Theme 3 key terms

Corporate aims

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

Corporate objective

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

Critical appraisal

Assesses if the corporate aims and mission statement continue to reflect the current corporate vision

Mission statement

A set of guiding principles which is often used to steer stakeholders in order to achieve a business's aims and objectives

Ansoff's Matrix

A strategic tool to help a business analyse business growth

Architecture/origin

Refers to the contracts and relationships within and around an organisation

Cost leadership

A strategy of seeking lower cost to allow a business to reduce prices and therefore increase sales and revenue

Distinctive capabilities

A skill or attribute possessed by a business.

Diversification

New products to a new market. It is considered by Ansoff to be more risky than market penetration but potentially more rewarding because it offers greater opportunities to sell to a greater range of markets.

Financial resources

Resources used to finance a business strategy and can include cash, current assets and the ability to borrow finance for future operations

Innovation

Developing a new product or process in the production of a product

Market development

The marketing of an existing product in new markets

Market penetration

Selling existing products in an existing market, which is considered the least risky strategy by Ansoff.

Porters Strategic Matrix

Identifies the sources of competitive advantage that a business might achieve in a market

Product development

Marketing new or modified products in existing markets

Reputation

The operational factors concerned with premises, equipment and other resources needed to meet customer needs

Strategic decisions

Long term and relates to achieving an overall goal

Tactical decisions

Short term actions that help to achieve the strategy

SWOT analysis

A strategic planning technique used to help a business identify its internal strengths, weaknesses, and its external opportunities, and threats

Economic factors

Economic variables that can affect a business such as exchange rate, inflation and interest rates

Environmental factors

Businesses have a general obligation to the environment and some businesses are closely monitored

Legal factors

Legal requirements that a business must follow when operating in the country

PESTLE factors

The political, economic, social, technological, legal and environmental influences that can affect business strategy.

Political factors

Regional, national and international laws and government policies that could affect a business such as regulations and subsidies

Porter's five force model

A framework for analysing the nature of competition within an industry. It does this by looking at five main factors - threat of substitutes, threat of new entrants, bargaining power of buyers, bargaining power of suppliers and competitive rivalry. It can be used to identify the potential profitability of a particular strategic decision

Social factors

Demographic changes such as an aging population, changing lifestyles and tastes and fashion

Technological factors

The adaption of technologies that could affect a business such as new production processes, mobile technology and disruptive technologies such as electronic vehicles

Threat of competition

The behaviour of competitors that may lead to the loss of market share

Diseconomies of scale

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

Economies of scale

When average costs can fall as total output increases in a business

External economies of scale

The average cost reductions available to all businesses as the industry grows

Financial economies of scale

Large firms have advantages when they try to raise finance as they will have a wider variety of sources to choose from and they can often gain better interest rates

Growth

Expanding the sales revenue of a business, probably in hope that profits will increase too

Internal economies of scale

When a business invests in expanding production resulting in lower average costs

Purchasing/marketing economies of scale

Large firms are likely to get better rates when buying raw materials in bulk

Risk bearing economies of scale

As a firm grows they can afford to employ specialist managers e.g. marketing, Human resources

Specialisation/managerial economies of scale

Large businesses can often be more efficient through the use of capital equipment

Technical economies of scale

The joining of businesses that are in exactly the same line of business

Horizontal integration

When two businesses join together and operate as one

Takeover

When one business acquires a majority shareholding of another business to gain control

Vertical integration

The joining of two businesses at different stages of production

Inorganic (or external) growth

Expansion by either merging with, or taking over another business

Organic (or internal) growth

Expansion from within a business, for example by expanding the product range, or number of business units and location. It does not involve another business taking over or merging with it

E-commerce

Buying and selling of goods or services over the internet

Extrapolation

When the trend line is extended to forecast future sales

Four period moving average

The average figure based on four time periods (often quarters of a year). It 'moves with time'. It is usually calculated using centring, based on an 8 period total.

Line of best fit

A line that goes roughly through the middle of all the scatter points on a graph

Moving averages

A succession of averages derived from successive segments of a series of values

Quantitative sales forecasting

Such as time-series analysis involves making future predictions based on trends identified from past data

Scatter graphs

A graph showing the performance of one variable against another independent variable on a variety of occasions

Three period moving average

An average calculated by adding 3 periods up and dividing by 3

Average (Accounting) Rate of Return

A method of investment appraisal that measures the net return per annum as a percentage of the initial spending

Discounted Cash flow (Net present value only)

A method of investment appraisal that takes interest rates into account by calculating the present value, discounted according to the interest foregone (given up)

Investment appraisal

The evaluation of an investment project to determine whether or not it is likely to be worthwhile

Payback

The length of time a project will take to make recover the initial investment cost

Simple payback method

An investment appraisal technique that measures the time it takes for a project to repay its initial investment

Decision trees

A decision making tool showing the possible outcomes of a decision with the estimated probability and expected monetary value of each of these outcomes

Expected monetary rewards

The value gained from taking a decision

Probabilities

The likelihood of possible outcomes happening

Critical path

The tasks involved in a project, which if delayed, could delay the project

Critical path analysis (CPA)

The process of planning the sequence of activities in a project in order to discover the most efficient and quickest way of completing the project whilst ensuring that all stages are finished.

Earliest Start Time

How soon a task in a project can begin

Free float

The time by which a task can be delayed without affecting the project completion time

Latest Finish Time

The latest time that a task in a project can finish without delaying the whole project

Network diagram

A chart showing the order of the tasks involved in completing a project, containing information about the times taken to complete the tasks

Evidence based decision making

An approach to decision making that involves gathering information and using a systematic and rational approach to reach a conclusion

Long-termism

The time period where decisions have an impact on the vision, mission and objectives of a business, typically longer than five years

Short-termism

Where business and managers are focused on quick financial rewards, such as quarterly profit or sales figures, often at the expense of investment in important areas

Subjective decision making

A more holistic approach to business strategy, incorporating aspects such as CSR and ethical behaviour

Corporate culture

An unwritten code of conduct within a business organisation that reflects its values and embodies the shared beliefs and assumptions that underpin the decision-making processes.

Culture

Shared attitudes, values, customs and expectations.

Person culture

Where there are a number of individuals in the business who have expertise, but they don't necessarily work together

Power culture

Where there is a central source of power responsible for decision making

Role culture

Decisions are made through well established rules and procedures

Strong culture

A culture where the values, beliefs and ways of working are deeply embedded within the business and its employees

Task culture

When a business allows teams to focus on a particular task within the broad remit of the overall aim of the business

Weak culture

When the needs of the business are put before the needs of the customer, communication is weak, staff turnover is high and mistakes are about blame not learning

External stakeholders

Groups outside a business with an interest in its activities

Internal stakeholders

Includes employees, managers, board of directors and the owners of the business

Shareholder approach

When a business should focus purely on shareholder returns in its business decisions/objectives

Shareholders

The owners of a company who have taken a risk by investing their capital into the business

Stakeholder approach

When a business should consider all of its stakeholders in its business decisions/objectives

Stakeholders

People or groups who have an interest in the actions of a business. They include owners, employees, customers, suppliers, the local community, pressure groups, local and central government.

Capital employed

All the long term finance of the business including the share capital, retained profits and non current liabilities. Calculated as Non-current liabilities + Total equity

Corporate Social Responsibility (CSR)

When a business pays attention to the impact the company's actions have on social and environmental issues and the impact on a range of stakeholders, not just shareholders.

Ethics

Moral principles that determine how business decisions are made and may include providing good working conditions, fair pay and assessment of environmental impacts. They are considered to be the right thing to do

Socially responsible business

One that considers business ethics as a key influence on its strategic decisions

Gearing ratio

Measures the performance of a business that is financed from long term borrowing. Highly geared is over 50%. Calculated as non-current liabilities/capital employed x100

Return on capital employed

The profit of a business as a percentage of the total amount of money used to generate it. Calculated as Operating profit/Capital employed x100

Return on investment

The financial benefits or profits made from an investment, such as setting up a production location in another country

Absenteeism

The number of staff who are absent as a percentage of the total workforce. Calculated as number of staff absent on a day/ total number of staff x100

Consultation strategies

When the management actually engage in discussions with employees about strategies and working practices

Employee share ownership

Where key employees will be paid a tranche of shares if the business reaches important performance targets

Empowerment strategies

It is achieved by granting employees more authority in the workplace

Human resources

The set of people who make up the workforce of a business. Including the recruitment, training and redundancy of employees

Labour productivity

A measure of how efficiently a business uses its employees to produce output and is expressed as output per employee per time period. Calculated Total output/average number of employees

Labour retention

The number of employees that remain in the business over a period of time

Labour turnover

Measures the percentage of employees leaving a business over a period of time.

Business continuity

A plan for a business to continue operating after a serious incident

Transformational leadership

The ability to implement a vision through radical policies and strategies to bring about a positive change