7 - Analysing the strategic position of a business (The impact of changes…
7 - Analysing the strategic position of a business
Influences on the mission of a business
Philosophy and values
set of beliefs and principles that a business works towards and explains its overall goals and purpose
. It will also outline the
of the business.
Philosophy may be
of the business, its
The environment in which it operates
This relates to the
in which the business operates and includes factors such as
level of competition
Internal and external influences on corporate objectives and decisions
Corporate objectives are the goals set for the business as a whole that will lead to the achievement of the mission.
refers to the beliefs and behaviours that determine how a company's employees and management interact.
To implement decisions successfully, they must
with business culture.
: this affects decision-making as it
affects resources available
. This is typically
access to finance.
will not be subject to the
and can focus more on the
long-term value creation
of the business.
Profit or non-profit
also influences decisions.
Pressures for short termism
short termism refers to an excessive focus on short-term results (profit) at the expense of long-term impacts.
of this may be down to
from investors for
, the fact
on shareholders and the
of the media.
Changes in the economy
The distinction between strategy and tactics
plan of action to achieve a long-term goal
. It relates to what needs to be achieved. WHEREAS... A
relates to the short-term actions necessary to achieve the plan or strategy.
Diagram of distinction between strategy and tactics:
The links between mission, corporate objectives and strategy
Overall mission/purpose set --> long-term targets set --> mission able to be achieved --> strategies can be devised aimed at meeting targets set --> mission fulfilled.
The impact of strategic decision-making on functional decision-making
: decision-making within the functional areas of business: marketing, finance, operations and human resources.
Read the bottom of page 116 and start of page 117 for examples.
The value of SWOT analysis
SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is an analytical tool used in decision-making that examines the internal strengths and weaknesses of a business as well as the external opportunities and threats.
Diagram of SWOT analysis:
Once a SWOT analysis has been undertaken
Organisation should have a
of what it is good at and the opportunities that might exist, as well as its weaknesses and threats.
build on the positives
Summary of its value...
Helps identify its core competencies, enabling it to build on its strengths.
Helps focus on the future, given its past and present condition.
May identify opportunities to focus on to achieve maximum gains.
Source of strategic planning as well as marketing.
Helps redefine and set overall objectives.
How to assess the financial performance of a business
financial statement that measures an organisation's financial performance over a specific accounting period.
: measure of profit or loss resulting from day to day business operations (earnings before interest and tax - EBIT).
Finance income and expenses
: interest received on accounts that are held and interest paid out on loans.
: costs not directly related to production, such as marketing or general administrative costs.
Profit before tax: arrived at after adjusting operating profit for financial income and expenses.
: difference between revenue and cost of goods.
: corporation tax paid to the government.
Cost of goods sold
: direct costs of production.
Profit after tax
- final profit (or loss) figure, referred to as the bottom line.
: amount received from sale of goods during trading period.
Link to the structure of an income statement:
profit - profit kept
within the business
Distributed to shareholders
- paid in the form of dividends.
the degree to which profit is likely to continue in the future - the sustainability of profit.
tool used in financial analysis to express relationships between an organisation's accounting numbers in order to establish trends and comparisons.
capacity of a business to make profit.
Profit margins show the profit generated from each £ of revenue. Another ratio is the return on capital employed (
). It measures how
from the capital employed.
ROCE = (Net operating profit / capital employed)
measure of the extent to which an organisation can meet its immediate short-term financial obligations.
Current ratio = Current assets / Current liabilities
measure of an organisation's leverage and shows the extent to which its operations are funded by loans rather than equity.
Gearing ratio = (non-current liabilities / total equity + non-current liabilities)
: used to
how well a business uses its
in this area...
days: Shows the number of
it takes to
(receivables / revenue)
turnover: calculates the number of
times per period
of inventory -
(cost of goods sold / average inventories)
days: Calculates the
number of days a business takes to
(payables / cost of sales)
a report that summarises all of an organisation's assets, liabilities and equity at a given point in time.
Link to a balance sheet and its structure:
Assets: anything that a business owns, benefits from or has the use of in generating income.
(fixed) assets: e.g. land, buildings, vehicles, machinery and equipment. They
remain in a business > 1 year.
assets: examples of
land, buildings and machinery
. Examples of
assets such as
patents, copyrights and goodwill.
assets: owned for
< 1 year
inventories, receivables and cash
. Inventories include any stock, work in progress and finished products not yet sold.
Liabilities: what a business owes, the legal debts or obligations that arise during the course of business operations.
liabilities: debts that will be
repaid in more than 1 year
bank loans, mortgages and debentures.
attributable to the business
owners, including the
by shareholders together with any
of a business that will be
re-payed within 1 year
payables, overdrafts and any corporation tax or dividends due for payment.
The usefulness of balance sheets
Number of important figures are indetified:
measure of an organisation's short-term financial health, calculated as currents assets less current liabilities.
Net assets of a business
: shows the
overall worth of a business
to its shareholders and is the
working capital less non-current liabilities.
Can be used to work out the following:
: value of
total equity plus non-current liabilities
and is the
amount of money
invested into the business.
: value of
non-current assets plus current assets.
The value of financial ratios when assessing performance
: they allow analysts to judge if a business is doing
or about the
years. It can then be
compared with other businesses
based on past results
so they are
of future performance. This is because of a
in the economy or
': relates to the
taken by organisations to
of their financial
: ratio analysis
such as the market and position of the business which can have an
impact on a business.
How to analyse data other than financial statements to assess the strengths and weaknesses of a business
Productivity, unit costs and capacity utilisation and measures of quality
can assess a business's
Human resources data
Data on areas such as consumer behaviour, the market itself and competition are what a business's performance can be judged against.
The importance of core competencies
combination of pooled knowledge and technical capacities that allow a business to be competitive in a market place.
of core competencies, such as problems associated with outsourcing.
Outsourcing the the sub-contracting of non-core activities of an organisation in order to free up cash, time, personnel and facilities, thereby concentrating on other areas in which it has a competitive advantage.
Assessing short- and long-term performance
There is an
, especially the
measure of financial performance.
such as social media and technology, this might
be a problem as it's
up to date.
state that businesses should be acting in the
, not just
Businesses should be
and not just short-term
For example, investment in research and development of new products and processes, focusing on achieving customer satisfaction and loyalty and employee engagement and loyalty.
The value of different measures of assessing performance
Kaplan and Norton's Balanced Scorecard Model
strategic planning and management system that is used in organisations to align their activities to their mission and strategy.
that need to be
together. If you were to
any one dimension the business could
fail to thrive.
Less popular as it is complex.
Link to the model:
Elkington's Triple Bottom Line
assesses an organisation's performance through three dimensions of performance: social, environmental and financial.
terms - the
of the business in relation to the
community and society.
and in the
in which it
terms - the use of
Link to the model:
The impact of changes in the political and legal environment on strategic and functional decision-making
Objective is to
promote economic efficiency
through the sound
the consumer from
This has resulted in a number of laws to promote
prevent anti-competitive practices.
businesses taking advantage of
where businesses or countries act together as a single producer in order to influence prices, production and marketing of certain goods or services
Competition Act 1998
Enterprise Act 2002
are supported by the
Competition and Markets Authority
non-ministerial government department responsible for strengthening business competition and preventing and reducing anti-competitive activities
The labour market
UK labour legislation is designed to
prevent the exploitation
of employees by businesses by
between workers, employees and trade unions.
It seeks to ensure
reasonable working conditions
bias or prejudice resulting in denial of opportunity or unfair treatment regarding the selection, promotion or transfer of employees
Equality Act 2010
- discrimination in the workplace.
Minimum Wage Act 1998
- the minimum hourly rate employees over a certain age are entitled to.
Employment Rights Act
- set employees' statutory rights in relations to pay and conditions of work.
Health and Safety at Work Act
Working Time Regulations 1998
- limit the hours an employee can be legally required to work to a maximum of 48.
of business on the
. It falls into
The Environment Agency is a public body established in 1996 to protect and improve the environment and promote sustainable development.
The impact of UK and EU government policy
The role of regulators
Regulatory bodies exercise a regulatory function within a wide range of industries and professions.
the public through
in relation to any activity; and ensuring
basic physical and organisational structures needed for the operation of society or enterprise.
willingness to take initiative in setting up or taking on a project or business venture.
the amount of red tape faced by businesses, particularly
The UK has one of the
lowest rates of corporation tax
in the EU and schemes such as the
to be gained.
Patent Box is a special tax regime for intellectual property revenues that businesses have been able to elect to enter.
Governments like to show a commitment to the protection of the environment and is evidenced through schemes such as the
establishment of green belt areas
around cities, the
granting of subsidies
for those installing renewable energy systems.
to the environment faces many
conflicts and challenges,
such as those surrounding
building new roads
, runways and nuclear power stations and the
increased demand for housing.
The exchange of goods and services between countries.
The impact of changes in the UK and the global economic environment on strategic and functional decision-making
GDP (Gross Domestic Product): the measure pf the value of all goods and services produced within a country over a specific time period and as such provides a primary indicator of a country's economic wealth
, such as how different countries are coping with the aftermath of global financial crisis.
rate of economic growth varies
and sometimes becomes
- these are times of
in the GDP are known as the
- shows the
fluctuations in economic activity, as measured by GDP, that an economy experiences over time.
Link to the stages of the business cycle:
Link to a table explaining businesses and the business cycle:
directly from individuals' or organisations' income.
taxes on expenditure.
Main taxes used in the UK and their impact on businesses
changes in personal allowance
rates of income tax
so therefore affect
level of spending
tax: tax on
. Rate at which it is charged can
affect the attractiveness of the UK
National insurance payments
: changes in these rates can
affect the disposable income
Value added tax
(VAT): consumption/spending tax. Changes in these rates can
as it has a
direct impact on goods prices.
: tax on the sale of specific goods such as
alcohol, tobacco and fuel.
: paid by consumers for products or services that
aren't considered environmentally friendly.
exchange rate is the price for which the currency of one country can be exchanged for another country's currency.
Rise in exchange rates
from UK is more
of UK-producing businesses.
Importing materials for production
in export price.
Falling exchange rates
more expensive imports.
general increase in prices and the fall in the purchasing power of money.
The objective of the Bank of England's
Monetary Policy Committee
deliver price stability
regulates interest rates
in an attempt to
maintain economic stability.
Fiscal and monetary policy
means by which the government adjusts its spending levels and tax rates to monitor and influence the country's economy.
Link to the effects of increases and reductions in taxation:
Link to the fiscal policy and levels of economic activity.
level of consumer spending
is affected by the
process by which the monetary authority controls the money supply and interest rates in order to achieve healthy economic growth.
More open trade v protectionism
unrestricted purchase and sale of goods and services between countries.
provides one of the
biggest free trade areas
in the world.
policies and actions by governments to restrict or restrain international trade, such as import tariffs, quotas or subsidies to local businesses.
Examples of constraints...
number of goods imported
into a country.
: might include
excessive rules and regulations
: taxes on
the price, making the
import less competitive.
Reasons for greater globalisation of business
Globalisation is defined as the process of deeper economic integration between countries and regions of the world.
More open trade
: improvements have made it easier and quicker to communicate, share information and trade across the world.
: rapid growth of air transport = movement across the globe is more easier. Bigger ships = cheaper and more efficient transport.
The importance of globalisation for business
increased sales and profit,
countries and businesses can
in producing goods and services where they have a
Free movement of labour
- allowed UK businesses to
fill job vacancies with migrants
such as nurses and doctors.
- UK has
benefited from direct inward investment
lower costs and prices
, might put
pressure on domestic firms
if they cannot compete.
The importance of emerging economies for business
national economy that is progressing towards becoming more advanced through rapid growth and industrialisation.
There are a number of reasons that they are important...
Growth of middle classes
: growing economy means a wealthy middle-class with aspiration for more up-market and high-quality goods.
- for producing products.
Large and growing markets
Strategies for businesses entering emerging markets
of the market and its consumers, suppliers and competitors is
: having these
to a market and
Well-made and locally tailored products.