Business Studies Flashcards
1
Q
3.1 - WHAT IS BUSINESS?
A
2
Q
what are business objectives?
A
specific intended outcomes of business strategy and activity.
3
Q
what are the four main functions of business objectives?
A
- states what needs to be achieved.
- provides focus for all activity.
- sets targets for individual and group achievement.
- a way to measure performance.
4
Q
what are some corporate objectives?
A
- Sales Revenue
- Profit
- ROI
- Growth
- Market Share
- Cash flow
- Corporate image & reputation
5
Q
what is the acronym SMART?
what does it say about business objectives?
A
Specific - exactly what is to be achieved
Measurable - whether it has been achieved
Attainable - realistic in the circumstances set
Relevant - to the people responsible for achieving them
Timely - set within a time frame in mind
6
Q
how should corporate objectives feed into functional objectives?
A
- (CO) increase market share - (FO) successfully launch five new products in existing markets over the next two years (marketing)
- (CO) unit costs - (FO) increase factory productivity by 10% within 2 years (Operations)
7
Q
what is a mission statement?
A
“the overriding goal of the business and the reason for its existence”
8
Q
who are the mission statements’ main audiences?
A
Investors
Customers
Employees
Society
9
Q
what makes an effective mission statement?
A
Differentiates the business from its competitors.
Defines the markets or businesses in which the business wants to operate.
It is relevant to all major stakeholders - not just shareholders and managers.
Excites inspires, motivates & guides - particularly important for employees.
10
Q
what is an example of a mission statement?
A
ikea - “Our vision is to create a better everyday life for the many people”
11
Q
what are three criticisms of mission statements?
A
Not always supported by the actions of the business.
Often too vague and general or merely statements of the obvious.
PR stunt?
12
Q
what are two business costs?
A
variable and fixed costs
13
Q
what are costs?
A
Amounts that a business incurs in order to make goods and/or provide services.
14
Q
why are costs importance?
A
Drains away the profits made by a business.
Difference between making a good and a poor profit margin.
Main cause of cash flow problems in business.
Change as the output or activity of a business changes
15
Q
what are variable costs?
A
Costs which change as output varies.
16
Q
what is the VC calculation?
A
Change in cost X Change in units.
17
Q
what are three examples of variable costs?
A
Raw materials
Bought-in stocks
Wages based on hours worked
18
Q
what are fixed/overhead costs?
A
Costs which do not change when output varies.
19
Q
what are fixed/overhead costs calculations?
A
TC - VC
20
Q
what are three examples of fixed costs?
A
Rent & rates
Salaries
Advertising
21
Q
what is the turnover calculation?
A
Number of employees leaving during the period/ Average number employed during period x 100
22
Q
what is the total cost calculation?
A
Fixed costs (FC) + Variable costs (VC)
23
Q
what is the turnover calculation?
A
Number of employees leaving during the period/ Average number employed during period x 100
24
Q
what are the different forms of business?
A
sole traders
private limited companies and public limited companies
private sector and public-sector organisations
non-profit organisations such as charities and mutuals.
Issues with different forms of business include:
unlimited and limited liability
ordinary share capital
market capitalisation
dividends.
25
what/who are sole traders?
- An individual owns the business on their own.
- Can employ people but the individuals are not business owners.
- Sole Traders own all of the business assets personally and are personally responsible for the business debts as they have Unlimited Liability.
26
what are the advantages of operating as a sole trader?
- The lack of legal restrictions as they will not face a lengthy setting up period or incur expensive administration costs.
- Quick & easy to set up - business can always be transferred to a limited company once launched.
- Simple to run - owner has complete control over decision-making.
- Easy to close/shut down.
27
what are the disadvantages of operating as a sole trader?
- Full personal liability - "unlimited liability" and may be forced to sell personal possessions or use personal savings to meet those debts.
- Harder to raise finance - sole traders often have limited funds of their own and security against which to raise loans.
- The business is the owner - the business suffers if the owner becomes ill, loses interest etc.
28
what is a Private Limited Company (Ltd)?
- Tend to be relatively small businesses but can be big ie. Littlewoods & Reebok
- Shares can only be transferred "privately" and cannot be administered to the general public.
- Are often family businesses owned by members of the family or close friends.
- Directors of the firm are normally shareholders and are involved in running the business.
29
what are the advantages associated with becoming an LTD?
- Shareholders have limited liability and are prepared to risk their money than in a partnership.
- More capital can be raised as there is no limit on the shareholders.
- Control of the company cannot be lost to outsiders.
30
what are the disadvantages associated with becoming an LTD?
- Profits have to be shared out among a much larger number of members.
- There is a legal procedure in setting up the business - this takes time and money.
- If one shareholder decides to sell their shares it may take some time to find a buyer.
31
what is a Public Limited Company (Plc)?
- The shares of this company can be bought and sold on the public stock exchange.
- Limited Liability.
32
what are the advantages associated with becoming a PLC?
- Huge amounts of money can be raised from the sale of shares to the public.
- Production costs may be lower as firms may gain economies of scale.
- Easier to raise finance as financial institutions are more willing to lend to plcs.
33
what are the disadvantages associated with becoming a PLC?
- The setting up costs can be very expensive - running into millions in some cases.
- Since anyone can buy their shares, it is possible for an outside interest to take control of the firm.
- Accounts are published to the public so competitors may use them to their advantage.
34
what is an unincorporated business?
what do they operate mainly as?
The owner is the business - no legal difference.
Unlimited Liability - all losses and debts of the business.
This adds to the risk of operating as a sole trader.
35
what is an incorporated business?
what do they mainly operate as?
Limited Liability - There is a legal difference between the company and the owners (Separate Legal Entity) and shareholders can only lose the value of their investment, not the company's debt.
Incorporated businesses mainly operate as:
Private Limited Companies
Public Limited Companies
36
what are Private Sector Organisations?
Are operated and owned by private individuals and companies.
Private sector businesses are generally run "for profit" - to earn returns for the business owners (e.g. shareholders)
37
what are Public Sector Organisations?
Are owned and run on behalf of the public, either by the Government itself, or by organisations who are funded by and report to Government.
- Exist to provide goods and services to the public using public funds.
- (e.g. RBS (nationalised), Network Rail)
- These are funded by central & local government, but may still levy charges for some services (e.g. the NHS
38
what are Non-profit Organisations such as charities and mutuals?
Not every business organisation exists to earn profits for its owners.
Other organisations engage in business-related activities, but their aims and objectives are different.
Common examples of "not-for-profit" organisations are:
- Mutual businesses
- Social enterprises
- Charities
39
what are Mutual Businesses?
Mutual businesses don't have shareholders or other owners.
- They exist only to serve their "members".
Halifax Building Society
Nationwide Building Society
- were operated on behalf of members who had taken out mortgages or held savings accounts there.
40
what are Social Enterprises?
Is a proper business that makes its money in a socially responsible way.
- These ventures are not necessarily formed to reinvest all profits into the communities.
Social entrepreneurs can make a good profit themselves. - However, their business model is also designed to benefit others.
Social enterprises compete alongside other businesses in the same marketplace, but use business principles to achieve social aims.
- E.G - the Eden Project.
41
what are charities?
Many charities undertake business activities.
- These range from running high street charity shops to operating services and fund-raising events.
Charities have to ensure that the proceeds earned from these activities are spent in accordance with the stated aims of the charity.
Their activities are regulated by the Charity Commission.
42
what is a share?
An individual part of the issued share capital of a company.
43
what are Dividends?
Payments made to shareholders by the company from earned profits.
Amount paid is "per share" e.g - £1 per share held.
44
what is Capital Growth/Gain?
Increase in value of business = Increase in value of share price.
Only realised when share(s) sold.
No guarantee that share holding will increase in value.
45
what are examples of Shareholder Rewards?
Annual dividend payments
Rise in the value of shares. (Capital Growth/Gain)
46
what is a Share Price?
The cost of a company's shares.
Determined by demand for a share > supply (more buyer than sellers) then share price should rise.
A falling share price indicates excess supply (more sellers than buyers).
47
what is the Share Price of a Private Company?
Initially set when shareholders "subscribe" for their shares
Thereafter only determined when shares are bought or sold
No active market in the shares of a private company - so hard to judge current value
48
what is the Share Price of a (quoted) Public Company?
Highly transparent - displayed publicly, in real-time .
All trades are disclosed (how many bought/sold and for what price.
Share prices widely published and tracked.
49
what are Factors that influence a PLC's Share Price?
- Within the Company's Control
Financial Performance
Dividend Policy
Management Reputation.
-Outside Control
State of the economy
General market sentiment
Potential for takeover
50
what are Profit Warnings?
Unexpected warnings indicating that market expectations will not be met almost always resulting in significant fall in share price.
51
what is Market Capitalisation?
Represents the total market value of the issued share capital of the company.
52
what is the Market Capitalisation Calculation?
Number of issued shares x current share price
53
what is Revenue?
The sales value of what a business actually sells.
54
what is the revenue calculation?
Selling price x Quantity sold
55
what is the definition for Demand?
The quantity that customers will buy at different prices.
56
what are the three main methods of raising equity? (Source of Equity Finance)
(1) Retained profits: i.e. retaining profits, rather than paying them out as dividends. This is the most important source of equity
(2) Rights issues: i.e. an issue of new shares. After retained profits, rights issues are the next most important source
(3) New issues of shares to the public: i.e. an issue of new shares to new shareholders. In total in the UK, this is the least important source of equity finance
57
3.2 - MANAGEMENT, LEADERSHIP AND DECISION MAKING
58
what is McGergor's Theory X and Theory Y?
X - Lazy dislike work (Authoritarian)
Y - Enjoy work and enjoy responsibilities (Democratic)
59
what is Autocratic Leadership?
Making managerial decisions without consulting others.
60
what is Paternalistic Leadership?
Leader makes decisions but takes into account the welfare of employees
61
what is Democratic Leadership?
Managers work with employees to make decisions.
62
what is Laissez-faire Leadership?
Leaves much of the business decision-making to the workforce - a 'hands off' approach and the reverse of the autocratic style
63
what is the Role of Managers?
Senior Management :
• e.g board of directors
• set corporate objectives and strategic direction
• board is responsible to shareholders; led by the CEO
Middle Management :
• accountable to senior management
• run business functions and departments
Junior Management :
•supervisory role, accountable to middle management
• monitor and control day to day tasks.
64
what are the Main Roles of Managers?
1. Set Objectives - ie sales targets by product and territory.
2. Analyse Performance - sales performance compared with last year & budget.
3. Review Performance - individual appraisals for each sales person.
4. Make Decisions - where and how to spend the promotional budget.
5. Lead Others - motivate, encourage and inspire the sales team!
65
what is the Tannenbaum Schmidt Continnum?
Tells - makes decisions & tells staff about it
Sells - decision to his staff
Consults - identifies problem and presents it to the group.
Joins - defines the problem and passes on the solving & decision making to the group.
66
what is the Blake Mouton Managerial Grid?
1st (Task) 2nd (People)
1-1 Low Concern for Task & People
- Impoverished Management
• minimal effort on management.
1-9 Low Concern for Task & High for People
- Country Club Management
• focus on creating safe comfortable working environments.
5-5 - Middle of the Road Management
• compromises made to achieve acceptable performance.
9-9 - High Concern for Task & People
- Team Management
• feel valued & involved is decision making.
• Theory Y
9-1 High Concern for Task & Low People
- Task Management
• workers have to complete tasks nothing else.
• Theory X
67
what is your Intuition/hunch in decision making?
Gut feeling and experience
68
what is the Scientific Approach?
based on data and analysis.
69
what is the Scientific Approach Examples?
- Decision Trees
- Dynamic Pricing
- Investment Appraisal
- ARR
- NPV
- Payback Period
70
what are the Scientific Approach Benefits?
- Data driven = evidence based (reliable)
- Removes some subjective judgment form decisions ie Investment Appraisal Techniques.
71
what are the Scientific Approach Drawbacks?
- Doesn't guarantee the correct decision
- May ignore crucial aspect of business experience
72
what is Opportunity Cost?
The cost of missing out on the next best alternative.
The benefits that could have been gained by taking a different decision.
73
Why opportunity cost is important?
Opportunity cost shows that a choice must be made when making a decision because resources are too scarce to meet all our wants (because wants are unlimited, but resources are limited)
74
what is a Decision Tree?
Mathematical model used to help managers make decisions when faced with choices.
Aids in decision making.
75
How does a decision tree work?
Uses estimates and probabilities to calculate likely outcomes.
Calculating these estimates helps to decide whether the net gain form a decision is worthwhile.
76
what is Expected Value?
Multiplying the financial result by its probability.
77
what is Net Gain?
Expected value - initial cost of decision
78
what is a Stakeholder?
Any individual who has a vested interest in the activities and decision making of a business.
79
what are Stakeholder Examples?
Owners
Society
Suppliers
Customers
Managers
Government
Employees
80
what are Shareholders/Owners Interest?
ROI & Profits + Dividends
Success and growth of the business
81
what are Managers & Employees Interest?
Rewards icl Pay & Financial Incentives
Job Security & Working Conditions
Promotion
Job Satisfaction
Motivation
82
what are Customers Interest?
Value for money
Product quality and customer service
83
Stakeholder - Suppliers Interest
Continued profitable trade with the business
Financial Stability
84
Stakeholder - Banks & Other Finance Providers Interest
Repay Loans or Investments
Profitability & Cash Flows of the business
85
Stakeholder - Government Interest
Taxes (VAT)
Jobs
Compliance with legislation
86
Stakeholder - Society Interest
Noise & Pollution
Creating & Retaining jobs
87
Stakeholder Mapping
Top 1. High Level of Stakeholder Interest
2. Low Level of Stakeholder Interest
High Level of Stakeholder Power
(1) - key players take notice & engage directly with them .
(2) - keep them satisfied
Low Level of Stakeholder Power
(1) - communicate regularly with them
(2) - communicate only when necessary
88
3.3 DECISION MAKING TO IMPROVE
MARKETING PERFORMANCE
89
what are Marketing Objectives?
Goal or target a company wants to accomplis
90
Aldi (Marketing Objective Example)
2019 - 8.1% Market Share of the UK Grocery Market
- Grocery Sales
91
Walkers (Marketing Objective Example)
Sales Volume - 2017 accumulated 77 million sold kg SV of crisps
92
Types of Marketing Objectives
- Sales Volume
- Sales Value (revenue)
- Sales Growth (%)
- Market Share (%)
- Brand Loyalty/Awareness
93
Value of setting marketing objectives
- Aligned with corporate objectives
- Provide a focus for marketing decision making
- Provide incentives for marketing team and a measure of success / failure
- Establish priorities for marketing resources and effort
- Way of measuring marketing activity performance
94
Potential problems with marketing objectives
- Fast-changing external environment
• changes in legislation impacting the whole market .
• new competitor enters the market.
- Potential conflict between marketing objectives
• trying to increase market share by cutting prices may damage objectives for brand perception.
- Easy to be too ambitious with marketing objectives
• growing market share without putting necessary resources in place to achieve it.
95
Internal Influences in Marketing Objectives
Corporate objectives
Finance - profitability, cash flow, liquidity
Human resources - quality and capacity of the workforce
Operational issues - efficiency/ productivity and quality to achieve revenue objectives
Organisational/ Business culture - ie marketing orientated culture is constantly looking for ways to meet customer needs
96
External Influences in Marketing Objectives
Economic Environment - Demand ie rate of economic growth will impact demand.
Competitor Actions - Competitor Response
Market Dynamics - Slow market is less likely to support an objective of significant revenue growth or new product development.
Technological Change - Rapid Technological changes shortening product life cycle.
Social and Political Change - Changes to legislation may create or prevent marketing opportunities.
97
Marketing Research - Primary
Data collected firsthand for a specific research purpose.
98
Primary Research Examples
Focus Groups
Interviews
Surveys
Mystery Shoppers
Product Testing & Trial
99
Primary Market Research Advantages
Fit for purpose - directly focused to research objectives.
Tends to be up to date.
More detailed insights - particularly customer views.
100
Primary Market Research Disdvantages
Time consuming and often costly to obtain.
Risk survey bias - research samples may not be representative of the population thus lacks validity (Sampling)
101
Marketing Research - Secondary
Data that already exists and which has been collected for a different purpose.
102
Secondary Research Examples
Sales Transactions
Big Data
Analytics
103
Secondary Market Research Advantages
Often free and easy to obtain
Good source of market insights
Quick to access and use
104
Secondary Market Research Disdvantages
Can quickly become out of date
Not always tailored to specific research needs
Specialist reports often quite expensive
105
Quantitative Research
Concerned with data.
• Larger Samples = more statistically valid
• Telephone
• Postal
• Face-to-face
• Online
106
Quantitative Research Advantages
Data easy to analyse
Numerical data provides insights into relevant trends
Can be compared with date from other sources e.g competitors, history
107
Quantitative Research Disadvantages
Focuses on data rather than explaining why things happen
Doesn't explain the reason behind numerical trends
May lack reliability is sample size and method is not valid
108
Qualitative Research
Based on opinions, attitudes, beliefs and intentions.
Aims to understand why customers behave in a certain way of how they may respond to a new product or service.
- Focus Groups
- Interviews
109
Qualitative Research Advantages
Useful insights for a business - focus on understanding customer needs
Can highlight issues that need addressing e.g why customers don't buy
Effective way of testing elements of the marketing mix - new branding, promotional campaigns.
110
Qualitative Research Disadvantages
Expensive to collect and analyse - requires specialist research skills
Based around opinions - always a risk that sample is not representative
111
Focus Group
- Group of individuals are led in discussion by a professional consultant in order to gather opinions on and responses to candidates and issues.
112
Market Mapping (Key Model)
(book)
illustrated the range of positions that a product can take in a market based on two dimensions that are important to customers
113
Common “Diminensons” of a Market Positioning Map
- Low & High Price
- Basic & High Quality
- Low & High Volume
- Necessity & Luxury
114
Advantages of a Market Positioning Map
- Helps spot gaps in the market
- Useful for analysing competitors
- Encourages use of market research
115
Disadvantages of a Market Positioning Map
- Just because there is a “gap” doesn’t mean there is demand
- Bit a guarantee of success
- How reliable is the market research?
116
Market Research - Sampling
Gathering data from a small group of the target population in which the results should be representative of the whole population.
117
Benefits of Sampling in Market Research
- Can provide useful research insights
- Using sampling before making marketing decisions can reduce risk and costs
- Sampling is flexible and relatively quick.
118
Drawbacks of Sampling in Market Research
- Biggest risk = sample is unrepresentative of population- leading to incorrect conclusions.
- Risk of bias in research questions
- Less useful i’m market segments where customer tastes & preferences are changing frequently.
119
Correlation Variables
IV - what causes the DV to change (sun/weather)
DV - influenced by IV (ice cream)
120
Positive Correlation
When the IV increases in value so does the DV
121
Negative Correlation
IV increases in value the DV falls in value
122
No Correlation
No discernible relationship between the IV & DV
123
Strong or Weak Correlation
- Line of best fit indicates strength of the correlation
- Strong - little room between data points and the line
-Weak - data points a spread quite far from the line
124
Confidence Intervals
The percentage probability that an estimated range of values in fact includes the actual value being estimated.
- Estimating or predicting future events
- Evaluates the reliability of a particular estimate
- Reflects how confident they should be in their estimate and whether or not to act on them
125
Examples of Confidence Intervals
1. Quality Management
• percentage reliability of machines
• chance that quality control samples will detect issues.
2. Market Research
• statistical estimates for sales forecasting
• reliability of data from customer surveys
126
Price Elasticity of Demand
The quantity of a product demanded changes in response to a change in price.
127
PED Calculation
% change in quantity demanded
————————————————
% change in price
128
Interpreting Price Elasticity of Demand (PED)
1. Price Elastic (more than 1) - change in demand is more than the change in price.
-overall revenues would increase with price cut. -overall revenues would fall with a price increase.
2. Price Inelastic (less than 1) - change in demand in less than the change in price.
- opposite of PED
3. Unitary Price Elasticity (exactly 1) - change in demand = change in price.
129
Factors influencing PED
1. Brand Strength - products with strong brand loyalty and reputation tend to be price inelastic.
2. Necessity - The more necessary the product the more demand tend to be inelastic.
3. Habit - products that are demanded and consumed as a matter of habit tend to be price inelastic.
130
Income Elasticity of Demand (YED)
The quantity of a product demanded is affected by a change in income.
131
YED - Calculation
% change in quantity demanded / % change in income.
132
Income Elasticity - Luxuries & Necessities
Luxuries -
• Income elasticity more than 1
• As income grows, proportionally more is spent on luxuries.
e.g
Consumer Goods
Expensive Holidays
Branded Goods
Necessities -
• Income elasticity less than 1 but more than 0
• As income grows, proportionally less is spent on necessities.
e.g.
Staple Groceries (e.g milk)
Own-Label Goods
133
Interpreting Income Elasticity of Demand
• Most normal products
- rise in consumer income will result in a rise in demand
- a fall in consumer income will result in a fall in demand.
• Extent of change (elasticity)
- this will vary depending on the type of product (e.g luxury v necessity)
134
Inferior Goods (negative income elasticity)
- As income rises demand actually falls.
• YED is negative (less than 0)
• Why does demand fall?
- consumers switch to better alternatives
- substitute products become affordable
135
Technology and Marketing Decision Making
