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A2 Complete Summary
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Both Units 3 &4 IAL Business Pearson Edexcel
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1. Corporate ObjectivesBusiness aim less specific than an objective; vision
Mission statement main purpose: operating markets, commercial objectives, value of
stakeholders, ethics.
*Purpose: outlines why business exists -- for whom and why
*Values: emotional investments -- integrity, sustainability, innovation and quality.
*Standards & Behavior: communicate business commitment to high standards
*Strategy: outlines how business will attempt to achieve its main objective
SMART-- Specific, Measurable, Agreed, Realistic, Time specific.
Objectives Hierarchy: aim > mission statement > corporate objective > functional objective.
Small businesses will have a wider range of objectives as opposed to large businesses whose
main objectives will be financial.
Drawback of mission statement: unrealistic, waste of managerial time, vague, critical
assessments should be done.
2. Theories of Corporate Strategy
Corporate strategy is derived from planning on achieving corporate objectives, evaluating the
long term plans in order to achieve aims.
Ansoff Matrix:
Development of corporate strategy: long term, advantage in competitive environment, assesses
previous actions to achieve corporate objectives.
● level or investment in existing or new product
● exploitation of markets
● growth strategy
● level of risk willing to take
Market penetration: achieve growth in existing market with existing products. Can be done through
increasing loyalty (eg. loyalty cards), encourage to use more frequently or more product. Lowest risk,
lowest level of investment. Adopts if successful product.
Product development: marketing new or modified product in existing market. Adopts if short lifecycle,
requires continuous innovation. A lot of investment, start ups are risky.
Market development: existing products in new markets (eg. geographically). Lot of research, small
changes (eg. changing name to different language).
,Diversification: new products, new markets. If one product fails, another in dif market prevents whole
business from failing. But it is outside of expertise. Highest risk.
Porter’s Strategic Matrix:
Developed by Michael Porter, Professor at Harvard.
Identifies sources of competitive advantage that business might achieve in a market.
*Cost Leadership — Striving to be the lowest cost provider in the market eg. increasing profits while still
charging market prices, negotiation and streamlining; increasing market share, exploiting economies of
scale.
*Differentiation — Operating in a mass market with a unique position instead of lowest cost position. eg.
quality, design, brand identity, customer service.
*Focus narrows target customers; niche marketing.
> Cost Focus, cost minimisation within focused marketing.
> Differentiation Focus, following different strategies within a focused market.
Boston Matrix:
● Informal Marketing tool used for product portfolio management and analysis.
● Developed by the Boston Consulting Group in early 70s
● It considers the degree of market share and market growth.
● Helps to identify where the best use resources to maximize profit and product
management perspective.
● Assumes a high market share provides financial benefits so a higher share of the market
means a higher cash earning.
● Market growth reflects the attractiveness of a market.
Pictorial representations of the boston matrix:
Dogs> low market share low market growth problems. Absorb cash rather than generate it,
slow growing industry
Cash Cows> high market share low growing market. Generate cash in excess but opportunities
or new investments are limited, due to the low growing market; milk as long as possible.
Question marks> low market share in a high growth market. Grow rapidly, consume high
amounts of resources yet generate low cash. They have the potential to grow market share
hence generate income thus turning into stars or cash cows. However, when the market growth
slows, it degrades to dogs, with little return and wasted investment.
Stars> represent ideal combinations of a company: high market share with fast growth,
generate cash and opportunities.
*Build market share which means making further investments,
*Hold or maintain the same status,
, *Harvest which means reducing investment, increasing cash flow and maximizing profit,
*Divest which usually involves removing dogs and investing in other units such as problem
children or stars.
Effects of strategic and tactical decisions:
>HR: eg. Increasing size of workforce, new labor recruitment or movement of existing
employees to a new location.
>Physical resources: eg. land, machines, tools, equipment, vehicles, shops, computers,
factories, and raw materials.
>Financial resources: eg. share issuing, dividend payments, overdraft.
3. SWOT analysis.
Methods to gather information:
1) internal audit - analysis of business and how it operates, identify strengths and weaknesses (costs,
profits, quality and capacity of production, training of employees). External consulting groups can make it
for big companies.
2) external audit - analysis of environment in which business operates. Areas: market (pricing structure,
customers’ characteristics, growth potential), competition (marketing methods of competitors, how likely
will leave market, costs, revenues), economic/political/environmental/etc issues.
SWOT are then used to summarize data and make strategic plan (helps with decision making). Also
before launching new product line, decide to outsource a task…
Internal Strengths - eg. USP, motivated workforce, loyal customer base.
Internal Weaknesses - eg. too many layers in organizational structure (too long chain of command), poor
cash flow, outdated machinery.
External Opportunities - eg. new overseas market to exploit, fall in exchange rates.
External Threats - eg. new rival, legislation prohibition, etc.
4. Impact of External Influences.
PESTLE to identify external influences.
>Political - country may be politically unstable, ex. trade unions can try increase wages, new government.
, >Economic - raising unemployment, lower interest rates encourage investment, recession can lead to
failure.
>Social - population is aging so affects demand patterns, increased migration so increased demand and
size of workforce.
>Technological - can shorten product life cycle because new replace, lower unit costs compared to labor.
>Legal - new taxes on sugar put pressure on restaurants, EU legislation can affect taxes.
>Environmental - env friendly are in demand, recycling.
Impact on business: 1) can decrease demand, so lower revenues and profits, ex. if exchange rates rise. 2)
raise costs, so forced to raise prices. 3) may need to adopt new production methods.
In competitive market it is easy to enter and little control over charged prices. In uncompetitive monopoly
can exist (one business supplies whole market) or oligopoly (few large companies, dependent on each
other so prices are stable to avoid war).
How dynamic markets affected by change in competition:
New entrants make old change their strategies to survive, launch new product lines or invest in old.
Porter’s five forces which determine profitability and identify level of competition:
* suppliers. If limit power of supplier over its customer then they cannot charge higher prices. Can do it by
growing vertically (buying supplier) or seek new one to create competition between them.
* buyers. They want obtain supplies for lowest prices and if have considerable market power then can
succeed. Supplier can try make it expensive for them to switch or USP to decrease competition.
* new entrants. Existing businesses can create barriers to enter market (ex. patents or large costs for
new businesses to be paid at start) or increase customers loyalty.
* substitutes. Can reduce this threat by constant market analysis, product development or buying patents
from rivals.
* rivalry among existing. Can reduce by horizontal integration (buying rivals) or charging lower prices or
increase ads or develop new products.
IMPACT: Demand Operations Costs.
5. Growth.
Economies of Scale (average costs of production fall as output rises).
eg. Minimum efficiency scale of plant (factory) - business can no longer reduce average costs through
expansion so goes into diseconomies of scale.
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