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Summary Edexcel A-Level Business Theme 3 (Business decisions and strategy)

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These comprehensive notes cover the whole of Theme 3 (Business decisions and strategy) and are structured using the actual Pearson exam specification for ease of use. Themes 1, 2 and 4 also available for download.

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Uploaded on May 14, 2019
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1. Summary - Edexcel a-level business theme 1 (marketing and people)
2. Summary - Edexcel a-level business theme 2 (managing business activities)
3. Summary - Edexcel a-level business theme 3 (business decisions and strategy)
4. Summary - *free* edexcel a-level business theme 4 (global business)
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Theme 3: Business decisions and strategy
3.1 Business objectives and strategy
3.1.1 Corporate objectives

A) Development of corporate objectives from mission statement/corporate
aims

Hierarchy of business objectives -:
1. Mission statements (a memorable and inspiring statement, which outlines a business' main
intent and sets out their primary objectives) and general aims.
2. Corporate objectives (set out to help a firm achieve its mission statement and aimed at
satisfying shareholders, which should flow from the mission statement).
3. Department/functional objectives (each department sets their own objectives, which should
flow from the corporate objectives).
Departmental functional areas -:
 Finance.
 Human Resources.
 Marketing.
 Operations.
SMART objectives -:
 Specific (clear definition).
 Measurable (so the objective can be checked).
 Achievable (so the objective can be attained).
 Realistic (sensible).
 Time-related (setting a date for attainment or review).

B) Critical appraisal of mission statements/corporate aims

Critical appraisal - The purpose of the mission statement and their intended audience are often
considered in appraisal.

Uses of mission statements:
 Focus - can create a high level of involvement as those within the organisation strive to meet it.
 Identity - can establish the organisation's position in the market.
 Profitability - can encourage productivity due to motivated workers who are aware that their job
has a more significant purpose beyond the duty in itself.
Limitations of mission statements:
 May be unrealistic.
 Ambiguity may cause problems.
 Can become obsolete as the business develops and the statement remains the same.
Stakeholder perspectives - As a firm's corporate objectives are often aimed at shareholders, they may
be related to profits/dividends. This could neglect and displease other stakeholders (e.g. may rise prices
for the customer, may ignore employee welfare etc.).

,3.1.2 Theories of corporate strategy

A) Development of corporate strategy: Ansoff's Matrix, Poter's Strategic
Matrix

Ansoff's Matrix - Marketing planning tool that helps a business determine its product and market
growth strategy.

Market penetration LR - The name given to a growth strategy where the business focuses on selling
existing products into existing markets.
Market development MR - The name given to a growth strategy where the business seeks to sell its
existing products into new markets (e.g. new geographical market i.e. exporting the product to a new
country or new market segment).
 This may be useful if the domestic market is saturated or if it is experiencing economic difficulty.
Product development MR - The name given to a growth strategy where a business aims to introduce
new products into existing markets.
 This strategy may require the development of new competencies and requires the business to
develop modified products which can appeal to existing markets.
 A strategy of product development is particularly suitable for a business where the product
needs to be differentiated in order to remain competitive.
 A successful product development strategy places the marketing emphasis on research &
development and innovation, detailed insights into customer needs (and how they change) and
being first to market.
Diversification HR - The name given to the growth strategy where a business sells new products in new
markets.
 This is an inherently riskier strategy because the business is moving into markets in which it has
little or no experience.
 For a business to adopt a diversification strategy, therefore, it must have a clear idea about what
it expects to gain from the strategy and an honest assessment of the risks. However, for the
right balance between risk and reward, a marketing strategy of diversification can be highly
rewarding.
Uses of Ansoff to the development of corporate strategy:

,  Useful tool for looking at the different strategic options for an organisation.
 Can help a firm to consider their future options for expansion in terms of potential opportunities
or threats.
Limitations of Ansoff to the development of corporate strategy:
 Very simplistic in its purest form - larger firms require much more analysis.
 May not be enough on its own and should be combined with other tools (e.g. SWOT and
PESTLE).

Porter's Strategic Matrix - Corporate strategy used to help a firm find a competitive advantage.

 Cost leadership - involves producing products at the lowest cost (e.g. lean production methods,
outsourcing etc.). This enables a firm to charge lower prices, increase sales and profitability and
their market share.
 Differentiation - where the product or service is unique and its USP adds value to the product
(e.g. quality, branding, customer service etc.). This enables a firm to increase sales volume and
have greater scope for charging higher prices.
 Focus - where the business focuses on one segment of the market (e.g. niche market). Here, the
product or service serves a very specific niche, with the high costs passed onto the consumer.
This enables a firm to create high levels of customer satisfaction and loyalty.
If the business fails to select one of these strategies, Porter argues that they would be 'stuck in the
middle'.
Uses of Porter to the development of corporate strategy:
 The right strategy can help a firm increase sales and therefore profit.
Limitations of Porter to the development of corporate strategy:
 The chosen strategy may not always work in the expected ways (e.g. the cost of differentiation
may outweigh any increase in revenue).
 A successful differentiation strategy can be copied (unless protected with intellectual property).
 A cost leadership strategy may result in an association with poor quality, leading to lower sales.

B) Aim of portfolio analysis

Boston Matrix - Tool used by firms to analyse their product portfolios in terms of market share and
market growth.

,Problem child/question mark (I) - Brand needs building or there if not possible, withdrawal may be
necessary. Has potential to become a 'star'.
Star (G) - Brand needs further building. Future potential i.e. future 'cash cows'.
Cash cow (M) - 'Milked' for profits. Extra capital may be used for developing new products. Occasional
discounting to halt becoming a 'dog'.
Dog (D) - Rebranding to try and regenerate interest or withdrawn if still struggling to make a profit.
Boston Matrix High market share Low market share
High market Star Problem child
growth
Low market growth Cash cow Dog
Product portfolio - The collection of products offered by a business.
Product portfolio analysis - Looks at market share and market growth in order to assess new or existing
products in terms of their market potential.
Uses of portfolio analysis:
 Can help a firm to decide what products it should offer or discontinue, and find gaps in their
portfolio to fix the balance.
 Helps a business analyse future opportunities or threats.
Limitations of portfolio analysis:
 Only classifies businesses as 'high' or 'low' when they might be in the middle.
 It overlooks other indicators of profitability (too simplistic).

C) Achieving competitive advantage through distinctive capabilities

Kay (1993): Model of distinctive capabilities - Competitive advantage allows a firm to perform better
than their rivals; the following distinctive capabilities are difficult for these rivals to understand and
reproduce:
 Architecture - the framework of contacts inside or around the company with suppliers,
customers and with employees.
 Innovation - can lead to competitive advantage and thus can prove to be a harbinger of success.
 Reputation - consists of the experience of customers, guarantee, quality and word of mouth.
These can be applied to a business examples to analyse whether or not businesses have achieved a
competitive advantage.

D) Effect of strategic and tactical decisions on human, physical, and financial
resources

Strategy - More long term and relates to achieving an overall goal.
Impact on resources:
 Human (recruitment, training, redundancy) - a strategy to make more staff redundant can save
huge costs but may drain resources away from other aspects of the business.
 Physical (investment in fixed assets, location) - moving premises in the long-term may allow for
a smoother transition.
 Financial (sources of finance) - a firm may take out a long-term loan to pay for property - this
can spread finances over a longer period of time.
Tactics - Shorter-term actions that help to achieve the strategy.
Impact on resources:

,  Human (recruitment, training, redundancy) - such shorter-term actions can help a firm towards
a longer-term recruitment drive without being a big drain on resources in one big action.
 Physical (investment in fixed assets, location) - moving premises in the short-term may have a
huge impact on the resources available to a firm.
 Financial (sources of finance) - a firm may take out a short-term loan to improve their cash-flow
- these are often costlier.

3.1.3 SWOT analysis

A) SWOT analysis, internal considerations: strengths and weaknesses,
external considerations: opportunities and threats

Developing a strategy - A firm needs to gather information to help it develop a strategy. This can be
collected in the form of an audit (independent inspection).
 Internal audit - an analysis of the business itself and how it operates.
 External audit - an analysis of the environment in which the business operates.

SWOT analysis - Tool which may be used to represent the findings of an audit and can be used to make
strategic and/or tactical decisions to achieve corporate objectives.
 Internal considerations: strengths (where the business performs well) and weaknesses (where
the business performs poorly) encompass aspects of the business functions that they can
directly influence (e.g. people, marketing, finance and operations).
 External considerations: opportunities (options that a business might be able to exploit) and
threats (possible hazards have the potential to damage the performance of the business) relate
to the external environment which can only be reacted to.
SWOT analysis is different for a range of businesses (e.g. micro start-up businesses and large
multinationals).

3.1.4 Impact of external influences

A) PESTLE (political, economic, social, technological, legal and
environmental)

PESTLE analysis - External influences can have a huge impact on business activity and performance.
 Political - some parts of the world are politically volatile. Still, political factors also influence
businesses in stable, democratic countries.
 Economic - the general state of the economy can have a huge impact on business activity (e.g.
boom/recession, employment, interest rates etc.).
 Social - society changes over time; even gradual changes can have an impact (e.g. ageing
population, migration etc.).
 Technological - changes are often welcome by firms because they provide new product
opportunities or help to improve efficiency. Firms who do not adapt may struggle to survive (e.g.
social media, new technological developments etc.).

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