Functional Objectives & Strategies

Aims / goals

General statements of what a business intends to achieve. Precise details of those intentions are set out in objectives

Business unit strategy

How a business attempts to compete successfully in a particular market

Corporate objectives

Objectives that relate to the business as a whole. Usually set by top management.

Corporate strategy

Concerned with the overall purpose and scope of the business activities

Cost leadership

A business strategy concerned with aiming to be the lowest-cost producer in an industry. Usually requires exploitation of economies of scale

Functional objectives

Set for each major business function – designed to ensure that the corporate objectives are met

Mission statement

A statement of the overall purpose of the business

Shareholder value

Where shareholders earn a return from their investment which is greater than their required rate of return

SMART objectives

Objectives that are more likely to be achieved because they are Specific, Measurable, Achievable, Realistic and Timed

Social responsibility

The way in which a business meets its responsibilities to society as a key external stakeholder

SWOT analysis

Assessment of the internal strengths and weaknesses of a business and the external opportunities and threats that the business needs to consider

Targets

Similar to objectives. Targets are often set at an individual or team level

Financial Strategies and Accounts

Acid-test ratio

A liquidity ratio that looks at whether a business can pay for current liabilities out of cash and near-cash assets (it ignores the value of stocks)

Asset turnover

A ratio that calculates the relationship between revenues and the total assets employed in a business

Assets

Amounts owned by, or owed to a business

Average rate of return

A measure of the total accounting return from an investment project

Balance sheet

The financial statement that provides a snapshot of the assets and liabilities of a business at a particular date

Capital expenditure

Expenditure on assets which are intended to be kept in the business (e.g. IT systems, machinery) rather than sold or turned into products

Cash flow targets

Specific objectives set by a business for cash-flow generated by a business

Corporation tax

The tax levied on the profits of companies. The percentage varies depending on the size of the profits earned; typically 20-30%

Cost minimisation

A strategy of achieving the most cost-effective way of delivering goods and services to the required level of quality

Creditor days

A ratio that estimates the average period (in days) taken to settle amounts owed by a business to suppliers

Current ratio

A simple and popular measure of liquidity that assess the ability of current assets (e.g. cash, stocks) to finance current liabilities (e.g. trade creditors)

Debentures

A long-term source of finance – a debenture is a form of bond or long-term loan issued by a company

Debtor days

A ratio that focuses on the average time it takes for trade debtors to settle their accounts. Usually measured in days

Depreciation

An accounting estimate of the fall in value of a fixed asset over time

Discount factor

The multiplication factor that converts a projected cost or benefit in a future year into its present value

Dividend

Amounts paid to shareholders out of the profits earned by a company.

Dividend yield

A measure of shareholder return – calculated by comparing the dividend per share by the share price

Fixed assets

Assets such as property, equipment and vehicles that are intended to be retained and used in a business for more than one year

Gearing

A ratio that focuses on the long-term financial stability and capital structure of a business. The gearing ratio measures the proportion of assets in a business that are financed by borrowing

Going concern

A business that is viable and able to continue in business for the foreseeable future

Goodwill

An intangible asset that can be included in a balance sheet = the difference between the net assets of a business acquired and the price paid for the business

Income statement

A financial statement that summarises the trading results of a business over a specific period – usually one year

Investment appraisal

Analytical techniques to help management evaluate the returns from potential investments, and to help choose between competing investments

Liabilities

Amounts owed by a business to others

Liquidity

The ability of a business to finance required payments to creditors

Net present value

The present value of a series of future net cash flows that will result from an investment, minus the amount of the original investment

Operating profit

The profit earned by a business from its entire trading operations – stated before financing (e.g. interest) and tax

Overtrading

Where a business suffers financial difficulties from expanding too quickly – usually suffering set-up losses and increased working capital

Payback period

The time it takes for a project to repay its initial investment

Profit centres

A separately-identifiable part of a business for which it is possible to identify revenues and costs and calculate a relevant profit

Profit quality

The sustainability of profit from one period to the next. Higher quality profit is profit that is likely to be repeated rather than affected by one-off items

Profitability

The amount of profit earned in a period (absolutely measure) or rate of profit earned compared with revenue (relatively measure)

Provisions

Amounts set aside to cover future costs or liabilities (e.g. redundancies, business closures, legal disputes)

Ratio analysis

Interpretation of financial performance by calculating and interpreting ratios

Retained earnings

Profits earned by a business that are kept in the business rather than distributed as dividends

Revenue expenditure

Spending on day-to-day operation of the business – e.g. paying for materials, staff costs, management salaries, advertising

Rights issue

The issue of new shares to existing shareholders in order to raise new finance. The new shares are usually offered at a significant discount to the existing share price to encourage take-up

ROCE

A measure of the percentage return that a business earns from the capital employed in the business. Often referred to as the “primary ratio”

Share capital

The amount invested into a company by shareholders

Shareholder returns

The rewards earned by shareholders = dividends paid to them + any increase in the value of their shares

Stock turnover

A liquidity ratio that looks at how often a business rotates its stock during a year

Trade creditors

Amounts that a business owes to its suppliers

Trade debtors

Amounts that are owed to a business from its customers

Working capital

The net amount invested by a business to finance day-to-day trading: usually calculated as current assets less current liabilities

Marketing Strategies

Ansoff’s Matrix

A strategic model for helping a business analyse the relationship between general strategic direction and suitable marketing strategies

Average

A term for various measures of central tendency, including the mean, mode and median

Competitive advantage

Skills, competences, resources and other advantages that enable a business to out-perform its competition

Correlation

A measure of how close the relationship it (positive or negative) between an independent variable and a dependent variable

Customer relationship management (CRM)

The process of building a long-term, profitable relationship between a business and its customers

Diversification

The relatively risky strategy of trying to enter new markets with new products (from Ansoff matrix)

Extrapolation

The use of trends established by historical data to make predictions about future values

Growth rate

The percentage growth over a particular period. Market growth rates are typically quoted in terms of percentage growth per year

Market analysis

The process of analysing the size, structure and growth of a market in order to support marketing decisions

Market development

A growth strategy where the business seeks to sell its existing products into new markets - e.g. exporting (from Ansoff matrix)

Market penetration

A relatively low-risk growth strategy where a business focuses on selling existing products into existing markets (from Ansoff matrix)

Market share

The proportion of a market revenue or sales volume that is captured by a business or brand

Marketing budget

Specific amounts that are allocated to activities in the marketing plan

Marketing plan

The actions that management intend to take via the marketing mix in order to achieve marketing objectives

Moving average

A calculation that takes a data series and “smoothes” the fluctuations in data to show a trend average

Product development

A growth strategy where a business aims to introduce new products into existing markets (from Ansoff matrix)

Product positioning

The way in which the marketing function tries to create an image or identity in the minds of the target market

Repositioning

Changing the marketing mix for a product to appeal to a different market segment

Sales forecasting

Techniques for estimating the likely demand (revenue and volume) for a product in future periods

Target market

The market segment or segments which a business is attempting to enter with the chosen marketing mix

Test marketing

Launching a new product or service in a limited part of the target market in order to gauge the viability of the product and assess the most appropriate marketing mix

Trend

A general direction in which something tends to move

Operational Strategies

Capital intensity

The extent to which production or operations depend on investment in and use of capital – i.e. machinery, IT systems, buildings etc

Critical path analysis

Project management tool that uses network analysis to help manage complex and time-sensitive operations

Diseconomies of scale

Factors which result in higher unit costs as production output reaches too high a level

Economies of scale

Cost advantages that a business can exploit as a result of expanding its scale of production. Economies of scale reduce the average (unit) cost of production

Efficiency

A measure of the ability of a business to achieve the required level of production whilst minimising the use of resources

Industrial inertia

Where a business decides to stay in its existing location despite potentially better locations being available to it

Innovation

Putting an new idea or approach into action – the commercial exploitation of ideas

Just-in-time

Method of lean production where production resources arrive at the moment they are required rather than being held in stock

Kaizen

A cultural approach to lean production and quality assurance. Involves encouraging employees to constantly seek and implement small incremental changes to production in order to improve quality and efficiency

Labour intensity

The extent to which production or operations depend on investment in and use of labour – i.e. people, training

Labour productivity

The level of output per unit of labour

Lead-time

The period of time between an order being placed and being received

Lean production

An approach to management that focuses on cutting out waste whilst still ensuring quality.

Marketing economies

Where marketing costs per unit sold can be lowered by spreading marketing costs over larger output

Minimum efficient scale

The minimum output a business needs to achieve in order for its to be able to minimise unit costs

Multinational

A business which owns operations in more than one country

Network analysis

Breaking a project down into separate activities and their requirements

Offshoring

Where a business has work done for it overseas

Outsourcing

Where a business has work done for it by someone else

Productivity

Measures of how effective a business is in turning resources (e.g. labour hours) into output

Purchasing economies

Cost savings that arise from buying in bulk or from a more powerful relationship with a supplier due to increased output

Quota

A restriction on the volume or quantity of a good that can enter or be sold in a market (form of trade barrier)

Scale

The size or output of a business, best measured relative to that of direct competitors

Subcontracting

Part of outsourcing – where another business is used to provide part of the production process

Tariff

A tax levied on imports to increase their price compared with domestic goods (form of trade barrier)

Technical economies

Reductions in unit costs arising from the effective use of technology

Unit costs

The key measure of productive efficiency – calculated as total costs divided by total output (over a specific period)

Human Resource Strategies

Arbitration

An alternative to a court of law in determining legal and employment disputes. Involves a specialist outsider being asked to make a decision on a dispute

Centralisation

An organisational structure where authority rests with senior management at the centre of the business

Communication

The process by which a message or information is exchanged from a sender to a receiver

Conciliation

A way of mediating industrial disputes to gain agreement without going to arbitration

Core workers

Employees who are part of the core workforce of a business – central to the business activities

Decentralisation

An organisational structure where authority is delegated further down the hierarchy, away from the centre

Delayering

The process of removing one or more layers from the organisational structure

Downsizing

The reduction in the scale and resources of a business, usually involving job losses and/or the sale or closure of business units

Flexible working

The range of employment options designed to help employees balance work and home life (e.g. part-time, job-sharing, Homeworking, annualised hours contracts)

Gap analysis

Analysis of the difference between the workforce needs or a business and its current capabilities

Hard HRM

An approach to HRM based on treating employees as resources in the same way as any other business resource

Human resource management (HRM)

Strategies for managing people in order to achieve business objectives

Labour shortage

Where a business finds it does not have sufficient employees in number, or with the right skills and experience, for its needs

Peripheral workers

Employees who are on the fringe of the core workforce. They are not essential (core) workers, and their activities can often be outsourced or provided using flexible contracting

Soft HRM

An approach to HRM based on treating employees as the most important resource in a business

Staff turnover

The proportion of staff that leave their employment with a business over a period – usually measured over a year

Teamworking

Individuals work in groups rather than focusing on their own specialised jobs

Trade union

Organisations of employees who seek to negotiate their employment terms through collective bargaining

Workforce planning

How a business determines how many and what kind of employees are required

Works council

A formal meeting of employer and employees to consider issues affecting the business and workplace – mandatory for larger businesses in the EU

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A2 Business Apunte sobre BUSS3 Keywords, creado por jeevana30 el 22/11/2013.

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