Chapter 7- Strategy and implementation

Question 1

Why is planning an important tool?

Answer 1

For the future success of a business

Question 2

What tools are used when planning?

Answer 2

• various tools are used such as Decision trees, critical path analysis, and investment appraisal in any discussion about strategic planning

Question 3

What must future objectives fit in with?

Answer 3

• The future plans of the business
• Risks will be taken but it is through future planning that risks are minimised
• Businesses that do not plan ahead are likely to be overtaken by rivals

Question 4

definition of objective

Answer 4

• Set by a business in an attempt to reach a particular goal e.g. survival, break even, profitability

Question 5

Definition of strategy

Answer 5

• An action plan that the business puts in place to help achieve the objectives e.g. To use marketing to increase awareness/sales

Question 6

Definition of tactic

Answer 6

• A method used to achieve a strategy e.g. target audience with emails

Question 7

What is the relationship between objectives, strategy and tactics?

Answer 7

• The tactics make it possible to achieve a particular strategy and if the strategy/strategies are successful a business will achieve the objective that it has set

Question 8

Developing a strategy

Answer 8

• To formulate a strategy information needs to collected on all aspects of the business
• Both internal and external
• This called an audit
• Should be executed on a regular basis

Question 9

What does an internal audit look at?

Answer 9

• The strengths and weaknesses of the business

Question 10

What does an external audit look at?

Answer 10

• The opportunities and threats in the trading environment

Question 11

Internal audit

Answer 11

People
- Labour turnover
- Motivation
- Absenteeism
- Productivity
Marketing
- Sales
- Advertising
- Sales staff performance
Financial
- Budgets and variances
- Profitability
- Cash flow
- Investment appraisals
Operations management
- Productivity
- Delivery
- Stock control

Question 12

Internal audit (explanation)

Answer 12

• Allows a business to assess it strengths and weaknesses in relation to its competitors across the whole of the business
• Many businesses employ external organisations to complete these surveys although it is impossible for management to do them for their own departments
• Aim is to get accurate information on each of a businesses department
• Best to use statistical or numerical data for this

Question 13

External audit (explanation)

Answer 13

• Looks at the opportunities and threats it faces in the external environment
• All environments are constantly changing and a business needs to be aware of these
• they need to know how these changes will affect them

Question 14

External audit

Answer 14

• Technological change
• Competition
• EU
• Law
• Economic issues
• Political influences
• Customer bias
• Social issues
• Environmental issues
• Culture
• Pressure groups
• Ethics

Question 15

What does PEST analysis stand for?

Answer 15

• Political
• Economic
• Social
• Technological
• Competition
• Culture
• Ethics
• Pressure groups
• Environment

Question 16

Political

Answer 16

• Actions of the government can have a major impact on the way in which a business operates
• Legislation on employment, health and safety, competition, and taxation are all examples of government policies that have an impact on employers and businesses

Question 17

Economic

Answer 17

• Economy and government economic policy are key areas of concern for all businesses because of the impact which they have on consumer demand
• Inflation, interest rates, value of the currency, unemployment and the economic cycle will play their part in influencing the success of the business and in determining its actions

Question 18

Social

Answer 18

• Characteristics of the population are important factors for business demand
• Changes in the distribution or spending habits of consumers are constantly changing making it vital that businesses are aware of these changes and act accordingly

Question 19

Technological

Answer 19

• Changes in technology offer businesses new opportunities but also create new risks
• A successful business must be ready to implement new procedures and train staff in their use
• They also need to recognise situations where existing processes and machinery have become obsolete
• Successful and innovative businesses will already be preparing for the next product in such a cycle

Question 20

Competition

Answer 20

• The extent of the competition and the threat which it poses will have a considerable impact on the success of the business
• May be necessary to change the price or product range in response to competition

Question 21

Culture

Answer 21

• Businesses need to take into account of the characteristics of the local population and their shopping habits

Question 22

Ethics

Answer 22

• businesses must be aware of the demand for ethical trading and its effect on customer demand

Question 23

Pressure groups

Answer 23

• They can exert pressure on businesses

Question 24

Environment

Answer 24

• They are becoming increasingly important (environmental factors)

Question 25

Using the information

Answer 25

- Once the audits are complete, the business needs to put the information into a summarised format - Best to place the information into is a SWOT analysis - This shows the strengths, weaknesses, opportunities and threats for the business - Its important to not use a SWOT analysis in isolation - A SWOT analysis only gives part of the picture and should be viewed alongside information which a business might gather e.g. market research, ratio analysis and other financial data

Question 26

Stakeholder objectives and strategic management

Answer 26

- A stakeholder is a person or party that has an interest in the success of a buisiness - Stakeholders want to see a business succeed because they will benefit from its success - Stakeholder objectives can be used to create framework to see how the busin ess is operating - Can also be used to analyse the setting of a businesses objectives and the tragedy it develops to reach them - Staekholders can affect the business and the business can affect the stakeholders - How do stakeholders view change or success - How do the objectives of the different stakeholders affect the strategic decisions of the business

Question 27

Definition of stakeholder

Answer 27

- A person or party with an interest in the success of the business

Question 28

Stakeholder objectives

Answer 28

- Stakeholders benefit, but they may not do so equally - Stakeholder objectives have to be addressed because: Employees- who feel valued will be more productive, less resistant to change and less likely to leave - there are different types of employee - At different levels will have different objectives e.g. ( directors and managers) Customers- Who do not feel exploited and like the standard of the product and service will generate repeat custom (don’t want to feel exploited) Suppliers- who are treated as true stakeholders rather than ‘suppliers’ are more likely to be loyal and committed because they have a stake in the business. - Has important implications for the short term (needing a quick delivery) and also for the successful implementation of strategy (need to be seen as a true stakeholder) - Owners- Will want a return that they feel is satisfactory - If the business is a company shareholders will expect (at least) the sort of dividend that investors in a similar business have received - they will also be expecting a rise in the share price over time - If these are not forecoming, they will sell their shares - this will drive the share price down and could leave the business open to a takeover Local community- if not treated correctly can generate negative publicity

Question 29

Stakeholder conflicts

Answer 29

- Business must take into account stakeholder objectives when making strategic decisions - Conflict between stakeholder will always exist - Trade-offs will have to be made between the different groups - E.g. profits needs to be increased through cost cutting, shareholders may be happy but employees not due to being laid off

Question 30

Stakeholder influence

Answer 30

- In any given business some stakeholders will have a greater influence than others Employees - How many are there? Is there a union? Is there a high level of turnover Shareholders - if dividends is low, they can vote directors off the board, where as employees cannot Suppliers - is the supplier in a monopoly position or not? Local community - How will bad publicity affect the business? Creditors - How likely are they to allow missed payments?

Question 31

Key stakeholders

Answer 31

- One (s) with a large amount of influence on the business - A key stakeholders views will play an important part in strategic decision making

Question 32

The legal situation

Answer 32

- Whereas previously shareholders took precedence this has changed in the companies act 2006 - It states that directors must act in good faith (honestly) to promote the success of the company - Director must now ‘have regard’ for a number of factors that include: - Likely consequences of any decisions in the long term - Interests of the employees, relationships with customers and suppliers - Impact of operations on the environment/community

Question 33

Companies Act 2006

Answer 33

- This has put into law for the first time a statutory statement of director’s duties and responsibilities - This includes having regard for employees, suppliers, and the environment

Question 34

Porters five forces model

Answer 34

- It’s a system for analysing the level of competition in an industry - It looks at the forces that determine the level of competitive intensity and the attractiveness of the industry in terms of profitability

Question 35

What is porters five forces?

Answer 35

1. Threat of new entrants to the market 2. Bargaining power of suppliers 3. Bargaining power of consumers 4. Threat of substitute products entering the market including changes in technology 5. Degree of existing competitive rivalry

Question 36

Threat of new entrants

Answer 36

- New entrants will take a share of the market and increase the competitive intensity - the greater the barriers to entry, as in a monopoly, the smaller the threat will be

Question 37

Bargaining power of suppliers

Answer 37

- Suppliers who can increase their prices will mean a cut in profits - Lack of bargaining power of suppliers to supermarkets in the uk increases profitability of the supermarkets and lowers the competitive intensity

Question 38

Bargaining power of customers

Answer 38

- Strong bargaining power of customers will drive done prices and reduce likely profitability

Question 39

Threat of substitutes

Answer 39

- Substitute products entering the market can effect sales e.g. mobile phones

Question 40

Degree of competitive intensity

Answer 40

- High competition means innovations, price wars and more spending on promotion which all reduce profit

Question 41

Using the model

Answer 41

- When a business is looking to enter a new sector the model is good to use to see things clearly - It can include people doing the job themselves instead of using professionals - The problem with the model is that it is difficult to obtain all the required information about threats that exist

Question 42

Models of strategic choice

Answer 42

Porters generic strategies show how a company can achieve competitive advantage He considered 3 strategies, together with a fourth ‘stuck in the middle’ which is unlikely to result in any competitive advantage 1. Cost leadership 2. Differentiation 3. Focus or niche

Question 43

Cost leadership

Answer 43

- Aim to be the lowest cost producer in the market, need economies of scale particularly by reducing production costs and passing those savings on to the consumer

Question 44

Differentiation

Answer 44

- Producing goods that are seen to be different to that of its competitors - It will allow a firm to charge a premium for the product

Question 45

Focus or niche strategy

Answer 45

Aim to produce for a particular segment of the market who will pay the price

Question 46

‘Stuck in the middle’

Answer 46

- In trying to adopt all three strategies will not achieve success

Question 47

Management by objectives

Answer 47

- its a system by which managers and employees define and agree a series of objectives for the business - Peter Drucker defined the term MBO - It involves measuring employee performance against a standard set

Question 48

Advanatges of MBO

Answer 48

- Improves the motivation of employees - Everyone is working towards the same target - If employees are involved then more likely to accept them and achieve them - Management and employees are communicating about targets

Question 49

Disadvantages of MBO

Answer 49

- A holistic view of the organisation needs to be taken - Meeting the targets at any cost can mean poor quality - The goals become more important than having a cohesive and achievable plan

Question 50

If a firm wants to achieve a competitive advantages what should they do?

Answer 50

- They should look at each of these strategies to see if they can be applied to the businesss particular situation