AS Paper 2 Flashcards
What external factors impact a business
- Competition
- Market conditions
- Consumer income
- Interest Rates
- Demographic changes
- Environmental and ethical factors
What do external factors mostly impact in a business
Costs and Demands
Why is COMPETITION an external factor that impacts a business?
- Competitors may reduce demand
- Increase business costs; spending money on promotion & advertising OR invest in R&D to improve products
Why is MARKET CONDITIONS an external factor that impacts a business?
- If increasing in size; must ensure it competes against other competitors to secure its own share of the increasing market - increases costs. (E.G investing in website and delivery)
Why is CONSUMER INCOME an external factor that impacts a business?
- Consumer incomes decreasing - demand for luxury items (cars and watches) decrease: too expensive
- Businesses may also invest more heavily in promotion and advertising campaigns to try and increase demand: increases business costs
Why is INTEREST RATES an external factor that impacts a business?
- Increase interest rates = increases the cost of business’ borrowing whilst also reducing the amount spent by consumers as they make decisions to save instead of spend
Why is DEMOGRAPHIC CHANGES an external factor that impacts a business?
- Ageing population: Increase in no. of people in higher age brackets = increases demand for items such as holiday packages targeted at senior citizens and cruises
- Net migration continues to increase: demand for cultural shops (e.g Polish food stores) continues to increase = reduce demand for groceries from existing retailer e.g ASDA
Why is ENVIRONMENT AND ETHICAL FACTORS an external factor that impacts a business?
- Consumer awareness of environmental and ethical factors develop, consumers are demanding products that are produced ethically and in an environmentally friendly (increases costs) (decrease demand if businesses fail to address changing needs)
Market share definition
The proportion of a market that a business controls in order to satisfy customer needs
Market share calculation
(Sales of one product / Total market sales of that product) X 100
Market growth definition
When an industry grows in terms of either volume or value
Market growth calculation
(Change in market size / Original market size) X 100
Sales growth definition
When a business increases its sales in terms of volume of value
Sales growth calculation
(Change in sales / Original Sales) X 100
Market Research definiton
Collecting and processing information about the market that a business operates in
What information is collected during Market Research
- Demand
- Competition
- Target Market
Why is DEMAND information collected for Market Research?
- Insights into wants & needs helps a business improve a product, spot market opportunities and stay competitive.
- Insights into overall demand trends can help a business to spot opportunities for growth and potential threats from new products/technology
Why is COMPETITION information collected for Market Research?
- Understand the major threats in the market and prepare the business to deal with these threats
Why is TARGET MARKET information collected for Market Research?
- Insights into customers’ wants & needs and how they are changing over time
Qualitative Research
Opinions & views
Quantitative Research
Numbers and figures
What does market mapping identify and how?
- Gap in the market by looking at what competitors offer
- Mapped against different variables = price vs quality
Methods of Market Research
- Sampling
- Technology
What is Sampling?
When a business selects a sample of the population to save collecting data from everybody in that population
Advantages of sampling
- Reduces costs: choose a cross-section of the population instead of EVERYBODY
Disadvantages of sampling
May not accurately reflect the full target market if the sample is not chosen properly
The use of TECHNOLOGY during Market Research
To analyse Market Research data by completing calculations and creating graphs and charts which can be used by managers and leaders
How to calculate PED
% change in quantity demanded / % change in price
What is the co-efficient
Value / number
What elasticity is penetration pricing likely to have
Elastic
What elasticity is price skimming likely to have
Inelastic
What does PED measure
The responsiveness of demand after a change in price
What does PED actually mean
For every 1% change of price, demand is going to change by the co-efficient value
When co-efficient GREATER than 1, means a product is …
Price Elastic
When co-efficient LESS than 1, means a product is …
Price inelastic
When a product is price elastic it means…
% change in quantity demanded is GREATER THAN the % change in price
When a product is price inelastic it means…
the % change in quantity demanded is less than the % change in price
When the price elasticity is exactly 1, it means…
the % change in quantity demanded = the % change in price
Impact on profit & sales revenue if a product / service is price is PRICE ELASTIC
Decrease in price = Increase in sales revenue
WHEREAS
Increase in price = Decrease in sales revenue
Impact on profit & sales revenue if a product / service is price is PRICE INELASTIC
Decrease in price = Decrease in sales revenue
WHEREAS
Increase in price = Increase in sales revenue
Why is elasticity measured
To forecast and predict the impact of changes in price and income on the quantity of the business’ goods demanded by consumers
How to calculate YED (Income elasticity of demand)
% change in quantity demanded / % change in income
What does YED measure
The responsiveness of quantity demanded to a change in consumer income
Positive co-efficient for YED means…
Increase in income = Increase demand
WHEREAS
Fall in income = decrease demand
Negative co-efficient for YED means…
Increase in income = decrease demand
WHEREAS
Fall in income = increase demand
If YED less than 1 it is
Inelastic
If YED is inelastic it means
% change in income is GREATER than % change in quantity demanded
If YED is greater than 1
Elastic
If YED is elastic it means
% change in income is GREATER than % change in quantity demanded
Why is quality important for a business?
To be profitable and compete with rivals
What determines quality
- Quality of materials used
- Quality of production process
- Style of a product
- Durability, speed and quality of a service
What is the consequence of a product return
A product is wasted and the costs of processing a return may be high
How can a business measure quality
- Customer Feedback (Reviews)
- Custpmer surveys (More detailed survey, asking them about their experience with the good/service
How can a business measure and identify quality
- Customer service and complaints
- Check quality in production process
How does ‘customer service and complaints’ help to measure quality
- Beneficial because it helps businesses to correct an issue that the business has not yet identified
- Monetary costs and reputation costs from having dissatisfied customers
How does ‘check quality in production process’ help to measure quality
- Check raw materials from the suppliers, take random samples of products that are in the middle of being produced and take random samples of finished products
- Expensive but means that defects are spotted before they reach customers.
- Stops a business bearing the costs involved in processing returns
TQM definition
(Total Quality Management)
A culture of quality that ensures quality in production, sales and after-sales customer service in order to achieve a high customer satisfaction.
Disadvantage of TQM
Expensive - training employees in the principles and making sure they embrace the culture
What does TQM value and why
Customer feedback - in order to keep improving the product.
The organisation aims to keep improving and producing products of the highest standard to give customers the best experience possible.
What are the benefits or maintaining high quality
- Image / Reputation
- Higher Price
- Avoid product recalls
Why is ‘IMAGE / REPUTATION’ a benefit of maintaining a high quality
- Customers view the business and the brand as being a high quality brand
- Positive reputation can win more customers and let the business charge a higher price
Why is ‘HIGHER PRICE’ a benefit of maintaining a high quality
- Business able to charger more
- Customers are often willing to pay a premium for a good product
- A business is able to earn more profit (providing the costs of TQM aren’t too much)
Why is ‘AVOID PRODUCT RECALLS’ a benefit of maintaining a high quality
Unlikely to have a recall for its products for quality and safety issues
Costs of Maintaining High Quality
- Staff Training
- Inspection costs (throughout production process
- Provision of services
Benefits of financial objectives
- Provide direction and used to measure financial performance
- Support decision making throughout the business
- Motivate employees and teams of employees
What is Return on Investment and why is it used
- Used as a financial objective
- Allows a business to calculate the efficiency of a project by comparing the amount invested with the amount returned
How to calculate Return on Investment
(profit from investment) / (investment costs) x 100
What is Long-term funding and why is it used
- Financial Objective
- Setting targets to reduce long-term funding from debt can protect a business if there is an increase interest rates
Revenue and its calculation
- Considered when setting targets (also known as sales revenue or turnover)
- quantity of goods sold x selling price per item
Costs and its calculation
- Considered when setting targets
- Fixed costs + variable costs
Cash flow
- Considered when setting their targets.
Compares inflows and outflows to ensure a business always has enough cash to meet its short-term debts
Investment
- Consider investment objectives when setting targets
- Cover the total expenditure planned by a business to develop capital projects
Capital structure
- Consider capital structure objectives when setting their targets
- Focus on the proportion of capital received from different sources of finance
Influences on Financial Objectives
- Overall business objectives
- Different departments
- Shareholders
- Competitors
Why are ‘OVERALL BUSINESS OBJECTIVES’ an influence on financial objectives
- Financial objectives must support the business’ overall aim
- If strategy is to maximise revenue, then financial objectives to maximise profits may not line up incentives well
Why are ‘DIFFERENT DEPARTMENTS’ an influence on financial objectives
- The other departments must be considered when setting finance objectives as all departments must be working towards the same overall aim
Why are ‘SHAREHOLDERS’ an influence on financial objectives
- The actions of shareholders must be considered when setting financial objectives as shareholders need to be satisfied
Why are ‘COMPETITORS’ an influence on financial objectives
- The presence of competitors must be considered when setting finance objectives as competitors can affect demand and therefore revenue.
Why do businesses use cash-flow forecasts
To estimate their total cash inflows and their total cash outflows for a future period of time
What are total inflows
All cash inflows coming into the business during the period
What are cash outflows
All cash outflows leaving the business during the period
What is Net Cash Flow
The difference between total inflows and total outflows
Inflows - Outflows
What is The Opening Balance
The balance at the start of the month and is the same as the closing balance of the previous month
Affects of cash-flow problems
Businesses that are profitable but have cash-flow or liquidity problems can become bankrupt as they lack short-term cash to pay short-term debts
How to improve cash-flow
- Money owed to the business is known as a receivable and businesses can reduce the trade credit period to increase how quickly they receive their receivables, which improves cash-flow
- Money owed by the business to others as a debtor (or payables) and a business can ask others for longer trade credit to reduce how quickly they must pay payables, which improves cash-flow
What are Revenue Budgets
Forecasts expected revenues for a business during a period. If actual revenue is higher than forecast, it is a ‘favourable variance’. If revenue is less than expected, it is an ‘adverse variance’.
What are Expenditure Budgets
Forecasts expected costs for a business during a period. A higher actual cost than forecast = adverse variance, Lower actual cost = favourable variance.
What are Profit budgets
Revenue and expenditure budgets can be used to create profit budgets. If overall profit is higher than forecast = favourable variance. Lower = adverse forecast.
Advantages of budgeting
- Helps achieve targets & objectives
- Help managers and leaders focus on cost control which can increase profit
- Motivate staff by providing spending authority to individual departments and teams
How to calculate Variance
Actual - Budget
When are Break-Even Analysis’s used
To predict the level of output at which total costs and total revenue will be the same
What is Contribution per unit
The amount of revenue which contributes to covering a business’ fixed costs after the variable cost per unit has been taken away from revenue per unit
How to calculate Contribution per unit
Selling price per unit - variable cost per unit
What it Total Contribution
The amount of revenue from the sale of all products which contributes to fixed costs once total variable costs have been taken away
How to calculate Total Contribution
Total Revenue - Total Variable Costs
What is GROSS PROFIT
Involves the amount of profit remaining once direct costs (costs of sales) have been paid by the business
How to calculate the GROSS PROFIT MARGIN
(Gross profit / sales revenue) X 100
What is OPERATING PROFIT
Involves the amount of profit remaining once direct costs (cost of sales) and the indirect costs (expenses) have been paid by the business
How to calculate the OPERATING PROFIT MARGIN
(operating profit / sales revenue) X 100
What is PROFIT FOR THE YEAR
A profit for the year target involves the amount of profit remaining once all costs and financing fees have been considered
How to calculate the PROFIT FOR YEAR MARGIN
(Profit for the year / sales revenue) X 100`
What is Job Design
Refers to an employer’s creation and planning of a job considering the job’s aspects
What are the aspects of job design
- Roles & responsibilities of the job itself
- Systems & methods used by an employee to carry out their role
- Relationships between employer and the employee, and between other managers, subordinates and stakeholders
How business objectives influence job design
The overall business objective may influence job design as all jobs within the business should contribute to the overall business objectives and they should be designed in such a way to do so
How an individual can influence job design
The performance of individual employees.
- Demotivated = problem with productivity - managers may use job design to motivate employees and improve productivity
How available resources influence job design
Major changes to job design may require the additional support of resources e.g labour and capital, and these resources must be available for the change to be successful
How market research influences job design
If a HR manager is expecting there to be a change in the external environment, jobs may be designed or redesigned to reflect the demands of a changing external environment
Approached an employer can do to take to job design
- Job Enlargement
- Job Enrichment
- Job Empowerment
- Job Rotation
What is Job ENRICHMENT and when is it used
- When considering the motivation & productivity of its employees
- An employer provides an employee with jobs which are more complex and challenging. Jobs assigned to employees are usually at a level above their original duties in terms of complexity and challenge.
What is Job ENLARGEMENT and when is it used
- When considering the motivation & productivity of its employees
- An employer increases the number of jobs an employee is responsible for in order to increase the challenge of their role. Additional jobs assigned to employees are usually at a level similar to their original duties
What is Job EMPOWERMENT and when is it used
- When considering the motivation & productivity of its employees
- When an employer gives an employee more control over their jobs, including the ability to decide the best way to fulfil their duties.
What is Job ROTATION and when is it used
- When considering the motivation & productivity of its employees
- It is an example of job enlargement
- Refers to an employer allowing an employee to move from one role or duty to another, regularly.
What is Hackman and Oldham’s Job Characteristics Model
A model supporting the job design process, which states that there are five core characteristics of a job which motivates employees
What are the 5 core dimensions, psychological state and result in Hackman and Oldham’s Model
1) Skill Variety
Task identity
Task Significance —-> A sense of meaninfulness —-> High levels of motivation
2) Autonomy —> Gaining responsibility —> High levels of job satisfaction
3) Feedback —> Known and understanding results —> Lower levels of absenteeism & turnover
What is SKILL VARIETY in Hackman and Oldham’s Model
Refers to employees being given opportunities to use a range of skills as part of their normal duties and responsibilities
What is TASK IDENTITY in Hackman and Oldham’s Model
Refers to employees being given a sense of conclusion or completion, e.g closing an outstanding case or handing their completed work over to a manager
What is TASK SIGNIFICANCE in Hackman and Oldham’s Model
Refers to employees feeling as though their duties and responsibilities contribute to the overall business success
What is AUTONOMY in Hackman and Oldham’s Model
Refers to employees having some independence within their duties and responsibilities
What is FEEDBACK in Hackman and Oldham’s Model
Refers to employees receiving feedback, whether oral, written or verbal, on the work they have completed
What is the Organisational Design
Involves making sure that an organisation is designed appropriately to increase its chances of meeting its aims and objectives
What factors are considered when planning the design of an organisation
- Authority
- Span of control
- Hierarchies
- Delegation
- Centralisation
What is AUTHORITY in the organisation design
Delegation involves passing authority to employees further down the hierarchy
- Authority can motivate and empower employees and therefore increase productivity
What is SPAN OF CONTROL in the organisation design
The number of people who report directly to a supervisor or manager
- Tall hierarchies = narrower spans of control ( monitor employees more closely )
- Flat hierarchies = wider spans of control ( harder to monitor employees as closely - each manager will manage and lead a larger group of employees )
What are HIERARCHIES in the organisation design
The levels and layers of management. Tall (many layers of management) & flat (few levels)
- Communication more difficult ( more layers for communication to pass through )
- Tall hierarchies provide promotional opportunities
What is Delayering
Reducing the number of layers in the hierarchy of a business, usually by removing middle managers
What is DELEGATION in the organisation design
A manager passing responsibility or authority to an employee below them in the hierarchy.
- Reduce workload of managers = focus on their own tasks
- Empower and motivate employees and prepare them for promotional opportunities in the future
- May require a business to invest and provide employee training to ensure that employees have the necessary skills to complete a task
What is CENTRALISATION AND DECENTRALISATION in the organisation design
The decision making power within the business how this power is held by different individuals in the business.
refer to separate pack of flashcards for this topic
Importance of HR (Human Resources)
Responsible for the recruitment and training of employees
Responsibilities of the Human Resources Flow
- Choosing the right employees
- Training
- Redeployment
- Redundancy
Choosing the right employees - Human Resources Flow
- The HR plan ensures the business has the right no. of employees, with the correct skills, working at the right location within the business
- Recruitment can be used to recruit or employ new employees when the HR plan identifies a gap in the no. of or skillset of current employees
Training - Human Resources Flow
Used to improve and develop skills of employees so that productivity and quality can increase which can support a business’ objective
Redeployment - Human Resources Flow
Can be used to move, or redeploy, staff around the business according to business needs and demands and this can support business objectives
Redundancy - Human Resources Flow
Used when the skills of current employees are no longer required by the business and the role no longer exists, and this can support the business’ objectives through reducing cost
