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BA (Hons) in Marketing
Business Strategy and Entrepreneurship
Contents
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Firms objectives, strategies, policies and factors affecting the new venture
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Contents
1
Firms objectives, strategies, policies & factors affecting the new venture .................... 79
3.1
3.1.1 Policies........................................................................................................................................ 79
3.1.2 Government policies ............................................................................................................. 81
3.2
Objectives of organisations..................................................................................................... 86
Preface
About this Exam Prep Kit
We would like to take this opportunity to welcome you to the Business Strategy and
Entrepreneurship module of the BA (Hons) in Marketing programme and wish you
every success with your studies.
This Exam Prep Kit is designed to support students in revising the syllabus according to
module specifications. It will summarise the entire syllabus in a manner that will help
you grasp the areas you are expected to address in your studies in a thorough manner.
We hope that you will find the materials of this Exam Prep Kit useful in your learning
endeavours and we wish you the very best in not only achieving a pass, but passing with
distinction.
1 An Entrepreneurial Venture
Entrepreneurship involves planning and organising innovative ideas to be put into
action by maximising available opportunities. This section describes each stage of the
entrepreneurial process, from idea generation to commercialisation. Under this section,
the candidate will gain an understanding of the entrepreneurial process and other
factors important in designing and running an entrepreneurial venture.
Social entrepreneur
Serial entrepreneur
Lifestyle entrepreneur
He is motivated in creating a longterm, sustainable and profitable working field where certain
knowledge, interests and expertise are involved.
Cooperative entrepreneur
Today, the overwhelming number of entrepreneurs and startups are still small
businesses.
They are anyone who runs his/her own business. They hire local employees or
family. Most are barely profitable. Their definition of success is to feed the family
and make a profit, not to take over an industry or build a $100 million business.
As they cant provide the scale to attract venture capital, they fund their
businesses via friends/family or small business loans
Unlike small businesses, scalable startups are what Silicon Valley entrepreneurs
and their venture investors do. These entrepreneurs start a company knowing
from day one that their vision could change the world. They attract investment
from equally crazy financial investors venture capitalists. They hire the best
and the brightest. Their job is to search for a repeatable and scalable business
model. When they find it, their focus on scale requires even more venture capital
to fuel rapid expansion.
Most grow through sustaining innovation, offering new products that are
variants around their core products. Changes in customer tastes, new
technologies, legislation, new competitors, etc. can create pressure for more
disruptive innovation requiring large companies to create entirely new
products sold into new customers in new markets.
Planning
Implementing
Managing
Acquisition of resouces
Creation of the new venture
Improper planning
The entrepreneurs enthusiasm alone would not help to succeed. It requires thorough
planning which could be used as a yardstick to monitor the business performance.
Inadequate planning will drive you out of the market.
Having a low price will not make you successful. The business should generate sufficient
profits and cash flows to run the venture.
Business
description
Market
strategies
Financial
plans
Business
plan
Operation &
management
plans
Competitive
analysis
Design &
development
palns
The business description should explain about the industry to which the business
venture belongs and its status and future possibilities. In addition, legal form of the
business, target customers, principal shareholders, product description, distribution
methods and the support systems should be taken into consideration.
Market analysis will enable to establish pricing, promotional and distribution strategies
and under competitive analysis, Porters competitive forces can be used to determine
the state of competition.
According to Porter, a firms ability to make high economic profits is dependent on two
factors:
The profitability of the industry does not depend on the nature of the product, but
rather combined effects of the five forces he refers to as the Rules of competition. How
favourable the forces are to the firm operating in the industry now determines
profitability.
Diagram - Porters five forces model
Threat of new
entry
Bargaining
power of
buyers
Existing rivalry
between firms
Threat of
substitutes
Bargaining
power of
suppliers
The threat of entry however depends on the existence of barriers to entry. Barriers to
entry could be:
Threat of substitutes
Substitutes could pose the following problems.
The design and development plan should give a description of the product design to
investors, chart its development, and evaluate with the development budget . The
operations and management plan should specify management team responsibilities,
divisional tasks and capital and other expenditure required to run its operations.
Finally, at the end of the business plan, there appears the financial information.
Financial projections are also required as they are vital for investor decision making.
In order to implement the action plan, the entrepreneur needs to acquire necessary
resources. Primary resources include capital, human resources and time. Capital can be
financial, intellectual (patents, copyrights, brand names) and technical (innovation in
production, which competitors do not have).
Human resources include individuals who help to exploit opportunities.
The entrepreneur should have the capability to manage all these resources in an
efficient and effective manner to bring benefits to the business. The entrepreneur can
make use of an implementation plan to provide a roadmap for the investors about the
business development.
Bargaining power
of customers is
medium
Competitive
rivalry is high as
many restaurants
are competing
with each other
Threat of
substitute product
is high
Bargaining
power of
suppliers is weak
10
11
Knowledge
The managing stage is the final phase of the entrepreneurial process. Efficient
management is essential to carry out business operations and to prosper in the long run. The following aspects should be taken into consideration for efficient management:
Role of a Creator
Set the philosophy
Strategic focus
Educate new
employees
Role of a promoter
Maintain good
relations with
employees, bankers,
customers and
suppliers
Role of a leader
Making strategic
decisions
Be a role model
Role of a creator
As the initiator of the entrepreneurial venture, the entrepreneur needs to set the
philosophy of the organisation and establish the strategic focus. In addition, he has to
educate employees about his vision, business goals and objectives in order to guide
them in the correct direction, which in turn helps to create the appropriate corporate
culture for the organisation.
Role of a promoter
Role of a leader
The entrepreneur should be a role model or a mentor to others in the organisation. He
has to be a manager as well as a visionary leader to build up the organisation. The
entrepreneur should have the talent to handle the activities of a leader as well as
managerial duties. It needs to introduce new products, new methods, new markets and
new practices throughout the life of the organisation to prosper. In addition, the policies
of the venture should be flexible and support innovation.
Further, it is imperative for the entrepreneur to have a clear vision without interfering
too much in the details of management.
Leadership is vital in motivating and encouraging employees to proceed in the desired
direction and therefore the entrepreneur should build trust and confidence among
workforce and take action to improve communication among the workforce.
Classical theories on leadership
Contingency theories
These argue that there is no one best style or approach to leadership but it is
dependent on situational characteristics in which leadership occurs. They
suggest that just because a leader is successful in one situation, it does not
guarantee success in another. However, effective leaders adapt their behaviour
to the specific situation.
To exploit opportunities available, an entrepreneurial leader would blend
creative ideas to add value to operations and use innovative methods and
practices.
Stakeholder management
Stakeholder management is imperative, as stakeholders are the people who have an
interest in an organisations activities. They can also be defined as groups of people who
have an interest in the activities and strategy of the organisation.
Diagram - Stakeholders
Local government
External national
government
Internal
Employees
Management
Connected
Shareholders
Suppliers
Distributors
Creditors/lend
ers
Customers
Industry
regulators
Competitors
Super national
bodies
Pressure
groups
Managing
stakeholders
Map the
stakeholders
Identify their
sources of
power
Identify the
stakeholder's
values,
concerns &
interests
Identify
them
Minimal effort
High
Keep informed
Low
Keep satisfied
Key players
High
Determine the
course of action to
deal with them
Following are the strategies used in determining the course of action to deal with
stakeholders:
Direction is required for the minimal effort group, i.e. they are likely to listen to what is
said and follow instructions. Therefore, this group requires minimal effort and
monitoring.
This group of stakeholders is interested in the strategy of the organisation but lacks the
power to take action. Education and communication is required as they could be
important in influencing powerful stakeholders.
Intervention is required for the group of stakeholders included in this category, i.e.
taking courses of action to ensure that their level of interest does not change.
Participation and involvement is necessary, as these are the key players of the
organisation. Strategies adopted by the organisation should be acceptable to them. If
they are unsatisfied, they could even stop the management plans.
When managing the new venture, the entrepreneur should give due consideration to
human resource management. Human resource management includes all activities that
managers engage in to attract and retain employees and to ensure they perform at high
levels and contribute to the accomplishment of organisational goals.
Strategic human resource management is the process by which managers design the
components of the human resource management system to be consistent with one
another and with the organisations strategy and goals.
The objective of strategic human resource management is the development of the
system so that it enhances an organisations efficiency, quality, innovation and
responsiveness towards customers.
2. Opportunity evaluation
Once entrepreneurs have developed the idea(s) for the new ventures, they must
begin the process of assessing whether or not the idea is in fact a viable business
Opportunity.
This is the step where you ask the question of whether there is an opportunity
worth investing in.
Once you have decided on an opportunity, you need a plan for how to capitalize
on that opportunity. A plan begins as a fairly simple set of ideas, and then
becomes more complex as the business takes shape.
In the planning phase you will need to create two things: strategy and operating
plan.
You must create a thorough business plan. Within your business plan, you must
clearly identify your businesss goals. A well-defined business plan will steer the
business in the right direction and will increase the chances of having a
successful product launch.
4. Marketing launch
5. Implementation
6. Growth
After launch, the company works toward creating its product or service,
generating revenue and moving toward sustainable performance. The emphasis
shifts from planning to execution.
7. Commercialisation
Knowledge
Opportunity is a situation in which new products, services or methods can be offered at
a profit. To exploit an opportunity, it becomes essential to identify it before rivals.
Opportunities display positive trends in the external environment, which can be
exploited to gain competitive advantage over rivals.
Opportunities occur:
When there is a mismatch between demand and supply of products and services;
When there is a gap in the market;
When a problem can be solved by the application of new methods;
When applying new technology and innovative methods.
An entrepreneur can work on an opportunity when such opportunity matches his skills,
interests, talents and capabilities. A SWOT analysis could enable the entrepreneur to
determine the strategies to be used for the entrepreneurial venture. After having
performed the SWOT analysis, strategy will attempt to achieve the following.
Internal forces
External forces
Opportunities
(O)
Threats
(T)
Strengths
(S)
SO strategies
Ways to use strengths to
grasp opportunities
(Matching)
Weaknesses
(W)
WO Strategies
Attempting
to
take
advantage
of
opportunities
by
addressing weaknesses
(Converting)
ST Strategies
WT Strategies
Ways to use strengths to Defensive strategies to
neutralise threats
minimise
weaknesses
(Remedy)
and threats
(Remedy)
Once the opportunities have been identified, the entrepreneur should decide as to
whether to act upon it or not. If he decides to act upon such opportunity, it will be
essential to narrow it down to the most profitable customers.
When exploiting an opportunity, the following should be taken into consideration:
Observe and study the action you plan to make;
Ensure that opportunities are in line with your business objectives and goals;
Ensure that your interests, skills and capabilities match the opportunity.
To obtain the maximum benefit from the opportunities available, it would be much vital
to monitor the actions of competitors so that you could identify the areas where they do
not operate as well as their target customers and evaluate whether such customers
could be potential customers to your business.
Diagramme- Taking advantage of new opportunities
Monitor your
competitors
Looking for
changes that
require the
need for
new product
or service
Obtaining the
advantage of
new
opportunities
Possibility of
working in
partnership
Look beyond
the present
market
Example- Opportunities
A SWOT analysis would enable to determine whether opportunities could be exploited
with the available strengths. The following is the SWOT analysis of Coca Cola:
Strengths
Best global brand
Largest market share
Strong marketing & advertising
Extensive distribution channel
Customer loyalty
Weaknesses
Focus on carbonated drinks
Negative public image
Massive debt levels
Failure in brands
Undiversified product portfolio
S
O
Opportunities
Growth in bottled water usage
Great demand for Nourishing food & drinks
Growth through acquisitions
W
T
Threats
Changes in customer preferences
Scarcity of water
Legal requirements
Competition from Pepsi
Activity - Opportunities
Identify the factors that affect the international business opportunities.
Answer
International business opportunities depend on a number of factors. In some countries,
it would be much easier to start up a business and continue than in others countries.
Further, flexible trade policies would enhance the process of buying and selling among
the willing parties. Economic growth is another important factor that affects
international business opportunities. A high economic growth would enhance the
purchasing power of buyers and increase the number of suppliers.
1.2.2 Challenges
Creating the appropriate environment is very important when designing and running an
enterprise. The enterprise should be designed in a manner that encourages the needs of
the environment as well as the entrepreneurial behaviour. When starting a new
entrepreneurial venture, the entrepreneur faces many challenges that have to be taken
into consideration when designing and running an entrepreneurial venture.
Knowledge
When starting an entrepreneurial venture, there may be several challenges to
overcome. Especially when moving from idea generation to implementation, the
entrepreneur face many challenges.
Challenges in designing
It requires lot of hard work in planning and conducting research on the
entrepreneurial venture;
It should have favourable access to capital, human and technological resources;
It involves high risks in terms of time, money and energy;
It is a time consuming exercise.
Challenges in running
Ability to handle the entrepreneurial experience
Management of cash and time
Creation of a conducive environment for the enterprise
Greater responsibility in managing the enterprise
Adaptation of an appropriate marketing strategy
Be aware of competitor's actions
Transforming a business problem into a business opportunity is a challenge for new
entrepreneurs.
Identifying a problem
Looking for a opportunity in the problem
Solution
Example- Challenges
When creating a new business venture from scratch, entrepreneurs face many
challenges, which include:
Activity- Challenges
Identify the global trends that exist around the world.
Answer
Social technologies shape both personal and work life of people all over. Companies
create and deliver value to their customers through social networks.
The use of smart machines and robots has brought an industrial revolution. Robots are
now positioned to perform the work of professionals.
Retaining control over knowledge and information becomes a major challenge due to
mobility of societies.
Financial systems require reforms and redesigning, as customers require alternatives,
businesses require new methods of financing and regulators require change.
Self confidence
Self belief
Self sufficiency
Motivation to achievement
Creativity
Hard work
Commitment
No entrepreneur holds similar personalities, which vary from one individual to another.
However, they should have important inbuilt personality traits if they are to succeed in
the industry. Such personality traits include ambition, being passionate and creative,
perspiration, optimism and leadership.
Looking for
opportunities
Being able
to handle
risk
Grasping
opportunities
Personal
behaviour
Perseverance
Strategic
thinking
Negotiation
Persuasion
Selling
Proposing
Time management
Creative problem solving
risk measurement and management
coping with uncertainty,
social networking
A highly uncertain and a complex environment create a challenge for individuals and
organisations to learn and enhance knowledge and understanding so that they could
build up confidence to tackle uncertainty.
In order to achieve this, you have to move from the narrow paradigm of
entrepreneurship to a wider notion of entrepreneurial behaviour (Allan Gibb, 2002).
Further, he stated that a conducive environment for entrepreneurship and learning
could be developed through stakeholders. Understanding the needs of each stakeholder
would reduce the transaction cost and increase the organisational efficiency that would
intern enhances the future of the organisation.
Example- Entrepreneurial behaviour
The act of creating something new leads to entrepreneurial behaviour. Creating a novel
product, bringing up innovative ideas, application of new methods and creation of a new
computer programme are examples of entrepreneurial behaviour. The desire for change
motivates trendsetters and there is great interest to be different and to change the
status quo. The key to innovation is the behaviour of entrepreneurs.
Entrepreneurial leaders possess certain leadership attributes. They would take the
initiative, risk, responsibility and demonstrate entrepreneurial creativity to set the
appropriate path for the organisation to succeed.
Sometimes leaders could also be considered as transformational leaders.
Transformational leaders see their role as inspiring and tend to motivate others
towards achievement of goals. It is said that only transformational leadership is able to
change team/organisational cultures and create a new direction.
A transformational leader can be an entrepreneurial leader, as he/she does not see
his/her relationship in terms of a trade where followers are rewarded in exchange of
their services rendered.
The entrepreneurial leader would try to maximise opportunities by applying:
Creative ideas to add value to the business operations
Innovative methods
Diagramme- Path-goal theory
Leadership style
Directive
Supportive
Achievement
oriented
Participative
Leader
effectiveness
Situational contingencies
1. Subordinate
Ability, experience
Self confidence
Locus of control
2. Environment
Task structure
Work group
Authority
As per the path- goal theory of Robert House, an effective leader is one who clarifies
paths through which followers can achieve task related and personal goals. Good
leaders therefore help people to progress along the path removing any barriers and
providing appropriate rewards for task accomplishment. Accordingly, House identifies
four styles of leadership as follows.
Directive leadership
It involves letting subordinates know what is expected of them, giving directions on
how to do tasks, who has to perform it, and scheduling the work to be done and
maintaining the standard of performance.
Supportive leadership
Ability in
identifying
opportunities
Ability to learn
fast within the
uncertainty and
complexity in
the environment
Entrepreneurial
leadership attributes
Ability to take
risk
Ability to
respond to
change
1.4.1 Culture
Culture is a system that shares values and beliefs and guides the behaviour of the
members of a firm. Entrepreneurial culture is important to guide the behaviour of
individuals. The culture begins from the first day on which the entrepreneur starts the
business. It is part of the organisational strategy, which helps it to meet the expectations
of stakeholders.
Knowledge
The culture of the organisation provides a clear vision of what the organisation is
attempting to achieve. The core culture of an organisation comprises values, beliefs and
taken for granted assumptions by the people in that culture. This would therefore,
determine why things are done this way. It could emphasise on values of performance,
excellence, innovation, social responsibility, integrity, customer service and team
working.
Stories
Routines and
rituals
Core culture
Heroes
Symbols
The observable culture is part of the culture that people see and hear when they walk
around the organisation as a visitor. It is the way people dress, how they arrange their
office, the cars they use, how they behave towards one another and how they address
one another.
Symbols
Symbols could include the use of language and other non-verbal expressions to
communicate important themes of an organisations life.
Organisation
Environment
Strategy
Culture filters
information
Information
Organisation
Environment
Strategy
Culture
limits
choice of
strategy
Culture is able to sort out and interpret important information of the environment.
Furthermore, it filters a variety of strategic choices.
Example- Culture
Novelis offers unique rolled aluminum products and is the market leader. The corporate
culture of Novelis guides all what the company does. The products of Novelis represent
the unique characteristics of their corporate culture. The corporate culture of Novelis
provides evidence on the value created for customers. Furthermore, the corporate
social responsibility towards the employees and society proves the same. Novelis
believes in continuous innovation in quality products for future success. The company
attempts to create leaders who would make that happen.
Activity- Culture
Identify the weaknesses that could exist in an entrepreneurial culture.
Answer
Inadequate motivation would lead to a poor entrepreneurial culture. Generating
financial returns should not be the only motivation for an enterprise. Apart from
financial success, the employees require other types of motivation to be proud of what
they do.
Lack of focus is another weakness that could exist within an entrepreneurial culture.
Such enterprises do not have and or do not follow a formal business plan. As a result,
the employees would not be aware of the priorities of the business and its goals.
Departmental autonomy would lead to a poor entrepreneurial culture. When
departments become independent from one another, employees of each department fail
to realise that they thrive to achieve a common goal.
Knowledge
An entrepreneurial culture is a system that shares values, attitudes, beliefs, norms and
expects every member to behave accordingly in case of environmental uncertainties
and competitor threats. Culture reflects the values of the entrepreneur and helps to
socialise the workforce of the business venture. Further, it teaches as to how the
business should deal with customers, how to treat each other, job responsibilities and
how to fit in and be a successful employee to the organisation.
For the culture to be entrepreneurial, the following have to develop within the entity.
Each individual of the organisation should be treated equally and trust should be
developed for the creation of a proper base for a sustainable corporate culture.
Health of employees
Effective communication
It is important to create an environment where the people could interact with each
other.
Allow employees to grow together so that they could share their knowledge and
learning;
Allow the culture to grow without trying to control it;
Employees should be appreciated and treated well. Politeness and friendly
atmospheres could make them feel that they are part of the organisation.
The organisation would have an efficient and a loyal set of employees. When the
employees are treated with respect, they tend to give their level best to the
organisation.
Example - Challenges
When creating a new business venture from scratch, entrepreneurs face many
challenges, which include:
Evolution
Revolution
Synthesis
Reapplication
Reapplication involves discovering how a new look could be given to previous methods.
Direction change
This is where the focus is changed on one direction to another.
Innovation could be in any form and deals with new product and process designs, production
methods and new ways of managing the firm. Innovation involves a lot of analysis.
Furthermore, innovation is now part of business strategy and entrepreneur should have
a strategic vision as to how the new venture would be developed.
Innovation helps to create more value by converting ideas into valuable products. For it to be
successful, the innovator should carefully look, ask, listen, and then analyse as to how
the innovation should address the available opportunity.
Knowledge
Learning could be facilitated through better relationships with stakeholders. It gives an
opportunity to the entrepreneur to learn from customers, suppliers, banks, peers,
competitors and the government. Furthermore, there are challenges related to the
entrepreneurial approach to learning.
Mini test
MCQs
1. Which of the following factor is not considered under the planning stage?
a.
b.
c.
d.
Answer
Correct answer - d
Only answer d is not taken into consideration under the planning stage. Gathering of
resources is considered at the beginning of implementation stage once the planning
stage is complete.
Answer
Correct answer - b
Answer b is an important factor in creating an entrepreneurial culture as it helps the
organisation to develop a sustainable corporate culture.
Answer
Correct answer - c
Statement c is not true as an entrepreneurial leader should have the ability to take
risks when developing, managing and enhancing the entrepreneurial venture.
Short questions
1. Explain the importance of developing a business plan.
Answer
A business plan is a document used by organisations to plan the specific details of their
activities. The main purpose of a business plan is to provide a clear direction as to what
the business intends to achieve over time.
Importance of a business plan:
Answer
An opportunity is a situation that exists or which we bring into existence or a situation
that could occur in the future. There are many opportunities in the market place and it
is essential to identify which opportunity would give us better results than the rest of
opportunities.
Following are some of the factors that could be taken into consideration when
identifying good business opportunities.
Required:
Assume that you are an external consultant to Tec Inc. and you are required to analyse
the key stakeholders of Tec Inc. and recommend strategies to be taken into
consideration with respect to stakeholder analysis.
Answer
The key stakeholders of Tec Inc. could be analysed with the use of Mendelows Power
interest matrix.
The trade union representative would have a great interest in the business with respect
to job security. Further, he would have high power due to his membership in the local
environmental council.
As the trade union representative has high power and high interest, he should
participate and involve in discussion and decision making with respect to the views of
both employees and the local environmental council.
The residents around Tec Inc. have high interest as the dumping of waste and garbage
to the environment has resulted in pollution. However, they have low power to affect
Tec Incs operations.
The residents should be kept informed through education and communication to ensure
that their interest does not allow them to gain power.
The customers would have high power as they could switch to other suppliers if they
are unsatisfied with the products of Tec Inc. However, it is unlikely that the customers
would have high interest in the activities of Tec Inc. as long as they are happy with the
quality and the price of the product.
The customers should be kept satisfied by communicating to them the future expansion
of the business and hence, how it would add value to product range. This would avoid
the customers taking more interest in the business activities even if they hear of any
pollution.
Stakeholders pay more attention to the following areas where businesses could behave
in an unethical manner.
Labour/employee issues
Environmental issues
Preservation of natural resources
Social responsibility is the need for an organisation to think beyond its immediate
shareholders when making decisions. It calls for organisations to maximise all the
positive impact on stakeholders while minimising negative impact.
An organisations approach towards social responsibility would be judged by the extent,
to which it makes:
Its economic duties - contribution towards GDP (Gross Domestic Product),
employment;
Its legal duties - being in line with the law of the land;
Its ethical duties;
Its philanthropic duties - donations and social welfare
Economic
factors
Political
factors
Cultural
factors
Consumer
behaviour
Business
behaviour
Environmental
factors
Consumer behaviour
This refers to the way in which consumers act when purchasing goods or services. It is
difficult to predict consumer behaviour as it is influenced by cultural, social,
psychological and personal factors. Cultural factors include values, beliefs and
preferences while social factors include activities and beliefs of family and other
reference groups. Motivation, beliefs and attitudes come under psychological factors
and finally occupation, lifestyle, age fall under personal factors.
It becomes essential to understand the buyer behaviour to cater to the market.
Businesses should find out why, how, when and on what conditions consumers
purchase their product or service. According to the buyer, business behaviour has to be
adjusted.
Cultural factors
Culture consists of shared values, beliefs and attitudes and guides the behaviour of
individuals. Culture would influence the way customers think and behave. Therefore,
businesses should behave in a manner that is accepted by the particular culture of that
society.
Economic factors
Economic conditions differ from one country to another. For example, when there is an
economic recession in a country, businesses would not focus on luxury needs. Rather
they would try to offer basic needs at a reasonable price. Changes in interest rates,
inflation and wage rates also affect business performance.
Political factors
Political factors would facilitate certain industries while discouraging some others.
Political instability would discourage business persons to engage in business activities.
For businesses to flourish, political stability is necessary. Some governments would
bring favourable policies to encourage certain industries. For example, a policy could
discourage imports in a bid to protect local business activities.
Environmental factors
Natural resources are a significant factor in determining business behaviour. For
example, an entrepreneur would build a hotel where there is natural beauty. Thus, it
becomes important to know about the environmental trends to make business
decisions. Environmental factors affecting businesses could be either internal or
external. Internal factors could be leadership, culture of the organisation and
manufacturing. However, these internal factors are within the control of the entity when
compared to the external factors like resources in the economy, political stability of the
country, social environment, government rules and regulations and actions of
competitors.
Developing strategic courses of action and contingency plans to be prepared in case the
scenarios materialise.
Benefits of
increased
national
productivity
Improves
business
profis
Contributes to
social and
environmental
programms
Management competence
To obtain a competitive edge over rivals, it is vital to have a competent management.
Moreover, corporate entrepreneurship is also essential in enhancing organisational
performance as entrepreneurial activities help the firm to come up with innovations,
products and methods.
For the management to be competent, new knowledge and skills have to be learnt and
the policies of the organisation should encourage innovations. Technical, human and
conceptual skills are essential to be competent.
Any organisation could acquire or develop resources and competencies over time.
However, those who already possess it would have a competitive advantage over
others. Thus, strategy should now be developed taking into account those existing
resources and competencies. Organisations should ideally look for environments in
which they could stretch their resources and competencies. This could also refer to an
inside out view.
Carl Zeiss has competencies in lenses helping them to move into markets such as
cameras and eyewear.
Vital resources include natural resources, human resources and capital as they are
required for production of goods and services. Labour productivity is one way in which
productivity could be looked into. Labour productivity is the measure of output
produced per worker. The worth of a worker could be measured by taking into
consideration the amount of output produced by each worker. There is a direct
relationship between the productivity and the real wage of workers. Productive labour
leads to higher wages and higher standard of living. In mature economies, a high
standard of living mainly comes from the improvements in labour productivity.
4. Human resource is an important element for any organisation. Explain the meaning
of human resources and the methods used in the training and development.
Answer
Training focuses on acquiring knowledge and skills in order to achieve specific goals. It
helps employees perform their current jobs better. Development is about enhancing
potential so that employees could undertake future challenges.
Methods used to train and develop human resource include:
Workshops
Seminars
Special assignments and projects
Class room lectures and short-term university courses
Mentoring
Simulations
Apprentice programmes
Knowledge
Workforce productivity could be measured for any organisation, process, country or
industry. It refers to the amount of goods or services produced by a worker in a given
amount of time. Organisations face productivity issues that have to be tackled on time as
ignoring them could lead to a closure of the business.
Personal
issues
Insufficient
equipment
Productivity
issues
Use of
internet
Absentiesm
Employee personal issues - Employees could have many issues such as legal issues,
which could affect workforce productivity as they find it difficult to concentrate on their
work. The workers facing such issues would not be in a position to give their level best
to the organisation. Workers who have cash problems might even try to steal the
companys assets to solve their issues.
The use of the internet and email during office hours - Personal usage of internet and
email could cause productivity issues. Hence, adequate policies should be implemented
on the usage of email and the internet and disciplinary action should be taken in the
case of misuse.
Absenteeism - When employees are absent, the organisation is unable to perform its
activities as scheduled, which would affect its productivity and profitability. Getting late
to work and taking breaks could also lead to drop in productivity.
Equipment - Inadequate tools and equipment would make it difficult for workers to
perform their work accurately. For example, there could be breakdowns and delays.
Prioritisation of work would assist in focusing on the most urgent tasks first.
Preparing of a file organisation system and having a back up of all the work.
Minimising the frequency of checking emails.
Organic Growth
Organic growth is also known as internal development. It is a primary method of growth
for many organisations and is achieved through the development of internal resources.
Reasons for pursuing organic growth include:
Learning
The best understanding of the product and the market could be gained by engaging in
the process of developing a new product.
Innovation
This might be the only sensible way to pursue technological innovations and exploit
them.
Non-availability of a suitable target for acquisition
Organic growth could be planned meticulously.
Convenient for managers as organic growth could be financed from the
companys current cash flows, without raising extra money.
Same style of management and corporate culture could be maintained.
However, there are problems with organic growth as it takes a long time to descend a
learning curve. In addition, barriers to entry would be harder to overcome. For example,
a strong brand image has to be available. Further, an organisation has to acquire the
resources independently and organic growth may be too slow for the dynamics of the
market.
Organic growth is more appropriate for market penetration, product or market
development.
Acquisition
Acquisition could be considered as a corporate action where the company buys in the
ownership stake in the target company. Acquisitions are paid in cash, acquiring the
companys stock or by a combination.
Acquisitions could be friendly or hostile. In the case of friendly acquisitions, agreements
for the acquisition are explained to the target company and in hostile acquisitions, it is
not necessary to have the same agreement and the acquiring firm tries to obtain a large
stake for obtaining a majority stake.
Mergers involve the combination of two or more companies with the intention of
forming a new company. Both mergers and acquisitions are important aspects of
corporate strategy, corporate finance and management.
Joint venture
Joint venture involves a business arrangement where two or more people pool their
resources with the intention of achieving manufacturing, marketing and financing
objectives. Each has a share in equity and management of the business.
Even though joint venture provides a great opportunity to share skills, knowledge and
reduce risks, it has distinctive challenges.
Sharing of costs
Capital would be shared among firms. Hence, new technologies could be
researched.
Risks are shared.
Marketing and other operations can be closely controlled and monitored.
If there is an overseas joint venture, local knowledge can be gathered quickly.
Synergies could be obtained.
For example, the other companys better marketing and distribution facilities
could enhance the acquiring companys production expertise.
Financial factors, e.g. the debt in third world countries could be taken into
consideration. Lenders require the initiation of economic reforms as a condition
of the debt.
Alliances between countries/continents that promote trade and tourism
Legal factors - Trademarks and patents to uplift the development of technology
Trading international commodities in stock markets
Exploitation of natural resources, labour and damaging the traditional cultures are
some of the criticisms against multinational companies.
There are advantages as well as disadvantages regarding multinational companies. The
operations of multinational companies in the host country would increase income,
employment and investment levels. Through multinationals, the country gets the
opportunity to adopt the latest technology, management expertise and increases
domestic traders and intermediaries.
Further, it provides support in improving industries, foreign exchange and helps the
country to be more competitive. Growth of multinationals in the host country also leads
to an economic development and improvements in the balance of payment.
The possibility of transferring obsolete technology to the host country could be a threat
to the economic and political sovereignty. It could also be a monopolist in the domestic
market which uses natural resources of the host country excessively. There would also
be a cash outflow to foreign countries in terms of profits, dividends and royalties.
Transfers of technology
Increasing competition in the domestic market
Human capital development
Inward foreign direct investment also leads to employment and job creation.
Protectionist measures are incorporated to restrict competition and include:
Quotas on the number of items to be imported
Import bans
Restriction on foreign ownership of certain industries
Tariffs
Transfer of technology is in the form of different inputs that cannot be obtained by
financial investments and trading goods and services.
Human capital development - Foreign direct investments provide employee training to
operate the new business.
Global Trends
Demographics shifts
Global employers face the challenge that, despite a growing global population,
they will soon have to recruit from a shrinking workforce due to an aging
population.
As the world recovers from the worst recession in decades, the rise of
relationships between the public and private sectors has shifted the balance of
global power faster than most could have imagined just a few years ago.
Mini Test
MCQs
1. Social responsibility is judged by the extent to which the company makes its:
a.
b.
c.
d.
Answer
Correct answer - d
An organisations approach towards social responsibility is judged by the extent to
which it makes its economic, legal, ethical and philanthropic duties.
Short questions
1. Explain the importance of environmental scanning.
Answer
Environmental scanning refers to the macro environment and it deals with political,
economical, social and technological factors that affect business performance, industry
and the market. Environmental scanning becomes imperative due to the following:
Answer
The political and legal environments include common law and government
regulations. Under legal factors, the legal framework becomes important as it
states the basic ways of conducting business, negligence proceedings,
employment law, health and safety regulations, environmental and tax laws.
Economic factors include inflation, exchange rates, interest rates, tax levels and
economic trends.
Required:
Assume that you are an external consultant to Furnish Inc. You are required to highlight
to the board, the key external factors that would affect Furnish Incs decision to explore
the Asian market.
Answer
An external environmental analysis would assist Furnish Inc. in understanding major
external factors that would affect its strategic direction. The company could use the
SLEPT framework that focuses on social, legal, economic, political and technological
factors that would affect its operations.
Social
Furnish Inc. has to look into the population trends and its composition to identify the
market requirements. Further, the occupation and lifestyle of people could affect the
demand for furniture.
Legal
Employment laws, governance and safety standards are vital to be taken into
consideration by Furnish Inc. before entering the Asian market.
Economic
Economic cycles, inflation, unemployment, interest and exchange rates, trade barriers
are key factors to be considered by Furnish Inc.
Political
Political stability, political ideology, economic and government policy would affect the
entire economy. Further, government policies should provide a framework to support
businesses.
Technological
Emerging technologies, technology diffusion, and technology transfers would have an
impact on the overall growth in the economy. Technology could result in cost efficiency,
improved productivity and new product development.
Policies are general in nature, identify rules of the venture, explain why it exists, when
they apply, to whom they are applied and the consequences.
Benefits of having documented policies:
They enable the organisation to carry out business operations smoothly;
They provide a better understanding of roles and responsibilities.
They help in reducing the overall risks of the organisation.
They help employees to behave ethically as they set out clearly the guidelines
and directions.
As the environment we live in is rapidly changing, we need to clarify when a policy
requires a change. To guide the operational decisions, policies should be changed
accordingly.
The following should be taken into consideration as policies should respond to new
realities, risks and opportunities:
Where people live
How income is earned
Use of natural resources
Demographic and social trends
Changes in technology
Changes in the economy
Persons initiating a policy should know the right time to review, develop and formulate
the policy. For a policy to be successfully implemented, it requires leadership skills and
expertise. The policy development process can fail if complex social, economical and
political dimensions are not understood.
Example - Policies
Organisations use purchasing policies to describe the principles that should be followed
through the purchasing process to avoid negative effects. Purchasing activities must be
carried out above a certain value to minimise wastage and standardise the purchasing
process.
The health and safety policy of McDonalds clearly specifies that the business should
commit itself towards creating a healthy and safe environment to work. McDonalds
attempts to ensure all employees have the same commitment to build a healthy and safe
environment to work. The employees are taught about accountability for safety. The
managers of McDonalds are accountable to create a safe environment within the
restaurants. They are required to undergo McDonalds safety training and be familiar
with the Health and Safety Act.
Activity- Policies
Identify the disadvantages of organisational policies.
Answer
Policies require a lot of time and effort to design and execute. Moreover, the employees
may perceive that the organisation is bureaucratic. Designing and implementing of
policies are a costly process.
Knowledge
Government policy can be defined as a course of action taken to change a particular
situation. The government uses policies to tackle many issues. When the government
creates policies, it could have an impact on certain individuals, businesses and
industries.
Every government has a tax policy to raise revenue. Such policy could affect businesses
as it affects costs. Environmental taxes and administration of VAT will bring an
additional cost to business entities. Further, monetary and spending policies of the
government affect businesses as well as consumers.
Political policies also could bring changes by varying certain laws. It requires businesses
to respond to such changes. Legal changes include creation of a minimum wage rate to
offer more facilities to disabled employees in the organisation and providing more
protection for consumers.
Changes
in tax
policy
Changes
in
regulatory
policy
Promoting
Entrepreneurship
and small
businesses
Access to
capital
Legal
protection
Taxation policy
Taxation policies are used to raise government revenue. Taxation raises business costs
and discourages entrepreneurs and small business ventures. Therefore, it is essential to
have a balance between the objective of raising revenue and promoting
entrepreneurship.
Access to capital
Stating a new business venture requires huge amount of capital, and hence government
should provide support for finding money for start-ups.
Legal protection
It is imperative for the law to protect intellectual property to help entrepreneurs to
thrive. Innovations should be protected through copyrights, patents and trademarks.
Regulatory policy
The regulatory process should be simple to encourage and expand small businesses.
Employee protection
Governments may enact various legislation for the protection of employees such
as, Employee Discrimination law, Employee Rights law, Health and safety law etc.
Customer protection
The government is responsible for creating marketplaces that are fair, efficient
and competitive for producers, traders and consumers.
It is also responsible for the safety of food products. This includes food labelling
and advertising.
Governments can make strict rules and regulations that rectify the unfair trade
practices and protect consumers. Governments can inform the customers about
their rights.
Environment protection
Taxation
Investor protection
Contract enforcement
The Unfair Contract Terms Act 1977 (c 50) is an Act of Parliament of the United
Kingdom which regulates contracts by restricting the operation and legality of
some contract terms. It extends to nearly all forms of contract and one of its most
important functions is limiting the applicability of disclaimers of liability.
Market Catalyst
The government can implement a policy that changes the social behavior in the business
environment.
Political Stability
Government policy will always depend on the political culture of the moment. Policy
crafted in a politically stable country will be different that formed in an unstable
country. A stable political system can make business-friendly decisions that promote
local businesses and attract foreign investors. Unstable systems present challenges that
jeopardize the ability of government to maintain law and order. This has a negative
affect on the business environment.
Government Spending
Governments get money to spend from taxation. Increased spending requires increases
in taxes or borrowing. Any tax increase will discourage investment, especially among
entrepreneurs, who take the risks of starting and managing businesses. Increased
spending also eats into the limited pool of savings, leaving less money for private
investment. Reduction in private investments shrinks production of goods and services.
That, in turn, may lead to the elimination of jobs.
Interest Rates
Government policy can influence interest rates, a rise in which increases the cost of
borrowing in the business community. Higher rates also lead to decreased consumer
spending. Lower interest rates attract investment as businesses increase production.
The government can influence interest rates in the short run by printing more money,
which might eventually lead to inflation. Businesses do not thrive when there is a high
level of inflation.
Regulations
Trade regulations, the federal minimum wage, and the requirements for permits or
licenses have effects on business. For example, periodic health inspections must be
carried out in all restaurants. Regulations and laws on HR aspects may also prove to be
costly for businesses. Businesses might spend a lot of money and time to comply with
regulations that ultimately prove to be ineffective and unnecessary. Fair and effective
regulations, however, promote business growth.
They help the firm to perform its activities towards the achievement of its
mission.
They can be used as standards for measuring the firms performance.
There are primary and secondary corporate objectives that should be combined for the
achievement of overall corporate objectives.
For example, if the firms primary objective is to increase profits, then it will have to
come up with strategies that support its primary objectives. Once the strategies are
developed, objectives have to be set for each individual strategy. Secondary objectives
could be concerned with increase in sales, technological innovations, customer service,
product quality and better resource management.
Specific
Time
bounded
Measurable
Objectives
are:
Resultsoriented
Attainable
Profitability
Earnings per share
Growth
Customer satisfaction
Cash flow
Market share
Quality
Profit as an objective
Accountants and economists may interpret profits in different ways. For economists,
cost includes normal profit. Normal profit is the opportunity cost of entrepreneurship.
Opportunity cost is the amount of profit an entrepreneur could earn elsewhere.
Accounting profit is the difference between sales revenue and explicit costs of the
business. Explicit costs are clearly stated and recorded. However, in the case of
economic profit, it considers the difference between sales revenue and both explicit and
implicit costs. Implicit costs are benefits foregone for not utilising the factors of
production in their next most profitable way.
Apart from maximising profits, any firm could have alternative objectives such as
enhancing the growth of firms by increasing sales and market share, to maximise
welfare and achieve its mission.
Profit maximisation
Profit maximisation is one of the objectives of many firms and it focuses mainly on
profits. When concentrating only on profits, there is a tendency for the firm to utilise its
resources without taking into consideration the risks involved.
Profit maximisation is a short-term concept. Focusing only on profits is not good, as you
will have to forego investment opportunities. Sometimes this would affect the goodwill
of the company as well. In order to maximise profits, the firm has to increase the usage
of the input up to the point where the marginal revenue equals the marginal cost.
When Marginal revenue > Marginal costs (at a given output level), higher
quantity can be produced as marginal profit is positive.
When Marginal revenue < Marginal costs (at a given output level), lesser quantity
is produced as the marginal profit is negative.
When Marginal revenue = Marginal costs, marginal profit is zero and this is the
quantity that maximises the firms profits.
Revenue maximisation
Organisations having the objective to maximise revenue tend to focus only on revenue,
ignoring the costs involved in making the product and marketing it. Organisations
would try to produce more until marginal revenue is equal to zero.
However, growth maximisation social concerns and improving productivity could be
other objectives that may be taken into consideration by organisations.
Government from time to time brings changes to policies that could have an impact on
the objectives of organisations.
Corporate
strategy
Business strategy
Functional strategy
Corporate strategy is more concerned with the long-term direction and deals with the
organisations overall purpose and scope. Further, it considers how value will be added
by different parts and includes:
Scope of activities
Scope of activities includes the impact of strategy and strategic management
impact on the entire organisation. Business operations should support the
strategic plan.
Environment
Under the aspect of environment, the firm should counter threats and exploit
opportunities.
Resources
This includes decisions about obtaining and allocating corporate resources.
Values
Value systems of people with power would influence the strategy of the firm.
Timescale
Corporate strategy will have a long-term impact.
Complexity
Complexity involves uncertainty about the future.
Business strategy
Business strategies are made at the strategic business unit level, which is a part of a
business and which has its own distinct external market for goods and services different
from other strategic business units. Managers in charge would be responsible for
winning customers and beating rivals in their chosen markets. Decisions could include
new product development, distribution, pricing, staffing, etc.
Strategy made at this level would normally include generic strategies of cost leadership
or differentiation or focus. These could be followed to create a competitive advantage.
A competitive advantage gives enables a firm to generate long-term sustainable
economic profit.
Generic strategy
Porter argues that a firm could use a generic strategy to position itself against the five
forces and in the process earns economic profits. The word generic is used to describe
the strategies any firm in any industry could follow.
According to Porter, the firm should choose amongst three potentially successful
generic strategies without an attempt to mix them. Doing so causes the firm to become
Stuck in the middle which is a recipe for below average performance. Each strategy
requires different organisational arrangements, resources, leadership styles, systems
and processes. Rarely is a firm suited to implement all strategies together. The
strategies are:
Cost leadership
A firm willing to be a cost leader attempts to be the lowest cost producer in the
industry. Such companies should aim at volume production and economies of scale
offering a no frill product, operating in related industries and locating close to sources
of supply.
Differentiation
This involves creating a product or service considered unique in the minds of buyers for
which they are willing to pay a premium. This be on the lines of design, quality,
packaging, after sales, customisation, attributes and features.
Focus
This includes a companys choice to cater to a broad range of segments or a few.
Competitive advantage
Lower cost
Broad
Differentiation
Differentiation
Cost focus
Differentiation focus
Competitive scope
Narrow
Functional strategy
It is at the functional level that strategy is implemented. The functional strategy looks at
how the individual business functions such as human resources, marketing and finance
contribute towards the business strategy.
Example - Levels of strategy
Under the corporate level strategy, organisations could decide as to how business units
could be managed and governed either through centralisation or decentralisation.
Cost leadership, differentiation and focus could be applied at the strategic business unit
level. A firm could decide to differentiate its products by adding unique qualities.
Product differentiation can be done by packing the goods in a creative manner.
The functional strategy of a company helps to review operational income and determine
the amount that should be re-invested in the company by providing guidelines. The
functional strategy also helps the finance department to make decisions on the capital
structure.
Competitive advantage
Lower cost
Differentiation
Broad
Competitive
scope
Narrow
Competitive advantage
Lower cost
Broad
Competitive
scope
Narrow
Differentiation
TATA
Maruti
Kia/Hyundai
BMW
Audi
Mercedes
Ambassador
Proton
Ferrari
Aston Martin
Morgan
Rolls Ryle
The diagramme depicts how companies in the automobile industry make use of
generic strategies in the market.
TATA, Maruti and Kia/Hyundai follow an overall cost leadership within a broad
competitive scope while Ambassador and Proton follow an overall cost leadership
within a narrow competitive scope.
BMW, Audi and Mercedes follow a differentiation strategy within a broad competitive
scope while Ferrari, Aston Martin, Morgan and Rolls Ryle follow a differentiation
strategy within a narrow competitive scope.
A niche market seems to be more secured and helps the firm to protect itself
from intense competition.
The firm does not spread itself too thinly.
Disadvantages
The firm would have to forego economies of scale, which would have been
achieved if a wider market were served.
There is a possibility of competitors moving into the segment with better
resources.
The needs of the segment could be less distinct from the major market.
3.3.2 Strategies
Strategy is a course of action including specification of resources in order to achieve a
desired outcome. Businesses should consider economic fluctuations and political factors
as they can affect their strategies and policies.
Knowledge
Strategy is a course of action including the specification of resources required to meet a
specific objective.
Mintzberg sees strategy as 5Ps.
Plan
Perspective
Ploy
Strategy
as a
Pattern
Position
Strategy as a plan
This includes a rationale, well-conceived course of action.
Strategy as a ploy
Ploy includes actions initiated to defeat or bring down competitors in the market place.
Strategy as a position
Strategy is used to position or help the firm achieve a fit with its environment.
Strategy as a pattern
This is the idea behind emergent strategy where strategy could be seen as incrementally
developing from another.
Strategy as a perspective
A perspective is a viewpoint of how a person sees something. This could vary from
person to person. Strategy is influenced by perspective. This implies that strategy is
unique.
Provides resources
Competitive
strategy
Provides
cashflows
Investment and
resource strategy
Financial strategy
Provides finance
Competitive strategy
This is concerned with how a firm attracts customers, what it produces and sells, what
markets it operates in and how it defeats rivals.
Financial strategy
Financial strategy considers the finances to raise, durations, amounts, hedging risks,
dividend policy, capital structures, etc.
Strategic lenses
Jhonson & Scholes argue that something as complex as strategy should be viewed from
different perspectives. If one were to look at strategy development as a process through
different lenses, alternative definitions of strategy can emerge.
Design lens
Since the organisation monitors its resources and the environment, it is kept
aware of the strategic issues being developing.
Competitive strategy
CSF 1
CSF 2
CSF 3
CSF 4
KPIs
KPIs
KPIs
Industry trends
rival information
resource requirement
financial markets,
government regulations
demographic information,
corporate financial performance indicators
internal operations related data, etc.
Select the pricing objective that is the overall pricing goal for the firm.
Determine the demand, for which the price elasticity of demand is vital.
Estimate costs. This includes the fixed and variable costs. However, the cost of
manufacturing the product will decline when workers gain experience.
Analyse competitors costs, prices and offers.
Select a pricing method.
Select the final price.
Approaches to pricing
Psychological pricing
Many customers use prices to measure the quality of products. As such, marketers
attempt to use prices to have a psychological effect on customers. However, if
information with respect to quality is available, the price will be an insignificant factor.
Value pricing
This approach is adopted when the external factors force the firm to produce value
added products to maintain sales.
Promotional pricing
This is where pricing is done to promote the product, e.g. the firm may offer discounts
or follow the buy one and get one free concept.
Quality
Low
High
Low
Economy
Penetration
Price
High
Skimming
Premium
Premium pricing This could be used when the firm has a unique brand. This
strategy is adopted when the firm has a competitive advantage over its rivals.
Penetration pricing - The price is set low to gain market share. Once it is
achieved, the price would be increased.
Price skimming In skimming, the firm charges a higher price for having a
competitive advantage. However, due to high prices, there would be new
entrants to the market and the price would eventually come down due to
increase in supply.
The pricing strategy should set the right price for the organisation. Setting high prices
would also make customers not to buy the product if they feel that the company is
trying to exploit them. Therefore, the firm has to set the correct price by analysing the
markets and testing different pricing options.
Strategic pricing is important as it helps the growth as well as the profitability of a
company. Strategic pricing considers as to how pricing could drive profits and heavily
invests in advertising, brand building, research and development.
Strategy of advertising
An advertising strategy becomes important when promoting a firms products. The firm
has to decide on the appropriate marketing communication strategy to be followed by
the firm.
When developing an advertising strategy following should be considered.
Segmentation
Targeting
This is where the firm communicates with the right segment. The methods of
communicating have to be in line with the firms marketing objectives. The methods of
marketing communication include:
Positioning
The firm attempts to create a good image by positioning itself in the market. For this
purpose, branding could be used. Competition in the market place has to be considered
and must highlight on the uniqueness of the firm from other competitors.
Delivering a message
The firm has to develop a message to attract the target audience. Moreover, the
advertising objectives have to be linked to the firms marketing plan.
Advertising strategies could be weak, middle-strength or strong. When developing weak
strategies, product attribution is taken into consideration. Middle strength strategy
involves adding of a unique element to the average product.
Advertising gives the following benefits to a company.
It helps the public to realise that the company is in business and the types of
products and services offered.
Advertising brings new customers and helps to retain existing ones.
Special sales and promotional activities could be informed to customers.
It creates confidence in customers about the company.
It improves product sales.
It could change the attitudes and buying habits of customers.
It has the ability to communicate directly to the customer.
It facilitates economic progress.
When profits and revenue are declining, the firm could develop a product diversification
strategy where a new product is offered to a new market.
Product development is crucial for any organisation. Organisations have to perform this
task right as it could hinder their performance if not performed correctly. Improper
investments and improvements to products would always keep the company behind the
competitors.
Example- Strategies
Apple Inc. saw their stock prices going up by more than 80% in 2012. In that year, the
companys most successful product was the iPad thanks to the following product
strategies.
Listening to customers
This strategy helps the company obtain customer opinion about the companys
product and improvements to be made as per customer demand. The new iPad
addresses customer concerns that had been expressed since the initial launch in
2010.
Activity Strategies
1. Explain the meaning of emergent strategy.
Answer
According to Mintzberg, only a few of the strategies followed by firms in the real world
are concisely planned as the rational planning model suggests. According to him, the
actual strategy followed is a combination of the planned intended strategy and
emergent strategy.
Emergent strategies are patterns or consistencies realised despite or in the absence of
intentions. They happen along the way and are more adaptive to environmental
conditions.
2. What are the factors to consider when funding strategic business units?
Answer
The degree of business risk of the strategic business unit is vital. If the risk is
high, high levels of debt should be avoided as volatile cash flows could make it
difficult to service debt interest.
Cost of financing
The current level of gearing
Payback period: For example, if a particular strategic business unit is expected to
generate cash flows only in ten years time, the most appropriate funding should
be equity or ten year zero coupon bonds.
Trends in the industry
Expected movements in the yield curve
3. What are the strategies that an organisation could follow to meet the challenges
in the market?
Answer
Pricing strategies
Manufacturing cost reduction strategy
Product expansion strategy
Product innovation strategy
Distribution innovation strategy
Improve service strategy
Intensive advertising strategy
3.4 Alliances
Alliances involve the combination of resources and forces to achieve a common goal
within a specified or indefinite period. Strategic alliances help to achieve strategic goals
by bringing together the different strength of the firm. It also provides better access to
technology and information. On the other hand, it helps to expand the operations
without increasing its size.
3.4.1 Corporate alliances
In a dynamic and uncertain environment, there is a greater importance for cooperation
and collaboration among firms to work together to achieve their strategic goals.
Strategic alliances are formed between two or more companies for synergy purposes.
Knowledge
In an alliance, two or more firms work together for mutual benefit. No separate entity
may be created and the firms come from a common industry.
Strategic alliances
Help to achieve strategic goals by bringing together the strength
Give better access to technology and information
Help to expand the operations without increasing its size
Diagramme - Alliance formation process
1.
2.
3.
4.
5.
Strategy development
Partner assessment
Contract negotiation
Alliance operation
Alliance termination
Strategy development
Strategy development focuses on feasibility, goals, objectives and the rationale behind
the alliance. Strategies are developed for challenges, issues and other resources.
However, alliance objectives have to be in line with corporate strategy.
Partner assessment
Partners are assessed in terms of their strengths and weaknesses. Strategies should be
able to accommodate partners management styles. The right partner has to be selected
for the right task. Resource gaps should also be identified.
Contract negotiation
All parties must have attainable objectives and involve in the formation of negotiating
teams where each partners contribution, rewards and penalties for bad performance
are clearly stated.
Alliance operation
Senior management commitment and dedication are considered. Budget and the actual
performance are compared and rewards for satisfied alliance performance are offered.
Alliance termination
An alliance is terminated when the desired target is achieved or when partners are of
the view that the business goals cannot be achieved.
Managers must attempt to acquire scarce managerial resources and apply them
skillfully. In addition, these resources have to be in line with the managerial
environment.
Joint venture
This is a collaboration between two or more parties creating a separate entity where
the parties may jointly own equity. This could even be from different industries.
This is where two or more firms own different percentages of the company formed.
Mini test
MCQs
1. Mintzberg sees strategy as:
a. Plan, ploy, position, pattern and perspective
b. Plan, ploy, procedure, pattern and perspective
c. Ploy, pro-active measure, position, pattern and perspective
d. Plan, position, policy, pattern and perspective
Answer
Correct answer - a
Mintzberg sees strategy as the five Ps - plan, ploy, position, pattern and as a perspective.
Answer
Correct answer - b
Emergent strategies are patterns or consistencies realised despite or in the absence of
intentions.
3. The correct sequence of steps involved in pricing a new product includes
a. Setting the objective, determining the demand, analysing environmental factors,
calculating cost, determining the pricing method and final price
b. Determining the demand, setting the objective, analysing environmental factors,
calculating cost, determining the pricing method and final price
c. Setting the objective, determining the demand, calculating cost, analysing
environmental factors, determining the pricing method and final price
d. Determining the pricing method and final price, analysing environmental factors,
determining the demand, calculating cost, determining the pricing method and final
price
Answer
Correct answer - c
When pricing a new product, the correct sequence of steps involved is setting the
objective, determining the demand, calculating cost, analysing environmental factors,
determining the pricing method and final price.
Short questions
1. What factors should be taken into consideration in developing a human resource
policy for a new business venture?
Answer
A human resource policy provides guidelines for the behaviour of employees within the
organisation. When developing a human resource policy, the following have to be
considered.
Required:
You are required to advise as to how the objectives of Oil Max should be revised to
support privatisation.
Answer
Before the privatisation, Oil max was continuously committed to supply oil at
reasonable prices to the country. However, the company should now focus on the needs
of its shareholders and attempt to maximise shareholder value. During its monopoly
years, the government intervened regarding the oil price, which is not the case
anymore. Therefore, Oil Max has no commitment to supply oil at reasonable prices but
to do its business profitably.
In order to maximise shareholder wealth, Oil Max should manage its cost and resources
efficiently. If it does not focus on the inefficiencies that occurred, sooner it would have
an impact on the performance of the company which would consequently affect
shareholder wealth. Thus, it should set objectives with respect to costs and efficiency.
The directors of Oil Max should also focus on risk and growth prospects to attract new
investors. They should determine the resource requirements and the objectives as
appropriate.
Although Oil Max was committed to provide oil at a reasonable price before
privatisation, it should now provide oil depending on the prices customers would be
willing to pay. Hence, it should have a variety of product categories to cater to the
market.
1.
2.
3.
Data collection
Forecasting
Interpreting results
4.
5.
6.
Monitoring
Application
Application
Application involves applying the results of the analysis to the organisations
investment decision. For example, where do we get the best mix of economic growth?,
what investment would perform better in the current and future economic conditions?.
The importance of conducting an economic analysis:
To identify trends
To identify long-term opportunities
Helps organisations to take pro active measures
To identify fluctuations in economic drivers
Knowledge
Corporate performance refers to the operational activities of an organisation over a
time period. For any business venture, corporate performance management becomes
essential as it involves business acumen to monitor and manage the performance of
the venture based on key performance indicators (KPIs). KPIs include revenue, return
on investment, overhead and other operational costs.
Organisations have the opportunity to use Corporate Performance Management (CPM)
software to monitor performance as well as to gather corporate information.
CPM software provides:
Forecasting
Budgeting function
Planning
Graphical scorecards
Dashboards
Assets
and
liabilities
Intangibles
Corporate
performance
External
factors
Financial
management
Human
resources
Financial management
The way the finance is managed is important, as it brings value to the business. In order
to carry out operations smoothly, a firm should have adequate profits and cash flows. In
addition, it is important to control costs to avoid unnecessary expenditure.
Human resources
People are an important factor that contributes towards the performance of the
company. In order to perform well, it requires a skilled, knowledgeable and well-trained
set of staff. Therefore, human resource planning is vital for better performance as it is a
rational and logical approach to recruitment, retention, utilisation, improvement and
disposal of human resources.
To enhance corporate performance, the right quantity of people with the correct skills
and attitudes are required.
External factors
Interest rates in the economy and the demand prevailing in the market would also
influence the performance of a company. In addition, attention should be paid to
competitor actions, government rules and regulations.
Intangibles
Goodwill and the relationship built with stakeholders could have an impact on
performance, hence stakeholders should be managed for better performance.
The assets of a company would indicate how well the company is using it assets towards
the achievement of organisational goals. All the assets of the company should contribute
to the production and sales activities. In addition, the company should have the ability
to settle liabilities.
Through the gap analysis, a firm could find out whether it is meeting its expectations
and using resources effectively. Gap analysis helps to answer the following questions.
Gap
bridging
startegies
Efficiency
strategies
Intensive
strategies
Diversification
strategies
Once the gap is identified, gap-bridging strategies have to be developed and classified as
follows:
Through market penetration, the company would look to maintain or to increase its
share in the market, secure the dominance of growth markets, restructure a mature
market and increase usage by existing customers.
Product development occurs when the company launches new products in the existing
market. This strategy is riskier than market penetration and market development as it
requires huge investments in the new product development process.
Under market development, the company seeks new markets for its current products.
For example, offering different package sizes for food items so that consumers could
buy both in bulk and small quantities as per their requirements.
Diversification
This occurs when the firm decides to make new products for new markets. Further, the
company should have a clear idea as to what it intends to achieve from diversification.
Pros of gap analysis
It helps to rank goals and objectives as per the order of preference so that most
important objectives could be prioritised.
Ultimate objective
E.g. Sales volume (000)
Ultimate objective
150
GAP
125
Future projects
100
25
75
Current operations
50
Forecast
25
15.12.2013
T1
Time
To minimise the gap of 50,000units, the company should consider gap bridging
strategies.
Financial perspective
Customer perspective
Internal business
Innovative and learning
Financial
perspective
Innovative
and learning
perspective
Balanced
scorecard
Customer
perspective
Internal
business
perspective
The financial perspective considers as to how the company appears to its shareholders.
It would indicate whether the companys strategies, implementation and execution are
contributing to bottom line management and pays attention to shareholder value,
return on investment, etc.
The customer perspective views that the company has to identify customer satisfaction
as the main corporate goal and wants to find out as to how customers perceive the
company. Furthermore, attention is given to customer concerns such as time, quality,
performance and service.
Internal business perspective considers the business processes that have the greatest
impact on customer satisfaction. To achieve this performance measure, it must be
linked to employee behaviour. An information system must be in place to measure
performance.
Under innovative and learning perspective, the company asks the question as to
whether it could continue to improve and create value. While the customer and internal
process perspectives identify parameters for competitive success, the company needs to
learn and come up with innovations.
Pros of the balanced scorecard
When employees are adequately trained on the job, they would be satisafied with their
performance and that would enable them to perform their job process effectively. That
would help the organisation to generate a high quality product so that the customers
would be satisfied and that would result in increasing operating income and profits.
Liquidity ratios
Liquidity ratios measure the firms ability to meet short-term obligations. Short-term
obligations are compared with short-term resources. In addition, cash solvency could be
judged from liquidity ratios.
Debt ratios
Debt equity ratio is the measure of the relative claims of creditors and owners against
the firms assets. It could be calculated in various ways.
Profitability ratios
These indicate the firms efficiency of operation. There are two types of profitability
ratios.
1. Profitability in relation to sales
2. Profitability in relation to investment
Coverage ratios
Coverage ratios are designed to relate the financial charges of a firm to its ability to
service them. Bond rating institutions extensively use these ratios.
These widely used ratios relate the market value of a companys stock to profitability,
dividends and book equity.
Pros of using financial ratios
They provide significant information about financial performance and are simple
methods to be followed.
A close track of performance enables a company to identify problem areas and remedial
action could be taken.
Weak areas could be monitored and improved thereby enabling the company to
compete in the industry.
Knowledge
Microeconomics focuses on the behaviour of individual households and firms in
decision making on scarce resources. Further, it considers as to how such behaviours
could have an impact on the demand and supply for goods and services.
Microeconomics is essential to analyse market mechanisms and market failures.
Microeconomics deals with an individual, industry, firm or household and concentrates
upon output of specific product, the number of workers employed by a company and
income of a household.
Resources are scarce and due to their scarcity, a choice has to be made. Microeconomics
helps to allocate the limited resources in the best way.
Analysis determines the prices of goods and services through demand supply.
Other advantages include the facilitation of a free enterprise economy where each
individual has the freedom to make his or her own economic decision, helps the
government in determining the tax rate to be charged on the buyer and the seller and
further helps to examine social needs under different market conditions.
Example - Microeconomics
Microeconomics helps to analyse current issues, which occur unexpectedly. For
instance, governments had to revise and rethink their energy policies due to the oil
crisis in 1970 and 2005. In such situations, microeconomics could show how subsidies
and taxes could have an impact on the price of other oil substitutes.
ADAS model
The ADAS or aggregate demandaggregate supply model is a macroeconomic model that explains
price level and output through the relationship of aggregate demand and aggregate supply.
The aggregate demand curve of an economy is simply the GDP of that economy. GDP
consists of consumption, investment, net exports, and government spending.
A short run aggregate supply (SRAS) curve essentially displays the supply of all businesses
in an economy. The SRAS curve has a direct relationship between economic output and price
level, creating a positive slope on the graph.
Economic indicators help a business understand where the economy is heading. For business owners
and investors, being able to understand the economys health and direction can help guide business
and investment decisions.
Market Indexes
In order for an economic indicator to have predictive value for investors, it must be current, it
must be forward-looking and it must discount current values according to future expectations
Given the global nature of business, it is important to take into consideration both national and
global economic indicators. The top four are: short-term interest rates, long-term interest
rates, bilateral exchange rates, and foreign stock market indices.
Many economic indicators affect businesses. These areas may not be of the utmost importance for
every business, but consider the following list of common economic indicators:
Overall economic growth or industry growth
Interest rates
Government spending
Changes in employment policies and minimum wage
Housing costs
Exchange rates, which impact demand from overseas customers
Availability of capital
Consumer confidence
Average hourly earnings
Personal consumption expenditures
Economic indicators are classified into three categories leading, lagging or coincident. Leading
indicators change before the economy changes, and are one of the most important to investors in
gauging how the economy will perform in the future. Meanwhile, lagging indicators do not change
direction for a few quarters after the economy starts to decline or improve, and coincident indicators
move in tandem with the economy.
The labour market data need to be considered between the data from the production side and
the consumer side. The labour market situation affects demand for goods and services in
turn. In addition, labour market data can provide information on rising inflation pressure and
unemployment levels.
Inflation can be measured using a number of methods. Apart from the GDP price deflator,
which represents the broadest measure of price trends, these primarily include producer and
consumer prices. Nevertheless, for policy-making and market trends it is important not only to
be informed about the current inflation rate but also to assess the inflationary pressure that
may be building.
While some reports may have an indirect impact on consumers and investors, others may
have the potential to shift the direction of both the economy and the markets.
There is an abundance of information available, and knowing what these indicators mean can
help one better understand the health of the economy, as well as investor reaction to
economic news.
Inflation brings problems to the economy as it reduces the purchasing power of people
and brings greater uncertainty.
The unemployment rate measures the fraction of the labour force that is out of work.
High unemployment may be due to high recessions. Unemployment occurs when factors
of production are not effectively involved in production of goods or services.
Formula - Unemployment rate
Labour force
Unemployment is an issue as it results in lower output. Unemployed people would
receive lower income, and therefore, they would have lower living standards.
Growth rate is the rate at which GDP increases. However, GDP growth is affected by the
changes in available amount of resources in the economy and the changes in the
efficiency of factors of production. Stagnant growth would be a problem to any economy
as the supply of aggregate production declines. As per the expectations and population
of the society, the economy should generate adequate goods and services. The quantity
and the quality of factors of production (land, labour, capital and entrepreneurship)
could also lead to stagnant growth.
Importance of macroeconomics
Economic stabilisation is essential for higher economic growth and in improving better
living standards. To achieve economic stabilisation, an economy may avoid excessive
inflation.
Income security, education and health care are some of the social goals that could be
achieved through macroeconomics.
Macroeconomic analysis helps to predict the future course of economic events while
providing knowledge about how the economy works.
The monetary policy committee decides on the rate of interest to be charged. High rate
of interest increases the cost of borrowing money and cause consumers to reduce
expenditure.
Example - Macroeconomics
One of the main objectives of macroeconomic policy is to achieve full employment.
When there is unemployment in the economy, such objective cannot be achieved. In
October 2013, the unemployment rate in UK was 7.4%.
Investigations state that 40% of young people have experienced mental illness and
panic attacks due to unemployment. The main causes for unemployment include
frictional unemployment (moving between jobs), structural unemployment (mismatch
of skills) and use of technology instead of labour.
German employees in 1923 were paid twice a day so that they were able to purchase
food and other goods before the next price increase. It was due to doubling of prices
every two days. People had to carry a lot of money to the shop. They exchanged goods
without accepting money. Pensions on fixed income became worthless. Printing of
menus was pointless for restaurants because by the time the food was ready, the prices
had already gone up. This sort of inflation confirmed that the old Mark was of no use.
Knowledge
Economic reform is a process that aims at improving and shifting the market economy.
To reform an economy, certain structural adjustments are required. Countries use
structural adjustments as distinctive measures and they include:
Liberalising industries
Privatisation of government entities
Promoting exports with a view to encourage growth
Encouraging foreign investments and technologies
The need of economic reforms have risen due to the inefficiencies in the public sector,
adverse increase in the balance of payment and fiscal deficit and increase in prices and
so on.
To any economy, economic reforms are vital as they help in the growth of an economy,
improve competitiveness, provide a favourable environment for business entities, and
reduce unemployment and poverty.
Microeconomic reforms focus on specific sectors and their ultimate goal is to increase
the productive capacity of an economy. By implementing such reforms, the government
intends to increase the aggregate supply.
Microeconomic reforms include policies aimed at achieving economic efficiency by
eliminating distortions in individual sectors and reforming economic policies such as
tax and competition policies.
Mini Test
MCQs
1. The balanced scorecard looks at:
a. Financial, customer, product and innovation and learning perspectives
b. Customer, supplier, internal business, innovative and learning perspectives
c. Financial, customer, internal business, innovative and learning perspectives
d. Financial, supplier internal business, innovative and learning perspectives
Answer
Correct answer - c
The balanced scorecard helps to look at the business from four perspectives, namely
financial, customer, internal business, innovative and learning.
Answer
Correct answer - d
Macroeconomic is a study of the entire economy and takes into consideration the
national economic parameters of gross domestic product, unemployment, inflation, etc.
Answer
A high inflationary situation affects business organisations, consumers and the economy
and the purchasing power of money declines. The effects of inflation are as follows.
Answer
Economic analysis is the process of determining the optimum use of resources. It
enables to identify the strengths and weaknesses of a particular economy.
Advantages
Answer
Top Delivery Inc. could use the balanced scorecard to measure its performance. It seems
that the company is concerned only about its short-term profitability. It is important to
note that performance is derived not only financially but also through other nonfinancial measures. Cash flow issues should be addressed on time as it could bring
liquidity issues.
From a customer perspective, the company should find out the reasons for the delays in
delivering the gifts. It should identify whether it has lost existing customers and found
new customers.
In terms of the internal business processes, the company has to identify the reasons for
the products not having the expected standard of quality. The company should revise
the list of suppliers to ensure that it is up to the expected standard required by
customers. Further, it has to take measures to ensure that its down time is minimal by
updating and upgrading its software system.
To avoid delays and quality issues in gifts delivered, Top Delivery Inc. should think of
re-investing in new vehicles, which would in turn reduce its maintenance cost over the
years to come.
It seems that the company has not focused on its growth and learning prospects. It is
high time for Top Delivery Inc. to design and develop its own range of gift items so that
it would allow the company to ensure quality of gifts at the same time.
6
MCQs
1. What is the correct strategy to manage the minimal effort group?
a. Education and communication
b. Direction
c. Intervention
d. Participation and involvement
Answer
Correct answer - b
Stakeholders of minimal effort group include casual workers, part time staff,
contract staff and minority shareholders and they are likely to listen to what is said.
Therefore, direction is required to manage them.
Answer
Correct answer - d
Factors affecting general business behaviour include consumer behaviour, cultural
technological, political and economic factors.
Answer
Correct answer - c
Corporate strategy is concerned with long-term direction and deals with an
organisations overall purpose, scope and how synergies are created. Therefore,
diversification decision is a corporate strategy.
Short questions
1. What are the challenges entrepreneurs face when starting a new venture?
[Syllabus area 1: Creating, designing and running an entrepreneurial venture]
Answer
When starting a new business venture, entrepreneurs face many challenges as
well as obstacles in reaching their desired vision and objectives.
The challenges are:
Strategic planning
Managing resources to build competencies
Managing people
Raising of finance
Time management
Leadership
Answer
Workplace policies are guidelines of standard operating procedures applicable at the
workplace and provide transparency when dealing with issues.
They help the organisation focus on the vision, goals and objectives.
Required:
As an external consultant to David, carry out a competitor analysis for the new venture.
Answer
Based on Porters five forces, the biscuit industry could be analysed with respect to
rivalry among firms, bargaining power of customers, bargaining power of supplier,
threat of substitutes and threat of new entrants.
Existing rivalry between firms is high as there are two dominant players, the biscuit
market is matured and the competitors are of equal size. It seems that the bargaining
power of customers is also high, as the switching cost to the buyer is low and due to the
availability of biscuits at low and moderate prices. Further, key biscuit manufacturers
have created brand identity, where customers have shown loyalty to such brands and
that has made customers more powerful.
Bargaining power of suppliers is low as the commodities supplied (wheat and sugar)
are basic in nature.
Threat coming from substitutes, such as bread industry and traditional homemade
snacks is moderate. These substitutes place a limit on the pricing strategy. Further, it
forces product improvement and quality.
Barriers to entry for the biscuit industry are high, as it requires massive amounts of
capital investments. Further, there could be legal barriers such as government license. A
new venture may not have access to distribution channels and economies of scale.
7 Frequent questions
MCQs
1. Methods of growth include:
a. Joint ventures
b. Acquisition
c. Mergers
d. All of the above
[Syllabus area 2: Business behaviour and global environment]
Answer
Correct answer - d
Methods of growth could be in the form of joint ventures, acquisition, mergers or
organic.
2. Policy is a:
a.
b.
c.
d.
[Syllabus area 3: Firms objectives, strategies, policies and factors affecting the new
venture]
Answer
Correct answer - b
Only b is correct while the others refer to strategy, mission and objective. Policy is a
general statement giving guidelines for better decision making.
Answer
Correct answer - d
Survival is taken into consideration under financial perspective and it is measured using
cash flows.
Short questions
1. What are the key personality traits of entrepreneurs?
[Syllabus area 1: Creating, designing and running an entrepreneurial venture]
Answer
Key personal traits and behavioural characteristics are essential in successfully running
and managing a business venture. Following are some of the essential traits an
entrepreneur should possess.
Motivation to achievement
Entrepreneurs with great motivation for achievement tend to set challenging targets
and work hard towards achieving them. This is an important aspect to influence work
behaviour.
Affiliation
Entrepreneurs with high need for affiliation tend to enjoy working with groups to
maintain a good relationship.
Ability to take risks
Entrepreneur should have the ability to risk time, energy and money for the succession
of its entrepreneurial venture. Ability to take risks is a trait that makes a difference
between entrepreneurs and non- entrepreneurs.
Perseverance
The entrepreneurs should posses this trait to face challenges and overcome them.
Tolerating uncertainty
This is a difficult trait to be learnt by entrepreneurs. When situations of uncertainty
exist, the entrepreneur should be able to tolerate such uncertainty.
8 Tough questions
MCQs
1. Characteristics of strategic decisions include
a. Affecting operational decisions
b. Involving major resource changes
c. Concerned with the scope of an organisations activities
d. All of the above
[Syllabus area 3: Firms objectives, strategies, policies and factors affecting the new
venture]
Answer
Correct answer - d
Strategic decisions have all characteristics mentioned under a, b and c. Apart from the
characteristics above, long-term direction, involving building on or stretching resources,
trying to achieve some advantage for the organisation and matching its activities to the
environment in which it operates are some other characteristics of the same.
Answer
Correct answer - d
When the environment is complex and dynamic, greater will be the uncertainty. In a
dynamic environment, scenario planning, intuition and learning approaches are
essential as they focus on responding to rapid change. Furthermore, diversity of
operations brings complexity and therefore, understanding the environment would be
difficult.
Answer
A feasibility study is vital in analysing a proposal or an idea as it evaluates viability. The
main purpose of a feasibility study is to decide whether to proceed with the idea or not.
It helps entrepreneurs to decide how the new business should approach the
market.
2. sStrategies made at the strategic business unit level include generic strategies of
cost leadership, differentiation or focus.
Required:
Determine how a firm could achieve overall cost leadership.
[Syllabus area 3: Firms objectives, strategies, policies and factors affecting the new
venture]
Answer
The cost leadership strategy seeks to achieve the lowest cost position in the industry
and tries to compete on price and generate greater profits.
To achieve overall cost leadership, the firm should take the following actions.
Answer
A powerful brand name is necessary for a business such as River Reef that operates in
the hospitality industry. A good brand name would always attract and retain customers.
Thus, River Reef should ensure that it carries out its activities without affecting its
brand image.
Atmosphere is another important factor that affects the performance of a hotel. As River
Reef is located in a beautiful surrounding with natural beauty, it is no doubt that it helps
the hotel in attracting and retaining the guests.
Strong financial controls should be in place for the efficient management of short and
long-term finances.
Refurbishment and maintenance are vital in running a hotel like River Reef. The hotel is
criticised for poor accommodation and room maintenance. Thus, the company should
take prompt action to improve the conditions of the rooms and maintenance.
Staff should be adequately trained to enhance guest satisfaction and to handle guest
queries without any delay.
Further, River Reef should have a professionally qualified team of chefs to manage food
and beverages with due care with the applicable hygiene standards.
[Syllabus area 3: Firms objectives, strategies, policies and factors affecting the new
venture]
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