BUSS4

HideShow resource information

Factors influencing strategic aims and objectives

  • age of the business
  • size ad legal status
  • ownership
  • view of owners and managers
  • market conditions
  • legislation
  • state of the economy
  • competition
  • risk and attitude to risk
  • corporate culture
  • political factors
  • social attitudes
1 of 36

The Economic Cycle

1) Boom - high levels of consumer spending, business confidence with profits and investment, prices and costs tend to rise faster, low level of unemployment.

2) Recession - falling levels of consumer spending and confidence meaning lower profits - starting to cut back on investment, spare capacity increases and rising unemployment.

3) Slump / depression - very weak consumer spending and business investment; many business failures, rapidly riing unemployment, prices may start falling.

4) Recovery - things start to get better, consumers begin to increase sending, confidence is being regained and starting to invest again, takes time for unemployment to stop growing.

(http://www.tutor2u.net/business/strategy/economy-business-cycle.jpg)

2 of 36

Impacts of unemployment for business's

High unemployment:

  • lower consumer spending - lower demand for income-elastic products
  • demand for inferior goods (lower price, lower quality) may increase
  • greater supply of lbour - potential lower wage / salary levels
  • danger of lost skills for industries as a whole

Low unemployment:

  • consumers have more income - high demand for income elastic goods
  • labour market tightens - increased upward pressure on wages / salaries
  • harder to recruit ot expand without offering better worker packages
3 of 36

How may a business respond to unemployment

Low unemployment:

  • a chance to expand capacity to take advantage of higher demand
  • adjust remuneration packages to remain competitive and attract staff
  • invest in training to meet sills gap and help retain key staff
  • offer more flexible wrking options to attract larger labour pool
  • consider outsourcing to access specialist skills where recruitment is tough

High umemployment:

  • reduce production capacity if demand falls
  • headcount reductions (redundancy, recruitment freeze)
  • reduce working capital (particulrly inventories)
  • postpone or cancel investment projects
  • potentially diversify into new markets
4 of 36

Effect of a stong pound on businesses (ex rates)

A stronger pound makes it cheaper to pay for imports, but exports will seem more expensive to overseas customers (i.e. less competitive)

Stonger

Pound

Imports

Cheaper

Exports

Dearer

5 of 36

Effects of exchange rates on businesses

Low effect:

  • no export sals - trnoverall in domestic (UK) market
  • all business activities located in the UK
  • raw materials and other suppliers bought in the UK
  • demand predominatly from domestic (UK) customers
  • demand is price inelastic
  • higher costs can be passed on to customers to maintain margin

High effect:

  • significant export sales, perhaps in many countries
  • overseas operations, earning profits in foreign currency
  • significant purchases from overseas suppliers
  • sustantial demand from overseas visitors
  • demand is price elastic
  • higher costs usually have to be absorbed via a lower margin
6 of 36

Main roles of business legislation

  • regulate the rights and duties of people carrying out business to ensure fairness
  • protects customers from harm
  • ensure the treatment of employees is fair and un-discriminatory
  • protect investors and creditors
  • regulate dealings between business and its suppliers
  • ensure a level playing field for competing business
7 of 36

Impacts of legislation on business's

  • enforcement of competition law - restricts the ability to undertake takeovers wich might lead to market dominance
  • tougher enviromental legislation - adds to business costs e.g. implementation of EU carbon emissions limits added to costs of motor manufacturers
  • relaxation of law regarding redundancies - proposed in the UK; could make it easier for firms to change the size of their workforces
  • additional legislation to protect consumer buying online - adds complexity to frms using e-commerce, but potentially benefits those firms prepared to abide by the law and protects consumers
8 of 36

Main consumer legislaton affecting business's

  • distance selling regulations - gives consumer protection when they buy gods or services by mail order, phone or online
  • the sale of good act - requires goods to be described, fit for their purpose and of satisfactory quality, if they are not, the customer can reject them
  • supply of goods and services act - customers are entitled to work thats carried out with reasonable skill, in a reasonable time, at a reasonable price
  • trade description act - required any descriptions of goods and services fiven to be accurate and not misleading
9 of 36

Corporate Social Responsibility

A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.

Reasons why firms are increasingly embracing CSR:

  • altruism - being a good citizen
  • window dressing - to appease stakeholfers
  • contracting benefits - e.g. help recruit, motivate and retain employees
  • customer related motivation - attract customers, brand positioning
  • lower production costs - i.e. packaging, energy usage
  • risk management - address potential legal or regulatory action
  • improved access to capital - ethical investment funds
10 of 36

Porter

Porter's 5 forces model remains a way a analysing the competitve structure of a market or industry. It helps explain why profits in some industries are so high and are dominated by  a small number of competitors where as others are struggling to make a profit.

High industry profits are associated with:

  • weak suppliers
  • weak customers
  • high entry barriers
  • few opportunities for substitutes
  • little rivalty between competitors

Low industry profits are associated with:

  • strong suppliers
  • strong customers
  • low entry barriers
  • many oportunities for substitutes
  • intense rivalry between competitors
11 of 36

What determies the extent of the competitive rival

  • number of competitors - will be higher in industries with many current and potential competitors
  • market size & growht prospects - competiton is always more intense in stagnating markets
  • product differentiation & brand loyalty - greater loyalty means less competition; lower the product differentiation means the greater the intensity of price competition
  • power of buyers & availability of substituts - if the buyers are strong &/or close substitutes are available, it means more rivalry
  • capacity utilisation - spare capacity with increase the intensity of competition
  • cost of structure of the industry - if fixed costs are a high percentage of the total costs then profits will be dependent on volume; means intense competition over market shares
  • exit barriers - if it is difficult to exit an industry, firms will remain therefore adding to the intensity of competiton
12 of 36

Advantages of using takeovers as a method of growt

  • quick access to resources and skills the business needs
  • overcomes barriers to entry
  • helps spread risk (wider range of products and greater geographical spread)
  • revenue growth opportunities (synergy 1+1=3)
  • cost saving opportunities (synergy)
  • reduces competiton
  • may enable economies of scale
13 of 36

Risks of using takeovers

  • high cost involved
  • problems of valuation
  • clash of cultures
  • upset customers
  • problems of integration - change management
  • resistance from employees
  • non-existant synergy
  • incompatibility of management styles, structures and culture
  • questionable motives
  • high failure rate
  • diseconomies of scale
14 of 36

Reasons for takeovers and merges

1) Strategic Motives

  • focused on improving and developing the business
  • closely linked to competitie advantage

2) Financial Motives

  • focused on making the best use of financial resources for shareholders
  • concerned with improved financial performance

3) Managerial Motives

  • focused on the self-interest of managers
  • not necessarily in the best interest of sharholders
15 of 36

Retrenchment

A strategy to reduce diversity or the overall size of the operations of the company. This strategy is often used in order to cut expenses with the goal of becoming a more financial stable buiness.

Potential causes of the need of retrenchment:

  • uncompetitive cost structure
  • inadequate returns on investment
  • poor competitive position
  • financial distress - e.g. hih debt
  • market decline
  • failed takeovrs
  • economic downtun
  • change of ownership
16 of 36

Business Culture

The way we do things in a buriness

  • how decisons are made
  • methods and style of communication
  • how customers are treated

Why might culture need changing in a business?

1) To improve business performance:

  • declining profits and sales
  • inadequate returns on investments
  • low quality of customer service

2) To respond to significant other change:

  • market changes (growth, competitors)
  • political and legal environment
  • change of ownership
17 of 36

Barriers to cultural change

Tradition and set ways:

  • loyalty to existing relationships
  • failure to accept the need for change
  • insecurity
  • preference for the existing arrangements
  • different person ambitions

Fear of:

  • loss of power, skills and income
  • the unknown
  • inability to perform as well in the new situation
  • break up of work groups
18 of 36

Change in management

Internal forces:

  • desire to increase profitability
  • reorganisation to increase efficiency8
  • conflict between departments
  • to change organisational culture

External forces:

  • customer demand
  • competition
  • cost of inputs
  • legislation and taxes
  • political
  • ethics and social values
  • technological changes
19 of 36

Reasons why change is resisted and fails

  • no leadership from the top
  • employees do not understand the purpose or even the need for change
  • lack of planning and preparation
  • poor communication
  • employees lack the necessary skills and/or there is insuffiecient training and development offered
  • lack of necessary resources
  • inadequate / inappropriate rewards
20 of 36

Factors affecting leadership style

  • personal value system
  • managers experience
  • confidence in subordinates
  • felling of security
  • nature of the business problems
  • type of organisation (size, structure)
  • effectiveness of teams and groups
  • skills and experience of subordinates
  • pressure (time, costs)
21 of 36

Leadershi styles (1)

1) Authoritarian:

  • focus of power is with the manager
  • communication is top-down & one-way
  • formal system of command and contol
  • use of rewards and penalties
  • very little delegation
  • McGregor Theory X approach

2) Paternalistic:

  • leader decides what is best for employees
  • links with Mayo - addressing employee needs
  • akin to a parent / child relationship
  • still little delegation
  • a softer form of authoritarian
22 of 36

Leadership styles (2)

3) Democratic:

  • focus of power is more with the froup as a whole
  • leadership functions are shared within the group
  • employees have greater involvement in decision making
  • emphasis on delegation and consultation

4) Laissez-faire:

  • leader has little input into day-to-day decision making
  • conscious decision to delegate power
  • managers / employees have freedom to do what they think is best
  • effective when staff are ready and willing to take on responsibility
23 of 36

Ways to demonstrate a leader

1) Leadership as command

  • where leaders take direct control

2) Leadership as vision

  • where leaders set the vision and core beliefs

3) Leadership as symbolic

  • where the leader is he embodiment of the strategy, but not involved day-to-day

4) Leadership as decision-making

  • where the leader weighs up the options and decides
24 of 36

Benefits of strategic planning

  • clarify direction
  • ensure efficient use of resources
  • provide a way of measuring progress
  • support effective decision making
  • co-ordinate activities
  • allocate responsibility
  • motivate and guide people
25 of 36

Strategic weaknesses

  • outdated technology - acquire competitor with leading technology
  • skills gap - invest in training and more effective recruitment
  • overdependence on a single product - diversify the product portfolio by entering new markets
  • poor quality - invest in quality assurance
  • high fixed costs - examine potential for outsourcing or offshoring
26 of 36

Ways to manage risk

1) Risk management

  • the identification and acceptance or offsetting of the risks threatening a business

2) Contingency planning

  • a plan for unforeseen events, including back up procedures, emergency response and post-event recovery

3) Crisis management

  • the process of responding to and minimising the damage from an adverse event
27 of 36

Examples of risk management

  • marketing - avoid over reliance on customers or products; develop multiple distribution networks; test marketing new products
  • operations - hold spare capacity; quality assurance and control
  • finance - credit insurance to protect against bad debts; investment appraisal
  • HR - key man insurance to protect against loss of key staff; rigorous recruitment and selection process
28 of 36

Ways of dealing with risk

  • ignore it
  • reduce profitability of risk and / or limit the consequences
  • share or deflect the risks e.g. by insurance
  • make contingency plans - prepare for it
  • adapt in order to maintain preformance
  • treat it as an opportunity
29 of 36

Whats involved.......

Risk management:

  • identifying what and how things can and might go wrong
  • understanding the potential effects if things go wrong
  • devising plans to cope with the threats
  • putting in place strategies to deal with the risks either before or after they happen

Contingency planning:

  • preparing for predictable and quantifiable crises
  • preparing for unexpected and unwelcome events
  • the aim is to minimise the impact of a foreseeable event and to plan for how the business will resume normal operations after the crisis
30 of 36

Factors leading to increasing globalisation

  • rising living standards
  • less protectionism
  • lower transport costs
  • digital communication
  • market liberalisation
  • diverging consumer cultures
31 of 36

Globalisation involves...

  • an expansion of trade in goods and services between countries
  • increase in transfers of financial capital across national boundaries including FDI by multinational companies
  • internationalisation of products and services and the development of global brands
  • shifts in production and consumption e.g. outsourcing and offshoring
32 of 36

Reasons for global expansion

  • higher profits and a stonger position and market access in global markets
  • reduced technological barriers to movement of goods and services and factors of production
  • lower unit costs by outsourcing
  • forward verticle integration
  • avoidance of transportation costs and tariffs
  • extending product life cycles
33 of 36

Features of emerging markets

  • economies making a transition from underdeveloped to developed
  • rapid industrialisation
  • faster long term economic growth than most developed economes
  • many inhabitants still in poverty but the rise of the affulent middle class
  • business struggle to access global markets (e.g. trade barriers)
34 of 36

Why are firms trying to build business in emerging

  • stronger economic growth
  • market saturation and maturity in domestic markets (showed by decline in sales)
  • easier to reach international consumers using e-commerce
  • greater government support
  • shareholder pressure to grow revenues and profits
35 of 36

Methods of reaching emerging markets

  • exporting direct to customers
  • selling via overseas agents or distributors
  • opening operations overseas
  • joint venture or buying a business overseas
36 of 36

Comments

princessmaroon

amazing, thank you

Similar Business Studies resources:

See all Business Studies resources »See all Business environment and managing change resources »