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IB Business and Management HL Business tools

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1 IB Business and Management HL Business tools

2 Stakeholder mapping HL, unit 1.4 Stakeholders Monitor (minimum effort)
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 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 A Monitor (minimum effort) B Keep informed C Keep satisfied D Manage closely HIGH LOW Level of power

3 The Business CycleSL, unit 1.5 External environment
Peak or boom 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 Slump or trough Recession Dip in level of economy for 2 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) 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 Survival strategies…? Reduces costs Reduce price Non – pricing e.g. after sales Branding Outsourcing Increased efficiency

4 PEST analysisSL, unit 1.5 External environment
Political / Legal Economic Environmental 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 Technological Income 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 development Lifestyle 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 technology Living conditions (housing, amenities, pollution) Internet! STEEPLE PESTLE POLITICAL ECONOMIC SOCIAL TECHNOLOGICAL LEGAL ENVIRONMENTAL SOCIAL TECHNOLOGICAL ECONOMIC ETHICAL POLITICAL LEGAL ENVIRONMENTAL

5 SWOT analysisSL, 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: 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 Positive factors Negative factors Internal factors Strengths Weaknesses External factors Opportunities Threats 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

6 Constructing the decision tree
Decision treesHL, unit 1.6 Organizational planning tools 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 Product A Product B High Demand Low Demand -£7m -2m £16m £6m £12m £4m 0.7 0.3 0.6 0.4 Chance nodes represent alternatives with probabilities attached A decision nodes are indicated by a square Product B High Demand 0.6 x £12m = £7.2m Low Demand 0.4 x £4m = £1.6m Expected Value = £7.2 + £1.6m = £8.8m Net Expected Value = £8.8m - £2m = £6.8m Product A High Demand 0.7 x £16m = £11.2m Low Demand 0.3 x £6m = £1.8m Expected Value = £11.2m + £1.8m = £13m Net Expected Value = £13m - £7m = £6m Advantages Limitations 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 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

7 The fishbone procedure
Ishikawa’s Fishbone Analysis HL, unit 1.6 Organizational planning tools 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 Management Manpower Machines Materials The fishbone procedure 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

8 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 ( ) It suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. Market penetration (Selling existing products into existing markets.) Product development (A business aims to introduce new 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. New competencies New skills A successful product development strategy places the marketing emphasis on: R &D and innovation Substantial market research Being first to market Diversification A business markets new products in new markets More risk Clear expectations Must conduct risk assessment Market developmentMarket extension (seeks to sell its existing products into new markets.) 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 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.

9 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: Cost leadership Differentiation Focus Cost leadership 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 Focus on quality over cost Packaging Branding USP Focus Target a niche or individual market segment Cost focus Differentiation focus To be the lowest cost operator in one niche market Also used by low cost specialised businesses such as small DIY shops… Aims to offer the best or most distinctive in a niche market 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

10 Force Field analysis steps
Lewin’s force field HL Unit 1.8 Change and the management of change 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 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 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.

11 The recruitment process HL Unit 2.1 Human resources planning
Charles Handy’s Shamrock HL Unit 2.1 Human resources planning A Shamrock organisation will have: Core workforce/Core Staff Full time Staff -Vital but becoming an increasingly smaller group Flex workers/Peripheral Workers Part-time, casual, temporary and portfolio workers Freelance contractors/Outsourced Workers Workers not employed by the organisation but paid to complete specialist tasks

12 Cash flow forecastingSL 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 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.  Reducing cash outflows Improving cash inflows Seeking alternative sources of finance The causes of cash flow problems Overtrading Overborrowing Overstocking Poor credit control Unforseen changes 

13 Porter’s 5 Force analysis HL, unit 4.2 Marketing planning
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!

14 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: High price v low price Basic quality v High quality Low volume v high volume Necessity v luxury Light v heavy Simple v complex Lo-tech v high-tech 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. 

15 SL, unit 4.3 Marketing planning
The Product lifecycle SL, unit 4.3 Marketing planning Sales Time R&D Introduction Growth Maturity Saturation Decline R&D New ideas/possible inventions Market analysis – is it wanted? Can it be produced at a profit? Who is it likely to be aimed at? Product Development and refinement Test Marketing – possibly local/regional Analysis of test marketing results and amendment of product/production process Preparations for launch – publicity, marketing campaign Introduction / Launch Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales / Maximise publicity / High cost/low sales Length of time – type of product Growth Increased consumer awareness Sales rise / Revenues increase Costs - fixed costs/variable costs, profits may be made Monitor market – competitors reaction? Maturity Sales reach peak Cost of supporting the product declines Sales growth likely to be low Market share may be high Competition likely to be greater Price elasticity of demand? Monitor market – changes/amendments/new strategies? Saturation New entrants likely to mean market is ‘flooded’ Necessity to develop new strategies becomes more pressing: Searching out new markets: Linking to changing fashions Seeking new or exploiting market segments Linking to joint ventures – media/music, etc. Developing new uses Focus on adapting the product Re-packaging or format Improving the standard or quality Developing the product range Decline Product outlives/outgrows its usefulness/value Fashions change Technology changes Sales decline Cost of supporting starts to rise too far 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

16 SL, unit 4.3 Marketing planning
The Boston Matrix SL, unit 4.3 Marketing planning Examines the likely financial performance of your product or business portfolio Market share High Low (Growing) (mature) Stars Problem children Market growth Cash cow....moo! Dogs...woof.. market growth Stars Generate lots of cash! Competing in markets where they are strong compared with the competition. Need heavy investment to sustain growth. Eventually growth will slow and, assuming they keep their market share, Stars will become Cash Cows Problem Children May indicate poor marketing Use up a lot of cash Management - which ones should they invest in? Which ones should they allow to fail or shrink? Potential, but may need substantial investment to grow market share Cash Cows These are mature, successful products with relatively little need for investment. Need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars.. They also may run the risk of becoming dogs – extension strategies may be needed! Dogs May generate enough cash to break-even, but they are rarely, if ever, worth investing in. 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

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