1.5

Question 1

one of the parts of STEEPLE is social, what might this entail?

Answer 1

demographics, career attitudes, life style trends and cultural differences.

Question 2

one of the parts to STEEPLE is technology, what does this entail?

Answer 2

technology development, new reachsurch tech awareness.

Question 3

one of the parts of STEEPLE is economic, what does this entail?

Answer 3

estrange rate, inflation, intrest rate and unemployment rates.

Question 4

one of the parts of STEEPLE is ethical, what does this entail?

Answer 4

bribery, intelecultual property reputation, business ethics and confidentiality.

Question 5

one of the parts of STEEPLE is political, what does this entail?

Answer 5

government polices, taxation, political stability, foreign trade and trade restrictions.

Question 6

one of the parts of STEEPLE is legal, what does this entail?

Answer 6

the court system, employment laws, discrimination laws, anti- trust law, trade unions, consumer protection, health and safety and copy right laws.

Question 7

one of the parts of STEEPLE is ecological, what does this entail?

Answer 7

weather, climate change , environmental polices and atmospheric emmisons.

Question 8

what will be the consequence if any of the STEEPLE external factors change?

Answer 8

the business will have to adapt by changing its objectives.

Question 9

why is adaption very important for a business?

Answer 9

business that can adapt will be more sucsesfull than business that can not adapt or are inflexible to change.

Question 10

what will a correct STEEPLE analysis allow for a business?

Answer 10

first move advantage against other organisations.

Question 11

what is an economy of scale?

Answer 11

when a increase in sale production leads to a decrease in average cost. (cost per unit)

Question 12

what is a diseconomy of scale?

Answer 12

when an increase in sale production lead to an increase in average cost (cost per unit)

Question 13

what are some factors causing economy of scale?

Answer 13

purchasing- discount or buying in bulk.
technical- more advanst production equipment.
managerial- more specialised managers, can deal with cost better and leads to more efficiency and less people heird.
financial- bigger firms can get access to cheaper loans.
marketing- because it is a fixed cost and t stays the same while ore is sold.

Question 14

what is the formula for the total costs?

Answer 14

TC=FC+VC

FC- fixed costs
VC- variable costs.

Question 15

how does one calculate the average total cost?

Answer 15

ATC= TC over quantity

Question 16

what are some factors that might cause a diseconomic scale?

Answer 16

finical- extra surplus might lead to bad investment and poor disunion.
managerial- risk of having over specialsed managers wo will only work in one area.
technical- transport issues such as needing bigger and better transport potentially leading to increased in tax or difficulty in driving.

Question 17

how can the size of a business be measured?

Answer 17

Total Revenue – the value of an organization’s annual sales per period of time.
Market share – an organization’s sales revenues as a percentage of the industries total revenue.
Profit – the value of the organization’s profits in a certain period of time
Size of workforce – how many employees the organization has
Capital – the value of the organization’s investment

Question 18

what are some advantages of being a big business?

Answer 18

brand recognition
lower prices due to economy of scale.
survival
economies of scale
higher status

Question 19

what are some advantages of being a small business?

Answer 19

financial risk is lower than a big business.
governmental aid
greater focus
greater motivation
competitive advantage- they can offer more specialised products.

Question 20

define internal growth?

Answer 20

occurs when the business grows “organically” using its own capabilities and resources to increase the scale of operations and sales revenue. The business can grow steadily and slowly by simple selling more products or creating a new one. It is less risky!

Question 21

define external growth?

Answer 21

t’s a faster way to grow but a more riskier one. Instead of selling more products the business expands by entering an agreement to work with another business. It normally requires significant external financing. The most common ways of external grow are:
Merging and Acquisition (M&A) and takeovers
Joint Venture (JV)
Strategic Alliance (SA)
A franchise

Question 22

what are Merging and Acquisition (M&A) and takeovers?

Answer 22

it is mainly the integration of two business. They can either Merge by joining together and forming a combined business or taking over another business, Acquisition (the term takeover is used when the company been acquired does not want to be acquired). The main result is a bigger business.

Question 23

what are the four ways integration can occur?

Answer 23

Horizontal integration
Backwards Vertical Integration
Forward vertical integration
Conglomeration

Question 24

what is horizontal integration?

Answer 24

When there is an merge of firms operating in the same industry. For example, Nike bought Umbro (for sports industry), Fiat acquired Chrysler Motors (car industries), Disney bought Pixar (movie industry). Horizontal integration mainly represents a larger market share and therefore greater market power.

Question 25

what is backwards vertical integration?

Answer 25

When a business integrates with another business who is at an early stage on the chain of production mainly to benefit and protect their supply chain. For example, Starbucks acquired the Clover Brewing system, a coffee manufacturer, to have control on the processing of coffee beans.

Question 26

what is forwards vertical integration?

Answer 26

When a business integrates towards the end stage in the chain of production. Basically, the business wants to ensure the secure sale of their products. For example, a cocoa beans manufacturer acquires a chocolate producer business; or the chocolate producer acquires a “chocolate shop/cafe”

Question 27

what is conglomeration?

Answer 27

When two business from completely distinct markets integrate to reduce corporate risks. For example, Virgin Group; Virgin Atlantic, Virgin Rail Group, Virgin Mobile, etc. The idea is that if one of the business fails, Virgin Group will still be successful. Conglomeration also happen due to complementary seasonal activity.

Question 28

what are the advantages of M&As?

Answer 28

Economies of scale – larger scale of operation lower the unit costs improving the firm’s competitiveness and profit margins

Greater market share - greater market power and larger customer base

Synergy – integrated firms have access to each other’s resources (i.e. HR, new technologies, distribution channels etc.), combining these resources the business can improve productivity.

Survival – if a firm is acquired by a stringer firm that will help the weak business to keep in the market.

Diversification – they can diversify products and hence reach a larger base of customers

Question 29

what are some limitation of M&As?

Answer 29

Redundancies – job losses are likely to happen since the new company won’t need to “double” the resources (i.e. 2 HR managers)

Conflicts – due to potential disagreements between the tow companies.

Culture Clash – there will be new mission and vision statements as a merged organization. Hence, each individual form may lose their core values in the process.

Loss of control – new board of directors will need to be restructured, hence some original owners and/or managers will lose some degree of control.

Regulatory problems – the M&A might create concerns on monopoly power. Hence, government might want to prevent the M&A.

Question 30

talk about what a joint venture is?

Answer 30

it occurs when two or more organizations share costs, risks, control and rewards or a business project. The parts agree to set up a new legal entry that will create a new organization from two “parent business”.
JV is normally set up for a finite period of time, after that period is over the new organization can either dissolve or be incorporated in one of the “parent business”.
JV allows organizations to enjoy some benefits such as large market share without loosing their legal existing or identity. Also, each organization brings their own expertize and that creates a powerful combination.

Question 31

what are the advantages of a joint venture?

Answer 31

JV partners benefit from each other’s expertise and resources (e.g. market knowledge, customer base, distribution channels, R&D expertise)

Each JV partner might have the option to acquire in the future the JV business based on agreed terms if it proves successful

Reduces the risk of a growth strategy - particularly if it involves entering a new market or diversification

Question 32

what are the disadvantages of a joint venture?

Answer 32

Risk of a clash of organisational cultures - particularly in terms of management style

The objectives of each JV partner may change, leading to a conflict of objectives with the other

Imbalance in levels of expertise, investment or assets brought into the venture by the different partners

Question 33

what is a strategic alliance?

Answer 33

similar to the JV in the sense that two or more business cooperate for mutual benefit, sharing costs of production development, operation and management. The main difference between and JV and a SA is that in a strategic alliance the organizations remain independent.

Question 34

what are some advantages of a SA?

Answer 34

More than two business may be part of the alliance

No new business is created; no legal entity is created.

Individual business in the alliance remain independent

SA are more fluid that JV; membership can change without destroying the alliance.

Question 35

what are some disadvantages of SA?

Answer 35

The more business that are part of the SA the more problems in coordination and agreement.

Without legally the SA has less force.

Remaining independent means that the individual business can’t benefit from Economies of scale, other types of growth or capital strength of a legal merger.

Question 36

what are franchises?

Answer 36

Franchising is a form of business ownership where a person or business buys a licence to trade using another firm’s name, logos, brands and trademarks. To get that benefit the purchaser (franchisee) pays a license fee to the parent company of the business (franchisor).
The Franchisee also pays a royalty payment (a commission)based on the sales revenue.

Question 37

what is the role of the franchisor?

Answer 37

is the creator of the business concept and product.
sells the right to offer the concept and sell the product to another business.

Question 38

what is the role of the franchisee?

Answer 38

buys the right to offer he consent and sells the product.
has to be consistent to the original business developed by the franchisor.

Question 39

why is a franchise a quick way of growing a business?

Answer 39

a franchise is a quick way of growing a business since the franchisor does not have to develop any new product and has a home or host country.

Question 40

what is a benefit and an expectation of a franchisee?

Answer 40

the franchisee has special knowledge in local markets, local conditions and local cultures. also, speaking the local language which is helpful for the franchise expansion.

Question 41

what are the two parts of cost of a franchise?

Answer 41

1- the franchise pays for the right to operate the business.
2- the franchisee pays royalties ( a percentage of sales or a flat fee) to the franchisor.

Question 42

what does the franchisor provide?

Answer 42

the stocks
the fittings
the uniforms
staff training
global advertising

Question 43

what does the franchisee provide?

Answer 43

employ staff
set prices
set wages
pay the agreed royalty on sales
create local promotions
advertise locally.

Question 44

what are the advantages for the franchisee?

Answer 44

the product already exists and have been tested for sucsess making it less risky.
there is a established format to sell the products.
the start up costs and lower, since the franchisor already developed market strategies, market reasurch ect.

security of stock

Question 45

what are the disadvantages for the franchisee?

Answer 45

they have unlimited liability for the franchise
franchises are not cheap The franchisee must pay substantial initial fees and ongoing royalties and commission. He/she may also have to buy goods directly from the franchisor.

The franchisee has no control over what to sell

The franchisee has no control over supplies

The franchise needs to earn enough profit to satisfy both the franchisee and franchisor - there may not be enough to go round!

Question 46

what are the advantages for the franchisor?

Answer 46

The company can grow quickly and expand to a wider market without risking a large amount of money
Takes advantage and uses local knowledge and expertise
The Franchisor does not assume the risks and lability of running the local franchise
Gains more profits and benefits from the sign-up fee

Question 47

what are the disadvantages for the franchisor?

Answer 47

There is a risk on damaging the reputation of the business if the franchisee fails or does not follow the procedures
Loss of control on a daily operations and risk on losing some standards
not as quick as M&As.

Question 48

what is a desition tree?

Answer 48

A decision tree is a quantitative decision-making tool used to help simplify complex decision. For example, whether to grow or not.

Question 49

what does a destine tree show and how?

Answer 49

Represented by a diagram of the different options that are available to a business to make a decision for the organization, showing their probable outcomes.

Question 50

what is calculated with the data collected from a deciton tree?

Answer 50

This tool allows manager to calculate the Expected Value (EV) of each decision in order to plan the best option to follow.

Question 51

what is step one of the decision tree?

Answer 51

Based o the choice that need to be made, we start with the decision node represented by a square node. From that node the possible choices will follow and they need to be numbered.

Question 52

what is step two of the decision tree?

Answer 52

To show the different outcomes of the decision we use the chance nodes, represented by a circle node. This outcomes are normally: “failure or success”, “improvements or deteriorations”, etc. Business and decision makers do not have direct control over the chance nodes.

Question 53

what is step three of the decision tree?

Answer 53

With the data available the manager needs to assign a probability to the outcome actually happening. These are calculated by managers with all the data available and placed below the outcome line. In mathematical terms the sum of the probabilities may always equal to 1 (100%).

Question 54

what is step four of the decision tree?

Answer 54

The manager then makes an estimate of the values of the outcome actually happening (returns) . This values are written at the end of the line that represent each outcome.

Question 55

what is step five of the decision tree?

Answer 55

Next, the manager should estimate the cost of the choices that are considered and placed under the respective choice lines. If there a no costs a “0” need to be shown.

Question 56

what is step six of the decision tree?

Answer 56

With all the pervious steps, the manager can now calculate the Expected Value (EV) for each outcome

Question 57

what is step seven of the decision tree?

Answer 57

If there are costs incurred they need to be subtracted from the EV . Once this is done, we can see what EV is has the highest value and that should be the decision.

Question 58

what is step eight of the decision tree?

Answer 58

inally, based on the highest EV, the manager makes a decision and crosses the choices not taken with the symbol //

Question 59

what are the tree main benefits of a decision tree?

Answer 59

Gives a clear answer to a complex decision
Flexible - can be applied to many situations
Simple and visually attractive

Question 60

what are the three main limitation of a decision tree?

Answer 60

Is based on estimates (outcomes and probability of outcomes)
Is based on quantitative data so ignores qualitative issues
Can be difficult to draw for very complex decisions