Edexcel A Level Business - Theme 3: Business Decisions and Strategy

Aim

The overall direction the business wants to go in. This determines all of the actions for the entire organisation.

Objective

The medium/long term targets a business sets to help achieve their aim

Strategy

The medium/short term plans a business comes up with to work towards their objectives

Tactic

The day to day activities that take place to carry out strategies

Corporate

Objectives for the business as a whole

Functional

Objectives for different functional areas of a business

SMART Target

A target that is specific, measurable, achievable, relevant and time bound

Mission Statement

A marketed statement to show the overriding purpose of the business and the reason for its existence.

Distinctive capability

The capabilities a business has which other firms cannot replicate, this could be a design feature, brand or production method

Competitive advantage

An advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices

High differentiation positioning

A strategy where a business is able to distinguish its product or service in the minds of consumers as offering better value- perhaps through quality or branding

Low cost provider positioning

A strategy where a business is able to operate at the lowest unit cost in the market, enabling it to charge lower prices than the competition or earn higher profit margins

Portfolio analysis

Where a business uses tools to identify strengths and weaknesses among their range of products

Strength

Features within the control of a business that are a source of competitive advantage.

Weakness

Features within the control of a business that are a source of competitive disadvantage.

Opportunity

Features of the external environment that create opportunities for a business to leverage its strengths towards.

Threat

Features of the external environment that threaten the performance and position of a business if not addressed.

External influence

Influences from outside the business

Political factor

Government policy and its administration that has the potential to change or influence a business. e.g. competition policy

Economic factor

Changes such as costs and prices of goods, interest rates, wage rates, exchange rates and the rate of inflation that have the potential to change or influence a business.

Social factor

Changes that affect lifestyle, such as religion, wealth or family. It is important for businesses to be aware of these factors as they are very important for marketing purposes. E.g changes in taste and fashion

Technological factor

Changes in technology available to businesses or consumers that have an impact on either a business or consumers. This could be to change the way consumers and businesses interact, or a change in production technology available to a business, for example.

Legal factor

Law and changes in law that have an impact on either businesses or consumers. E.g. the minimum wage act.

Environmental

Changes in the way businesses or consumers look at and care for the environment, or changes to the environment that have an impact on business.

Business growth

Expansion of a business through increased sales volume, launching new product lines / branches

Economies of scale

Arising when unit costs decrease as output increases.

Internal economies of scale

Arise from the increased output of the business itself.

External economies of scale

Occur within an industry and arise from the way an industry operates as a whole.

Diseconomies of scale

Arising when unit costs increase as output increases.

Overtrading

When a business expands too quickly without having the financial resources to support such a quick expansion.

Merger

A new firm being created into which two existing businesses are merged.

Takeover

An existing business acquiring more than 50% of another business and gaining control of it.

Organic (internal) growth

Growth that comes from within the business, e.g. through the launch of a new product or opening new locations.

Inorganic (external) growth

Growth that comes from outside the business, e.g. through a takeover or joint venture.

Horizontal integration

Acquiring a business at the same stage of the supply chain.

Vertical integration

Acquiring a business at either an earlier or later stage of the supply chain.

Joint venture

A separate business entity created by two or more parties, involving shared ownership, returns and risks.

Franchising

Arises when a franchisor grants a license to another business (franchisee) to allow it trade using the brand/business format.

Small business objectives

Objectives such as survival and break-even are more likely to be...

Large business objectives

Objectives such as profit maximisation and market leadership are more likely to be...

Quantitative

Something numeric / based on statistics

Sales forecast

A prediction of future revenues

Moving average

Calculated to smooth out fluctuations in data (e.g. sales) to provide a smoother, more averaged line. Calculated by adding together data points and dividing by the number of data points.

Extrapolation

The use of trends established by historical data to make predictions about future values.

Correlation

A method of forecasting that looks at the strength of a relationship between two variables.

Trend

Used to identify patterns in behaviour, such as sales increasing or decreasing.

Investment appraisal

An evaluation of the attractiveness of an investment proposal, using methods such as average rate of return (ARR), net present value (NPV), or payback period.

Investment

The act of committing money or capital to a business project with the expectation of obtaining an additional income or profit.

Payback period

The time it takes for a project to repay its initial investment cost.

Average rate of return

The total accounting return for a project to see if it meets a target. Or the average amount of profit the project returns per year as a percentage of the initial investment cost.

((Net return / Number of years) / Initial Cost)) x 100

Discounted cash flow / Net present value

Calculates the monetary value now, of the projects future cash flows. Using discount factors to show that £100 in 3 years is not worth the same as £100 now.

Decision tree

A mathematical model used to help managers make decisions using estimates of costs and probability to calculate likely outcomes.

Expected value

The financial value of an outcome calculated by multiplying the estimated financial effect by its probability.

Net gain

Calculated by taking the expected value of each outcome minus the cost associated with the decision.

Critical path analysis

A management planning tool to help manage complex and time-critical projects. Shown in a diagram that shows the chronological length of a series of activities required to complete a project / task and durations.

Critical path

The sequence of stages determining the minimum time needed for an operation (the longest possible path to the final node)

Float time

The amount of time that a schedule activity can be delayed or extended from its early start date without delaying the project finish date or violating a schedule.

Latest Finish Time - Activity Duration - Earliest Start Time

Short term view

When strategic decisions are made with the immediate future (i.e. less than 12 months) in mind.

Long term view

When strategic decisions are made with the long term future (i.e. next 5-10 years or more) in mind.

Corporate influence

A factor that has an impact on the business as a whole.

Corporate/organisational culture

The actions and behaviours that underpin the "way the business operates".

Power cultures

A culture where power is held by just a few individuals whose influence spreads throughout the organisation

Role cultures

A culture based on rules. Everyone in the organisation knows their role and responsibilities. Power is determined by someone's position in the business.

Task cultures

A culture where there is the formation of teams within an organisation to address specific problems or progress projects. The task is the priority so power shifts depending on the status of the project.

Person culture

A culture where the business exists mainly to facilitate the operation of individuals. The individuals are perceived as superior to the organisation.

Stakeholder

Any individual or group effected by the activities of an organisations.

Shareholder

Someone who owns a proportion of the company's share capital.

Internal stakeholder

Someone who has an interest in a business and is involved directly in the day to day running of the business.

External stakeholder

Someone who has an interest in a business but has no part of the day to day running of the business, yet is still affected by the decisions made.

Business ethics

Moral principles that guide the way a business behaves.

Ethical behaviour

Behaviour that is about doing what is morally right.

Unethical behaviour

Behaviour that falls outside of what is considered morally right

Corporate Social Responsibility

The extent to which a business addresses the concerns and obligations to its wider stakeholders above the amount required by law.

Statement of Comprehensive Income

(Income statement) Measures the performance of a business over a given time period, comparing the income of the business against the cost of goods or services and expenses

Statement of Financial Position

(Balance sheet) A snapshot of a business' assets (what it owns) and liabilities (what it owes)

Gross profit

Revenue - Cost of sales

Operating profit

Gross profit - Fixed overheads

OR

Revenue - Cost of sales - Fixed Overheads

Net profit

Operating profit - Financing costs and tax

OR

Revenue - Cost of sales - Fixed overheads - Financing costs and tax

Profitability

The extent to which a business is able to make a profit.

Liquidity

The extent to which a business is able to use cash to meet debts as they are due.

Assets

What a business owns.

Liabilities

What a business owes.

Creditors

An individual or business that is owed money by an individual or business.

Debtors

An individual or business who owes money to an individual or business.

Profitability ratios

A series of financial ratios that analyse how much a business is able to make a profit

Liquidity ratios

A series of financial ratios that analyse the ability of a business to meet short term debts.

Gearing

A ratio that calculates the proportion of a business' capital that is in the form of debt

Equity

The proportion and amount of the capital structure that is provided by shareholders or left as retained profits

Human Resources

The division of a company that is focused on activities relating to employees. These activities normally include recruiting and hiring new employees, orientation and training of current employees, employee benefits, and retention.

Functional area

A specific department of a business (e.g. Marketing, Finance, Operations, Human Resources)

Employee retention

The amount of employees a business retains.

Measured by:

(Number of staff staying at a business over a time period / Average number of staff over a time period) x 100

Labour turnover

The amount of employees a business retains. Measured by:

(Number of staff leaving a business over a time period / Average number of staff over a time period) x 100

Labour productivity

Looking at the output generated compared to the number of workers. Measured by:

Output per period / Number of employees per period

Absenteeism

The amount of days an employee has been not present for work. Measured by:

(Total absence (hours or days) in the period / Possible total) x 100

Empowerment

Giving employees a certain degree of autonomy and responsibility for decision-making.

Change

Where any factor that affects the business, whether internal or external, changes.

Downsizing

The process of removing layers in an organisational structure or closing branches of a business to scale back operations and save costs.

PESTLE Factors

External factors that have an impact on a business.

Change management

The process that ensures a business responds to changes in their market.

Disruptive change

Change that arises from an external factor impacting on the whole market, not giving businesses much time to react.