Business C1 Flashcards
SME (Small and Medium Enterprises)
enterprises employing fewer than 250 people with an annual turnover not exceeding £50 million.
Entrepreneur
Identified as a risk-taker who sets up their own business based upon personal experiences or hobbies.
Characteristics of Entrepreneurs ( 7)
Key traits include “risk-taker, determination, self-confidence, good judgement, creative, can use initiative, being a self-starter.”
Motives to become an entrepreneur (3)
Primarily financial reward, being your own boss , and helping others.
Primary Sector
: Businesses that extract raw materials (e.g., farming, oil, mining).
Secondary Sector
: Businesses that turn raw materials into finished goods (e.g., a factory producing furniture).
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Tertiary Sector:
Businesses that provide services and sell goods to the public (e.g., retail shops).
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Importance of SMEs to the UK economy:
Highlighted by the statistic that “99% of all UK businesses are SMEs that employ over 60% of all private sector employment.” They are also vital as they often fill gaps in the market and provide opportunities to various consumers.
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Business Opportunities:
Typically arise from filling a gap in the market by satisfying needs and wants of consumers. Market research is crucial to identify these opportunities.
Stakeholders definition and examples: (7)
Defined broadly as “anyone that has a personal interest within a business,”
including employees,
customers,
shareholders,
managers,
banks,
local communities,
suppliers.
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Business Plan definition and what it contains (6)
“a document that prepares for the future start of a business.
It contains the business’s aims, objectives,
and marketing,
Human Resources,
financial and operational plans.”
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Components of a Business Plan (7)
executive summary,
business overview,
market research and marketing strategies,
management structure,
financial forecasts, and start-up finance information.
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Main Sources of Guidance to Help an Entrepreneur Create a Business Plan: (4)
Banks, accountants, small business advisors, and government agencies like the Prince’s Trust.
Pros of a business plan (4)
examining all aspects, potentially securing bank loans, acting as a monitoring tool and motivator
Cons of a business plan (2)
accuracy depends on research, can be hard to predict the future, less likely to guarantee success
Evaluation of a business plan
greater chance of covering all aspects, so more likely to be successful in the future.
Market
“a place where buyers and sellers meet to exchange goods/services for money.”
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Types of Markets:
Categorised by
local/global reach,
mass/niche,
product/service type.
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Market Size:
Total volume or value of sales of all products in the market.
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Market Growth
Percentage change in sales over a period of time,
Formula - (Change / Original) x 100.
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Market Share: definition and formula
Proportion of a particular firm’s sales within the total market sales,
calculated by: (Company Sales / Total Market Sales) x 100.
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Market Segmentation: definition and examples (5)
The process of “breaking down a market (customers) into groups with similar characteristics.” Types of segmentation include age, gender, income levels, location, and ethnicity.
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Importance and Impact of Market Segmentation: (pro con )
For: Understanding customer needs better,
focused promotion,
identifying profitable market segments,
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Against:
Consumers don’t always behave as expected,
over-time customer behaviour changes,
hard to segment some markets,
broad customer groups might be missed.
Monopoly definition
: One firm dominates the market (e.g., historically, Tesco and the NHS for new firms).
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Oligopoly: definition
Dominated by a few big firms (e.g., banks and supermarkets).
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Monopolistic Competition definition
: Made up of lots of differentiated small firms (e.g., chip shops and hairdressers).
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Perfect Competition: definition
Market made up of lots of identical small firms (e.g., fruit and veg stall holders).
Consumer Protection:
Aims to protect consumers from exploitation by businesses.
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Office of Fair Trading (OFT):
Protects consumers by challenging unfair trading practices.
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Consumer Rights Act 2015:
Customers are entitled to a full refund or repair if goods are faulty, not as described, or don’t meet a level of satisfactory quality.
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Consumer Protection from Unfair Trading Regulations 2008:
Products/services must be advertised truthfully.
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Consumer Credit Act 1974 and 2006:
Controls how money is borrowed and requires lenders to publish clearly how much extra interest will be paid by borrowers on credit. Firms can be prosecuted if they act in a way that exploits consumers who borrow money on credit.
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How are Prices Determined by Demand and Supply?
Prices are determined by the interaction of how much consumers want to buy (demand) and how much businesses are willing to sell (supply). “Supply is the amount businesses are happy to sell at given prices” and “Equilibrium is where demand and supply meet.”
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What factors cause Shifts in Demand (6)
population,
advertising,
substitutes’ prices,
income levels,
fashion and trends,
interest rates
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Factors affecting Shifts in Supply: (5)
productivity of workers,
indirect taxes,
number of firms selling,
technological advancements,
bad weather reducing crops.
Evaluation Question: Discuss the main reason why demand increased in the market for electric cars (4)
lower interest rates making borrowing cheaper,
increased advertising on environmental benefits,
and rising petrol/diesel costs making electric cars more attractive,
along with potentially rising income levels.
Price Elasticity of Demand (PED): def and formula
“what happens to the quantity demanded following a change in the price of a product.” Formula: PED = % change in Demand / % change in Price.
Elastic PED (PED > 1):
A change in price leads to a larger change in demand (e.g., luxury goods, goods with lots of competition).
Inelastic PED (PED < 1):
A change in price leads to a smaller change in demand (e.g., necessity goods, unique goods, high brand loyalty).
Evaluate PED
Elasticities are estimates and might not be 100% accurate. Inelastic products mean firms put prices up to earn more revenue, while elastic products mean firms will put prices down to earn more revenue.
Income Elasticity of Demand (YED): def + formula
“what happens to the quantity demanded following a change in income (wages).”
Formula: YED = % change in Demand / % change in Income.
Inferior Good (YED < 0):
As income rises, demand falls (e.g., less is spent on these goods, value, cheap products).
Normal Income Inelastic Good (0 < YED < 1):
As income rises, demand rises by a smaller proportion (e.g., necessities).
Normal Income Elastic Good (YED > 1):
As income rises, demand rises by a larger proportion (e.g., luxuries).
YED evaluation
YED estimates might not be perfectly accurate. Normal inelastic goods are not much affected by income changes, while normal elastic goods benefit most from income rises, and inferior selling firms gain as people switch to cheaper goods when income falls.
Market Research: definition
“the collection of information that is then used to assist the business in key decisions.”
Primary Research: definition
New information collected first-hand for a specific purpose
Pros and cons of primary reasearch
Pros
Up-to-date,
reflects current customer views,
answers specific questions.
Cons: Takes longer,
can be costly,
family and friends’ opinions could be biased,
difficult to get enough people.
Secondary Research: definition
Existing information that has already been gathered for another purpose
Pros and cons of secondary research
Pros: Quicker and easier for entrepreneurs,
less expensive,
saves time.
Cons:
Data might be out of date,
not specifically related to the business question.
Why is market research important
for understanding customers and competitors, leading to more informed decisions.
Quantitative Research:
Research results that are numerical and analytical.
Pros and cons of quantitative research
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Pros: Easy to interpret and compare as respondents tick answers.
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Cons: Doesn’t explain why the respondent chose that answer.
Qualitative Research:
More in-depth research gathering information about people’s opinions.
Pros and cons of qualitative research
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Pros: More in-depth answer, explains why the respondent had that opinion.
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Cons: Difficult to interpret and compare, everyone could have different opinions.
Sampling:
Selecting a group of respondents from a larger market population to represent the views of the whole. Random sampling and quota sampling are mentioned.
Quota Sampling:
A technique more specific to a business, ensuring a certain number of people with specific characteristics are included in the sample.
Importance of Avoiding Bias:
When carrying out market research, it’s crucial to avoid bias, such as asking family or friends, which can lead to inaccurate research.
Sole Trader:
A business owned by one person.
Ads and disads of being a sole trader
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Advantages: Owner makes all decisions, keeps all profits, easy to set up, more money available to help business.
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Disadvantages: Unlimited liability (personal assets at risk), difficult for one person to manage all aspects, business may not exist if the sole trader retires or dies.
Partnership:
A business owned by two or more people.
Ads and disads to a partnerships
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Advantages: More money available, more skills and experience, share responsibilities, can bring in partners to expand.
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Disadvantages: Unlimited liability, sharing profit can lead to disagreements, loss of control over decision-making, profits must be shared.
Private Limited Company (Ltd):
Shares are sold privately to family and friends, cannot be sold to the public.
Ads and disads of an Ltd
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Advantages: Limited liability (owners’ personal assets protected), easier to borrow money than a sole trader, more control over who owns shares, incorporation can give the company more status.
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Disadvantages: Strict legal requirements (Companies Act), harder to raise capital compared to PLCs, financial records are more open to public scrutiny (though not fully public).
Public Limited Company (PLC):
Shares can be bought and sold on the stock exchange by the general public.
Ads and disads of being a PLC
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Advantages: Limited liability, can raise significant capital through share issues, easier to grow and expand, shares are easily transferable.
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Disadvantages: High set-up costs (£50,000 minimum share capital), must publish full financial accounts, subject to more regulations and scrutiny, potential loss of control for original owners.
Unlimited Liability:
If the business goes bankrupt, the owners are personally liable for the business debts and may have to sell personal assets to pay them.
Limited Liability:
The personal possessions of the shareholders are protected if the company fails; they only stand to lose the value of their investment in the shares.
Public Sector Organisation:
Owned and controlled by the government (e.g., NHS, schools, police, public goods like street lights and roads). Aim is to provide goods/services to the public and not primarily to make a profit.
Private Sector Organisation:
Owned and run by private individuals (entrepreneurs or groups) (e.g., Ford, Apple, local takeaways). Aim is to survive (small businesses) or make a profit and become a leading brand (larger businesses).
For Private Sector:
Opportunity for cost-effective spending as government can be slower, quality of provision may be better due to profit-making incentive.
For Public Sector:
Better for low-income groups, healthcare should not be about profit, higher quality if free and supported by taxation.
Evaluation of private and public
: Depends on the type of healthcare and government budgets, general healthcare should not miss out the needy, and government money can be freed up for other services if private sector is used.
Social Enterprises:
Businesses that exist to benefit people (stakeholders) in the community and not just to make profits (e.g., Eden Garden, Jamie Oliver’s Fifteen, The Big Issue).
Cooperatives:
Businesses owned by their members (usually employees or customers) who have a wider interest in the business than just making money (e.g., Co-op bank, Co-op funeral care).
Charities:
Organisations that exist to make a profit; they exist to help different groups in society (e.g., WWF, Oxfam, the RSPCA).
Societies
: A group of people who come together to start a club/group sharing the same interests and not for the benefits of profits (e.g., local rowing club, religious events).
Internal Sources of Finance: and ads and disads
Personal Sources of Finance (Savings, Borrow from friends and family):
* Advantages: Cheap, no interest, keep control, not in official debt.
* Disadvantages: Opportunity cost, family issues if money isn’t paid back, personal savings may not be enough.
External Sources of Finance (Short-Term): and ads and disads
Overdraft (Short-term money borrowed from banks):
* Advantages: Flexible, can cover temporary cash flow problems, useful in seasonal businesses, security is not usually required.
* Disadvantages: Higher interest rate, need to provide cash flow forecasts, bank can demand immediate repayment.
External Sources of Finance (Long-Term)
Ordinary Shares (Selling shares in return for finance)
Bank Loan (Borrowing money with interest)
Venture Capitalists (Investment by experts in return for a share)
Official Grants (Free money from government)
Advantages and disadvantages of Ordinary Shares (Selling shares in return for finance)
- Advantages: Limited liability, shareholders bring expertise, only pay out dividends based on profits, no fixed sum of money to repay.
- Disadvantages: Business profit is divisible, loss of control for original owners, conflict of ideas between shareholders.
Advantages and disadvantages of Bank Loan (Borrowing money with interest):
- Advantages: Fixed interest rate, interest rates usually lower than overdrafts, can get exactly the amount needed.
- Disadvantages: Interest charges, size of loan may be limited due to security, fees for paying the loan back early.
Advantages and disadvantages of Venture Capitalists (Investment by experts in return for a share)
- Advantages: Increase expertise, business is not in debt, no repayments unless profitable, VC may delay their dividend if the business needs more money.
- Disadvantages: Often demand a significant share, loss of control to the VC, VC may exert too much influence.
Advantages and disadvantages of Official Grants (Free money from government)
- Advantages: Free money, don’t have to pay it back, don’t lose control of business.
- Disadvantages: Unlikely to get the full amount needed, lots of competition to get a grant, have to provide evidence for the grant, such as a business plan.
What new factor has affected the choice of business location
The growth in e-commerce has increased home and online businesses.
Quantitative Factors of business location
Land, labour, transportation costs; expected costs (fixed and variable); quality of workers in the area; infrastructure; forecast break-even and profit; number of expected customers; expected revenue; distance to customers/suppliers; size of land required; local laws (planning permission).
Qualitative Factors of business location
: Owner’s preference; sell mainly via a shop or internet.
Revenue (Total Sales)
Selling price x number of customers.
Fixed Costs (Indirect/Overheads):
Expenditure that does not vary directly with output (e.g., rent, salaries, insurance).
Variable Costs (Direct Costs):
Expenditure that does vary with output (e.g., raw materials, wages, overtime, delivery costs).
Total Costs:
Fixed Costs + Variable Costs.
Semi-variable Costs:
Partly fixed and partly variable (e.g., a worker on salary plus a Christmas sales bonus).
Contribution per Unit:
Selling Price – Variable Costs per Unit.
Total Contribution:
Contribution per Unit x Number of Customers (Output). It’s also the difference between total sales and total variable costs.
Profit
Total Contribution – Total Fixed Costs. Also calculated as Total Revenue – Total Costs.
Percentage Change
Formula provided for calculating percentage changes in profits.
Break-Even Point:
The number of units a business must sell to avoid making a loss.
Break-Even Formula:
Fixed Costs / Contribution per Unit.
Break-Even Graphs:
Illustrate total revenue, fixed costs, and total costs to determine the break-even point, profit area, and loss area. Margin of safety (number of customers above the break-even point) is also shown.
Why Break-Even Analysis is Useful:
Useful: Can ask and test ‘what if’ scenarios, shows how many products must be sold to make a profit, helps with pricing decisions, useful for setting targets for new firms, allows for setting selling targets for established firms.
Why break even may not be useful
Why Break-Even Analysis May Not Be Useful: Only applies to a single product, difficult to work with if prices or costs change, assumes all products are sold, fixed costs can be easily and accurately classified, predicted output may not be accurate, it’s about the future – the data could be inaccurate.
Overall evaluation of breakeven
: It’s a useful tool for single-product selling businesses and helps analyse the impact of price and cost changes, but its accuracy depends on the reliability of the data and future predictions.
Marketing Function
About “identifying, anticipating and satisfying customer needs profitably.” Marketing mix (Product, Price, Promotion, Place) is the business strategy where all four Ps should be designed fully around the consumer needs.
Product Orientation
Business activities focused around the business’s own products and systems, aiming to make them the best possible.
Market Orientation:
Business activities focused on using the core strengths (technology, infrastructure, etc.) in developing products and services based on the wants and needs of customers.
Unique Selling Point (USP):
A feature of a good/service that is unique to a business.
Product Life Cycle (PLC):
Illustrates the different stages a product goes through (Development, Introduction, Growth, Maturity, Decline) with corresponding business activities and cash flow. Extension strategies can be used to prolong the maturity stage.
Product Portfolio: Boston Matrix
A tool used to analyse a company’s product portfolio based on market share and market growth, categorising products as Stars, Cash Cows, Problem Children, and Dogs
Pricing Strategies
: Penetration pricing, price skimming, cost-plus pricing, competitive pricing, psychological pricing, contribution pricing. Each strategy has a description and when it is typically used.
Promotion:
The way of communicating the benefits of the product/service to the consumer to attract them to buy it. Above-the-line (mass media), below-the-line (more specific non-media focused), and through-the-line promotion are mentioned.
Types of Promotion:
Above-the-line advertising, public relations, direct mailing (junk mail), sales promotion (BOGOF), personal selling. Each type has a description, advantages, and disadvantages.
Distribution Channels:
Traditional (two intermediaries), modern (one intermediary), direct (e-commerce, no intermediaries). The rise of e-commerce (direct distribution) is highlighted.
Global Marketing:
A business’s marketing mix will not be the same in all areas of the world due to differences in culture, income, etc. KFC in China is given as an example of adapting to local tastes.
Marketing and New Technology:
Digital media, social media, e-tailing (e-commerce), m-tailing (mobile commerce) are discussed as having a significant impact on how firms market their products.
Human Resources Department:
Focuses on recruiting and training employees, motivating employees, ensuring employment laws are not broken, handling performance appraisals, and workforce planning.
Working Practices:
Flexible working, home-working, part-time working, temporary contract, job sharing, multi-skilling, zero-hour contracts, hot-desking. Each type is explained.
Benefits of Flexible Working:
Can match production to demand, do not overspend on labour during quiet times, average costs fall, prices fall which improves competitiveness, motivation as workers may choose own hours.
Drawbacks of Flexible Working:
Less job security for workers, demotivation of workers, may find it difficult to recruit best employees with zero-hour contracts, temporary contracts and job sharing.
How Technology Has Increased Flexible Working:
Growth of internet and faster broadband, better software and access to business software outside of work, better software for making bookings, etc.
Workforce Planning:
Forecasting future staffing requirements.
Positive Impact of Having the Correct Number of Employees:
Employees feel valued, less likely to leave, higher motivational levels, lower unit costs, prices can fall leading to increased competitiveness, good customer service.
Negative Impact of Having the Incorrect Number of Employees:
Employees feel under or overworked, more likely to leave, lower motivational levels, higher unit costs, higher prices, poor customer service.
Recruitment (Internal and External):
Filling a job vacancy from within or outside the organisation. Each has advantages and disadvantages.
Selection (Methods):
Application forms, interviews (face-to-face and telephone), work trials, testing and selection (aptitude, personality). Pros and cons of each method are outlined.
Training (Types)
: Induction training, on-the-job training, off-the-job training, apprenticeship training. Importance of recruitment and training for businesses is discussed.
Appraisals (Types):
Superior’s appraisal, peer-assessment, self-assessment, 360 degrees appraisal. Effect of appraisals on employees and the business is considered.
Workforce Performance (Labour Productivity and Labour Turnover):
Measures of employee efficiency and staff retention.
Organisational Design (Structure, Chain of Command, Span of Control, Delayering):
How a business is structured, levels of authority, number of subordinates a manager is responsible for, and reducing management layers. Tall vs. flat structures are mentioned.
Delegation and Empowerment:
Passing authority down the hierarchy and giving employees more control. Pros and cons of each are outlined.
Traditional vs. Matrix Organisational Structure:
Different ways of structuring teams and reporting lines.
Motivation and Motivational Theorists (F.W. Taylor, E. Mayo, A. Maslow, F. Herzberg, V. Vroom and L. Porter & E. Lawler):
Different theories on what motivates workers and how businesses should use this information.
Non-Financial Methods of Motivation:
non-pay related (consultation, job design and rotation, job enlargement, job enrichment, empowerment, teamworking, flexible working). Benefits of a motivated workforce are listed.
Financial methods of motivation
Pay-related (piece rate, wage, salary, commission, bonus, performance-related pay, profit sharing, share ownership, fringe benefits)
Operational Function
: Focuses on the day-to-day running of the business, including obtaining resources, producing goods/services, and ensuring quality.
Penetration Pricing:
Setting a low price for a new product to gain market share quickly
Price Skimming:
Setting a high initial price for a unique or high-demand product
Cost-Plus Pricing:
Calculating the total cost of a product and adding a percentage profit margin
Competitive Pricing:
Setting prices similar to competitors’ prices
Psychological Pricing:
Using prices that appeal to customers’ perceptions (e.g., £9.99 instead of £10)
Contribution Pricing:
Setting a price based on the variable cost of the product and a contribution towards fixed costs
above-the-line promotion
using mass media like TV and newspapers
below-the-line promotion
more specific, non-media focused activities like direct mail
through-the-line promotion
Using both below and above the line promotion
Advantages of internal recruitment
The abilities of the employees are already known by the business
It can be motivational for existing staff members
There is less need for induction training as the employee is already familiar with the organisation
Disadvantages of internal recruitment
It limits the pool of potential applicants
No new ideas or experience are brought into the business
Can create rivalry between candidates
Advantages of external recruitment
Avoids creating another vacancy internally
It can bring new skills, experience, and ideas into the business
Attracts high-quality applicants
Disadvantages of External Recruitment
It can be a more expensive and time-consuming process compared to internal recruitment
It can be harder to assess the abilities and suitability of external applicants
May not fit into the existing company culture
Job Production
creating one-off, unique products tailored to meet the individual needs of a specific customer. Each product is typically different and requires a unique set of tasks to be completed. This method often involves highly skilled employees working on individual projects.
Pros of job production
Products can be one-off and unique, meeting specific customer requirements
High added value is often achievable due to the bespoke nature of the work
Employees may find the work more interesting and motivating due to the variety involved
Low unit costs can be achieved if the product is highly specialised and commands a premium price
Cons of job production
It can be very costly as it is often labour-intensive and may require specialised equipment for each job
Production can be very slow because each item needs individual attention
It typically requires a highly skilled and multi-skilled workforce, which can be more expensive to employ
There is often more labour-intensive involvement compared to other methods
It can be less efficient for producing large quantities
Batch production
Batch production involves producing groups (batches) of identical items. Once one batch is completed, the production process can be adjusted to produce a different batch of products. This method is suitable for businesses that need to produce a variety of products in moderate quantities.
Pros of batch production
allows for the production of a larger number of similar items compared to job production
offers more variety and flexibility than flow production
can reduce costs compared to job production due to some standardisation
can adapt to different customer tastes and demands by altering batches
can create more consumer interest and meet more needs
Cons of batch production
Production can still be slower than flow production.
There can be less added value compared to job production as products are more standardised.
It can be less efficient than flow production for continuous production of a single item.
There can be a need to switch between batches, which can cause delays and inefficiencies.
It can be more labour-intensive than flow production.
Can take a while to switch between batches and so production could be lost during this time.
Flow production
Flow production, also known as mass production or continuous production, involves a continuous movement of identical products through a series of production stages. Each stage typically performs a specific task, and the product moves along a production line until it is completed. This method is best suited for producing large volumes of standardised products.
Pros of flow production
It allows for the production of a large number of identical products quickly.
It is typically the most cost-effective method for large-scale production due to economies of scale.
It often involves a high degree of automation, which can increase efficiency and reduce labour costs.
It can achieve high levels of productivity.
Cons of flow production
There is very little scope for producing unique or varied products. Products are highly standardised.
The work can be very repetitive and may lead to low employee motivation.
It requires high initial capital investment in machinery and production lines.
It can be disruptive and costly if there are any breakdowns in the production line.
Customer needs are not specifically met due to the standardisation.
Less skilled workers may be required, but investment in machinery is high.
Lean production
an operational approach focused on minimising waste and maximising efficiency in all areas of a business. It aims to use fewer resources – such as land, space, labour, and stock – while producing goods and services. This can lead to lower costs and more competitive pricing.
Lean production techniques
Just-in-Time (JIT)
Cell Production
Kaizen (Continuous Improvement)
Time-Based Management
Just-in-Time (JIT)
This stock management system aims to reduce waste by holding minimal levels of stock. Materials are delivered by suppliers just when they are needed in the production process.
Pros of JIT
JIT leads to lower costs associated with waste and storage, potentially resulting in higher profits. It can also enable businesses to offer more competitive prices and allows them to meet customer demands effectively.
Cons of JIT
Implementing JIT can be challenging for companies with unpredictable demand. It requires sophisticated IT systems for effective management and a high level of dependency on suppliers for timely deliveries. There is also less room for errors in the production process. Furthermore, JIT necessitates reliable suppliers, good IT infrastructure, and a trusting company culture
Cell production
This method involves dividing a flow production line into smaller, self-contained units called cells. Each cell is responsible for a significant part of the production process and the teams within these cells often have a degree of autonomy and responsibility for their specific tasks.
Pros of cell production
Cell production can lead to improved employee motivation through teamwork, job rotation, job enlargement, and job enrichment. This can result in higher productivity and lower unit costs, as well as better product quality since the team is accountable. Employees also tend to become more multiskilled. This approach aligns with motivational theories such as Herzberg’s (job satisfaction), Mayo’s (social needs and teamwork), and Vroom and Lawler’s (performance-related rewards).
Cons of cell production
Successful cell production requires an empowering and trusting company culture, a strong emphasis on training, and a commitment to continuous improvement. The overall output of the cell can be limited by the weakest link within it, and it may not be suitable for all types of production processes. It also demands significant investment in training
Kaizen (Continuous Improvement)
Kaizen is a philosophy that focuses on making small, incremental improvements across all areas of a business over time. It encourages the involvement of all employees in identifying and implementing these improvements.
Pros of kaizen
By empowering employees to contribute ideas, Kaizen can lead to increased motivation. It can also result in improved productivity and quality, as well as the reduction of waste and costs. Over time, these small changes can accumulate into significant overall improvements. This approach supports motivational theories like Herzberg’s (recognition, achievement), Mayo’s (involvement), Maslow’s (esteem, self-actualisation), and Vroom and Lawler’s (contribution leading to rewards).
Cons of kaizen
Implementing Kaizen effectively requires the commitment and involvement of all staff and management, and there may be resistance to change. The impact of small improvements might take time to become significantly noticeable. It often necessitates a cultural shift within the organisation and ongoing training. Embedding Kaizen can be time-consuming, and initial short-term productivity might dip as employees adjust.
Time-Based Management
This technique centres on reducing the time taken in all stages of the production process, from the initial design and development to the final delivery of the product. The primary goals are to improve responsiveness to customer needs and shorten lead times
Pros of time based management
Time-based management can lead to faster product development cycles, enabling the business to be ahead of the competition with unique selling points (USPs). It also allows for a quicker response to changes in the market, reduces waste and costs, and ultimately leads to improved customer satisfaction. Higher productivity due to faster processes can also result in lower unit costs.
Cons of Time-Based Management
This approach requires a flexible, highly trained, and multiskilled workforce capable of performing tasks efficiently. It may necessitate investment in new technology and processes. A strong and empowering company culture is essential to enable employees to take initiative and work quickly. There’s also a potential risk of putting excessive pressure on employees to complete tasks rapidly without adequate training.
What concepts are lean production linked to
productivity (output per employee) and capacity utilisation (the extent to which a business is using its resources). Increasing productivity, a key aim of lean production, can lead to lower unit costs and potentially lower prices, which in turn can boost sales revenue and profits
Organisational design
the process of aligning the talent of the organisation to show the layers of hierarchy and chain of command in a business, usually done through organisational charts.
organisational structure (chart)
a diagram showing the levels of authority within a business, identifying what each role is responsible for and who is responsible for each employee.
Structure of organisational design
how a business is organised, typically represented visually by an organisational chart
Chain of Command
: This describes the lines of authority within a business. Orders and instructions are passed down this chain, and feedback is passed up.
Span of Control
: This is the number of subordinates that a manager is directly responsible for.
Delayering
: This involves removing a middle layer of management in a business, usually resulting in a flatter structure. Reasons for delayering include reducing costs and empowering workers lower down the hierarchy. However, it can also lead to getting rid of managers with needed skills and redundancy payments in the short term.
Traditional Organisational Structure:
These structures tend to have tall levels of management. More recently, however, organisations have become flatter, with fewer management layers, giving lower-level employees more delegated authority and a wider span of control for each manager.
Matrix Organisational Structure:
This structure is used alongside a traditional structure and involves team members having more than one boss. For example, employees might report to both a functional manager (e.g., in finance, marketing) and a project team leader. The pros include teamwork and employees becoming multiskilled, while a con is the potential for confusion due to having two bosses.
Pros of delegation and empowerment
It can reduce costs, free up time for senior managers to focus on key jobs, prepare workers for promotions, and increase motivation.
Cons of Delegation and Empowerment:
Employees may not be as good at the job as the manager, managers are still accountable for the work done, it requires training, and it may increase the workload for employees.
Centralisation:
This means that key decisions are made at the top of the business (head office).
Pros of Centralisation
Decisions can be made quickly, there is more control for the business, and customers may prefer a brand to be identical in every branch.
Cons of Centralisation
Local managers may have better knowledge of customer needs, and lower motivation for local managers due to a lack of decision-making power.
Decentralisation:
This means that decision-making authority is delegated down the hierarchy to store managers and workers lower down the structure.
Pros of Decentralisation
It empowers local managers, can improve motivation and local knowledge for better customer service.
Cons of Decentralisation:
Customers may not like the fact that all stores may be different, and local managers may lack experience in decision-making.
Tall structure
More layers of hierarchy.
Potentially narrower spans of control, meaning managers are responsible for fewer subordinates.
F.W. Taylor
Taylor believed that money was the main motivator for workers. His approach involved paying using piece rates (where employees are paid for each unit they produce) and treating humans like machines to increase output. He thought humans preferred to perform small, repetitive tasks and wanted to earn more money. Businesses using this information might implement financial incentive schemes where workers’ pay is directly linked to their output.
E. Mayo
: Mayo’s research suggested that workers are not just motivated by money but also by social needs and teamwork. He found that when workers were given attention and allowed to form social groups, their productivity increased. Businesses applying Mayo’s ideas might organise work into teams and allow employees to express their opinions on management decisions.
A. Maslow
Maslow proposed a hierarchy of needs, suggesting that individuals are motivated to satisfy a series of needs in a specific order. These needs, in ascending order, are basic/safety/social (low-level needs) and esteem/self-actualisation (high-level needs). Lower-level needs must be met before an individual strives to fulfil higher-level needs. Businesses can use this theory by ensuring basic needs like adequate pay and safe working conditions are met, and then providing opportunities for promotion, rewards, and empowerment to satisfy higher-level needs.
F. Herzberg:
Herzberg’s two-factor theory identified hygiene factors and motivators. Hygiene factors (like pay, working conditions, supervision, company policy) can lead to dissatisfaction if not met, but do not necessarily motivate employees. Motivators (like achievement, recognition, the work itself, responsibility, advancement) are factors that can lead to job satisfaction and motivation. Businesses should ensure hygiene factors are acceptable to prevent dissatisfaction and then focus on providing motivators through things like job enrichment and empowerment.
V. Vroom and L. Porter & E. Lawler:
This expectancy theory suggests that motivation depends on individuals’ expectations about their ability to perform tasks and the rewards they will receive. Individuals will be motivated if they believe their effort will lead to good performance, and that good performance will be rewarded with something they value. Businesses should ensure that rewards are clearly linked to performance and are valued by employees. This can be achieved through financial and non-financial incentives.
Financial Methods of motivation
Piece rate: Paying employees per unit produced. Wage. Salary. Commission. Bonus (Additional payment for achieving targets). Profit sharing (Distributing a portion of company profits to employees.)
Non-Financial Methods of motivation
Consultation: Seeking employees’ views and involving them in decision-making.
Job design and rotation: Varying tasks to reduce monotony and increase skills.
Job enlargement: Increasing the number of tasks an employee performs.
Job enrichment: Giving employees more responsibility and autonomy.
Flexible working: Allowing employees to have more control over their working hours and arrangements.
Benefits of a Motivated Workforce
Harder working staff who are more productive (higher labour productivity).
Less likely to be absent and lower labour turnover (more staff retention).
Both above points can lead to lower unit costs, as more output is produced with the same or fewer resources.
Prices can fall which improves competitiveness.
Higher profit margins (as costs are lower and productivity is higher).
Better quality products/services due to increased attention and effort.
Customer service is likely to be more attentive and helpful, leading to greater customer satisfaction.
Management
is defined as “getting things done by organising, controlling and ordering employees together so everyone has a common goal (objective) to work towards. Functions: controlling, organising, directing, planning and staffing”.
Leadership
“inspiring and motivating employees to follow them to achieve the business objectives; leaders are more innovative”.
Key Functions of Management
Organising: Structuring the workforce and resources to achieve objectives.
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Controlling: Ensuring that activities are performed according to plan.
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Directing: Guiding and supervising employees in their tasks.
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Planning: Setting objectives and determining how to achieve them.
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Staffing: Recruiting, selecting, and training employees.
Autocratic leadership
This style involves the leader making decisions at the top of the organisation, with formal systems and strict controls. Senior management does not trust workers. This is aligned with F.W. Taylor’s theory and McGregor’s Theory X.
Democratic leadership style
This style focuses on decision-making based on the agreement of the majority, often through a voting system. Delegation is common, and it aligns with Mayo’s system of employee involvement and McGregor’s Theory Y.
Paternalistic leadership style
In this style, management makes decisions that are considered to be in the best interests of employees. They may consult staff, and this style relates to Mayo’s human relations approach and Maslow’s higher-level needs.
Laissez-faire leadership style
This style involves minimal input from the leader, with delegation occurring but often leading to a lack of focus and coordination.
Bureaucratic
This style is characterised by clearly defined, rigid rules and procedures, with centralised decision-making. This style is suitable for dealing with new or unusual situations.
When is each leadership style more effective
Autocratic and paternalistic styles can be effective in times of emergencies or when quick decisions are needed,
while democratic styles are more suitable when employee involvement and motivation are key.
A bureaucratic approach is useful when clear procedures are essential.
What do Theory X managers believe
Workers are lazy and dislike work.
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Workers lack ambition, dislike responsibility, and prefer to be led.
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Workers are motivated mainly by money and fear of punishment (aligned with Taylor and Vroom/Lawler).
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Punishment is more common than reward.
What do Theory Y managers believe
Workers enjoy work and seek satisfaction from it (aligns with Mayo and Herzberg).
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Workers will organise themselves and want responsibility.
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Workers want to contribute to decisions and seek responsibility.
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Creativity should be fostered.
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Workers like a variety of rewards (not just money), aligning with Maslow and Herzberg.
Fiedler Contingency Theory (1976)
This theory suggests that there is no single best leadership style. A leader’s effectiveness is based on the situation and their leadership style, which is considered relatively fixed and assessed by a ‘Least Preferred Co-worker’ scale.
P Wright and D Taylor (1984):
P Wright and D Taylor (1984):
What does a manager/leader need to have and why
vision, determination, honesty, integrity, optimism, and the ability to communicate and motivate their employees. They play a key decision-making role in the business and are responsible for ensuring that aims and objectives are met.
How does Effective leadership and management contribute significantly to a business’s success
Providing direction and a clear vision.
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Motivating and inspiring employees to achieve goals.
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Facilitating effective communication within the organisation.
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Ensuring resources are used efficiently.
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Adapting to changes in the business environment.
What other factors contribute to a business’s success other than leadership
brand image, marketing mix, product design, state of the economy, competitors’ actions, finance available, and motivation and training of staff.
Contracts of Employment
This is a legal document agreed by both the employer and employee outlining the terms of the job, including job title, hours of work, holiday entitlement, and pay. If either party breaks the contract, they are liable to legal action.
Health and Safety:
The Health and Safety at Work Act 1974 requires employers to ensure a safe working environment and provide the necessary safety equipment. Employees also have a responsibility to work safely.
Minimum Wage:
The government introduced the living wage, which are the minimum pay rates employers must pay workers. These rates vary depending on the age of the employee. Employers must pay at least the national minimum wage and face legal action if they pay below it.
Dismissal:
Unfair dismissal is illegal. An employer cannot dismiss a worker for no good reason, such as complaining about unsafe working practices or joining a trade union. Employers must have evidence of poor performance or misconduct to fairly dismiss an employee and must follow a disciplinary procedure.
Equal Opportunities:
Equal opportunities exist when all employees have the same chances within the workplace and are treated fairly, regardless of individual characteristics. Discrimination is illegal and can lead to prosecution. Key legislation promoting equal opportunities includes the Sex Discrimination Act 1975 (equality between men and women), the Race Relations Discrimination Act 1976
Positive Impact of Promoting Equal Opportunities:
This can lead to higher productivity levels, lower unit costs, higher motivation (due to feeling safe, equal, and esteemed - Maslow’s hierarchy), less labour turnover, and a positive brand image that attracts better job applicants. It also prevents fines from government bodies for unfair practices.
Negative Impact of Not Promoting Equal Opportunities:
This can lead to the cost to ensure that people of all characteristics and features are treated fairly, lots of training, and the cost to manage them fairly.
Trade Unions:
A trade union is an organisation that represents the rights and interests of its members (employees) in issues concerning their employment, such as pay and working conditions. Trade unions can negotiate with employers on behalf of their members.
Advantages of Trade Unions for Employees:
They can collectively bargain for better pay and working arrangements, provide legal cover and representation if a worker feels they have been unfairly dismissed, and support workers taking action against employers.
Problems of Trade Unions for Employers:
They can make firms less productive due to disruptions (strikes), increase labour costs (higher wages), and hinder decision-making due to the need for consultation. The impact of industrial action, such as strikes or overtime bans, can lead to negative publicity, brand image damage, loss of sales and profit, and demotivated non-striking employees.
Industrial Action:
This refers to measures taken by employees (often organised by trade unions) to protest against their employer, such as strikes (employees refuse to work), go-slows (employees work at a slower pace than normal), work-to-rule (employees only do the minimum required by their contract), overtime bans (employees refuse to work extra hours), and sit-ins (employees occupy the workplace but refuse to work).
ACAS (Advisory, Conciliation and Arbitration Service):
ACAS offers advice and help to employers and employees to prevent or resolve disputes. When disagreements occur, ACAS can offer conciliation (mediating discussions to find a solution) or arbitration (making a legally binding decision to resolve the dispute if both parties agree). ACAS aims to improve employer/employee relations to benefit both parties and the wider economy. The industrial impact of ACAS includes attempting to resolve disputes without the need for industrial action, potentially saving businesses from negative impacts.
Adding Value:
This refers to the difference between the price of the finished goods and the cost of inputs.
Ways to add value
include building a brand, improving customer service, and launching new products and offering convenience. Adding value can lead to higher profit, improved customer satisfaction, employee motivation, and a better brand image.
Productivity
is defined as the output per employee. It is calculated as Total Output / Number of Workers. Increasing productivity can lead to lower unit costs, higher profit margins, and increased competitiveness. However, it can also lead to employees working harder, potentially impacting quality or causing stress.
Capacity Utilisation
looks at how efficiently a business is using its resources. It’s calculated as Current Output / Maximum Possible Output x 100. Operating below maximum capacity can lead to higher fixed costs per unit and lower profit levels. However, it also provides flexibility to meet unexpected increases in demand and allows for maintenance.
Computer-Aided Design (CAD):
Enables firms to design and test products on screen without building a physical prototype. This can lead to more accurate designs and reduced lead times.
Computer-Aided Manufacturing (CAM):
Involves using computer software to control machinery in the manufacturing process. This can result in higher levels of accuracy and consistency.
Information and Communication Technology (ICT):
Includes email, internet, databases, and spreadsheets which can improve communication, speed of production, and accuracy of stock control.
Quality Control:
Involves checking products at the end of the production process to identify any defects.
Quality Assurance:
Aims to build quality into the production process from the outset, preventing defects from occurring.
Total Quality Management (TQM):
A management philosophy that involves all employees in the continuous improvement of quality throughout the organisation.
Research and Development (R&D)
R&D is closely linked to operations as it involves finding new ideas and testing them to improve existing products or develop new ones. This process is crucial for innovation and maintaining a competitive edge.
Economies of Scale
when average costs fall as output increases.These can be internal (e.g., financial, marketing, managerial, technical, purchasing, risk-bearing) or external (e.g., better infrastructure, skilled labour)
Diseconomies of Scale
when average costs start to rise as a business becomes too large. These can also be internal (e.g., communication problems, coordination difficulties, motivation issues, stock control problems) or external (e.g., increased competition for resources). Understanding these concepts is important for making decisions about business growth and efficiency.
Controlling Budgets:
The finance function is responsible for creating and managing budgets, which are financial plans that include income and expenditure targets. Budgets are aimed at helping managers control costs and achieve financial targets.
Advantages of using budgets:
They can help control costs, provide a target for motivation, highlight potential problems, improve efficiency, and help secure bank loans. They also make staff more accountable.
Disadvantages of using budgets:
They can be difficult to forecast accurately, may lack flexibility, can lead to departments competing, and can be time-consuming to prepare. They may also demotivate staff if targets are unrealistic.
Internal Sources of finance for Established Businesses:
These include owners’ capital (money invested by the owners), retained profit (profits reinvested in the business), and sale of assets.
External Sources of finance for Established Businesses (Medium/Long Term):
These include ordinary shares (selling part ownership), bank loans, and venture capitalists (investment in exchange for a share of the business).
External Sources for Short-Term Finance:
These include overdrafts (borrowing short-term from a bank), trade credit (delaying payments to suppliers), leasing (renting assets), and debt factoring (selling debts to a third party).
Sources of Finance for SMEs:
These are similar and include personal savings, borrowing from friends and family, overdrafts, bank loans, venture capitalists, and official grants (free money from the government). Each source has its own advantages and disadvantages regarding cost, control, and risk.
Cash flow forecasts
prepared to predict future cash inflows and outflows, helping to identify potential cash flow problems.
Importance of Cash Flow Forecasts:
They help in planning, securing loans, managing working capital, and monitoring cash flow.
Causes of Cash Flow Problems:
These can include overtrading, allowing too much trade credit, overstocking, and seasonal demand.
Ways to Solve Cash Flow Problems:
These include speeding up cash inflows, delaying cash outflows, and finding additional funding.
Stars:
Products with high market share in high-growth markets
Cash Cows:
Products with high market share in low-growth markets.
Problem Children:
Products with low market share in high-growth markets.
Dogs:
Products with low market share in low-growth markets.
Advantages and disadvantages of above the line promotion
Wide coverage, good for new product launches, but can be very expensive and might not reach the intended target market effectively.
Advantages and disadvantages of Public relations:
Can create a positive image and attract media attention, but there’s no guarantee of positive coverage and it might act unethically.
Advantages and disadvantages of Direct mailing (junk mail)
: Cheap and good for local businesses, but may not get read and can be seen as a nuisance.
Advantages and disadvantages of Sales promotion (BOGOF - Buy One Get One Free):
Can increase sales in the short term and is easy to implement, but only has a short-term impact and might damage brand image.
Monopolistic competition features and impact on business behaviour
Features include low barriers to entry for new firms,
low barriers to exit,
and impact on business behaviour is intense competition, focusing on non-price factors like branding and advertising.
Perfect competition feature’s and impact on business behaviour
Features include very low barriers to entry and exit,
all firms accept the market price,
and impact on business behaviour is that firms accept the market price and demand dictates supply.
Oligopoly features and impact on business behaviour
Features include very high barriers to entry for new firms,
prices are competitive due to threat of price wars,
and impact on business behaviour is a need to keep understanding each other and other new firms, with non-price competition and location choice being important.
Monopoly features
high barriers to entry,
prices likely to be high,
and impact on business behaviour is that the bigger the monopoly, the less competitive it is,
increasing prices and lower quality.
Primary research examples
interviews,
questionnaires,
observations,
focus groups
Secondary research examples
internet research,
census data,
business/industry books/magazines).
