Theme 3 Key Terms

• Corporate aims


  Broad, long term ideas as to how the business should develop
• Corporate objective


  A goal that a business strives to achieve in order to meet its long term aim
• Critical appraisal


  Assesses if the corporate aims and mission statement continue to reflect the current corporate vision
• Mission statement


  A set of guiding principles which is often used to steer stakeholders in order to achieve a business's aims and objectives
• Ansoff's Matrix


  A strategic tool to help a business analyse business growth
• Architecture/origin


  Refers to the contracts and relationships within and around an organisation
• Cost leadership


  A strategy of seeking lower cost to allow a business to reduce prices and therefore increase sales and revenue
• Distinctive capabilities


  A skill or attribute possessed by a business
• Diversification


  New products to a new market. It is considered by Ansoff to be more risky than market penetration but potentially more rewarding because it offers greater opportunities to sell to a greater range of markets
• Financial resources


  Resources used to finance a business strategy and can include cash, current assets and the ability to borrow finance for future operations
• Innovation


  Developing a new product or process in the production of a product
• Market development


  The marketing of an existing product in new markets
• Market penetration


  Selling existing products in an existing market, which is considered the least risky strategy by Ansoff
• Porters Strategic Matrix


  Identifies the sources of competitive advantage that a business might achieve in a market
• Product development


  Marketing new or modified products in existing markets
• Reputation


  The operational factors concerned with premises, equipment and other resources needed to meet customer needs
• Strategic decisions


  Long term and relates to achieving an overall goal
• Tactical decisions


  Short term actions that help to achieve the strategy
• SWOT analysis


  A strategic planning technique used to help a business identify its internal strengths, weaknesses, and its external opportunities, and threats
• Economic factors


  Economic variables that can affect a business such as exchange rate, inflation and interest rates
• Environmental factors


  Businesses have a general obligation to the environment and some businesses are closely monitored
• Legal factors


  Legal requirements that a business must follow when operating in the country
• PESTLE factors


  The political, economic, social, technological, legal and environmental influences that can affect business strategy
• Political factors


  Regional, national and international laws and government policies that could affect a business such as regulations and subsidies
• Porter's five force model

  A framework for analysing the nature of competition within an industry. It does this by looking at five main factors – threat of substitutes, threat of new entrants, bargaining power of buyers, bargaining power of suppliers and competitive rivalry. It can be used to identify the potential profitability of a particular strategic decision
• Social factors


  Demographic changes such as an aging population, changing lifestyles and tastes and fashion
• Technological factors


  The adaption of technologies that could affect a business such as new production processes, mobile technology and disruptive technologies such as electronic vehicles
• Threat of competition


  The behaviour of competitors that may lead to the loss of market share
• Diseconomies of scale


  A rise in average/unit costs experienced as a business grows in size
• Economies of scale


  When average costs can fall as total output increases in a business
• External economies of scale

  The average cost reductions available to all businesses as the industry grows
• Financial economies of scale

  Large firms have advantages when they try to raise finance as they will have a wider variety of sources to choose from and they can often gain better interest rates
• Growth


  Expanding the sales revenue of a business, probably in hope that profits will increase too
• Internal economies of scale


  When a business invests in expanding production resulting in lower average costs
• Purchasing/ marketing economies of scale


  Large firms are likely to get better rates when buying raw materials in bulk
• Risk bearing economies of scale


  As a firm grows they may diversify to reduce risk
• Specialisation/ma nagerial economies of scale


  As a firm grows they can afford to employ specialist managers e.g. marketing, Human resources
• Technical economies of scale

  Large businesses can often be more efficient through the use of capital equipment
• Horizontal integration


  The joining of businesses that are in exactly the same line of business
• Merger


  When two businesses join together and operate as one