1.1 - The nature of business Flashcards
What is a mission statement, and why are they used?
A mission statement sets out the business’s beliefs and values. A business will use its mission statement to create corporate aims.
What are corporate aims and corporate objectives?
Corporate aims are the long-term goals of the entire business that allow the business to work towards its mission. Corporate objectives contain the specific tasks and activities a business must accomplish in order to satisfy its corporate aims. Corporate objectives can be broken down further into functional (departmental), team and individual objectives.
What does the SMART acronym mean in terms of business objectives?
Objectives must be Specific so that employees know exactly what they are working towards.
Objectives must be Measurable so that employees can actually work out whether they have met their objective.
Objectives must be Attainable or achievable so that employees are committed to achieving them.
Objectives must be Realistic otherwise employees may feel demotivated and overwhelmed.
Objectives must be Timely so that employees know when they must achieve them by.
What are the benefits of business objectives?
Business objectives provide direction and can support planning and operations.
Business objectives allow a business to coordinate resources and ensure that all employees are working towards the same overall aim.
What is revenue, and how is it calculated?
Revenue is the income earned by a business.
Revenue = sales volume x sales price
What are the two types of costs, and what differentiates the two?
- Fixed costs.
- Variable costs.
Fixed costs don’t vary as the business’s output changes - whereas variable costs are normally directly related to a business’s output.
Give two examples of both fixed costs and variable costs.
Fixed costs:
Interest rates, payables/debts, rent etc.
Variable costs:
Cost of raw materials/unit cost, wages etc.
What is cost leadership?
Cost leadership is a way to compete against other businesses by having the lowest costs in the industry.
Give an example of a company that has cost leadership in their industry, and state why.
Ryanair
Quick and efficient take-off times = more flights per hour.
Land at secondary airports = fewer fees.
Buy new planes = fewer fuel costs (more fuel-efficient)
What did Michael Porter (1980) state?
A business cannot be a cost leader while also having a differentiated product. A sustainable competitive advantage comes from focusing on one thing.
What is profit, and how is it calculated?
Profit is the amount of money that a business makes less the total costs of the business.
Profit = Total revenue - Total costs.
Name the three main sectors of business.
Primary sector businesses extract or grow raw materials including fishing, mining, and forestry.
Secondary businesses manufacture goods using raw materials such as clothing and mobile phones.
Tertiary businesses provide services such as hotels and cinemas.
