Corporate and functional objectives- Objectives

Objectives are statements of specific outcomes that are to be achieved:

Mission- the overall purpose of the business

Vision- the overall aspiration of the business

Aims or goals- general statements of what the business intends to achieve

Objectives- more precise and detailed statements of the aims/goals

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Corporate and functional objectives- the hierarchy

The hierarchy of objectives in a business



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Corporate and functional objectives- corporate obj

Corporate objectives are those that relate to the business as a whole:

Market standing- Market share, customer satisfaction, product range 

Innovation- New products, better processes, using technology

Productivity- Optimum use of resources, focus on core activities

Physical & financial resources- Factories, business locations, finance, supplies

Profitability- Level of profit, rate of return on investment 

Management-Management structure, promotions & development

Employees- Organisational structure, employee relations

Public responsibility- Compliance with laws, social and ethical behaviour

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Corporate and functional objectives- corporate obj

Coporate structure set the scene for objectives set for the four main functional areas:

Marketing: Increase sales- Successfully launch five new products in the next 2 years

Operations: Reduce costs- Increase factory productivity by 10% by 2016

Finance: Increase cash flow- Reduce the average time taken by customers to pay invoices

People: Improve customer satisfaction- Achieve a 95% level of customer service 

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Corporate and functional objectives- SMART

The SMART acronym is a good way of assessing the suitability of a business objective:

Specificthe objective should state exactly what is to be achieved 

Measurablean objective should be capable of measurement- to determine whether (or how far) it has been achieved

Achievable- the objective should be realistic given the circumstances in which it is set and the resources available to the business

Relevant- objectives should be relevant to the people responsible for achieving them

Time Bound- objectives should be set with a time frame in mind, these deadline also need to be realistic

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Interpreting published accounts- ROCE

Evaluating ROCE

ROCE(%)= (Operating profit/Capital Employed) x 100 

  • Higher % is better
  • Watch out for trends over time
  • Watch out for low quality profit which boosts ROCE
  • Leased equipment will not be included in capital employed
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Interpreting published accounts- liquidity ratio

Evaluating liquidity ratios

Current ratio:

  • Interpreting the results-
    • Ratio of 1.5+ suggest efficient management of working capital 
    • Low ratio (e.g. below 1) indicates cash problems
    • High ratio- too much working capital?
  •  Look out for-
    • Industry norms (e.g. supermarkets operate with low current ratios because they have low debtors)
    • Trends (change in ratio) is perhaps most important

Acid ratio:

  • Current ratio adjusted for stocks
  • Considered a better measure of liquidity particularly for which carry a lot of stock
  • Focuses on the assets that a business can quickly turn into cash
  • Important to look for a change (e.g. a significant fall in the ratio indicates a problem)
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Interpreting published accounts- profit quality

Profit quality

Profit quality looks at whether the reported profit can be sustained 

High quality profit:

  • Profit which can be repeated or sustained 
  • Not reliant on one-off profits
  • Shareholders can have some confidence in the profit trend

Low quality profit:

  • Difficult to repeat
  • Includes one-off profits (e.g. from the sale of surplus assets or businesses)
  • Shareholders need to adjust reported profit to assess what the likely profit is for next year


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Interpreting published accounts- gearing

The importance of gearing

Interpreting the results:

  • Focuses on long-term financial stability of business
  • High gearing (>50%) suggests potential problems in financing (interest & capital repayments)
  • However gearing is not necessarily bad! Debt is often cheaper than equity

Look out for:

  • Increased gearing & deceleration in other liquidity and/or financial efficiency ratio

How to reduce gearing:

  • Focus on profit improvement (e.g. cost minimisation)
  • Repay long-term loans or issue more shares
  • Retain profit rather than pay dividends 

How to increase gearing:

  • Focus on growth- invest in revenue growth rather than profit
  • Convert short-term debt into long-term loans
  • Pay increased dividends out of retained earnings
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Interpreting published accounts- limitations

Limitations of ratio analysis- some key evaluation ideas

  • Ratios deal mainly in numbers- they don't address issues like product quality, customer service, employee morale
  • Ratios largely look at the past, not the future
  • Ratios are most useful when they are used to compare performance over a long period or against comparable businesses and an industry- this information is not always available
  • Financial information can be "massaged" to make the figures used for ratios more attractive
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Selecting financial strategies- cost minimisation

Cost minimisation- approaches and benifits


  • Based on the business model e.g locating production overseas


  • Focused on the detailed business functions e.g. choice of suppliers 

Leading to-

  • Lower unit costs
  • Higher gross profit margin
  • Higher operating profit
  • Improved cash flow
  • Higher ROCE
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Selecting financial strategies

Key sources of cost reductions

  • Eliminating waste & avoiding duplications (lean production)
  • Simplifying processes and procedures
  • Outsourcing non-core activities (e.g. transaction processing, payroll, call handling)
  • Negotiating better prices from suppliers 
  • Pruning product ranges and customer accounts to eliminate unprofitable business
  • Introducing flexible working practices 
  • Aggressive control of overheads (e.g. banning first/business class travel)
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Selecting financial strategies

Profit centres

A profit centre is a separetly-identiflable part of a business for which it is possible to identify revenues and costs (i.e. calculate profit)


  • Shows where profit is earned within a complex business 
  • Supports detailed budgetary control including setting profit objectives
  • Can improve motivations of those responsible for the profit centre (e.g. managers)
  • Comparisions can be made between similar profit centres (e.g. shops in chain)
  • Improves decision making at local level (likely to be closer to customer needs)


  • Time-consuming to set-up and monitor
  • Hard to allocate costs (particlarly) and revenues (occasionally)
  • Many lead to conflict and competition rather than cooperation within the business 
  • Potentially de-motivating if profit centre targets are too tough, or if unfair cost allocation are made
  • Profit centre may persure their own objectives rather than those of the broader business
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Selecting financial strategies

Retained profit: the most importnt and significant source of finance for an established, profitable business

Advantages of retained profit:

  • Cheap (though not free, because of opportunity cost for shareholders)
  • Very flexible- management control how reinvested & shareholders control the proportion retained
  • Does not dilute the ownership of the company

Disadvantages of retained profit:

  • Danger of hoarding cash
  • Shareholders may prefer dividend if the business is not earning a sufficient return on investment 
  • High profits and cash flows would suggest the business could afford debt (higher gearing)
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Selecting financial strategies- Raising finance

Raising finance- key choices

Equity (e.g. shares venture capital)

  • Finance from shareholders
  • Return = dividends + share price growth
  • Higher flexible
  • Best suited for long-term finance
  • No obligation to repay

Debt (e.g. bank loans, debtatures, overdrafts)

  • Can be short, medium or long-term
  • No loss of ownership or control
  • May require security
  • Interest costs
  • Repayment is an obligation
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Selecting financial strategies- factors to conside

Factors to consider when choosing/raising finance

  • Purpose
    • e.g. working capital
  • Costs
    • e.g. rate of interest 
  • Flexibility
    • e.g. amount & timing
  • Ownership structure
    • e.g. Ltd Co
  • Time period
    • short v long-term
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Selecting financial strategies- factors to conside

Factors to consider when choosing/raising finance

  • Purpose
    • e.g. working capital
  • Costs
    • e.g. rate of interest 
  • Flexibility
    • e.g. amount & timing
  • Ownership structure
    • e.g. Ltd Co
  • Time period
    • short v long-term
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Making investment decisions- the distinction betwe

The distinction between capital & revenue spending


  • Cash spent on day-to-day operation e.g. 
    • Raw materials 
    • Wages & salaries 


  • Cash spent on investment in the business e.g.
    • Plant & macninery 
    • IT systems

Spending used to-

  • Add extra production capacity
  • Support the introduction of new products and production processes
  • Implement improved IT systems
  • Comply with changing legislation & regulations
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Making investment decisions- why appraise business

Why appraise business investment?

The problem:

  • Finance resources are scarce and business functions demand financial resources
  • Choices have to be made
  • Which investments justify the risks?
  • How to choose between competing investments?
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Making investment decisions- three main methods of

Three main methods of investment appraisal

Payback period- the time it takes for a project to repay its inital investment

Average rate of return- looks at the total accounting return for a project to see if it meets the target return

Discounted cash flow (NPV)Net present value (NPV) calculates the monetary value now of the project's future cash flow

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Making investment decisions- payback period method

Payback period method


  • Simple and easy to calculate + easy to understand the results
  • Focuses on cash- which is normally scarce
  • Emphasises speed of return- good for markets which change rapidly
  • Straightfoward to compare competing projects


  • Ignores cash flows which arise after the payback has been reached- i.e. does not look at the overall project return
  • Takes no account of the "time value of money"
  • Many encourage short-term thinking
  • Ignores qualitative aspects of a decision 
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Making investment decisions- average rate of retur

Average rate of return method


  • AAR provides a percentage return which can be compared with a target return
  • AAR looks at the whole profitability of the project
  • Focuses on profitability- a key issue for shareholders


  • Does not take into account cash flows- only profits (they may not be the same thing)
  • Takes no account of the time value of money
  • Treats profit arising late in the project in the same way as those which might arise early
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Making investment decisions- discounted cash flow-

Discounted cash flow- net present value


  • Reflects the time value of money, with earlier cash flows more important to decision
  • Looks at all the cash flows of the projects
  • Has a decision-making mechanism- reject projects with negative NPV


  • More complicated method- users may find it hard to understand
  • Difficult to select the discount rate
  • The NPV calculation is very sensitive to the inital investment costs
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Marketing objectives & influences

Marketing objectives are the marketing-related goals and targets that the firm wants to achieve. These are often closely linked (& similar to) corporate onjectives, since they deal with factors such revenue growth, market share, market standing etc.

The marketing challage faced by all firms:

  • To find a way of achieving a sustainable competitive advantage over the other competing products and firms in a market
  • What is a competitve advantage?
    • An advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing added value that justifies higher price
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Marketing objectives & influences- common marketin

Common marketing objectives 

-Market share

-Product/brand recognition

-Customer loyalty & repeat business

-Revenues (value,volume)

-Market standing & reputation

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marketing objectives & influences- the hierarchy o

The hierarchy of marketing objectives- examples

  • Corporate objectives
    • Grow revenues b 15% p.a. in each of the next five years
  • Marketing objectives
    • Increae UK market share to 17% 
    • Grow average customer spend by 5%
  • Marketing strategies
    • Refocus product range on high margin items
    • Introduce CRM systems into industrial division
  • Marketing tactics
    • Improvve agreement with key suppliers
    • Conduct search engine advertising campaign
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Marketing objectives and influences- how marketing

How much objectives link with other functions

  • Raising finance- 
  • How it supports marketing- Investment in new products
  • Introduce quality assurance and lean production-
  • How it supports marketing- Improve product quality and profitability
  • Training programme for staff-
  • How it supports marketing- Improve quality of customer service
  • Allicate specific production for a new retail customers-
  • How it supports marketing- Expand product distribution and increase sales
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Marketing objectives and influences- internal infl

Internal influences on marketing objectives

Corporate objectives- Marketing objectives should not conflict with a corporate objectives. Often similar- e.g. market share & growth

Finance- Financial position (profitablility, cash flow, liquidity) directly affects the scope and scale or marketing activities 

HRM- For a service business in particular, the quality and capacity of the workforce is a key issue for marketing. A motivated and well-trained workforce can deliver great customer service and productivit to improve competitiveness

Operations- A key role to play in enabling the business to compete on cost (effeciency/productivity) and quality. Capacity management also influences achievement of revenue objectives

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Marketing objectives and influences- external infl

External influences on marketing objectives

Economic enviroment- The key factor in determining demand. Eg. marketing objectives changed as a result of economic downturn

Competitor actions- Marketing objectives have to take account of likely/possible competitor response

Market dynamics- Key is market size, growth and segmentation. A market whose growth shows is less likey to support an objective of significant revenue growth or new product developement

Technological change- Many markets are affected by rapid technological change, shortening product life cycle and creating great opportunities for innovation

Social & political change- Change to legislation may create or prevent marketing opportunities. Change in the structure and attitudes of society also have major implications for many markets

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Selecting marketing strategies- Porter's generic s

Porter's generic strategies- Cost leadership

With this strategy, the objective is to become the lowest-cost producer in the industry

What it takes for this strategy to be successful:

  • High levels of productivity & capacity utilisation
  • Economies of scale
  • Bargaining power to negotiate the lowest supplier prices
  • Lean production methods
  • Effective use of technology
  • Access to the most effective distribution channels
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Selecting marketing strategies- Porter's generic s

Porter's generic stratefies- Differentiation

With differentation, a business aims to differentation within just on or a small number of niche market segment

What it takes for this strategy to be successful

  • Market segmentation
  • Clearly identifiable customer needs and wants
  • A valid basis for differentation- e.g. quality
  • Specialist expertise/experiences
  • Exclusiceness (e.g. through disrubtion)
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Selecting marketing strategies-Ansoff's Matrix

Ansoff's matrix

A markeing planning model that helps a business determine its product and market strategy


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Selecting marketing strategies-Ansoff's Matrix eva

Ansoff's Matrix- evaluating diversification

  • Inherently risky strategy
  • A step into the unknown
  • No direct experience of the product or market
  • Few economies of scale
  • However, if successful, overall risk of business is spread
  • Approaches
  • Innovation & R&D: develop new solutions
  • Acquire an existing business in the market
  • Extend an exsiting brand into the market
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Selecting marketing strategies-strategy options fo

Strategy options for marketing internationally

  • Exporting direct to international customers-
    • The UK business takes orders from international customers and ships them to the customers destination
  • Selling via overseas agents or distributors- 
    • A distribution or agency contract is mae with one or more intermeditaries
    • Distributiors & agents may buy stock to service local demand
    • The costomer is owned by the distrubutor or agent
  • Opening an operation overseas-
    • Involves physically seting up one or more business locations in the target markets
    • Initally may just be a sales office- porentially leading onto production facilities (depends on product)
  • Joing venture or buing a business overseas-
    • The business acquires or invests in an exisiting business that operates in the target market
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Selecting marketing strategies- addressing the ris

Addressing the risks of expanding internationally


  • Lack of market knowledge
  • Cultural differences
  • Higher costs & investment
  • Management coordination
  • Economic factors


  • Detailed market research & business plan
  • Work with local partners
  • Seek specialist advice 
  • Begin by exporting directl (lower risk)
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Marketing planning & analysis- Compenents

Components of a marketing plan

Mission statment- statement of the purpose and direction fo the business 

Coroprate objectives- overall business objectives that shape the marketing plan

Marketing audit- the exising products,resources, distrubution method, market share, competitors  ect.

Market analysis- size, structure, growth

SWOT analysis-an assessment of the firm's cuurent position, showing the strengths and weaknesses (internal factors) and opportunites and threats (external factors)

Marketing objectives and stratergies- what the marketing functions want to achieve (consistent with corporate objectives) and the intended strategies

Marketing budget- detailed for 12 months & outline for the next 2-3 years

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marketing planning & analysis- benefits and drawba

Benefits and drawbacks of marketing planning


  • Provides clear sense of direction for marketing management 
  • Marketing options are evaluated and prioritised
  • Allocates scarce resources more effectively
  • Encourages coordination with other functional areas (finance,oporations & HR)
  • Provides a basis for assessing actual results agains target

Potential drawbacks:

  • Can be time-consuming
  • Constant change in the market makes assumptions difficult
  • Danger of either being too simplistic or too complicated
  • The plan can be ignored as circumstances take over
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Marketing planning and analysis- determining the s

Determining the size of the marketing budget

The marketing budget sets out how much money is allocated to marketing and how it intends to spend it

Financial position of the business- A business suffering from cash flow problems or low profitability will normally have to resist its markering budget along with cost reduction in other functional areas

Competitor actions- A business whose competitors are significantly increasing thier marketing spending may need to respond to maintain market share

Responsiveness and return from marketing spending- Hard to measure-but important if it can be. Each element of marketing spending needs to generate an acceptable return

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Marketing planning and analysis- Market analysis

Where market analysis is crucial

  • Forecasting sales for new products or investment into new markets
  • Gathering evidence to support a finance raising exercise
  • To support a new marketing strategy
  • Support decision about significant organisational or operational change
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Marketing planning and analysis- test marketing

Test marketing

Involves launching the product in small parts (usually geographic) parts of the target market to gauge the viabilit of a product prior to a main launch


  • Data provided is from actual customer spending
  • Reduces the risk of a full-scale launch- if product fails a test then significant costs may be saved
  • Provides a way to tweak the marketing mix before full launch
  • Can create a promotional "buzz" which supports the main launch


  • Danger of the competition learning about the product and coming up with a response before the full launch
  • Test market may not be representative of the full target market, leading to inappropriate decisions
  • Costly and time-comsuming to administer 
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Marketing planning and analysis- three key methods

Three key methods for market analysis

Moving average-collection of average which "smoothe" the fluctuations in data to show to take out the extremes of data from period to period

Extrapolation- use of past data to establish a trend which is then projeted into the future 

Correlation- looking for evidence of a dependent relationship between key marketing variables

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Marketing planning and analysis- correlation


Correlation looks at the strength of a relatonship between two variables

Independant variableThe factor that causes the dependent variable to change

Dependent variableThe variable that is influenced by the independent variable 

Correlation- types

Positive correlationA positive relationship exists where as the independent variable increases in value, so does the dependent 

Negative correlation- A negative relationship exists where as the indepedent variable increases in value, the dependent variable falls in value 

No correlationThere is no discernible relationship between the independent and dependent variable 

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Marketing planning and analysis- Correlation


Scatter chart- 

  • Correlation is usually measured by using a scatter diagram, on which data points are plotted 
  • The dependent variable is normally plotted on the y-axis: the independent variable on the x-axis 

Line of best-fit-

  • The line of best fit indicates the strength of the correlation 
  • Strong correlation means that there is little room between the data point and the line
  • Weak correlation means that the data points are spread quite wide and far away from the line of best fit
  • If the data suggests strong correlation, then the relationship might be used to make marketing predictions
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Marketing planning and analysis- Two qualitative m

Two qualitative method of sales forecasting


  • Likely to be influenced by the experience of the forecaster, perhaps supported by market research or from discussions with competitors 
  • Uses insights into the sales prospects for individuals products, business units
  • Starting point for a hunch forecast is often the previous years' or period data

Delphi method

  • Involves getting a group of market experts to provide an opinion on the forecasting task- e.g. to estimate future sales growth in a market
  • Experts first give a confidential individual opinion on the task
  • Their forecasts then revised based on the submissions of each expert to the group
  • Ultimetely the aim of Delphi metho dis to reach an "consensus" forecast
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Marketing planning & analysis- key problems/issues

Key problems/issues in analysing market data

  • Can be costly and time-consuming
  • Can slow decision-making
  • Data can quickly become out-of-date
  • Decisions based on intuition or hunch can be just as effective as qualititative forecast
  • Trends less reliable in fast-changing markets
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Operational objectives and influences- key operati

Key operational objectives

  • Cost & Volume
  • Quality
  • Efficiency & flexibility
  • Enviromental
  • Innovation
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Operational objectives and influences- operational

Operational targets & objectives

Cost & Volume

  • A business needs to ensure that operations are cost-effective
  • The business with the lowest unit cost has a strong potential advantage
  • Examples:
    • Productivity & efficiency (e.g. units per week or employee)
    • Unit costs per unit
    • Contribution per unit
    • Number of item to produce


  • A reputation for high quality, then it may be able to create an advantage over its competitors 
  • Examples
    • Scraps/defect rates: a measure of poor quality
    • Reliability
    • Customer satisfaction/ Customer loyality- e.g. percentage of repeat business 
    • Percentage of on-time and/ or correct delivery
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Operational objectives and influences- operational

Efficency & flexibility

  • Closely linked to cost targets
  • Look at how effectively the assets of the business are being utilised
  • Efficiency and flexibility are key determinants of unit costs
  • Examples:
    • Labout productivity
    • Output per time period
    • Capacity utilisation
    • Order lead time


  • Increasingly important as businesses face more stringent enviromental legislation
  • Targets usually closely intergrated into a firm's approach to corporated social responsibility
  • Example:
    • Use of energy efficiently
    • Recycling & waste disposal 
    • Sustainable sourcing
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Operational objectives and influences- operational

Operational targets & objectives


  • Development of an idea into a commercially viable product 
  • Two types of innovation- product and process
  • Often requires significant investment in research & development 
  • Can the innovation be protected to maintain a competitive advantage?
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Operational objectives and influences- internal in

Internal influences on operations objectives

Corporate objectivesThe most important internal influence. An operations objective (e.g. higher production capacity) should not conflict with a corporate objectives (e.g. lowest unit costs)

FinanceOperations decisions often involve significant investment and cost. The financial position of the business (profitability, cash flow, liquidity) directly affects the choice available 

Human resourcesFor a service business in particular, the quality and capactity of the workforce is key factor in afecting operational objectives. Targets for productivity, for example, will be affected by the investment in training and the effectiveness of workforce planning

Marketing issuesThe nature of the product determines the operational set-up. Regular changes to the marketing mix- particularly product- may place strains on operations, particularly if production is relatively inflexible 

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Operational objectives and influences- external in

External influences on operations objectives

Economic enviromentcrucial for operation. Sudden or short-term changes in demand impact on capacity utilidation, productivity etc. Changes in interest rates impact on the cost of financing capital investment in operations.

Competitor efficiency flexibilityquicker, more effecient or better quality competitors will place pressure on operations to delier at least comparable performance

Technological changealso very significant- especially in markets where product life cycles are short, innovation is rife and production processes are costly

Legal & enviromental changegreater regulation and legislation of the environment places new challenges for operations objectives

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Scale and resource mix - economies of scale

Economies of scale

Economies of scale arise when unit costs fall as output increases


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Scale and resource mix - economies of scale exampl

Examples of economies of scale

  • Buying economies-
    • Buying in greater quatities usually results in a lower price (bulk-buying)
  • Technical-
    • Use of specialist equipment or processes to boost productivity
  • Marketing-
    • Spreading a fixed marketing spend over a larger range of products, markets and customers
  • Network-
    • Adding extra customers or users to a netwek that is already established (e.g. mobile phones)
  • Fincancial-
    • Larger firms benefit from access to more and cheaper finance 
  • Industry-
    • An external economy- all competitiors benefit- e.g. sepcialist businesses group close together
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Scale and resource mix- diseconomies of scale

Diseconomies of scale

Factors which cause the average production cost per unit of a business to increase about the efficient level

For examples:

  • Poor communication
  • More difficult to control a larger, more complex business
  • More frequent machinery & employee breakdown if output & capacity utilisation is too high
  • Loss of management focus
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Scale and resource mix- labour/capital intensive

Labour/capital intensive

Labour intensive- production relies on using labour resources

For example:

  • Food processing
  • Hotel & resturants
  • Fruit farming
  • Hairdressing
  • Coal mining

Capital intensive- production relies on using capital resources

For example:

  • Oil extraction & refining
  • Car manufacturing
  • Web hosting
  • Intensive arable farming
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Scale and resource mix- key implications of indust

Key implications of industry labout or capital intensity

Labour intensive-

  • Labour costs higher than capital costs
  • Costs are mainly variabes= lower breakeven output
  • Firms benefit from access to sources of low-cost labour

Capital intensive

  • Capital costs higher then labour costs
  • Costs are mainly fixed= higher breakeven output
  • Firms benefit from access to low-cost, long-term financing
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Innovation is about putting a new idea or approach into action. Innocation is commonly described as "the commercially successful exploitation of ideas"


Formulation of new ideas for products or processes


Practicial application of inventions into marketable products or services

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Innovation- the research and development process

 The research and development process

  • Idea generation
  • Idea screening 
  • Concept development and testing
  • Beta testing and market testing
  • Technical implementation
  • Commercial launch
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Innovation- main types of innovation

Main types of innovation

Product: Launching new or improved products (or services) on to the market

  • Advantages:
    • First mover advantage
    • Higher prices and profitability 
    • Added value 
    • Opportunity to build early customer loyalty 
    • Enhanced reputation as an innovative company
    • Increased market share

Process: Finding better or more efficient ways of producing an existing products, or delivering exisiting service

  • Advantages:
    • Reduced costs/ higher profit
    • Improved quality / greater flexibility
    • More responsive customer service
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Innovation- potential drawbacks and problems with

Potential drawbacks and problems with innovation


  • An innovation only confers a competitive advantage if competitior are not able to replicate it in thier own businesses. Whilst patents provide legal protection, may innovative products and processe are hard to protect. 

Uncertain commercial return:

  • Much research is speculative and there is no guarantee of future revenue and profits. The longer the development timescale the greater the risk that research is overtaken by competitors too. 

Availability of finance:

  • Like other business activities, R&D has to compete for scarce cash. Given the risk involved, R&D demands a higher required rate of retun. This means that for busineses that have limited cash resources, the opportunity cost of investing in R&D can be very high.
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Innovation- business benefits of innovation

Business benefits of innovation

Improved productivity and reduce costs:

  • A lot of process innovation is about reducing unit costs. This might be achieved by improving the production capacity and/or flexibility of the business to enable it to explit economies of scale

Better quality:

  • By definition, better quality products and services are more likely to meet customer needs. Assuming that the are effectively marketed, that should result in higher sales and profit

Building a product range:

  • A business with a single product or limited product range would almost certainly benefit from innovation. A broader product range provides an opportunity for higher sales and profits and also reduces the risk for shareholders
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Innovation- business benefits of innovation

Business benefits of innovation

To handle legal and environmental issues:

  • Innovation might enable the business to reduce carbon emissions or produce less waste. Changes in laws often force business to innovate whe they might not otherwise do so 

More added value:

  • Effectiv innovation can estblish a unique selling proposition (USP) for a product- something which the customer is prepared to pa more for and which will help the business differentiate itself from competition 
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Location- making a balanced choice about location

Making a balanced choice about location:

  • Are cost (supply) issues more important than customers and revenue (demand)?
  • Is the decision strategically important (ie. it could affect the achievement of corporate objectives) or is it a relatively minor decision?
  • Can qualititative methods be used to evaluate alternative location options (e.g. by using investment appraisal techniques) 
  • Do qualitative factors, including senior managment preferences, outweigh the financial considerations?
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Location- factors that influence the choice of bus

Factors that influence the choice of business location

Quantitative factors:

  • Based on data 
  • Suitable for investment appraisal e.g.
    • Costs
    • Customers
    • Size of market
    • Suppliers

Qualitative factors:

  • Harder to identify, based on opinions e.g.
    • Image
    • Tradition
    • Personal preferences 
    • Quality of life
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Location- benefits of a good choice of business lo

Benefits of a good choice of business location

Competitive unit costs: by combining productive and efficient labour supply, low overheads and cost-effective access to inputs (raw materials, components)

Optimal revenue opportunities: customer service is not inconvenienced by the choice of location

An acceptable rate of return on investment: all business projects compete for scare cash resources: a busines location decision is no different 

Sufficient production capacity: to meet demand and furure flexibilit in capacity management decisions

Access to a labour force: which enables the business to achieve the objectives of its workforce planning

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Location- industrial inertia and relocation

Industrial inertia and relocation

Industrial inertia:

  • Where a business, once established, decides to stay in its original location even if other factors suggest a new location would be beneficial 
  • Potentially provides advantages from external economies of scale
  • Over a long period of time, a location or region associated with a particular industry develops specialist skills and experience
  • Labour force and local suppliers also likely to be specialist

Cost of relocation:

  • Recruiting and training staff in new location
  • Diplicated propety costs- e.g. remaining periods on original lease + upfront payments equipment, transferring stocks, lost revenue
  • Intangible (but important)
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Location- multi-site location

Multi-site location


  • Most importantl- closer to customers, the business operates in the geographical markets when it can compete
  • Greater portenital form promotion amongst junior management
  • Marketing and management economies of scale- costly resources can be spread across more business locations, customers and revenue
  • Easier to flex capacity- by adding or removing locations
  • Better understanding of local market cultures and conditions


  • Potential duplication of activities (diseconomies of scale)
  • Harder to control operations- through IT systems can make this much eaiser
  • Communication across the business is more challenging 
  • Increased risk- the risk that the business does not understand the local markets in which it is operating
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Location- international location

International location

Increasing use of international locations:

  • Cross-boarder mergers and acquisitions (e.g. a UK business buys US competitor)
  • Organic growth overseas (e.g Tesco opening superstores in Thailand)
  • Moving production overseas- enable faster lead time to customers or reduce costs
  • Increasing use of offshoring

Key issues to consider:

  • Exchange rates- exposes business to the effects of fluctuating exhange rates
  • Trade barriers- locating overseas may bypass trade barriers (e.g. quotas, tariffs on imported goods)
  • Political stability- most deveoloped economies enjoy relative politival stability. Other territoris are less redictable 
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Lean production

What is lean production?

An approach to management that focuses on cutting out waste, whilst ensuring quality. This appraoch can be applied to all aspects of a business- from design through production to distrubution

  • Doing the simple things well
  • Doing things better
  • Involving employees in the continuous process of imporovement 
  • and as a result, avoiding waste
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Lean production- time-based management techiques

Time-based management techniques

An general approach that recognises the importance of time and seeks to reduce the level of wasted time in the production processes of a business


  • Quicker responses times (reduced lead times) to meet changing market and customer needs
  • Faster new product development
  • Reduction in waste, therefore greater efficency


  • Flexible production methods
    • Able to change products quickly
    • Can change production volumes/runs
  • Training employees
    • Multi-skilled staff
    • Trust between workrs and management
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Lean production- simultaneous engineering

Simultaneous engeneering

An approach to project mamangement that helps firms develop and launch new products more quickly. All parts of the projects are planned together. 

Benefits of simultaneous engeening (where possible)

  • New producs brought to the market quicker
  • Business may be able to charge a premion price= better profit margin and helps recoup R&D costs
  • Less need to modify the product later due to unforeseen problems
  • Cooperation between business functions improve staff commitment to the project
  • Can be a source of competitive advantage "first mvoer advantage2 for the firm if it can get a reliable new product into the market and build brand loyalty before its competitors
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Lean production- cell production

Cell production

A form of team working where production processes are split into cells. Each cell is responsible for a complete unit of work

Potential benefits:

  • Closeness of cell memeber should improve communication 
  • Workers become muli-skilled and more adaptble 
  • Great motivation, from variety of work, team working and responsisbility
  • Cell has "ownership" for quality of its area

Potential drawbacks/issues:

  • Culture has to embrace trust & participation
  • Business may have to invest in new materials handling and ordering systems suitable for cell production
  • Cell production may not allow a firm to use its machinery as intensively
  • Some small scare production lines may not yield enoguh savings to make a switch cell production worthwhile
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Lean production- Just-in-Time

Just-in-Time (JIT)

Aims to ensure that inputs into the production process only arrive when they are needed


  • Lowers stock holding means a reduction in storage space which saves rent and insurance costs
  • As stock is only obtained when it is needed, less working capital is tied up in stock
  • Less likelihood of stock perishing, beomign obselete or out of date
  • Less time spend on ckecking and reworking production as the emphasis is on getting the work right first time


  • There is little room for misttake as minimal stock is kept for re-working faulty products
  • Production is highly relant on suppliers and if stock is not delived on time, the whole production schedule can be delayed
  • There is no spare finished product avaliable to meet unexpected orders, because all product is made to meet actual order
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Lean production- Kiazen


Kaizen is an approach of constantly introducing small incremental changes in a business in order to improve quality and/or efficency

  • Kaizen involves making many small changes to production
  • As the idea comes from employees, they are less likely to be radically different, and therefore eaiser to implement
  • Small imporvements are less likely to require major capital investment than major provess changes
  • Culture- all employees should continually look for ways to improve their own performace
  • Kaizen encourages employees to take ownership for thier work, can help reinforce team work and improve motivation
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Critical path analysis

Critical path analysis

A projct analysis and plannign method that allows a project to completed in the shortest possible time

Why is CPA needed?

  • Many larger businesses get involved in projects that are complex and involve significant investment and risk
  • As the complexity and risk increases it becomes even more necessary to identity the relatinships between the activitires involved and to work our the most efficient way of completing the project

The network float- the float is the duration an activity can be extended or postpones so that the project still finishes within the minimum time

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Critical path analysis: Benefits and drawbacks

Benefits and drawbacks of CPA


  • Most important- helps reduce the risk and costs of complex projects
  • Encourages careful assessment of the requirements of each activity in a project
  • Help sport which activies can have some slack and could therefore transfer some resources


  • Reliability of CPA needs accurate estimated and assumptions
  • CPA does not guarantee the success of a project
  • Resources may not actually be as flexible as managment hope when they look at the network float
  • Too many activities make the network diagram too complicated. Activities themselves have to be broken down into mini-projects
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HR objectives and influences- HRM

HRM as a strategy- why it is important for business

What is HRM- "the design, implementation and maintenance of stratefies to manage people for optimun business performance"

  • Most businesses noe provide services rather than produce goods- people are a vital part in delivering high quality & customer service 
  • Competitiveness requires a business to be efficent and productive- this is difficult unless the workforce is well motivated, has the right skills and is effectievly organised
  • The move toward fewer layers of management hierarchy (flatter organisational structures) has placed greater emphasis on delegation and communication
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HR objectives and influences- strategic tools for

Stratefic tools for achieving success in HRM

  • Workforce planning 
  • Recruitment
  • Training & development
  • Motivating staff (including reward system)
  • Organisational structure
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HR objectives and influences- common HRM objective

Common HRM objectives

Ensure human resources are employed cost-effectively:

  • Pay rates should be competitive but not excessive
  • Achieve accetable staff utilisation 
  • Minimise staff turnover
  • Measure return on investment in training

Maintain good employer/employee relations:

  • Avoid unnecessary and costly industrial disputes
  • Timely and honest communicationwith employees and thier representatives
  • Sensitive handingling or portential problems with employees (e.g. redundancy,major changes in the business)
  • Comply with all relevant employment legisalations
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HR objectives and influences- common HRM objective

Common HRM objectives

Match the workforce to the business needs:

  • Workforce planning to ensure business has the right number of staff in the right location with the right skills
  • Effective recruitment to match workforce needs
  • Training programmes to cover skills gaps or respond to changes in technology, processes & market
  • Consider outsourcing activities
  • Get the right numver and mix of staff at each location where the business operate in multiple sites and countries

Make effective use of workforce potential:

  • Ensure jobs have suitable, achievable workload
  • Avoid too many under-utlised or over-streched staff
  • Make best use of employee skills
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HR objectives and influences- internal influence o

Internal influences on HRM objectives

Corporate objectives: e.g a objective of cost reduction is likely to require HR to implement redudancies, job reallocations etc.

Operational strategies: e.g. introduction of new IT or other system and processes may requiure new staff training, fewer staff

Marketing strategies: e.g. new product developemt and entry into a new market may require change to organisational structure and recruitment of a new sales team

Financial strategies: e.g. a decisionto reduce costs by outsourcing training would result in changes to training programmes

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HR objectives and influences- external influences

External influences on HRM objectives

Market changes: e.g a loss of market share to a competitor may require a change in divisional management or job losses to improve competitiveness

Economic changes: e.g. the recession of 2009/2010 placed great pressure of HR departments to reduce staff costs and improve productivity

Techological changes: e.g. the rapid growth of social networking may require changes to the way the business communicates with employees and customers

Social changes: e.g. the growign number of single-person households is increasing demand for employees for flexible working options

Politcal and legal changes: e.g. EU legislations such as maximum working time and other employemen rights inpacts directly on workforce planning

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