A2 Business Summarys

An aim is where the business wants to go in the future, its goals. It is a statement of purpose, e.g. we want to grow the business into Europe. (Long Term Target)

Objectives give the business a clearly defined target. Plans can then be made to achieve these targets. This can motivate the employees. It also enables the business to measure the progress towards to its stated aims. (Short term target - Can be more than one)  Give employees sense of achievement when reaching objective.

Business objectives are the stated, measurable targets of how to achieve business aims.

A mission statement sets out the business vision and values that enables employees, managers, customers and even suppliers to understand the underlying basis for the actions of the business.

A mission Statement sets out the purpose of the business to all itsemployers, shareholders and any other interested stakeholders. The mission statement also usually includes information about the values and ethos of the business, as well as the aims and objectives.

Main points of a mission statement:

• Sets out the purpose of the business to all interested stakeholders
• includes information on the values and ethics of the business
• can include its aims and objectives
• can be used to influence and motivate employee's.

Ansoff’s Matrix only tells part of a story so it is necessary for other decision-making tools to be used in conjunction with it so an informed decision can be made by management.

Advantages:

• Brief outlook over different markets
• Accesses levels of risk
• Enables a firm to determine which quadrant a planned investment would enter

Disadvantages:

• Simplistic as it doesnt take into consideration the external enviroment
• No guarantee success
• Particular strategies can be subjective to information that is provided
• Main focus tends to be market potential rather then the resources required by the firm to support its chosen strategy

Looks at market share and how fast that share is growing in terms of relative market share, market growth and its position on the grid relative to other products. Gain perspective that allows you to plan with confidence to use money generated by cash cows to fund stars and question marks.

Advantages: The Boston Matrix is beneficial to firms who are trying to manage a product portfolio as management have to create a balance between the number of products in each quadrant of the matrix. By positioning each product on a grid management can make decisions about the products at each stage depending on whether the product attracts high or low market share or growth rate. The Matrix assists management in identifying the most appropriate time for launching new products onto the market. The information provided by the Boston Matrix can indicate the likely cash flow position of each product within the context of its market

Disavantages:Critics suggest that the Boston Matrix analysis is too simplistic as it does not consider the influence of the external environment on the business. Decisions based on cash flow forecasts can be risky for the business particularly as consumers are quite fickle and are likely to respond if a competitor offers a better product. Even if management do use the Boston Matrix to help manage their portfolio of products there is no guarantee of success. 

The Boston Matrix should be used in conjunction with other decision-making tools to reduce the risk.

Two main competiive postions that will be successful: being the low-cost producer and differentiating your products from rivials.

Differentiated products can typically be sold for higher prices, while continuring to attract customer loyalty. A business can postion itself in four main competitive ways:

• 1.Broad market differntiation
• 2.Broad market low cost
• 3.Niche/narrow market differentiation
• 4.Niche/narrow market low cost

Model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility. Predicts financial outcomes based on costs and probalitity. Probability is the likelihood of a particular event occuring given a number of alternative events.

To work out the expected finanincial return from a particular event happening you need to mulitplu the probability of it happening by the expected financial return. 

Advantages:

• Visual representation - easy to interpret
• Highlights posibilities and risks not considered
• Use numerical values to measure risks

Disadantage:

• Probabilities, success/failure, expected values/returns are impossible to estimate accurately
• Numbers look like fact
• Easy to bias/manipulate
• Does not account for changes in external factors
• Ignores time factors

Critical path analysis is a project management tool that sets out all the individual activities that make up a larger project. It shows the order in which activities have to be undertaken and which activities can only taken place once other activities have been completed.

The essential technique is to construct a model of the project that includes the following:

• A list of all activities required to complete the project
• The time (duration) that each activity will take to complete
• The dependencies between the activities
• Logical end points such as milestones or deliverable items.

Advantages:

• Encourages careful assessment of the requirements of each activity in a project
• Support project costing and evaluation - better allocation of resources
• Plan and organise resources - ussul overview of a complex project
• Prioritise Tasks
• Help provide direction (motivation)

Disadvantages:

• CPA based on estimates and assumptions - reliablility questionable
• No guaranted success of a project
• Resources may not actually flexible as management hope
• Too many activities may make the network diagram too complicated. Activities might themselfs have to be broken down into mini-projects.

The cash flow forecast predicts the net cash flows of the business over a future period.

Advantages: Shows viability, Shows where more funding is needed, To show stakeholders e.g. banks, Monitor business performance, Budgeting purposes, Compare proposals, Shows where savings can be made.

Disadvantages: Sales provide lower than expected (easy to be over-optimistic and market research my have gaps), Customers do not all pay up on time, Cost prove higher than expected (business inefficient), Certain cost are missed (common problem for a start-up business, unexpected cost often occur)

Examples of Situations: Actual wages vs budged wages, More employees might have been needed, (Minimum) wage has increased, Staff may have been given a pay rise, Employees worked more hours than anticipated/overtime, More skilled employees were used.

• Stakeholder and shareholder concepts
• Why Should Businesses Accept Social Responsibility
  • Meeting social responsibilities is likely to reduce profitability
  • High profile associated with issues of social responsibility
  • It can reduce costs in the long term
  • Social responsibility can have short term costs, but results in long term profits
  • In market with little differentiation, social responsibility may be a competitive advantage

• Environmental threats and opportunities
  • Global Warming, River/Sea Pollution, Dumping Waste/Land Fill, Emissions from transport, Building on green field sites.

• Costs of polluting the enviroment
  • Noise, congestion, air, water and dust all impost costs
• Ethics
  • Values and norms of parents, religion, values of society

• Enhance reputation/image
• To meet consumer demand
• Competitive advantage
• Satisfy specific needs of stakeholders/pressure group
• To observe legal requirements
• To minimise contribution to global warming
• To minimise pollution
• Ethical issues
• Preserve the environment for the future.

Equalities Act:

• Age, Disability, Race, Gender Change, Maternity, Sex, Sexual Orientation, Marriage, Religion

Health and Safety

• “to ensure that they safeguard all their employee’s healthy, safety and welfare at work”
• Installation and maintenance of safety equipment and clothing
• Maintenance of workplace temperature
• Giving employees sufficient breaks and provide protection against dangerous substances

Consumer Protection Legislation: 

• Helps motivate the workforce in a safe secure environment to increase productivity
• Employers avoid costs and delays of bad publicity caused by accidents and employee complaints
• Restricted union power has encourage a more flexible workforce
• Attracted foreign investment and Increase costs above what they would be
• Requires firms to employee a greater number of non-productive workers

• Hard term is seen as a short term policy: employees are hired and fired as necessary
• Soft term take a long term view of using the workforce efficiently as possible to achieve long term corporate objectives.

Key Features : Soft Term

• Employees are paid as little as possbile
• Employees have limited control over their working life
• Communication mainly downward in direction
• Judgement appraisels used

Key Features: Hard Term

• Managers consult regularly and fully with employees
• Managers often give control of their working life to employees through delegration, empowerment and delaying
• Emphasis on training and development
• Employees promoted from within wherever possible - long-term aim to develop the workforce

Hard Term

Pay with limited use of delegation and term working

Soft Term

Delegation, empowerment. Extensive use of techniques designed to give employees more power

• likelihood of success – unknown product/unknown market
• diversification – spread risk - practical and operational matters
• sunk costs - strategic risk when debt funded
• predicted net cash flow for first 6 years £16,280,000
• payback period 4 years 8 months
• current modest returns on investment
• company struggling to survive despite being very busy,lack of market research/product testing
• conversion to plc – time, money, loss of control, share price volatility, risk of takeover
• directors’ conflicting aspirations, different stages of life, differing domestic situations
• staffing issues – high absenteeism, industrial unrest, poor employer-employee relations, recruitment, training, population trends
• lack of management skills,planning/budgeting, marketing skills
• planning permission/relocation issues – time and money cash-flow position/approaching overdraft limit
• competition – legal protection - future profitability/potential for high returns
• economic instability - economic conditions – exchange, interest, inflation rates, unemployment
• changes government policy & legislation eg national minimum wage, product testing, safety

Labour Stability Index

Number of staff leaving with more than one's year service/number employed one year ago x 100

Labour Turnover

Number of staff leaving in a time period/ average number of staff employed in that time period x 100

Absenteeism

Number of days of absense/ total number of working days x 100

Sickness Rates

Number of days of sickness/total number of working days x 100

External Influences: The economy, Exchange rates, Interest rates, Labour costs, Inflation rates, Unemployment rate, Recession, Price/availability of raw materials, Stakeholders e.g. government, customers, Competitors, Local community, suppliers, Insurance premiums, Weather, Unexpected events, bank, trade unions

Factors Internal: Degree of risk (internal factors), Likelihood of success, Cost, Time, Profitability, Staffing, Impact on workforce, Retained profit available, Knowledge of the market – experience, Practical and operational matters 

Factors External: Wider business environment, Customer profile, Legislation, Degree of risk (external factors), Economic stability, Economic conditions – exchange, interest, inflation rates, Social trends, Disposable income levels

• interest rates
• inflation rate
• recession/growth/state of economy/economic climate
• employment/unemployment rate
• exchange rates
• government spending
• taxation (other than VAT)
• minimum wage
• recession
• price/availability of raw materials
• stakeholders e.g. government, customers, competitors, local community, suppliers
• insurance premiums
• weather
• unexpected events

Consequences to moving main workforce • cash-flow problems • efficiency of factory • huge variances • objectives not met • demoralised workforce • project not going to plan • problems obtaining finance • loss of business. • cause overspending • unable to run smoothly

• Methods using it to communicate – emails, video conferencing, skype/webcam
• Finance - spreadsheet • accounting package • formulas can be used
• Can be edited/changed • templates can be used.

• Advantages: • Greater yields • Lower maintenance • Lower wages • Faster output/saves production/admin time • Improved stock control • Effect on quality/less wastage.

• Disadvantages: • Lack of skills • Costs of hardware and software • Training • Effect on quality/wastage • Maintenance / breakdown costs • Cost of updates in technology • Reliability • Reliance on technology cost of upgrade • cost of maintenance • security issues - risk of hacking, virus, firewalls, encryption , storage, cost of electricity

• Product/Packaging
  • quality
  • welfare
  • safety
  • convenience
  • USP
• Price
  • strategies (premium/psychological/penetration/competitive/cost-plus/value pricing)
  • euros
• Place
  • outlets
  • mail order
  • location
  • web sale
• Promotion
  • methods (eg advertising, sales promotion, sponsorship, public relations)

Improvements

Pay above the minimum wage • good working environment • fair wage • avoid using child labour • non-financial incentives

Reasons to be ethical - Social trend • corporate social responsibility • attract ethical investors • mission statement • ability to charge premium prices • lower production costs allowing ethical practices and high profits • government regulations encouraging ethical practices. • shareholders demand higher dividends • lose control • higher profit • risk of takeover

Enhance reputation/image • increase competitiveness • increase sales • increase profit • to gain awards/recognition • encourage repeat business/customer loyalty • satisfy/motivate employees • increase staff retention • staff recruitment easier • unique selling point • satisfy stakeholder needs • reduces stakeholder issues (award for each different stakeholder if correct) • ethical consumerism

Laws are legal requirements while ethics are moral obligations

Order tracking

• Information on the status of an order
• Information on the despatch of an order

Strengths

• Enable planning of schedule
• Idicate whether work can be completed on time

Payback period in capital budgeting refers to the period of time required to recoup the funds expended in an investment, or to reach the break-even point.

For example, a $1000 investment which returned $500 per year would have a two-year payback period. The time value of money is not taken into account.

E.G Outflow Year 0 £11,000,000

Inflow = £1,500,000+£1,500,000+£2,500,000+£2,500,000+ 3, 000,000/4,500,000

Payback period = 4 years and 8 months

A variance is the difference between a budgeted, planned or standard cost and the actual amount incurred/sold. Variances can be computed for both costs and revenues.

Strengths

• Identifies adverse/favourable • Identifies underspend/overspend • Compares actual figures to budget figures. • Monitor and control financial performance • Identify overspend • Minimise waste • Set future budgets/amend budgets • Control expenditure • Identify reasons for variance.

Weaknesses

• Variance reports can by outdated • Morale may suffer (management focuses on negative aspects) •  Generally assumptions •  Tendency to emphasize • Just meeting standards may not be enough