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SECTION 7: ANALYSING THE STRATEGIC POSITION OF A BUSINESS - Coggle Diagram
SECTION 7: ANALYSING THE STRATEGIC POSITION OF A BUSINESS
FINANCIAL DATA
the value when assessing performance
comparisons
against previous years
against competitors
historical nature
these calculations are not necessarily an indicator of future performance
window dressing
financial statements can be window dressed to make them appear better than they look
limited focus
ratio analysis only focuses on the financial performance of a business
it ignores other ares such as market, position of the business, competitiors, tech advancements, economic environment,
if these are taken into account there is no doubt that ratio analysis can be an excellent measure of performance
ROCE
net operating profit / capital employed x 100
how effectively a business generates profits from the capital employed
current ratio
current assets / current liabilities : 1
a business's ability to pay its short term debts from its short term assets
gearing
non current liabilities / total equity + non current liabilities x 100
measure of an organisations leverage and shows the extent to which its operations are funded by loans rather than equity
payables days
payables / cost of sales x 365
the average number of days it takes for a business to pay its bills
receivables days
receivables / revenue x 365
the number of days it takes to convert receivables into cash
inventory turnover
cost of goods sold / average inventories
calculates the number of times per period a business sells and replaces its entire stock of inventories
balance sheet gives a report that summarises all of an organisations assets liabilities and equity at a given point in time
the income statement is a financial statement that measures and organisations financial performance over a specific accounting period
capital employed
total equity + non current liabilities
NON-FINANCIAL DATA
functional data
marketing data
the market itself
consumer behavior
competition
operations data
productivity
unit costs
capacity utilisation
quality
human resource data
labour productivity
absenteeism
labour turnover
labour cost per unit
core competences
the combination of pooled knowledge and technical capacities that allow a business to be competitive in the marketplace
be difficult for competitors to replicate
provide opportunities to expand into new markets
provide significant benefits to customers
criticisms of core competencies
in order to focus on core competencies a business may lose control of some other ares of the business which may affect its overall performance
things change over time and a business must be prepared to move with the times
kaplan and nortons balanced score card
a strategic planning and management system that is used in organisations to align their activities to their mission and strategy
the model recommends that managers track a small number of key measures that collectively measure
financial
customer
internal business process
growth
benefits
provides a broader view that may detect weaknesses early
it allows employees to see their importance within an organisation therefore acting as a motivator
drawbacks
it is complex and some areas can be difficult to quantify
achieving the right balance in the dimensions can be difficult
its use is dependent on the compilers perspective
elkingtons triple bottom line
assesses an organisations performance through three dimensions of performance
people / social
planet / environmental
profit/ financial
POLITICAL ENVIRONMENT
UK and EU law
competition
to promote economic efficiency through the sound development of the market economy and protect the consumer from excessive market power
the competition act 1998
prevents anti-competitive agreements between businesses such as price fixing and addresses the potential abuse of a dominant position in the marketplace
enterprise act 2002
further strengthens the enterprise act
governed by the competition and markets authority
the labour market
designed to prevent the exploitation of employees by businesses by regulating the relations between workers, employees and trade unions
seeks to ensure reasonable working conditions and prevent exploitation and discrimination
acts passed
the equality act 2010
minimum wage act 1998
employee rights act
health and safety work act
working times regulation
environmental legislation
designed to minimise the negative impact of businesses on the environment
pollution
environmental protection act 1991
environmental act 1995
climate change
climate change act 2008
energy act 2013
government policy
impact of UK government policy
enterprise
the willingness to take initiative in setting up or taking on a project or business vemture
to make it easier the government has
reduced the red tape faced
reduce the tax burden
direct financial help
increases the amount of bureacracy and red tape
adds to costs
infrastructure
the basic physical and organisational structure that is needed for the operations of society and enterprises
the environment
government is likely to show commitment to the environment through schemes and the introduction of environmental legislation
however there are also conflicts and challenges
demand for housing
international trade
the exchange of services and goods with other countries
some goods and materials cannot be produced in the UK and therefore have to be imported
gives these countries a competitive advantage
the UK may have advantages in banking, finance and innovation
e.g. Dyson
ECONOMIC ENVIRONMENT
GDP
a measure of a nations overall economic activity
taxation
money taken to fund government expenditure
direct taxes
taken directly from individuals or organisations income
indirect tax
taxes on expenditure
exchange rates
the price for which the currency of one country can be exchanged for another countrys currency
rising exchange rates
exports from the UK are more expensivr
UK exporters potentially less competitive
imports to UK less expensive
falling exchange rate
exports cheaper
UK exporters potentially more competitive
imports more expensive
inflation
the rate at which the general levels of prices for goods and services is rising and consequently the purchasing power of a currency is failing
fiscal/ monetary policy
fiscal policy
the means by which the government adjusts its spending levels and tax rates to monitor and influence the country's economy
monetary policy
a committee of the bank of england that regulates interest rates in an attempt to maintain economic stability
free trade/ protectionism
free trade
is the unrestricted purchase and sales of goods and services between countries
protectionism
the policies and actions by governments to restrict or restrain the international trade such as import tarriffs quotas or subsidies to local businesses
interest rates
The interest rate represents the cost of borrowing money or the amount a saver receives in interest
SOCIAL ENVIRONMENT
demographic change
urbanisation
the movement of people from the countryside to towns and cities
problems
traffic congestion
over crowding
lack of suitable housing
inequalities
migration
the movement of people between countries
benefits
increases the labour force
boosts demand in the economy
it has a positive impact on some sectors such as higher education where foreign students contribute to the financing for domestic sturdents
changes in consumer lifestyle and buying behaviour
raised awareness of alternative lifestyles
more disposable income
more leisure time
changes in lifestyle
organic and fair trade produce
health
holodays
ready meals and eating out
online businesses
buying from anywhere
retail floor space is no longer crucial
click and collect / home delivery options for supermarkets
high street has declined in importance
to achieve fuill potential
the creation of a high quality user-friendly website
a carefully targeted audience
content that is increasingly personalised
mobile capabilites
integrated sales channels
corporate social responsibility
a business aproach that contributes to sustainable development by delivering economic social and nvironmental benefits to all stakeholders
reasons for
costs savings
brand differentiation
customer and employee engagement
the 'right thing to do'
prevent government intervention
reasons against
less profit
worse customer perception
state of the economy
the market
stakeholders views
Carrols corporate social responsibility pyramid
the pressures for socially responsible behaviour
pressure groups
state regulation
consumer perception
the media
drive towards self-regulation
technological change
innovation in services provided produts manufactured of proccesses of production
benefits
lower costs
improved communication
increased sales
better working environment
better quality
drawbacks
quicker and costly pace of change
more competition
less security
implications
operations in the way products are designed and made
marketing in the way products are sold to consumers
human resource in terms of the skills required and the working environment
finance in terms of the costs and potential savings to be made
COMPETITIVE ENVIRONMENT
porters 5 forces
threat of new entrants
high barries to entry = hard to get in
low barriers to entry = easy to get in
bargaining power of buyers
high buyer power
fewer buyers and / or buys a significant proportion of output
buyers have a credible backward intergration threat
low buyer power
many buyers
producers have a credible forward intergration threat
there are significant switching costs
bargaining power of suppliers
high supplier power
a business uses a single supplier
customers are powerful
high cost to switch suppliers
low supplier power
there are many competitive suppliers
customers are weak
low cost to switch suppliers
threat of subsitute
a businesses ability to achieve profitability is affected by substitutes giving consumers the ability to choose an alternative product
rivalry among existing comptitors
number and size of firms
low levels of product differentiation
slow market growth
high exit costs
competitive strategy
cost leadership strategy
aims to gain a competitive advantage by having the lowest costs in the industry
differentiation strategy
the development of a product or service that offers unique attributes that are valued and perceived by customers to be different from those of competitors
focus strategy
a narrow competitive scope where a particular segment in the market are targeted the focus may then be on the basis of either cost leadership of defferentiation
SWOT analysis
strengths
weaknesses
opportunities
threats
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
the value of swot analysis
it helps a firm to identify its core competencies enabling it to build on its strengths
helps a firm to focus on the future given its past and present condition
it may identify opportunities that a firm can focus on to achieve maximum gains
it is a source of strategic planning as well as marketing
it helps firms to redefine and set it overall objectives
INVESTMENT APPRAISAL
payback
the length of time taken to recover the initial outlay of an investment from net income
number of full years +. the amount of cost left / the revenue generated in the next year
average rate of return
calculates the average return of an investment and expresses this as a percentage of the initial outlay
step 1: net return = total net cash flows - initial outlay
step 2: average annual return = net return / life expectancy
step 3: average rate of return = arr / initial outlay x 100
net present value
the current value of future income from an investment
net cash flow x discount factor
sensitivity analysis
an analytical tool that enables the impact of a change in a variable of a given project or investment to be examined
an analytical tool used to evalueate the attractiveness or unatractiveness of an investment proposal
OBJECTIVES
influences on the mission
the mission of a business is its core purpose and focus/ its reason for existence
philosophy and values
the environment in which it operates
external influences
pressures for short terminism
changes in the economy
government policy
demographic trends
competitors actions
technology
internal influences
business ownership
business culture
business performance
