1
Q
Definition: Strategy
A
The direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a changing environment, to meet the needs of the markets and to fulfil stakeholder expectations (Johnson, Scholes and Whittington)
2
Q
Explain: Rational approach to strategy
A
Mission statement is starting point for strategy formulation. Then objectives (specific goals) are formulated, strategies (long term plans) are set to meet objectives, and action plans and budgets are put in place to implement the strategy.
3
Q
Stages: Rational approach to strategic planning
A
Strategy is developed through a series of logical steps, often summarized as:
Environmental analysis (external opportunities and threats)
Internal analysis (strengths and weaknesses)
Setting strategic goals
Developing strategic options
Evaluating and selecting the best option
Implementing and monitoring the strategy
4
Q
Pros and cons: Strategic planning
A
Pros:
- Provides a framework
- Encourages long term planning
- Goal congruence
- Considers the needs of stakeholders
- Optimises use of resources
- Considers changes in the business environment
- Monitors progress
Cons:
- Lack of evidence of resulting success
- May not be dynamic enough and allow sufficiently quick action
- Formal planning reduces initiative and innovative thinking
- Political infighting can disrupt the process
5
Q
Explanation: Mintzberg’s grades of strategy
A
Start with a consciously intended strategy.
Unrealised strategies are not implemented.
Deliberate strategies are put into practice.
Emergent strategies develop over time and are also put into practice.
All strategies put into practice are realised strategies.
6
Q
Definition: the strategies defined by Mintzberg’s grades of strategy
A
The emergent strategic model considers five types of strategy:
Intended: the result of a formal planning process.
– Deliberate: the intended plans that have been put into action.
– Unrealised: the intended plans that fell by the wayside.
Emergent: strategies created by force of circumstance.
Realised: the final realised strategy, whether it was deliberate or emergent.
7
Q
Explain: Resource based (inside-out) approach (strategic advantage)
A
An organisation may choose to orientate its corporate strategy by focusing on developing internal resources and competencies which are hard to imitate, and find or create markets to exploit these strengths
8
Q
Explain: Position (outside-in) approach (strategic advantage)
A
An organisation may choose to orientate its corporate strategy by focusing on analysis the external environment to identify customer needs and adapting to meet these needs
9
Q
Risk: Resource based (inside-out) approach (strategic advantage)
A
Organisation may fail to react to long term industry trends and may find their existing resources and competences are no longer valued by the customer
10
Q
Risk: Position (outside-in) approach (strategic advantage)
A
As customer’s needs change over time the organisation is forced to constantly evolve and develop new competences.
11
Q
Model: Successful mission statement
A
Ashridge College model
12
Q
Explain: Ashridge College model
A
The Ashridge College model of mission considers that a successful mission statement contains the following four elements:
- Reason: Why does the organisation exist and what does it aim to achieve for stakeholders?
- Strategy: What resources, competencies or generic strategy give the company a competitive advantage?
- Values: What beliefs do the managers and employees share?
- Policies: What standards and behavioural patterns are adopted within the organisation?
13
Q
Pros and cons: Mission statements
A
Pros:
- Help resolve stakeholder conflict
- Set direction for organisation and help formulate strategy
- Help communicate values and direction to stakeholders
Cons:
- Often contain meaningless terms that don’t give staff goals
- Often ignored by managers
- Often considered just a PR exercise
14
Q
Explain: Goals in Profit & Not-For-Profit organisations
A
15
Q
State: Rough time lines used in strategic planning
A
These terms are often used but remain ill-defined. You should always consider the industry but, as a rule of thumb:
Short term: 1 to 3 years
Medium term: 3 to 10 years
Long term: More than 10 years
16
Q
Model: Stakeholders
A
Mendelow’s power-interest stakeholder matrix
17
Q
Explain: Mendelow’s power-interest stakeholder matrix
A
Low interest - Low power: Minimal effort
Low interest - High power: Keep satisfied
High interest - Low power: Keep informed
High interest - High power: Key players that need participation
18
Q
Explain: The different business environments
A
Macro environment: External factors that affect the overall environment that the business operates in - The economy
Industry environment: External factors affecting the competitiveness of the industry the business operates in
Internal environment: The organisation’s own internal resources and capabilities
19
Q
Definition: Scenario planning
A
The development of pictures of potential futures for the purpose of managerial learning and the development of strategic responses - if x happens, we do y
20
Q
Explain: PESTEL analysis
A
PESTLE analysis is a strategic framework used to identify and analyze the six external macro-environmental factors that can impact an organization’s performance
- Political: E.g. taxation policy, government spending, foreign trade regulations
- Economic: E.g. growth, exchange/interest rates, inflation
- Social and demographic: E.g. Tastes, population demographic, income distribution
- Technological: E.g. new products, improved production methods, rate of obsolescence
- Environmental: E.g. sustainability, pollution and climate change, natural capital impact
- Legal: E.g. industry regulation, competition legislation, employment law
Can be used to analyse both the current environment and the predicted future environment.
21
Q
Model: Why would a firm act globally?
A
Ohmae’s 5 Cs
22
Q
Explain: Ohmae’s 5 Cs
A
Ohmae identified a number of reasons that might encourage a firm to act globally:
- Customer: Products that satisfy common customer tastes in different countries should do well on a global basis.
- Company: As the company enters additional markets, its fixed costs should be spread over an ever-increasing sales volume (Selling in more markets = higher sales)
- Competition: Global competitors entering an overseas market could encourage a previously local or regional operator to expand its activities and thus intensify innovation and competition.
- Currency volatility: By differentiating, you reduce exporting risk
- Country: Competitive advantages of other countries (lower labour, material and finance costs, or government incentives)
23
Q
Limitation: Global businesses
A
Political Risks
The possibility that political events, decisions, or instability in a country will negatively affect a business’s operations, profitability, or ability to repatriate profits.
* Government stability: Unrest or leadership changes create uncertainty for foreign businesses.
* International relations: The host government’s attitude toward the firm’s home country can affect trade.
* Government ideology: Political beliefs shape rules on ownership, profit transfer, and local partnerships.
* Informal relations: Local political contacts may influence success—but bribery is illegal.
Protectionism
Policies that restrict imports to protect domestic industries, such as use of tariffs, import quotas, and trade barriers to favor local producers.
Trade Blocs and Triads
Where trade blocs (Groups of countries that reduce barriers among members (e.g., EU, ASEAN) and triads (the major global trading regions—North America, Europe, and Asia-Pacific dominating world trade) encourage regional trade but may exclude or disadvantage outsiders.
24
Q
Model: Why do some nations have a competitive advantage in certain industries?
A
Porter’s diamond
25
Explain: Porter's diamond
A framework that explains why certain industries or nations are more competitive internationally:
- **Factor conditions (supply side)**: the nation’s resources that firms use to compete. They can be analysed into basic and advanced factors. Basic factors include natural resources, climate, unskilled and semi-skilled labour. Advanced factors include digital communications and highly educated personnel.
- **Demand conditions:** the nature and sophistication of domestic customers - sophisticated and demanding customers set the standards upon which the company can take their product globally.
- **Related and supporting industries:** the presence of supplier and other related industries that are internationally competitive
- **Strategy, structure and rivalry:** Structure refers to certain national cultural factors that orientate business people towards certain industries. Strategy concerns how companies have managed their financing and whether they chose to innovate within an industry to obtain competitive advantage or diversify into multiple industries (conglomerates). Domestic rivalry, or the absence of it, affects how businesses have developed. Where it is intense, tough domestic rivalry can teach businesses about innovation and competitive success on a global scale.
Chance events and government intervention should also be considered
26
Explain: Clusters (competitive advantage)
A country that has a competitive advantage in one industry will also often have one in a linked industry (either vertically or horizontally)
27
Stages & Explain: Industry life cycles
- **Introduction:** New product is invented and there might be a significant first mover advantage. Growth is moderate
- **Growth:** Rapid growth as market becomes attractive to new entrants. Competitive rivalry is low
- **Shakeout:** Slowing rate of growth, and weaker players are forced out or into merging
- **Maturity:** Low growth, or stable, so competition intensifies and competitors without economies of scales are forced out
- **Decline:** Sales volumes and demand for the product decline. Firms leave, and eventually the industry disappears.
28
Model: Used to assess attractiveness of an industry in terms of long run profitability
Porter's five forces
29
Explain: Porter's Five Forces
A model used to analyze the competitive intensity and therefore the attractiveness and potential profitability of an industry.
- Threat of new entrants: Consider barriers to entry/importance of economies of scale, as well as the attractiveness of the market
- Bargaining powers of customers: How much choice do they have? Can they demand lower prices?
- Bargaining powers of suppliers: How much choice do they have? Can they demand higher prices?
- Threat of substitutes: Is it easy to switch?
- Competitive rivalry: Number of firms, levels of fixed costs etc
30
Limitations: Porter's five forces
- Ignores the state - underestimates the influence of governments and public policy, which can heavily shape industries through:
- Not suitable for NFPs - The model assumes that all organizations operate to maximize profits and compete for market share
- Positioning based, not resource based - It does not consider internal capabilities or resources
- Assumes requirement to maximise shareholder wealth - ignores alternative objectives
- Dynamic industries - assumes relatively stable industry structures, not suitable for fast-moving or disruptive industries
- Ignores potential collaboration - assumes firms are always in conflict.
- Some industries might have more forces
31
Define: Critical success factor
A small number of key goals, vital to the success of the business.
Those product features that are particularly valued by a group of customers and therefor where the organisation must excel to outperform the competition (Johnson, Scholes and Whittington)
32
Difference: Threshold resources and unique resources
Threshold resources are the basic resources needed by all firms in the market, while unique resources are those that are better than the competition and difficult to replicate, thus giving a sustainable competitive advantage.
33
Difference: Threshold competences and unique competences
Threshold competences are the activities and processes involved in using and linking the firm’s resources necessary to stay in business, while unique competences are critical activities and processes that enable the firm to achieve a sustainable competitive advantage and are difficult to replicate
34
Explain: resource audit
Identifying which resources are available and which resources that may need to be addressed to achieve CSFs
35
Model: Resource audit
9Ms model
36
Explain: 9Ms model
Framework which can be used to evaluate the resource position of an organisation
- Men: number, skills, motivation, potential, attitudes
- Machines: premises, location, productive capacity, age of machinery
- Money: Existing finance available and access to future funding
- Materials: Supplier relations, access to key inputs
- Markets: existing customers, locals where represented, distribution systems
- Management: Quality, skills, leadership style
- Methods: Activities and processes
- Management Information Systems: Quality of marketing systems, production R&D
- Make-up: Attitudes, cultures, structure
37
Model: Assessing core competences
Kay's core competences model
38
Explain: Kay's core competences model
A model that posits that long-term competitive advantage comes from a company's unique relational capabilities, which are difficult for competitors to replicate. The three main sources of competences are:
- Reputation: Reason customer is attracted to the organisation
- Competitive architecture: Network of relationships within and around the organisation
- Innovative ability: Ability to develop new products and services
Competitive architecture can be broken down into:
- Internal architecture: Relationship with employees
- External architecture: Relationship with suppliers, customers and intermediaries
- Network architecture: Relationships between collaborating businesses
39
Model: Value chain analysis
Porter's value chain analysis
40
Explain & Stages: Porter's value chain analysis
Porter's value chain is a model that breaks down a company's activities into primary and support functions to identify sources of competitive advantage.
**Primary Activities:**
* Inbound Logistics – receiving and storing inputs
* Operations – transforming inputs into outputs
* Outbound Logistics – distributing products to customers
* Marketing & Sales – promoting and selling products
* Service – after-sale support and maintenance
**Support Activities:**
* Firm Infrastructure – management, finance, planning
* Human Resource Management – recruiting and training
* Technology Development – innovation, R&D
* Procurement – sourcing and purchasing inputs
Identify whether the organisation's strategy is cost leadership or differentiation. A cost leader should seek cost advantages throughout the chain (focus on cost drivers), and a differentiator should seek quality advantage throughout the chain (focus on value drivers).
Through the analysis, non-value-adding activities can be reduced or eliminated.
41
Explain: Value chain linkages
- Internally: Two or more activities impact each other, either through being consistent and working together (co-ordination) or when strength in one area means less resources needed in another (optimisation)
- Externally: Organisation's value chain should be consistent with the customer's chain and the supplier's chain
Linkages can be a source of sustainable competitive advantage, because while one activity might be easy to identify and copy, a linkage would be harder to
42
Models: Portfolio analysis
- Product life cycle
- BCG Matrix
43
Explain & Stages: Product life cycle
Product Life Cycle (PLC) Analysis explains how a product moves through different stages in the market, from launch to withdrawal. It helps businesses manage marketing, investment, and innovation strategies.
Stages:
* Introduction – Product launch; low sales, high costs, heavy promotion.
* Growth/shakeout – Rapid sales increase; profits rise, competition enters. Poor performers fall by the wayside.
* Maturity – Sales peak; market saturation, focus on differentiation.
* Decline – Sales fall; product outdated or replaced, divest or reinvent.
44
Explain: BCG matrix
The Boston Consulting Group (BCG) matrix is a business tool that categorizes a company's products into four quadrants:
* **Dog:** Low market growth, low market share: low returns; consider divestment or repositioning.
* **Problem child/Question Mark:** High market growth, low market share: require heavy investment to become Stars or risk decline.
* **Cash cow:** Low market growth, high market share: generate steady profits; fund others.
* **Star:** High market growth, high market share: invest to sustain leadership.
This helps businesses analyze their product portfolio, prioritize investments, and make strategic decisions about which products to fund, develop, or divest.
45
Criticism: BCG matric
* It provides no real insight into how to compare one opportunity with another. Nor does it consider any inherent riskiness of a particular product line or service.
* Only one star or cash cow may exist in a market. Perfectly competitive products end up unfairly being labelled as question marks or dogs!
* The rate of profit for some product lines and business units can actually be very high. In the right conditions, a company can profit from a low share of a market.
* Factors besides market share and sales growth affect cash flow e.g. amount of R&D and investment in new technologies.
46
Model: Consolidating results from previous analysis
SWOT analysis
47
Explain: SWOT analysis
SWOT Analysis is a strategic planning tool used to evaluate a company’s internal strengths and weaknesses and external opportunities and threats. It helps in understanding current position and guiding future strategy.
**Components:**
* Strengths (S): Internal advantages — resources, brand, technology, skills.
* Weaknesses (W): Internal limitations — poor reputation, high costs, skill gaps.
* Opportunities (O): External factors for growth — new markets, trends, tech.
* Threats (T): External risks — competition, regulation, economic shifts.
Goal: Leverage strengths, improve weaknesses, seize opportunities, and mitigate threats for strategic success.
48
Explain: GAP analysis
Compares the entity's ultimate objective and the expected performance of projects (planned and underway), identifying how any gap might be filled.
During the analysis we should be asking why the gap exists and what strategies can be chosen to close the gap.
49
Explain: Porter's generic strategies.
Porter’s Generic Strategies describe how a firm can achieve competitive advantage within its industry through cost or differentiation focus:
The 4 Strategies:
* Cost Leadership – Be the lowest-cost producer; compete on price (e.g., Walmart).
* Differentiation – Offer unique products valued by customers (e.g., Apple).
* Focus Strategy – Target a specific market segment or niche.
* Cost Focus: Lowest cost in a niche.
* Differentiation Focus: Unique product for a niche.
50
Pros and cons: Cost leadership strategy
Pros:
- Can earn higher profit while charging the same as competitors
- Remains profitable in price war
- Economies of scale create barriers to entry
Cons:
- Only room for one
- Cost advantage can be lost to inflation, movements in FX, competitors using more modern manufacturing technology or cheap oversea's labour
51
Pros and cons: Differentiation strategy
Pros:
- Higher price, so higher margin
- Fewer substitutes because of uniqueness and brand loyalty
so: less competition, and demand more inelastic
Cons:
- Cheap copies
- Being out-differentiated
- Customers unwilling to pay extra
- Differentiating factors no longer valued
52
Pros and cons: Focus strategy
Pros:
- Smaller segment, so smaller investment in marketing/production to achieve competitive advantage
- Less competition
- Entry is cheaper and easier
Cons:
- If segment too small: Difficult to achieve sufficient sales
- If segment too large: Large players might be interested
53
Explain: Ansoff's matrix
Ansoff’s Matrix is a strategic tool used to plan business growth by considering products and markets.
The Four Growth Strategies:
* Market Penetration – Sell more of existing products in existing markets (low risk).
* Market Development – Enter new markets with existing products.
* Product Development – Introduce new products to existing markets.
* Diversification – Launch new products in new markets (highest risk).
54
Define: Related and unrelated diversification
Related diversification involves a company entering a new business that shares links with its existing one, such as similar technologies or markets, to achieve synergies like shared resources and cost reductions.
In contrast, unrelated diversification means a company enters a completely different industry to spread risk across different business cycles
55
Pros and cons: Related diversification
Pros:
- Sharing resources (combined operations) can lower costs
- Managing related businesses under one organization can be more efficient than dealing with separate, unrelated ones.
- The company doesn’t need to rely on outside suppliers or buyers as much - it can “internalize” those exchanges and save on transaction costs.
- The firm can apply its existing know-how or technology to the new business.
- Having related operations ensures steady inputs and outputs between divisions.
Cons:
- Increases the proportion of the firms operating costs that are fixed
- Reduced flexibility to change partners
- Capital investment needs - Expanding into new related areas often requires large upfront investments
- Differing managerial requirements - Managing several related but distinct operations can be complex; managers might lack expertise in the new area.
56
Pros and cons: Unrelated diversification
Pros:
- Risk spreading
- Can enter more profitable / attractive markets
- Can use surplus cash
- Utilise brand image in new markets
- Improve utilisation of central resources
Cons:
- Lack of management experience in new products/markets
- Failure in one market could damage brand
- Often bad for shareholders because of lack of synergies
57
Define: Market segmentation
The division of the market into separately identifiable sub-units. Its purpose is to identify profitable and growing segments that a company can target with distinct marketing strategies.
58
Model: Effective market segmentation
MASSD
59
Explain: MASSD model
The MASSD model says that there are 5 key criteria for effective markert segmentation:
- Measurable – The segment’s size and purchasing power can be quantified.
- Accessible – The segment can be effectively reached and served.
- Substantial – The segment is large or profitable enough to be worthwhile.
- Stable – The segment remains consistent over time (not too changeable).
- Differentiable – The segment is distinct and responds differently to marketing mixes.
60
Define: Marketing mix
The marketing mix refers to the set of controllable marketing tools that a company uses to achieve its marketing objectives and satisfy customer needs in its target market.
61
Model: Marketing mix
The 4 / 7 Ps
62
Explain: The 4 / 7 Ps
Model for marketing mix, 4 for products, 7 for services.
- Product - What the company offers to satisfy customer needs or wants
- Promotion - All communication activities that inform, persuade, and remind customers about a product.
- Place - How the product is distributed and made available to customers.
- Price - The amount customers pay for the product and how it reflects value.
- People - Everyone involved in delivering the product or service — especially in service industries.
- Process - The systems, procedures, and routines that deliver the product or service.
- Physical evidence - The tangible or visible aspects that help customers evaluate a service before purchase.
63
Explain: The three levels of a product
- Basic product: The core benefit provided
- Actual product: The features of the product; packaging, branding etc.
- Augmented product: Goods or services that will provide additional value
64
Explain: Brand positioning model
A basic perceptual map can be uses to plot brands in perceived price and perceived quality terms.
Low price - low quality: Economy brands
Low price - high quality: Bargain brands
High price - low quality: Cowboy brands
High price - high quality: Premium brands
65
Difference: Push and pull promotion (marketing)
- Push promotion: Product is produced and then the customer buys it
- Pull promotion: Product is produced when the customer orders it
66
Model: Pricing (marketing)
The 4 Cs of pricing
67
Explain: The 4 Cs of pricing
The 4 Cs of Pricing Model is a framework that helps businesses set prices strategically by looking at four key factors:
- Costs: Must be covered in the long run
- Customers: How much are they willing to pay?
- Competition: What are competitors charging?
- Corporate objectives: Low price might build market share, while high price is consistent with a premium brand
68
List: Pricing strategies
* Price Skimming – Setting a high initial price for a new or innovative product, then gradually lowering it over time.
* Penetration Pricing – Introducing a product at a low price to attract customers and gain market share quickly.
* Price Discrimination – Charging different prices to different customers for the same product, based on factors like location, age, or purchase volume.
* Perceived Quality Pricing – Pricing a product based on the perception of quality rather than just cost or competition.
* Going Rate Pricing – Setting prices according to the prevailing market rate or competitors’ prices.
* Cost-Plus Pricing – Adding a standard markup to the cost of producing the product to determine the selling price.
69
Define: Organisational structure
How the various functions of an organisation are arranged
70
List: Types of organisational structures
- Entrepeneurial
- Functional
- Divisional
- Matrix
- Flexible (hollow, viritual, or molecular)
- Handy's Shamroc
71
Model: Flexible firms
Handy's Shamroc
72
Explain: Handy's Shamroc
A theory about the structure of modern companies. It describes an organisation made up of 4 key components:
- Professional core: permanently employed staff
- Contractual fringe: outsourced staff performing non-core or core services cheaper/more economical than the company can do themselves
- Flexible labour force:Temporary and part time staff used to cover peak demand
- Customers: may perform some tasks themselves, e.g. booking online or assembling flat pack furniture
73
List: Aspects of organisation of decision making
- Span of control
- Centralisation vs decentralisation
- Mechanic vs organic
74
Define: Entrepreneurial structure
Built around the owner-manager. Totally centrallised wth all key decisions being made by the strategic leader.
75
Pros and cons: Entrepreneurial structure
Pros:
- Fast decision making
- More receptive to market
- Good control
- Close bond to workforce
Cons:
- Lack of career structure
- May be too centralised
- Cannot cope with diversification/growth
76
Define: Functional structure
Organised according to occupational specialty, i.e. finance department, HR department etc.
77
Pros and cons: Functional structure
Pros:
- Economies of scale
- Standardisation/efficiency
- Specialists more comfortable
Cons:
- Empire building
- Slow to adapt to market changes
- Conflicts between functions
- Cannot cope with diversification
78
Define: Divisionalised structure
Structured according to product lines/brands/location, where each of these are profit centres and SBUs for planning and control purposes, and general manager has control over their own resources.
79
Pros and cons: Divisionalised structure
Pros:
- Enables growth
- Clear responsibility and accountability for products/areas
- Training of general managers
Cons:
- Potential loss of control
- Lack of goal congruence
- Duplication of effort
- Specialists may feel isolated
80
Define: Matrix struture
Combination of functional and divisionalised structures. each of the functional managers contribute one or more members of their
teams to the product streams as workload dictates.
81
Pros and cons: Matrix structure
Pros:
- Improves crossfunctional communication
- Particularly useful for projects and temporary teams
- Flexibility, which helps staff adapt quickly to new situations
Cons:
- Dual command, which can create conflicts over individual's time and commitments
- Diluation of functional authority
- TIme consuming meetings
82
Define: Viritual organisations
Operates predominately through electronic communication from employees and third parties
83
Define: Hollow organisations
Non-essential activities are out-sources
84
Define: Modular organisations
Production processes become separate modules and are outsources to third parties or subsidiaries
85
Model: Organisation of people within organisational structures
Mintzberg's structural configurations
86
Explain: Mintzberg's structural configurations
Mintzberg’s theory of organisational configuration is characterised by five distinct components that operate within the sixth
- Operating core: Basis work of the organisation
- Middle line: Managers linking between the strategic apex and the operating core (up and down communication)
- Strategic apex: Higher management - overall strategic, long-term planning and control
- Technostructure: Accountants, IT, engineers whose role is to design procedures and standards - expert coordination of processes.
- Support structure: Provision of services which support operations/production
- Ideology: Organisation's values and beliefs - the culture.
87
Explain: Tall organisation
Have many layers of management, where each manager oversees relatively few subordinates i.e. have a narrow span of control
88
Explain: Flat organisation
Have few layers of management, where each person oversees a large number of subordinates ie. have a wide span of control.
89
Define: Span of control
How many people report to one superior
90
Factors: Span of control
- Complexity of work
- Degree of change
- Management's ability
- Assistance received by managers
- Amount of non-supervisory work
- Level of knowledge and experience of staff
- Level of cost of mistakes
- Level of danger
- Physical proximity of subordinates
- IT
91
Define: (De)centralisation
The degree of autonomy/decision making ability diffused through the organisation
92
Pros and cons: Decentralisation
Pros:
- Senior management free to concentrate on strategy
- Better local decisions due to local expertise
- Better motivation
- Quicker responses/flexibility
Cons:
- Loss of control by senior management
- Dysfunctional decisions due to a lack of goal congruence
- Poor decisions made by inexperienced managers
- Training costs
- Duplication of roles and resources
93
Factors: Decentralisation
- Management style and ability
- Size of organisation
- Range of products/services/brands
- Geographic location
- Extent of local market knowledge required
- Effectiveness or communication and communication systems
94
Explain: Mechanic structure
Rigid and formalised.
- Formal
- Hierarchical
- Authority and control bases
- Focuses on efficiency
- Suited for stable environments
95
Explain: Organic structure
Fluid and flexible.
- Informal
- Flat
- Project teams
- Power based on expertise
- Suited for dynamic environments
96
Formula: ROI
Annual profit controllable by manager / Capital employed in the division
97
Pros and cons: ROI
Pros:
- Widely used and accepted
- Should facilitate comparisons
Cons:
- Relative measure
- Different accounting policies can make comparison difficult
- ROI increases with the age of assets as they are depreciated
- Can lead to dysfunctional decision making
98
Formula: RI
Controllable profit - (Capital employed * target % return)
99
Define: Transfer pricing
Price at which one division in a group sells its products or services to another division in the same group
100
Impacts: Transfer pricing
- Impact on divisional profitability
- Impact on taxation
- Impact on decision making
- Impact on consumer selling prices
101
Types: Transfer pricing
- Cost plus: Based on marginal or full cost per unit plus a mark-up
- Opportunity cost: Reflect opportunity cost of any work foregone by the supplying division in order to supply internally
- Negotiated prices: Managers negotiate a price until they compromise
- Two part tariff: Supplied at marginal cost, but a fixed annual fee is also charged to recover fixed costs
- Dual pricing: Different prices recorded in the supplying and receiving divisions
- Market pricing: Supplied at current market rate
102
Define: Corporate governance
The system by which corporations are directed and controlled
103
Principles: Good corporate governance
- Appropriate balance of power
- Independent NEDs
- Established committees
- Effective risk management
104
Principles: Good corporate governance for NFPs
- Accountability
- Stakeholders
- Openness and transparency
- Board structures
- Monitoring performance
105
Define: Risk
The possible variation in outcome from what is expected to happen
106
Define: Uncertainty
The inability to predict the outcome from an activity due to a lack of information
107
Types: Risk (in terms of outcomes)
- Downside risk: The possibility that the outcome will be worse than expected
- Upside risk: The possibility that something could go better than expected
108
Formula: Risk
Likelihood * impact
109
Define: Risk management
The process of identifying and assessing (analysis and evaluating) risks and the development, implementation and monitoring of a strategy to respond to those risks
110
Define: Risk appetite
The extent to which a company is prepared to take on risks in order to achieve its objectives
111
Factors: Risk appetite
- Expectations of shareholders
- National culture
- Regulatory framework
- Nature of ownership
- Personal views of managers
112
Model: Management attitudes to risk
Miles and Snow
113
Types: Miles and Snow (define each)
Four main types of management attitudes to risk:
- Reactors: Faces unmanaged, often high risk due to lacking a consistent strategy and responding only when forced.
- Defenders: Minimizes management risk by maintaining a stable, narrow market focus and avoiding major changes.
- Analysers: Balances risk by protecting a stable core business while cautiously adopting proven innovations.
- Prospectors: Accepts high management risk by continually seeking new opportunities and experimenting with innovation.
114
Model: Risk response
TARA model
115
Explain: TARA model
- Transfer: Transfer risk to a third party through insurance or hedging
- Avoidance: Avoid downside by not undertaking/terminating risky activities, although this usually loses the upside potential as well
- Reduction: Retain the activity but take action to limit risk to acceptable levels. Mitigating controls are preventative, corrective, directive, detective
- Acceptance/Retention: Tolerating losses when they arise. For small risks, this could be cheaper than transfer
116
Formula: Breakeven units
Total fixed costs / Contribution per unit
117
Formula: Sensitivity
Estimated profit / Total value of the cash flow affected
118
Formula: Expected value
Sum of (outcome * probability)
119
Limitation: Expected value
- Probabilities are themselves estimates and may be inaccurate
- Expected values are long-term averages and therefore less useful for one-off decisions
- Expected values do not consider the attitudes to risk of the decision makers
- No consideration for the time value of money
120
Define: Organic growth
Expansion of a firm's size, profits, profits, activities achieved without taking over other firms
121
Pros and cons: Organic growth
Pros:
- Acquisition costs may be too high (substantial goodwill payments)
- Costs/risks can be spread over time with organic growth
- Control over change management, e.g. cultures/systems
- Control over which products/markets to development
- Reputation of target company/lack of target company
- Organic growth may be easier to finance (e.g. new jobs may result in grants)
Cons:
- May be too slow
- No access to propriaretary knowledge, brands, customer base, distribution channels etc. of established players (barriers to entry)
- Risk of failure - business lacks experience in new fields
- May intensify competition with existing competitors
122
Define: Acquisition
The purchase of a controlling interest in another company
123
Define: Merger
The joining of two separate companies to form a single company
124
Pros and cons: Acquisition growth
Pros:
- Quicker than organic growth
- Synergies: Cost savings and efficiencies resulting from the combination
- Lower risk as the target already has goodwill, brands and a customer base
- Circumventing barriers to entry (e.g. acquiring patents)
- One less competitor
- Target may be undervalued
Cons:
- Possible lack of strategic fit
- Lack of understanding of business/management being acquired
- Paying too much for expected efficiencies (synergies) that do not materialise
- Failure to retain key staff/customers
- Acquisitions may occur as a result of empire building
- Lack of governance and control over businesses being acquired
125
Sources: Synergy
* **Market power** (greater bargaining power, ability to influence prices)
* **Economies of scale** (lower unit costs through increased volume)
* **Rationalisation of shared activities** (eliminating duplicated functions, shared services)
* **Use of surplus assets** (better utilisation of underused resources)
* **Vertical integration synergies** (coordination benefits across the value chain)
* **Risk diversification** (more stable cash flows across different activities)
* **Improved access to finance** (larger, more creditworthy merged entity)
126
Define: Joint venture
Contractual arrangement whereby two or ore parties undertake an economic activity which is subject to joint control
127
Define: Strategic alliance
Looser contractual arrangement than a joint venture and no separate company is formed.
128
Pros and cons: Joint ventures and strategic alliances
Pros:
- Access to local resources/expertise/brands
- Shared risks
- Shared finance
- Learning experience for both parties
- Attractive to smaller/risk adverse businesses
Cons:
- Shared profits
- Disagreement over decision making
- May have to share trade secrets with a potential competitor
- Alliances may not allow new competences to be developed - each partner concentrating on existing core competences only
129
Define: Franchising
The purchase of the right to exploit a business brand in return for a capital sum and a share of profits or revenue.
130
Define: Licensing
Grants a third party organisation the rights to exploit an asset belonging to the licensor.
131
Pros and cons: Franchising and licensing
Pros:
- Increases the number of distribution outlets without extensive capital investment
- Local expertise and access to enthusiastic entrepeneurs
- Economies of scale
- Rapid expansion
- Risk sharing with franchisee
Cons:
- Shared profit
- Successful franchisees may set up on their own in direct competition
- Conflicts over operating decisions
- Quality control
132
Define: Outsourcing
The use of external suppliers as a source of finished products, components or services previously provided in house
133
Consideration & Issues: Outsourcing
* Internal competence – ability of the organisation to perform the task in-house
* Risk management – how outsourcing affects operational, financial, and strategic risks
* Control and assurance – the level of oversight needed over outsourced activities
* Intellectual capital exposure – sensitivity of information shared with the third party
* Third-party track record – reliability, reputation, and performance history
* Strategic alignment – compatibility of the provider’s aims, values, and culture
* Cost implications – total cost versus internal provision
* Service quality & relationship – expected performance standards and partnership quality
134
Model: International expansion
Lynch's expansion matrix
135
Explain: Lynch's expansion matrix
Lynch summarised possible expansion methods as to how that growth could be achieved.
Home country - Internal development: Internal domestic development
Home country - External development: Joint venture, merger, acquisition, alliance, franchise/license
Abroad - Internal development: Exporting, overseas office, overseas manufacture, multinational operation, global operation
Abroad - External development: Joint venture, merger, acquisition, alliance, franchise/license
136
Pros and cons: International expansion
Pros:
- Sales growth through expanding the market
- Product Lifecycle may be extended through selling in an early life market
- Spread the risk by diversifying into new markets
- A global image can enhance the business reputation
Cons:
- Lack of market knowledge
- Cultural differences
- Exchange rates
- Logistical issues
137
Model: Evaluating strategy
Johnson, Scholes and Whittington's three tests
138
Explain: Johnson, Scholes and Whittington's three tests
Johnson, Scholes and Whittington’s Three Tests (from the Exploring Strategy framework) are used to evaluate the quality of a strategic option.
- Suitability: Does he strategy fits the organisation’s external environment and internal strategic position? Does it make strategic sense?
- Acceptability: Look at the risk and return perspectives of key stakeholders. Will stakeholders support it, and does it offer a good risk–return balance?
- Feasibility: Is the strategy within the resources and capability of the organisation? Do we have the ability to make it happen?
139
Limitations: Financial performance indicators
- Historical information is not necessarily useful when trying to predict future outcomes
- Financial information mostly reports internal performance and does not always consider external factors
- Can encourage short-term decision-making at the expense of long-term objectives
- Can be easily manipulated with the use of accounting policies
- Does not consider the whole picture. Financial results are only part of the business' performance.
140
Model: Mixture of financial and non-financial perspectives
Kaplan and Norton's Balanced Scorecard
141
Explain: Kaplan and Norton's Balanced Scorecard
Performance indicators should consider the four perspectives; financial perspective, internal business perspective, innovation and learning perspective, customer perspective
142
Categories: Benchmarking
- Internal: Against last year or other branches
- Competitive: Against competitors, sectors, industry
- Activity: Best in class / best practice
- Generic: Against conceptually similar processes
143
Model: Stages of human resource management
Human resource cycle
144
Explain: Human resource cycle
- Selection: hiring people with the qualities and skills required. Training and development
- Appraisal: comparison of performance against targets set in the context of strategic objectives. Regular feedback should help to motivate the member of staff.
- Training and development: ensure skills remain up-to-date, relevant, and comparable with (or better than) the best in the industry.
- Reward system: motivate and ensure valued staff are retained.
- Performance: depends upon each of the four components and how they are co-ordinated.
145
List: Individual human resource plans
- Recruitment plan
- Training plan
- Productivity plan
- Redevelopment plan
146
Model: Operations management
The 4 v's
147
Explain: The 4 v's
Operations management is concerned with the design, implementation and control of the processes in an organisation that transform inputs into output products and services.
- Volume: higher volume of production may lead to more capital-intensive, automated production process and division of labour
- Variety: greater variety in operations will reduce the ability to standardise processes and will increase the range of skills required
- Variation in demand: Key consideration in capacity planning
- Visibility: Where the operation is highly visible, the employees will have to show good communication and interpersonal skills in dealing with customers
148
List: Approaches to capacity planning
- Made to stock: Constant level of activity will accumulate stock during quiet periods that can be used in busy periods
- Made to order
- Manipulate demand
149
Define: Total Quality Management
The continuous improvement in quality, productivity and effectiveness obtained by by establishing management responsibility for processes as well as outputs
150
Aspects: Purchasing mix
- Quantity: Sufficient amounts to meet future needs and to avoid production delays and reputation damage
- Quality: Quality must match that deemed acceptable to customers.
- Price: Should be negotiated to maximise profit
- Delivery: Reliable and timely delivery to avoid stock-outs
151
Define: Supply chain management
The management of all supply activities from the suppliers to a business through to delivery to customers
152
Key factors: Supply chain management
- Responsiveness: Is the supplier capable and flexible enough to be able to supply goods whenever they are required?
- Reliability: Can the supplier consistently meet the organisation's needs in terms of quality and delivery times?
- Relationships: Long-term relationships with regular suppliers will strengthen trust and improve integration
153
Benefits: Proposed information system
- Increased revenue: Improved marketing and use of data analystics can help organisations achieve a competitive advantage
- Cost reduction: Automated production, computer aided manufacturing and improved stock control may improve profitability
- Enhanced service: Computerised systems may improve reliability and CRM systems can help to manage customer relationships
- Improved decisions making: Accurate and up to date information can aid forecasting and scenario planning
154
List: Three ethical tests
- Transparency: Does the organisation mind others knowing about its decision?
- Effect: Whom does the decision hurt? Are one or more stakeholder groups receiving a negative outcome?
- Fairness: Would the company's decision be considered fair?
ACA BST
flashcards
Decks in class (1)
# Cards
