Paper P3: Business analysis
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Deciding the scope of the activities of the entity. Corporate strategy also
involves deciding what businesses the entity should be in, including the range of
businesses. For example, the purpose of a transport company is to provide
transport services. Its corporate strategy must include a decision about which
transport services it will provide (for example, bus travel, train services, air
travel, space travel and so on) as well as the geographical areas where it will
operate.
Matching the chosen business activities to the external environment of the
entity and also to its available resources.
- The choice of business activities by an entity should be consistent with
conditions in its environment. For example, a company should choose to
sell products or services that customers want to buy, and for which the
technology exists. Its choice of business activities might also be affected by
laws or regulations.
- The choice of business activities should also be consistent with the
resources that the entity expects to have available or expects that it will be
able to obtain.
Matching the purpose and activities of the organisation to the expectations of its
owners. The chosen corporate strategy, when put into action, should be capable
of meeting the expectations of the owners of the entity. For example, a
company’s objectives for profits over the long term should be consistent with
shareholders’ long-term profit expectations.
Matching the purpose and activities of the organisation to the expectations of
other stakeholders in the organisation.
Corporate strategy and the expectations of owners and other stakeholders
The corporate strategy of an organisation will be influenced by the expectations of
its owners and other stakeholders.
Owners’ expectations. In a commercial company, the owners are the
shareholders. These might expect the company to provide them over time with
investment income or with growth in their wealth. Corporate strategy might
therefore aim towards maximisation of the shareholders’ wealth. Objectives for
corporate strategy might therefore be stated in terms of raising the share price by
x% over the next five or ten years. With a state-owned organisation, the owner is
the government. The expectations of a government as owner of an entity are
different from those of the shareholders in a company. The ‘corporate’ strategy
of a state-owned enterprise will therefore differ from the corporate strategy of a
company.
Stakeholders’ expectations. The term ‘stakeholder’ means any individual or
group of individuals who have a strong interest (a ‘stake’) in the organisation
and what it does. The chosen corporate strategy should also recognise the rights
and expectations of other stakeholders, such as employees, customers,
government, suppliers, lenders, local communities and the general public.