releasing more share capital, shareholders offered the right to more shares at a discounted price.
Selecting financial strategies II
1.) exists for a fixed term e.g. 10 year loan
2.) does not carry a voting right
3.) interest payable regardless of company performance
4.) interest paid before tax and reduces tax liability
FIVE.) lenders are towards the top of the list when payments are being made following the closure of a company
SIX.) will be secured against an asset
7.) less risk for the lender than equity capital
8.) greater risk for the company.
Profit centres: a section of a business for which costs and revenues and therefore profit can be identified.
1.) helps monitor financial performance, help achieve financial objectives, and means delegation, which increases motivation.
2.) only appropriate when can be responsible for own costs and revenues, help achieve competitive advantage.
Selecting financial strategies III
1.) a business with high market share is in a position of power with suppliers, adopt an aggressive approach to negotiating prices for goods and services.
2.) lower input costs, means lower output costs for the consumer.
3.) may minimise costs through the JIT strategy, can avoid costs with holding stock.
4.) can put excess strain on suppliers and staff. so relies on excellent relationship with suppliers.
Capital expenditure: the purchase of assets that will remain in the business in the medium to long term, accounted for in the balance sheet.
1.) day to day expenditure is called revenue expenditure.
2.) financial benefits from capital expenditure can be difficult to measure as they will be achieved over a long period of time.
3.) capital available will be limited and how its spent will have a direct effect on future performance, must consider opportunity cost.
Making investment decisions
The term investment is used in relation to capital expenditure and often involve substantial sums of money, managers do not take investment decisions lightly.
Investment appraisal: the process of analysing the financial merits of a possible future investment.
Payback: calculation of how long it will take to recoup the cost of an investment.
1.) add up net cash flows until you have enough to cover the initial investment.
2.) calculate the amount needed in the year payback and divide by net cash inflow then multiply by 12 to find month of payback.
ADS.) commonly used due to its simplicity, important for dynamic markets or if investment is funded externally.
DISADS.) fails to take into account cash inflows after payback, ignores profitability, assumes the inflow of cash is steady throughout the year.
Rarely used in its own due to its simplicity.
Making investment decisions II
Average rate of return: average annual profit expressed as a percentage of the initial investment.
1.) calculate average annual profit, add up all net cash flows, the divide by number of years.
2.) calculate ARR by dividing average annual profit by initial investment and x100.
ADS.) The higher the ARR, the more potentially profitable the investment, can compare with ROCE and bank interest.
DISADS.) doesn't take into account the timings of cash flows or length taken til the profit is positive.
Net present value:
1.) multiply each year's net inflow by the relevant discount factor, to calculate NPV.
2.) add up all the NPVs to calculate net cash gain.
ADS.) 'positive invest, negative reject' is an easy guide to decision making. Takes into account the time value of money.
DISADS.) doesn't take into account the speed of the repayment, difficult to find correct discount factor, for some managers, the concept may be hard to understand.
Making investment decisions III
Investment criteria: a pre determined target against which to judge an investment.
1.) The investment must be able to reach them before it is accepted
2.) gives a clear rule on what is not an acceptable investment
3.) depend upon nature and culture of the business.
Qualitative influences on investment decisions:
1.) quantitative factors are not enough to base a decision on
2.) qualitative factors include impact of image on the firm, the workers, ethical implications, consumer perceptions, impact on wider society.
Making investment decisions IV
Risks and uncertainties:
Degree of risk:
1.) the sum of money to be invested as well as the source of the money
2.) length of time the business must commit to the project
3.) impact on other aspects of the business e.g. day to day funding
4.) ease/difficulty the investment can be reversed
FIVE.) impact of decision on future strategic choices
Degree of uncertainty:
1.) stability of market and likely accuracy of sales forecasts
2.) credibility of source of estimated costs and revenues
3.) stability of economic environment, in which business operates
4.) potential competitors reactions to the investment
FIVE.) overall time period of future projections
Understanding marketing objectives
The planning process within the marketing function should follow the following stages:
1.) corporate objectives
2.) marketing objectives
3.) market and marketing analysis
4.) marketing strategies
five.) marketing plans
marketing objective: the goals of the marketing function which come from and are designed to help achieve the corporate objectives.
They will include some of the following:
1.) maintain or increase market share, ensure won't lose ground to competitors
2.) target a new market segment, when a market is saturated, go elsewhere
3.) develop new goods/services, existing products reach decline stage
Should always be quantifiable targets
Understanding marketing objectives II
Internal factors that influence setting of marketing objectives:
Finance: the amount of money available to the marketing function.
1.) overall financial position is important.
2.) expected return is important, if successful past, then higher chance of finance being made available in the future.
1.) skills and abilities of the workforce will have an impact, potentially limit
2.) workforce may be under utilised that has the potential to give a competitive edge to the business.
1.) must take issues like quality and capacity into consideration
2.) essential business has the capacity/space to cope with customer numbers
3.) quality of improvement should be incorporated into market planning.
Understanding marketing objectives III
External factors influencing setting of marketing objectives:
1.) current/future actions of competitors must be taken into consideration
2.) should involve an assessment of marketing mix and overall spending
1.) CAM can reduce production times and labour costs
2.) may open up new market or increase ability to compete in a low cost market
3.) technological developments can lead to shortened product life cycles
4.) can lead to products becoming obsolete, could have major impact on the marketing objectives of the business.
1.) economic climate
2.) social change
4.) consumers needs
Analysing markets and marketing
a detailed examination of the features of a market such as market size and sales used to predict future trends.
1.) important as enables business to assess the situation and identify opportunities and threats.
2.) size of the market can be measured in terms of value and volume. Statistics are available from government websites.
3.) growth in the market is important, gives indication of future activity and profits.
4.) is the market divided into easily identifiable segments?
Reasons for analysing the market:
1.) gathering evidence for devising a new strategy, due to competitors etc
2.) identifying patterns in sales, trends are used to predict future sales. Information used as part of the strategic decision making.
Analysing markets and marketing II
Moving average: a technique for identifying an underlying trend by smoothing out fluctuations in data.
The use of moving averages is important when a business wants to assess its current market situation to inform marketing planning.
Trend: a general direction in which something tends to move.
Extrapolation: a prediction of a future trend based on an identified current trend.
ADS.) Helps with marketing function with distribution and promotional strategies, but functional areas. All departments are better informed if they have an idea of future sales.
DISADS.) In high technology dynamic markets, extrapolation can be misleading. Health scares and weather are hard to predict but can have a devastating impact on sales.
Analysing markets and marketing III
Correlation: an apparent relation between 2 factors which can be either positive of negative.
1.) for marketing, aim is to find out whether there is a correlation between one factor and sales, so they can identify most significant factors affecting demand for their product.
2.) apparent correlation should be treated with caution, almost impossible to isolate one element.
There are 3 types of correlation:
a) positive i.e. direct
b) negative i.e. indirect
c) no correlation
Correlation can be expressed numerically as a value between minus 1 and plus 1, with 0 being no correlation.
Analysing markets and marketing
Benefits of market analysis:
1.) can answer certain questions with some certainty which help market planning.
a) what opportunities are there in the market
b) what is likely to happen in the future
c) what are the most significant influences on demand in this market.
Difficulties of analysing market data:
1.) business will also need to analyse data collected about its own marketing activities which can be much more difficult.
Marketing data: information gathered about the response to the marketing activities of a business.
Analysing markets and marketing IV
Test markets: to replicate all elements of a product launch including promotion, distribution and price to a geographic region or demographic group to judge the viability of the product in the market before a full scale launch.
1.) the aim is to simulate a full scale launch on a representative sample of the target market.
2.) the goal is to achieve results that represent the response of the whole market.
3.) can be very difficult to select a suitable test market, if not a true representation, data will be misleading.
4.) difficult to isolate the impact of a new or updated product on customers as reactions may be influenced by external factors.
five.) also there's the danger a rival firm will gain the details and copy, which reduces any first mover advantage, particular concern in fast moving markets.
Analysing markets and marketing V
Primary market research:
1.) a very expensive form of data collection and will involve the use of extrapolation.
2.) businesses need a high level of confidence in the results as its being used as the basis for important decision making.
3.) very difficult to isolate and could be misleading for the following reasons:
a) backdata may not reflect a change in consumer habits and suggest an unrealistic trend.
b) data may be biased e.g. if provided by a company supplying materials.
c) if the forecasts are too far in the future,their chance of accuracy is greatly reduced. Possibility of external factor impacting on consumer behaviour increases.
Analysing markets and marketing VI
The use of IT in analysing markets:
1.) businesses can now obtain useful information through store cards and market research can be conducted online.
2.) software packages are available to process and present information.
1.) information can be processed quickly and used for sales forecasting e.g. extrapolation, moving averages and correlation.
2.) an electronic database can be built up of consumer behaviour so future products and promotions can be targeted more effectively.
1.) possibility of information overload, which can slow down the decision making process, could mean a business opportunity is missed.
2.) data is available quickly, could cause decision makers to overreact or misinterpret certain trends leading to bad decisions.
Selecting marketing strategies
Factors to be considered:
1.) low cost strategy or differentiation and added value?
2.) national or international context?
Low cost versus differentiation:
Low cost: the aim is to offer products for lower than competitors, business must be able to reduce its own costs e.g. through economies of scale
a) to make one product appear superior and encourage consumers to choose their model.
b) involves all elements of the marketing mix and includes patenting. The pricing will reflect the superiority of the product.
Context national or international?
likely to be an international aspect due to growth of ecommerce . Expansion of EU will also encourage UK companies to think on an international level.
Selecting marketing strategies II
Ansoff's matrix: a way of classifying marketing strategies in terms of existing and new products in existing and new markets. The degree of risk involved in each strategy is an important element of the analysis.
Market penetration: when a firm increases the sales of its current products to its existing customers or attracts new customers from its competitors in the market.
Can mean national or international market. Involves using MM more effectively
1.) reducing prices
2.) increase promotional spending
3.) launching a loyalty scheme
4.) increase activity of sales force
five.) make small changes to product e.g. more sizes
six.) increase the places in which the product can be purchased.
7.) lowest risk strategy, existing knowledge
8.) market research is invaluable
Selecting marketing strategies III
Product development: offering new and improved products to existing markets
1.) refers to a significantly new product line.
2.) allow company to utilise excess capacity, respond to a competitor, maintain reputation as an innovator, exploit new technology, maintain market share.
a) developing relating products which are part of buying decision
b) introducing new models with significant modifications.
Market development: finding new markets for existing products either by selling abroad or identifying a new segment in the domestic market.
a) targeting a different geographical area, including an overseas market
b) developing new sales channels e.g. e commerce
c) targeting a new consumer group
risky strategy as little/no knowledge, marketing costs could be high
helps to spread risk e.g. if one markets growth slows
Selecting marketing strategies IV
Diversification: offering a new product in a new market. Can be related or unrelated.
strategies might include:
a) new technology developed by R&D but if serious potential, less risk
b) buying a business in a completely different market, if success, less risk
c) targeting existing successful markets, strong brand? less risk
1.) main benefit is that risk is spread
2.) company may get first mover advantage
3.) no economies of scale etc. so there's a level playing field
Entering international markets:
this appeals when:
1.) the UK market is saturated
2.) the UK market is very competitive
3.) opportunities to achieve economies of scale
4.) the firm has excess capacity
five.) additional costs involved are relatively small
Selecting marketing strategies V
Exporting from the UK:
1.) accepting international orders, ecommerce
2.) making regular visits to the target country to build relationships
3.) supported by telephone and email sales
ADS) 1.) relatively cheap, 2.) uncomplicated to set up, 3.) can be withdrawn easily, 4.) existing resources can be used, five.) full control is retained.
DISADS.) 1.) difficult to identify business opportunities, 2.) bureaucracy may be complicated, 3.) risk of non or delayed payment, 4.) language barriers.
Opening an overseas operation:
1.) opening a new branch with own employees, 2.) setting up a registered subsidiary usually local employees, 3.) form an alliance with a local company
ADS.) 1.) can identify opportunities in market, 2.) control of operations and potential for expansion, 3.) developing relationships with clients, 4.) providing good after sales service, five.) joint venture so risk is shared, six.) local partner provides knowledge and experience.
DISADS.) 1.) more expensive, 2.) laws difficult to understand, 3.) brand name issues.
Selecting marketing strategies VI
Using an overseas sales agent:
1.) acts on behalf of the business in the overseas market.
ADS.) 1.) local knowledge, 2.) recruitment/training/relocation costs avoided, 3.) agent should have local contacts.
DISADS.) 1.) UK company still responsible for transport costs and documentation, 2.) standard of customer service is hard to maintain.
1.) buys the goods and sells them in target market
ADS.) 1.) distributor responsible for transport etc, 2.) if has an established reputation, greater chance of success, 3.) market expenditure falls mostly on distributor
DISADS.) 1.) may expect discount, 2.) loss of control over marketing mix, 3.) hard to give incentives, 4.) may demand exclusive rights.
>whether or not strategy has helped business achieve marketing objectives
>can be assessed through Ansoff's matrix, which one has been achieved?
Developing and implementing marketing plans
Marketing plan: written details of the activities used to carry out the marketing strategy. Will include: description of activities involved, a time frame, reasons justifying each action.
SWOT analysis: a method of analysing the current situation by examining internal strengths and weaknesses and opportunities and threats of the external environment.
Strengths: strong brand name, motivated employees, cutting edge R&D
Weaknesses: financial constraints, human resource issues, bad publicity
Opportunities: market segment rapid growth, potential market overseas
Threats: actions of competitors, change in economic conditions
Situation analysis: an assessment of the business >internal resources and processes, customers >demands and behaviour, competitors > activity and technological developments and market environment >structure of market.
Developing and implementing marketing plans II
Sales forecasts: way to analyse markets through various data
1.) back data: mistakes can be identified, can help plan future, employees can use expertise, increase confidence.
2.) current trends: picture of current situation, when where why and who
3.) future expectations: extrapolation, moving averages etc. not exact but valuable.
Marketing strategies: should be a direct link between strategies and the marketing tactics: the marketing mix activities undertaken to achieve a chosen marketing strategy.
MM should always be considered, appropriate marketing tactics will become clear from an analysis of all the components of the marketing plan.
Developing and implementing marketing plans III
1.) Finance available
2.) operational issues: strong links at tactical level between marketing and operations to achieve an effective plan. Methods of production, capacities, flexibility and quality issues are important.
3.) Human resources: new markets/products will require different employee skills, job descriptions should give the precise requirements needed, if market penetration, need to increase sales force.
1.) competitors actions: any firm should not ignore competitors actions
2.) market conditions: linked to sales forecasting, must be aware of economic climate.
3.) technological change: should be aware of latest developments firms that are aware of new trends in consumer behaviour can gain a competitive advantage.
Developing and implementing marketing plans IV
Issues in implementing marketing plans:
1.) scheduling key tasks : without a schedule, difficult to see if plan is being implemented, particularly in large organisations with long lines of communi.
2.) resources required: communications between functional areas is very important.
3.) cost: must be included in the budget, employees should be consulted in order to avoid demotivation. marketing budget must be realistic and shouldn't be diverted from anywhere else.
4.) control: responsibility should be given to a manager to ensure the plan stays on schedule. This role shouldn't be difficult and should be enough flexibility in the plan to adapt to changing circumstances.
Understanding operational objectives
Operational objectives: targets set in relation to the production process or provision of a service within a financial year.
Normally look to improve performance through competitiveness.
Quality, cost and volume targets: operational objectives which set a minimum acceptable standard of provision measured by cost, quality or volume.
Quality targets: these include performance, advanced performance, predicted life, conformance with standards and specifications, the perceived quality.
Cost targets: focus on keeping costs to a minimum without affecting the quality and often achieved through lean production techniques.
Volume targets: relate to output and flexibility. include the use of economies of scale.
Understanding operational objectives II
Innovation: the launch of a new product or process, an invention onto the market for commercial gain.
May reduce costs in the long run and increase volume and quality of outputs.
Efficiency and environmental targets: operational objectives which set a minimum acceptable standard of provision in relation to efficiency/the environment.
Efficiency targets deal with issues such as lean production, and maximising output whilst minimising costs.
Environmental targets deal with issues such as carbon footprint, pollution. Can give the business a more competitive edge especially as society becomes ever more environmentally conscious.
Benchmarking: a management tool which aims to increase performance by identifying, investigating and adopting aspects of best practice from other firms. e.g. compare with competitor and work alongside them in order to improve a certain aspect.
Understanding operational objectives III
Internal and external influences:
competitors performance: may influence objectives through benchmarking and will influence other targets, particularly environmental and efficiency.
resources available: influence need to look at cost, volume and efficiency targets.
nature of the product: influence the way in which quality, cost and volume targets are matched together, may be influenced by regulations etc...
demographics: influence the operational objectives depending on age, gender, socio economic group etc...
Operational strategies: scale and resource mix
When a firm is at its most efficient with operations, known as its optimum output, where average cost of production as at its lowest
Economies of scale: the benefits enjoyed by a firm as a result of operating on a large scale, leading to a fall in average costs.
1.) purchasing economies: benefit of buying on a large scale leading to lower average cost from suppliers.
2.) technical economies: ability of larger firms to buy technically advanced equipment and spread the cost over a larger number of units.
3.) specialisation: the ability to employ specialists e.g. accountants and for staff to focus on one particular area or function.
Average cost: total cost divided by the number of units produced to give cost per item.
Operational strategies: scale and resource mix II
Diseconomies of scale: the disadvantages experienced by a firm as a result of operating beyond optimum output, leading to a rise in average costs. Need to see which actions they can take to minimise the harmful effects.
1.) communication diseconomy: the breakdown in effective communication resulting from an increasing size in operations, could be as a result of a multinational dimension.
2.) coordination diseconomy: the breakdown in effective communication resulting from an increase in size of operations. After a merger, may be duplicates etc.
Resource mix: the combination of capital and human resources utilised within a business which allows for the greatest efficiency.
Optimum resource mix: the combination of capital and human resources which allows for the greatest efficiency.
Operational strategies: scale and resource mix III
Capital intensive: businesses that rely more heavily on capital equipment, e.g. machinery and computers rather than labour.
ADS.) 1.) reduction in human error, 2.) greater speed and uniformity of output, 3.) ease of workforce planning, 4.) greater scope for economies of scale.
DISADS: 1.) high initial capital outlay, 2.) prone to fluctuations in interest rates if financed by loans, 3.) lack of initiative i.e. introducing Kaizen ideas, 4.) less flexibility in responding to a fall in demand.
Labour intensive: businesses that rely more heavily upon labour i.e. the workforce rather than capital equipment.
ADS.) 1.) provide greater flexibility, especially if staff are multiskilled, 2.) creates employment in the economy, 3.) more personal response to consumer needs, 4.) can offer bespoke goods/services, five.) opportunity for continuous improvement.
DISADS.) 1.) can be prone to labour relation problems e.g. union action, 2.) possible workforce shortages, 3.) high HRM costs.
Operational strategies: innovation
Research and development: the scientific research and technological development of a new product or process.
it's both expensive and time consuming, first stage of the product life cycle, want time spent on R&D to a minimum and to achieve first mover advantage, also looking for continual improvements.
Idea generation (the process of identifying a wide range of possible new ideas) > Idea screening (the process of streamlining all the ideas generated to shortlist those worthy of further consideration) > Concept testing (the process of pitching potential ideas to consumer panels to assess their reactions). > Development of ideas > Business analysis (process of investigating the economic and practical viability of an idea, and where it'll fit in the current product portfolio, want to avoid cannibalisation, where the product attracts away from other products) > Product development (developing potentially successful products into working prototypes that can be fully tested.) > Test marketing (launching product to small target market, to work out adjustments, first time competitors see product too)
Operational strategies: innovation II
Purpose and costs of R&D:
1.) to keep your product/service at the cutting edge as it gives competitive advantage and allows for premium pricing, businesses can maintain position as market leader or gain market share.
2.) Large sums of money are invested in R&D without the guarantee of a successful outcome, should consider opportunity cost.
3.) only when the outcome of R&D is used for economic gain that it leads to competitive advantage, the practical implementation makes it become an innovation.
Innovation: the launch of a new product or process, an invention onto the market for commercial game.
a new invention will be patented as a business will want to recoup the cost by being a market leader.
Operational strategies: innovation III
Risks and rewards:
Risks: 1.) no guarantee of success, 2.) potential loss of focus on core function, 3.) competitors reaction, 4.) company image/reputation if product fails.
Rewards: 1.) lead to competitive advantage, 2.) can charge premium prices, 3.) improvements in efficiency of production process, 4.) reputation as innovative.
Impact on other departments:
Marketing: may have acted first to inform R&D, major role in getting product to customer and designing an effective marketing mix.
Finance: involved in the outset, likely to be involved in costing and looking at pricing levels and potential profit structure.
Human Resources: likely to have workforce planning issues, could be need for new skilled workers or need to reduce staffing numbers.
Important all functions have an input and an integrated approach from the outset as the adoption of simultaneous engineering can save a lot of time, money and expensive reworking of a project.
Operational strategies: location
Location decisions have 3 key characteristics:
1.) strategic in nature
2.) difficult to reverse if an error of judgement is made
3.) taken at the highest management levels
Optimal location: a business location that gives the best combination of quantitative and qualitative factors.
Likely to balance: high fixed costs with convenience for customer, low costs with supply of suitably qualified labour, quantitative and qualitative factor balance, opportunities to receive government grants with risks of low sales.
Potential problems and impact on business:
1.) high fixed costs, high break even output, low profits/losses, low CPU means high unit fixed costs.
2.) high variable costs e.g. labour, low CpU, low profits/losses, high unit variable costs.
Operational strategies: location II
3.) low unemployment rate, problems with recruiting suitable staff, staff turnover likely to be a problem, pay levels may have to be raised to retain/attract staff.
4.) high unemployment rate, average consumer disposable income may be low.
five.) poor transport infrastructure, raises transport costs for product, relatively inaccessible to customers, difficult to operate JIT stock management.
1.) site and other capital costs, consider 'greenfield' site.
2.) labour costs, depends on whether capital/labour intensive, lower wage rates have attracted many UK businesses abroad.
3.) transport costs, bulk gaining/reducing? services must be near customers
4.) sales revenue potential, certain locations add status and allow for added value.
five.) government grants, very keen to attract new businesses and retain current ones to attract employment etc
Operational strategies: location III
Profit estimates: estimated revenues and costs of each location so highest annual profit can be identified. The annual profits are of limited use, need to be compared with the cost of buying and developing the site.
Investment appraisal: used to identify locations with the highest potential returns over a number of years, also payback method, help with financial shortage.
Break even analysis: straightforward, imp. for businesses that face high fixed costs. Should be used with caution and normal limitations apply.
2.) room for further expansion
3.) managers preferences
4.) ethical consideration e.g. relocate would mean redundancies
five.) IT infrastructure, note growing popularity of ecommerce.
Operational strategies: location IV
Advantages and disadvantages of multisite location
1.) greater convenience for customers
2.) lower transport costs
3.) reduce the risk of supply disruption if disruptions in one site
4.) opportunities for delegation, increase motivation
five.) cost advantages of a site abroad.
1.) coordination problems
2.) potential lack of control and direction
3.) different culture/legal standards in different countries
4.) may be a danger of cannibalism if sites too close.
Multinational: a business with operations or production bases in more than one country.
Off shoring: the relocation of a business process done in one country to the same or another company in another country.
Operational strategies: location V
Reasons for international location:
1.) cost reduction, to keep competitive use lower wage workers e.g. Dyson
2.) Access to global markets, home markets have reached saturation or can expand no more in the domestic market due to government regulation.
3.) Avoidance of trade barriers (taxes or other limitations on the free international movement of goods and services), necessary to set up in the country.
4.) other, government support, good educational standards, highly qualified staff and avoid fluctuations in exchange rate.
1.) language and other communication barriers
2.) cultural differences, train staff
3.) level of service concerns e.g. time difference, delays
4.) supply chain concerns, makes JIT manufacturing very risky.
five.) ethical considerations, loss of jobs through relocation, MW, child labour.
Operational strategies: lean production
Lean production: the adoption of techniques that help to reduce waste.
JIT: a lean production technique that aims to minimise stock holdings.
In the long run should lead to a competitive advantage but in the short run takes time and money to introduce. Systems have to be reviewed, introduced, staff have to be trained and investment into better IT systems is needed. Risky, particularly if the supply chain is long, complex or importing from abroad.
Kaizen: a lean production technique which aims to improve efficiency by making small but frequent improvements, also known as continual improvement.
All employees must be empowered to spot opportunities and make suggestions.
Provides motivation and small continual improvements are easier to implement than large irregular changes.
Time based management: managing resources effectively to ensure products are fit for market in the shortest time possible.
Staff must be trained in a variety of tasks, flexibility is key.
ADS.) quicker time to market new products, shorter lead times and a better ability to respond to changes.
Operational strategies: lean production II
Critical path analysis: a technique for planning complex projects to allow them to be completed in the shortest time possible by identifying activities that can be carried out simultaneously.
Float time: the amount of time by which a non critical activity could be delayed without having an effect on the whole project.
Benefits of critical path analysis:
1.) makes management think fully about their plan and they can also monitor it
2.) helps with the implementation of JIT
3.) helps to allocate resources more effectively
4.) help with financial planning as will indicate when more money is needed.
1.) based on estimates and so reliability is dependent on accuracy of estimates
2.) not a one off, need to be altered and updated continually as a project develops.
Understanding HR objectives and strategies
HRM: making the best use of all employees to achieve corporate goals
HR objectives: targets the HR management hopes to achieve by implementing
HR strategies, so that the business can achieve its corporate objectives.
helps businesses to be proactive not reactive, which could give a competitive advantage. typical objectives include: matching workforce skills/size/location to business needs, minimising labour costs, making full use of the workforce's potential, maintaining good employer/employee relations.
1.) corporate objectives, new skills/more employees required
2.) production strategies, e.g. loss of workforce through capital intensive
3.) marketing strategies, product development impact on future training
4.) financial strategies, may mean training budget is cut or is reviewed.
Understanding HR objectives and strategies II
1.) market/economic changes
2.) technological change
3.) competition for skilled employees
4.) population changes
five.) government influences
Soft HR management: concerned with communication and motivation. People are led rather than managed. They are involved in determining and realising strategic objectives. Common features include: training/development opportunities, internal promotion, developmental appraisal systems, consultation and empowerment, flat organisational structure.
Strengths: encourage employees to be creative and work to a consistently high standard, allow employee to fulfil individual needs so increase motivation, high retention rates so lower recruitment costs.
Weaknesses: role of unions is unclear, expensive, time consuming, means long term commitment is needed.
Understanding HR objectives and strategies III
Hard HR management: emphasises costs and places control firmly in the hands of management. Their role is to manage numbers effectively, keeping the workforce closely matched with requirements in terms of both bodies and behaviour. Features include: fixed term contracts, external recruitment, judgemental appraisal systems, limited delegation, tall organisational structure, minimum wage levels.
1.) lower training and development costs
2.) competitive advantage achieved through cost minimisation
3.) reward systems linked to output, positive correlation between quantity and pay.
1.) can lead to high labour turnover and absenteeism rates
2.) difficult to hire new employees with a certain reputation.
3.) limited delegation and lack of empowerment can lead to demotivated employees, reduce quality of work.
Developing and implementing workforce plans
Workforce planning: getting the 'right number of people with the right skills, experiences and competencies in the right jobs at the right time'. A comprehensive process that provides managers with a framework for making staffing decisions based on an organisation's corporate objectives, strategic plan, budgetary resources and a set of desired workforce skills.
Workforce plan: details of how a business will implement its HR management policies.
Factors to be taken into account:
1.) skills audit of the current workforce to identify qualities/abilities of existing employees.
2.) data about labour turnover, wage rates, trend analysis of workforce demographic.
3.) market research data and sales forecasts , indicate no needed
4.) EU directives and government initiatives relating to working conditions/practices.
Developing and implementing workforce plans II
1.) recruitment requirements, new job descriptions and specifications
2.) training and development programmes, acquiring new technical skills
3.) retraining and redeployment, employees encouraged to acquire new skills
4.) redundancy: planned redundancies must be included, so people are encouraged to leave to maintain morale.
1.) provide strategic basis, managers can be proactive
2.) managers can plan replacements and changes
3.) enables managers to identify skills needed in the present and future
4.) can identify the ways in which technology can change
five.) can facilitate the introduction of flexible working arrangements, training employees to become multiskilled can improve motivation
six.) efficient use of employees will help the company reduce costs in the long term.
Developing and implementing workforce plans III
1.) corporate objectives
2.) production objectives
3.) marketing objectives
4.) finance, cost of training, redundancies etc.
1.) The market and trends in buyer behaviour
2.) New technology
4.) Labour market trends
five.) UK government legislation and EU directives
six.) trade unions.
Value of workforce plans: help achieve corporate objectives, enable managers to be more effective and systematic. Always better to plan than simply react.
Developing and implementing workforce plans IV
1.) employer/employee relations
GOOD: feel included and motivated, BAD: if no communication, feelings of uncertainty and unrest.
GOOD: longer term view of performance, improved retention, future labour costs should be reduced. BAD: budgets? difficult to measure benefits
3.) corporate image
GOOD: seen as caring for employees, positive impact on customer service, BAD: may be unpopular decisions, especially if redundancy is involved.
GOOD: training increases motivation and have a wider range of skills
BAD: expensive in short term, no guarantee employees will remain with the company.
Competitive organisational structures
Three types of organisational structure:
1.) hierarchical structure
2.) matrix structure (project based)
3.) informal structure (best for R&D)
Factors to consider:
1.) number of skilled employees
2.) business environment
3.) wanting to move away from a risk taking culture
4.) leadership style of the senior executives
Impact on competitiveness:
1.) how quickly are strategic decisions made?
2.) does the business operate efficiently at minimum cost?
3.) how effective are channels of communication within the business
4.) who is involved in the decision making process and who is appropriate?
Competitive organisational structures II
Centralisation: where the decision making authority is concentrated amongst a small number of senior managers at the top/centre of the organisational structure.
Benefits: 1.) strategic decisions can be taken quickly as few very experienced people will be involved in the process, 2.) tighter control over the day to day running of the business, in particular finance, 3.) procedures can be standardised so buying economies of scale can be achieved. 4.) strong leadership can be effective in a time of crisis.
Drawbacks: 1.) bureaucracy, 2.) diseconomies of scale
Decentralisation: where the authority for decision making is delegated to subordinates in the organisational structure.
Benefits: 1.) senior managers can focus on longer term decisions, 2.) likely to have increased motivation, 3.) day to day problems should be solved more quickly, 4.) increases flexibility, five.) middle/junior managers are better prepared for senior roles.
Drawbacks: 1.) slower decision making, 2.) difficult to control the business on a day to day basis, 3.) more difficult to achieve economies of scale, 4.) leadership and direction is more difficult to manage.
Competitive organisational structures III
Delayering: removing levels in the organisational structure
1.) indirect costs are reduced
2.) motivation should improve
3.) by delegating authority, company may be able to respond to changes better
1.) valuable market knowledge and experience may be lost
2.) age discrimination is illegal, make it complicated
3.) workload of manage is likely to increase
Peripheral workers: part time temporary and self employed workers brought into the business as and when needed.
Flexible workforce: where a significant percentage of employees are on part time and temporary contracts rather than the vast majority being on permanent, full time contracts and/or where employees are multiskilled and work whenever needed.
Competitive organisational structures IV
Core workers: full time, permanent employees, with business specific skills and knowledge, performing tasks key to the success of the business, often rewarded with high salaries and excellent working conditions.
Outsourcing: where business functions are provided by external specialist organisations rather than provided in house.
Homeworking: where employees can perform their job from home, increasingly linked to their employer via the internet.
1.) flexible working reduces costs
2.) employees can work around other commitments
3.) should mean higher retention and lower absenteeism.
4.) success depends on how its managed and if there is sufficient consultation and if its a long term plan or merely a reaction to unexpected changes in the market.
Effective employer/employee relations
Importance of communication:
1.) constructive feedback and greater involvement in decision making can improve motivation
2.) lack of information can make people feel vulnerable when dealing with customer enquiries.
3.) an atmosphere of mistrust can lead to declining motivation and productivity, could have a negative impact on the competitiveness of the business by increasing costs.
Advantages of effective internal communication:
1.) all areas are pursuing the same corporate objectives
2.) change can be introduced more successfully
3.) employees identify with the culture of the organisation and have more loyalty to it.
Effective employer/employee relations II
How can internal communication be improved
1.) establish the needs of the employees before changing methods of existing communication.
2.) improving employee skills in all areas of communication
3.) cultural and language differences can be barriers to effective communication
BUT if not done effectively, employee representation can slow down the communication process.
Methods of employee representation:
1.) employee groups: forums made up of employee representatives from selected areas of the business and representatives of the employers.
2.) trade union: an organisation of employees which acts collectively in dealings with management for mutual protection and assistance and is often concerned with wages and conditions of employment.
3.) works council: a committee representing the employer and elected employee representatives of a plant or a business meeting to discuss working conditions, grievances and pay.
Effective employer/employee relations III
Advantages of employee representation:
1.) managers seem less remote as employers have easier access to them
2.) employees are encouraged to voice their views frankly, reduce tension
3.) easier to maintain confidentiality will small numbers of representatives
4.) improves effectiveness and efficiency
five.) can gauge like reaction of employees at early stages
six.) quality of employee input into decision making is improved
7.) skills of managers are developed
8.) trust and cooperation should improve.
Disadvantages of employee representation:
1.) managers feel undermined
2.) likelihood of breaches of confidentiality
3.) employees have own interests at heart, not the business
4.) decision making process becomes longer and slower
five.) if decisions of representatives ignored, could lead to resentment.
Effective employer/employee relations IV
Industrial dispute: a disagreement between employers and employees/employee representatives over an employee related issue.
Methods for avoiding industrial disputes:
1.) consultation and involvement through channels of communication
2.) have in place an effective grievance procedure
3.) ACAS: an independent an impartial organisation established to avoid and resolve industrial disputes and build harmonious relationships at work.
4.) no strike agreements between employers and unions.
Industrial action: sanctions imposed by workers to put pressure on a business during an industrial dispute, including overtime ban, work to rule, go slow and ultimately strike action.
Effective employer/employee relations V
Methods for resolving industrial disputes:
1.) conciliation: an independent third party encourages continued discussion between those in disagreement to reach a compromise and resolve their dispute.
2.) arbitration: where no agreement can be found between parties in dispute, they agree to accept the judgement of an independent third party.
3.) can also build into employee contracts a provision for using alternative means to resolve disputes rather than legal actions. May allow an acceptable compromise to be reached.
Larger firms of solicitors now have specialists who act as mediators under such arrangements.