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IB Business and
Management HL
Business tools
Stakeholders are mapped on the chart below. This is used to decide who has the greatest priority and who has least priority.
Level of interest LOW HIGH
AMonitor (minimum effort)
BKeep informed
CKeep satisfied
DManage closely
Level of
pow
er
HIG
H
LO
W
Stakeholder mapping HL, unit 1.4 Stakeholders
Stakeholder Main Interests Power and influence
Shareholders Profit growth, Share price growth, dividends
Election of directors
Banks & other Lenders
Interest and principal to be repaid, maintain credit rating
Can enforce loan covenants Can withdraw banking facilities
Directors and managers
Salary ,share options, job satisfaction, status
Make decisions, have detailed information
Employees Salaries & wages, job security, job satisfaction & motivation
Staff turnover, industrial action, service quality
Suppliers Long term contracts, prompt payment, growth of purchasing
Pricing, quality, product availability
Customers Reliable quality, value for money, product availability, customer service
Revenue / repeat business Word of mouth recommendation
Community Environment, local jobs, local impact
Indirect via local planning and opinion leaders
Government Operate legally, tax receipts, jobs
Regulation, subsidies, taxation, planning
The Business CycleSL, unit 1.5 External environment
o Economic activity at its highest level
o Consumer expenditure, investment and export earnings are high.
o People receive pay rises as business make more profits.
o Business have good cash flow
Peak or boom
Recession o Dip in level of economy
for 2 consecutive quarters. (6 months)
o Declining aggregate demand
o Lower investment expenditure
o Falling export saleso Rising unemploymento Most affected businesses
are those sensitive to changes in income. (houses, cars, jewelery)
o Last stage of decline in the trade cycle
o Very high level of unemployment
o Very low consumer spending, investment and export levels
o Poor cash flow and liquidity…many close down
o Lack of confidence in the economy
o No job securityo Low spending
Slump or trough
o Reduces costso Reduce priceo Non – pricing e.g. after saleso Brandingo Outsourcingo Increased efficiency
Survival strategies…?
PESTLEo POLITICALo ECONOMICo SOCIAL o TECHNOLOGICALo LEGALo ENVIRONMENTAL
o SOCIAL o TECHNOLOGICALo ECONOMICo ETHICALo POLITICALo LEGALo ENVIRONMENTAL
STEEPLE
PEST analysisSL, unit 1.5 External environment
Political / Legal EconomicEnvironmental regulation and protection Economic growth (overall; by industry
sector)Taxation (corporate; consumer) Monetary policy (interest rates) International trade regulation Government spending (overall level;
specific spending priorities)Consumer protection Policy towards unemployment (minimum
wage, unemployment benefits, grants)
Employment law Taxation (impact on consumer disposable income, incentives to invest in capital equipment, corporation tax rates)
Government organisation / attitude Exchange rates (effects on demand by overseas customers; effect on cost of imported components)
Competition regulation Inflation (effect on costs and selling prices)Stage of the business cycle (effect on short-term business performance)Economic "mood" - consumer confidence
Social TechnologicalIncome distribution (change in distribution of disposable income;
Government spending on research
Demographics (age structure of the population; gender; family size and composition; changing nature of occupations)
Government and industry focus on technological effort
Labour / social mobility New discoveries and developmentLifestyle changes (e.g. Home working, single households)
Speed of technology transfer
Attitudes to work and leisure Rates of technological obsolescence Education Energy use and costs Fashions and fads Changes in material sciences Health & welfare Impact of changes in Information
technologyLiving conditions (housing, amenities, pollution)
Internet!
SWOT analysisSL, unit 1.6 Organizational planning tools
Positive factors Negative factorsInternal factors Strengths Weaknesses
External factors Opportunities Threats
SWOT analysis is a method for analysing a business, its resources, and its environment.SWOT is commonly used as part of strategic planning and looks at:
•Internal strengths•Internal weaknesses•Opportunities in the external environment•Threats in the external environment
SWOT can help management in a business discover:
•What the business does better than the competition•What competitors do better than the business•Whether the business is making the most of the opportunities available•How a business should respond to changes in its external environment
The result of the analysis is a matrix of positive and negative factors for management to address:
The key point to remember about SWOT is that:•Strengths and weaknesses
•Are internal to the business•Relate to the present situation
•Opportunities and threats•Are external to the business•Relate to changes in the environment which will impact the business
There is no point producing a SWOT analysis unless it is actioned! SWOT analysis should be more than a list - it is an analytical technique to support strategic decisions
Decision treesHL, unit 1.6 Organizational planning tools
Constructing the decision tree
Product A
Product B
High Demand
Low Demand
High Demand
Low Demand
-£7m
-2m
£16m
£6m
£12m
£4m
0.7
0.3
0.6
0.4
o A tool to help businesses in their decision making processeso Provides a pictorial approach to decision makingo Maps out the different options available and the different outcomes of
these options
Product AHigh Demand 0.7 x £16m = £11.2mLow Demand 0.3 x £6m = £1.8m
Expected Value = £11.2m + £1.8m = £13m
Net Expected Value = £13m - £7m = £6m
Product BHigh Demand 0.6 x £12m = £7.2mLow Demand 0.4 x £4m = £1.6m
Expected Value = £7.2 + £1.6m = £8.8m
Net Expected Value = £8.8m - £2m = £6.8m
o Encourages a careful consideration of all alternatives
o Sets out a problem clearly and encourages a logical approach to decision making
o Encourages a quantitative consideration of chance
o Takes risk into accounto Discourages gut reaction
decision making
o Hard to get accurate or meaningful data for probabilities
o Less useful in the case of completely new problems or one-off strategic problems
o Easy for management bias to enter, or for a manager to manipulate the data
o Ignores the changing nature of the business environment
o May lead to managers taking less account of qualitative issues
Limitations
Advantages
Chance nodes represent alternatives with probabilities attached
A decision nodes are indicated by a square
Ishikawa’s Fishbone AnalysisHL, unit 1.6 Organizational planning tools
o Is a model used to identify cause and effect
o An issue is identifiedo And then possible causes are
identifiedo Often the 4 M’s are used
1. Management2. Manpower3. Machines4. Materials
1. Identify the problem2. Construct diagram with possible categories of causes3. For each ‘bone’ brainstorm the possible causes and place on the
node4. Consider each possible cause and think about which are likely to
warrant further investigation and circle these on the diagram5. Once root causes have been identified then the appropriate
strategies can be devised to deal with the problem
The fishbone procedure
❑ The Ansoff Growth matrix is a marketing planning tool that helps a business determine its product and market growth strategy.
❑ Created by Professor Igor Ansoff (1918-2002)It suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets.
Ansoff’s MatrixSL, unit 1.6 Organizational planning tools
1. Maintain or increase the market share of current products –competitive pricing strategies, advertising, sales promotion, more resources dedicated to personal selling
2. Secure dominance of growth markets
3. Restructure a mature market by driving out competitors- aggressive promotional campaign, pricing strategy
4. Increase customer loyalty - e.g. loyalty schemes
Focus on markets and products it knows well. It is likely to have good information on competitors and on customer needs. Little investment in new market research is needed.
Market penetration(Selling existing products into existing markets.)
New competenciesNew skills
A successful product development strategy places the marketing emphasis on:
1. R &D and innovation2. Substantial market
research3. Being first to market
Product development(A business aims to
introduce new products into existing markets. )
1. New geographical markets2. New product dimensions or
packaging3. New distribution channels (e.g.
moving from selling via retail to selling using e-commerce and mail order)
4. Different pricing policies to attract different customers or create new market segments
Market development is a more risky strategy than market penetration because of the targeting of new markets.
Market developmentMarket extension (seeks to sell its existing
products into new markets.)
1. More risk 2. Clear expectations3. Must conduct risk
assessment
Related diversification The business remains in the same industry in which it is familiar with. E.g. a cake manufacturer diversifies into a fresh juice manufacturer. This diversification is in the same industry which is the food industry.
Unrelated diversificationUsually no previous industry relations or market experiences. A food manufacturer diversifies into a mechanical industry
Diversification A business markets new products in new
markets
Porter’s Generic strategies HL Unit 1.7 Growth and Evolution
Michael Porter suggested that businesses could achieve a competitive advantage over rivals by following these strategies:
1. Cost leadership2. Differentiation3. Focus
o The lowest cost supplier within a market
o Charge low priceso Often lower qualityo Highly profitableo Predatory pricing methods usedo These businesses do not compete
with high quality providers
Cost leadershipo Focus on quality over
costo Packagingo Brandingo USP
Differentiation
Target a niche or individual market segment
Focus
o To be the lowest cost operator in one niche market
o Also used by low cost specialised businesses such as small DIY shops…
Cost focus
o Aims to offer the best or most distinctive in a niche market
Differentiation focus
Stuck in the middle
Porter argued that for a firm to be successful in the long run, they can only choose one generic strategy. Otherwise they will be stuck in the middle…
o Many factors drive change in a business. o Lewin identified four forces:
In Lewin’s model there are forces driving change and forces restraining it. Where there is equilibrium between the two sets of forces there will be no change. In order for change to occur the driving force must exceed the restraining force
o Lewin’s analysis can be used to:o Investigate the balance of power involved in an
issueo Identify the key stakeholders on the issueo Identify opponents and allieso Identify how to influence the target groups
Lewin’s force fieldHL Unit 1.8 Change and the management of
change
1. List the driving forces for change in one column, and the restraining forces against change in another column.
2. Allocate a weight to each of these forces, from 1 (weak) to 5 (strong).
3. Draw a diagram adding the weights to each driving and restraining force.
4. Total the scores for the driving forces and the restraining forces.
Force Field analysis steps
The recruitment processHL Unit 2.1 Human resources planning
o A Shamrock organisation will have:
o Core workforce/Core Staff Full time Staff -Vital but becoming an increasingly smaller group
o Flex workers/Peripheral Workers Part-time, casual, temporary and portfolio workers
o Freelance contractors/Outsourced Workers
Workers not employed by the organisation but paid to complete specialist tasks
Charles Handy’s ShamrockHL Unit 2.1 Human resources planning
Cash flow forecastingSL unit 3.3 Accounts and Finance
A cash flow forecast shows, month by month, the money that it is anticipated will be coming into the business and the money that the business will be paying out.
A prediction of the future flows of money in and out of the business for a specified period of time.
1. Identifies potential shortfalls in cash balances in advance – think of the cash flow forecast as an “early warning system”.
2. Makes sure that the business can afford to pay suppliers and employees.
3. Spot problems with customer payments 4. As an important discipline of financial planning – helps with planning
the budget.5. External stakeholders such as banks may require a regular forecast.
Uses of a cash flow forecast
The causes of cash flow problems1. Overtrading
2. Overborrowing3. Overstocking4. Poor credit control5. Unforseen changes
Reducing cash outflows
Improving cash inflows
Seeking alternative sources of finance
o The 5 forces analysis looks at assessing the nature of competition within an industry
o It allows a manager to make decisions on how to improve his business.
o Marketing managers may use it to modify their strategies (Marketing Mix)
Management guru!
Porter’s 5 Force analysisHL, unit 4.2 Marketing planning
Position Maps (perception or market map)SL, unit 4.2 Marketing planning
The position map illustrates the range of “positions” that a product can take in a market based on two dimensions that are important to customers.Examples of those dimensions might be:
oHigh price v low priceoBasic quality v High qualityoLow volume v high volumeoNecessity v luxuryoLight v heavyoSimple v complexoLo-tech v high-techoYoung v Old
Position maps are used to identify where there are “gaps in the market” – where there are customer needs that are not being met.
R&Do New ideas/possible inventionso Market analysis – is it wanted?
Can it be produced at a profit? Who is it likely to be aimed at?
o Product Development and refinement
o Test Marketing – possibly local/regional
o Analysis of test marketing results and amendment of product/production process
o Preparations for launch – publicity, marketing campaign
Sales
Time
R&D Introduction Growth Maturity Saturation Decline
Introduction / Launcho Advertising and promotion
campaignso Target campaign at specific
audience? o Monitor initial sales /
Maximise publicity / High cost/low sales
o Length of time – type of productGrowth
o Increased consumer awareness
o Sales rise / Revenues increase
o Costs - fixed costs/variable costs, profits may be made
o Monitor market – competitors reaction?
Maturity o Sales reach peako Cost of supporting the product
declineso Sales growth likely to be lowo Market share may be higho Competition likely to be greatero Price elasticity of demand?o Monitor market –
changes/amendments/new strategies?
The Product lifecycleSL, unit 4.3 Marketing planning
Saturation o New entrants likely to mean market is
‘flooded’o Necessity to develop new strategies
becomes more pressing:o Searching out new markets:
o Linking to changing fashionso Seeking new or exploiting
market segmentso Linking to joint ventures –
media/music, etc.o Developing new uses
o Focus on adapting the producto Re-packaging or formato Improving the standard or
qualityo Developing the product range
Decline o Product outlives/outgrows its
usefulness/valueo Fashions changeo Technology changeso Sales declineo Cost of supporting starts to
rise too faro Decision to withdraw may be
dependent on availability of new products and whether fashions/trends will come around again?
Extension strategies aim to prolong the life cycle and often start in the saturation phase
High Low
High (Growing)
Low(mature)
mar
ket g
row
th
Market share
Problem children
Cash cow....moo!
Stars
Dogs...woof..
Examines the likely financial performance of your product or business portfolio
The Boston MatrixSL, unit 4.3 Marketing planning
Mark
et
gro
wth
Starso Generate lots of cash!o Competing in markets where they
are strong compared with the competition.
o Need heavy investment to sustain growth. Eventually growth will slow and, assuming they keep their market share, Stars will become Cash Cows
Cash Cowso These are mature, successful
products with relatively little need for investment.
o Need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars..
o They also may run the risk of becoming dogs – extension strategies may be needed!
Problem Childreno May indicate poor marketingo Use up a lot of casho Management - which ones should they
invest in? Which ones should they allow to fail or shrink?
o Potential, but may need substantial investment to grow market share
Dogso May generate enough cash
to break-even, but they are rarely, if ever, worth investing in.
o Too many dogs = liquidity problems
A criticism of the matrix…Higher profits do not always come from higher market share.The matrix fails to place products exactly in the grid.Should be used alongside Ansoff’s Matrix