Business Organisation and Environment Flashcards
What is a business?
A business is a decision making organization involved in the process of
using inputs to produce goods and/or provide services.
What is a market?
A place or process where buyers
(customers) and sellers (businesses)
meet to trade.
What is opportunity cost?
Opportunity cost is easily described as this: take the example of a student
deciding to go university pays two types of costs. Accounting costs would be
actual, i.e. tuition fees, dorm fees, etc.
What is profit?
Profit is the positive difference between a firms total
revenues and its total costs, over time.
Revenues are inflows, usually from sales.
Costs are outflows, usually from production activities.
What are the factors of production?
Land – all natural resources on the planet
Labor – physical and mental effort
Capital – non-natural resources (money, buildings, equipment, machinery)
Enterprise – planning of the whole process (must be creative, innovative,
and passionate.
What is specialization?
Specialization means that a business concentrates on the production of a particular good or service or a small range of similar products. Can also be specialization in making one product, with different specialists.
What is a business plan?
A business plan is straight up, a guide for your business that outlines the needed expectations and details on how to achieve them. It helps you allocate resources properly and make the right decisions. A business plan is crucial because it provides specific and organised information about your company, also on “how you will repay borrowed money” because any type of loan package is considered important in a good business plan.
Problems that a new enterprise may face?
Cash, Borrowing and Resource Management
Cash flow –> a healthy profit. Therefore, if capital expenditures are draining your cash, it is a sign that the business is in risk. In order to avoid these, businesses must store up cash to meet the obligations needed to handle any emergencies. Cash restrictions can be the biggest factor that may limit growth and overtrading to be fatal.
It is crucial to make the best of your finances, because it is a key opportunity to assess new right set of circumstances.
Effective credit management and tight control of overdue debts.
Good stock and effective supplier management
Planning ahead (to anticipate your financing heeds)
- Keeping up with the market
Business conditions change continually, therefore your market research should be continuous as well.
Can easily lead to business/market failure (out-of-date information…etc)
More you succeed = more competitors will notice you
Important to invest in innovation to build new profitable profits to market (to maximise overall profitability)
Your own experiences may be more valuable (useful insights)
Continually watch the customers’ purchasing behaviour and preferences.
Analyse key info on the customer’s reaction to a new product. - Skills and Attitudes
May need outsiders for help as business grows
Must learn to listen, take advices of people, to be a successful entrepreneur.
What are the different sectors?
Primary Sector
Secondary Sector
Tertiary Sector
Quarternary Sector
Types of Organisation?
Sole Trader
Owner controls the business - may employ some workers
Gets money from personal assets / bank loans
Unlimited Liability (Loans, legal debts. Owners are personally liable for all debts)
Advantages
Total control of the business
Gets all profit
Simple to set up because start up costs are low
Wage bill will be low because there are a few or no employees
Less Paperwork
Disadvantages
Unlimited Liability - owners may even be forced to sell their own personal assets to cover any business debts
Less leisure time - you work long hours often times
All responsibility is yours in decision making, as well as pressure
Has no one to share the responsibility of running the business with (e.g. Hairdresser may not be so good at handling accounts)
Owners are personally liable for all debts
Partnership Two or more people (usually 20 max) Partners control the business Gets money from bank loans, savings Partners share the profit from business Doctors, dentists, solicitors are all examples of partnerships; they benefit from shared expertise
Advantages
Shared responsibility - also allows specialization where 1 partner’s strengths can complement another’s
More contribute to capital = more flexibility in the business
Less pressure on individual partners; there is someone to consult over business decisions
Greater borrowing capacity
Disadvantages
Unlimited liability of the partners for the debts
Shared responsibility
Costly if partners join or leave
risk of disagreements and frictions among partners and management
Private LTD Co.
Have their own legal identity
Often a small business
Shareholders own the business & control & run
Shareholders can invest their money or borrow money from bank (bank loans)
Shareholders get the profit from the business
Unless elected to the Board of Directors; the owners are not involved in running the business.
Advantages
Limited liability
No limit on the number of shareholders usually… Although some claim that the minimum is 2 and maximum is 50
More capital can be raised
Business continues even if the owner dies; shares are transferred to another owner
Disadvantages
Profits have to be shared amongst a potentially larger number
Growth may be limited (max. 50 shareholders)
Must have agreement from all shareholders before selling/transferring shares of the Private LTD Co. to anyone else
Public LTD Co.
Usually a large, well-known business (Mostly multinational)
Shareholders own, control, run the business. Money investment as well
Has sold a portion of itself to the public
Shareholders have claimed to be a part of the company’s CA and Profit
Advantages
Limited liability
Shares are freely transferrable - more liquidity to share it
Can gain from EoS because of most being a multinational
Can easily dominate a market - purchasing competitors
Disadvantages
Expensive to set up (compared to all other types of organisations)
Strict controls and regulations to comply
May face management problems (e.g. slow decision making and industrial relations problems because of it’s huge size)
Suffer from disEoS
Difference between a public and private sector
Private
The private sector is usually composed of organizations that are privately owned and not part of the government. These usually includes corporations (both profit and non-profit), partnerships, and charities.
An easier way to think of the private sector is by thinking of organizations that are not owned or operated by the government. For example, retail stores, credit unions, and local businesses will operate in the private sector.
Examples of private-sector employment areas:
Financial services Law firms Estate agents Newspapers or magazines Veterinarians Aviation Hospitality
Public
The public sector is usually composed of organizations that are owned and operated by the government. This includes federal, provincial, state, or municipal governments, depending on where you live. Privacy legislation usually calls organizations in the public sector a public body or a public authority.
Some examples of public bodies in Canada and the United Kingdom are educational bodies, health care bodies, police and prison services, and local and central government bodies and their departments.
Examples of public-sector employment areas:
Health and care Teaching Emergency services Armed forces Civil service City councils
NGO’s (Non Governmental Organisations)
A non-governmental organization (NGO) is an organization that is neither a part of a government nor a conventional for-profit business. Usually set up by ordinary citizens, NGOs may be funded by governments, foundations, businesses, or private persons. It is one of the main features of a non-profit social enterprise.
Organisational Objectives
Objectives
States what the company wants (a statement of purpose)
Why set objectives?
Objects give business a clearly defined target
Plans/Strategies can then be made to achieve these targets
Can help motivate employees
Foundation for decision making
Enables business to measure progress towards to it’s stated aims
Aim
States what the company needs to achieve to meet the aim
Aims of business is most often found in the mission statement
A mission statement is a written statement making clear to all stakeholders a firm’s overall aims and values
It enables the stakeholders of a business to understand why the business is doing what it is doing
Strategies
States the course of action to meet the objective
Tactics
Very short term; day to day
A Vision Statement is
A vivid mental image of what you want your business to be at some point in the future
Based on your goals and aspirations
Gives your business a clear focus, and can stop you heading in the wrong direction
A Mission Statement is
When you’re coming up with the concept for your business
An important component of your overall strategy plan
Declares the purpose of an organisation and defines the reason for your company’s existence.
Mission Statements are often critised for being:
Too vague
Based on public relations exercise (promoting your company with no money) for e.g, if you donate a specific thing to someone and it goes on the news
Virtually impossible to really analyse or disagree with
Often rather general
Ethical Objectives
Ethics
Business Ethics
Ethical code of practice
Unethical Objectives/Practices
Exploitation… a)employees (working hours) b)suppliers c)customers
Environment…a)exploitation b)neglect
Financial Deception…a)Taxes are not payed enough
What are the different stakeholders?
What are stakeholders? Who are they?
A person, group or organisation that has an interest or concerns in an organisation.
They can be affected or affect the organisation/business in terms of their actions, objectives and policies
for example... Creditors Directors Employees Government
Stakeholders at a school would be the... Teachers (employee) Parents (Customers/Company) Workers Students (Consumers) Janitors Bus company and Cafeteria (Suppliers, Outsource) GOVT (Pay tax, legislation to abide) Local Community (improve infrastructure in the area, help) Board of governors
Internal Stakeholders
are groups within a business or people who work directly within the business. e.g:
employees managers shareholders owners investors
External Stakeholders are groups outside a business or people who are not directly working within the business but are affected in some way from the decisions of the business. e.g: customers suppliers creditors community trade unions government competitors
STEEPLE Analysis
Social Factors health consciousness population growth rate age distribution career attitudes emphasis on safety
Technological Factors
Automation
technology incentives
rate of technological change
Economic Factors economic growth interest rates exchange rates inflation rate
Environmental Factors water, wind, soil food soil energy pollution environmental regulations.
Political Factors tax policy employment laws environmental regulations trade restrictions and tariffs political stability
Legal Factors
Legal restraints and regulations
Health and safety of employees
Ethical Factors
Discrimination
Diversity Issues
What are the different types of growth?
What is Economies of Scale?
A decrease (fall) in average cost due to expansion
There are benefits and drawbacks in increasing the size of operation of a business.
Diseconomies of Scale?
The opposite of EoS; an increase in average cost due to expansion
A business can become so large that its unit costs begin to rise. Expanding firms can experience diseconomies of scale. These include:
Ineffective communication. Coordinating large numbers of staff becomes a challenge. Big businesses can develop many levels of hierarchy which slow down communication or even lead to miscommunication.
Reduced motivation. Staff can feel remote and unappreciated in a large organisation. When staff productivity begins to fall, unit costs begin to rise.
Internal EoS
Firm-Specific, or caused internally
Result in declining marginal costs(the cost added by producing one extra item of a product) of production
Net effect is the same
tend to offer greater competitive advantages than external economies of scale. This is because an external economy of scale tends to be shared among competitor firms.
External EoS
Occur based on larger changes of the firm
Result in declining marginal costs of production
Net effect is the same
Having an effect on the whole industry
Tends to be shared among competitor firms.
What are the different types of organisational planning tools?
Fishbone diagram
Decision Tree
Force field analysis
Gantt charts
