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Business > Business unit 1 > Flashcards

Business unit 1 Flashcards

revise advantages and disadvantages of each topic

1
Q

mission statements advantages

A

-communicate goals/vision to stakeholders (employees, cutsomers, investors, ect)
-clarify business purpose- this helps to define strategic direction

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2
Q

mission statement disadvantages

A

-Can appear vague and insincere-demotivating
-may not be reflected by the actions of the business-tarnish brand image, customers lose faith in the business
-wasteful of resources as it is time consuming-opportunity costs
-can be too optimnistic/unrealistic

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3
Q

falls in exchange rates advantages

A

increase price competitiveness abroad as it is cheaper for other countries to import
increased sales

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4
Q

disadvantages of a fall in exchange rates

A

importing more costly- results in lower profit
reduced purchasing power abroad- may need to seek domestic suppliers
higher costs

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5
Q

Advantages of cost leadership (porter’s matrix)

A

increased market share (take advantage of price elastic demand)
businesses can create a barrier to entry by using competitive pricing
in order to achieve cost leadership business have to streamline their operations, leading to increased efficiency and less waste

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6
Q

disadvantages of cost leadership (porter’s matrix)

A

limited profit per item R&D so limited innovation
quality concerns
vulnerable to market change e.g. a larger competitor who can take advantage of economies of scale

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7
Q

advantages of differentiation (porter’s)

A

premium pricing due to reduced price sensitivity
brand loyalty by meeting customer needs
increased profitablity

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8
Q

disadvantages of differentiation (porter’s matrix)

A

vulnerable to changes in consumer preferences
risk of imitation by new entrants
costly due to investment in R&D

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9
Q

Advantages of cost focus

A

strong position in the market due to niche market dominance (customer loyalty)
reduced competition

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10
Q

disadvantages of cost focus

A

risk of lager competitors
limited growth potential due to small market size and limited funds for R&D

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11
Q

advantages of differentiation focus

A

-premium pricing
-brand loyalty

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12
Q

disadvantages of differentiation focus

A

-limted sales potential due to small market
-risk of larger competitors

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13
Q

advantages of portfolio analysis

A

-effective resource allocation- prioritize investments in products based on Market share and growth potential
-tool for performance evaluation
-balanced product mix

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14
Q

disadvantages of portfolio analysis

A

limited predictive value
ignores external factors/oversimplified- strategies may not suit the market environment

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15
Q

advantages of SWOT analysis

A

helps allocate time and resources more effectively by focusing on strengths and solving weaknesses
helps develop strategies to improve market positioning (prioritise strengths and identify threats)- inc competitiveness
identify opportunities

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16
Q

disadvantages of SWOT analysis

A

risk of subjective interpretation
usefulness dependent on how data is used by managers
risk of subjective interpretation (qualitative)

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17
Q

porter’s five forces advantages

A

identify potential threats in the competitive environment
understand how to maximise competitive advanatges
improve market position and power to improve profitability

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18
Q

Organic growth advantages

A

avoid potential diseconomies-controlled growth
avoid culture clashes
less capital needed than inorganic

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19
Q

disadvantages of organic growth

A

slower than inorganic growth
limited potential grwoth due to market size

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20
Q

advantages of inorganic growth

A

exploit synergies
enter new markets
faster than organic
expand assets-stronger financial position

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21
Q

disadvantages of inorganic growth

A

risk of culture clashes
resource intensive
alienates existing customers

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22
Q

advantages of growth in companies

A

economies of scale
inc. market share
higher revenue

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23
Q

disadvantages of growth in companies

A

investment and marketing costs
loss of flexibility
communication issues-inefficiency, leading to diseconomies

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24
Q

advantages of sales forecasting

A

stock management-prevent overstocking or stockouts, reducing associated costs and improving reliability leading to an improved customer experience

gaining finance- reliable forecasts=more attractive to potential investors, banks more willing to provide loans

budgeting- improve cash flow management and therefore financial stability, increasing satisfaction of shareholders

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25
Q

Advantages of qualitative forecasting

A

useful for new products when there is little accurate or predictable historical data available

useful for markets subject to wide fluctuations in demand

useful for dynamic markets

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26
Q

disadvantages of qualitative forecasting

A

subject to bias means predictions can be skewed/inaccurate
lack of precision in comparison to quantitative methods- does not provide specific numerical estimates which may reduce the condfidence of stakeholders
may be difficult to reach a consensus due to combining multiple opinions

27
Q

Advantages of the simple payback method

A

simple to calculate and understand
useful when technology changes rapidly so the cost of the investment can be recovered before new model is designed
cash flow management-focuses on recovering the inital investment as fast as possible so it can contribute positively to cash flow sooner

28
Q

disadvantages of ARR

A

time value ignored so it does not consider the opportunity cost of the investment
does not focus on recovering the initial investment, unlike simple payback
ignores cash flows (only focuses on profitability) so could create a misleading image of a business’ financial position

29
Q

advantages of decision trees

A

may reveal options that hadn’t previously been considered-take advantage of market opportunites
forces managers to consider risks associated with their choices, increasing chances of success
quantitative approach, meaing it requires deep research to be carried out. decisions should be well informed.

30
Q

advantages of critical path analysis

A

identifies the shortest time possible to complete a project, reducing the delay of bringing a project to the market- seize market opportunites in dynamic markets

improve resource allocation- identifies floats so resources can be rediretced where needed most, improving capacity utilisation

inventory management-resources can be ordered when needed, reducing costs
contingency management-identify the implication of delays on the rest of the project

31
Q

advantages of contribution analysis

A

contribution costing can be used to evaluate costs of production and thus choose more profitable ones (contribution-fixed costs)

contribution pricing can be used to set prices which exceed variable costs, ensuring a profit is made

32
Q

disadvantages of contribution analysis

A

contribution costing could encourage short termism
contribution pricing ignores fixed costs so should be used by a business with low fixed costs or that knows through experience that they will be covered

33
Q

How to calculate simple payback

A

Step 1 - Divide the initial outlay by the additional expected net cash flow
e.g. 20,000/30,000=6.67 years
Step 2 - Convert the outcome to years and months
12 month*0.67 =8 months
Payback period = 6 years and 8 month

34
Q

How to calculate average rate of return

A

average anual return (profit per year)/initial outlay x100

35
Q

How to calculate net present value

A

Step 1 - Calculate the discounted cash flow for each year by multiplying the net cash flow by the discount factor
Step 2 - Add together the discounted cash flow values for each year, including Year 0

36
Q

Advantages of a strong corporate culture (6)

A

1.provides a sense of identity for employees-they feel part of the business- flexible when the company is having difficulties
2.improved teamwork-workers identify with other employees
3.increased commitment of employees to the company-reduced labour turnover
4.motivation-increased productivity
5.employees understand what is going on around them-prevents misunderstandings
6.control

37
Q

evaluation of strong corporate culture

A

does not guarantee success e.g. rigid cultures may make it difficult to respond to changes in the market

38
Q

Disadvantages of a weak corporate culture

A

higher costs as the business needs to implement a range of systems to create worker alignment
poor quality of customer service, which may reflect badly on the business
inconsisent and poor performance

39
Q

advantages of role culture

A

employees understand exactly what is expected of them
well defined processes and procedures to follow
employees have security and predictability
allows a business to maintain its current position

40
Q

disadvantages of role culture

A

difficulty to adapt in a changing environment could lead to failure

41
Q

advantage of power culture

A

quick and responsive to change

42
Q

disadvantages of power culture

A

competitive atmosphere among employees
employees dissatisfied

43
Q

advantages of task culture

A

able to adapt to change
power lies with those with expertise-motivation
employees are compliant

44
Q

disadvantages of task culture

A

reliant on team work and communication
employees must be able to work independently

45
Q

advantages of person culture

A

employees are self-motivated so need little guidance
high level of expertise
flexible

46
Q

disadvantages of person culture

A

employees may be difficult to control as they may believe themselves to be superior to the business

47
Q

disadvantages of sales forecatsing

A

based on past data which may not reflect future results because of the range of external influences that can affect future inflows
requires skill-it can be challenging and time consuming to select the most appropriate data, especially for smaller businesses lacking experience
interpretation may be biased due to experience bias and competing priorities of stakeholders

48
Q

disadvantages of the simple payback method

A

does not consider the profitability of investments like ARR
does not consider time value of investments
does not consider future cash inflows
may encourage a short-termism approach as potentially lucrative investments may be dismissed because they take longer to pay back than others

49
Q

Advantages of discounted cash flow

A

Helps investors make decisions-considers all expected future cash inflows, providing a comprehensive assessment of a company’s value.
flexibility and scenario analysis. helps with contingency planning as discount rates can be adjusted depending on financial market changes
considers time value=more accurate than other methods

50
Q

disadvantages of discounted cash flow

A

complicated to interpret and calculate-may not be suitable for new less experienced businesses
does not account for uncertainty/events that ay impact future values
highly sensitive-selecting the wrong discount rate can significantly impact future values

51
Q

Advantages of average rate of return (ARR)

A

focus on profitability means it is useful for increasing shareholder’s faith in the business
helps with strategic decision making-easy to compare percentage returns with other investments
considers all the net cash flows generated by an investment over time so useful for seeing the long-term picture

52
Q

disadvanatges of decision trees

A

time-consuming. the delay in implementing the decision may affect the reliability of expected values
based on estimates therefore could be biased
does not consider impact on human resources of a decision or other qualitative elements and this may impact the probability of success
estimates may not take full account of external factors
they cannot include all possible eventualities

53
Q

disadvantages of critical path analysis

A

resources may not prove to be as flexible as hoped when managers identify float periods
relies on accurate estimates and forecasts
can be difficult to use as it requires project managers to be skilled and have experience working with complicated plans

54
Q

(stakeholder objectives) What are shareholder’s objectives + consequence of these objectives not being met

A

-maximise shareholder value (a measure of company performance that takes into account the size of dividends and the share price).
-consequence: investors may sell their shares. this may result in a fall in the share price and make the company at risk of a takeover.

55
Q

(stakeholder objectives) What are employees’ objectives + consequence of these objectives not being met

A
  • according to Herzberg, they want the business to be growing and profitable so their financial rewards increase and they feel secure in their jobs (this contributes to hygiene factors)
    -however, employees also need motivation factors e.g. promotion, personal development.
    -employees may become demotivated and turnover may increase if not met
56
Q

(stakeholder objectives) What are managers’ objectives and the consequence of these not being met?

A

-they to meet the companies goals and objectives as their remuneration is linked to business performance
-They want to maximise profits and minimise costs while ensuring that the company operates efficiently
-failure to meet these objectives may reduce shareholder’s confidence in the business and mean they lose out on performance related pay.

57
Q

(stakeholder objectives) What are customers’ objectives and the consequence of them not being met?

A

-receive high-quality products or services at a fair price
-Customers also want good customer service
-If these needs are not met, customers will spend their money elsewhere. In competitive markets only those businesses that meet customer needs are likely to survive.

58
Q

(stakeholder objectives) What are suppliers’ objectives and the consequence of them not being met?

A

-they want the business to pay what it owes promptly and in full
-Suppliers often want to be able to establish long-term arrangements with customers to improve business stability
-if their needs are not met business relationships may deteriorate so the business could lose out on exclusive deals/preferential treatment

59
Q

(stakeholder objectives) What is the government’s objectives?

A

-they want the business to grow and make a profit (economic benefits e.g. more jobs)
-pay taxes
-comply with legislation to ensure public/consumer safety

60
Q

(stakeholder objectives) What are environmental groups’ objectives and the consequence of them not being met?

A

-they want the business to demonstrate environmentally friendly behaviour
-if their needs are not met the business may be seen as unethical. this could damage its reputation.

61
Q

(stakeholder objectives) What are the local community’s objectives and the consequence of them not being met

A

-they want businesses to contribute to the success of the community and be good corporate citizens e.g. by creating employment or supporting local organisations
-not meeting these could cause damage to the company’s local reputation and a loss of local support.

62
Q

why should a business follow a stakeholder model (2)

A

-reduce pressure from stakeholders, the media and the wider public to be more socially responsible
-they can portray themselves as following this model to fulfil shareholder needs by increasing sales, revenue and profit

63
Q

why should a business follow a shareholder model?

A

-increased focus on growth and profit when making business decisions due to the influence of shareholder’s objectives
-satisfy shareholder’s objectives so they don’t sell their shares

64
Q

disadvantage of using a stakeholder model

A

-This is likely to decrease profits as competing stakeholder needs may require solutions that involve increased costs

Business (3 decks)

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