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Summary Edexcel A-level Business Theme 3: Business decisions and strategy $6.00
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Summary Edexcel A-level Business Theme 3: Business decisions and strategy

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  • Theme 3: Business decisions and strategy
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  • PEARSON (PEARSON)

Pearson Edexcel A-level Business studies notes that cover the whole of Theme 3 (Managing business activities) and are structured using the Edexcel specification.

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Document information

  • September 6, 2022
  • 13
  • 2021/2022
  • Summary

Subjects

  • a level
  • as level
  • business
  • edexcel
  • business notes
  • business a level notes

Written for

  • A/AS Level
  • PEARSON (PEARSON)
  • Business studies
  • Theme 3: Business decisions and strategy
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SECTION 3.1 Tactical decisions: short-term plans that a business will use to achieve its overall strategy
Corporate aims: the long-term targets or goals of a business
+ Helps to turn strategies into actions that ultimately support a company or team in reaching its goals
Mission statement: a written description of the overall purpose of a business and reasons for its existence + Encourages improved performance, as employees and team members will have actionable steps to reach goals
+ Allows departments to prioritise their work and ensures that each task ties into the overall strategy
+ Helps to motivate employees + Promotes organisation-wide involvement and can boost employee engagement
- It takes time to create a tactical plan and can result in spending more time planning than actually doing
+ Can help in decision-making by enabling options to be compared against the mission statement
- It can cause a company's operations to slow down if the tactical plan is extensive
+ Gives employees a sense of shared purpose and encourages them to work towards common goals
- It requires everyone to do their part to ensure a team or company's goals are met, if one employee or team member
+ It serves as a basis for the firm's organisational objectives and targets
does not complete their task on time, it can slow the entire process down
+ Customers may agree with its values and consequently prefer to shop there rather than at competitors
- Business’s reputation will be damaged if consumers find that its actions don’t reflect its stated values Strategic and tactical decisions can impact different resources in a business such as:
- Its use is limited as it doesn't go into detail about how the mission will be achieved
- Drawing up a mission statement may be time consuming and may delay taking business decisions and result in the firm ❏ Physical - a business might need to invest in new or updated physical resources
missing out on opportunities such as being first to exploit a new market ❏ Financial - a business would need to consider how to fund its decisions
❏ Human - a business might need to consider whether its staff are skilled enough to carry out the work needed for the new
Mission statements come from: strategies or tactics

● Values of the founders Corporate strategy: the medium to long term plan that a business has chosen to follow in order to achieve its corporate objectives
● Culture of the business
Theories of corporate strategy:
● Industry it operates in
● Society’s views ❏ Ansoff’s matrix
❏ Porter’s strategic matrix
Corporate objectives: a goal that a business strives to achieve in order to meet its long term aim e.g. sales growth, survival, profit ❏ Boston matrix
maximisation, profit satisficing, market share ❏ Distinctive capabilities model

+ Helps to motivate employees Development of corporate strategy:
+ Gives employees a sense of shared purpose and encourages them to work towards common goals
+ Clear direction empowers employees to complete their work and make decisions without needing managerial input Ansoff’s matrix: a marketing planning model that helps a business determine its product and market growth strategy
+ Managers and subordinates know what is expected of them and so there’s no confusion leading to increased
+ It forces management to think about the expected risks of moving in a certain direction
productivity and morale
+ Assessment of alternatives, it shows management opportunity cost
- If the management becomes too focused on a goal, they may not make changes when they become necessary
+ It lays out possible strategies for growth
- Employees may feel too much pressure to complete their goals, especially if the goals are beyond the employee's
+ Sets out aims and objectives
capabilities - Only a theoretical model
- Does not take into account the activities of competitors
Functional objectives: objectives set for each department designed to ensure that the corporate objectives are achieved - Accurate predictions are difficult due to unforeseen events
- Fails to show that market development and diversification strategies require a change to every day running of the
+ Provides clarity throughout the chain of command business
+ Allows employees to focus on their specialisation
+ Gives employees a sense of shared purpose and encourages them to work towards common goals Strategic growth strategies:
+ Increased morale and work ethic, as there is more job security as there’s a clear path of growth for employees which
provides motivation Diversification: launching new products into new markets
- Can create competition and thus conflict within the chain of command
+ Increased sales and revenue
- If employees and management are only loyal to their departments, there will be a lack of teamwork and communication
+ Business can spread risk over different markets - if one product fails the business will be able to survive
- Lack of teamwork amongst departments can lead to a rigid structure where changes, innovations, and flexibility can be
+ Business can meet the needs of different market segments and appeal to more customers
difficult to implement
+ A range of products increases the awareness of the brand as a whole
- Extremely high risk as it involves moving into markets that the business may have no experience of
To be effective, an objective should be:
- No reputation or expertise in new market
- High costs involved in researching and developing new products
❏ Specific
- High marketing costs are incurred to promote new products
❏ Measurable
❏ Attainable Product development: developing new products in existing markets
❏ Realistic
❏ Time based + Familiar with customer needs
+ Can increase businesses' customer base
Factors that can affect corporate objectives: + Allows businesses to capture new customers in existing markets
+ If successful, this strategy can lead to increased market share and revenue
● Internal factors + Responds to customer needs - provides maximum possible satisfaction to the customers
● Legislation + It works best for businesses that already have a strong competitive advantage and established brand image
● Economic conditions - Could be expensive as market research needs to be undertaken
● Social/technological change - Moderate risk involved as developing new products requires finance and can be time consuming
● Competition
Market penetration: the process of trying to boost market share for existing products in their existing market

Strategic decisions: medium-long term plan of action developed to achieve a business’s corporate objectives ❏ Increasing sales promotions
❏ increasing advertising to build brand image
+ Forces management to think and so encourages creativity and innovative ideas ❏ Increasing customer loyalty
+ Provides the framework within which staff can make day-to-day operational decisions that are aligned with the ❏ Adapting pricing strategies
achievement of the organisation’s goals
+ Helps to create a sense of purpose and to define the direction in which an organisation must travel, and aids in + Limited investment needed
establishing realistic objectives and goals that are in line with the vision and mission + Low risk as the business utilises current products and markets
+ With a clear plan and direction in place, resources could be channelled and monitored more effectively to ensure that + Encourages customers to trial a product or switch brands
effectiveness is enhanced and wastage is reduced + Increases brand awareness
+ Helps to assess potential internal and external shocks, and prepare the business to be more effective in adapting - Vulnerable if not innovative
- If the future does not unfold as anticipated, then the strategy will be unvalidated - Difficult if the market is saturated therefore limited growth potential
- May damage brand image and reputation

, Market development: the process of attempting to increase sales by launching existing products into new markets Boston Matrix: a model which helps businesses analyse their product portfolio by measuring their market share against market growth

+ Simple and easy to understand
Repositioning: when a business focuses on a different segment of the market
+ Can be used to determine how finance can be used in order to maximise a company's profitability and future growth
+ Useful tool for analysing product portfolio decisions
❏ New promotions which target a different audience
+ Helps a business assess its current position of a firm’s products in the market in order to plan what to do next
❏ Using new channels of distribution
- It’s only a snapshot of the current position
❏ Expanding into new geographical markets to exploit the same market segment
- Expensive to conduct
- Focus on market share + market growth ignores issues such as developing a sustainable competitive advantage
+ Increases brand awareness
- A theoretical model only so does not guarantee success - too simplistic and does not reflect economic reality
+ Potential for considerable growth in new large markets
- Dynamic markets are very volatile so making decisions based on the predicted cash flows for each product can be risky
+ No need for expensive product developments
- Gathering data doesn't guarantee success, a manager has to interpret the information correctly and make the right
- Limited understanding of new customer needs
decision
- Competing against established businesses
- Business needs to research the target market segment and work out how it can adapt its product or promotion to suit the
Building: involves investment in promotion + distribution to boost sales - used with question mark products
needs of a different set of consumers.
Holding: involves marketing spending to maintain sales - used with rising star products
Porter's strategic matrix: shows the strategy a business is best placed to use based on its competitive advantage and its market scope

+ Helps to identify a business that hasn't got a clear focus and so is at risk of failure Harvesting/Milking: taking whatever profits you can without much more new investment - used with dog + question mark products
+ Helps to plan and choose corporate strategies to gain competitive advantage
- Oversimplifies the market structure Divesting: involves selling off the product - used with dogs question mark product
- Only tells a business where it currently sits in the matrix and doesn't give any information on how to improve
Distinctive capabilities: the collective knowledge and skills held within a workforce that can create added value and give a business
Competitive advantage: a sustainable edge that gives one business a long-term advantage over its rivals competitive advantage over the rest of the market

Corporate strategies to gain competitive advantage: ❏ Architecture describes the relationships a business has with its main stakeholders
❏ Reputation - added value, competitive advantage
Differentiation strategy: the act of distinguishing a product/service from competitors to make it more attractive to a particular target ❏ Innovation - added value, unique selling point
market
Added value: the difference between the price of the finished product/service and the cost of the inputs involved in making it
❏ Added value e.g. quality, unique selling point
Ways of adding value:
❏ Strong branding
❏ High quality ❏ Strong brand image
❏ Innovative ❏ Excellent customer service
❏ High quality
+ Helps build brand image
❏ Efficiency delivery
+ Helps gain a competitive advantage
❏ USP
+ Increased brand loyalty and retention
+ Improving quality by using high value materials made by hand by highly trained and skilled staff = added value
+ Word of mouth recommendations helps build a strong brand and reputation
= customers may be prepared to pay a premium price may help boost revenues
+ Satisfied customers are likely to be more loyal to the brand
+ Building a brand or reputation, which might be achieved through the promotion should increase sales
+ Product stands out from rivals = competitive advantage = repeat purchases
- Other businesses may be able to copy the strategy
+ Better design, more convenient = customers less price sensitive = charge higher prices
- Consumer tastes may change
+ Larger profit per unit = lower breakeven output so higher margin of safety = lower risk
- Higher costs due to increased marketing expenses and product development costs
+ Increases market share
- Product may not be attractive to the mass population if too differentiated
- Increased costs
- Minimises profit per unit sold
Focus strategy: a marketing method of developing, marketing and selling products to niche markets
Competitive advantage: a sustainable edge that gives one business a long-term advantage over its rivals
Segmentation: focusing on a specific group of customers
❏ Product innovation - improve product design, feature, quality
+ Easier to target a narrow segment = better meet customer need = higher levels of customer satisfaction = brand loyalty ❏ Product differentiation - USP
+ Increased customer satisfaction = increased brand loyalty and repeat purchases ❏ Good customer service - polite, knowledgeable staff = repeat purchases + charge a higher price = good reputation
+ Reduces price sensitivity therefore the business can charge higher prices = higher profit margins ❏ Convenience - offer product/service in a more convenient location e.g. next day delivery
+ Small scale production can be flexible and follow trends ❏ Marketing - strong brand image = brand awareness
+ Builds up specialist skill and knowledge leading to higher quality ❏ Reduce costs - lower price = increased sales
- It may limit the initial demand of a product or service ❏ Reliability and quality - more reliable and better quality = good reputation
- Increased costs due to a lack of economies of scale
- Vulnerable to market changes - demand may not be constant Unique selling point (USP): a feature that sets a product apart from its competitors making it unique
- Wider product range therefore the business is less able to exploit economies of scale
+ Gain competitive advantage
Cost leadership strategy: aiming for the lowest cost of production for a given level of quality + Build brand image
+ Increased brand loyalty and retention
+ Achieving lower costs than competitors due to purchasing economies of scale = competitive advantage + Add value through differentiation
+ In a price war, the firm can maintain profitability while the competition suffers losses + Ability to charge a higher price
+ If prices decline, the firm can stay profitable because of its low costs - Higher costs - increased marketing
+ Increased profit margins if prices are maintained - Product may not be attractive to the mass population if too differentiated
+ Companies with large and efficient production facilities can benefit from economies of scale = can lower prices to gain
Capabilities need to be sustainable and appropriable:
market share
- Most businesses don't compete directly on cost Sustainable: once a business has achieved one of the three capabilities, it needs to maintain this competitive advantage over time
- Reduces product innovation
- Reduces the importance of consumer feedback Appropriable: one business is not able to copy the distinct capability that another business has achieved, new ideas and inventions
- Encourages a lower quality product to be offered to the market can be protected through trademarks and patents and advertising, slogans and logos can be protected through taking out a copyright

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