Corporate objectives and strategy PDF

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Monday, April 9, 2018

Business unit 3 notes 3.3.1 Corporate objectives and strategy! Corporate objectives: • Company wide goals that need to be achieved in order to keep the business on track to achieve its aims. • These objectives need to be SMART. • Objectives set out what you need to have achieved to get what you want. Advantages: • Establishing specific goals and objectives - concentrated effort to think about the short- and long-term needs of your business. • help effectively secure and allocate funds, develop marketing and advertising plans and move forward with business functions in a prepared and confident manner. • helping you avoid many unanticipated problems and expenses that have the potential to derail your business. • operational decisions based on what you’ve already outlined in your goals and objectives. • can help you effectively staff your business. • When employees have a firm understanding of what is expected of them- develop project plans and agendas that will help them manage their work time more efficiently. • concurrently develop a system for measuring your progress • check-ins” to assess your progress toward that goal. • Gives an advantage of continually knowing the exact performance levels of your business. • advantageous position of being able to react to changing market conditions and altering your operating plans as necessary. • an advantage over your competitors without established goals and objectives, who rely on a continual assessment of where their business is and where it’s going. Primary objective(strategic objectives): Ultimate long-term goal of the business. e.g.Survival, profit maximization, diversification and growth Secondary objective (tactical objective): day-to-day objective, It makes a direct contribution to meting the primary objective. Corporate aims • An aim states what you want. • Corporate aims are a generalised statement of where the business is headed, from which objectives can be set. • Aims are vague and don't have specific or measurable progress plan through which it can be achieved.

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Monday, April 9, 2018 • Its simply what the business wants to do, and objectives aid to realize that aim. Mission statements • Brief statements written by the business of its purpose and its objectives, designed to encapsulate its present operations • Short sentences or paragraphs used by a company to explain, in simple and concise terms, their purpose for being • Serve a dual purpose by helping employees remain focused on the tasks at hand, encouraging them to find innovative ways of moving towards an increasingly productive achievement of company goals.

Mission statements are likely to convey:

- Purpose: reason why company exists. - Values: what company believes in - Standards and behaviour- standards set by managers and essentially how staff are treated. - strategy: medium to long term plans adopted by business to make aims and mission achievable. - Mission statement should be capable of inspiring those who read it or hear it. Advantages of mission statements: • Provide directions • Without direction, company will be operating without purpose, can be dangerous. • Help to resolve conflicts • Members of the board can make quick references to mission statement in time of conflict and argument. • People tend to calm down when their attention is drawn to a written document. • Remove any ambiguity surrounding the existence of the company • Managers and other stakeholders wont have any doubt about the primary aim of a company. • Provide a framework for decision making. • Mission statements act as a framework that effectively managers can easily use as a guide in discharging their everyday management functions. Disadvantages of mission statements: • Ambiguous and worthless • Mission statement can be easily vague, empty and confusing. • Can sometimes lead to conflicts and inconsistencies • Mission statements can contradict the other and lead to conflicts and inconsistencies.

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Monday, April 9, 2018 • Can be unrealistic In reality • They can in most cases, turn out to be unrealistic and over optimistic Mission statement must be set in accordance of SMART principles. Must be vertically and horizontally consistent with the overall objectives of company.

Stakeholder influences on corporate objectives Stakeholder: A person, group or organization that has interest or concern in an organization. Stakeholders are individuals our groups that have an effect on and are affected by the activities of the organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Shareholders: An owner of shares in a company.! ! Stakeholder objectives 1. Owners -profit 2. Managers-growth 3. Customers - value for money 4. Employees - job security/working conditions 5. Communities - jobs/ availability of goods and services 6. Suppliers- Ability to pay/liquidity 7. Government - tax

Shareholder approach • This gives priority to the shareholders • Manager focus on maximizing shareholder value. Stakeholder approach • This treats all stakeholders equally, and in theory, should lead to long term benefits. • Managers have to take into account that they have a responsibility to all stakeholders.

Shareholders • Have clear financial interest in the performance of the business. • Want high returns on their investment. i.e. short term returns; however this may endanger the stability of business by sacrificing long term growth.

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Monday, April 9, 2018 • Have invested money into company through purchasing shares and they expect the company to grow and prosper so they can receive a healthy return on investment • Return they receive: rise in the share price- so they can sell their shares at a higher price that the purchase • Based on the levels of profits for the year • Shareholders are entitled to vote to elect the board of directions, who will run the company. Managers • Will want growth for business, but may lead to fall in short term return as more money is being kept for expansion. • Some managers are loyal to shareholders and are intent on maximising shareholder value. Employees • Obvious financial interest in the company, since their pay levels and job security will depend on the performance and profitability of the business • Employees perform basic functions and tasks of the business. Customers • Are vital to the survival of any business ,as they purchase the goods and service which provides the business w/ majority of its revenue. • Vital for a business to find out exactly what the needs of the consumers are, produce their output to directly satisfy those needs. (market research) • Must be promoted to appeal target market • Business must try to keep customer loyal so that they return in the future- become repeat-purchaser. Suppliers • Without flexible and reliable suppliers, business cant guarantee they’ll always have sufficient high quality raw materials • Important for business to maintain good relationships with their suppliers • So business can negotiate good credit terms from the suppliers. The government • Business have to pay variety of taxes to central and local government • Also have to adhere to a wide-ranging amount of legislation, which is aimed at protecting the consumers, employees and local community from business activity. • Business will be affected by diff. Economic policies. • Business can also benefit from government incentives and initiatives. The local community

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Monday, April 9, 2018 • Businesses are likely to provide significant amount of employment for local community • Sponsorship of local events and good causes (charity work) can also help business to establish itself in the community. • Many businesses develop links w/ local schools and colleges. • Business can also cause problems - congestion, pollution and noise. Stakeholder conflicts Stakeholder conflict: Where different stakeholders have different objectives and goals. Managers

- Want growth - this can lead to a fall in short term returns as more money is being kept for expansion. Employees

- Want maximum possible wage with the best possible benefits - If wages are too high, this may lead to losses for company and employees may be laid off. Suppliers

- Will want to charge higher prices - Charting too high may motivate business to seek other suppliers Customers

- Will want value for money, and this may be achieved by investing more into R&D - Will reduce short term returns - angering shareholders Government

- Keen on business providing more jobs, so will be keen on growth - There will be environmental consequences to expansion, hence costs will rise as government will to minimize through environmental and safety standards.

Shareholders and management

- Profit maximization is often the overriding objective of shareholders-resulting in large dividend payments for them.

- Managers of the business will aim to profit satisfy than profit maximize. They will aim to earn a satisfactory level of profits and then use remaining resources to pursue other objectives: diversification and growth. Customers and the business

- Customers are unlikely to remain loyal and repeat purchase from business if product produced is poor quality/poor value for money

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Monday, April 9, 2018

- Business must ensure that it has in place a number of strategies to satisfy customer. Suppliers and the business

- Suppliers want prompt payments from business for deliveries of raw materials - Suppliers may refuse credit to the businesses or may even cease all dealings with them if theres lack of prompt payment.

- Business want to receive their goods on time. Community and the business

- Local communities can suffer at the hands of large company through negative externalities of pollution, noise, congestion and the building of new factories in areas of outstanding beauty.

- If business relocates, it'll cause much unemployment and fall in investment in the community it leaves. Impact of conflicting and common aims between different group of stakeholders 1) Social responsibility is a widening of business objectives beyond self-interest to include a responsibility towards all stakeholder groups. Other business objectives could include maximizing returns to shareholders. It can be seen as the stakeholder vs. shareholder model

- If a business highlights the importance of sustainability and social responsibility, it may conflict with business objectives

- If much of the profits are going to good causes, this must mean less is available by way of retained profits.

- this may also lead to less investment which again impacts the shareholder in the future - A commitment to social responsibility can yield tangible benefits in terms of employee motivation, customer loyalty and even encourage ethical shareholders, all of which can counterbalance or exceed the cost of social responsibility • Social responsibility is a widening of business objectives beyond self-interest to include a responsibility towards all stakeholder groups • Other business objectives could include maximising returns to shareholders. It can be seen as the stakeholder vs. shareholder model • If too much of the companys profits are going to good causes this must mean less is available by way of retained profits for growth and expansion • this may also lead to less investment which again impacts the shareholder in the future • A commitment to social responsibility can yield tangible benefits in terms of employee motivation, customer loyalty and even encourage ethical shareholders, all of which can counterbalance or exceed the cost of social responsibility • stakeholders may have different interest which may not always coincide, and thus result in conflicts of interest. • shareholder will want to maximise his personal return which could conflict with the needs of the business long term, which might require investment.

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Monday, April 9, 2018 • Take an overall view of how the business is developed and as such will be able to reduce potential conflict. • one group of directors may have different aims and objectives from another group • and the differences between the interests of the family and other stakeholders could result in conflict • this could result in damage to the performance and ultimate long term success of the company as a whole • shareholders would prefer higher dividends for themselves rather than more pay going to directors • conflicts exists because directors would like the going rate for the job and to be brought into line with similar directors elsewhere. • conflicts may arise as directors may be more concerned with the long term success and survival of the business rather than short term profit maximisation to please the shareholders. • although there may be short term tactical conflicts over issues such as directors remuneration, there may be less conflicts over long term strategic issues such as continuing profitability • resolving potential conflict, decision to increase the minimum number of shares directors own

Corporate Social Responsibility (CSR) and potential conflicts between profit-based and other objectives Corporate social responsibility is the responsibility that a business has towards its stakeholders. CSR: Movement aimed at encouraging companies to be more aware of the impact of their business on the rest of society, including their own stakeholders and the environment.! Corporate social responsibility (CSR) is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders.

- Has a positive impact on sales and increase market standing as well as profits in the long term.

Corporate Culture Corporate culture is the values, attitudes, beliefs, meanings and norms that are shared by people and groups within an organization. Corporate culture: the set of important assumptions that are shared by people working in a particular business and influence the ways in which decisions are taken. Corporate cultures can differ on grounds of ethics, stakeholder inclusion, management styles, CSR, treatment of employees • A clash or mismatch of corporate culture is a common reason for mergers and takeovers to run into problems. • this can lead to financial problems and even losses which can be a serious problem.

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Monday, April 9, 2018 One business Corporate culture is based on historical values/being socially aware/supporting the aims and principles of Fair-trade, whereas the other’s corporate culture is one based on profit driven merger- this may lead to clashes when making strategic decisions.

Corporate strategy Corporate strategy: The plans and policies developed to meet a company’s objectives. Its concerned with what range of activities the business needs to undertake in order to achieve its goals. Its also concerned with whether the size of the business organisation makes it capable of achieving the objectives set. strategy: planning used to achieve objective by business. A long term strategy- is the direction or focus of the business projected into the future. it helps determine and guide the business’ operations over a period of time Corporate strategy. e.g. market entry or exit, mergers and takeovers. Define takeover • A takeover is when one business gains control over another. • the business that has been taken over ceases to exist Conglomerate • A business that consists of different types of businesses . • They will be unrelated to each other but part of the whole group merger: • A mutual agreement • between the managements and shareholders of two companies to bring both organisations together

Business may be able to create value for its owners by moving into other markets.

- It may grow vertically: moving into markets which either it sells into or buys from. - It may grow horizontally, expanding into its existing market. - It may become a conglomerate, moving into unrelated markets - It may grow organically from within - it may grow by taking over or merging with other businesses. 8

Monday, April 9, 2018 Portfolio analysis, including Boston Matrix The product portfolio -

Product portfolio analysis: examines the existing position of a firm’s product o

Allows a firm to consider its existing position and plan what to do next/ where to direct marketing efforts

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Boston Matrix: shows the market share of each of the firm’s product and the rate of growth of the market in which they operate o

Cash cow: a product that has high share of a low-growth market ▪

Overall market is mature and slow growing

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Generates high profits and cash for the company because sales and relatively high and promotional costs are low as consumers are already aware of the brand

▪ o

Cash from cash cow can be used to invest in newer products

Problem child: a product that has a low share of a high-growth market ▪

May provide high profits in the future – product could provide high returns if it gets a greater market share in the fast growing market

▪

Future of product may be uncertain – either grow and profit or not

▪

Usually needs a relatively high level of investment to promote them, get them distributed and keep them going (low share trying to increase share)

o

o

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Rising star: a product that has a high share of a high-growth market ▪

Attractive products that are doing well and gaining high profits

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Need protection from competitor’s products

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Heavy promotion using profits from cash cow to ensure success

Dog: a product that has a low share of a low-growth market ▪

Little appeal for a firm unless they can be revived

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Production will stop once sales falls below break-even point

Purpose of product portfolio analysis o

Examine the existing position of the firm’s products so managers can plan what to do next ▪

Building – investment in promotion and distribution to boost sales, often used with problem children

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Holding – marketing spending to maintain sales, often used with rising star products

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Milking – taking whatever profits you can without much more new investment, often used with cash cows

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Divesting – selling off the product, often used with problem children or dogs

Portfolio analysis examines the position of all the firm’s products and helps managers decide what to do with each of them/ how to split marketing budget between each product – shows the firm’s current position within the market

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Monday, April 9, 2018 Achieving competitive advantage through distinctive capabilities, e.g. brand image, customer loyalty 4P’s of marketing:

- Lower the price charged, more sales there’ll be. - Businesses which sell superior products to their rivals will sell more. - Promotion can help increase sales - Getting products to customers at the right place and at right time, will stimulate sales. Brand: A name, symbol or logo that identifies/differentiates the product/business in the eyes of the consumer. Impact of strategic and tactical decisions on human, physical and financial resources. Strategy: planning used to achieve objective by business. Strategies set out the long-term objectives and the plan for how they will be achieved. Strategic objectives

- Main objectives of a business - They are the objectives which will help the business achieve its aims. - Long term objectives - Long term objectives tend to be objectives for the next 3-5 years. Strategic decisi...