Business Studies Unit 6

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Business Plan

report detailing the markt. strategy, prod. costings & financ. implicatios of a firm start-up. Useful helping entrepreneurs to think ideas through & persuade invest. Main sections are: 1. Marketing plan showing marketing gap, positioning and competition

2. account of entrepreneurs experience and financial commitment, 3. cash-flow forecast, 4. projected P&L account and balance sheet for 1st yr., 5. det. of finance needed from invest. and forecast rate of return on it, 6. long-term forecasts

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Corporate Plan

have to fill out

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Equity Capital

'=> shares, means share capital, in UK, equity shareholders have 1 voter per share, and each share has an equal right to distribute profits.

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External financing

obtaining capital from outseide the firm's resources or accounts-> debts, share capital, grants. Debt->day-to-day(short-term: bank overdraft, trade credit and credit factoring), (long-term: bank loans, commercial mortage and debentures

Grants could come from EU, governement regional policy or from a local entreprise board(->however, they only provide a tiny fraction of the capital needed by a company)

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HR Management

(HRM), responsibility of using and developing the organisations personnel in teh most productive way.

1. It places greater emphasis on development through training and career planning, 2. Has the potential to persuade all managers that development of HR is their job, not personnels departments.

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Human resource planning

have to fill out

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Internal Financing

cash from within the company's resources/accounts. They can be obtained from: 1. Retained profit(+ depreciation), 2. Working capital (by cutting stocks or debtors), 3. Sale of fixed assets or under performing divisions.

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Job description

a detailed statement of the nature of the job!, identifying tasks and responsibilities. Likely to form part of individuals employment contract.

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Labour Market

supply and demand of labour, which together determine the wage rate. It is made up of smaller markets which have quite different characteristics.

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Loan Capital

medium to long-term finance, either form banks or from debenture holders. Loan capital + shareholders funds represent a firms capital employed.When raising extra funds a firm should consider it's gearing level.

I.e. the extent to which it is reliant on borrowed money. if loan represent more than 50% of capital employed the firm is considered over-geared.

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Manpower planning

deciding on type/No of staff required in future->gives firms sales forecasts, loans? & objectives. Having decided No/skills of workers->HR manager can plan by: 1. Carrying our a manpower audit, ie.checking skills of present workers,

2. identifying known future leavers (retirement etc. ) and exlude them from calc., 3. consulting and deciding how many exist. stagg could retrain, 4. preparing recruitment plan stating how many new staff need to be recruited.

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Marketing audit

unofficial internal audit of where a firm stands in relationship with ist customers and competitors, identifies market shares of ist priducts and monitors whether they have been rising or falling.

Checks demographic profile of customers, their average age(rising?->future falling sales) and thus provides information upon which techniques (boston matrix or SWOT) can be carried out.

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Marketing plan

report on marketing objectives/strategy,incl: Costings, forecast results/contingency plans. Stages are: 1. Conduct marketing audit (->knowledge of firms mark. Assets)/SWOT)., 2. Set clear objectives for coming year based on goals for 3 to 5 years ahead

(incl. targets for sales/market share/distrib. level & brand image ratings), 3. Devise strategy for achieving objectives operating within defined budget and covers: NPD, NP-launches & going brands, looking at above line/below line requirements

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Marketing strategy

a medium to long- term plan for meeting marketing objectives. Should balance marketing activities of new and existing products. With carefully costed budgets. Strategy is likely to be fully researched and then implemented through teh marketing mix (4 P's)

1.A strategy can add value which increases the price or increases sales - e.g. advertising, new markets, R&D 2. A strategy can reduce unit costs - e.g. increased productivity or better stock control.

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Operational objectives

targets that must be achieved by a particular department or division in order that the strategic objectives are achieved.

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Performance-related pay

(PRP) is a bonus or salary increase awarded in line with an employees achievements over a range of criteria.

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Performance appraisal

process of judging the effectiveness of am employees contribution ofer a period of time.

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PEST analysis

(-> Political, Economical, Social and Technological analysis)-> analysing the external factors that may present opportunitues or threats.

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Profit and Loss Account

a statement recording all firms revenues and costs within the past trading period. They usually include:

Revenue - Cost of sales => Gross Profit - Overheads => Trading/Operating Profit + One-off items => Pre-Tax Profit - Tax => Profit after tax - Dividends => Retained Profit

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Situational audit

a check upon a firms financial, marketing and strategic positions at a point in time. "Where do we stand?"it can then decide where to aim in the future, it usually includeds: 1. Analysis of the market growth

2. Analysis of the firms financial position compared with rivals, 3. assessment of the strenghts and weaknesses of teh staff, 4. consideration of the degreee of success at achieving current objectives

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Sources of finance

when deciding it is important to establish: 1. The purpose - short-/long-term?, 2. Size and type of firm in question (ie. Family can only help small firms.. )

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Strategic objectives

are wide-ranging, long-term goals of significance to the operations of a whole organisation. I.e. decisions that might force a rethink about location of factories, type of product it sells,

background or nationality of the staff and so on. Common examples are: to diversify, to focus (stick to the knitting), to achieve dominant market position, to develop a technological advantage over rivals.

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Contingency plans

means preparing for unwanted or unlikely possibilities. Usually by computer models and "answering" "what if" quesitons. ..

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Culture

in the (unwritten?) code that affects the attitudes, decision making and management style of its staff, i.e., 1. goal oriented, business seeking, youthfull culture based upon success, 2. hierarchical/tight official communication channels->mistake avoidanc

3. lively/growth-orientated based upon commitment to product/company, ->culture affects resitance to change within firm

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Enviromental Audit

independent check on POLLUTION emission levels, wastage levels and recycling. Annually. i.e. body shop, IBM. however not enforced by law

poorly performing companies do not have to carry one out or publish it

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Enviromental Policy

written statement of firms approach dealing with enviromental disturbances etc. i.e. planting new trees for every on ecut down for paper factory etc.

minimum pollution emission standards

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Ethics

morale principles which underpin decision making->profitable?/greater benefit for society, alcopops?private detective to investigate competitors?

doing what is morally right no matter of scientific calculations of costs and benefits

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External costs

negative consequences of an activity that pre paid for by people/organisations other thatn the originator costs. i.e. pollution by airplaines->global warming, paid by county health centres etc.

governement intervention is requitred to force the polluter to pay (stop)

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Interventionist policies

pursued by governement which believe stron invluence is needed over running of countries economy (poland?), (rescue packages), protection laws for protection of consumers/workers

1. prices/income control, 2. active support for new/manufacturing firm, 3. fixed exchange rates, 4. tougher laws (pollution, work-place), 5. wagges councils and industrial trading boards, 5.

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Labour market

supply/demand of labour which together determine wage rate, Different "markets"

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Lobbying

putting viewpoint across directly to a persin in power position/influence, intended as an aid to democratic process, lobbying has become tainted by

the number of people who are paid to represent special interests such as tobacco industry

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Market failure

failing to produce goods that are wanted (high priced flights)

also occur when externalities such as water/air pollution are not cisted so that firms make private profit at the cost of social welfare->argued that governement should intervene

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Poaching

employees means attracting new workers from a rival firm that have already been trainded in the skills you need (BA), saves costs of training process and means comp. has wasted its resources. done widely within an economy->employers stop/cut down on

training new employees since it would become a pointless exercise. ->damage skill level and thus competitiveness of workforce->example of market failure

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Pressure Groups

organisation formed by people with common interest->exist in wide variety of forms. who pressure the governement in the interests of their members

i.e. greenpeace, who fight for enviromental issues, and trade unions who look after the interests of their members

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Social Audit

independent quantification of elements of a firms activities that affect society->i.e. pollution/wast/workforce/H&S. ->can be used internally->mangers of externally->pressure groups

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Social Responsibility

duties towards employees customers, society and enviroment. deceptions led to governement passing laws

today firm believe its in their best interest to behave correctly (image/workforce etc). key of firms attitudes is prob. timespan of its objectives.

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Ansoff's Matrix

measures degree of risk associated with certaion strategies. the closer firm stays to existing prod/markets->lower rist. ->"stick to the knitting". Introducing new products to diversified markets carries most risk.

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Conglomerate mergers

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External growth

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Generic strategies

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Horizintal integration

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Mapping

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Synergy

occurs when the whole is greater than the sum of the parts. i.e. when 2 +2 = 5, often anticipated in take-over bids, when directors assert that the purhcase of a rival will provide

such economic of scale as to make the combined firm a world beater. Research suggest that synergy is achieved far less often than it is forecasted

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Consolidation

happens in times of take-overs/mergers

to secure large market presence, very complex in aviation industry

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Evaluate Ryanairs strenghts (SWOT)

1. seems one of first budget airline (market leader?, image, brand), 2. developed/frequent route system pre-empting competitiors, 3. clear strategy? (low cost/cheap), 3. small overheads (turnaround, tickets, staff, small airports)4. one way ticketing?,

5. clear fare structure?

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Weaknesses Ryanair (Swot)

1. unpredictable fuel cost fluctuations (rising!), 2. overly cost concious (irritating->), 3. expansion need to be financed->shares->less than 51%? loss of control?, 4. staff issues->commitment/loyalty? morale/trade union actions?

4. leadership leeds to resentment->bad image, staff?, 5. mixed image->customer service?value for money?, 6. aggressive growth strategy->Risk!, 6. punctuality?

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Threats to Fly u there (Swot)

1. rising costs (oil), 2. diseconomy of scale, 3. high risk extension strategy, 4. trade union actions, 5. bad image

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Porter’s five forces model (Airline indusryI

1. (i) Threat of entry, 2. (ii) Power of suppliers, 3. (iii) Power of buyers, 4. (iv) Threat of substitutes, 5. (v) Competitive rivalry

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Threat of entry - Porters 5 forces analysis:

1. EU deregulation removes barriers to entry , 2. other existing/newly established EU-based, 3. need enough capital to survive innitial yrs. , 5. Scarcity of landing slots->barriers at cer. airports (i.e. heathrow)

6. Perceived customer demand attracting new entrants to budget sector, 7. Established airlines can enter budget->downmarket’->separate budget subsidiary (i.e. go), 8.Or charter airl can enter by moving into low-fare scheduled servs=>conc. moderate threat

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Power of suppliers - Porters 5 forces analysis:

1. Aircraft suppliers – rivalry between Boeing/Airbus reduces power, 2.stronger airlines->larger orders->better deals, 3.route cutbacks releases second-hand aircraft->reducing suppliers’ power, 4.oil prices!, 5. Airports–primary/secondary;greater/less pow

increasing as demand incr., 6. =>but EU legislation ensures competition reducing power of suppliers.7. Larger aircraft orders->better deals 8. budget airl. less capacity to pass on oil costs=>Ryanair perspective – low to medium power of suppliers

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Power of buyers-Porters 5 forces analysis:

1. passenger->more choice, more access to information, 2. confusing re special deals/conditions/availability of seats, 3. power of travel agents decreasing, 4. increase value-conscious business travellers ,

5. New competitors in budget segment increase buyer power, 6. =>strong power of buyers

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Threat of substitutes - Porters 5 forces analysis:

1. In Europe, fast rail and cross-water tunnels and bridges enable faster and more convenient land travel., 2. Price of rail substitute, 3. Rail and road more likely to be viable substitutes for the shorter journeys typical of udget airlines

=> low threat of substitutes

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Competetive Rivalary - Porters 5 forces analysis:

1. Inc rival->dereg->more compt->more routes->overcapacity/growing power of buyers, 2. strategic alliances, 3. frequent flyer loyalty programmes, 4.inc. new entrants->head-to-head comp.5. mainstream spec offers on selec. route,

6.Cost->critical fact 7. comp. add flexibility/frills business custmrs 8. Capacity utilisation esp. critic in low margin industry⇒ incr rivalry=> Ryanair perspective – intense and increasing competitive rivalry

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Hypercompetition

competition in the new global economy->refers to the disruption of existing markets by flexible, fast moving businesses

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Multinational

is organisation which owns or controls production or service facilities outside the country in which it is based, meaning that they actually own production facilities in other countries

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Technological transfer

is the process by which multinational benefit countries in respect to the introcution of management styles, new technology, procuction processes etc.

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Transfer pricing

a system operated by multinational. It is an attempt to avoid relatively high tax rates through declaring higher profits in those countries with lower taxation levels, thus reducing the overall tay-bill

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Corporate responsibility

describes attemots by individual businesses to behave in an ethical manner. -> the willingness of a business to accept responsibility for ist actions and their impact on a range of stakeholders

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Business ethics

the influence of values and beliefs upon the concut and operation of businesses

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Social Auditing

the process by which a business evaluates the effect ot ist activities on all of ist stakeholders.

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Externalities

occur when private costs are different to social costs and private benefits are different to social benefits

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Private Benefits

the benefit of an activity to an individual or a business

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Private Costs

the cost of an activity to society as well as to a business

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Social Benefits

the benefit of an activity to society as well as to a business

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Social Costs

the cost of an activity to society as well as to a business

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EU enlargement Pros/Cons

Pros: 1. economic growth due to inc. invest opport. , 2. business confidence in new EU states->incr. investment, 3.

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Recommend whether Angelas strategy of establishing a market on the continent should be untertaken.

Pros.1.diversification/spreading risk, 2. ang. contacts etc., 3. cheap taxes, 4. wider market, 5. first, 6. reputation, Cons. 1. recruit new people/costs/time/morale, 2. strikes, 3. inexperience in market, 4. finance, 5. coordination & control,

6. undertaking agents overseas, eg. agents/exchange rates, laws, customs, languages etc. 7. attitude to risk, 8. time/scale, 9. gearing?, 10. much more info is needed of market and finance, 11. exchange rate

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Evaluate whether Ingram Ltd should follow a strategy of external growth, i.e. merger & takeover, rather tha its traditional strategy for internal growth.

Intern: 1. inexperience mngrs, 2. safer/controlled, 3. worked so far, 4. dinausor effect, 2. survival long term?, 3. min. econ of scale, 4. slow, Takeovers: 1. provide (cheap) assets(aircraft), 2. poor image if failure, 3. opportuniti, 4. synergy

more labour/res. needen, 4. diversification(ansoff)/positioning, General: 1. clashes of leadership styles, 2. internal g.->slow/costly, 3. compromise manag. structure, 4. financial terms?, 5. stakeholders reaction?(employees, customers), 6. finance?/info

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Assess how changes in the economic climate/governement policys might affect the strategy of G College to increase intake of students.

1. cld affect demand/costs, i.e. oil, labour->less profit, 3. exchange rates mean more costs/less pred. future, 4. relocating (why poland->no euro?), 5.

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Recommend strategy by which changes could be implemented in the face of opposition of employees

1. persuasion->provide evidence of necessity of change, 2. remove them, 3. gradual changes, 4. involve pl in planning, 5. continually provide up-to-date info

6. make minor concessions if necessary, 7. reassure about continuation of culture ethos

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Think RISK when making evaluating cooments:

R – resources –enough available to take the risk? – only risk what you can afford to lose. Therefore->Large business->bigger risks, 2.I – info–enough/right data to make a decision?source?

3.S – skills of managers/workforce – can they cope with new directions being given them – e.g.flexible/motivated enough to take on different jobs or tasks., 4. K – killer instinct– willing to take tough decisions?

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Analysis

1. ) How businesses are affected by changes

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corporate planing

is the process of drawing up objectives and a mission statement and devising a plan of action (strategy) showing how these obejectives can be achieved. The plan should cover both medium and long term actions.

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Retrenchment

if a firm is reducing the scale of their operations->retrenchment! can be deliberate or forced

due to: 1. diseconomy of scale (->communication/motivation), 2. changes in competetive nature of the market, 3. entry of large comp. , 4. changes in economy

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Horizontal integration

when fly u there had taken over several less sucessfull rivals until 2003, Pros: 1. greater market share, 2.synergy, 3. more power, 4. economies of scale, 5. purchasing economies,

6. reduc. in unit costs, 7. one less competitor which takes away customers

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Conglomerate mergers

when firms in different markets join together, i.e. internet cafe, ->spreadin risk, less vulnerable to changes in one market, however much riskier, due to little experience in this market

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What external influences affect businesses strategies?

1. Unemployment, 2. Business cycle, 3. state of labour market ( skills surplus shortage), 4. Exchange rates, 5. interest rates, 6. inflation,

business strategies usually are about growth, rationalisation, market dominance, diversification, technological leadership

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What does fly u there have to consider when evaluating new base?

1. interest rates (incr.) in rela. to gearing!, in Uk and CZ 2. sources of finance, 3.

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Benefits of the euro (for the UK)

1. cheaper transaction costs, 2. stabel exchange rates through EU->removing risk from intern. trade, 4. price is more transparent,

5. fluctuations create uncertainity-> re earnings->adds risk->forecast inaccurate?, important in price comp. businesses->with price elasti. demand->pressure to repond quickly

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Effects of inflation on fly u there

inflation in UK is generally lower than in other countries-> new EU states are likely to increase heavily->adding costs, making future unpred.->higher risk

as they are developing. diff. to do sales forecast

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