3.1.1 Flashcards
The more value a business can add to its products the
more competitive it is
How is added value achieved
branding, quality, convenience and service
Inputs
labour, capital, land
Outputs
goods and services
The role of business
- business creates goods and services
- meet needs of customer
- business sells products to generate revenue
- if revenue is greater than total costs
- profit
- reinvested for business growth
Why are businesses important?
create wealth
create jobs
develop new products to benefit society
support other businesses in the country, such as purchasing materials
provide a source of tax revenue for the government
What is a mission statement
sets out a business’s overall purpose to direct and stimulate the entire organisation
A mission statement will focus on
the organisations values
non financial goals
the benefits of the business to the community or stakeholder
how consumers are to be satisfied
How is the mission statement used for customers
many organisations use their mission statement as a promise to their customers. It lays down what they can expect from the goods and services they consume
How is the mission statement used for investors
many shareholders will want assurances that their money is being invested in an ethical business with strong values
A mission will also communicate the ambition of the business to potential stakeholders and its desire to grow
How is the mission statement used for employees
the mission statement acts as a set of guiding principles for employees. It brings employees together with a shared purpose and communicates the values that underpin the business. A mission statement can have a significant influence on corporate culture
How is the mission statement used for owners/directors
directors need to see the bigger picture and think strategically.
The mission statement helps the directors form and align the business strategy.
Objectives hierarchy
- aims
- mission statement
- corporate objectives
- functional objectives
What is the relationship between missions and objectives
The objectives of a business will flow from the mission and aims. Whereas a mission outlines the vision of the business in broad terms, the objectives will be SMART. Whereas a mission statement will be communicated to all stakeholders, some objectives may only be shared with managers and employees.
SMART
Specific
Measurable
Agreed
Realistic
Time-related
Why do businesses set objectives
- provide quantifiable steps to achieve aims
- clarify direction of the business
- measure success against targets
- provide targets to motivate and reward employees
- influence potential lenders/investors.
Financial objectives
survival
profitability
growth
market share
shareholder value
Non-financial objectives
personal satisfaction
brand recognition
sustainability
customer satisfaction
Factors which influence business objectives
Size - objectives may change as a business grows and becomes more successful. Most businesses when starting up will aim to survive.
* Sector - unlike most private sector businesses, public sector organisations are driven by meeting customer needs, not profit.
* Market - some markets are more competitive than others and this will determine objectives, such as targeting market share.
* Ownership - a Plc must satisfy shareholders, therefore will set objectives around shareholder value.
* Owner - the owner may simply run the business for love of the job.
Profit allows for
reinvestment into new projects and stimulate economic activity
long-term success secured
help the business grow and keep up with demands of ever-changing business environment
profit is what is
left after all costs have been deducted from revenue
What is revenue and how can you increase it
Revenue is the value of sales made during a trading period. It also includes products sold on
credit as well as those sold for cash.
A business can increase revenue by increasing the price of its products and by stimulating more demand.
what are variable costs
Variable costs are those that change directly with the level of output or sales, such as the
materials used to make a product.
what are fixed costs
those that do not change with the level of output or sales, such as rent
calculating fixed and variable costs can help when
making decisions about profit margins. average costs and pricing decisions
improve profit by reducing either fixed or variable costs whilst maintaining value in their products
revenue =
price x quantity sold
total cost =
fixed + variable cost
profit =
total revenue - total costs
