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Business A Level > 3rd-6th May: TAGS Paper 2 (6 topics) > Flashcards

3rd-6th May: TAGS Paper 2 (6 topics) Flashcards

1
Q

What is Corporate Culture?

A

= the norms and values of a business

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2
Q

How is corporate culture formed?

A

through rituals, uniform, mottos, symbols, founders actions, the language that is used

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3
Q

What are some main factors influencing the culture of a business?

A
  • organisational structure
  • attitude of the organisation to risk-taking and innovation
  • the size and development stage of a business (multinationals may find it harder over many offices and different countries)
  • influence of the founder
  • market and industry in which it operates
  • working environment + nature of tasks (remote working, homeworking, physical labour)
  • leadership and management styles
    (then also reward structures for employees)
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4
Q

What are the indicators of a strong corporate culture?

A

> culture is embedded, clear vision and goals
consistent behaviour
engaged and loyal staff
risk-taking and innovation are encouraged
strong network of departments and divisions (sense of cohesion)
good internal communication with employees (not always top-down)
culture not easily copied

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5
Q

What are the indicators of weaker corporate culture?

A

> inconsistent behaviours
little alignment with values
need for extensive procedures and bureaucracy
poor management

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6
Q

What are the four different classifications of company culture? (Handy’s model)

A
  1. Power
  2. Role
  3. Task
  4. Person
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7
Q

What is Power culture?

A
  • power concentrated at the centre, with a few individuals who have decision making power
  • employees judged based on what they achieve
  • few rules and little bureaucracy
  • results in quick decisions
    (usually a strong culture but can turn toxic)
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8
Q

What is Role culture?

A
  • highly controlled environment where power is determined by role
  • employees have clearly defined roles + responsibilities in a highly defined structure
  • links to a tall structure with long chains of command
  • decision making can be slow, less likely to take risks
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9
Q

What is Task culture?

A
  • matrix organisation structure where teams work on projects or to solve problems
  • power shifts depending on the expertise in the team (no single power source)
  • dynamic culture where the structure changes depending on the project
  • effective depending on the team dynamic
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10
Q

What is Person culture?

A
  • individuals believe themselves to be superior to the. business
  • employees are highly skilled, professionals (likely for accountancies and solicitors)
  • power lies in each group of individuals
  • exists in order for people to work
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11
Q

What are the difficulties in changing an established culture?

A
  • > tradition and set ways so it takes time and communication
  • > loyalty of staff to existing relationships and preference to existing arrangements
  • > staff failure to accept the need for change (May need a staff buy in)
  • > different person ambitions
  • > fears of loss of power, income, skills and the inability to perform as well in a new situation
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12
Q

What is Quantitative Sales Forecasting?

A

Forecasting using data and numbers rather than judgement

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13
Q

What areas of planning can quantitative sales forecasting be used for?

A

> HR plans: workforce for production
Production/capacity plans
Cash flow forecasts
Profit forecasts and budgets

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14
Q

What is a Moving Average?

A

a technique that looks at several periods at a time and averages out data by smoothing out peaks and troughs (fluctuations) which gives a better insight into whether sales have risen or fallen over time.

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15
Q

What is Extrapolation?

A

A method used to predict future levels such as sales by analysing trends in past data

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16
Q

To create a 3 month moving average, what is the main calculation?

A

Add all 3 months, divide by 3

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17
Q

How do you calculate the variation in sales from a moving average?

A

Sales in a specific period - the moving average sales

Either positive or negative

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18
Q

Positives of extrapolation?

A
  • simple method
  • not much data required
  • cheap and quick
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19
Q

Drawbacks of extrapolation?

A
  • unreliable if there are significant fluctuations in historical data
  • assumes past trends will carry on into the future (very RETROSPECTIVE, in a competitive business environment this is unlikely)
  • ignores qualitative factors
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20
Q

What makes Quantitative techniques more effective in forecasting sales?

A

If the BUSINESS is mature = meaning lots of past data available to identify trends
If the INDUSTRY is mature = rapid change is less likely
Stable external environment = e.g. economy, politics, legislation less likely to change

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21
Q

What is SWOT analysis?

A

= a situational analysis tool which looks at a businesses current position in order to help with future strategic planning
-> analyses the strengths, weaknesses of the business and the opportunities and threats presented by its external envrionment

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22
Q

What is used to find out the SW and OT?

A
  • internal audits can inform about strengths and weaknesses, could be from consultants or within the business itself
  • PESTLE is another analysis tool used for opportunities and threats
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23
Q

What is the typical data to analyse for strengths and weaknesses in a SWOT?

A 
> market share
> sales revenue /sales volume
> profitability 
> efficiency (cpu)
> brand recognition + loyalty
> market capitalisation 
> reputation for quality, value, design ect.
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24
Q

What is important when considering Strengths / Weaknesses for a SWOT?

A
  • they are relative
  • need to consider industry average
  • compare with competitors or past data
25
Q

Why is SWOT analysis useful?

A

> the more that strengths and opportunities are understood, the more they can be capitalised on
weaknesses can be addressed, threats deterred
understand the business better through audits
little cost or time involved in making one
helps make decisions on strategic aims and plan strategy to achieve them

26
Q

Why is SWOT analysis limited?

A

> doesn’t prioritise the issues or provide solutions
doesn’t inform about the magnitude of threats / weaknesses
some info gathered may not be useful/outdated
if no formal data is used, the only thing that can be used is opinion (subject to bias)
can be used to generate ideas but does not help with deciding between competing ideas
only one stage of business planning process (need to conduct more in depth research + analysis to make decisions)

27
Q

What is a Business Plan?

A

= a written document setting out the objectives and aims of a business, and its strategies for achieving them, aswell as it’s financial forecasts
- An important planning tool

28
Q

What are the benefits of a business plan?

A
  • can make all employees aware of the business direction, motivational
  • can plot progress ( a ‘living’ document)
  • creating it forces the business to consider its direction
  • helps to secure finance as it reduces risk for the lenders/ banks (may reduce interest rate or equity offers)
29
Q

What are the limitations of a business plan?

A
  • forward looking so cannot be guaranteed, sets unrealistic expectations
  • predictions may not be accurate as market conditions may change (esp. dynamic market), becomes out of date quickly
  • success is not guaranteed so could cause overspending, still need to implement it
  • problems for financial services if there is inaccuracy/uncertainty
  • time consuming: entrepreneurs may not have skills to complete all sections
30
Q

How does producing a business plan reduce risk?

A
  • Forces a business to conduct market research, create plans and contingency plans.
  • have to consider funding and cash flow planning
  • assess the external environment and SWOT/PESTLE
31
Q

What groups of people might be interested in seeing a business plan?

A

Banks, venture capitalists, business angels, potential partners, suppliers, senior leaders

32
Q

What are the sections in a business plan, and where does this information come from?

A

Market information (size, growth, competitors, market share), marketing mix, operational plan (location, methods of production, staffing, logistics), financial forecasts (cash flow forecast, break-even), aims and strategies

33
Q

What is a Cash Flow Forecast?

A

= a financial document that shows the projected inflows and outflows of cash into and out of a business

34
Q

What are the uses of cash flow forecasts?

Any potential limitations?

A

+ arrange financial cover for any shortages: helps plan liquidity to avoid cash flow shortages (business failure)
+ guide firm towards action if it looks like it will hit a shortfall
+ required by investors to secure finance: important as the lender/ bank wants openness and to know it repayments can occur on time
+ helps set cost and revenue budgets

-> only really a prediction, may be unforeseen circumstances, can get out of date, leaders often optimistic about sales revenue, only as good as the data used

35
Q

What is a Sales Forecast?

Where does the data come from?

A

= a projection of future sales revenue, often based on previous sales and market data

previous years, experience of managers, seasonal factors, what products sell best, market + consumer trends

36
Q

What is the purpose of a Sales Forecast?

A
  • used in cash flow forecasts to estimate monthly inflows
  • used in HR for planning to estimate how many staff to employ and make redundant
  • used in production planning to estimate how much stock to buy
  • used in finance to estimate what sales targets to give sales force
  • forms the basis of overall aims / objectives
  • used by investors and other market commentators to judge the success of a business
37
Q

What are the challenges of Sales Forecasting?

A
  • the future is not reliable due to the changing nature of markets
  • difficult if a market has demand highly sensitive to price or income
  • in a ‘fashion’ industry, demand is difficult to predict
    start ups will have a lack of data to use
  • seller subjectivity and lack of data, unreliable data
  • need collaboration / communication between sales managers, sellers and leaders
38
Q

What are the three factors affecting Sales Forecasting?

A

1) consumer trends
2) economic variables
3) competitors actions

39
Q

How can consumer trends affect sales forecasts?

A
  • demand in many markets changes as consumer tastes & fashions change
  • based on seasons, demographics, globalisation, desires for greater personal convenience
  • affects both overall market demand & the market shares of existing competitors
40
Q

How can economic variables affect sales forecasts?

A
  • interest rates rising will affect consumers
  • legislation
  • consumer incomes rising : overall strength of the economy and GDP is important
  • exchange rates
  • taxes added to specific products
41
Q

How can competitors actions affect sales forecasts?

A
  • hard to predict but are often a reason as to why sales forecasts prove over - optimistic
  • competitors may become bankrupt, launch new products, new entrants emerge
42
Q

How can a business improve their cash flow position?

A

Change payment terms from customers/debtors to make them shorter
Lengthen payment terms to creditors
Sale of assets, increase inflows
Reschedule short term debt

43
Q

How to calculate:

1) Opening balance
2) Closing balance
3) Net cash flow

A

1) take the closing balance from the previous month
2) Net cash flow + opening balance
3) Inflows - outflows

44
Q

What is Inorganic growth?

A

= growth which occurs as a result of taking over or merging with another business
-> it does not occur from within

45
Q

What is Integration/a Merger?

A

= when two separate businesses join together to form a new organisation

46
Q

What is a Takeover/Acquisition?

A

= it involves one business acquiring control of another business
sometimes referred to as hostile
most common form of external growth

47
Q

What are the main reasons for Takeovers?

A

Increase market share
Acquire new skills
Access E.O.S
Secure better distribution
Acquire intangible assets (brands, patents, trade marks)
Spread risks by diversifying
Overcome barriers to entry to target markets
Defend itself against a takeover threat
Enter new segments of an existing market - Market Development
Eliminate competition

48
Q

What are the main financial risks for Takeovers?

A
  • they are the highest risk method of growth and therefore majority of them fail
  • > destroys value for shareholders of the acquiring firm
  • high cost involved (often takeover price proves too high)
  • problems of valuation (over estimation of synergies)
  • upsets to customers + suppliers due to disruption caused (loss of customers and key personnel)
  • problems of integration (change management) incl. resistance from employees
  • incompatibility of management styles, structures and cultures
  • questionable motives
49
Q

What is important to consider when evaluating the motives of a takeover / merger?

A

Is it a strategic fit for the firm?
does the transaction fit with
1) the capabilities of the firm
2) the corporate objectives of the firm
-> e.g. take-over involving diversification is a strategic fit for objective of risk spreading
is there a smaller scale action that could give the same benefits like strategic alliance / joint venture?

How is performance seen in the business? Is it a focus solely on profits? Transactions seen with a mainly financial motive will need to impact on financial measures / targets.
Transactions with strategic motives will be harder to measure in the short term financially
-> Intangible factors like reputation, innovation, motivation

short vs. long term approach: benefits want to be reaped straightway, full impact may take years to fully assess

Impact of takeovers is often hard to see/not transparent. Businesses concerned ‘disappear’ into the result of the acquiring firm.

Relevant theory fit:
- Ansoff, Porter, Kotter, Boston Matrix, Corporate strategy and objectives

50
Q

What are the 4 different types of integration?

A

1) Vertical forwards = joining with a business further up in the supply chain e.g. manufacturer buys a distributor
2) Vertical backwards = joining with a business operating earlier in the supply chain e.g. retailer buys a wholesaler
3) Conglomerate = where one business has no clear connection to the business joining it
4) Horizontal = joining with a business at the same stage of the supply chain e.g. manufacturer buys a competitor

51
Q

Benefits and drawbacks of Horizontal integration?

A

+ reduces competition (increased market share, market power, bargaining power, MONOPSONY)
+ cost savings, benefits from synergy in pricing, marketing, distribution
+ exploit internal E.O.S, workers more scope of control and chance of managerial promotion
+ cheaper in long run to buy existing well known brand than organically growing one
- short term redundancies
- synergy does not always materialise
- review by CMA worried about reducing market comp.
- diseconomies of scale

52
Q

Benefits and drawbacks of Backwards vertical Integration?

A

+ gain more control over supply chain (increase efficiency in decision making)
+ E.O.S, less cut of profits from intermediaries so can reduce profits
+ secure suppliers may increase job security, make operations more coordinated
- could tie into a supplier which is not always best option (no experience in industry)
- lacks supplier comp. (lack of innovation, increased costs in long run due too falling efficiency)

53
Q

Benefits and drawbacks of Forwards vertical Integration?

A

+ more distribution control (pool resources, better for customers)
+ could potentially control ethicality of supply chain
+ may have the opportunity to dominate the market and appeal to more customers (business joins retailers)
- customers may resent the lack of choice with products dominating outlets

54
Q

Benefits and drawbacks of Conglomerate Integration?

A

+ diversifies the business, spreading risk, improves customer base as can cross-sell products
+ E.O.S, synergies
- potential failure to understand target company due to lack of market experience
- complications due to shift in focus in all areas -> slow to integrate

55
Q

What are the problems of this type of rapid inorganic growth?
How can each of these be managed?

A

1) Drain on resources due to the huge costs involved and potential for overtrading
- > secure access to finance
2) Loss of control or coordination (D.E.O.S)
- > need for good planning and leadership
3) Poor investment decisions
- > use of investment appraisal techniques, qual.+quant. data
4) Coping with clashes
- > Kotter change management processes, get staff buy in
5) Alienation of customers (taking over a brand they don’t identify with)
- > employ customer relationship management systems, keep customers informed
6) Shortage of resources e.g. skilled labour (might drive up prices), may have to headhunt, find new specialists
- > work with staff to maintain productivity, implement effective recruitment selection processes

56
Q

What is a Decision tree?

A

= mathematical model that managers use to make decisions

set out all the options available plus their outcomes

57
Q

How is the Expected Value and Net Gain calculated?

A 
EV = probabilities x expected gain
NG = expected value of both options - the initial cost of performing these
58
Q

What are the Advantages of using Decision Trees?

A

+ set out in a logical/clear/mathematical way
so a good decision making tool
+ use of probabilities allows for assessment of ‘risk’
+ costs are considered as well as potential benefits
+ forces a business to research ideas and projects

59
Q

What are the Disadvantages of using Decision Trees?

A
  • depends on the accuracy of data used to forecast and predict (errors) as probabilities are estimates
  • no info given on how to avoid risks, risks still exist even when decision made
  • may be overenthusiastic/bias depending on who made it
  • only quantitative, no qualitative
  • figures may become out of date (lag time between model to launch)

Business A Level (4 decks)

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