Business Management Toolkit (M24)

SWOT Analysis

SWOT Analysis

Analyze:

• The internal strengths & weaknesses

• The external opportunities and threats

SWOT Analysis Aspects

Quality and Relevance of Date (SWOT)

• Accurate and reliable date must be used

• If the info used for analysis is outdated, incomplete, or biased, can lead to flawed conclusion

Objectivity and Bias (SWOT)

• Requires a fair and unbiased assessment of the organization’s internal and external factors

• If analysis is influenced by personal biases, preconceived notions, or subjective opinions, it can undermine usefulness of analysis

Depth of analysis (SWOT)

• Superficial analysis may overlook important factors or fail to capture the complexity of the organization’s environment

• Comprehensive and thorough analysis provides more accurate insights

Stakeholder involvement (SWOT)

• SWOT analysis should involve input from various stakeholders within organization (e.g. employees, managers, customers, etc.)

• Diverse perspectives can provide a broader understanding of organization’s strengths, weaknesses, opportunities, and threats

Dynamic Nature of the environment (SWOT)

• As market conditions, tech, and consumer preferences change over time, the relevance of identified strengths, weaknesses, opportunities, and threats

• Regular updates and revisions to analysis are necessary to ensure its usefulness

Ansoff Matrix

Tool for businesses who have a growth objective ~ used to identify appropriate corporate strategy and understand level of risk associated with chosen strategy

Ansoff Matrix ~ Market Penetration

Existing market, existing product ~ Selling more products to existing customers

Ansoff Matrix ~ Market Development

New market, existing product ~ Finding and exploiting new market opportunities for existing products

Ansoff Matrix ~ Product development

Existing market, new product ~ Involves selling new or improved products to existing customers

Ansoff Matrix ~ Diversification

New market, new product ~ Targeting new customers with entirely new or re-developed products

STEEPLE Analysis Terms

• Social (Personal attitudes, values, culture, demographic change expected to affect business)

• Technological (Tech change and innovation impact business)

• Economic (Economic indicators expected to directly impact business performance)

• Environmental (Changes in attitude and government policy toward environmental products & impact of global warming impact business)

• Political (Local and national government influence business)

• Legal (Changes in law and regulations impact business)

• Ethical (Moral principles ought to be considered in decision-making)

STEEPLE Analysis

Examines factors outside of the business (external) that are likely to impact the business

Boston Consulting Group Matrix (BCG)

Tool used by businesses to analyze their product portfolio and make strategic decisions about each product

BCG Matrix classifications

• Star

• Question mark/Problem child

• Cash cow

• Dog

BCG ~ Star

High market share, high market growth rate (Significant + cash flow and potential for continued growth)

BCG ~ Question mark/ Problem child

Low market share, high market growth rate (- cash flow as businesses usually invest to turn them into stars)

BCG ~ Cash cows

High market share, low market growth rate (Generate + cash flow)

BCG ~ Dogs

Low market share, low market. growth rate (Little revenue for company and no growth potential)

Business Plan

Sets out key aspects of a business and how owners intend it to develop

Main aim of a Business plan

Reduce the risk associated with starting a new business and help owners to raise finance

Key elements of a business plan

• Executive summary (overview of business idea)

• Company description (Business mission, vision, values)

• Market analysis (Target customers/needs, competitor analysis)

• Products or services (Products/services business will offer)

• Marketing & Sales strategy (Intended marketing and sales approach, marketing channels, pricing strategy, promotional tactics)

• Organization and management (Overview of organizational structure ~ key members w/ qualifications, experience, responsibilities)

• Operations and implementation (How business will operate on day-to-day basis inc. production process, stock management, key partnerships/suppliers)

• Financial projections (Financial forecast inc. projected income statements, balance sheets, cash flow statements)

• Risk analysis (Potential risks and challenges)

Decision Trees

A visual and quantitative method of tracing the outcome of a decision so that the most profitable decision can be identified ~ decision for whether or not to launch a new product or improve existing product

Key elements of a decision tree

• Decision points

• Outcomes

• Probabilities

• Expected monetary values

Worked Example of a Decision tree

Decision tree ~ Decision points

Points where decisions need to be made ~ represented by squares

Decision tree ~ Nodes

Points where there are different outcomes ~ represented by circles

Decision tree ~ Probabilities

Probability of a likelihood of each outcome

Decision tree ~ Expected monetary values

Monetary value of each decision is based on the expected profit or loss of the outcome

Calculating expected monetary value

(Expected value of success x probability) + (Expected value of failure x probability) - cost

Limitations of Decision Trees

• Requires skill to avoid bias and take sig. amounts of time to gather reliable data

• Constructed using estimates which rarely take full account of external factors and can’t include all possible eventualities

• Qualitative elements aren’t considered which may affect probability of success of a decision

Descriptive statistics

Statistical measures used to concisely describe key features of a dataset

Benefits of using descriptive statistics

• Provides brief overview

• Enables easy comparison of diverse datasets

• Supports informed decision-making

• Useful in evaluating performance metrics

• Simplifies complex data for effective communication

Mean, Median, and Mode

• Mean: Average

• Median: Middle value

• Mode: Most common value

Circular Business Models

Approach to business designed to minimize the consumption of scarce resources and reduce waste

Aim of circular business model

• Maximize the use and value of resources

• Materials and products are recycled, reused, or regenerated rather than being disposed after use

Key principles of circular business model

• Design for longetivity (products designed to have longer lifespan)

• Resource efficiency (resources used efficiently throughout product lifecycle, minimizing waste)

• Recycling & Reuse (Materials from products that have reached end of life cycle are recycled or reused to create new products or components)

• Product as a service (Provide services such as leasing or renting ~ encouraging product sharing)

• Biomimicry (Nature-inspired design principles used to create products/processes that mimic natural systems)

• Collaboration & partnerships (Businesses collaborate with suppliers, customers, stakeholder to create closed-loop systems ~ promote exchange of materials and knowledge)

Advantages of circular business model

• Reduced waste generation

• Decreased reliance on finite natural resources

• Cost savings through resource efficiency

• Enhanced brand reputation

• Increase resilience to resource scarcity and price volatility

Force Field Analysis

Involves managers identifying the driving and restraining forces that surround a strategic change decision

Force Field Analysis ~ Driving forces

Factors that could justify strategic change is needed

E.g.

• Internal: Outdated machinery, declining team morale, need to increase profitability

• External: Volatile market, disruptive technologies, changing demographic trends

Force Field Analysis ~ Restraining forces

Factors that could prevent or limit change

E.g.

• Internal: Fear of unknown, existing organizational structure

• External: Existing commitments to partner organizations, government legislation, obligations towards customers

Force Field Analysis Weighting

For each factor in restraining and driving force, they need to be rated from 1-5

• 1 being Least important

• 5 being Most important

After weighing each factor, calculate total and choose what has higher total (restraining or driving forces)

Force Field Analysis Strengths

• Simple and visual

• Comprehensive

• Identifies most critical factors

• Assists decision-making

• Aids communication

Force Field Analysis Weaknesses

• Subjective (can lead to bias)

• Lacks quantitative data

• Snapshot (Might change over time)

• Doesn’t provide solutions

• Limited in complex situations (oversimplifies analysis)

Gantt Charts

Project management tool used to visualize and plan tasks and their dependencies over time

Gantt Chart Strengths

• Visual clarity

• Resource allocation and communication

Gantt Chart weaknesses

• Complex and time-consuming

• Inflexibility

Hofstede’s cultural dimensions

A way of understanding the culture of a country based on its cultural values

Hofstede’s six cultural dimensions

• Power distance (Degree to which individuals in a country's institutions and organizations anticipate and embrace unequal distribution of power)

• Individualism (individualist cultures: look after themselves and direct family ~ collectivist: take care of in groups in exchange for loyalty)

• Motivation towards success (high-score ~ decisive ~ indicates society will be driven by competition, achievement, success ~ low score ~ dominant values in society are caring for other and quality of life)

• Uncertainty avoidance (extent to which a society tolerates or avoids uncertainty and ambiguity)

• Long-term orientation (Extent to which society has to maintain some links with own past while dealing with challenges of present and future)

• Indulgence (extent to which people try to control desires and impulses based on way they were raised)

Hofstede’s cultural dimensions model can help to…

• understand cultural differences

• focus its market research and product development

• Tailor promotional activities

• Structure HR, training, and team management

• Determine suitable international expansion strategies

• Consider approaches to corporate social responsibility

Hofstede’s cultural dimensions model strengths

• Structured framework makes comparison easy

• Credible model

• Clear and simple

• Practical application

Hofstede’s cultural dimensions model weaknesses

• Generalization

• Lack of nuance

• Ethnocentrism

• Changes over time

Porter’s Generic strategies

Identifies a range of strategies a business can utilize to increase their success

2 main factors:

• Source of competitive advantage

• Scope of the market

Porter’s Generic Matrix Factors

• Cost leadership (cost competitive advantage, mass market scope ~ most cost-competitive in large market)

• Differentiation (differentiation competitive advantage, mass market scope ~ stand out on quality, innovation, brand identity)

• Cost focus (Cost competitive advantage, niche market scope ~ most cost-competitive in small or specialized market)

• Differentiation focus (differentiation competitive advantage, niche market scope)

Mass Market strategies ~ Cost leadership

Most suitable for businesses that have a sig. cost advantage over rivals

Strengths:

• Economies of scale

• Competitive Pricing

• Barriers to entry

Weaknesses:

• Risky

• Quality concerns

Mass Market strategies ~ Differentiation

Businesses that cannot be the most competitive on cost should make its products distinct from other rivals

Strengths:

• Premium pricing

• Brand loyalty

• Fewer competitive pressures

Weaknesses:

• High costs

• Customer preferences

Niche Market strategies ~ Cost focus strategy

Involves being the lowest cost-competitor within the market niche

Niche Market strategies ~ Differentiation focus strategy

Involves offering specialized products within the niche market

Niche Market strategies ~ Strengths and weaknesses

Strengths:

• Focusing on specific niche allows business to tailor its products or services to particular audience

• Highly profitable as low competition allows high prices to be charge

• Serving niche market well can lead to strong customer loyalty

Weaknesses:

• Focusing on small segment limits sales potential

• If niche market shrinks or changes, business may struggle to break even

• Larger competitors might enter niche market and outcompete focused business

Contribution per unit *not in formula booklet*

Selling price - variable cost per unit

Total contribution *not in formula booklet*

Contribution per unit x quantity of output

Key uses of contribution analysis

• Make or buy analysis (determines whether to manufacture in-house or purchase from third-party)

• Contribution costing (Method of costing where only direct costs are allocated to products)

• Absorption costing (Method of costing that allocates both direct and indirect costs to products)

Critical path analysis

A project management tool that uses network analysis to plan complex and time-sensitive projects ~ involves construction of a visual model of project

Key elements of critical path analysis

• List of all activities required to complete the project

• Time that each activity will take to complete

• How each project activity depends on others

Critical path analysis shows:

• Order in which activities must be completed

• Longest path of project activities to completion of project

• Earliest and latest that each project activity can start and finish

• The critical project activities which if delayed will cause project as whole to over-run

• Shortest time possible to complete project

Network Analysis Diagram

• EST: Earliest Start time (EST of previous activity + duration) ~ left to right

• LFT: Latest Finish time (Latest finishing time - duration) ~ right to left

Simple Linear Regression

A statistical tool used to study the nature of relationships between 2 variables ~ used to make predictions and strategic decisions