1. Introduction to Business Flashcards
Explain one limitation for Sassy of using a decision tree as a planning tool
IT IS INACCURATE BECAUSE IT IS PREDICTED AND NOT THE ACTUAL
Explain the usefulness of a Gantt chart
Usefulness includes:
clarity in planning
determining the timeline of a task eg 20 weeks
help monitoring progress
Describe one feature of a multinational company (MNC).
MNCs operate in more than one country. Their headquarters are located in one country (home country) while operations are carried out in a number of other countries (host countries).
Because of their international operations, they usually have large physical and financial assets and turnover.
MNCs are often large-sized and exercise a great degree of economic dominance.
MNCs may control production activity with large foreign direct investment in more than one developed and developing countries.
Internal growth
occurs when a business expands existing operations rather than growing by merging or acquiring other businesses. Typically, internal growth occurs when a business expands its capacity and sells to a wider market
A force field analysis
Force Field Analysis, helps in evaluating the forces influencing change within an organization.
It involves identifying driving forces that promote change and restraining forces that prevent it, then analyzing their strength and significance. By visualizing these forces through a force field diagram, that pretty much just lists them in a list of two rows namely; driving forces and restraining forces.
LOOK AT DIAGRAM NOW
Managers can develop strategies to reinforce driving forces and mitigate restraining forces, thereby facilitating successful change implementation.
Distinguish between internal and external growth
INTERNALIS WHEN A BUSINESS EXPANDS USING ALREADY EXISTING OPERATIONS RATHER THAN MERGING OR JOINNG ANOTHER BUSINESS
External growth occurs when business grows through some activity related to another business external to the original one. When WE decided to purchase additional companies, it was acquiring revenue streams and operations from other firms, which allowed for rapid growth.
Takeover
(definition, advantages and disadvantages)
A takeover is when a business gains contol of another without the others willingness.
Arguments for:
1. increased profit due to more reach
2. share ideas
3. fast growth strategy compared to internal growth
ECONOMIES OF SCALE
Arguments against:
1.COMMUNICATION PROBLEMS
2.CULTURAL CLASH
3.STAKEHOLDER CONFLICTS EG 2 MAGERS THUS UNEMPLOYMENT.
4.BAD PUBLICITY OR BRAND IMAGE IF COMPANY HAS BAD REPUTATION
DISECONOMIES OF SCALE
A multinational corporation
is a company that operates in two or more countries. A multinational company needs to have a base in those countries, not just sell goods and services there.
REVISE TAKE OVER ADS AND DIS A LOT
ADS
INCREASED PROFIT
CAN SHARE IDEAS WITH EACH OTHER INCREASING COMPETITVE ADVANTAGE
ECONOMIESOF SCALE
DIS
COMMUNICATION PROBLEMS
SLOW DECION MAKING
STAKEHOLDER CONFLICTS EG 2 MANAGERS
UNEMPLOYMENT EG 2 MANGERS
CULTURAL CLASHES
DISECONOMIES OF SCALE
Describe two features of a merger
Two or more businesses join togetherto become one.
This type of expansion occurs when two businesses become integrated by joining together and forming a bigger combined business. The owners of two businesses agree to join their firms together to make one business
They can take advantage of synergies
Explain one positive and one negative impact of the multinational company, RE, on the developing country.
Positive impacts on the developing country:
Employment thus increased living standards
Government tax
Consumers have more variety of product to choose from
Negative impacts on the developing country:
MNCs usually go to developing countries due to the loose tax regulations and this could attract other MNCs which could increase pollution reducing life expectancy
They may not neccesarily reinvest their profits to the developing country but rather back to their original country
TM as a local business cannot compete and has started to experience a fall in sales and profit. TM might end up closing and this would lead to increased unemployment in the country which may result in the government intervening to ensure that the political fallout from such a move is minimized.
* Profits from RE could be repatriated to their home country. The financial benefits may be limited- this argument is not really applicable.
Internal growth strategy
WHEN BUSINESSSES EXPAND USING ALREADY EXISTING OPERATIONS RTAHER THAN MERGING OR ACQUSISTIONS. Iis proposed. It is expected that candidates describe the nature/meaning of this type of growth where the company grows from within using their own resources and capabilities to expand and grow in size/market share by investing in scooters and employing more staff to deliver the meals.
Advantages of internal growth
Advantages:
* The management of SD will have FULL CONTROL of the process of growth in terms of speed, priorities and the amount of capital spent.
* OUICK DECISION MAKING There will be no need for consultation and discussion with another organization be it through merger/takeover, joint venture or strategic alliance. Therefore, SD can react quickly to the current problem of late deliveries.
* INCREASED PROFIT
* SD will not lose its CULTURE & independence THUS AVOIDING any cultural clashes with the management and employees of a different organisation. Less change management is required/ less disruption to SD.
* Internal growth is likely to be CHEAPER than the external growth option of takeover. However, the stimulus outlines that a lot of capital has to be raised, so this option is theoretical rather than applicable. Nevertheless, the 6% return on the investment in scooters is relatively high and the investment is profitable.
* The proposed internal growth strategy will make the working life of the staff easier and more efficient. Motivation is likely to increase.
Disadvantages of internal growth
Disadvantages:
* This method of growth is considerably slower compared to external growth.
* LACK OF FINANCES Some shareholders are against this option perhaps due to a large sum of finance being required.
Economy of scale
refers to the reduction in average costs that result from an increase in the scale of production
Diseconomy of scale
refers to an increase in average unit cost as a business increases in size.
Advantages of Internal growth:
Advantages of Internal growth: selling more; widening product range; expanding facilities
RETAIN CONTROL
QUICK DECISION MAKING
AVOIDING CULTURE CLASHES BY REATINING ITS OWN CLASHES
CHEAPER
ECONOMIESOF SCALE
HOWEVER
SLOWER
FUNDS TO EXPAND
Recommend whether AS should enter into a joint venture with DF.
Factors in favour:
SHARE IDEAS
INCREASED PROFIT
ECONOMIES OF SCALE
INCREASED CONSUMER REACH
However: 3Cs
CULTURAL CLASHES
COMMUNICATION PROBLEMS
DISECONOMIES
UNEMPLOYMENT DUR TO STAKEHOLDER CONFLICTS
Types of external growth include:
Mergers
Acquisitions
Strategic alliances
Joint ventures
Franchising
Other economies of scale;
BULKBUYING ECONOMIES
Marketing economies of scale
Financial Economies of scale
Managerial economies of scale
Human resources economies of scale
Network economies of scale
FLOW PRODUCTION DFN/ ADS/ DIS
Flow producttion is producing a large number of standardized products on an assembly line. Opposite od. mass customisation
Advantages include;
Few defects due to uniformality
low cost of production
Disadvantages include;
Low worker motivation
Storage costs for stock
Outline two STEEPLE factors that have influenced DA’s business strategy
Economic: Evidence in case of recession, periods of economic growth
Political: Events in 1940s
Environmental: issues to do with plastics
Social: DA’s attitudes towards employees and their families
Technological: Battery technology, new plastics, introducing robots etc
Legal: No evidence in case – not relevant
Ethical: Decisions made within DA particularly with regards to culture
Explain how MM could reduce stakeholder conflict in relation to its gold mine in Egypt
Stakeholder issues can include:
CLEAR COMMUNICATION
IDENTIFY THE PROBLEMS
Managers: Technical problems, safety issues, risk of flooding. These will be difficult to manage, and will have conflict with employees who are threatening strikes. Costs will then have an impact on shareholders through lower prices.
Employees: Threatening strikes over pay and other issues with the way mines are managed. Will want spending conflicts with owners/managers.
Shareholders: Will want dividends maintained but mine producing below breakeven and this affects profits. Will want costs reduced, profit increased. Will not want safety issues to get out of hand – bad publicity and impact on share price. High dividends may prevent investments, may put pressure on wages. Conflict with managers/employees.
Other stakeholders may include government (taxes, licenses), the general public, pressure groups but these do not feature much in gold mines so are non-contextual.
Resolution of conflict: Safety is important to all – should be resolved with managed costs.
Strikes are damaging to shareholders. Employees will lose pay. So communicate and work towards a solution.
Managers need to create a less combative environment and find satisfactory ways of reducing costs and solving problems without upsetting employees.
Some possible solutions could be:
identify technical problems in advance and improve processes
think of a maintenance plan to prevent production outages
invest more in industrial safety (but this will increase costs – possible conflict managers vs. shareholders?)
improve employees’ motivation and job satisfaction, focusing on employees’ needs or maybe adopting a reward programme and/or health insurance (this will increase costs: will shareholders be happy with that?)
find a way to improve sales (look for new markets, segments, etc.), reduce costs or/and add value to their products in order to increase profits
describe the importance of two external stakeholders AND HOW TO SOLVE STAKEHOLDER CONFLICTS
Stakeholder issues can include:
- CLEAR COMMUNICATION
- IDENTIFY PROBLEMS
EXTERNAL STAKEHOLDERS
1. SUPPLIERS WHO SUPPLY TO US
2. CONSUMERS WHO BUY FROM US
Managers: Technical problems, safety issues, risk of flooding. These will be difficult to manage, and will have conflict with employees who are threatening strikes. Costs will then have an impact on shareholders through lower prices.
Employees: Threatening strikes over pay and other issues with the way mines are managed. Will want spending conflicts with owners/managers.
Shareholders: Will want dividends maintained but mine producing below breakeven and this affects profits. Will want costs reduced, profit increased. Will not want safety issues to get out of hand – bad publicity and impact on share price. High dividends may prevent investments, may put pressure on wages. Conflict with managers/employees.
Other stakeholders may include government (taxes, licenses), the general public, pressure groups but these do not feature much in gold mines so are non-contextual.
Resolution of conflict: Safety is important to all – should be resolved with managed costs.
Strikes are damaging to shareholders. Employees will lose pay. So communicate and work towards a solution.
Managers need to create a less combative environment and find satisfactory ways of reducing costs and solving problems without upsetting employees.
Some possible solutions could be:
identify technical problems in advance and improve processes
think of a maintenance plan to prevent production outages
invest more in industrial safety (but this will increase costs – possible conflict managers vs. shareholders?)
improve employees’ motivation and job satisfaction, focusing on employees’ needs or maybe adopting a reward programme and/or health insurance (this will increase costs: will shareholders be happy with that?)
find a way to improve sales (look for new markets, segments, etc.), reduce costs or/and add value to their products in order to increase profits
describe the importance of two external stakeholders
External stakeholders could be:
* Suppliers – the local business in particular and coffee suppliers. The business relies on the quality of these products
* Local craftsmen – can be considered different from suppliers
* Customers – this is in the service industry and customers are critical. Word-of-mouth is so important in this industry and these will tend to be influential people
* Banks, etc – unlikely to be important as the business does not use external finance
* The government – very important for regulations such as H&S. Also collects taxes so has an impact on profits.
* Local community – Utopia provides work, has focus on local suppliers
* Pressure groups/media – no obvious importance although bad publicity to be avoided
* Competitors are allowed as external stakeholders
Evaluate the option of building a factory in, and relocating, to Germany.
New market eg high income earners
technological advancements they ca learn from
production costs
new market and new profit
New expertise from german workers
however
kinda 3Cs
stiff competition
governement taxes
high risk due to new country and no experience
Option 1: Market development
Arguments for and against
Option 1: Market development
Arguments for:
Lower risk in Ansoff
Increased profit in this new market
The old market may be reaching its decline in the product lifecycle
Arguments against:
No experience of new market making it risky.
needs market reseach and may be expensive
Difficult to enter the new market due to maybe competition or barriers of enrty
Option 2: Diversification
Arguments for and against
Option 2: Diversification
Arguments for:
Existing product may go into decline phase of product life cycle.
Rapidly growing and new market.
Arguments against:
No experience.
Higher risk in Ansoff.
needslots of market research thus may be expensive
stiffcompetition
Discuss whether BM should diversify into specialist cat food or introduce a new distribution channel for dog food.
current product could be at the end of product lifecycle
New market wider reach increased profit
however
tough compettion
barriers to entry
expensive market reaserch
high risk on ansoff matrix
If BM diversifies into specialist food for cats, it will open up to a larger and growing new market. The demand for cats is increasing, BM could also take advantage of its brand image as customers already know BM’s high quality. BM’s excellent brand image is an asset that can be capitalized in the development of new specialist food for cats. Vets who already recommend BM’s dog food would presumably recommend BM’s specialist cat food.
In addition, BM has experience in developing new products. Even if the costs of building its own research facilities are high, BM could get the necessary finance by becoming a private limited company.
However, introducing a new product into an existing market (Product Development) is a risky move. However, BM has the know-how of producing and selling specialist dog food. If BM becomes a private limited company to get the necessary finance, ownership will be diluted. Dr. Jones and Dr. Morris could lose some control of their business as decisions will have to be shared. BM’s current focus on quality could be compromised if the new partners prioritize profit maximization. What is more, the finance raised through the private limited company may not be enough to fund BM’s research facilities and the warehouse that will need refurbishing to stock more products.
N.B. With reference to Ansoff, cat owners might be considered a different market to dog owners hence Market Development.
As an alternative BM could introduce a new channel of distribution for the specialist dog food. A two intermediary distribution channel is one that includes a wholesaler that buys the goods from the producer and sells to the retailers.
So far, BM dog food was only distributed through veterinarians and large pet shops and BM food was not available for customers in certain areas. A two intermediary distribution channel that includes a larger supermarket chain, a wholesaler and many small pet shops, will enable BM to reach a larger customer base. Now, potential customers in different areas will be able to buy BM. BM will still pay for transport costs to the delivery to veterinarians and large pet shops, but they will not have to add transport costs to distribute to other small retailers around the country as the wholesaler will pay for transport costs.
In addition, the wholesaler and the supermarket chain could store the food and help BM to reduce stocks. This could be very convenient for BM as it would not need to refurbish the warehouse.
However, a major disadvantage is that BM‘s selling price will be more expensive to final customers as a wholesaler is introduced. BM’s price is probably already high and a higher markup could lead to a very high price to final customers. Alternatively, BM could accept reduced profit margins and keep the price stable.
ways of reducing cash outflows
DELAYING PAYMENT TO SUPPLIERS
CUTTING ADVERTISING AND PROMOTIONAL COSTS
LAY-OFF SOME WORKERS
However, destroying supppier to business relationship
However, future demand may fall if LB is not promoted effectively.
However this risks losing the services and know-how of key staff, who may not return in the high-season.
lower-risk strategy
Negative cash outflows could be reduced by delaying payment to suppliers
one can cut other overhead spending such as advertising or promotion costs. These costs will reduce payments without affecting the quality of the service provided.
lay-off some hotel staff or ask them to switch to part-time working.
However, destroying supppier to business relationship
However, future demand may fall if LB is not promoted effectively.
However this risks losing the services and know-how of key staff, who may not return in the high-season.
DIVERSIFICATION ADS/DIS
Proposal 2
high risk
tough competition
no experience
expensive market research
however
current proudct may be reaching decline stage in product lifecylce
new market means more reach may be profitable
On the other hand, Rose believes that LB’s cash flow problems are due to low capacity utilization in winter. She has proposed to attract a new segment of customers.
If new business customers come in winter, cash inflows will increase. However, to attract these customers, LB will need to build new facilities, such as a convention centre or a gymnasium, to cater for the needs of this particular market segment. This would involve a significant amount of finance that LB does not have.
LB could try to find external finance, such as a long-term loan, equity finance or a venture capitalist. However, these alternatives seem unlikely for LB in the short term. All of them take time to be found. Bank loans are expensive and LB may not have enough assets to present as collateral. Floating the company could be quite expensive for a family-owned business.
Venture capitalists are not easy to find, particularly if the business is not a promise of extraordinary profits.
LB will need to conduct extensive market research around the new market segment and currently this will increase outflows at a time when monthly cash flows are negative
CSR
CSR is the decision/attempt by a business to take responsibility for their action/activities by considering the interests of the community.
and the impact on a wide range of stakeholders in society. The business accepts the moral and legal obligations to society, not just to investors, that result from its operation.
