IB Business and Management HL Business tools Stakeholder

IB Business and Management HL Business tools

Stakeholder mapping HL, unit 1. 4 Stakeholders Stakeholder Main Interests Power and influence Shareholders Profit growth, Share price growth, dividends Interest and principal to be repaid, maintain credit rating Salary , share options, job satisfaction, status Salaries & wages, job security, job satisfaction & motivation Long term contracts, prompt payment, growth of purchasing Reliable quality, value for money, product availability, customer service Environment, local jobs, local impact Operate legally, tax receipts, jobs Election of directors Banks & other Lenders Directors and managers Employees Suppliers Customers Community Government Can enforce loan covenants Can withdraw banking facilities Make decisions, have detailed information Staff turnover, industrial action, service quality Pricing, quality, product availability Revenue / repeat business Word of mouth recommendation Indirect via local planning and opinion leaders Regulation, subsidies, taxation, planning Stakeholders are mapped on the chart below. This is used to decide who has the greatest priority and who has least priority. Level of interest LOW HIGH Level of power LOW HIGH A Monitor (minimum effort) B Keep informed C Keep satisfied D Manage closely

The Business Cycle. SL, unit 1. 5 External environment Peak or boom o o Economic activity at its highest level Consumer expenditure, investment and export earnings are high. People receive pay rises as business make more profits. Business have good cash flow Recession o Dip in level of economy for 2 o o o consecutive quarters. (6 months) Declining aggregate demand Lower investment expenditure Falling export sales Rising unemployment Most affected businesses are those sensitive to changes in income. (houses, cars, jewelery) Survival strategies…? o o o Reduces costs Reduce price Non – pricing e. g. after sales Branding Outsourcing Increased efficiency Slump or trough o o o o Last stage of decline in the trade cycle Very high level of unemployment Very low consumer spending, investment and export levels Poor cash flow and liquidity…many close down Lack of confidence in the economy No job security Low spending

PEST analysis. SL, unit 1. 5 External environment Political / Legal Economic Environmental regulation and protection Economic growth (overall; by industry sector) Taxation (corporate; consumer) International trade regulation Monetary policy (interest rates) Government spending (overall level; specific spending priorities) Policy towards unemployment (minimum wage, unemployment benefits, grants) Consumer protection Employment law Government organisation / attitude Competition regulation Taxation (impact on consumer disposable income, incentives to invest in capital equipment, corporation tax rates) Exchange rates (effects on demand by overseas customers; effect on cost of imported components) Inflation (effect on costs and selling prices) Stage of the business cycle (effect on short-term business performance) Economic "mood" - consumer confidence Social Technological Income distribution (change in distribution of disposable income; Demographics (age structure of the population; gender; family size and composition; changing nature of occupations) Labour / social mobility Lifestyle changes (e. g. Home working, single households) Attitudes to work and leisure Education Fashions and fads Health & welfare Living conditions (housing, amenities, pollution) Government spending on research Government and industry focus on technological effort New discoveries and development Speed of technology transfer Rates of technological obsolescence Energy use and costs Changes in material sciences Impact of changes in Information technology Internet! PESTLE STEEPLE o o o o POLITICAL ECONOMIC SOCIAL TECHNOLOGICAL LEGAL ENVIRONMENTAL SOCIAL TECHNOLOGICAL ECONOMIC ETHICAL POLITICAL LEGAL ENVIRONMENTAL

SWOT analysis. SL, unit 1. 6 Organizational planning tools SWOT analysis is a method for analysing a business, its resources, and its environment. SWOT is commonly used as part of strategic planning and looks at: • Internal strengths • Internal weaknesses • Opportunities in the external environment • Threats in the external environment SWOT can help management in a business discover: • What the business does better than the competition • What competitors do better than the business • Whether the business is making the most of the opportunities available • How a business should respond to changes in its external environment The result of the analysis is a matrix of positive and negative factors for management to address: Internal factors External factors Positive factors Negative factors Strengths Weaknesses Opportunities Threats The key point to remember about SWOT is that: • Strengths and weaknesses • Are internal to the business • Relate to the present situation • Opportunities and threats • Are external to the business • Relate to changes in the environment which will impact the business There is no point producing a SWOT analysis unless it is actioned! SWOT analysis should be more than a list - it is an analytical technique to support strategic decisions

Decision trees. HL, unit 1. 6 Organizational planning tools o o o A tool to help businesses in their decision making processes Provides a pictorial approach to decision making Maps out the different options available and the different outcomes of these options Constructing the decision tree Chance nodes represent alternatives with probabilities attached High Demand 0. 7 Product A -£ 7 m Low Demand £ 16 m £ 6 m 0. 3 High Demand £ 12 m 0. 6 A decision nodes are indicated by a square Product B -2 m Low Demand £ 4 m 0. 4 Product A High Demand 0. 7 x £ 16 m = £ 11. 2 m Low Demand 0. 3 x £ 6 m = £ 1. 8 m Product B High Demand 0. 6 x £ 12 m = £ 7. 2 m Low Demand 0. 4 x £ 4 m = £ 1. 6 m Expected Value = £ 11. 2 m + £ 1. 8 m = £ 13 m Net Expected Value = £ 13 m - £ 7 m = £ 6 m Expected Value = £ 7. 2 + £ 1. 6 m = £ 8. 8 m Net Expected Value = £ 8. 8 m - £ 2 m = £ 6. 8 m Advantages o o o Encourages a careful consideration of all alternatives Sets out a problem clearly and encourages a logical approach to decision making Encourages a quantitative consideration of chance Takes risk into account Discourages gut reaction decision making Limitations o o o Hard to get accurate or meaningful data for probabilities Less useful in the case of completely new problems or one-off strategic problems Easy for management bias to enter, or for a manager to manipulate the data Ignores the changing nature of the business environment May lead to managers taking less account of qualitative issues

Ishikawa’s Fishbone Analysis HL, unit 1. 6 Organizational planning tools o o Is a model used to identify cause and effect An issue is identified And then possible causes are identified Often the 4 M’s are used 1. 2. 3. 4. Management Manpower Machines Materials The fishbone procedure 1. 2. 3. 4. 5. Identify the problem Construct diagram with possible categories of causes For each ‘bone’ brainstorm the possible causes and place on the node Consider each possible cause and think about which are likely to warrant further investigation and circle these on the diagram Once root causes have been identified then the appropriate strategies can be devised to deal with the problem

Ansoff’s Matrix SL, unit 1. 6 Organizational planning tools ❑ ❑ The Ansoff Growth matrix is a marketing planning tool that helps a business determine its product and market growth strategy. Created by Professor Igor Ansoff (1918 -2002) It suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. Product development Market penetration 1. 2. 3. 4. (Selling existing products into existing markets. ) Maintain or increase the market share of current products –competitive pricing strategies, advertising, sales promotion, more resources dedicated to personal selling Secure dominance of growth markets Restructure a mature market by driving out competitors- aggressive promotional campaign, pricing strategy Increase customer loyalty - e. g. loyalty schemes Focus on markets and products it knows well. It is likely to have good information on competitors and on customer needs. Little investment in new market research is needed. Market development. Market extension (seeks to sell its existing products into new markets. ) 1. 2. 3. 4. New geographical markets New product dimensions or packaging New distribution channels (e. g. moving from selling via retail to selling using e-commerce and mail order) Different pricing policies to attract different customers or create new market segments Market development is a more risky strategy than market penetration because of the targeting of new markets. (A business aims to introduce new products into existing markets. ) New competencies New skills A successful product development strategy places the marketing emphasis on: 1. 2. 3. R &D and innovation Substantial market research Being first to market Diversification A business markets new products in new markets 1. 2. 3. More risk Clear expectations Must conduct risk assessment Related diversification The business remains in the same industry in which it is familiar with. E. g. a cake manufacturer diversifies into a fresh juice manufacturer. This diversification is in the same industry which is the food industry. Unrelated diversification Usually no previous industry relations or market experiences. A food manufacturer diversifies into a mechanical industry

Porter’s Generic strategies HL Unit 1. 7 Growth and Evolution Michael Porter suggested that businesses could achieve a competitive advantage over rivals by following these strategies: 1. 2. 3. Cost leadership Differentiation Focus Cost leadership o o o Differentiation The lowest cost supplier within a market Charge low prices Often lower quality Highly profitable Predatory pricing methods used These businesses do not compete with high quality providers o o Focus on quality over cost Packaging Branding USP Focus Target a niche or individual market segment Cost focus Differentiation focus o o o To be the lowest cost operator in one niche market Also used by low cost specialised businesses such as small DIY shops… Porter argued that for a firm to be successful in the long run, they can only choose one generic strategy. Otherwise they will be stuck in the middle… Stuck in the middle Aims to offer the best or most distinctive in a niche market

Lewin’s force field HL Unit 1. 8 Change and the management of change o o Many factors drive change in a business. Lewin identified four forces: In Lewin’s model there are forces driving change and forces restraining it. Where there is equilibrium between the two sets of forces there will be no change. In order for change to occur the driving force must exceed the restraining force o o o Lewin’s analysis can be used to: Investigate the balance of power involved in an issue Identify the key stakeholders on the issue Identify opponents and allies Identify how to influence the target groups Force Field analysis steps 1. 2. 3. 4. List the driving forces for change in one column, and the restraining forces against change in another column. Allocate a weight to each of these forces, from 1 (weak) to 5 (strong). Draw a diagram adding the weights to each driving and restraining force. Total the scores for the driving forces and the restraining forces.

The recruitment process HL Unit 2. 1 Human resources planning Charles Handy’s Shamrock HL Unit 2. 1 Human resources planning o A Shamrock organisation will have: o Core workforce/Core Staff Full time Staff -Vital but becoming an increasingly smaller group o Flex workers/Peripheral Workers Part-time, casual, temporary and portfolio workers o Freelance contractors/Outsourced Workers not employed by the organisation but paid to complete specialist tasks

Cash flow forecasting. SL unit 3. 3 Accounts and Finance A prediction of the future flows of money in and out of the business for a specified period of time. A cash flow forecast shows, month by month, the money that it is anticipated will be coming into the business and the money that the business will be paying out. Uses of a cash flow forecast 1. 2. 3. 4. 5. Identifies potential shortfalls in cash balances in advance – think of the cash flow forecast as an “early warning system”. Makes sure that the business can afford to pay suppliers and employees. Spot problems with customer payments As an important discipline of financial planning – helps with planning the budget. External stakeholders such as banks may require a regular forecast. The causes of cash flow problems 1. 2. 3. 4. 5. Overtrading Overborrowing Overstocking Poor credit control Unforseen changes Seeking alternativ e sources of finance Improvin g cash inflows Reducing cash outflows

Porter’s 5 Force analysis HL, unit 4. 2 Marketing planning o o o The 5 forces analysis looks at assessing the nature of competition within an industry It allows a manager to make decisions on how to improve his business. Marketing managers may use it to modify their strategies (Marketing Mix) Management guru!

Position Maps (perception or market map) SL, unit 4. 2 Marketing planning The position map illustrates the range of “positions” that a product can take in a market based on two dimensions that are important to customers. Examples of those dimensions might be: o. High price v low price o. Basic quality v High quality o. Low volume v high volume o. Necessity v luxury o. Light v heavy o. Simple v complex o. Lo-tech v high-tech o. Young v Old Position maps are used to identify where there are “gaps in the market” – where there are customer needs that are not being met.

The Product lifecycle SL, unit 4. 3 Marketing planning Sales R&D Introduction Growth Maturity Saturation Decline Time R&D o New ideas/possible inventions o Market analysis – is it wanted? Can it be produced at a profit? Who is it likely to be aimed at? o Product Development and refinement o Test Marketing – possibly local/regional o Analysis of test marketing results and amendment of product/production process o Preparations for launch – publicity, marketing campaign Growth o Increased consumer awareness o Sales rise / Revenues increase o Costs - fixed costs/variable costs, profits may be made o Monitor market – competitors reaction? Saturation o New entrants likely to mean market is ‘flooded’ o Necessity to develop new strategies becomes more pressing: o Searching out new markets: o Linking to changing fashions o Seeking new or exploiting market segments o Linking to joint ventures – media/music, etc. o Developing new uses o Focus on adapting the product o Re-packaging or format o Improving the standard or quality o Developing the product range Introduction / Launch o Advertising and promotion campaigns o Target campaign at specific audience? o Monitor initial sales / Maximise publicity / High cost/low sales o Length of time – type of product Maturity o Sales reach peak o Cost of supporting the product declines o Sales growth likely to be low o Market share may be high o Competition likely to be greater o Price elasticity of demand? o Monitor market – changes/amendments/new strategies? Decline o Product outlives/outgrows its usefulness/value o Fashions change o Technology changes o Sales decline o Cost of supporting starts to rise too far o Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again? Extension strategies aim to prolong the life cycle and often start in the saturation phase

The Boston Matrix SL, unit 4. 3 Marketing planning Market share High Examines the likely financial performance of your product or business portfolio Low market growth Market growth High (Growing) Stars Problem children Cash cow. . moo! Dogs. . . woof. . Low (mature) Stars o Generate lots of cash! o Competing in markets where they are strong compared with the competition. o Need heavy investment to sustain growth. Eventually growth will slow and, assuming they keep their market share, Stars will become Cash Cows o These are mature, successful products with relatively little need for investment. o Need to be managed for continued profit so that they continue to generate the strong cash flows that the company needs for its Stars. . o They also may run the risk of becoming dogs – extension strategies may be needed! Problem Children o May indicate poor marketing o Use up a lot of cash o Management - which ones should they invest in? Which ones should they allow to fail or shrink? o Potential, but may need substantial investment to grow market share Dogs o May generate enough cash to break-even, but they are rarely, if ever, worth investing in. o Too many dogs = liquidity problems A criticism of the matrix…Higher profits do not always come from higher market share. The matrix fails to place products exactly in the grid. Should be used alongside Ansoff’s Matrix