Learning Outcomes Apply an appropriate financial strategy for a business (E) Apply an appropriate financial strategy for a business (E) Analyse the associated benefits of selecting one financial strategy over another (C) Analyse the associated benefits of selecting one financial strategy over another (C) Evaluate the impact the financial strategies can have on the other functional areas (A) Evaluate the impact the financial strategies can have on the other functional areas (A)

  How many ways can you come up with of raising finance? Starter

  Normally adopted by a business looking to expand, so would link to a corporate objective of growth.  Discussion: Let us look at the 4 methods of raising finance below. What are the good and bad points of using this method to implement this strategy?  Retained Profits  Borrowing  Selling Shares  Sale of Assets Strategy 1: Raising Finance

  In small groups, discuss the impact you think this strategy would have on the marketing, operations and HR functions of a business. Strategy 1: Raising Finance

  MARKETING – Research a changing market, investigate a new market, product development.  OPERATIONS – R&D, investment in new production methods.  HR – Recruit more staff, retrain the existing staff, relocate employees. Strategy 1: Raising Finance

  RESEARCH ACTIVITY!!  In pairs (prize for the best) find the following information out:  What is a profit centre?  What are the benefits of implementing profit centres?  What are the limitations of implementing profit centres? I shall provide you with some information afterwards also. Strategy 2: Profit Centres

 Benefits and drawbacks of profit centres AdvantagesDisadvantages Useful insights into where profit is earned within a complex business Can be time-consuming to both set-up and monitor Supports budgetary control at a detailed level, including setting profit objectives Difficulties in allocating costs (particularly) and revenues (occasionally) Can improve motivation of those responsible for the profit centre May lead to conflict and competition rather than cooperation within the business Comparisons can be made between similar profit centres (e.g. shops in a chain) Potentially de-motivating if profit centre targets are too tough, or if unfair cost allocations are made Improves decision-making at a local level (likely to be closer to customer needs) Profit centres may pursue their own objectives rather than those of the broader business Finance can be allocated more efficiently – where it makes the best return

  In small groups, discuss the impact you think this strategy would have on the marketing, operations and HR functions of a business. Strategy 2: Profit Centres

  MARKETING – Promotional plans, pricing strategies  OPERATIONS – Lean production, decentralisation, (dis)economies of scale.  HR – Workforce plan, skills audit, recruit specialist employees, redeploy existing employees, redundancy, communication. Strategy 2: Profit Centres

  What is this?  How do you think a business could go about doing this?  What should a business be aware of if adopting this strategy? Strategy 3: Cost Minimisation

  1. Minimising labour costs  Reduce staff levels  Use more flexible workforce  Outsourcing Strategy 3: Cost Minimisation

  2. Relocating  Somewhere production costs are lower.  Somewhere labour costs are lower  Offshoring. What is this? Strategy 3: Cost Minimisation

  3. Using technology  Replace staff  Use on production line Strategy 3: Cost Minimisation

  In small groups, discuss the impact you think this strategy would have on the marketing, operations and HR functions of a business. Strategy 3: Cost Minimisation

  MARKETING – Distribution channels.  OPERATIONS – Automation, globalisation, low production costs, quality.  HR – Motivation, temporary and part time contracts, labour costs abroad, ethics. Strategy 3: Cost Minimisation

  Capital expenditure = spending on non-current assets  Deciding where capital expenditure is spent normally comes with significant opportunity costs for a business as it usually represents a large outlay for the organisation. Strategy 4:Allocating Capital Expenditure

  Investing in technology  Investing in other assets such as property Strategy 4:Allocating Capital Expenditure

  In small groups, discuss the impact you think this strategy would have on the marketing, operations and HR functions of a business. Strategy 4:Allocating Capital Expenditure

  MARKETING – Image, brand awareness, location  OPERATIONS – Efficiency, capacity utilisation  HR – Recruitment, redundancy, retraining Strategy 4:Allocating Capital Expenditure

  Using your knowledge of the 5 manufacturing businesses we have been looking at, evaluate which financial strategy they should adopt and the impact this will have on the other functional areas of the business. TASK

  Please complete homework 4. Due this time next week. Homework