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Unit 3- business decision and strategy (IAL) revision notes 2021 (business studies)
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Business Unit 3Business decision and strategy
3.3.1 Business Decisions and Strategy.
1. Corporate Objectives.
a) Development of corporate objectives from mission statement/corporate aims.
objective: something that a business aims to achieve-
Business Aims: These are the things that businesses want to achieve in the long term. Its
purpose or reasons of being.
Aims are less specific than objectives and can be expressed as a vision. These are often
communicated by mission statements.
Mission Statements: States the business´s main purpose. It may also reflect its goals and
values. It describes in general terms the company's core activities. (aims, corporate aims,
values,vision, mision, core purpose)
May also reference info like:
- The market in which it operates.
- What its key commercial objectives are.
- In what way it values Stakeholders.
- What it ethics involve
Main elements of a vision statement are:
● Purpose: Why the business exists. (what it does, for whom and why).
● Values: State the corporate values that they emotionally invest in. (sustainability,
integrity. innovation and quality are examples).
● Standards and behaviour: may communicate a business´s Commitment to high
standards.
● Strategy: Some may outline how the business will try to achieve its main objective.
- A good mission statement should help guide the decision making of the firm.
- A good mission statement makes it clear which direction a business should take by
reminding the owners and directors why the business exists.
Many people may argue that the only purpose of a business is to generate a profit for its
owners. However, most employees would like to believe that they go to work to achieve
something more than this. A mission statement makes this point.
Two reasons why a business may create and share a mission statement:
1
,Business Unit 3
1. To make a commitment to its customers. As it expresses a promise to customers of
what they can expect the business to aim for.
2. To bring a company's workforce together with a shared purpose: Employees believe
in that aim, (most successful businesses)
Some mission statements are brief and others are long and detailed.
Development of corporate objectives
Define the business objectives (long term)
➔ Objectives set by senior managers and directors for a company.
➔ Specific objectives to the company (history and future vision)
➔ Focus mainly on desire performance and results over time
➔ May include Market share, profit levels, creation of a new product, resource
usages or economies of scale.
To be achieved they need to be SMART :
★ Specific: Clearly state the aim which needs to be achieved.
★ Measurable: Involves evidence to demonstrate if objectives have been achieved or
not.
★ Agreed: (to motivate and commit) Everybody needs to be happy with the objective
and understand the means for achieving them.
★ Realistic: Ensures it can be met given the resources available and market conditions.
(if not, people will ignore it)
★ Time specific: give a stated time to achieve a goal. (deadline).
Departmental and functional objectives:
● Functional objectives are driven by corporate objectives.
● Define objectives of each department.
● They will have more detail.
● E.g: Marketing, HHRR, finance, operations, logistics..etc.
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,Business Unit 3
The objectives hierarchy
Why have this hierarchy?
- Helps measure success of the mission.
- Allows coordination between managers and
employees.
- Gives focus and direction to workers.
The difference between Small and large businesses:
Usually aim to make a profit but some may have other goals such as: maximising
sales,sales revenue or market share; achieving cost efficiencies; looking after its employees;
ensuring customers are satisfied..etc.
Small Businesses: Large Firms/ multinationals:
- Ensure business Breaks-even at the - (tend to be financial objectives).
end of tax year. - This is because they have many
- Improve firm's liquidity (6 months). stakeholders to satisfy
- Increase sales (by 10% in 3 years).
- To hire five new staff with skills in
marketing.
- Increase pre-tax profits.
- Reduce energy consumption.
b) Critical appraisal of mission statements.
Some people argue mission statements are unrealistic and too optimistic.
➔ This may have a negative impact on employees. (demotivated)
➔ Unrealistic mission statements are not useful to anybody.
➔ May be a waste of management time.
➔ They may also be vague and appear insincere (stakeholders may see it as a
marketing tool or a slogan
➔ Mission statements must be constantly assessed to ensure they have continued
relevance for the business
➔ Sometimes they are not appropriate. e.g one that includes respect and honesty
would not be supported if there were reports of frauds in a business
- Many organisations have a mission statement that's appealing to its customers.
However, if it's not believed and followed by employees, then customers may soon
lose faith in the business
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, Business Unit 3
2. Theories of corporate strategy.
The planning to achieve a corporate objective is known as strategy.
First part is to understand the current business position in the market and the second part, to
evaluate where the business wants to be.
A successful strategy will give the business a competitive advantage and will help to fulfil
stakeholder expectations.
a) Development of corporate strategy.
➢ Ansoff Matrix:
Strategic direction model that shows the options that exist to a growing business of how it
can compete with its competitors. (products and markets).
❏ Useful decision making tool (allows owners to consider factors that will determine its
corporate culture):
1. The level of investment in existing and new products.
2. The exploitation of different markets.
3. The growth strategy for the business.
4. The level of risk the business is willing to accept.
Market penetration: Least risk.
Product development and market
development: Medium risk.
Diversification: most risk
Market Penetration: Product Development
Existing products, existing markets. Existing market, new products.
● Less risk: products (no research), markets (no ● Medium risk: (no market research)
market research). (products need research and it add costs)
● Objective: to increase market share.
● Selling more. ● Selling products to the same audience:
● Sales promoción.
● Advertisement. if.. Brand loyalty, market leader, if you
● Extension strategies have high cash flow (mean could finance
● Diverse. research), extension strategies, Price
skimming can be achieved.
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