business component 2-analysis and strategy

• Business aims are what the business wants to achieve in the future, and they tend to be quite generic and broad. They set out the goals for the business.
• Business objectives are more specific and measurable targets the business will set to achieve its aims
• Aims for Profit organisation

  survival • profit maximisation • sales maximisation • growth/increase market share • increase shareholder value • corporate social responsibility/environmental/ethical • increase productivity/improve quality
• Aims of Not-For-Profit Organisations:

  • to provide services • to avoid wasteful duplication of resources where a natural monopoly exists, such as litter collection and beach cleaning • to control strategic industries • to prevent exploitation by monopoly suppliers • to help people in need, whether it’s age, disability, poverty or illness.
• Long-term objectives ; if a business is aiming to grow in the long term ,they may want to:

  • invest in training their staff • building up their brands • expanding into new markets • putting money into developing new products
• Short-term objectives – a business that wants to maximize profit in the short-term and is not concerned about the long term might :


  • make staff redundant • change to cheaper suppliers • increase productivity at the expense of quality • set a high price for maximum immediate profit • sell assets.
• Vision Statement


  It is a description of what a business sets out to achieve in the medium to long term. The vision statement should provide a clear guide to senior management of the future direction of the business and help to direct strategic decision-making across the business
• Benefits of vision statement


  A clear vision can give the business a clear identity and ethos. • Can help in setting objectives and support the business strategy. • Focus senior managers on the tasks to achieve the vision. • Communicates to employees how they can contribute, and can improve employee engagement. • Commits resources to achieving the vision.
• A business mission statement is a description of what a business sets out to achieve in the medium to long term. The mission statement should provide a clear guide to senior management of the future direction of the business and help to direct strategic decision-making across the business.
• Reasons for having a mission statement 


  Helps to ensure that all stakeholders are clear on the purpose of the business so everyone can be focused on the same goals and objectives. • Helps with the strategic planning since this should be the starting point. • Gives some transparency for investors – they understand how their capital will be used. • Helps customers understand the ethics and objectives of a company
• SMART objectives contain the potential to focus attention and gain commitment from all levels within a business to agreed performance targets. They will also encourage teamwork, and they direct resources to where they can be most effective.
• ‘Window Dressing’ is the term used to describe techniques for improving a business’ balance sheet position, in particular its apparent liquidity
• Examples of non-financial performance indicators are:

  1. productivity 2. market share 3. sales targets 4. environmental impact 5. quality 6. customer satisfaction.
• Why would a business NOT want to make itself look as successful as it has been?

  To reduce the risk of a hostile takeover. • To delay paying tax until the next financial year.
• Why would a business want to make itself look as successful as possible?

  To please the shareholders of public limited companies – a high profit usually means a high share price. • To show growth in terms of sales, value of fixed assets or dividends; for example, to impress potential investors. • In order to raise finance from a bank or any other source. • To increase the likelihood of a merger with, or takeover by, another firm.
• How can a business window-dress its accounts

  Manipulating sales: Choosing whether to record a sale when an order is placed or when the money has been received. (This might span two financial years.)
• How can a business window-dress its accounts?

  Depreciation: Assets can be written off over different time spans – for example, if a piece of machinery is written off over 3 years, the profit will be less each year for those three years than if it is written off over 10 years.
• How can a business window-dress its accounts?

  Appreciation: Businesses do not tend to get a professional valuation of its property each year, which means that the estimate given could be over or under the true value. The value of stock, similarly, may be over- or under-estimated.
• How can a business window-dress its accounts?

  Writing off bad debts: A business may choose in which year to accept that a debt will never be paid and to reduce its profit accordingly
• How can a business window-dress its accounts?

  Borrowing money for a short period to improve its cash position: This enhances a business’ apparent ability to pay its short-term debts.
• How can a business window dress its accounts?

  Sale and leaseback: This involves selling assets (which improves the cash position) and then leasing back the same assets.
• Sales targets


  This measures the amount of sales that a business makes (either in terms of money or volume) in a specific time period compared with what it set as an objective (or budget).
• Productivity


  This is the output produced in relation to the inputs used. For a given time period this could be; output per worker; output per machine; output per site.
• Productivity is a crucial concept as it can have a significant effect on the costs of producing a unit. Consequently, managers are constantly seeking ways to improve productivity (particularly labour productivity) as it means the business will either make more profit per unit or it can reduce the price to become more competitive.
• Methods of improving labour productivity are:

  • increasing the number of hours worked • training • investment in equipment and technology • changing the way work is done • motivating employees.
• Market Share

  Sales of a business / Total sales in a market x 100 The sales can be measured either in financial terms or volume (the number of items).
• Quality


  Targets can be set for the number of defects produced by a production process within a given time frame, or the number of faulty goods returned by customers. Businesses are always looking at ways of improving quality as poor quality indicates a lack of efficiency and it increases costs and, consequently, reduces profit. In addition, producing poor quality products can affect a business’ reputation.
• Environmental impact


  Consumers are becoming increasingly concerned about the effect that business activity has on the environment. As a result many organisations have environmental policies, which seek to limit the amount of pollution damage they do (air and noise pollution and waste disposal), restricting the damage done to wildlife, developing brownfield sites (as opposed to greenfield sites), using renewable energy sources and promoting conservation measures, for example.
• Customer satisfaction


  If businesses offer good customer service/ satisfaction, they are more likely to see customers return and for customers to recommend them to others.
• How can customer satisfaction be measured

  questionnaires, recording telephone conversations, repeat purchases, referrals from existing customers and the number of complaints. Targets can be set to assess the performance of the business in this respect.
• Contented customers are vital to a business’ success, particularly if they remain loyal to the business.
• It can be difficult to measure customer satisfaction, particularly when using questionnaires as only those not happy with a business’ products may respond.
• Consumers wish to purchase good quality products; a rise in quality is likely to lead to an increase in demand and, consequently, an increase in profit.
• Some measures used to increase quality may not be cost-effective as the cost of them outweighs the potential gain.
• This is a ‘hot topic’ amongst consumers at present; anything that can be done to make a business appear to be more environmentally friendly is likely to impress current and potential customers.
• It can take quite a long time for environmental policies to take effect, as it may require new suppliers to be sought or there may be a very gradual reduction in pollution, for example.
• Sales targets indicates whether objectives have been met.
• Factors outside the business’ control might have caused sales targets to be missed, or their overachievement
• An increase in market share can indicate the success of a business.
• Market share does not indicate whether the market is growing or shrinking.