AQA A Level Business Year 2 Companion Edition 1.pdf

AQA A LEVEL BUSINESS YEAR 2 COURSE COMPANION Edition 1 Essential Topic-by-Topic Study Notes for the AQA A Level Business Year 2 Specification Content (3.7 – 3.10) www.tutor2u.net Topic: Corporate Objectives 3.7.1 Mission, corporate objectives and strategy What You Need...

AQA A LEVEL BUSINESS YEAR 2 COURSE COMPANION Edition 1 Essential Topic-by-Topic Study Notes for the AQA A Level Business Year 2 Specification Content (3.7 – 3.10) www.tutor2u.net Topic: Corporate Objectives 3.7.1 Mission, corporate objectives and strategy What You Need to Know The links between mission, corporate objectives and strategy Internal and external influences on corporate objectives and decisions Influences on corporate objectives should include the pressures for short termism, business ownership, the external and internal environment. The distinction between strategy and tactics What are Objectives? Objectives are statements of specific outcomes that are to be achieved Business objectives are: The specific intended outcomes of business strategy Targets which the business adopts in order to achieve its aims What are Corporate Objectives? Corporate objectives are those that relate to the business as a whole Corporate objective are driven and influenced by the vision, mission and aims of a business: The main purposes of corporate objectives include to: Provide strategic focus Measure performance of the firm as a whole Inform decision-making (which involves strategic choice!) Set the scene for more detailed functional objectives The Benefits of SMART Objectives It is often said that objectives are more likely to be taken seriously and perhaps even achieved if they comply with the requirements of the SMART acronym. SMART stands for: © tutor2u http://www.tutor2u.net Topic: Corporate Objectives 3.7.1 Mission, corporate objectives and strategy S Specific Objective should state exactly what is to be achieved M Measurable Objective should be capable of measurement – so that it is possible to determine whether (or how far) it has been achieved A Achievable Objective should be realistic given the circumstances in which it is set and the resources available to the business R Relevant Objectives should be relevant to the people responsible for achieving them T Time Bound Objectives should be set with a realistic time-frame in mind The Hierarchy of Objectives in Business Corporate objectives are positioned towards the top of a hierarchy of business objectives, with the most important at the top, feeding down into more detailed tactical and operational objectives. The hierarchy can be illustrated like this: Key Areas for Corporate Objectives and How These Are Supported by Functional Objectives The most common aspects of a business that are impacted by corporate objectives include: © tutor2u http://www.tutor2u.net Topic: Corporate Objectives 3.7.1 Mission, corporate objectives and strategy Area Examples Market Market share, customer satisfaction, product range Innovation New products, better processes, using technology Productivity Optimum use of resources, focus on core activities Physical & financial Factories, business locations, finance, supplies resources Profitability Level of profit, rates of return on investment Management Management structure; promotion & development Employees Organisational structure; employee relations Public responsibility Compliance with laws; social and ethical behaviour Lower down the objectives hierarchy, the role of functional objectives is to set targets for each key business function to help ensure that the corporate objectives are achieved. Examples of how functional objectives might work to support corporate objectives would include: Corporate Objective Example Functional Objective Increase sales Successfully launch five new products in the next two years (marketing) Reduce costs Increase factory productivity by 10% (operations) Increase cash flow Reduce the average time taken by customers to pay invoices from 75 to 60 days (finance) Improve customer Achieve a 95% level of high customer service (people) satisfaction Internal and External Influences on Corporate Objectives Corporate objectives are influenced by a variety of factors that are within the control of management (internal) as well as factors that a business can do nothing about – except respond to them if significant (external). © tutor2u http://www.tutor2u.net Topic: Corporate Objectives 3.7.1 Mission, corporate objectives and strategy The key internal and external influences can be summarised as follows: Internal influences: Internal Influence Comment Business Ownership Who are the business owners and what do they want to achieve? Attitude to Profit Is the business run to earn profits or it is not-for profit? Ethical Stance Do ethics play a role in a business’ decision-making? Organisational Culture How is the business structured? How are objectives set and decisions taken? Leadership How strong is the influence of leadership in the business in terms of objectives and how decisions are made? Strategic position & What options & choices does the business realistically have resources based on its existing market position & resources? Stakeholder influence How influential are internal stakeholders? External influences: Internal Influence Comment Short-termism External investor pressure to focus on and achieve short-term objectives at the expense of long-term strategy? Economic Perspective on key economic indicators such as economic growth, environment consumer spending & interest rates? Political / legal Impact of uncertainty about changes in the political & legal environment environment? Competitors Do competitor actions & strategies shape what a business thinks it can achieve? Social & How rapid is the pace of social & technological change in a Technological business’ markets? Does this make objective-setting & decision- change making easier or harder? What is Short-termism? Short-termism is where a business prioritises short-term rather than long-term performance. There are various reasons why the management of a business might be more concerned more with how the business performs in the short, rather than the long- term. These might include: Stock market (investor) focus on latest financial performance (e.g. shareholder pressure to see a rising share price) © tutor2u http://www.tutor2u.net Topic: Corporate Objectives 3.7.1 Mission, corporate objectives and strategy Bonuses and other financial incentives for management that are largely based on short-term performance Frequent changes in leadership & strategy (e.g. through takeover) A short-termist approach is likely to involve management focusing on the following performance measures: Share price and market capitalisation Revenue growth Gross & operating profit Unit costs & productivity Return on capital employed If you were looking for possible symptoms of short-termist management you might identify this from features such as: Low investment in R&D (particularly compared with competitors who make take a more long-term approach) High dividend payments rather than reinvesting profits Overuse of takeovers rather than internal growth A common criticism of short-termism is that it does not focus a business on what it needs to do in order to build a sustainable competitive advantage. For example, some of the following performance measures might be considered to be more appropriate for a business taking a long-term rather than short-term perspective: Market share Quality (including reputation) Innovation Brand awareness and strength Employee skills & experience Social responsibility & sustainability What is the Difference between Strategy and Tactics? The key differences between strategy and tactics can be summarised as follows: Strategy Tactics How the business intends to achieve its Support achievement of specific targets objectives Usually routine and short-term Usually long-term Often delegated to junior management Made by senior management © tutor2u http://www.tutor2u.net Topic: Corporate Objectives 3.7.1 Mission, corporate objectives and strategy Some examples of decisions that are either strategic or tactical might include: Strategic Decision Tactical Decision External growth via takeover Relocate staff from takeover HQ Enter international market Choose locations in new market Adopt cost minimisation strategy Identify specific cost savings Rebrand the business Launch rebranding campaign Close a major business unit Determine detailed closure plan Key Terms Corporate objectives Business objectives that relate to the performance of the business as a whole, which for the focus for business strategy decisions Short-termism Where the management of a business is predominantly focused on the short-term performance of the business, potentially to the detriment of long-term performance © tutor2u http://www.tutor2u.net Topic: SWOT Analysis 3.7.1 Mission, corporate objectives and strategy What You Need to Know The value of SWOT analysis Introduction to SWOT Analysis SWOT analysis is a method for analysing a business, its resources, and its environment. SWOT is commonly used as part of strategic planning and looks at: Internal strengths Internal weaknesses Opportunities in the external environment Threats in the external environment SWOT analysis can help management in a business discover: What the business does better than the competition What competitors do better than the business Whether the business is making the most of the opportunities available How a business should respond to changes in its external environment The result of the analysis is a matrix of positive and negative factors for management to address: The key point to remember about SWOT is that: Strengths and weaknesses Are internal to the business – they are within the control of the business Relate to the present situation Opportunities and threats Are external to the business Relate to changes in the environment which will impact the business © tutor2u http://www.tutor2u.net Topic: SWOT Analysis 3.7.1 Mission, corporate objectives and strategy Strengths Strengths are: Things a business is good at A characteristic giving a business an important capability Sources of clear advantage over rivals Distinctive competencies and resources that will help the business achieve its objectives Importantly, when it comes to determining strategy: Strengths help to build up competitive advantage and serve as a cornerstone of strategy Strengths should be protected and built upon Here are some examples of possible business strengths: Examples of Potential Business Strengths High market share Technological leadership Achieving economies of scale Brand reputation High quality Protected IP Leadership & management skills Distribution network Financial resources Employee skills Research and development capabilities High productivity Flexibility of production Weaknesses Weaknesses are: A source of competitive disadvantage Things the business lacks or does poorly Factors that place a business at a disadvantage Issues that may hinder or constrain the business in achieving its objectives Management should seek ways to reduce or eliminate weaknesses before they are exploited further by the competition. Importantly, weakness should be seen as areas for improvement. Here are some examples of possible business weaknesses: Examples of Potential Business Weaknesses Low market share Cash flow problems Inefficient plant Undifferentiated products Outdated technology Inadequate distribution Poor quality Low productivity Lack of innovation Skills shortages A weak brand name De-motivated staff High costs Products at the decline stage of product life cycle Opportunities © tutor2u http://www.tutor2u.net Topic: SWOT Analysis 3.7.1 Mission, corporate objectives and strategy An opportunity is any feature of the external environment which creates positive potential for the business to achieve its objectives. Possible sources of business opportunities in most industries and markets include: Potential Business Opportunities Technological innovation Higher economic growth New demand Trade liberalisation Market growth Diversification opportunities Demographic change Deregulation of the market or other Social or lifestyle change legislative change Government spending programmes Threats Threats are any external development that may hinder or prevent the business from achieving its objectives. Possible sources of business threats include: Potential Business Threats New market entrants Economic downturn Change in customer tastes or needs Rise of low cost production abroad Demographic change Higher input prices Consolidation among buyers New substitute products New regulations Competitive price pressure The Value of Using SWOT analysis There is no point producing a SWOT analysis unless it is actioned! SWOT analysis should be more than a list - it is an analytical technique to support strategic decisions Strategy should be devised around strengths and opportunities and the key words are match and convert: © tutor2u http://www.tutor2u.net Topic: SWOT Analysis 3.7.1 Mission, corporate objectives and strategy Weakness Possible Response Outdated technology Acquire competitor with leading technology Skills gap Invest in training & 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 A key challenge for any business is to convert weaknesses into strengths. Don’t forget also that for every perceived threat, the same change presents an opportunity for other businesses. Evaluating SWOT Analysis SWOT analysis is widely and effectively used in business management. The key advantages and disadvantages of using it can be summarised as follows. Advantages of SWOT Disadvantages of SWOT Easy to understand Too often lacks focus or contains too many elements Logical structure Can quickly get out of date Focuses on strategic issues Is it an independent assessment? Encourages analysis of external environment Key Terms Strengths Features within the control of a business that are a source of competitive advantage Weaknesses Features within the control of a business that are a source of competitive disadvantage Opportunities Features of the external environment that create opportunities for a business to leverage its strengths to benefit the business Threats Features of the external environment that threaten the performance and position of a business if not addressed © tutor2u http://www.tutor2u.net Topic: Mission Statements 3.7.1 Mission, corporate objectives and strategy What You Need to Know Influences on the mission of a business The links between mission, corporate objectives and strategy What is a Mission Statement? The mission of a business is the overriding purpose of the business and the reason for its existence. The concept of mission supports the stated “vision” for the future of the business. Therefore, the business mission is not about: The goals or objectives of the business The core values that underpin the culture of the business How the business intends to compete or position itself in the market The mission of a business is usually expressed in a “mission statement” Where the Mission Statement Fits with Objectives and Strategy The mission is a key part of the hierarchy of business objectives, as illustrated below: What Makes for an Effective Mission Statement? In order for a mission statement to be effective it needs to: Provide a clear sense of business purpose Excite, inspire, motivate & guide the intended audience Be easy to understand and remember Help differentiate the business from competitors Be designed for all relevant stakeholders - not just shareholders and managers © tutor2u http://www.tutor2u.net Topic: Mission Statements 3.7.1 Mission, corporate objectives and strategy Example Mission Statements Here are some example mission statements for well-known businesses: Business Mission Statement Alibaba To make it easy to do business everywhere Amazon To be Earth's most customer-centric company where people can find and discover anything they want to buy online. Coca-Cola To refresh the world in mind, body and spirit To inspire moments of optimism and happiness through our brands and actions To create value and make a difference. HP Our mission is to deliver seamless, secure, context-aware experiences for a connected world Ikea Our vision is to create a better everyday life for the many people Microsoft Our mission is to enable people and businesses throughout the world to realize their full potential Nike To bring inspiration and innovation to every athlete in the world Oxfam To create lasting solutions to poverty, hunger, and social injustice Starbucks To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time Uber Transportation as reliable as running water, everywhere for everyone Criticisms of Mission Statements Not every mission statement is as relevant or focused as the examples above. Common criticisms of mission statements include: They are not always supported by actions of the business (i.e. there is a disconnect between what the mission states and what a business actually does) Often too vague and general or merely statements of the blindingly obvious They are created largely for public relations purposes rather than acting as a focus for business strategy Over time they are treated quite cynically by stakeholders, particularly employees Key Terms Mission Statement A statement of the defining purpose of a business or organisation © tutor2u http://www.tutor2u.net