Theme 3: Business Decisions and Strategy

3.1.1 - Corporate aims

Broad, long-term ideas as to how the business should develop.

3.1.1 - Corporate objective

A specific goal that a business strives to achieve in order to meet its long-term aim.

3.1.1 - Critical appraisal

An assessment of whether the corporate aims and mission statement continue to reflect the current corporate vision.

3.1.1 - Mission statement

A set of guiding principles used to steer stakeholders toward achieving a business's aims and objectives.

3.1.2 - Ansoff's Matrix

A strategic tool that helps a business analyze its growth options.

3.1.2 - Architecture/origin

Refers to the contracts and relationships within and around an organisation.

3.1.2 - Cost leadership

A strategy of achieving lower costs to allow a business to reduce prices and increase sales and revenue.

3.1.2 - Distinctive capabilities

Unique skills or attributes possessed by a business.

3.1.2 - Diversification

Introducing new products into new markets. Considered riskier than market penetration but with the potential for greater rewards.

3.1.2 - Financial resources

Resources used to finance a business strategy, including cash, current assets, and borrowing capacity.

3.1.2 - Innovation

The development of a new product or process.

3.1.2 - Market development

Marketing an existing product in new markets.

3.1.2 - Market penetration

Selling existing products in existing markets—the least risky strategy per Ansoff.

3.1.2 - Porter's Strategic Matrix

A tool that identifies potential sources of competitive advantage in a market.

3.1.2 - Product development

Marketing new or modified products in existing markets.

3.1.2 - Reputation

The operational factors (premises, equipment, resources) that enable a business to meet customer needs.

3.1.2 - Strategic decisions

Long-term decisions that relate to achieving overall business goals.

3.1.2 - Tactical decisions

Short-term actions that help implement the overall strategy.

3.1.3 - SWOT analysis

A strategic planning technique used to identify a business's internal strengths and weaknesses, and external opportunities and threats.

3.1.4 - Economic factors

Economic variables (e.g. exchange rate, inflation, interest rates) that can affect a business.

3.1.4 - Environmental factors

Factors relating to a business's impact on, and obligations toward, the environment.

3.1.4 - Legal factors

The legal requirements a business must follow when operating.

3.1.4 - PESTLE factors

The political, economic, social, technological, legal, and environmental influences on business strategy.

3.1.4 - Political factors

Regional, national, and international laws and policies (e.g. regulations, subsidies) that affect business.

3.1.4 - Porter's five force model

A framework for analyzing the competitive forces in an industry (threat of substitutes, new entrants, bargaining power of buyers and suppliers, and competitive rivalry).

3.1.4 - Social factors

Demographic and cultural changes (e.g. aging population, lifestyle changes, fashions) that impact business.

3.1.4 - Technological factors

Advances in technology (new production processes, mobile technology, disruptive innovations) that can affect a business.

3.1.4 - Threat of competition

The behavior of competitors that may lead to a loss of market share.

3.2.1 - Diseconomies of scale

A rise in average/unit costs as a business grows in size.

3.2.1 - Economies of scale

A situation where average costs fall as total output increases.

3.2.1 - External economies of scale

Average cost reductions available to all businesses as an entire industry grows.

3.2.1 - Financial economies of scale

Advantages large firms have when raising finance (wider sources, better interest rates).

3.2.1 - Growth

Expansion of sales revenue, often with the hope of increasing profits.

3.2.1 - Internal economies of scale

Cost advantages a business gains by expanding production internally.

3.2.1 - Purchasing/marketing economies of scale

3.2.1 - Advantages gained when buying raw materials in bulk.

3.2.1 - Risk bearing economies of scale

The potential for a firm to diversify as it grows, reducing risk.

3.2.1 - Specialisation/managerial economies of scale

Advantages gained from employing specialist managers (e.g. in marketing or HR).

3.2.1 - Technical economies of scale

Efficiency gains from using capital equipment as a business grows.

3.2.2 - Horizontal integration

The joining of businesses operating in the same line of business.

3.2.2 - Merger

When two businesses join together and operate as one.

3.2.2 - Takeover

When one business acquires a controlling share in another.

3.2.2 - Vertical integration

The joining of two businesses at different stages of production.

3.2.3 - Inorganic (or external) growth

Expansion through mergers or takeovers.

3.2.3 - Organic (or internal) growth

Expansion from within the business (e.g. broadening product range or locations) without merging or taking over another business.

3.2.4 - E-commerce

The buying and selling of goods or services over the internet.

3.3.1 - Extrapolation

Extending a trend line to forecast future sales.

3.3.1 - Four period moving average

An average calculated over four time periods (often quarters) that 'moves' with time.

3.3.1 - Line of best fit

A line drawn through a scatter graph that represents the general trend of the data.

3.3.1 - Moving averages

Successive averages derived from segments of a data series.

3.3.1 - Quantitative sales forecasting

Predicting future sales based on trends identified from past data (time-series analysis).

3.3.1 - Scatter graphs

Graphs that show the relationship between two variables on various occasions.

3.3.1 - Three period moving average

An average calculated by summing data from three periods and dividing by three.

3.3.2 - Average (Accounting) Rate of Returns

A method of investment appraisal that measures the net annual return as a percentage of the initial investment.

3.3.2 - Discounted Cash flow (Net present value only)

An investment appraisal method that discounts future cash flows back to their present value, taking interest rates into account.

3.3.2 - Investment appraisal

The evaluation of an investment project to determine its potential worth.

3.3.2 - Payback

The length of time required for a project to recover its initial investment cost.

3.3.2 - Simple payback method

An appraisal technique that measures the time needed for the project's cash inflows to repay its initial cost.

3.3.3 - Decision trees

A tool that maps out possible outcomes of decisions along with their probabilities and expected monetary values.

3.3.3 - Expected monetary rewards

The anticipated value gained from a decision.

3.3.3 - Probabilities

The likelihood of various outcomes occurring.

3.3.4 - Critical path

The sequence of tasks that determine the minimum project duration—any delay here delays the whole project.

3.3.4 - Critical path analysis (CPA)

The process of planning and sequencing project activities to find the quickest way to complete a project.

3.3.4 - Earliest Start Time

The soonest a task in a project can begin.

3.3.4 - Free float

The amount of time a task can be delayed without affecting the project's overall completion time.

3.3.4 - Latest Finish Time

The latest a task can finish without delaying the project.

3.3.4 - Network diagram

A chart that shows the sequence and timing of tasks required to complete a project.

3.4.1 - Evidence based decision making

An approach that gathers and uses systematic, rational information to reach decisions.

3.4.1 - Long-termism

Focusing on decisions that impact the business's vision, mission, and objectives over a period longer than five years.

3.4.1 - Short-termism

A focus on quick financial rewards (e.g. quarterly profits) often at the expense of longer-term investments.

3.4.1 - Subjective decision making

A holistic approach that incorporates factors such as corporate social responsibility and ethical behavior.

3.4.2 - Corporate culture

An unwritten code of conduct that reflects a business's values and shared beliefs, influencing decision-making.

3.4.2 - Culture

The shared attitudes, values, customs, and expectations within an organization.

3.4.2 - Person culture

A scenario where individuals possess expertise but may not work closely together.

3.4.2 - Power culture

A culture where decision-making is centralized in one key individual or group.

3.4.2 - Role culture

A culture where decisions are made based on established rules and procedures.

3.4.2 - Strong culture

A deeply embedded set of values and practices that strongly influence how a business operates.

3.4.2 - Task culture

A culture that emphasizes teamwork around specific tasks within the overall objectives of the business.

3.4.2 - Weak culture

A culture where internal communication is poor, staff turnover is high, and mistakes are met with blame rather than learning.

3.4.3 - External stakeholders

Groups outside the business that have an interest in its activities (e.g. local community, government).

3.4.3 - Internal stakeholders

Individuals within the business, such as employees, managers, directors, and owners.

3.4.3 - Shareholder approach

A focus on maximizing returns for shareholders in decision-making.

3.4.3 - Shareholders

The owners of a company who invest capital and assume risk.

3.4.3 - Stakeholder approach

An approach that considers the needs and interests of all stakeholders in business decisions.

3.4.3 - Stakeholders

People or groups with an interest in the actions of a business (e.g. owners, employees, customers, suppliers, community).

3.4.4 - Capital employed

The total long-term finance of a business (calculated as non-current liabilities plus total equity).

3.4.4 - Corporate Social Responsibility (CSR)

The practice of considering the social and environmental impacts of a company's actions on a range of stakeholders, not just shareholders.

3.4.4 - Ethics

Moral principles that guide business decisions, including fair treatment of employees and consideration of environmental impacts.

3.4.4 - Socially responsible business

A business that places ethical considerations and CSR at the forefront of its strategic decisions.

3.5.2 - Gearing ratio

A measure of the extent to which a business is financed by long-term debt; highly geared is over 50%. (Calculation: Non-current liabilities ÷ Capital employed × 100)

3.5.2 - Return on capital employed (ROCE)

The profit generated as a percentage of the capital employed in the business. (Calculation: Operating profit ÷ Capital employed × 100)

3.5.2 - Return on investment (ROI)

The financial benefit or profit generated from an investment (e.g. setting up production in another country).

3.5.3 - Absenteeism

The percentage of the workforce absent on a given day. (Calculation: Number of staff absent ÷ Total number of staff × 100)

3.5.3 - Consultation strategies

Approaches where management engages in discussions with employees regarding strategies and working practices.

3.5.3 - Employee share ownership

A scheme where key employees receive shares if performance targets are met.

3.5.3 - Empowerment strategies

Methods for granting employees greater authority and decision-making power in the workplace.

3.5.3 - Human resources

The people who make up a business's workforce, including aspects of recruitment, training, and redundancy.

3.5.3 - Labour productivity

A measure of output per employee per time period. (Calculation: Total output ÷ Average number of employees)

3.5.3 - Labour retention

The number of employees that remain with the business over time.

3.5.3 - Labour turnover

The percentage of employees who leave the business over a given period.

3.6.1 - Business continuity

A plan for ensuring a business continues operating following a serious incident.