IB Business and

Management HL

Business tools

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

AMonitor (minimum effort)

BKeep informed

CKeep satisfied

DManage closely

Level of

pow

er

HIG

H

LO

W

Stakeholder mapping HL, unit 1.4 Stakeholders

Stakeholder Main Interests Power and influence

Shareholders Profit growth, Share price growth, dividends

Election of directors

Banks & other Lenders

Interest and principal to be repaid, maintain credit rating

Can enforce loan covenants Can withdraw banking facilities

Directors and managers

Salary ,share options, job satisfaction, status

Make decisions, have detailed information

Employees Salaries & wages, job security, job satisfaction & motivation

Staff turnover, industrial action, service quality

Suppliers Long term contracts, prompt payment, growth of purchasing

Pricing, quality, product availability

Customers Reliable quality, value for money, product availability, customer service

Revenue / repeat business Word of mouth recommendation

Community Environment, local jobs, local impact

Indirect via local planning and opinion leaders

Government Operate legally, tax receipts, jobs

Regulation, subsidies, taxation, planning

The Business CycleSL, unit 1.5 External environment

o Economic activity at its highest level

o Consumer expenditure, investment and export earnings are high.

o People receive pay rises as business make more profits.

o Business have good cash flow

Peak or boom

Recession o Dip in level of economy

for 2 consecutive quarters. (6 months)

o Declining aggregate demand

o Lower investment expenditure

o Falling export saleso Rising unemploymento Most affected businesses

are those sensitive to changes in income. (houses, cars, jewelery)

o Last stage of decline in the trade cycle

o Very high level of unemployment

o Very low consumer spending, investment and export levels

o Poor cash flow and liquidity…many close down

o Lack of confidence in the economy

o No job securityo Low spending

Slump or trough

o Reduces costso Reduce priceo Non – pricing e.g. after saleso Brandingo Outsourcingo Increased efficiency

Survival strategies…?

PESTLEo POLITICALo ECONOMICo SOCIAL o TECHNOLOGICALo LEGALo ENVIRONMENTAL

o SOCIAL o TECHNOLOGICALo ECONOMICo ETHICALo POLITICALo LEGALo ENVIRONMENTAL

STEEPLE

PEST analysisSL, unit 1.5 External environment

Political / Legal EconomicEnvironmental regulation and protection Economic growth (overall; by industry

sector)Taxation (corporate; consumer) Monetary policy (interest rates) International trade regulation Government spending (overall level;

specific spending priorities)Consumer protection Policy towards unemployment (minimum

wage, unemployment benefits, grants)

Employment law Taxation (impact on consumer disposable income, incentives to invest in capital equipment, corporation tax rates)

Government organisation / attitude Exchange rates (effects on demand by overseas customers; effect on cost of imported components)

Competition regulation Inflation (effect on costs and selling prices)Stage of the business cycle (effect on short-term business performance)Economic "mood" - consumer confidence

Social TechnologicalIncome distribution (change in distribution of disposable income;

Government spending on research

Demographics (age structure of the population; gender; family size and composition; changing nature of occupations)

Government and industry focus on technological effort

Labour / social mobility New discoveries and developmentLifestyle changes (e.g. Home working, single households)

Speed of technology transfer

Attitudes to work and leisure Rates of technological obsolescence Education Energy use and costs Fashions and fads Changes in material sciences Health & welfare Impact of changes in Information

technologyLiving conditions (housing, amenities, pollution)

Internet!

SWOT analysisSL, unit 1.6 Organizational planning tools

Positive factors Negative factorsInternal factors Strengths Weaknesses

External factors Opportunities Threats

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:

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 treesHL, unit 1.6 Organizational planning tools

Constructing the decision tree

Product A

Product B

High Demand

Low Demand

High Demand

Low Demand

-£7m

-2m

£16m

£6m

£12m

£4m

0.7

0.3

0.6

0.4

o A tool to help businesses in their decision making processeso Provides a pictorial approach to decision makingo Maps out the different options available and the different outcomes of

these options

Product AHigh Demand 0.7 x £16m = £11.2mLow Demand 0.3 x £6m = £1.8m

Expected Value = £11.2m + £1.8m = £13m

Net Expected Value = £13m - £7m = £6m

Product BHigh Demand 0.6 x £12m = £7.2mLow Demand 0.4 x £4m = £1.6m

Expected Value = £7.2 + £1.6m = £8.8m

Net Expected Value = £8.8m - £2m = £6.8m

o Encourages a careful consideration of all alternatives

o Sets out a problem clearly and encourages a logical approach to decision making

o Encourages a quantitative consideration of chance

o Takes risk into accounto Discourages gut reaction

decision making

o Hard to get accurate or meaningful data for probabilities

o Less useful in the case of completely new problems or one-off strategic problems

o Easy for management bias to enter, or for a manager to manipulate the data

o Ignores the changing nature of the business environment

o May lead to managers taking less account of qualitative issues

Limitations

Advantages

Chance nodes represent alternatives with probabilities attached

A decision nodes are indicated by a square

Ishikawa’s Fishbone AnalysisHL, unit 1.6 Organizational planning tools

o Is a model used to identify cause and effect

o An issue is identifiedo And then possible causes are

identifiedo Often the 4 M’s are used

1. Management2. Manpower3. Machines4. Materials

1. Identify the problem2. Construct diagram with possible categories of causes3. For each ‘bone’ brainstorm the possible causes and place on the

node4. Consider each possible cause and think about which are likely to

warrant further investigation and circle these on the diagram5. Once root causes have been identified then the appropriate

strategies can be devised to deal with the problem

The fishbone procedure

❑ 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.

Ansoff’s MatrixSL, unit 1.6 Organizational planning tools

1. Maintain or increase the market share of current products –competitive pricing strategies, advertising, sales promotion, more resources dedicated to personal selling

2. Secure dominance of growth markets

3. Restructure a mature market by driving out competitors- aggressive promotional campaign, pricing strategy

4. 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 penetration(Selling existing products into existing markets.)

New competenciesNew skills

A successful product development strategy places the marketing emphasis on:

1. R &D and innovation2. Substantial market

research3. Being first to market

Product development(A business aims to

introduce new products into existing markets. )

1. New geographical markets2. New product dimensions or

packaging3. New distribution channels (e.g.

moving from selling via retail to selling using e-commerce and mail order)

4. 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.

Market developmentMarket extension (seeks to sell its existing

products into new markets.)

1. More risk 2. Clear expectations3. 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 diversificationUsually no previous industry relations or market experiences. A food manufacturer diversifies into a mechanical industry

Diversification A business markets new products in new

markets

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. Cost leadership2. Differentiation3. Focus

o The lowest cost supplier within a market

o Charge low priceso Often lower qualityo Highly profitableo Predatory pricing methods usedo These businesses do not compete

with high quality providers

Cost leadershipo Focus on quality over

costo Packagingo Brandingo USP

Differentiation

Target a niche or individual market segment

Focus

o To be the lowest cost operator in one niche market

o Also used by low cost specialised businesses such as small DIY shops…

Cost focus

o Aims to offer the best or most distinctive in a niche market

Differentiation focus

Stuck in the middle

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…

o Many factors drive change in a business. o 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 Lewin’s analysis can be used to:o Investigate the balance of power involved in an

issueo Identify the key stakeholders on the issueo Identify opponents and allieso Identify how to influence the target groups

Lewin’s force fieldHL Unit 1.8 Change and the management of

change

1. List the driving forces for change in one column, and the restraining forces against change in another column.

2. Allocate a weight to each of these forces, from 1 (weak) to 5 (strong).

3. Draw a diagram adding the weights to each driving and restraining force.

4. Total the scores for the driving forces and the restraining forces.

Force Field analysis steps

The recruitment processHL 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

Workers not employed by the organisation but paid to complete specialist tasks

Charles Handy’s ShamrockHL Unit 2.1 Human resources planning

Cash flow forecastingSL unit 3.3 Accounts and Finance

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.

A prediction of the future flows of money in and out of the business for a specified period of time.

1. Identifies potential shortfalls in cash balances in advance – think of the cash flow forecast as an “early warning system”. 

2. Makes sure that the business can afford to pay suppliers and employees. 

3. Spot problems with customer payments 4. As an important discipline of financial planning – helps with planning

the budget.5. External stakeholders such as banks may require a regular forecast. 

Uses of a cash flow forecast

The causes of cash flow problems1. Overtrading

2. Overborrowing3. Overstocking4. Poor credit control5. Unforseen changes 

Reducing cash outflows

Improving cash inflows

Seeking alternative sources of finance

o The 5 forces analysis looks at assessing the nature of competition within an industry

o It allows a manager to make decisions on how to improve his business.

o Marketing managers may use it to modify their strategies (Marketing Mix)

Management guru!

Porter’s 5 Force analysisHL, unit 4.2 Marketing planning

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:

oHigh price v low priceoBasic quality v High qualityoLow volume v high volumeoNecessity v luxuryoLight v heavyoSimple v complexoLo-tech v high-techoYoung 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.

R&Do New ideas/possible inventionso 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

Sales

Time

R&D Introduction Growth Maturity Saturation Decline

Introduction / Launcho Advertising and promotion

campaignso Target campaign at specific

audience? o Monitor initial sales /

Maximise publicity / High cost/low sales

o Length of time – type of productGrowth

o Increased consumer awareness

o Sales rise / Revenues increase

o Costs - fixed costs/variable costs, profits may be made

o Monitor market – competitors reaction?

Maturity o Sales reach peako Cost of supporting the product

declineso Sales growth likely to be lowo Market share may be higho Competition likely to be greatero Price elasticity of demand?o Monitor market –

changes/amendments/new strategies?

The Product lifecycleSL, unit 4.3 Marketing planning

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 fashionso Seeking new or exploiting

market segmentso Linking to joint ventures –

media/music, etc.o Developing new uses

o Focus on adapting the producto Re-packaging or formato Improving the standard or

qualityo Developing the product range

Decline o Product outlives/outgrows its

usefulness/valueo Fashions changeo Technology changeso Sales declineo Cost of supporting starts to

rise too faro 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

High Low

High (Growing)

Low(mature)

mar

ket g

row

th

Market share

Problem children

Cash cow....moo!

Stars

Dogs...woof..

Examines the likely financial performance of your product or business portfolio

The Boston MatrixSL, unit 4.3 Marketing planning

Mark

et

gro

wth

Starso 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

Cash Cowso 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 Childreno May indicate poor marketingo Use up a lot of casho 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

Dogso 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