7 Analysing the strategic position of a business Recap Year 1: How would you measure a business’ performance in each of the functional areas shown in the table below? Marketing Operations Human resources 7.3 Analysing the existing internal position of a business to assess strengths and weaknesses: overall performance

7.3 Analysing the existing internal position of a business to assess strengths and weaknesses: overall performance In this topic you will learn about How to analyse data other than financial statements to assess the strengths and weaknesses of a business Data other than financial statements should include operations, human resource and marketing data Data may be analysed over time or in comparison with other businesses The importance of core competences Assessing short- and long-term performance The value of different measures of assessing business performance Methods of assessing overall business performance to include: Kaplan and Norton’s Elkington’s Triple Bottom Line

Can you describe each of these measures of operations performance? Analysing data Operations data: Capacity Capacity utilisation Labour productivity Unit costs (average costs) Quality e.g. number of faults or complaints Can you describe each of these measures of operations performance?

Possible interpretation Analysing data In pairs complete the table below. Measure Company A Industry average Calculation Possible interpretation Capacity (tons) 150 000 85 000 Company A is 76% bigger than the industry average. May be a dominant business Will benefit from economies of scale Capacity utilisation 80% 70% Labour productivity 1000 1200 Unit costs £10.50 £15.75 Quality (faulty goods) 2% 5%

Analysing data In comparison Over time Remember data can be internal to the organisation e.g. sales volume or external e.g. market size. In comparison Benchmark within business or against competitors Industry average Between branches or product lines Geographically Over time Year on year Year to date Trends over a longer period of time Monthly How would analysing data over time and in comparison with other businesses help a car manufacturer? Try to use examples of operations, marketing and HR data.

Core competences What are the core competences of Apple? In pairs write a list. Read the article below. How many of these core competences did you identify? Combined expertise, knowledge and experience of the leaders and founders of a business Collective learning and technical expertise Leads to a competitive advantage Unique characteristics to a business Difficult to imitate by others http://www.investmentgeekz.com/business/apple-core-competencies.html Core competences are tested using 3 questions: Do they allow for market development? Do they provide noticeable benefits to the end user? Are they difficult to imitate?

Assessing short- and long-term performance A business’ performance can be assessed in the short-term and the long-term Decisions made in the short-term may allow a business to improve performance in the long-term but have a negative impact in the short-term How has your short-term decision to study A-levels affected your financial position? How will it affect your financial position in the long-term? Example Short-term Long-term Investment in R&D High expenditure resulting in lower profit margins. No guarantee of success. New product development. Highly differentiated charging a premium price leading to increased profit margins. Increased capacity Lower capacity utilisation. Higher unit costs. Increased market share. Achieve an objective of growth. Training employees Time away from the workplace. Additional costs. Greater employee engagement. Lower labour turnover. https://www.timeshighereducation.com/news/graduates-can-earn-twice-salaries-of-non-graduates/110065.article http://www.rdi.co.uk/what-is-a-degree-or-masters-worth-2/

Kaplan and Norton’s Balanced Scorecard A strategic system used to plan and manage a business’ activities in relation to its vision statement It aims to link the vision for the future to the day to day running of the business This should result in a measurable (SMART) improvement in the performance of the business in a number of areas The underlying premise is that financial data alone is insufficient to fully assess a business’ performance It measures the performance of different areas of the business to see where improvements can be made The Balanced Scorecard is used as a starting point to implement these changes Each scorecard will be individual to the business and designed internally to focus on the business’ own unique characteristics and visions What is meant by a vision statement?

Kaplan and Norton’s Balanced Scorecard The main areas that the business looks at are: Finance: Measuring financial capability e.g. financial ratio analysis Internal business processes: Efficiency in the organisation e.g. JIT and capacity utilisation Learning and growth: HR requirements e.g. training, labour turnover/productivity and communication Customer: Expectations being met e.g. customer service, satisfaction and retention Name 9 financial ratios. http://www.rapid-business-intelligence-success.com/what-is-a-balanced-scorecard.html Balanced Scorecard.

Kaplan and Norton’s Balanced Scorecard Balanced score card at Barclays. https://www.home.barclays/about-barclays/balanced-scorecard.html

Elkington’s Triple Bottom Line A model designed to encourage sustainability Focus is on 3 key components to measure performance Profit People Planet Forces a business to consider its social responsibility John Elkington explains his concept of the triple bottom line. https://www.youtube.com/watch?v=l5MPOuhmpmk

Elkington’s Triple Bottom Line In pairs complete the final row in the table to show how a business can achieve each area of responsibility. For example meet health and safety standards for employees (people) whilst paying a fair wage (profit). Profit People Planet Economic responsibility Social responsibility Environmental responsibility Shareholders Employees Suppliers Customers Society http://www.ted.com/talks/audrey_choi_how_to_make_a_profit_while_making_a_difference How to make a profit while making a difference.

Discussions To what extent should big businesses put the interest of shareholders above other stakeholders? Are models such as Kaplan and Norton’s Balanced Scorecard and Elkington’s Triple Bottom Line of genuine use to a business in strategic decision making or a modern day PR exercise?

7.3 Analysing the existing internal position of a business to assess strengths and weaknesses: overall performance In this topic you have learnt about How to analyse data other than financial statements to assess the strengths and weaknesses of a business Data other than financial statements should include operations, human resource and marketing data Data may be analysed over time or in comparison with other businesses. The importance of core competences Assessing short- and long-term performance The value of different measures of assessing business performance Methods of assessing overall business performance to include: Kaplan and Norton’s Elkington’s Triple Bottom Line