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Summary Unit 3: Business decisions and strategy revision notes
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Unit 3 business revision notes for International Pearson edexcel A-level
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1. CORPORATE OBJECTIVESMission statement: Brief statement written by the business, describing its purpose and
objectives, designed to cover its present operations.
● Purpose: Outline why the business exists, what it does and for whom
● Values: Values of the cooperation, which influence its culture
● Strategy: How the business will try to achieve its main objective
Why do businesses create mission statements?
1. To make a commitment to its customers, expresses a promise for them
2. To bring the workforce together with a shared purpose
Corporate objectives: Objectives of a business as a whole. Must be SMART - Specific,
Measurable, Agreed, Realistic and Time specific.
Departmental and functional objectives: The objectives of a department within a
business.
DIFFERENCE BETWEEN SMALL AND LARGE FIRMS
Small businesses:
● Ensure the company breaks even
● Improve firms liquidity
● Increase sales by 10% over the next three years
● Hire 5 new staff
Large: Mainly financial objectives as they have many stakeholders to satisfy - they are more
quantifiable, therefore easier to communicate.
However, some argue that mission statements are too optimistic, employees may be
demotivated if they know that it's unrealistic. Also, if they are unrealistic, it's useless and
therefore a waste of time. This means that mission statements must constantly be assessed
to be relevant.
,THEORIES OF CORPORATE STRATEGIES
Corporate strategy: The plans and policies developed to meet a company's objectives,
what activities the business needs to undertake to achieve its goals and whether the size of
the business makes it capable of achieving the objectives set.
● Developing effective corporate strategies requires time and research
● Key member of management look critically at business practices
ANSOFF'S MATRIX
It sets out strategic options for a business. It classifies strategies based on the products
offered and the markets in which the business competes.
Allows owners to consider a number of factors that will determine its corporate strategy:
● The level of investment in existing and new products
● The exploitation of different markets
● The growth strategy for the business
● The level of risk a business is willing to accept
Market Penetration: Purpose: to
achieve growth in existing markets
with existing products by:
1.Increasing brand loyalty of
customers
2.Encourage customers to use the
product more regularly or in bigger
quantities
Product development: Developing new or modified products for existing customers.
Appropriate strategy to adopt when the product has a short life cycle. Requires a lot of
investment in research and development. Might be high risk.
Market development: The marketing of existing products in new markets, may be in
different regions or simply be a different target group. Risk= may not have the same
knowledge of the new segment and may not have the resources to meet its needs
effectively.
Diversification: Developing new products in new markets. Risky as it takes business out of
his area of expertise. However, if demand falls in one market, it has another where it is
selling.
,PORTER'S STRATEGIC MATRIX
To identify the sources of competitive advantage that a business might achieve in a market.
1. Cost leadership:
● Aiming for the lowest cost provider in the market to increase profit or
differentiate the product by lowering costs.
● Firms may achieve the lowest costs by operating at large scales . Exploiting
economies of scale
2. Differentiation:
● A firm seeks to be unique in its industry; Adding value to their products in a
unique way in order to have a USP and charge premium prices.
● However, it might not be profitable because of the additional costs of adding
value to the product.
3. Focus:
● Targeting a narrow range of customers, gains advantage by understanding
customers better high levels of customer satisfaction and loyalty.
● A focus strategy will result in less competition and higher profit margins.
Portfolio analysis: Method of characterising all the products of a firm to decide where each
one fits within the strategic plans
Step 1: Give a full and detailed overview of all the products in the current business portfolio
Step 2: Look at the performance of each product
A portfolio can be analysed by using the Boston Matrix
Boston Matrix categorises the products into one of four different areas, based on Market
share and Market growth
1. Stars: High market growth products and High market share. Need heavy
investment to sustain growth. Eventually growth will slow and, Stars will
become Cash Cows
2. Cash cows: Low market growth products with a high market share. These
are mature, successful products with little need for investment. They need to
be managed for continued profit that the company needs for its Stars
3. Question marks: Products operating in high growth markets with low market
share. This suggests that they have potential, but may need substantial
investment to grow market share at the expense of larger competitors.
4. Dogs: Products that have a low market share in unattractive, low-growth
markets. Dogs may generate enough cash to break-even, but they are rarely
worth investing in. Dogs are usually sold or closed.
, EFFECTS OF STRATEGIC AND TACTICAL DECISIONS
Strategies: Long-term direction that a business will take to achieve its objectives
Tactics: Short-term responses to an opportunity or threat in the market
Human resources:
Strategies: Long-lasting effect on workforce. I.e moving them to
another location
Tactics: Short-lasting effect. I.e open factory on weekends sue to
high demand
Physical resources:
Strategies: i.e if a business launches a new product it will need
additional factory space
Tactics: Less dramatic. I.e large event will require a business to
lease extra equipment. However, it will be returned after the event -
not affects in the long-term
Financial resources:
Strategies: i.e A company might raise $200 million by issuing shares
to pay for an acquisition. Once the shares have been issued, the
company will have to meet dividend payments as long as the
company trades
Tactics: Short- term effect. I. e A business might go overdrawn at the
bank because it is waiting for a delayed payment. However, when the
customer pays its debts, the overdraft will be cleared
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