AS CONCEPTS REVISION - DON'T SKIP THESE

Question 1

importance of higher efficiency

Answer 1

1. lower unit costs allow you to lower price - competitive advantage thus higher sales and market share. Revenue MAY rise if PED>1
2. lower unit costs and maintain price will increase profit margin
3. lower unit costs and maintain price, can use cost savings from efficiency gains to increase quality, reputation and loyalty OR increase wages, satisfaction and loyalty

Question 2

methods of improving efficiency

Answer 2

LABOUR

1. increase training - more skills allows them to work more effectively, which reduces defects and waste; more motivated as self-actualising which increases productivity
2. motivational methods - financial and non-financial
3. change management style - laissez-faire may reduce bureucracy which increases productivity
4. better technology - work faster

CAPITAL

1. Replace labour - faster than labour so higher productivity
2. more precise so better quality and lower waste/defects
3. support labour to increase labour productivity
4. rationalising due to spare capacity will increase CU and lower unit costs

ENTERPRISE

1. expand capacity and output to increase EOS

*link: get more done per time period!

Question 3

problems with increasing efficiency

Answer 3

LABOUR

1. training, capital and incentive costs may offset cost gains
2. training may lead to lost time
3. more productive workers may bargain for higher wages, offsetting cost gains
4. risk of quantity over quality! - increases costs of defects/customer loyalty

CAPITAL

1. TU/employee resistance to change in processes without increased reward - lower efficiency if they disrupt
2. motivational issues - cost of lost productivity offset gains
3. reputational issues of replacing labour - cost of PR may offset gains
4. cost of investment - resistance from shareholders if dividends reduced to pau for it (but LT rises)
5. no use if not supported by employee training
6. must still be supported by QA/QC as defects can still occur - identify source and fix to reduce LT costs

ENTERPRISE

1. if high demand is not sustained, will lead to lower sales, output and excess capacity, thus higher unit costs lower CU
2. too large = DEOS from xyz which increases unit costs

basically on any question about improving efficiency, you need to explain how it will increase efficiency, then for eval you need to talk about problems with the methods that will increase costs that offset efficiency gains

*avoid risk of excess capacity - depends on accuracy of demand forecasts

Question 4

impacts of growth - use to comment on growth strategies in P4

Answer 4

+VE:

1. EOS
2. benefit from experience

-VE (esp. if growing TOO fast)

1. DEOS
2. lose sight of objectives
3. quality issues - quality overlooked so MUST have QA/QC in place
4. overtrading - too many stores and products, impact on cash flow

*3 can be avoided with careful CFF and securing sources of finance (BUT impact on gearing)

*evaluate possibility of quality issues by recommending QA/QC systems

Question 5

impact of growth on finance

Answer 5

1. use CFFs to ensure enough cash in place to avoid over-trading as you grow
2. use SOF to get enough finance -BUT impact on gearing
3. if growing internationally, consider transport costs and differences in ER when setting prices

Question 6

impact of growth on marketing

Answer 6

may need to adapt elements of marketing mix - pricing, distribution (more channels) or promo (increase spending)

Question 7

impact of growth on HR

Answer 7

1. may need to hire more staff - wage and recruitment/training costs
2. may need to redeploy experienced staff to new outlets/regions to support growth

KEY: effective analysis can be saying what the business will have to do or change as a result of this

Question 8

external growth is (________) than internal but more __________

Answer 8

faster, less risky, but more costly

Question 9

pros of M&A

the different types of integration (horizontal, vertical and conglomerate) are all M&A activity!!

Answer 9

1. purchasing EOS
2. increase market share and market power competition - lower costs of competition; pricing power
3. secure point of sale - forwards vertical, deny rivals
4. secure supplies - backwards vertical, which reduces risk in supply chain and you can deny rivals
5. spread risk with conglomerate diversifcation
6. access talent at other firms to help business branch out into other activities and continue growing!

Question 10

cons of M&A

Answer 10

1. diseconomies of scale
2. culture clashes

Question 11

M&A eval

Answer 11

2. depends on how integration is MANAGED AND IMPLEMENTED - measures taken to reduce culture clash and employee resistance
3. takeover: look at cost VS valuation
4. takeover: COST - do you have enough and how will you finance it if not? debt/equity?

Question 12

methods of growth

Answer 12

1. merger
2. takeover
3. joint venture - key eval: depends on how close business activities are to benefit from each other
4. franchising

Question 13

financial objectives

Answer 13

1. cost focus
2. profit focus
3. revenue focus
4. cash focus
5. ROI max
6. manage gearing - risk