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CORPORATE OBJECTIVES AND STRATEGY 
Corporate objectives are the goals that the whole organisation is trying to achieve. The corporate 
aims, which are often set out in a mission statement, form the basis upon which these targets are 
developed. 
Corporate strategy is the organisation’s plan of action which, when implemented, will lead to 
the achievement of the corporate objectives. Strategy cannot therefore be considered before the 
firm’s goals are clearly established. 
The larger the group, the more difficult it is to coordinate its actions towards a common goal. When 
a business is small its manager has personal contact with every employee. The long-term direction of 
the firm will be communicated clearly from day to day. Motivating the workforce to act together will 
be an easier task than in a large company. Objectives will be understood informally rather than 
written down. As the firm grows the job of coordinating the actions of every employee becomes 
harder. A mission statement may be needed to provide a shared vision of the company’s 
future. This may be needed to motivate the workforce. It is also the basis for developing corporate 
objectives. These represent the goals of the whole enterprise. These can take any form, but a 
number of targets are widely adopted: 
In practice, profit maximisation is usually the principal target only when the firm’s survival is 
threatened in the short run. It will govern decision making until the point at which the financial 
health of the organisation is restored. In the long run, if a business is functioning efficiently and 
healthily, alternative objectives will be of more importance such as growth or diversification. In 
large public limited companies the owners of the firm (the shareholders) are not the decision makers 
(the management). A board of directors is elected to run the company on behalf of the shareholders. 
This group may develop aims for the business which recognise a wider group of stakeholders than 
just owners. As a result, the firm may not set profit maximisation as its key goal, even in the short 
run. 
Share prices reflect the present value of the dividends the company is expected to pay out in the 
future. As a result this objective means taking actions which maximise the price of the 
organisation’s shares on the stock market. 
The managers of a business may choose to take decisions with the objective of making the 
organisation larger. The motivation behind this goal could be the natural desire to see the business 
achieve its full potential. It may also help defend the firm from hostile takeover bids. If your firm is 
the biggest, who could be big enough to take you over? 
Spread risk: In other words, to reduce dependence on one product or market. Such as 
Cadbury’s developing soft drinks (Schweppes and 7-Up) to provide sales success in hot 
weather to counteract the fall in chocolate sales. In this way the long-term survival prospects of the 
business are improved. A firm may also diversify if it has a key product in the decline phase of the 
product life cycle; for example, cigarette manufacturers. Diversification will allow movement into 
‘growth’ markets. 
An increasing number of managers identify the key strengths which lie within their organisation, 
such as talent for innovation. Then focus the resources of the firm on developing the skills into 
profitable products.
Market standing: If a business has a good reputation with its suppliers, distributors and customers 
then this will make it easier to launch new products. 
In order to be effective, corporate objectives must be measurable. A target which is directional but 
with no given value, such as ‘increasing market share’, will not have the desired 
impact on employee motivation. 
GROWTH BY DIVERSIFICATION CREATES DANGERS FOR VIRGIN During the mid-1990s, Richard 
Branson’s Virgin Group made a series of bold strategic moves. Each was launched in a wave 
of favourable press and TV publicity. From its twin base in the music business and in air travel, 
Virgin moved into: 
the soft drinks market, with Virgin Cola 
the alcoholic drinks market, with Virgin Vodka 
the financial services market, with Virgin Direct 
rail travel, by taking a 17% stake in Eurostar and winning the privatised contract for West Coast 
Inter-City services 
Brand SEO are a Northampton located company who use several offline and online business 
advertising tactics like leaflet promotion Search engine marketing, and Pay per click solutions. 
Leaflet Marketing and advertising is a tried and tested direct strategy which is certainly very 
affordable and is readily scaleable . 
Start here: Inevitably, an effectual brochure or leaflet is going to do several tasks: draw the target's 
curiosity, as well as get the person to take action. 
Artwork: When considering style, it’s a good idea to leave more fancy concepts to ones 
internet sites and embrace a conventional tactic regarding printed media. Too many photos, color 
styles and written messages could diminish your vital business sales strategy. If you'd like something 
eye-catching, create a potent or attention seeking trade mark but keep the remaining portion of the 
subject material supportive. 
Measurement: With regards to the size of your leaflet or flyer, take into account your logistics 
channel. Regarding flyers that can be given out on a face to face basis, for instance, A6 paper size 
will generally be reliable because it's sufficiently small enough for the person to place in their 
handbag or read right away. They tend to be printed on shiny cardstock. Leaflets which might be 
distributed through the letterbox are generally A6 or A5 sized and in most cases produce the 
maximum reaction from potential customers when dispatched in labeled envelopes. This is a really 
good method to test out client base reaction for the business venture. The large majority of flyers 
and leaflets are produced making use of a shiny silky finish delivering an exceptional overall look 
and feel. 
The concept: Keep your written text tight and benefits centered. 
Circulation: When understanding your customers and prospects on a personal level, you will be able 
to define the absolute best dissemination avenue for the promotional materials. There are lots of 
options to consider: you may choose to distribute them on their own, with other leaflets, inserted in
a magazine or newspaper, to passer’s-by on the street, on cars or door-to-door. 
Overseeing reaction: Promotional offers which are leaflet structured are unquestionably invaluable 
in keeping tabs on the ROI and ultimate economic success of your advertising and marketing 
campaign and are a terrific approach to deliver reaction and participation. A small company will not 
lose any money in making customers aware of your organization's offer and definately will reap 
benefits through new business when your receivers act on it. In case that you are expecting to 
reduce initial expenditure and yet get to as many customers as is practical, leaflets and flyers are a 
smart promotions option. However, they happen to be more productive when run over a longer 
period of time based upon participation levels. If leaflets are a key component of the advertising 
agenda, then make sure you look towards dissemination frequently. 
the cosmetics market, through Virgin Vie. 
By 1998, however, it was becoming clear that Virgin had expanded too far and in too many different 
directions. Bad publicity about the poor performance of Virgin trains was compounded by the 
weakening market position of Virgin Cola and Vodka. The Economist reported that these two brands 
had made losses of more than £4.5 million in the 1996/97 financial year. After several years 
boasting about new ventures, Virgin’s corporate affairs director said ‘We are going to 
consolidate around our core areas. We don’t plan to extend the brand much further’. 
The objective of expansion through diversification had been reversed. Now Virgin was to focus on its 
core capabilities. 
Source: Adapted from Marketing Week, 21/2/98 and The Economist, 21/2/98 
A goal of boosting market share from 6% to 9%’ provides a specific figure for individuals to 
work towards. However, the objective must be achievable. Otherwise it becomes demoralising. It is 
also important to provide a timescale within which the goal must be attained. 
Business strategy 
The managers of a business should develop a medium- to long-term plan about how to achieve the 
objectives they have established. This is the organisation’s corporate strategy. It sets out the 
actions that will be taken in order to achieve the goals. And the implications for the firm’s 
human, financial and production resources. The key to success when forming a strategy of this kind 
is relating the firm’s strengths to the opportunities which exist in the marketplace. 
This analysis can take place at each level of the business, allowing a series of strategies to be formed 
in order to achieve the goals already established. 
Corporate strategy deals with the major issues such as what industry, or industries, the business 
should compete in, in order to achieve corporate objectives. Managers must identify industries 
where the long-term profit prospects are likely to be favourable. In 1998, for example, Boots decided 
to pull out of the DIY market by selling its Do It All subsidiary. 
Business unit (or divisional) strategy should address the issue of how the organisation will compete 
in the industry selected by corporate strategy. This will involve selecting a position in the 
marketplace to distinguish the firm from its competitors. 
Functional (or department) strategy is developed in order to identify how best to succeed in the 
market position identified in the divisional strategy.
If targets are established for individual employees, it is quite possible that a personal strategy for 
achieving these goals may be established as part of the company’s appraisal process. 
Just as the objectives of the organisation cascade down to the lowest levels of the business ensuring 
consistent planning, so too do strategies. This is to establish coordinated action. If a strategy is to 
achieve the objectives set, it must match the firm’s strengths to its competitive environment. 
Boots decided that its strength was in running the Number 1 chemist business in the UK. Its ability 
to hold on to the Number 1 position was not helpful at succeeding with Do It All -a DIY chain that 
was an also-ran. 
As a company develops over time its employees acquire knowledge and skills. This 
‘organisational learning’ represents what the firm as a whole is good at doing, or its 
core capabilities. The key products or services produced by the business will reflect these strengths. 
Viagra, the anti-impotence drug developed by Pfizer, represents the company’s innovative 
abilities as a result of its research and development programme and scientific expertise. 
Core capabilities need not be limited to a particular market. Marks and Spencer’s move into 
financial services was based on a reputation for reliability and quality. This had built up over many 
years by its operation in the clothing and food markets. Corporate strategy can be shaped by 
identifying new opportunities to apply the existing strengths of the organisation. 
Michael Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance 
develops a method by which an organisation can analyse the competitive environment within which 
it operates in order to create strategic policy. 
Porter suggests that firms need to analyse five factors within an industry in order to understand its 
nature. This will help managers understand how fierce or how favourable the competitive 
environment is. Each of the ‘five forces’ provide information which can be used to help 
devise an appropriate business strategy. 
THREAT OF NEW COMPETITORS ENTERING THE MARKET New firms entering a market increase 
the level of competition in the industry. This may result in prices and potential profit being forced 
down. If barriers exist which stop new firms entering, businesses which are already operating in the 
industry are more secure. Wall’s dominance of the UK ice-cream market (over 50% of 
branded sales) has put it in this comfortable position. 
Porter suggests a number of potential strategies are available in order to create obstacles aimed at 
stopping additional businesses entering an industry: 
Invest heavily in capital equipment in order to make it very expensive for firms considering entering 
the industry to compete on an equal footing. 
Promote products intensively to create established brand names which will make the potential 
advertising costs prohibitive for firms wishing to enter the market. 
Make it difficult for new firms to find retail outlets willing to sell their products by taking action 
designed to gain control of distribution channels. 
Patent both products and operating processes, to stop market entrants copying them and therefore 
avoiding research and development costs.
THE POWER OF BUYERS 
Buyers will clearly wish prices in the industry to be as low as possible. The more powerful this group 
is, the lower profit in the industry is likely to be. For example, UK biscuit manufacturers receive 
nearly 50% of their buying orders from just three companies: Tesco, Sainsbury’s and Asda. 
The buyers at these three retailers have huge power over the biscuit suppliers. 
A number of potential strategies are available to firms in order to reduce the power ofbuyers in the 
marketplace: 
Open up or acquire retail outlets in order to gain control of the sale of the firm’s output to the 
customer (forward vertical integration). 
Make it expensive for the buyer to switch to the output of a competitor. Many people have spent 
time learning how to use Microsoft’s Windows computer software. The cost of moving to a 
new company’s products would not just be financial, but would include the effort required to 
master a new system. The buyer is therefore in a weaker position in this market. 
THE POWER OF SUPPLIERS 
Suppliers will charge as much as they can for the resources they offer to the industry. If they have 
substantial market power, their high prices will hit the industry’s profits. A number of 
potential strategies are available to firms in order to reduce the power of suppliers in the 
marketplace: 
Acquire a supplying firm in order to control the availability of raw materials to the business 
(backward vertical integration). 
Encourage the development of new suppliers by buying from multiple sources. The greater the 
number of businesses prepared to provide raw materials, the less reliant it is necessary to be on any 
one of them. 
Minimise the quantity of information suppliers have about the industry. For example, if suppliers 
find it difficult to establish the price of final products in the market they provide inputs for, they will 
have limited ability to influence that industry. This strategy is in conflict with the growing desire of 
organisations to build ‘supply chains’ which encourage close relationships with other 
firms. 
THE THREAT OF SUBSTITUTE PRODUCTS 
If direct substitutes exist for the output of an industry, consumers have the option of buying an 
alternative good. In this case the industry will be forced to maintain lower prices in order to 
minimise the risk of buyers switching. This will reduce the profitability of the industry. For example, 
if cable television could provide a viable alternative to satellite, BSkyB would have to cut its monthly 
rental charges. 
Two potential strategies are available to firms in order to reduce the threat of substitute products 
emerging: 
Undertake research and development activity to identify substitute products with the intention of 
patenting them before a competitor can do so. If a new close substitute does emerge manufactured
by another organisation, consider buying this business to secure its patent rights. 
If a substitute product is made available for sale, use spoiling tactics. Firms may cut their prices or 
run huge promotions to try to prevent the competitor becoming established. For, if a new product 
fails to achieve good distribution levels, customers cannot buy it easily and may not get into the 
habit of buying it regularly. 
RIVALRY BETWEEN ESTABLISHED COMPETITORS IN THE INDUSTRY The more intense the 
rivalry between existing firms within the industry, the more likely that prices are forced down by 
competitive pressure. A number of potential strategies are available to firms in order to reduce the 
amount of rivalry between established competitors in the marketplace: 
Develop a differentiated product. A strong brand image encourages customers to perceive a product 
or service to be superior to the competition. This reduces the day-to-day threat to sales caused by 
competitor actions such as price promotions or TV advertising. 
Restrict output in the industry, perhaps by forming some form of’cartel’ agreement 
with competitors. In order to do this firms must control a large proportion of the products produced, 
and they must agree on levels of production. This strategy may not be legal under the conditions of 
the 1973 Fair Trading Act. Furthermore, it is certainly not ethical. Nevertheless, prestigious firms 
such as ICI have been caught and fined for cartel operations in the recent past. So there is no doubt 
that such activities take place. 
Acquire competitors. This strategy is also subject to the legal requirements of the 1973 Fair Trading 
Act. 
Any takeover giving a business in excess of a 25% market share may be subject to investigation by 
the Monopolies and Mergers Commission. 
When analysing a firm’s approach to establishing corporate objectives and developing 
strategic policy to achieve these goals, it is useful to consider the following points: 
Are the objectives of the business precisely defined? And are they understood and supported by 
staff? 
Is the outcome of each objective measurable so that it will be clear when it has been achieved? 
Does each objective have a target date for completion in order to ensure action? 
Are the organisation’s objectives focused excessively on short-run profit maximisation at the 
expense of the long-term development of the business? 
Do the managers of the business clearly understand its strengths and weaknesses? 
Have opportunities in the competitive environment been identified? 
Does the strategic policy of the organisation ‘match’ the firm’s strengths to 
opportunities in the competitive environment? 
Finally, and most importantly, do the strategies match the objectives? In many organisations, 
particularly small businesses, the idea of stating objectives and developing strategy to achieve them
may seem unnecessary. Some managers may claim their firm has no explicit strategy or planning 
process and yet is very successful. 
The first issue here is the existence of strategy. Every organisation has a strategy. It may not be 
written down, or even clearly defined, but by observing the behaviour of the business over time a 
pattern will emerge in the actions which are taken. This pattern reflects the strategy adopted by the 
firm’s management. Strategy in many businesses reflects a slow development towards a 
position in the market which is never formally identified, but is reached through a process of 
intuitive decisions. Managers shape the organisation’s strengths to fit the competitive 
environment based on their knowledge and experience of that market. 
A second issue is whether careful strategic planning can ever be as helpful in practice as in theory. 
It will always be difficult for managers or consultants to capture a complete picture of the current 
competitive environment. Especially in a global economy where change is occurring very quickly. 
Even harder, of course, is to anticipate how any market will look in one, five or ten years’ 
time. The transformation of industries may be so rapid that assessment using a model such as 
Porter’s five forces becomes almost impossible. 
CORPORATE OBJECTIVES – the goals established for the whole organisation. Examples 
include long-term growth and short-term profit maximisation. 
MANAGEMENT BY OBJECTIVES – divides the overall aim of the business into specific goals 
for each level of the organisation’s hierarchy. In this way the actions of all employees are 
coordinated and individuals are motivated to behave in a way which helps the firm succeed. 
BUSINESS STRATEGY – a plan devised in order to allow an organisation to achieve a specific 
objective. 
CORE CAPABILITIES – the strengths of the organisation, I.e. what it is good at doing.

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CORPORATE OBJECTIVES AND STRATEGY

  • 1. CORPORATE OBJECTIVES AND STRATEGY Corporate objectives are the goals that the whole organisation is trying to achieve. The corporate aims, which are often set out in a mission statement, form the basis upon which these targets are developed. Corporate strategy is the organisation’s plan of action which, when implemented, will lead to the achievement of the corporate objectives. Strategy cannot therefore be considered before the firm’s goals are clearly established. The larger the group, the more difficult it is to coordinate its actions towards a common goal. When a business is small its manager has personal contact with every employee. The long-term direction of the firm will be communicated clearly from day to day. Motivating the workforce to act together will be an easier task than in a large company. Objectives will be understood informally rather than written down. As the firm grows the job of coordinating the actions of every employee becomes harder. A mission statement may be needed to provide a shared vision of the company’s future. This may be needed to motivate the workforce. It is also the basis for developing corporate objectives. These represent the goals of the whole enterprise. These can take any form, but a number of targets are widely adopted: In practice, profit maximisation is usually the principal target only when the firm’s survival is threatened in the short run. It will govern decision making until the point at which the financial health of the organisation is restored. In the long run, if a business is functioning efficiently and healthily, alternative objectives will be of more importance such as growth or diversification. In large public limited companies the owners of the firm (the shareholders) are not the decision makers (the management). A board of directors is elected to run the company on behalf of the shareholders. This group may develop aims for the business which recognise a wider group of stakeholders than just owners. As a result, the firm may not set profit maximisation as its key goal, even in the short run. Share prices reflect the present value of the dividends the company is expected to pay out in the future. As a result this objective means taking actions which maximise the price of the organisation’s shares on the stock market. The managers of a business may choose to take decisions with the objective of making the organisation larger. The motivation behind this goal could be the natural desire to see the business achieve its full potential. It may also help defend the firm from hostile takeover bids. If your firm is the biggest, who could be big enough to take you over? Spread risk: In other words, to reduce dependence on one product or market. Such as Cadbury’s developing soft drinks (Schweppes and 7-Up) to provide sales success in hot weather to counteract the fall in chocolate sales. In this way the long-term survival prospects of the business are improved. A firm may also diversify if it has a key product in the decline phase of the product life cycle; for example, cigarette manufacturers. Diversification will allow movement into ‘growth’ markets. An increasing number of managers identify the key strengths which lie within their organisation, such as talent for innovation. Then focus the resources of the firm on developing the skills into profitable products.
  • 2. Market standing: If a business has a good reputation with its suppliers, distributors and customers then this will make it easier to launch new products. In order to be effective, corporate objectives must be measurable. A target which is directional but with no given value, such as ‘increasing market share’, will not have the desired impact on employee motivation. GROWTH BY DIVERSIFICATION CREATES DANGERS FOR VIRGIN During the mid-1990s, Richard Branson’s Virgin Group made a series of bold strategic moves. Each was launched in a wave of favourable press and TV publicity. From its twin base in the music business and in air travel, Virgin moved into: the soft drinks market, with Virgin Cola the alcoholic drinks market, with Virgin Vodka the financial services market, with Virgin Direct rail travel, by taking a 17% stake in Eurostar and winning the privatised contract for West Coast Inter-City services Brand SEO are a Northampton located company who use several offline and online business advertising tactics like leaflet promotion Search engine marketing, and Pay per click solutions. Leaflet Marketing and advertising is a tried and tested direct strategy which is certainly very affordable and is readily scaleable . Start here: Inevitably, an effectual brochure or leaflet is going to do several tasks: draw the target's curiosity, as well as get the person to take action. Artwork: When considering style, it’s a good idea to leave more fancy concepts to ones internet sites and embrace a conventional tactic regarding printed media. Too many photos, color styles and written messages could diminish your vital business sales strategy. If you'd like something eye-catching, create a potent or attention seeking trade mark but keep the remaining portion of the subject material supportive. Measurement: With regards to the size of your leaflet or flyer, take into account your logistics channel. Regarding flyers that can be given out on a face to face basis, for instance, A6 paper size will generally be reliable because it's sufficiently small enough for the person to place in their handbag or read right away. They tend to be printed on shiny cardstock. Leaflets which might be distributed through the letterbox are generally A6 or A5 sized and in most cases produce the maximum reaction from potential customers when dispatched in labeled envelopes. This is a really good method to test out client base reaction for the business venture. The large majority of flyers and leaflets are produced making use of a shiny silky finish delivering an exceptional overall look and feel. The concept: Keep your written text tight and benefits centered. Circulation: When understanding your customers and prospects on a personal level, you will be able to define the absolute best dissemination avenue for the promotional materials. There are lots of options to consider: you may choose to distribute them on their own, with other leaflets, inserted in
  • 3. a magazine or newspaper, to passer’s-by on the street, on cars or door-to-door. Overseeing reaction: Promotional offers which are leaflet structured are unquestionably invaluable in keeping tabs on the ROI and ultimate economic success of your advertising and marketing campaign and are a terrific approach to deliver reaction and participation. A small company will not lose any money in making customers aware of your organization's offer and definately will reap benefits through new business when your receivers act on it. In case that you are expecting to reduce initial expenditure and yet get to as many customers as is practical, leaflets and flyers are a smart promotions option. However, they happen to be more productive when run over a longer period of time based upon participation levels. If leaflets are a key component of the advertising agenda, then make sure you look towards dissemination frequently. the cosmetics market, through Virgin Vie. By 1998, however, it was becoming clear that Virgin had expanded too far and in too many different directions. Bad publicity about the poor performance of Virgin trains was compounded by the weakening market position of Virgin Cola and Vodka. The Economist reported that these two brands had made losses of more than £4.5 million in the 1996/97 financial year. After several years boasting about new ventures, Virgin’s corporate affairs director said ‘We are going to consolidate around our core areas. We don’t plan to extend the brand much further’. The objective of expansion through diversification had been reversed. Now Virgin was to focus on its core capabilities. Source: Adapted from Marketing Week, 21/2/98 and The Economist, 21/2/98 A goal of boosting market share from 6% to 9%’ provides a specific figure for individuals to work towards. However, the objective must be achievable. Otherwise it becomes demoralising. It is also important to provide a timescale within which the goal must be attained. Business strategy The managers of a business should develop a medium- to long-term plan about how to achieve the objectives they have established. This is the organisation’s corporate strategy. It sets out the actions that will be taken in order to achieve the goals. And the implications for the firm’s human, financial and production resources. The key to success when forming a strategy of this kind is relating the firm’s strengths to the opportunities which exist in the marketplace. This analysis can take place at each level of the business, allowing a series of strategies to be formed in order to achieve the goals already established. Corporate strategy deals with the major issues such as what industry, or industries, the business should compete in, in order to achieve corporate objectives. Managers must identify industries where the long-term profit prospects are likely to be favourable. In 1998, for example, Boots decided to pull out of the DIY market by selling its Do It All subsidiary. Business unit (or divisional) strategy should address the issue of how the organisation will compete in the industry selected by corporate strategy. This will involve selecting a position in the marketplace to distinguish the firm from its competitors. Functional (or department) strategy is developed in order to identify how best to succeed in the market position identified in the divisional strategy.
  • 4. If targets are established for individual employees, it is quite possible that a personal strategy for achieving these goals may be established as part of the company’s appraisal process. Just as the objectives of the organisation cascade down to the lowest levels of the business ensuring consistent planning, so too do strategies. This is to establish coordinated action. If a strategy is to achieve the objectives set, it must match the firm’s strengths to its competitive environment. Boots decided that its strength was in running the Number 1 chemist business in the UK. Its ability to hold on to the Number 1 position was not helpful at succeeding with Do It All -a DIY chain that was an also-ran. As a company develops over time its employees acquire knowledge and skills. This ‘organisational learning’ represents what the firm as a whole is good at doing, or its core capabilities. The key products or services produced by the business will reflect these strengths. Viagra, the anti-impotence drug developed by Pfizer, represents the company’s innovative abilities as a result of its research and development programme and scientific expertise. Core capabilities need not be limited to a particular market. Marks and Spencer’s move into financial services was based on a reputation for reliability and quality. This had built up over many years by its operation in the clothing and food markets. Corporate strategy can be shaped by identifying new opportunities to apply the existing strengths of the organisation. Michael Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance develops a method by which an organisation can analyse the competitive environment within which it operates in order to create strategic policy. Porter suggests that firms need to analyse five factors within an industry in order to understand its nature. This will help managers understand how fierce or how favourable the competitive environment is. Each of the ‘five forces’ provide information which can be used to help devise an appropriate business strategy. THREAT OF NEW COMPETITORS ENTERING THE MARKET New firms entering a market increase the level of competition in the industry. This may result in prices and potential profit being forced down. If barriers exist which stop new firms entering, businesses which are already operating in the industry are more secure. Wall’s dominance of the UK ice-cream market (over 50% of branded sales) has put it in this comfortable position. Porter suggests a number of potential strategies are available in order to create obstacles aimed at stopping additional businesses entering an industry: Invest heavily in capital equipment in order to make it very expensive for firms considering entering the industry to compete on an equal footing. Promote products intensively to create established brand names which will make the potential advertising costs prohibitive for firms wishing to enter the market. Make it difficult for new firms to find retail outlets willing to sell their products by taking action designed to gain control of distribution channels. Patent both products and operating processes, to stop market entrants copying them and therefore avoiding research and development costs.
  • 5. THE POWER OF BUYERS Buyers will clearly wish prices in the industry to be as low as possible. The more powerful this group is, the lower profit in the industry is likely to be. For example, UK biscuit manufacturers receive nearly 50% of their buying orders from just three companies: Tesco, Sainsbury’s and Asda. The buyers at these three retailers have huge power over the biscuit suppliers. A number of potential strategies are available to firms in order to reduce the power ofbuyers in the marketplace: Open up or acquire retail outlets in order to gain control of the sale of the firm’s output to the customer (forward vertical integration). Make it expensive for the buyer to switch to the output of a competitor. Many people have spent time learning how to use Microsoft’s Windows computer software. The cost of moving to a new company’s products would not just be financial, but would include the effort required to master a new system. The buyer is therefore in a weaker position in this market. THE POWER OF SUPPLIERS Suppliers will charge as much as they can for the resources they offer to the industry. If they have substantial market power, their high prices will hit the industry’s profits. A number of potential strategies are available to firms in order to reduce the power of suppliers in the marketplace: Acquire a supplying firm in order to control the availability of raw materials to the business (backward vertical integration). Encourage the development of new suppliers by buying from multiple sources. The greater the number of businesses prepared to provide raw materials, the less reliant it is necessary to be on any one of them. Minimise the quantity of information suppliers have about the industry. For example, if suppliers find it difficult to establish the price of final products in the market they provide inputs for, they will have limited ability to influence that industry. This strategy is in conflict with the growing desire of organisations to build ‘supply chains’ which encourage close relationships with other firms. THE THREAT OF SUBSTITUTE PRODUCTS If direct substitutes exist for the output of an industry, consumers have the option of buying an alternative good. In this case the industry will be forced to maintain lower prices in order to minimise the risk of buyers switching. This will reduce the profitability of the industry. For example, if cable television could provide a viable alternative to satellite, BSkyB would have to cut its monthly rental charges. Two potential strategies are available to firms in order to reduce the threat of substitute products emerging: Undertake research and development activity to identify substitute products with the intention of patenting them before a competitor can do so. If a new close substitute does emerge manufactured
  • 6. by another organisation, consider buying this business to secure its patent rights. If a substitute product is made available for sale, use spoiling tactics. Firms may cut their prices or run huge promotions to try to prevent the competitor becoming established. For, if a new product fails to achieve good distribution levels, customers cannot buy it easily and may not get into the habit of buying it regularly. RIVALRY BETWEEN ESTABLISHED COMPETITORS IN THE INDUSTRY The more intense the rivalry between existing firms within the industry, the more likely that prices are forced down by competitive pressure. A number of potential strategies are available to firms in order to reduce the amount of rivalry between established competitors in the marketplace: Develop a differentiated product. A strong brand image encourages customers to perceive a product or service to be superior to the competition. This reduces the day-to-day threat to sales caused by competitor actions such as price promotions or TV advertising. Restrict output in the industry, perhaps by forming some form of’cartel’ agreement with competitors. In order to do this firms must control a large proportion of the products produced, and they must agree on levels of production. This strategy may not be legal under the conditions of the 1973 Fair Trading Act. Furthermore, it is certainly not ethical. Nevertheless, prestigious firms such as ICI have been caught and fined for cartel operations in the recent past. So there is no doubt that such activities take place. Acquire competitors. This strategy is also subject to the legal requirements of the 1973 Fair Trading Act. Any takeover giving a business in excess of a 25% market share may be subject to investigation by the Monopolies and Mergers Commission. When analysing a firm’s approach to establishing corporate objectives and developing strategic policy to achieve these goals, it is useful to consider the following points: Are the objectives of the business precisely defined? And are they understood and supported by staff? Is the outcome of each objective measurable so that it will be clear when it has been achieved? Does each objective have a target date for completion in order to ensure action? Are the organisation’s objectives focused excessively on short-run profit maximisation at the expense of the long-term development of the business? Do the managers of the business clearly understand its strengths and weaknesses? Have opportunities in the competitive environment been identified? Does the strategic policy of the organisation ‘match’ the firm’s strengths to opportunities in the competitive environment? Finally, and most importantly, do the strategies match the objectives? In many organisations, particularly small businesses, the idea of stating objectives and developing strategy to achieve them
  • 7. may seem unnecessary. Some managers may claim their firm has no explicit strategy or planning process and yet is very successful. The first issue here is the existence of strategy. Every organisation has a strategy. It may not be written down, or even clearly defined, but by observing the behaviour of the business over time a pattern will emerge in the actions which are taken. This pattern reflects the strategy adopted by the firm’s management. Strategy in many businesses reflects a slow development towards a position in the market which is never formally identified, but is reached through a process of intuitive decisions. Managers shape the organisation’s strengths to fit the competitive environment based on their knowledge and experience of that market. A second issue is whether careful strategic planning can ever be as helpful in practice as in theory. It will always be difficult for managers or consultants to capture a complete picture of the current competitive environment. Especially in a global economy where change is occurring very quickly. Even harder, of course, is to anticipate how any market will look in one, five or ten years’ time. The transformation of industries may be so rapid that assessment using a model such as Porter’s five forces becomes almost impossible. CORPORATE OBJECTIVES – the goals established for the whole organisation. Examples include long-term growth and short-term profit maximisation. MANAGEMENT BY OBJECTIVES – divides the overall aim of the business into specific goals for each level of the organisation’s hierarchy. In this way the actions of all employees are coordinated and individuals are motivated to behave in a way which helps the firm succeed. BUSINESS STRATEGY – a plan devised in order to allow an organisation to achieve a specific objective. CORE CAPABILITIES – the strengths of the organisation, I.e. what it is good at doing.