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THE MACRO ENVIRONMENT ECONOMIC FACTORS
Both the macro and market environments fall under the Economic factors that should be analysed to assess their
external environment. The business has no control over impact on the business and it’s activities include:
these events but must consider them in order to design 1. Economic growth potential and development rates in
strategies and adapt to situations well. Internal the country of operation.
environment events can also impact macro environments: 2. Inflation rates. (Lowers purchasing power.)
1. Business strike = effects economy. 3. Interest rates. (If high, it makes it difficult for business
2. Business retrenchment = country unemployment rate. to take out loans and expand.)
3. Business operations = affects the surrounding 4. Exchange rates. (strength of local currency.)
physical environment. 5. High unemployment rates. (Lower profit.)
(3) tools can be used to analyse these macro events, 6. Tax regulations and statistics.
which are used to eliminate threats and capitalise on ___________________________________________________________________________
opportunities. ETHICAL FACTORS
1. Environmental scan. Principles or values that act as a morale guideline
2. SWOT-Analysis. governing acceptability of business decisions. Ethical
3. PEESTLE. elements to consider and analyse include:
___________________________________________________________________________ 1. Differences between ethical and legal.
AN ENVIRONMENTAL SCAN 2. Fair trade. (Respect and transparency.)
Carrying out these tools allows: 3. Corporate social responsibility. (Profit to shareholders,
1. Identification of factors that can impact the business. and responsibility to the community.)
2. Adjustment or development of new plans to deal with 4. Employee privacy verses company responsibility.
identified factors. 5. Many other factors that require morale
Tools are not limited to macro environment, but it has a considerations.
specific process within it: ___________________________________________________________________________
1. Identify issues. SOCIO-ECONOMIC FACTORS
2. Evaluate and consider opportunities and threats. Impact that social trends have on economy and the
3. Use PEESTLE to identify specific OT’s. players in it. Business has to adapt to social trends, the
___________________________________________________________________________ impact of social media and utilise opportunities.
SWOT ANALYSIS (OT) Considerations that fall within this factor include:
Refers to issues in the macro and market environment. 1. Average age of population.
E.g. In the macro environment: deteriorating exchange 2. Single parent statistics.
rate = business that imports at risk. 3. HIV/AIDS and other infections.
___________________________________________________________________________ 4. Levels of literacy and education.
PEESTLE ANALYSIS 5. Unemployment rates.
The letters = factors in a macro environment that could 6. Personal safety and crime statistics.
threaten business or act as opportunities. These often 7. Pollution awareness.
work together, or interconnect in some way. 8. Distribution of wealth and poverty.
1. Political. 9. Changing role of women within society.
2. Economic. ___________________________________________________________________________
3. Ethical. TECHNOLOGICAL FACTORS
4. Social / socio-economic. Relates to all equipment business uses in its operations.
5. Technological. Factors that impact this in the macro environment
6. Legal. include:
7. Environmental / physical. 1. Growth of online social platforms.
___________________________________________________________________________ 2. Automation of processes. (Labor reduction.)
POLITICAL FACTORS 3. Advancements in online money transfers.
Related to the local political situation of the area and 4. Online shopping growth.
world politics in general. When political factors are 5. Upgraded sales equipment. (Electronic point of sales
examined, it should include: scanning equipment.)
1. Likelihood of government interference in economic 6. Production innovation.
functioning of a country. ___________________________________________________________________________
2. Degree of local political stability on business LEGAL ENVIRONMENT FACTORS
confidence. (Investment opportunities.) All laws and regulations that business must be aware of
3. Political ties influencing trade agreements. and comply with. Includes:
4. Degree of media freedom / speech. 1. Labour legislation to protect employees.
5. Attitude of political parties on business industries. 2. Environmental laws.
6. Process followed with allocation of government 3. Criminal justice to protect business.
tenders. 4. Tax laws.
________________________________________________________________________________________________________________________________________________________________
,________________________________________________________________________________________________________________________________________________________________
4. Impact of complementary products.
ENVIRONMENTAL AND PHYSICAL FACTORS LEVEL OF RIVALRY
Important considerations around the growing awareness Important for businesses to know what current
of global warming. Relates to affect business activities competitors are doing. If competitors aren't doing well in
have on health of physical area and community. Includes: an area, use it as an opportunity. If they are, it’s a threat.
1. General move to environmentally friendly products. Both require maintenance and competitive strategies.
2. Increased tax restrictions on high co2 companies. Factors to consider when comparing competitors:
3. Increased NGO and public criticisms and awareness. 1. Size and financial resources of the competitors.
4. Higher necessity for accountability. 2. Market share size.
___________________________________________________________________________ 3. Product and service quality.
EXAMPLE - DISCHEM 4. Consumer brand loyalty.
Factors and strategies requiring a response across the (7) 5. Service and product prices.
factors. Include threat, opportunity and strategy: 6. Location.
1. Political: SA has a mixed market economy, political 7. Trading hours.
stability can become unrest but unlikely. Government All require strategies to outperform competitors in these
corruption is a problem and refugees bring illnesses. areas and to maintain market share. E.g. Pricing
2. Economic: development in SA has a low standard of strategies and customer loyalty programs.
living so medicine must be cheaper. Interest rate is ___________________________________________________________________________
growing forcing consumers to prioritize interests. THREAT OF NEW ENTRANTS
Load-shedding is widespread. New businesses can also `steal` customers and thus act
3. Ethical: validity and trust of suppliers. Ensuring right as a threat to profit. Thus business must build entry
people get the right medicine within legal constraints. barriers to prevent new businesses. These include:
4. Social: CSR and corporate governance. Expectations 1. Bigger retailers negotiate with mall management to
have expectations and dischem must use campaigns prevent competitors taking space.
to inform demographics of effects. Must be aware of 2. Businesses can purchase a patent to deter similar
the type of medicine people need. Health issues is a products.
growing trend in SA with HIV/AIDS/Tuberculosis. 3. Large amounts of money used on advertisements
5. Technology: Procurement processes reducing stock and promotions.
holding costs. Less space, less insurance costs. 4. Government legislation. (Local businesses.)
Faster processes with self-checkout machines and 5. Tax on imported goods.
electronic shelf systems. ___________________________________________________________________________
6. Legal: CPA has specific requirements for business AVAILABILITY OF SUBSTITUTE PRODUCTS
operations. Managers must comply and be aware of Products that are different entirely but satisfy the same
new legislation. need. Examples include:
7. Environment: Reducing carbon footprint and 1. Butter - Margarine.
supporting good suppliers. Recycling and using solar 2. Glasses - Contact lenses.
panels. 3. Sugar - sweeteners.
___________________________________________________________________________ Businesses who manufacture products have to consider
THE MARKET ENVIRONMENT production strategies other companies use and what
Any physical or electronic place where goods and substitutes they are doing. Increasing availability of
services are bought and sold. A variety of tools can be substitute products increases indirect competitors.
used to investigate market environment forces: ___________________________________________________________________________
1. Environmental scan. THE POWER OF SUPPLIERS
2. SWOT analysis. Business must aim for reliable suppliers, this includes:
3. Porter's six forces model. 1. Supplier providing good quality product within agreed
The environmental scan process in this environment is: time frames, with correct quantity, and fair price.
1. Identify issues. 2. Business must consider the strength of competitive
2. Evaluate and consider opportunities and threats. position in relation to suppliers selling at lower prices
3. Use Porter’s six forces model to identify specific OT’s. to competitors or choosing them for limited stock.
___________________________________________________________________________ Costs associated with the unavailability of stock include:
PORTER’S SIX FORCES MODEL 1. No material = slowed manufacturer, waste of time,
Easy tool used to analyse market environment, and it labor and money.
investigates the following: 2. Stockout = administrative and opportunity costs
1. Competitors: who sells the same product, a similar incurred.
product or are trying to enter the market. 3. Customer goods will be lost if they choose to go to
2. Suppliers of products. competitors.
3. Buyers who must be convinced to buy a product or Hence it is important to build strong relations with reliable
service. and good suppliers to ensure company success.
________________________________________________________________________________________________________________________________________________________________
THE POWER OF BUYERS EIGHT DIFFERENT BUSINESS FUNCTIONS
Buyers are the wholesalers, retailers and consumers. If These encompass the internal departments that handle
they are not respected or offered good value for money various internal activities in and around the business. They
they will support different businesses. When a retailer sells often support each other and increase performance.
to the final consumer some aspects to consider include: Each department has objectives and goals they have to
1. Type of product or service being offered? achieve to fulfill internal duties. PEESTLE affects the
2. Is consumer brand-loyal or prepared to swap for functions as well, and thus strategies must be made.
better service? ___________________________________________________________________________
3. Price sensitivity and willingness to pay. PURCHASING FUNCTION
4. Image associated with product or service. The process of buying goods and services needed by all
___________________________________________________________________________ business departments. (3) types of purchases:
THE POWER OF COMPLEMENTARY PRODUCTS 1. Goods bought for own use.
Products that are interrelated with another are “paired 2. Goods bought to resell.
together”. Examples of this include: 3. Goods bought for processing.
1. Coffee and milk. Goals of this department are the following:
2. Toothbrush and toothpaste. 1. Secure the most suitable suppliers for each resource
3. Contacts and contact solution. that must be found.
The charges or events around interrelated products can 2. Ensure the highest possible RIO through discounts
act as a threat or an opportunity. and negotiation.
___________________________________________________________________________ 3. Utilise a system to maintain and control inventory.
EXAMPLE - PICK N’ PAY 4. Utilise backward integration for optimal reliability and
Factors and strategies requiring a response across the (6) increased profits if possible.
factors. Include threat, opportunity and strategy: 5. Supply chain management must be implemented.
1. Threat of new entrants: entry barriers are high, thus Activities performed to ensure delivery goes to the
not a threat. PnP has a strong brand presence. Can right customer, at the right time, with the right goods
be more convenient. Has lots of market share. Should and good quality. It encompasses the sourcing,
monitor competitors. processing, transporting, storing and distribution of
2. Threat of substitute products: Many retailers offering products and services to the final consumer. They
similar products. PnP must be aware of price and oversee flow of materials and information from
promotion strategies in comparison to other brands. supplier to consumer. More effective control = less
Must have competitive pricing. stock costs. Effective SCM requires info to be
3. Bargaining power of buyers: customers put lots of accurate and timeously shared across the network.
pressure to keep prices low. Competitors bulk buy Ethicacy is expected.
from suppliers = sell products cheaper. PnP has a ___________________________________________________________________________
large distribution network, opportunity for lower price PRODUCTION FUNCTION
per unit. Combination of production factors used to fulfill delivery
4. Bargaining power of suppliers: Offers consumer requirements. Production factors include:
branded products - suppliers sell to larger quantity 1. Natural resources.
buyers. Band loyalty programs develop a sound 2. Labor.
relationship. 3. Capital.
5. Level of rivalry: PnP has many competitors. Increased 4. Entrepreneurial skill.
monitoring and awareness with a strong brand The goals of the department include:
presence and association. 1. Create utility of form: transform raw materials into
6. Power of complementary products: PnP sells many products to satisfy needs and create value.
complementary products, can use this as an 2. Keep manufacturing costs low & maintain standards.
advantage. Increase specials. 3. Continuous service and product development to
___________________________________________________________________________ satisfy changing consumer needs.
THE MICRO ENVIRONMENT 4. Inclusion of automation as on the rise in the world.
When this is analysed, focus is on internal business 5. Quality control measures: monitoring calibre of labor,
functions. Business can control the impact of events in product standard, and reliability. Methods of this
this environment entirely. In order to perform micro include a) sampling - testing quality of small group or
process and internal analysis in this environment, these b) inspections - testing products with set standards.
tools must be used: Advantages of QC: eliminates problems and future
1. Environmental scan. costs. Encourages workers to deliver high standards.
2. SWOT analysis. Allows remuneration goals. Retailers are more
3. Resource-based analysis. confident in suppliers. Disadvantages: costly. Can
4. Value-chain analysis. demoralize if done too often. Inaccuracies can occur.
________________________________________________________________________________________________________________________________________________________________
,________________________________________________________________________________________________________________________________________________________________
research covers target market details, demographics,
LSM and so forth.
FINANCIAL FUNCTION
Business needs starting capital which is contributed or There are (4) policy instruments that the department
borrowed. Important (2) financial statements: handles:
1. Statement of comprehensive income. (income 1. Product policy.
statement.) 2. Price policy.
2. Statement of financial position. (balance sheet.) 3. Place policy.
The goals of the department include: 4. Promotion policy. (Publicity, sales, advertising.)
1. Maximise profits: keep expenses and cost of product Department must create strategies to optimize products,
low, negotiate with suppliers for better costs, reduce services and community relationships.
operating expenses, increase selling price. ___________________________________________________________________________
2. Increase profitability: increasing ROI through PUBLIC RELATIONS FUNCTION
maximizing profits. [P = Net profit/Capital x 100/1.] All activities that influence the opinion of public. PR
3. Maintaining liquidity: always having enough cash to management is continuous and long term handling
cover expenses. Business liquidity is evaluated between business and all stakeholders.
through the a) current capital ratio - [current assets : Departments goals include:
current liabilities, inventory + trade receivables + cash 1. Create and maintain favourable public image with
: trade + payables + bank overdraft] and b) acid test stakeholders.
ratio - [current assets - inventory : current liabilities, 2. Crisis involving publicity.
trade + receivables + cash : trade + payables + bank 3. Positive situations. (Product launches.)
overdraft.] 4. Social media management.
___________________________________________________________________________
4. Maintaining solvency: always having assets value be
greater than liabilities. Not doing this = insolvency or ADMINISTRATIVE FUNCTION
bankrupt. Solvency can be evaluated with [total Responsible for collection, processing and storing of all
assets = total liabilities.] data. This department directs and filters relevant info to
5. Considering whether consumer credit is a sound relevant parties. Ensures records are kept up to date and
policy to allow: Advantages: increased turnover as business complies with legislation across departments.
___________________________________________________________________________
more goods sold, customer will return, increased
GENERAL MANAGEMENT FUNCTION
selling price, credit stimulates economy.
Acts as oversight and coordinates and manages other
Disadvantages: Credit trader needs more working
functions. It’s goals include:
capital, delays payment. Bad debt is highly possible.
1. Plans for future of business. (Vision, mission.)
Administrative costs rise, credit facilitates
2. Organisation of staff and materials.
demand-pull inflation, costs go up because low
3. Leadership of workers and departments.
supply, high demand.
___________________________________________________________________________
4. Control of activities and operations.
HUMAN RESOURCES FUNCTION 5. Integration of processes and people to work smoothly.
Management and trade unions must maintain good 6. Maintenance of process quality and corrective
relationships = increased profit. Unhappy and measure implementation.
demoralized workers cause a negative snowball effect. 7. Coordination of communication, delegation,
The goals of this department include: decision-making.
1. Determine how many workers and what skills are 8. Providing managers with the ability to carry out the
needed for a defined job. previous (7) items.
___________________________________________________________________________
2. Placement of right people in the right job at right time.
OVERALL BUSINESS AS AN ORGANISATION
3. Training staff for optimal productivity.
Synergy can only be achieved if all business functions
4. Maintaining worker morale.
strive towards the same objective and goals in an
5. Creating reward programs.
organised and strategic manner.
6. Maintaining staff retention.
(2) factors that affect this synergy include:
7. Raising worker satisfaction.
1. Technology: development is growing very fast, it’s
8. Implementing and monitoring all worker operations.
opportunities, risks and threat impact businesses
9. Aligning with worker and labor legislation.
___________________________________________________________________________
across all environments. Management and
MARKETING FUNCTION safekeeping of data, aligning with privacy regulations.
Product must satisfy customer needs. It must be sold at a 2. Logistics: Movement of products and people to
prepared price, distributed at a convenient location, needed places. Ensuring a communication
information must be correct, and services / products that framework exists between departments and is
consumers want must be provided. All identified through effective. Monitoring collective of info, maintenance of
market research which this department handles. Market machines and resources. Green logistics, and digital
logistics.
________________________________________________________________________________________________________________________________________________________________
, ________________________________________________________________________________________________________________________________________________________________
Helps manager compare options and decisions based on
a visual pro’s vs con’s chart. Allows easy consideration of
all facets.
RESOURCE-BASED ANALYSIS
It is a tool used to conduct internal analysis of business DECISION TREE
resources. It’s process follows (3) steps: Visual representation of different potential outcomes of a
1. Identify business-owned tangible and intangible single event. Helps consider consequences and acts as a
resources. ‘thought process’.
2. Analyse value that each resource creates. ___________________________________________________________________________
3. Develop a strategy to maintain or create value with VALUE CHAIN ANALYSIS
the resource. Overseeing systems and processes to eliminate or retain
A resource can only be valuable and create a sustainable them, links it to this chapter. Customer needs must
competitive advantage if it meets (2) requirements: always be satisfied. If business is performing in an area
1. It is durable. (Does not depreciate / become obsolete) that is not it’s core strength it should perhaps, outsource.
___________________________________________________________________________
2. Difficult for competitors to copy or imitate resource.
Framework to develop a strategy using a resource-based PEESTLE
approach includes (5) steps: Organisational performance comes up with strategies
1. Identify and analyse defined resources. and techniques to mitigate or eliminate factors identified
2. Identify strategic value of resources. by PEESTLE.
___________________________________________________________________________
3. How can resources be utilised better.
SWOT ANALYSIS
4. How does resource create a competitive advantage?
Can look at internal and external environments. SW =
5. Formulate strategy to optimally use resources.
internal issues ((8) functions = efficiency + strength of
(Repeat cycle.)
___________________________________________________________________________
coordination), OT = External issues.
VALUE CHAIN ANALYSIS Issues to consider when performing the SWOT analysis:
Tool used to do (3) internal activities: 1. Strengths and weaknesses: financial strength of
1. Review all business elements and activities. business, quality of marketing campaign, brand
2. Identify what is or isn’t creating value. strength, business location, cleanliness of store,
3. Implement corrective measures to create value. management competence and quality.
Easier to measure product orientated businesses versus 2. Opportunities and threats: Porter and PEESTLE
service orientated as profit is measured. elements.
___________________________________________________________________________
Framework to develop a strategy using a value-chain
DELPHI TECHNIQUE
approach includes (3) steps:
Method of obtaining opinions of experts on topics. Often
1. Each activity in system is identified and analysed.
done anonymously to prevent bias and subjectivity. It’s
2. Measure degree of value, and how it does it.
process can look like: Info collected from panel > Info
3. Activities adding value are eliminated or corrected
analysed by 2nd group > Feedback can be evaluated by
based on content.
panel > final opinion on product or service found.
*Both tools act as corrective measures, and monitoring ___________________________________________________________________________
systems for a department’s resources and activities. RESOURCE-BASED APPROACH
___________________________________________________________________________
Problem solving within this approach includes:
INTRODUCTION
1. Finding out resources of strategic importance.
Organisation performance is impacted directly by the
2. Filtering right resources to solve problems.
business environment. This chapter looks at mitigating or
3. Prioritization of resources. (They are scarce.)
eliminating the impact through specific methods. ___________________________________________________________________________
___________________________________________________________________________
BALANCED SCORECARD
IMPORTANCE OF CREATIVITY AND PROBLEM SOLVING
Traditional approach used to create specific goals and
In order to solve new problems, one cannot use old
objectives business would like to achieve using its own
solutions. Creative thinking: identifying a problem
strengths across (4) main elements. It forces management
consumer is not even aware of and solving it. Business
to concisely target specific issues using available
must constantly adapt and find ways to maintain or gain a
resources. Concise goals + measuring = steady
competitive advantage. The problem solving has (3) steps:
performance increase. There are (4) main elements that
1. Identify resource gaps and obtain resources.
are analysed and play a critical role in the business:
2. Explain the impact they have on business and
1. FInancial perspective: focused on maximum
consider different solutions.
utilisation of assets and minimizing costs. KPI:
3. Choose best solutions and explain them extensively.
___________________________________________________________________________
Financial statements, and ratios.
TECHNIQUES TO IMPROVE BUSINESS PERFORMANCE 2. Customer perspective: focuses on customers' view of
PROS AND CONS CHART business.. K PI: Surveys, and focus groups.
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