Business A Level Flashcards
types of external influences on business activity (6)
- political and legal
- social and demographoc
- technological
- influence of competitors and suppliers (number available)
- international influence (trade)
- environmental
political & legal influences (3 + 5)
- privatisation
- nationalisation
- legal contraints regarding:
- recruitment, employment contracts, and termination
- health and safety at work
- minimum wages
- consumer rights
- marketing behavior
- competition (controling monopolies and limiting collusion)
privatisation vs nationalisation
privatisation: act of selling state-owned and controlled businesses to investors within the private sector
nationalisation: transfer of privately owned business to state ownership and control
advantages & disadvantages of privatisation vs nationalisation
privatisation:
- increased efficiency
- sale of nationalised business can be used for government spending
- profit oriented
- job losses
nationalisation:
- social oriented
- job security
- lack of efficiency
- limited innovation
monopoly
a market in which there is only one supplier with no close competitors
collusion
businesses agree to work together to restrict competition by fixing prices and sharing contracts between themselves
social and demographic influence (3 + 3)
- CSR
- pressure groups
- demographic changes (changes in size & structure of a population)
- globalisation
- aging population (different tastes)
- pattern of employment (more older people, more depends on pension schemes)
globalisation
the increasing freedom of movement of goods, capital, and people around the world
technological influences benefits (5) + limitations (3)
benefits
- new products
- new processes
- reduced costs
- better communications
- more information
limitations
- costs
- data protection
- competition
information technology
the use of electronic technology to gather, store, process, and communicate information
social audit + benefits + limitations (3)
a report on the impact a business has on society
benefits:
- identifies which social responsibilities the business is satisfying
- sets targets for improvements
- improve brand image
limitations:
- if not independently checked, may not be taken seriously
- requires time and money
- some consumers don’t care
job enrichment
aims to use the full capabilities of workers by giving them the opportunity to do more challenging and fulfilling work
protectionism
the use of barriers to free trade to protect a country’s domestic industries
tariff
a tax imposed on an imported products
quota
a physical limit placed on the quantity of imports of certain products
voluntary export limits
agreed limits to the quantity of certain goods sold by one country to another
free international trade
trade with no restrictions
benefits & limitations of becoming a multinational business (3)
benefits:
- EOS
- gain access to main markets (closer to consumer, lower transport costs)
- stronger brand recognition
limitations:
- harder communication to HQ
- cultural barriers
- costly
benefits & limitations to host country of multinational business
benefits:
- job creation
- local firms improve (to compete or supply with the business
limitations:
- exploitation of workers
- market domination (locals struggle)
greenwashing
giving a false or misleading impression about how company’s products are environmentally friendly
sustainability
activities that meet the needs of the present without compromising the future generations’ ability to meet their needs
green consumerism
the trend for consumers to prefer buying products that are environmentally friendly
market failure
when markets fail to achieve the most efficient allocation of resources, resulting in under or over production for certain goods or services
types of market failure (3) + examples of impact (2)
- external costs: costs of an economic activity that are not paid by the producer or consumer, but by the rest of society (pollution)
- health effects of pollution
- if no alternatives, forced to buy environmentally damaging goods
- labour training: inadequate provision of skills training
- bad customer service & international competitiveness
- monopoly producers: restriction of output of goods to keep prices high, leading to lack of choice
- lack of choice & competitiveness
macroeconomic objectives of government
goals a government is aiming to achieve for the whole economy
examples of macroeconomic objectives
- economic growth
- increase in real GDP & GDP
- low unemployment
- exchange rate stability
- balance of payments between value of imports (g/s purchased from other countries) & exports (g/s sold to other countries)
economic growth
increase in a country’s productive potential, measured by an increase in real GDP
real GDP vs GDP
real GDP: gross domestic product data adjusted for inflation
GDP: total value of goods and services being
unemployment
when members of the working population are willing and able to work but are unable to find a job
exchange rate
the price of one currency in terms of another
causes of economic growth (3)
- increase in economic resources
- increase in labour productivity
- technological changes and expansion of industrial capacity due to business investment
business cycle
regular swings in output measured by real GDP that occur in most economies
traits of each stage of the business cycle
- Boom
- rapid economic growth
- rising incomes and profits - Recession
- a decline in real GDP that lasts at least 6 months
- falling demand & high interest rates - Slump
- prolonged recession
- real GDP falls - Recovery & Growth
- real GDP increase
what do businesses do during economic growth (3)
- raise prices
- increase output
- promote exclusivity of brand image
- increase product range
what do businesses do during recession (3)
- lower prices (unless luxury brand)
- offer promotions
- reduce costs
pros & cons of recession (2)
pros:
- less competition
- demand for inferior goods increase
cons:
- demand decrease (incomes fall)
- cash flow problems (customers cant pay)
inflation & hyperinflation
inflation: increase in the average price of g/s, reducing value of money
hyperinflation: very high and accelarating inflation, which quickly erodes the real value of the local currency
causes of inflation (2 types + 3)
cost push causes (when cost of production increases, forcing businesses to bring down these costs to customers)
- lower ER
- increase in demand for raw materials
- higher wage demands
demand pull causes (when consumer demand is rising leading to an increase in prices)
pros & cons of high inflation
pros
- assets may increase in value
- potential for higher revenue due to higher prices charged
cons
- rising costs
- uncertain pricing strategy (cash flow problems: high price low sales, price low profits low)
pros & cons of low inflation
pros
- better prediction of expenses for long-term planning
- can maintain price stability
cons
- low wage increases (decreased morale)
- may lead to deflation (customers wait for prices to drop even further, biz may cut o
pros & cons of deflation (2)
benefits
- consumers can afford more goods and services with the same income. This can boost demand for essential goods
- cash-rich companies can acquire assets or competitors at a lower cost.
disadvantages
- customers wait for further price drops, reducing demand (wait and see effect)
- higher debt burdens (value of money increases, loan amount stays the same)
impact of inflation & deflation on value of money
inflation
- decrease value (same amount, less g/s u can buy)
deflation
- increase (same amount, more you can buy)
working population
those who are of working age that are willing and able to work
causes/types of unemployment (3)
cyclical unemployment: unemployment caused by low demand for g/s during a period of slow economic growth or recession
structural unemployment: unemployment caused by the decline in important industries, leading to significant job losses in one sector of the industry
frictional unemployment: unemployment caused by workers losing or leaving jobs and taking a substantial period of time to find alternative employment
monetary & fiscal policy (demand-side policies) + what are they for
monetary: decisions about the level of interest rates and the supply of money in the economy
fiscal policy: decisions about government expenditure, tax rates, and government borrowing
(both are for controlling economic growth & inflation)
types of fiscal policy + aim
expansionary
- stimulate economic growth
contractionary
- control inflation
budget deficit and surplus
deficit: value of government spending exceeds revenue from taxation
surplus value of taxation revenue exceeds the value of government spending
supply side policies + tools (4)
government measures that aim to improve the competitiveness of markets and the supply efficiency of the economy
tools: income & corporation tax, subsidies for worker training & education, infrastructure
exchange rate policy + example (1)
Governments and central banks using different policies to influence exchange rates, which impact the demand and supply of a currency
common currency: currency that is used by more than one country (e.g. the european union)
exchange rate depreciation & appreciation
exchange rate depreciation: a fall in the external value of a currency as measured by its exchange rate against other currencies
exchange rate appreciation: an increase in the external value of a currency as measured by its exchange rate against other currencies
who loses & gains from exchange rate DEPRECIATION
gain: exporters & biz that sells in domestic market with little foreign competiton
lose: importers of foreign goods
who loses & gains from exchange rate APPRECIATION
gain: importers of foreign goods
lose: exporters & those who sell to the domestic market and have foreign competition
non price factors that influence international competitiveness (5)
- product design & innovation
- quality of output
- promotion & distribution
- after-sales services
- trained employees & technology
business strategy + influences (4)
a long term plan of action for a business, designed to achieve a particular objective
- strengths of the business
- available resources
- objectives
- competitive environment
strategic management
analysis of the current business situation, setting long term objectives, deciding on business strategies to achieve them, then implementing these strategies
stages of strategic management (3)
- strategic analysis: process of conducting research into the business environment and into the business itself in order to identify future strategies
- strategic choice: process that leads to a decision to choose a particular strategy from various alternatives and the techniques used to help make the choice
- strategic implementation: the process of planning, allocating, and controlling resources to support the chosen strategy
strategy vs tactics
strategy: long term decisions that are taken by directors or senior managers and involves all major departments in the business
tactics: smaller scale decisions aimed at reaching more limited and measurable goals, usually within one department
approaches to developing business strategy (10)
- blue ocean
- red ocean
- scenario planning
- swot analysis
- pest analysis
- porter’s 5 forces
- core competencies
- ansoff matrix
- force field analysis
- decision trees
blue ocean strategy
one that exploits uncontested market space through product differentiation and low cost
how to identify a blue ocean (4 actions framework RREC)
- raise (what factors could be raised in the industry’s standard
- reduce (what factors were a result of competing against other businesses, and which can be reduced)
- eliminate (which factors that the business has used to compete against rivals can be eliminated altogether)
- create (which factors should be created that the industry has never offered before)
red ocean strategy
one that competes with rivals in existing markets
scenario planning
identifying possible future situations and how the business might respond to them
SWOT analysis
form of strategic analysis that identifies the main internal strengths and weaknesses, and external opportunities and threats, that will influence the future direction and success of a business
PEST analysis
the strategic analysis of a firm’s macro environment, including political, economic, social, and technological factors
porter’s 5 forces
technique used for analysing the competitive forces within an industry including supplier power, buyer power, barriers to entry, threat of substitutes , and threat of competitive rivalry
core competencies + traits
an important business capability that gives a firm competitive advantage
- provides clear benefits
- hard to copy
- applicable for product range not just one
- has a core product
core product
product based on a business’ core competencies, but not necessarily for the final consumer
ansoff matrix
model used to show the degree of risk associated with the four growth strategies of market penetration, market development, product development, and diversification
force field analysis
technique for identifying and analysing the positive factors that support a decision (driving forces) and negative factors that constrain it (restraining forces)
decision tree
a diagram that sets out the options connected with a decision and the outcomes and economic returns that may result
expected value (decision tree)
likely financial results of an outcome
obtained by multiplying the probability of an event occuring by the forecast economic return if it does occur
corporate plan
plan containing details of a business’ central objectives and the strategies to achieve them
corporate planning
process used by companies to set long term plans to meet certain objectives
internal influences on a corporate plan (5)
- financial resources
- operating capacity
- managerial skills and experience
- no of employees and skills
- culture of the organisation
external influences on a corporate plan (4)
- macroeconomic conditions
- government policy changes
- technological changes
- competitors actions
corporate culture + types (5)
values, attitudes, and beliefs of the people working in an organisation that affect the way they interact with each other and with external stakeholders
- power
- role
- task
- person culture
- entrepreneurial
corporate culture types
- power culture: culture that concentrates power among just a few people
- role culture: culture in which each member has a clearly defined job title and role
- task culture: culture based on cooperation and teamwork
- person culture: culture where individuals are given the freedom to express themselves fully and make decisions for themselves
- entrepreneurial culture: culture that encourages management and workers to take risks and come up with new ideas and test out new business ventures
how to change a business’ culture (5)
- concentrate on positive aspects
- obtain commitment of senior management
- establish new objectives
- encourage employee participation
- train
Transformational Leadership
leader that works with teams to identify the need for change, inspires people to accept change and implements change with the cooperation of the team
change management
planning, implementing, controlling and reviewing the movement of an organisation from its current state to a new one
Business Process Reengineering
Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in performance
stages of the change process (4)
- communicate new vision
- set objectives
- allocate resources
- employee training
project champions
person appointed to support a project and drive it forward by explaining the benefits of change and assisting and supporting the team putting change into practice
project groups
groups created by an organisation to address a problem that requires input from different specialists
contingency plan
plan for preparing an organisation’ resources for unlikely events
crisis management
process of dealing with a sudden emergency event
steps of contingency planning (4)
- identify potential disasters
- asses the likelihood
- minimise potential impact
- continuity planning: preparing resources so that the business can continue operations after a major crisis)
benefits & limitations of contingency planning (2)
benefits:
- minimises impact/risk
- increase employee confidence
limitations:
- time consuming
- cant predict everything
organisational structure
the internal, formal framework of a business that shows the way in which management is organised and linked together and how authority is passed through the organisation
types of organisational structure (4)
- functional structure
- hierarchal structure
- divisional structure
- matrix
functional structure + benefits & limitations (2)
departments have clearly defined roles and responsibilities in a specialist area such as marketing, finance, human resources or operations
benefits:
- specialization of employees
- clear chain of command (well defined roles)
limitations:
- lack of flexibility
- hard to coordinate
functional manager
senior employee who has authority over a complete organisational unit
hierarchical structure + benefits & limitations (2)
structure consisting of multiple levels in which all members of the organisation, apart from one, are subordinate to someone else
benefits:
- clear chain of command
- efficient decision making & specialisation
limitations:
- slow decision making
- low moral
divisional organisational structure + benefits & limitations (2)
a structure that organises the activities of a business around geographical areas or product groups
benefits:
- faster decision making
- encourages innovation (each division can experiment depending on location)
limitations
- inconsistencies in company policy
- rivalries
matrix structure + benefits & limitations (2) (check diagram)
organisational structure that creates project teams that cut across traditional functional departments
benefits:
- crossover ideas (innovation)
- encourages collaboration for problem solving
limitations
- complex chain of command
- slower decision making + power struggle
span of control
the number of subordinate employees directly accountable to a manager
level of hierarchy
a stage of the organisational structure where all personnel have equal status and authority
chain of command
route through which authority from the chief executive and the board of directors is passed down through an organisation
delayering
removal of one or more of the levels of hierarchy from an organisational structure
delegation + benefits & limitations (2)
passing authority down the organisational hierarchy
benefits:
- trains trainees
- shows trust for motivation
limitations
- risk of poor decision making
- requires training
accountability
the obligation of the individual to account for and explain their actions and to disclose the results from their work honestly
Centralisation + benefits & limitations (2)
keeping all of the important decision-making powers within the head office or the centre of the organisation
benefits:
- consistent decision making
- more experienced
limitations:
- lack of empowerment (low motivation)
- inefficiency for large organisations (Slow decision making)
decentralisation + benefits & limitations (2)
decision-making powers are passed down the hierarchy to empower subordinates and area or product managers
benefits:
- fast decision making
- encourages innovation
limitations:
- risk of poor decisions
- loss of control from senior management (risk of mismanagement)
line managers
managers who have direct authority over people, decisions, and resources within the hierarchy of an organisation
staff managers
managers who, as specialists, provide support, information, and assistance to senior line managers
effective communication
the exchange of information between people, or groups with feedback
communication method + types (4)
the media used to communicate messages
- spoken
- written
- electronic
- visual
information overload
the receipt of too much information, preventing important messages being identified and acted upon
what factors decide which communication media to choose (5)
- urgency
- audience & reach
- cost
- complexity of info
- feedback requirement
formal communication channels
official communication networks used by an organisation
types of formal communication channels (4)
one way communication: messages sent in one direction from the sender to the receiver with no expected feedback
two way: communication between 2 or more people involving the transmission of messages that encourage feedback and response
vertical: when people from different levels in a hierarchy communicate with each other
horizontal: when people on the same level of hierarchy communicate with each other
communication barriers + types (3)
reasons why communication fails
- failure in one stage of the communication process
- method, length, technical language, information overload
- poor attitudes of senders or receivers
- physical reasons (noise or distance)
informal communication + benefits & limitations (2)
Unofficial channels of communication that exist between informal groups within an organisation
benefits:
- sense of belonging
- reduce barriers between departments
limitations
- takes up time
- used for gossip
leadership
The art of motivating a group of people towards achieving a common objective
informal leader
a person who has no formal authority but has the respect of colleagues and some power over them
leadership theories
- great man
- trait theory
- behavioral theory
- contingency
- power & influence
- transformational leadership
- transactional leadership
great man theory
ability to lead is inherent and cannot be taught, leaders are just born with the right traits and abilities for leading
trait theory
believes that certain traits make a person more likely to become a leader, but they can be developed.
behavioral theory + 3
assumes that leaders can learn the skills rather than having inherent qualities and suggest that a leader uses 3 sets of skills to lead:
- technical (knowledge of the business process)
- human (ability to interact)
- conceptual skills (ability to create new ideas or solve problems
contingency theory (leadership)
suggests that the most successful leaders adapt their leadership style to different situations
power and influence theory
suggests that there are two sources of personal power:
- expert knowledge of the leader
- charm of the leader
transactional leadership
the assumption that employees will undertake tasks in exchange for a reward
emotional intelligence
the ability to understand one’s own emotions and those of others to achieve the best business performance
goleman’s competencies of emotional intelligence (4)
the 4 main competencies that managers should try to develop or improve on
- self awareness (guide for decision making and assessing personal abilities)
- self management (recovery from stress)
- social awareness (being able to take other’s views into account)
- social skills (handling emotions of people)
HRM strategy
A long-term plan for the management of an organisation’s human resources
types of HRM + examples
hard hrm:
an approach to managing employees that focuses on cutting costs
- warnings
- monitoring performance closely
soft hrm:
an approach to managing employees that focuses on their development so that they reach self fulfillment and are motivated to work hard and stay with the business
- training
- quality circles
- financial incentives
Hard HRM benefits & limitations (2) + suitability
suitability: businesses where productivity & efficiency matters most (factories)
benefits:
- cost efficiency
- workforce stability
limitations:
- low morale
- low innovation & adaptability
Soft HRM benefits & limitations + suitability
suitability: people oriented businesses (creative industries)
benefits:
- higher motivation
- high innovation
limitations:
- higher costs
- slower decision making
types of employment contracts (core workers) (2)
- full time employment contract: an employment contract that is for a complete working week
- permanent employee contract: contract that employs a worker unless they are dismissed, made redundant, or decide to leave the organisation
types of employment contracts (peripheral workers) (4)
- temporary contract: contract is only offered for a fixed period of time. the contract can be renewed
- part-time contract: workers are only contracted to work for a certain number of hours each week
- zero hours contract: employment contract that does not guarantee a minimum number of hours per week but is expected to be available for work when called by employer
- gig economy: employment mix which is temporary, flexible jobs are common and workers are hired as independent contractors or freelance employees (contract labour)
charles handy’s shamrock organisation components (3)
core workers (full time or permanent contracts)
flexible workers (temporary or part time contracts)
outsourced workers (gig workers)
flexible employment contracts
A contract that allows employees to have more control over their work-life balance, including options to work from home, flexible start and finish times, to work part-time or to job share
ways to provide flexibility for employees (5)
- flexitime arrangement
- home working
- annualised hours contract
- job sharing
- compressed working hours
flexitime arrangement
flexible way of working that allows employees to fit their working hours around their individual needs and to accommodate to their commitments outside of work
home working
when an employee works from home, often for a specific number of days per week but keeps contact with the office by means of modern IT communications
annualised hours contract
a contract offering a specific number of hours of work over the whole year, but with some flexibility about when those hours are worked
job sharing
a work schedule in which two employees voluntarily share the responsibilities of one full-time job. they receive a salary and benefits on a pro-rata basis
compressed working hours
the number of hours per week of a full time job but worked in fewer days
shift work
work that takes place on a schedule outside the traditional 9.00 am to 5.00 pm day. It can involve evening or night shifts, early morning shifts and rotating shifts.
absenteeism
A measure of the rate of workforce absence as a proportion of the employee total
number of days of employee absence / total workdays x 100
management by objectives (MBO)
establishing a management information system to compare actual performance and achievements against pre-set objectives for each department or employee
benefits + limitations of management of objectives (2)
benefits:
- increased motivation due to targets
- clear goals are set
limitations:
- not suitable for dynamic environments
- may cause stress
PED + meaning of results
a measure of the responsiveness of demand for a product following a change in its price
% change in qty demanded / % change in price
0 perfectly inelastic
0-1 inelastic
1 unit elastic
1-infinity elastic
infinity perfectly elastic
factors that determine PED (3)
- necessity of the product
- number of close competitors
- customer loyalty
income elasticity of demand + result interpretation
a measure of how much the quantity demanded of a good responds to a change in consumers’ income
percentage change in quantity demanded/percentage change in income
less than 1 (necessity good)
more than 1 (luxury good)
(-ve) value (inferior good)
impact of PED on business decisions (2)
- price decisions
- wage increases (inelastic, increase wage)
inferior good + example
a product that experiences an increase in demand when consumer incomes fall
examples: instant noodles, fast food, cheap appliances
promotional elasticity of demand + result interpretation
measures the responsiveness of demand for a product following a change in the amount spent on promoting it
%change in demand for the product / % change in promotional spending
more than 1 (elastic)
less than 1 (inelastic)
benefits & limitations of measure of elasticity
benefits:
- better pricing decisions
- revenue maximisation
limitations:
- needs to be done recalculated often due to consumer tastes and rise of competition
- assumes nothing else has changed such as quality
new product development
the design, creation and marketing of new goods and services
test marketing
the launch of a product on a small-scake market to test consumers reactions to it
commercialisation
full scale launch of a product, introducing it to the introduction phase of the product life cycle
research and development
the scientific research and technical development of new products and processes
sales forecasting + ways (2)
predicting future sales levels and sales trends
- extrapolation (predicting sales based on past results)
- moving averages
- allows for the identification of underlying factors that influence future sales
factors that influence future sales (moving averages)
- trend
- seasonal fluctuations
- cyclical fluctuations
- random fluctuations
how to read & calculate moving averages
- determing _ point moving average (if quarterly then 4 point)
- collect revenue data of the 4 years and find the average for each
- find quarterly moving average (trend)
- take a step left and make it your base
- make a set of 5 numbers (base is middle)
- make 2 sets of 4 numbers (up to down)
- find each average seperately and take an average of this result
benefits & limitations of moving averages
benefits:
- reasonably accurate for short term forecasts in stable economic conditions
- identifies seasonal variations for each time period for planning for each quarter in the future
limitations:
- forecasts further into the future become less accurate as it is entirely based on data
- doesnt take into account qualitative factors
qualitative sales forecasting + methods (3)
predictions about future sales which use expert judgement instead of numerical analysis
- sales force composite
- delphi method
- jury of experts
sales force composite + benefits & limitations (2)
method of sales forecasting that adds together the individual predictions of future sales from all the sales representatives working for a business
benefits:
- cost effective
- quick adjustments for market changes
limitations:
- may be inaccurate
- not suitable for long term forecasts
delphi method
a long range qualitative forecasting technique that obtains forecasts from a panel of experts
benefits:
- flexible for different industries
- independent thinking
limitations:
- time consuming
- no guarantee if accuracy
jury of experts
method that uses the specialists within a business to make forecasts for the future
benefits:
- cheap
- useful for short term + quick decision making
limitations:
- risk of bias
- subjectivity
marketing plan
detailed and fully researched written report on the marketing objectives and the marketing strategy to be used to achieve them
benefits & limitations of marketing planning (3)
benefits:
- essential for any business plan
- reduces risk of failure
- clear direction
limitations:
- time & money
- has to be backed up by research to work
- market conditions
marketing strategy + approaches (3) + suitability
a plan of action giving details of how a business intends to achieve its marketing objectives by creating competitive advantage
- consistency (with the business, the product, and the market)
- well known brands (luxury brands) - coordination (all marketing activities should be tied together)
- businesses with diverse product lines & multinationals - focused (in achieveing marketing objectives)
- startups (target specific audience), premium brands, specialised products
economic collaboration
Countries working together to achieve common aims, such as free international trade
free-trade agreements
Agreements made between countries to reduce or eliminate trade barriers between them such as import tariffs and quotas
international marketing + strategies (2)
selling products in markets other than the original domestic market
- pan global marketing
- global localisation
pan global marketing + benefits & limitations (2)
marketing a standardised product across the globe as if the entire world were a single market, selling the same product the same way everywhere
benefits:
- eos
- strong brand identity
limitations:
- cultural differences
- legal challenges
global localisation + benefits & limitations (2)
adapting the marketing mix, including differentiated products and adjusting for national and regional tastes and cultures in order to maintain local differences
benefits:
- better cultural fit
- competitive advantage + customer loyalty
limitations:
- higher costs
- complex management
optimal location
a business location that gives the best combination of quantitative and qualitative factors
quantitative factors that a manager should consider for location (8)
- site and other fixed costs
- labour costs
- transport costs
-potential revenue
- government grants
- external and economies of scale and diseconomies
- profit estimates
- investment appraisal
- be analysis
quantitative factors that a manager should consider for location (6)
- safety
- space for future expansion
- manager’s preference
- ethical and environmental considerations (layoff due to relocation)
- infrastructure
- planning restrictions
why is international marketing important for businesses (3)
- saturated home markets (when market stops growing, high competition)
- profit opportunities
- spreading risks (less dependency on home country’s legal and economic conditions)
things to consider when choosing to expand to a new market (4)
- economic & social differences
- legal differences
- cultural differences
- differences in business practices
methods of entry into international markets (5)
- exporting
- international franchising
- joint ventures
- licensing (allowing another business in a foreign country to produce their goods under a license)
- set up another branch in foreign country
offshoring + benefits & limitations (2)
the relocation of a business process done in one country to another country
benefits:
- reduced costs
- better workforce
limitations:
- communication barriers
- quality control & legal challenges
reshoring + benefits & limitations (2)
transferring a business operation that was moved overseas back to the country where it was originally located
benefits:
- better management & quality control
- supply chain concerns (closer contact with suppliers, reliability concerns of foreign suppliers)
limitations:
- labour shortages
- problem if main market is in another country
scale of operations + factors (5)
the maximum output that can be achieved using the available inputs (resources)
- owner’s objectives
- capital available
- size of the market
- number of competitors
- scope for scale economies
internal economies of scale + types
factors that cause reductions in unit (average) costs of production as the business expands its scale of operations
- purchasing
- technical
- financial
- marketing
- managerial
internal diseconomies of scale + types (3) + how to fix (3)
factors that cause unit costs of production to increase whena business increases its scale of operations
- communication problems (reduce diversification through demerger (seperating one business unit from another))
- alienation of the workforce (decentralisation)
- poor coordination (MBO)
External economies of scale + external diseconomies of scale + examples
factors causing unit cost reductions that can benefit a business as the industry expands in one region
- improved infrastructure
- better labour
factors causing unit costs to rise as an industry expands, especially in a given region
- increased competition of resources
- higher rent
- pollution
quality product + quality standards
g/s that meets customer’s expectations and therefore fulfills its intended purpose
the expectations of consumers expressed in terms of the minimum acceptable production/service standards
quality control + methods (3) + suitability
checking based on inspection of the product or a sample of products
- prevention
- inspection
- correction and improvement (of both the faulty products and the process)
suitability: non service industries
benefits & limitations of quality control (2)
benefits:
- reduced waste and higher quality
- better customer satisfaction & loyalty
limitations:
- increase costs (needs to be done at multiple points to be effective)
- negative in nature (employees may find it satisfying to get away with a faulty product + demotivated)
quality assurance + methods (5)
a system of agreeing and meeting quality standards at each stage of production to ensure consumer satisfaction
- product design
- quality of inputs
- production quality
- delivery systems
- customer service
benefits & limitations of quality assurance (2) + suitability
benefits:
- reduces waste + costs
- boosts efficiency
limitations:
- training
- doesnt guarantee quality (inputs & machinery may be the cause) + not a quick fix
suitability: manufacturing, high need for error-free production & customer trust
ISO9000
an internationally recognised certificate that acknowledges the existence of a quality procedure that meets certain criteria
total quality management + suitability
An approach to quality that aims to involve all employees in the quality improvement process where employees have internal customers (people within the organisation who depend upon the quality of work being done by others) and strive for zero defects
not suitable for small and fast paced firms
suitability: high need for quality
benefits & limitations of TQM (2)
benefits:
- improved quality
- reduces costs and increase efficiency
limitations:
- costly
- resistance to change + requires strong leadership & commitment
benchmarking + benefits & limitations (2)
comparing a business against the performance standards of the businesses in the same industry who are considered the best
benefits:
- identifies strengths & weaknesses
- areas of greater significance to customer are identified
- crossover ideas
weaknesses:
- dependent on obtaining relevant information
- May Lead to Copying Rather Than Innovation
lean production + approaches (6)
Producing goods and services with the minimum of wasted resources while maintaining high quality
- kaizen
- quality circles
- simultaneous engineering
- cell production
- JIT
- waste management
kaizen + benefits & limitations (2) + suitability
striving to achieve continuous improvement
benefits:
- employee engagement (boosting morale)
- increases efficiency
limitations:
- takes time
- difficult to measure progress
- resistance to change
suitability: businesses that benefit from continuous improvement, efficiency optimization, and employee involvement. (manufacturing, services)
not suitable for fast paced businesses + startups
quality circles + benefits & limitations (2) + suitability
a voluntary group of workers who meet regularly to discuss and try to resolve work related issues
benefits:
- employee involvement + morale
- boosts innovation
limitations:
- time consuming
- dependent on worker culture
suitability: manufacturing
simultaneous engineering + benefits & limitations (2) + suitability
product development organised so that different stages are done at the same time instead of in a sequence
benefits:
- faster and efficient
- lower costs
limitations:
- costly
- requires strong coordination
suitability: large scale companies
cell production + benefits & limitations (2) + suitability
flow production split into self-contained groups that are responsible for a complete unit of work
benefits:
- improves productivity & quality
- increases flexibility to demand
limitations:
- training costs & skilled labour
- high coordination needed
suitability: businesses that need flexibility and efficiency (cars & electronics)
strategic operations decisions examples (4)
- expanding or reducing capacity
- locating or relocating
- offshoring or reshoring
- outsourcing
computer aided design (CAD) + benefits & limitations (2) + suitability
the use of computer programs to create 2D or 3D graphical representations of physical objects
benefits:
- quicker development of products
- better accuracy and productivity
limitations:
- cost
- updates & breakdowns
computer aided manufacturing (CAM)
the use of a computer software to control machine tools and related equipment in the manufacturing of components or complete products
benefits:
- speed & efficiency
- reduces waste and labour costs
limitations:
- costly
- job losses
- system failures
operational flexibility
the ability of a business to vary both the level of production and the range of products following changes in customer demand
process innovation
the use of a new or much improved production method or service delivery method
enterprise resource planning (ERP) + benefits & limitations (2) + suitability
the use of a single computer application to plan the purchase and use of resources in an organization to improve the efficiency of operations
benefits:
- efficiency
- decision making (provides data)
limitations:
- costly
- long time (tech changes, obsolete)
benefits & limitations of lean production (2) + suitability
benefits:
- reduces waste & costs
- efficiency & quality
limitations:
- skilled labour + other costs
- less inventories being help
suitability: stable demand
not suitable for: highly customised businesses
tools for operations planning (3)
critical path analysis (CPA): a planning technique that identifies all tasks in a project, puts them into the right sequence and allows for the identification of the critical path
network diagram: diagram used in the critical path analysis that shows the logical sequence of activities and the logical dependencies between them so that the critical path can be identified
critical path: the sequence of activities that must be completed on time for the whole project to be completed by the agreed date
benefits & limitations (3) of CPA
benefits:
- time management
- coordination
- resource allocation
limitations:
- complex for large projects
- ignores external factors
- skilled labour required
how to determine critical path
tasks where est = lft
EST & LFT + formulas + how to calculate
EST: an activity cannot begin before this time
earliest start time of the activity before + duration
LFT: an activity cannot finish later than this time without delaying a project
LFT of the next node - duration
(work from right to left)
total float + free float + formulas
total float: the amount of time an activity can be delayed without delaying the entirety of the project
LFT - duration - EST
free float: the length of time an activity can be delayed. without delaying the start of the following activities
EST (next activity) - duration - EST (this activity)
dummy activities
A device to show logical dependency between activities, but which consume no time and no resources themselves
statement of profit or loss
a statement that records the revenue, costs and profit (or loss) of a business over a given period of time
statement of financial position
a statement that records the values of a business´s assets, liabilities and shareholder´s equity at one point in time
asset + liability
an item of monetary value that is owned by a business
a financial obligation of a business that it is required to pay in the future
low quality vs high quality profit
one-off profit that cannot easily be repeated or sustained (selling nca)
profit that can be repeated and sustained (from business operations)
shareholder’s equity + share capital
total value of assets less the total value of liabilities
the total value of capital raised from shareholders by the issue of shares
types of assets & liabilities & equity (2 each)
intangible assets: items of value that don’t have a physical manifestation such as patents or copyrights
trade receivables: value of payments to be received from customers who have bought goods on credit
trade payables: value of debts for goods bought on credit to suppliers
non-current liabilities: value of debts a business is expected to pay after more than 1 year
net assets: value of total assets less total value of liabilities
equity: value of share capital plus cumulative retained earnings
gross profit & cos
gp: revenue less cost of sales
cos: direct costs of the goods that were sold during the financial year
profit from operation & pfty
profit from operations: gp less overhead expenses
pfty: profit before tax - tax
dividends
share of profits paid to shareholders as a return for investing in the company
goodwill
Arises when a business is valued at or sold for more than the balance sheet value of its assetsgoodwill
window dressing
Techniques used by companies to manipulate financial statements and reports to show more favourable results
net current assets
The amount of capital needed for day to day activities, also called working capital (= current assets less current liabilities)
reserves
accumulated retained profits and capital reserves from revaluation of non current assets
net realisable value + net book value
the amount for which an asset (usually an inventory) can be sold minus the cost of selling it
current statement of financial position value of a non current asset
depreciation + methods (1)
the decline in the estimated value of a non current asset over time
straight line depreciation: a constant amount of depreciation is subtracted from the value of the asset each year
liquidity ratios (2)
current ratio: a ratio that compares the current assets with the current liabilities of the business
acid test ratio: compares liquid assets to current liabilities (ca-inv)/cl
methods for improving liquidity (4)
- sale of unwanted nca
- sell off inventories
- JIT
- increase loans
profitability + ratios (4)
a relative measure of a business’ ability to make a profit from sales of a capital investment
GP margin: compares profit with revenue
operating profit margin: a ratio that compares operating profit for the year with revenue
ROCE: ratio that compares operating profit and capital employed
capital employed: the total value of all long term finance invested in the business (NCL+ EQUITY = ISSUES SHARES + RESERVES
ways to improve profitability (2)
- reduce costs
- increase prices
financial efficiency ratios (3)
inventory turnover: number of times in a year that inventory is bought in and sold
- COS/AVG INV
t/rec turnover: average time taken to receive payment from customers who have bought products on credit
- TREC/CREDIT SALES X 365
t/pay turnover: average time it takes to pay suppliers for supplies bought on credit
- TPAY/CREDIT PURCHASES X 365
ways to improve financial efficiency (3)
- JIT (inv turnover)
- reduce credit period
- delay payments to suppliers
gearing ratio
a ratio that measures the proportion of capital employed in the business that is financed by long-term borrowing (non-current liabilities)
NCL/CAPITAL EMPLOYED
how to improve gearing (3)
- sell more shares to pay back loands
- reduce dividends
- sell assets
investment ratios (4)
dividend yield ratio: a ratio that measures the annual return from dividends as a percentage of current market share price
- DIV PER SHARE/MARKET SHARE PRICE
dividend cover ratio: a ratio that measures how many times dividends could be paid from the profit of the year
- PFTY/ANNUAL DIV
price earnings ratio: number of years it would take at the current earnings per share to purchase one share at the current market price
- MARKET SHARE PRICE/EPS
earnings per share: amount of profit after tax and interest earned per share
- PFTY/NO. OF SHARES ISSUED
how to improve investment ratios (3)
- reduce costs
- sell assets
- increase operational efficiency
investment appraisal
Evaluating the profitability or feasability of an investment project
forecasted net cash flow
forecast cash inflows less forecast cash outflows
quantitative investment appraisal methods (4)
payback period
ARR
discounted cash flow
NPV
payback + benefits & limitations (2)
length of time it takes for the net cash inflows to pay back the original capital cost of the investment
- additional net CF needed/annual CF of the year it is positive
benefits:
- quick & easy
- focuses on liquidity
limitations:
- ignores profitability
- doesnt take into account the time value of money
ARR + benefits & limitations (2)
measures the annual profitability of an investment as a percentage of average investment
- AVERAGE ANNUAL PROFIT/AVG INVESTMENT
benefits:
- simple
- considers profitability over entire project lifespan
limitations:
- ignores time value of money
- ignores external factors (2 projects may have same ARR different lifespan)
DCF/NPV + benefits & limitations (2)
discounted cash flow: present day value of a future cash flow
NPV: Today’s value of the estimated cash flows resulting from an investment
benefits:
- considers time value of money
- accounts for total profitability
limitations:
- complex
- ignores external factors (growth)
criterion rate
the minimum ARR that a business would accept before approving an investment (interest has to be less than ARR)
qualitative factors that impact investment decisions (5)
- impact on the environment and local community
- refusal of planning permission
- aims and objectives of the business
- impact on the workforce
- acceptability of risk
use of accounting data in strategic decision making (3)
- profitability and financial performance is analysed
- availability of finance is assessed
- relative success of current strategies can be compared to similar businesses
annual report + benefits & limitations (2)
a document that gives details of a company’s activities over the year
benefits:
- builds investor confidence
- assists decision making
limitations
- accuracy
- may not address all stakeholder needs
tools of assessment of business performance over time against competitors (2)
- ratios for previous time periods
- ratios from other companies in similar industries
benefits & limitations of ratios (4)
- one is not helpful
- only effective when businesses within the same industry is compared
- doesnt take into account external circumstances
- different formulae being used
