Business Unit 3 Flashcards

Question 1

Q

what are business aims

Answer

A

These are the things the business wants to achieve in the long term — its purpose or reason for being.

Question 2

Q

difference between business aim and business objectives

Answer

A

The aims of a business are less specific than its objectives and can be expressed as a vision

Question 3

Q

define vision

Answer

A

a view of what the corporation wants to be like in the future

Question 4

Q

4 examples of information that would be included in a mission statement

Answer

A

· the markets in which it operates · what its key commercial objectives are · in what way it values its stakeholders · what its ethics involve (i.e. what it believes to be good or correct).

Question 5

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explain the main elements of a mission

Answer

A

Purpose — a mission statement should outline why the business exists. It should communicate what the business does, for whom and why.

Values — businesses are likely to state the corporate values that they emotionally invest in. These might include qualities such as integrity, sustainability, innovation and quality. The values held by a corporation are likely to influence its culture

· Standards and behaviour — some mission statements may communicate a business's commitment to high standards. For example, always conducting ethical behaviour (i.e. behaviour that is good or correct).

· Strategy — some mission statements may outline how the business will try to achieve its main objective. For example, a car manufacturer may say it is committed to the development of driverless cars to help achieve its aim of making transport as easy and convenient as possible.

Question 6

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benefits of a good mission statement

Answer

A

1) A good mission statement should help guide the decision making of the firm. Running a business can be very complicated. It is very easy to get lost in the small details of business decision making. A good mission statement makes it clear which direction a business should take by reminding the owners and directors why the business exists.

2) Many people may argue that the only purpose of a business is to generate a profit for its owners. However, most employees would like to believe that they go to work to achieve something more than this, A mission statement makes this point.

Question 7

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what are the two reasons why a business makes a mission statement

Answer

A

1) The first is to make a commitment to its customers. A mission statement expresses a promise to customers of what they can expect the business to aim for

2) a mission statement can be used to bring a company's workforce (i.e. all the people who work for a company) together with a shared purpose. Many successful businesses have a mission statement that their employees believe in. This is why a mission statement is important in forming a strong corporate culture

Question 8

Q

what are corporate objectives

Answer

A

the objectives of a medium to large-sized business as a whole

Question 9

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who sets corporate objectives

Answer

A

Corporate objectives are objectives set by senior managers and directors for a company

Question 10

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characteristics of corporate objectives

Answer

A

1) They should be specific to the company, its particular history and vision of the future

2) fit well with its mission statement

3) They should focus mainly on the desired performance and results of the business over time

Question 11

Q

give examples of goals in corporate objectives

Answer

A

They may include goals such as

1) market share

2) profit levels

3) creation of new products or processes,

4) resource usage and scale economies,

5) management of people and ethical behaviours

Question 12

Q

SMART objectives

Answer

A

• Specific means that the objective clearly states what the business is aiming to achieve. It should refer to a particular aspect or function of the business.

• Measurable involves evidence to demonstrate whether or not the objectives have actually been achieved. For this reason, most corporate objectives will have a financial or quantifiable element (i.e. an element that can be expressed by a number). This is because it makes it easier to measure the success of that objective,

• Agreed implies that everyone responsible for achieving the objective is happy with the objective and understands what it means for them. Without an objective being agreed by all those involved, there will be no motivation or commitment to achieve it.

• Realistic ensures that the objective can be met given the resources available and the current market conditions. If an objective is unrealistic, people may begin to ignore it. This means that the objective will not be achieved. This is likely to have a negative impact on the business.

• Time specific gives the stated time frame required to achieve the objectives. All objectives must have a deadline to ensure urgency and a point at which the objective can be assessed

Question 13

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departmental and functional objectives

Answer

A

the objectives of a department within a business

Question 14

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what do departmental and functional objectives include

Answer

A

These set the daily goals that may include human resources, finance, operations, logistics and marketing

Question 15

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relationship of departmental objectives to the objectives hierachy

Answer

A

These all refer back up the hierarchy to the corporateobjectives and mission statement, so that the goals andactivities of the business are consistent. In this way,functional objectives will directly support the corporateobjectives. Business functions should be aligned with one another because they are guided by these corporate objectives.

example - if the operationsdepartment sets a departmental objective to reducewaste by 25 per cent within the next year, it is likelythat this will have to feed into the objectives set by thehuman resources (HR) department. HR will need to ensure all production workers complete a specifictraining programme focusing on quality management

Question 16

Q

objectives hierachy

Question 17

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objectives small businesses set

Answer

A

Small businesses may have a wide variety ofobjectives, such as the following examples:

<ol><li>to ensure that the company breaks even at the end of the tax year</li><li>to improve the firm's liquidity in the next six months</li><li>to increase sales by 10 per cent over the next threeyears</li><li>to increase pre-tax profits by 5 per cent over thenext 12 months</li><li>to hire five new staff with skills in sales andmarketing and build a strong marketing departmentover the next year</li><li>to reduce energy consumption by 2 per cent andcut the use of non-recyclable packaging over thenext three years.</li></ol>

Question 18

Q

objectives large businesses set

Answer

A

the objectives of large firms and multinationalstend to be mostly financial. This is because they havemany stakeholders to satisfy (mainly the shareholders).

example - a supermarketchain such as Carrefour''' might state an objective thatcovers its entire operation: `To increase market share by 5 per cent over the next two years

Question 19

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why do large businesses set more financial objectives

Answer

A

Financial objectives are more objective and quantifiable.Therefore, they are easier to communicate to a widevariety of interested parties

Question 20

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why should mission statements be constantly assessed

Answer

A

mission statements must be constantlyassessed to ensure they have continued relevance forthe business

Question 21

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Limitations of mission statements

Answer

A

<ol><li>Some argue that mission statements are a little unrealisticand too optimistic - As a result, this may have a negativeimpact on employees. For example. employees maybecome demotivated because they know that the missioncannot be achieved. Also, unrealistic mission statementsare not useful to anybody. Therefore, they are a waste ofmanagement time.</li><li>They may also be vague and appear insincere - which might cause stakeholders to see the statement as just a marketing tool or a slogan.</li><li>Sometimes, they are not appropriate - For example, a company with a mission statement that includes respect and honesty would not be supported ifthere were reports of fraud in a business</li><li>Many organisations may have a mission statementthat is appealing to its customers - However, if it is notbelieved and followed by employees, then customersmay soon lose faith in the business</li><li>Not achieving profits for shareholders - On any corporatewebsite, youwill findobjectives relating to corporatesocial responsibility (CSR), ethical behaviours andsustainable business growth. However, businesses may need to consider the balance of the appeal ofsome of these objectives to their customers. This isespecially true if the organisation is not achieving aprofit for shareholders,</li></ol>

Question 22

Q

questions to include in the critical reassesment of a mission statement

Answer

A

<ul><li>Whatis the purpose of the mission statement?</li><li>What audience is it intended for?</li><li>How does the business strategy fit in with its statedmission?</li><li>Are the aims and objectives realistic and achievable?</li></ul>

Question 23

Q

define mission statement

Answer

A

abrief statement written by the business,describing its purpose and objectives, designed to cover its present operations

Question 24

Q

what is strategy

Answer

A

This planning to achieve corporate objectives is known as strategy

Question 25

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two parts of business strategy

Answer

A

<ol><li>The first part of the process involves using analytical tools to understand the current position of the business in the market. - A firm might begin this analytical process with aSWOT analysis</li><li>The next part of the process involves evaluating where the business wants to be - a Five Forces Analysis</li></ol>

Question 26

Q

corporate strategy

Answer

A

corporate strategy - the plans and policies developed to meeta company's objectives. It is concerned with what range of activities the business needs to undertake in order to achieveits goals, It is also concerned with whether the size of thebusiness organisation makes it capable of achieving theobjectives set

Question 27

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Benefit of a succesful strategy

Answer

A

A successful strategy will givethe firm an advantage in the competitive market place, Itwill help to fulfil stakeholder expectations

Question 28

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process of strategy planning

Answer

A

<ol><li>The process ofstrategic planning involves key members of managementlooking critically at what the business has done before(i.e. assessing what it has done well and what it hasdone badly).</li><li>They look at what the business may needto do in the future in order to achieve its corporateobjectives.</li></ol>

Question 29

Q

tools for strategy plan

Answer

A

<ol><li>Ansoff's Matrix</li><li>Porter's Strategic Matrix</li><li>portfolio analysis.</li></ol>

Question 30

Q

who is ansoff and what is his matrix

Answer

A

Igor Ansoff was an applied mathematician and businessstrategist. He developed Ansoff's Matrix as a strategictool to help a business achieve growth

Question 31

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why might a business use ansoffs matrix

Answer

A

Ansoff's Matrix is a useful decision-making tool because it allows the owners of a businessto consider a number of factors that will determine itscorporate strategy:

<ul><li>the level of investment in existing and new products</li><li>the exploitation of different markets</li><li>the growth strategy for the business</li><li>the level of risk the business is willing to accept.</li></ul>

Question 32

Q

whats the key issue that ansoffs matrix highlights

Answer

A

The key issue is that risk becomes greater if a business moves away from its most importantexisting products and consumers. in other words, thefurther a business gets from the top left-hand corner ofthe matrix, the greater the risk

Question 33

Q

what are the 4 strategies in ansoffs matrix

Answer

A

<ol><li>market penetration</li><li>product development</li><li>market development</li><li>diversification</li></ol>

Question 34

Q

what is market penetration and what are its benefits

Answer

A

market penetration - using tactics such as the marketing mix toincrease the growth of existing products in an existing market

<ul><li>increase the brand loyalty of customers so that theyuse substitute brands less frequently, An examplemight be adopting a loyalty scheme, such as theloyalty card introduced by small restaurant chainCasa Brasil. This card offers points that provides holders with discounts at the restaurants.</li><li>encourage consumers to use the product moreregularly, An example might be encouraging peopleto eat breakfast cereal as a night-time snack.</li><li>encourage consumers to use more of the product.An example might be a crisp manufacturerproducing maxi-sized crisp packets rather thanstandard-sized crisp packets.</li></ul>

Question 35

Q

when might a business adopt a market penetration strategy

Answer

A

<ul><li>A business might adopt a market penetration strategy ifit has a successful product and believes that it can makemore revenue from it.</li><li>This is the strategy with the lowestrisk because it involves the lowest level of investment. Inaddition, the business will have a good understanding ofthe product and how the market might respond</li></ul>

Question 36

Q

what is product development and what are its benefits

Answer

A

it is marketing new or modified products inexisting markets

<ul><li>Theconfectionery market is famous for product development,Some businesses have gained a reputation for continuousproduct development and used this strategy to stay ahead of the competition.</li><li>Example - Apple® has achieved thisthrough the iPhone®, iPad® and Apple Watch'</li></ul>

Question 37

Q

when might a business adopt a product development strategy

Answer

A

Thismight be an appropriate strategy to adopt where theproduct life cycle is traditionally short, or where trendsor technology change quickly

Question 38

Q

drawbacks of product development strategy

Answer

A

<ol><li>A strategy of product development requires a lot of investment inresearch and development.</li><li>There may be a high levelof risk in developing new products — it may be that onlyone in five product launches succeed; for those that dosucceed, heavy investment in promotion may be required</li></ol>

Question 39

Q

what is market development and its benefits

Answer

A

market development the marketing of existing products innew markets

<ul><li>USA-based Enterprise Rent-A-Car is one example of abusiness that has adopted a very successful strategy ofmarket development. The car-leasing company's modelwas very successful. However, the business achievedexponential growth (i.e, the rate of growth becamefaster and faster) when it started to locate its branchesat airports.</li><li>This move opened the company up to anentirely different profile of customers, such as flyers and holidaymakers. By 2018, Enterprise Rent-A-Car had over7600 branches worldwide with more than 250 in USairports alone.</li></ul>

Question 40

Q

when might a business adopt a market development strategy

Answer

A

The most basic form of the strategy is to entergeographically new markets

Question 41

Q

drawbacks of market development strategy

Answer

A

<ul><li>This is not always simple.Tastes and preferences may be different in regions ofthe same country, let alone between countries A marketdevelopment strategy relies heavily on understandinglocal habits, tastes and needs.</li><li>Even where market development is appropriate andsuccessful, small changes are often made to suit thenew market. This might be changing the name to bemore acceptable or accessible in a different language or labelling the product differently to meet international laws</li></ul>

Question 42

Q

what is diversification strategy and its benefits

Answer

A

diversification - developing new products in new markets

<ul><li>It enables a business to move away from depending upon existingmarkets and products. Therefore, it allows the companyto spread risk and increase safety. If one product facesdifficulties or fails, a successful product in anothermarket may prevent the overall business facing problems</li><li>Examples of this marketing strategy include themove by Mercedes-Benz " into the market for small,high-volume cars, and the diversification by Virgin®intofinancial services,</li><li>Virgin is one business where the brandhas allowed it to diversify into a range of industries.</li></ul>

Question 43

Q

when might a business adopt diversification strategy

Answer

A

Diversification is adopted by large corporations and conglomerates that have extensive business networks, considerable capital and strong corporate brands.

Question 44

Q

drawbacks of diversification strategy

Answer

A

<ul><li>diversification will take a business outside itsarea of expertise (Le. the area where the business hasspecial skills or knowledge). For this reason, it is thestrategy with the highest risk, This might mean that its performance in new markets is poor compared with more experienced operators</li><li>there may be significant barriers toentering a new industry when diversifying</li></ul>

Question 45

Q

who is porter and what is porters strategic matrix

Answer

A

<ul><li>Porter's Strategic Matrix was developed by Michael Porter, a professor at Harvard Business School</li><li>to identifythe sources of competitive advantage that a businessmight achieve in a market.</li></ul>

Question 46

Q

according to porters strategic matrix why might a business be unlikely to succeed

Answer

A

Porter stated that any businessthat does not adopt one of these three generic strategiesis 'stuck in the middle' and unlikely to succeed

Question 47

Q

what are the three components of porters matrix

Answer

A

<ol><li>cost leadership</li><li>differentiation</li><li>focus</li></ol>

Question 48

Q

what is cost leadership

Answer

A

Cost leadership:This involves striving to be thelowest-cost provider in the market

Question 49

Q

how does a firm using cost leadership strategy compete in a market

Answer

A

<ol><li>increasing profits, while still charging market level prices</li><li>increasing market share, while charging lower prices (still making a profit since costs are reduced).</li></ol>

Question 50

Q

characteristics of a firm being a cost leader

Answer

A

<ol><li>Cost leadership is generally held by one business in the market as it requires having a significant market share in order to achieve the lowest costs.</li><li>A firm will achieve the lowest costs by operating on a large scale and thereforeexploiting economies of scale</li><li>The business will also have a clear focus on reducing costs through negotiation with suppliers, efficiency and streamlining operations)</li><li>A costleader will also offer a basic product in order to minimise costs and limit the options for adding value. The level ofservice and number of available versions of the productwill be minimal and the scale will be associated with massproduction</li></ol>

Question 51

Q

example of a cost leadership firm

Answer

A

<ul><li>Big Bazaar is controlled by Future Group It is alarge and growing retail store with 300 brancheslocated in 100 Indian cities. It operates hypermarkets,discount department stores and grocery outlets. Big Bazaar has a wide product range including homefurnishings, utensils, sports goods, electronics, toys,footwear, men's and women's clothing, luggage, fruits,vegetables and stationery products.</li><li>Big Bazaar employs a low-cost leadership strategy.This means that the retailer sells branded products10-15 per cent cheaper than its rivals. Big Bazaar is a very large retailer and is able to exploit economies of scale. This helps to lower costs significantly. However,the company is very active in finding new and cheapersuppliers. It is constantly trying to find ways oflowering its operating costs.</li></ul>

Question 52

Q

what is differentiation

Answer

A

Differentiation:This involves a business operatingin a mass market with a unique position instead ofthe lowest-cost position

Question 53

Q

how can a business implement a differentiation strategy

Answer

A

A business adopting differentiation will do so through adding value to their products in aunique way. This might include quality, design, brand identity or customer service.

Question 54

Q

benefits and drawbacks of differentiation strategy

Answer

A

<ul><li>+ The advantage of operating under a differentiationstrategy is that the business may be able to charge apremium price if customers value their unique selling point.</li><li>- However, it is difficult to guarantee that the rewards ofdifferentiation will justify the additional costs, For example,differentiation will require good research and developmentas well as effective marketing to highlight the uniquenessto the customer.</li><li>- Differentiation is much easier to copy than cost leadership</li><li>+ unless the differentiation is sustainable anddefensible, For example, a business may be able to get a patent on a design or register a logo as a trademark sothat competitors cannot copy it.</li></ul>

Question 55

Q

example of a company implementing differentiation strategy

Answer

A

One company that has done well by differentiatingits products is Airstream`^-, the US caravan producer. Itproduces iconic luxury caravans. The products are very different from the majority of caravans and recreationalvehicles (RVs) in the global market.

Question 56

Q

what is focus

Answer

A

Focus:This strategy involves targeting a narrow rangeof customers.Ittends to be used by small or very specialist firms

Question 57

Q

two forms of a focus strategy

Answer

A

<ul><li>Cost focus —emphasising cost minimisation withina focused or niche market. The German supermarketchain Aldi^-'⁾ is a good example of this strategy.Although it does not operate as the cost leader inthe market, it is able to offer a focused range of products at very low prices.</li><li>Differentiation focus —following different strategieswithin a focused market. Ferrari:⁹ is an example ofthis strategy. Its high-performance cars are targetedat a very small percentage of the population.</li></ul>

Question 58

Q

benefits of implementing a focus strategy

Answer

A

<ul><li>As abusiness is focusing on a very narrow segment of themarket, it is able to gain an advantage by understandingits customers very well, It can deliver products andservices that are very specific to their needs. As a result,this can create a high level of customer satisfaction and loyalty.</li><li>Also, a focus strategy will result in lesscompetition and higher profit margins.</li></ul>

Question 59

Q

drawback of focus strategy

Answer

A

However, as themarket is very small, a firm adopting this strategy tendsto have low bargaining power with suppliers

Question 60

Q

what is portfolio analysis

Answer

A

portfolio analysis - a method of categorising all the products of a firm (its portfolio) to decide where each one fits within thestrategic plans

Question 61

Q

in portfolio analysis of how products evaluated

Answer

A

The products are then evaluated according to their competitive position and

potential growth rates. This involves a two-step process.

<ul><li>Step 1: Give a full and detailed overview of all of the products in the current business portfolio.</li><li>Step 2 : Look at the performance of each of theseproducts and services by examining:</li><li>current and projected sales</li><li>current and projected costs</li><li>competitor activity and future competition</li><li>risks that may affect performance</li></ul>

Question 62

Q

describe the components in the boston matrix

Answer

A

1 Starsare high-growth products that are strong comparedto those of competitors. Stars require investment, but thehope is that they will become cash cows.

2 Cash cowsare low-growth products with high marketshares. They generate more cash than they consume, and so can provide a return for investors and fundinvestment in other areas.

3 Question marksare products with low market sharesin high-growth markets. They consume a lot of cashbut give little return. However, they have the potentialto turn into stars. Keeping these lines requires a beliefthat there is a potential for growth.

4 Dogsare products with low market share inlow-growth markets. They may break even, butnevertheless take up time and effort with little prospect of future growth. They should be sold or divested

Question 63

Q

Use and benefits of boston matrix

Answer

A

The Boston Matrix may be used to assist a business inidentifying which strategy to adopt.

<ul><li>For example, if afirm believes that it has a 'Star' it may decide to adopta market penetration strategy This is so it can increasesales revenue and maximise market share while theproduct is competitive.</li><li>Similarly, a firm may choose tomove a product out of a low-growth market and target a market with high-growth prospects.</li><li>Or, the matrixcould be used to identify those 'Dogs' that need to bediscontinued. This will help the firm to cut costs andfollow its strategy of cost leadership.</li></ul>

Question 64

Q

difference between strategy and tactical decisions

Answer

A

<ul><li>Strategies set out the long-term direction that a businesswill take to achieve its objectives. Strategy isoften based on a set of principles or guidelines set downby the CEO and board of directors.</li><li>In contrast, tactics areshort-term responses to an opportunity or threat in themarket. Most day-to-day decisions in business are tacticaland involve decision making in response to the currentbusiness conditions. Tactical decisions happen at managerial or even supervisory level</li></ul>

For example, a business mightorganise a two-week sale to help generate cash in orderto improve cash flow.

Answer 64

A

Human resources:

<ul><li>A strategic decision will have along-lasting effect on the workforce. For example, a newgrowth strategy might involve increasing the size of the workforce, recruiting different types of labour or moving existing workers to a new location. People may feel the impact of such measures indefinitely.</li><li>A tactical decisionmay affect people for a short period of time and only a small proportion of the workforce might be affected.For example, an ice-cream manufacturer may decide toopen the factory at weekends to cope with an increasein demand caused by very warm weather. This may only affect some of the workforce, as it is likely that only production workers will be needed, They may be recruitedon a voluntary basis (in many countries workers cannotbe forced to work overtime). Also, once the warm weather has ended, normal working hours are likely to be resumed</li></ul>

Answer 65

A

Physical resources:Physical resources in a businessinclude land, machines, tools, equipment, vehicles, shops,computers, factories and raw materials.

A strategic decision could have quite a wide variety of effects on theseresources depending on the nature of the decision. Forexample, if a business decides to permanently outsourceits transport and delivery operation, it will need to sell off most of its delivery vehicles. This means only a smallproportion of physical resources will be affected, However,if the business decides to develop and launch a newproduct, a larger proportion of physical resources will beaffected, e.g, more research equipment, additional factoryspace or new types of raw materials may be required.

Tactical decisions can also have an impact on physicalresources, but they may not be so dramatic. For example,if a catering company agrees to meet an unusually large order for an event outside of its normal geographicalarea, it may have to lease some extra kitchen equipment,utensils or dining furniture. But since these additionalphysical resources are only leased, they will be returned to the hire company after the event. Therefore, they will not affect the company in the long term.

Answer 66

A

Financial resources:Strategic decisions can havea significant and long-term impact on the financial resources of a business.

Strategy - For example, a company mightraise $200 million by issuing some shares to pay for a planned acquisition programme. Once the shares have been issued, the company will have to meet dividend payments on those shares for as long as the company trades, This is a long-term effect on the finances of the business.

Tactical - In contrast, a tactical decision may onlyhave a short-term effect, For example, a business maydeliberately go overdrawn at the bank because it iswaiting for a delayed payment from a customer. This tactical decision will not have a huge effect on thecompany's finances as the assumption is that once thecustomer pays the debt, the overdraft will be cleared

Answer 67

A

<ol><li>Ansoff's Matrix is a useful tool for a business toidentify its current position and choose an appropriatedirection for the company — the 'what and where tool'.</li><li>In contrast, Porter's Strategic Matrix presentsthree strategies that a business might use to compete in its market — the 'how tool'.</li><li>Similarly, using the Boston Matrix can help tocategorise a firm's products and make informed recommendations on how it should use them forfuture growth</li></ol>

Answer 68

A

An internal audit is an analysis of the business itself and how it operates. It attempts to identify the strengths and weaknesses of its operations

Answer 69

A

<ul><li>In a large business, the internal audit might be conductedby outside management consultants.</li><li>This could help to produce a more independent-minded analysis of thebusiness's situation.</li></ul>

Answer 70

A

The external audit:An external audit is an analysisof the environment in which the business operates, Thebusiness has little or no control over it.

Answer 71

A

<ol><li>the market,</li><li>competition andthe political, economic, social, technological, legal , environmental issues relevant to the business.</li></ol>

Answer 72

A

<ol><li>the size and growth potential of the market</li><li>the characteristics of the customers in the market</li><li>the products on offer</li><li>the pricing structure</li><li>how products are distributed</li><li>how products are promoted</li><li>industry practices, such as whether there is a tradeassociation or government regulation</li></ol>

Answer 73

A

The nature and strength of competitors will be animportant influence on the development of a strategy.

Forexample, it should analyse:

<ol><li>the structure of the industry (including the numberand size of competitors)</li><li>the production capacity and marketing methods ofcompetitors</li><li>how likely it is that there will be new entrants to themarket</li><li>how likely it is that businesses will leave the industry</li><li>the profits of competitors</li><li>competitors' investments programmes, costs,revenues, cash and assets.</li></ol>

Answer 74

A

trade association an organisation whose members are all involved in the same industry or trade. The organisationpursues the interests of these businesses

Answer 75

A

SWOT analysis an analysis of the internal strengths andweaknesses of the business and the opportunities and threatspresented by its external environment. It is an analytical tool that can helpmanagers with complex decisions

Answer 76

A

SWOT analysis might be used by senior managersbefore drawing up a strategic plan. It helps to give anidea of the advantages and disadvantages of a particulardecision.

It might also help to make the current positionof a business easier to understand,

Answer 77

A

These are the positive aspects of abusiness that may be identified from the internal audit.Strengths are what the business is good at — they arewhat help make the business a success.

examples

<ol><li>a respected, intelligent, inspirational and visionaryleader</li><li>a highly motivated and loyal workforce</li><li>a product with a unique selling point</li><li>state-of-the-art production facilitiesa loyal customer base (i.e. the people who buy theproduct)</li></ol>

Answer 78

A

These are the negative aspects of abusiness that may be identified from the internal audit.

Weaknesses are what the business lacks or doespoorly; for example, in relation to its competitors. They are the characteristics that undermine the performance ofa business — perhaps preventing it from growing

examples

<ol><li>a poorly motivated workforce with a high staff turnover (i.e. the rate at which workers leave)</li><li>an organisational structure that has too many layersof management</li><li>a product range that is getting out of date</li><li>poor cash flow and growing debt</li><li>outdated tools and machinery</li><li>a poorly presented and out-of-date website.</li></ol>

Answer 79

A

The external audit should show up whatopportunities are available to the business. These arethe options or openings that the business might be able to exploit — resulting in improvements, such as higherrevenues or lower costs

examples:

<ol><li>a new overseas market opening up following apolitical change</li><li>a fall in the cost of an essential raw material, suchas oil</li><li>low interest rates, which provide cheap finance forinvestment</li><li>a fall in the exchange rate, which will make exportscheaper</li><li>some difficult regulations being abolished</li><li>the failing of a major rival in the market</li></ol>

Answer 80

A

Threats are the possible dangers thathave the potential to damage the performance of thebusiness.

Examples might include:

<ol><li>a new entrant in the market</li><li>a rival employing a new and highly successful CEO</li><li>a probable recession</li><li>new legislation (i.e. laws) aimed at improving therights of employees</li><li>increasing pressure from environmentalists</li><li>a change in social attitudes towards the business'skey product.</li></ol>

Answer 81

A

It can be a powerful way of summarisingand building upon the results of internal and externalaudits, Clearly, it will be a useful tool when developinga corporate strategy, but it may have other uses.

Forexample, it might be used to:

<ol><li>decide which new product to launch</li><li>design a new marketing strategy</li><li>decide whether to outsource a specific businesstask or activity, such as IT</li><li>prepare for a completely new business venture</li><li>plan a restructuring of the business.</li></ol>

Answer 82

A

<ul><li>Finally, by identifying clearly the strengths, weaknesses,opportunities and threats, it may be possible to improvethe performance of a business.</li><li>However, this will dependon the action it takes after carrying out the analysis. For example, performance will only improve if a business acts to remove known weaknesses.</li></ul>

Answer 83

A

the sale of company shares to the public for the firsttime. The shares are then traded on the stock market

Answer 84

A

Sometimes, businesses have to deal with events and issues that are completely beyond their control. These are called external influences and can impacton businesses unexpectedly

Answer 85

A

PESTLE analysis - analysis of the external political, economic,social, technological, legal and environmental factors affectinga business

Answer 86

A

Some parts of the world are politicallyunpredictable. It is important to pay special attention ifbusinesses try to operate in politically unstable countries.However, political factors can also influence businessesin stable countries. The activities of pressure groups can play a role in influencing business activity.

Someexamples of political factors include the following.

<ol><li>Members joining or leaving a trading bloc. Thiscould disrupt financial markets and create a great deal of uncertainty. For example, in 2016, the UKvoted to leave the EU.</li><li>The issue of national security has become a priorityfor many governments. If measures designed toimprove national security restrict the movement of goods, people and capital, this could have either apositive or a negative impact on businesses.</li><li>Pressure groups such as trade unions, which aim toprotect the rights of workers, can affect businesses.For example, they may be able to force up wagesfor their members. This will raise business costs.</li><li>Changes in government. For example, a new government may want to introduce laws which might have an impact on some businesses.</li></ol>

Answer 87

A

The general state of the economy can have ahuge impact on business activity. Since the financial crisisin 2008, a number of countries have suffered a recession.This has made trading conditions very difficult for manybusinesses.

However:

<ol><li>falling unemployment might help to increasedemand for many businesses</li><li>stable prices would create more certainty, whichshould encourage businesses to invest for thefuture</li><li>a strengthening exchange rate might make exportingmore difficult but it might also make importingcheaper</li><li>lower interest rates would make borrowing cheaperand encourage more investment</li><li>some businesses may suffer badly during a recession - Businesses that produce goods and services that are incomeelastic will tend to be worst affected during a recession.These include car producers, house builders, holidaycompanies, computer games companies and 'white goods' companies (dealing with freezers, cookers and washingmachines, etc.). This is because people can postponepurchases of these items until incomes pick up again.</li></ol>

Answer 88

A

Over time there are likely to be changes inthe way society operates. Although social and culturalchanges tend to be gradual, they can still have animpact.

examples

<ol><li>In some countries, greater numbers of people aregoing to university. This could increase the qualityof human resources, which might benefit certainbusinesses.</li><li>The population in many countries is ageing. Thiscould affect demand patterns and create new opportunities for some businesses.</li><li>Increasing migration (i.e. large numbers of peoplemoving from one place to another) might increasethe size of the potential workforce, makingrecruitment easier. It might also provide a boostto demand.</li><li>People appear to be becoming more health conscious. This might create opportunities for certain businesses, such as those selling healthy foods or running fitnesscentres.</li></ol>

Answer 89

A

The rate of technological change seemsto be increasing all the time. Businesses usually welcome technological developments because they can provide newproduct opportunities or help to improve efficiency.

examples:

<ol><li>Changes in technology can shorten productlife cycles. This is because new products arequickly developed to replace ones that use oldertechnology.</li><li>Developments in technology often mean thatbusinesses can replace labour with machines.This is welcomed because human resources areoften said to be the most expensive and difficult tomanage. New technology also lowers unit costs.</li><li>The development of social media has helped toimprove communications between businesses andcustomers. This allows businesses to keep track ofchanging consumer needs.</li></ol>

Answer 90

A

The government provides the legal frameworkin which businesses operate. However, it also directslegislation at businesses to protect vulnerable groups(i.e. groups that are easily hurt or damaged) that might otherwise be exploited. EU businesses are also affectedby EU regulations.

examples

<ol><li>EU legislation can affect tax laws. For example, afew years ago the rules changed so that EU VAT would be chargedin the country where products were bought asopposed to the country where they were sold. Thelegislation only applied to digital products, such ase-books, online courses or downloads.</li><li>Businesses in the food industry are currentlyunder pressure to reduce the amount of sugarand salt they add to products. In some countries,governments have imposed taxes on the use ofsugar in certain products</li><li>In some countries, the government states that itwants to reduce the number of rules and regulationsaddressing business behaviour. This might benefit awide range of businesses.</li></ol>

Answer 91

A

People are increasingly protective of theenvironment; for example, because of the threats posedby global warming. Business activities also sometimesthreaten wildlife and natural habitats.

examples:

<ol><li>Some people prefer to buy environmentally friendlygoods. This provides opportunities for businessesthat specialise in these products.</li><li>There are new ways of generating power usingrenewable sources rather than by burning fossilfuels, such as oil and coal, which are providing newopportunities,</li><li>The trend towards recycling is gathering pacein many countries. By using recycled resources,businesses can cut their costs.</li></ol>

Answer 92

A

<ol><li>deman</li><li>cost</li><li>operations</li></ol>

Answer 93

A

<ul><li>Businesses will be concerned if externalinfluences reduce demand for their products. This is likelyto result in lower revenues, lower profits and weaker cashflows,</li><li>For example, a sharp rise in the exchange rate will have a negative impact on most businesses that rely heavily on exports.</li><li>In contrast, importers such as retailerswill benefit from the rise. Their purchases will be cheaper and so they may sell more</li></ul>

Answer 94

A

<ul><li>Some external influencesarelikely to raisecosts. This will reduce profit margins or force businesses to raise their prices.</li><li>For example, a surge in the globaloil price will raise costs for many businesses. This is because oil is an important input for many businesses —particularly in manufacturing.</li><li>However, oil producers willclearly benefit from the price rise.</li></ul>

Answer 95

A

<ul><li>Businesses often have to change theiroperational methods as a result of an external influence.</li><li>For example, a government may introduce a new minimum wage. This may force a multinational company to relocate production to a country with lower wages in comparison to its current location.</li><li>The development of new technology might force firms to adopt new productionmethods or risk losing their competitive edge</li></ul>

Answer 96

A

Competition is the rivalry that exists between firmswhen they are trying to sell goods in a particular market.In some markets

Answer 97

A

<ol><li>In a competitive market, thereis likely to be a large number of buyers and sellers, andthe products sold by each business are close substitutesfor each other.</li><li>Barriers to entry in competitive markets will be low and businesses have very little control over the price charged. Forexample, if a firm tries to charge more than its rivals, itis likely to lose business.</li><li>Finally, there will be afreeflowof information about the nature of products, availability atdifferent outlets, prices, methods of production and the cost and availability of production factors.</li></ol>

Answer 98

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<ul><li>Some markets aredominated by a single producer or just a few largebusinesses. In a small number of markets, such as railtravel and water supply, a monopoly exists.</li></ul>

Answer 99

A

<ul><li>This means that just one business supplies the entire market.</li><li>For example<ol><li>if you want to get a train from Glasgow toEdinburgh in Scotland, UK, there is only one train serviceprovider — ScotRail.</li><li>A monopoly might also exist in alocal market. For example, a village shop might serve thewhole community without any competition from othershops. .</li></ol></li></ul>

Answer 100

A

Monopolies may attempt to exploit consumers by charging higher prices and preventing competition.For example, they may erect barriers to entry. Therefore,the government may choose to monitor the activities ofmonopolies closely

Answer 101

A

A market that is dominated by a few very largeproducers is called an oligopoly

Answer 102

A

<ol><li>One of the key features ofan oligopoly is interdependence. This means the actionsof one business will affect other businesses.Forexample,if one business gains an extra 4 per cent of the market, others must have lost the 4 per cent between them.</li><li>Thereare usually high barriers to entry in this type of market.The larger firms can exploit economies of scale.</li><li>Also,because of interdependence, prices tend to remain stablefor long periods of time. This is because all firms in the market are afraid of a price war. In an oligopoly, businessesare more likely to engage in non-price competition, such as advertising and promotion</li></ol>

Answer 103

A

governments aroundthe world have tried to make markets more competitiveby reducing the amount of regulation.

For example, atone time in the UK, only local councils were allowed to operate bus services. However, today it is easier for those who meet the minimum requirements to get a licence andprovide bus services on any route they choose

Answer 104

A

<ul><li>This meansthat there are now fewer businesses in the market.</li><li>This might result from a takeover or merger activity when two or more firms join together.</li></ul>

Answer 105

A

<ol><li>Retailing has become more competitive duetoan increase in the number of consumers using onlineshopping facilities. For example, people can buyproducts from all over the world when shoppingonline, e.g. from Amazon or All Babe.</li><li>There has been a significant consolidation in theglobal airline industry. For example, in 2005 there were 11 US airlines sharing 96 per cent of thedomestic market, In 2016 this had fallen to justseven airlines sharing the majority of the market.In Europe, there were mergers between national airlines. British Airways, Iberian Airlines and severalothers merged to become IAG, now one of thebiggest carriers in the world, Air France and KLMhave also merged, as have Swiss Air and Lufthansa.</li><li>In India, the handheld mobile phone market, whichwas thought to be worth $15 billion in 2017, is expected to consolidate. There were about 100brands, but intense competition is expected to reducethis number in the near future. Industry analysts saythat the market will be consolidated because it is notpossible for smaller competitors to survive.</li></ol>

Answer 106

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<ol><li>new entrants</li><li>new products</li><li>consolidation</li></ol>

Answer 107

A

When new entrants in the marketincrease competition, existing businesses have toconsider their position.

For example, the growth in onlineshopping has forced many retailers to offer their own online shopping services. In some cases, retailers havecollapsed (i,e. they went out of business) as they failedto compete online. In 2017, an estimated 7795 US retailstores closed down according to research by UBS. Thiswas a record number, and one chain, Radio Shack®,closed down 1470 stores alone.

Not all of these closures are due to online shopping; however, retailers may find it hard to survive if they do not offer an online service inthe future,

Answer 108

A

<ul><li>When a new product appears in themarket, businesses may be forced to make changes oftheir own. They might adapt their own products, lowerthe price of existing products or invest in an aggressivemarketing campaign.</li><li>example - In the banking industry, a number ofnew entrants have appeared offering peer-to-peer (P2P)lending Traditional banks have noticed this, and some have started to respond. The majority have looked to join up withonline services that are already running.</li></ul>

Answer 109

A

<ul><li>When consolidation occurs in markets,the number of businesses in the market falls but some of the existing businesses get bigger. These bigger organisations are likely to be more of a threat to theothers; they may be able to lower their costs and theywill have a larger market share,</li><li>Other businesses in the market might respond by organising mergers or takeoversof their own.</li><li>Alternatively, they may look to develop theirproducts, diversify, or cut their costs in some way, As a last resort, they may continue to operate in much thesame way but accept lower profit margins.</li></ul>

Answer 110

A

Failure to respond effectively to the changing competitive environment could negatively affect theperformance ofabusiness. At worst, certain changes may threaten the business's survival.

Answer 111

A

<ul><li>Another way of looking at the competitive environmentis to consider a model put forward by Michael Porter inhis book,Competitive Advantage: Creating and Sustaining Superior Performance(1985).</li><li>In the book, he outlines fiveforces, or factors, which determine the profitability of an industry. He argues that the ultimate aim of competitivestrategy is to cope with and ideally change those forcesin favour of the business.</li></ul>

Answer 112

A

<ul><li>Where the collective strength ofthose five forces is favourable, a business will be able toearn acceptable or average returns on their investments.</li><li>Where they are unfavourable, a business will have low or unpredictable returns.</li></ul>

Answer 113

A

Suppliers, likeany business, want to maximise the profit they makefrom their customers. The more power a supplier hasover its customers, the higher the prices it can chargeand the more it can reallocate (i.e. move) profit from thecustomer to itself

Answer 114

A

Limiting the power of its supplier willtherefore improve the competitive position of a business

Answer 115

A

<ol><li>It can grow vertically (backward vertical integration) either acquiring a supplier or setting up its own business by growing organically upwards.</li><li>It can seekout new suppliers to create more competition amongstsuppliers.</li><li>It might be able to engage in technical researchto find substitutes for a particular input to broaden thesupply base.</li><li>It may also minimise the information providedto suppliers in order to prevent the supplier realising itspower over the customer.</li></ol>

Answer 116

A

Suppliers wantto charge maximum prices to customers, and buyerswant to obtain supplies for the lowest price. If buyersor customers have considerable market power, they willbe able to beat down prices offered by suppliers.

example - the major car manufacturers have succeeded inforcing down the price of components from componentsuppliers because of their enormous buying power andthe small number of major car manufacturers in the world

Answer 117

A

<ol><li>One way a business can improve its competitiveposition with buyers is to extend into the buyers' marketthrough forward vertical integration. A car manufacturermight set up its own dealership. for example.</li><li>It could encourage other businesses to set up in its customers'market to reduce the power of existing customers.</li><li>It could also try to make it expensive for customers toswitch to another supplier. For example, one way gamesconsole manufacturers keep up the price of computer games for their machines (which they receive a royaltyfee for) is by making them technically incompatible (i.e.unable to work together) with other machines</li></ol>

Answer 118

A

If businesses can easilyenter an industry and exit if profits are low, it becomes difficult for existing businesses in the industry to chargehigh prices and make high profits. Existing businesses areconstantly under threat from new suppliers if the profits in an industry rise too much. This is because the newsuppliers can undercut their prices.

Answer 119

A

<ol><li>Businesses can protect themselves from this byerecting barriers to entry to the industry. For example, abusiness may apply for patents and copyright to protectits intellectual property and prevent other businessesusing it.</li><li>It can attempt to create strong brands which willattract customer loyalty and make customers less pricesensitive.</li><li>Large amounts of advertising can be a deterrent(i.e. something that stops people from doing something)because it represents a large cost to a new entrant, whichmight have to match the spending to grow some marketshare.</li><li>Large sunk costs, costs which have to be paid atthe start but are difficult to get back if the business leavesthe industry, can deter new entrants,</li></ol>

Answer 120

A

The more substitutes there are for aparticular product, the fiercer the competitive pressureon a business making the product. Equally, a businessmaking a product with few or no substitutes is likely tobe able to charge higher prices and make high profits

Answer 121

A

<ol><li>A business can reduce the number of potential substitutesthrough research and development, and then patentingthe substitutesitself.</li><li>Sometimes, a business will buy the patent for a new invention from athird party and do nothing with it, simply to prevent the product coming tomarket.</li><li>Businesses can alsouse marketing tactics tostopthe spread of substitute products, A local newspaper, forexample, might use predatorypricing if a new competitorcomes into its market to drive it out again.</li></ol>

Answer 122

A

The degree of rivalryamong existing firms in an industry will also determineprices and profits for any single firm

Answer 123

A

<ol><li>If rivalry is fierce,businesses can reduce that rivalry by forming cartels, orengaging in a broad range of anti-competitive practices.In many countries this is illegal, but it is not uncommon,</li><li>Businesses can also reduce competition by buying uptheir rivals Again, competition law may intervene to prevent this happening,but most horizontal mergers are allowed to proceed</li><li>In industries where there are relatively few businesses,often businesses don't compete on price. This allowsthem to maintain high profitability. instead, they tend to compete by bringing out new products and increasedadvertising, thus creating strong brands. As a result, theircosts are higher than they might otherwise be, but theycan also charge higher prices than in a more competitive market, creating high profits</li></ol>

Answer 124

A

cartel a group of businesses that act together to reducecompetition in a market — by fixing prices, for example

Answer 125

A

If a business is growing, it means that it generates more revenue, owns more assets, uses more resources (such as labour and capital) and hopefully makes more profit

Answer 126

A

<ul><li>If a business is growing, it means that it generates morerevenue, owns more assets, uses more resources (suchas labour and capital) and hopefully makes more profit.</li><li></li><li>Growing businesses experience,</li></ul>

<ol><li>lower average costs,</li><li>increased market power,</li><li>increased brand recognition </li><li>increased profitability</li></ol>

Answer 127

A

<ul><li>In Figure 2, a firm is currently producing in a small plant (i.e. a factory) and its short-run costs are SRAC₁, When itproduces an output equal to Q_i. its average cost will beAC_i. If it raises production toQ₂,average costs will rise toAC,. This is the result of the law of diminishing returns.</li><li>If the firm expands the scale of its operations (which it can do in the long run), the same level of output can be produced more efficiently. With a bigger plant, representedbySRAC_z, Q₂ can be produced at an average cost of justAC,.</li><li>Long-run average costs fall due to economies ofscale. They will continue to do so until the firm has built a plant which minimises long-run average costs (i.e. makesthe costs as small as possible). In the diagram, this occurswhen a plant shown by SRAC₃ isbuilt.</li><li>This is sometimescalled the minimum efficient scale of plant. When outputreaches Q* in this plant, long-run average costs cannot bereduced any further through expansion. The business issaid to be productively efficient at this point.</li><li>At any output level higher or lower than Cr, thebusiness is productively inefficient because averagecosts could be lower. For example, if the firm continues to grow, it will experience rising average costs due todiseconomies of scale, as in SRAC, in Figure 2.</li></ul>

Answer 128

A

Internal economies of scale are the benefits ofgrowth that arise within the firm

Answer 129

A

<ol><li>Purchasing and marketing economies</li><li>Technical economies</li><li>Technical economies</li><li>Financial economies</li><li>Risk-bearing economies</li></ol>

Answer 130

A

Large firms are likely to get better rates when buying raw materials and components (i.e. the parts something is made of) in bulk. In addition, the administration costs involved donot rise in proportion to the size of the order.

Answer 131

A

<ul><li>Technical economies arisebecause larger plants are often more efficient. Thecapital costs and the running costs of plants do not risein proportion to their size.</li><li>For example, the capital costof a double-decker bus will not be twice that of a single-decker bus. This is because the main cost (engine andchassis) does not double when the capacity of the busdoubles. Increased size may mean a doubling of output,but not cost.</li><li>Therefore, the average cost will fall, This issometimes called the principle of increased dimensions.In addition, the cost of the crew and fuel will not increase in proportion to its size</li></ul>

Answer 132

A

indivisibility - the phsycial inability or economic inappropriateness of running a machine or some other piece of equipment at below its optimal operational capacity

Another technical economy is that of indivisibility. Manyfirms need a particular item of equipment or machinery butfail to make full use of it. A small business may pay $400 for a laptop computer. The cost will be the same whetherit is used twice a week by a part-time worker or every day.As the business expands, it will be used more and so theaverage cost of the machinewill fall.

Answer 133

A

As the scale of operations expands, the firm mayswitch to mass-production techniques. Flow productioninvolves breaking down the production process into avery large number of small operations. It allows for greateruse of highly specialised machinery. This results in large improvements in efficiency as labour is replaced by capital.

Answer 134

A

<ul><li>A firmcan afford to employ specialist managers as it grows. In asmall business, one general manager may be responsiblefor finance, marketing, production and human resources.</li><li>The manager may find the role demanding.</li><li>Efficiencymay improve and average costs fall if a business employsspecialists in these fields. Specialists would be anindivisibility if they were employed in a small firm</li></ul>

Answer 135

A

<ol><li>Large firms have advantageswhen they try to raise finance. They will have a wider variety of sources from which to choose.</li><li>For example,sole traders cannot sell more shares to raise extra funds,but large public limited companies can.</li><li>Very large firmswill often find it easier to persuade institutions to lendthem money. This is because they will have large assets to offer as security.</li><li>Finally,large firms borrowing verylarge amounts of money can often gain better interestrates.</li></ol>

Answer 136

A

<ol><li>As a firm grows it maywelldiversify (i.e. develop a wider range of products) toreduce risk.</li><li>Forexample, the online retailer Amazon hasrecently diversified into the operation of supermarkets.</li><li>Large businesses can also reduce risk by carrying out research and development.</li><li>The development of new products can help firms gain a competitive edge oversmaller rivals</li></ol>

Answer 137

A

External economies of scale are the reductions in coststhat any business within an industry might benefit from as the industry grows

Answer 138

A

External economies are more likelyto arise if the industry is concentrated (i.e. if there are a large number of firms) in a particular geographic region

Answer 139

A

<ol><li>Labour</li><li>Ancillary and commercial services</li><li>Co-operation</li><li>Disintegration</li></ol>

Answer 140

A

<ol><li>The concentration of firms may lead to the buildup of a labour force with the skills required by the industry.Training costs may be reduced if workers have gained skills atanother firm in the same industry.</li><li>Examples - Local schools and colleges,or even local government, may offer training courses whichare aimed at the needs of the local industry</li></ol>

Answer 141

A

<ol><li>An established industry tends to attract smaller firms that are trying toserve the particular industry's needs. A wide range of commercial and support services can be offered.</li><li>Someexamples include specialist banking, insurance, marketing,waste disposal, maintenance, cleaning, components anddistribution services.</li></ol>

Answer 142

A

<ol><li>Firms in the same industry are more likely to co-operate if they are concentrated in the sameregion. They might work together to fund a research anddevelopment centre for the industry.</li><li>Example - An industry journal(i.e. magazine) might be published so that informationcan be shared.</li></ol>

Answer 143

A

<ol><li>Disintegration occurs when production is broken up so that more specialisationcan take place. When an industry is concentrated in anarea, firms might specialise in the production of one component. Then, they would transport it to a mainassembly plant (i.e. the place where it is put together).</li><li>Forexample, in US film production, many differentoperations were often done by the same organisationbased in Hollywood.</li><li>However, there are now far morespecialist businesses, such as editing, casting, makeup, costume design, special effects, filming, propsmanufacturing, marketing and distribution.</li></ol>

Answer 144

A

<ol><li>As businesses get bigger they become more dominant(i.e. more powerful). As a result, rivals are left with asmaller market share and some weaker businesses maybe forced to close down.</li></ol>

Answer 145

A

<ul><li>If a business is large enough, itmay be able to dominate two particular stakeholders: Customers and Suppliers</li></ul>

Answer 146

A

<ol><li>A dominant business may be able tocharge higher prices if competition in the marketis limited.</li><li>Customers are forced to pay higher prices when there is less choice.</li><li>Also, there isless need to develop new products if there is alack of competition in the market. This means thata dominant firm will not have to meet the costsof expensive and risky innovation (i.e. new ideas).As a result, product choice may remain limited forconsumers.</li></ol>

Answer 147

A

<ol><li>Sometimes a business can dominate itssuppliers. For example, it may be able to force thecosts of materials and commercial services downif it buys large quantities from smaller suppliers.</li><li>Dominant businesseswillbe in a good position iftheir suppliers rely upon them for their custom. Forexample, a small supplier is vulnerable if it sellsallofits output to just one large business. It may haveto accept the prices that the customer is preparedto pay.</li></ol>

Answer 148

A

<ul><li>a business might attract the attention of the authorities if it becomes too dominant. If the dominantbusiness appears to be exploiting consumers orsuppliers,theremay be an investigation into the industry.</li></ul>

examples:

<ol><li>In recent years, energy companies in some countrieshave been criticised for charging high prices.</li><li>Somesupermarkets have also been accused of 'bullyingsuppliers' (i.e.usingtheir power to hurt the suppliers). For example, suppliers might be threatened with the loss of an order if prices are not reduced.</li><li>Alternatively, theymight be made to wait an unreasonable amount of timefor payment.</li></ol>

Answer 149

A

<ul><li>As a business gets a larger and larger share of the market, customers become more aware of the brand name because theysee the brand advertised and offered for sale in more locations.</li></ul>

Answer 150

A

As the brand becomes stronger, a businessmay be able to:

<ol><li>charge higher prices</li><li>make the product distinct from those of rivals</li><li>create customer loyalty</li><li>achieve greater product recognition</li><li>develop an image</li><li>launch new products more easily.</li><li>A business with a larger market share is also more likelyto attract media attention, which helps to promote thecompany</li></ol>

Answer 151

A

<ul><li>Larger businesses tend to make bigger profits thansmaller ones. As profits grow, returns to the owners willalso grow.</li><li>For example, Arca Continental is a businessthat manufactures bottles and distributes Coca-Cola³⁾ products throughout Mexico, CentralAmerica and the USA. It is the second largest Coca-Coladistributor in South America and the third largest in theworld. It has a market value of $11.3 billion.</li><li>Between 2015 and 2016, its revenues grew 17.8 per cent . The benefit to shareholders of this growthwas significant. Arca increased its dividend paymentto shareholders from MXN1.75 to MXN1.85 per share</li></ul>

Answer 152

A

<ol><li>Additionally, when a company grows, shareholders arelikely to see the price of their shares rise. The Arca share price rose from MXN92 to about MXN105 overthe calendar year.</li><li>If a business grows and increases its profitability,it will have more profit for investment and innovation.This will allow the business to develop and launchnew products</li><li>make acquisitions.</li><li>The business is likely to grow even further if these investments aresuccessful.</li></ol>

Answer 153

A

<ul><li>This type of growth is called external growthor inorganic growth. It involves businesses joining togetherso that, in theory, they could double in size overnight.</li><li>For example, in 2016 the Barcelona-based start-upDoctoraliae, an online booking platform for healthcareappointments, merged with the Warsaw-based companyDocPlanner. Doctoralia has around 9 million monthly users,while DocPlanner has over 8 million. This means that thenew organisation will virtually double in size,</li></ul>

Answer 154

A

<ul><li>In contrast, internal growth or organic growth occurswhen a business grows naturally by selling more of its output using its own resources.</li><li>For example, many to European football clubs have experienced some solidorganic growth over the last 10 years or more Germanclub Bayern Munich has seen its revenues grow from around €166 million in 2003-04 to over €640 million in2015-16.</li><li>Clubs have grown by increasing the capacityof their stadiums and attracting new sources of revenue such as income from TV rights, hospitality and othercommercial activities.</li></ul>

Answer 155

A

<ol><li>Speed is one of the key differences between the twogrowth strategies, Inorganic growth is much faster. it is possible to instantly double insize as a result of joining with another business. Organicgrowth is normally much slower. It takes time to develop and grow a business using its own resources.</li><li>Another difference is the potential risk involved in the two different strategies. It could be argued that organicgrowth is a safer strategy because owners expand theirbusinesses by developing their current expertise. Theymay be growing by 'doing more of the same', There is notmuch risk involved in this strategy. In contrast, growingthrough mergers or acquisitions has risk attached. This is because the process of integrating when two organisationsare brought together can create problems. For example,there could be differences between the working culturesthat might result in conflict, delays and instability.</li></ol>

Answer 156

A

<ol><li>New customer</li><li>new products</li><li>new markets</li><li>new business model</li><li>franchising</li></ol>

Answer 157

A

<ul><li>Perhaps the easiest approach is torely on driving sales from existing activities.</li><li>For example,a food processing company that supplies to local shopsmay gradually increase production to supply to moreand more customers. The business can carry on growingorganically (by building an extension or moving to largerpremises if the factory reaches full capacity).</li></ul>

Answer 158

A

<ul><li>It may be possible to find new customers by exploiting newdistribution channels.</li><li>This approach togrowth may need investment in marketing to increase the customer base.</li></ul>

Answer 159

A

<ol><li>Some businesses grow by developingnew products, They may be very innovative (i.e. good at introducing new ideas) and committed to researchand development. For example, a business that designs software for computer games can grow by designing newgames.</li><li>a business might identify customerswith slightly different needs. This could require adaptingor modifying existing products (i.e. making changes to improve them) to meet these needs, A business might need to invest some of its profit into product development</li></ol>

Answer 160

A

<ol><li>Some businesses grow organicallyby finding new markets for their products.</li><li>For example,a hairdresser could open another salon in a different location. The assets, systems and working practices usedin the original salon can be copied in another location.</li><li>New premises (i.e. the building or land that a businessuses) can be adapted and decorated in the style that hasalready been successful.</li><li>Some businesses may look tooverseas markets to grow.</li><li>However, this approach carriesmore risk because markets abroad are unfamiliar. Growingby selling in new areas is sometimes called geographic expansion.</li><li>For example, a number of European and USretailers have opened stores in China, such as Auchan'''and Carrefour from France, and GAP''" and Bebe® fromthe USA.</li></ol>

Answer 161

A

<ol><li>It is possible to grow organicallyby using a new business model, Developments in technologyor social change may lead to this growth.</li><li>For example, aretailer selling children's toys may start an online operation.This approach could see the business grow very quicklybecause the size of the potential market opened up could be considerable, even global,</li></ol>

Answer 162

A

<ol><li>A business might set up a franchisingoperation to increase the speed of organic growth. Thisapproach allows other entrepreneurs to trade underthe name of the original business.</li><li>The fast-food outletSUBWAY' is an example of a business that has used this method to grow</li></ol>

Answer 163

A

<ol><li>Less risky</li><li>Relatively cheaper</li><li>Keep control</li><li>better protection</li><li>avoid diseconmies of scale</li></ol>

Answer 164

A

<ol><li>Organic growth might be less risky thanother growth strategies. Growth can be achievedby extending practices that are well known and understood. This can prevent errors because the culture, norms and practices of the business arealready established and effective.</li><li>Organic growthcan also help to avoid the complications that mightarise when integrating with another organisation,</li></ol>

Answer 165

A

<ol><li>Growing organically might becheaper than using other methods. Organic growthcan be financed from retained profit, This is likely to be the cheapest of all sources of finance.</li><li>There will bean opportunity cost, but the financial cost can be zero. Businesses that grow inorganically often have to borrowmoney or raise fresh capital, This will add to the costsof growth.</li><li>Organic growth also avoids the premiumprices that can be paid when buying other businesses.</li></ol>

Answer 166

A

<ol><li>A business will keep more controlwhen growing organically. Owners, or the seniormanagement team, will have complete control ofthe growth process. This is because there are nooutsiders with any controlling interest.</li><li>For example,a retail chain is growing because they are openinga new store in a new location every six months.Therefore, the business will have a team of employeeswho are experienced at opening new stores. Theycan go in, recruit and train new staff. They can ensurethat the store is run in the way that has proved</li></ol>

Answer 167

A

<ul><li>The financial position of abusiness might be better protected with organicgrowth. Since growth is gradual, there is less strain onfinancial resources. As a result, cash flow is strongerand the business will keep more liquidity.</li><li>Inorganicgrowth often requires huge outlays of money. For example, in 2018, US company Keurig GreenMountain Inc, bought Dr Pepper'⁾ Snapple Group Inc.for US$18.7 billion in cash. Such high expenditure canput financial pressure on the business.</li></ul>

Answer 168

A

<ol><li>A business that growsorganically is less likely to experience diseconomiesof scale. Sharp increases in unit costs are not likelyto occur if growth is steady and measured.</li><li>It may beeasier for a business growing organically to see anypossible difficulties resulting from scale increases, Thiswill help to keep costs under control</li></ol>

Answer 169

A

<ol><li>slow pace of growth</li><li>lack of access to resources</li><li>unable to be competitive</li><li>unable to fully exploit economies of scale</li><li>may be inappropriate</li></ol>

Answer 170

A

<ol><li>The pace of organic growthmay be too slow for some stakeholders.</li><li>For example,shareholders in a plc may want the business toprovide quicker returns on their investments thanorganic growth can deliver.</li><li>Shareholders may selltheir shares if they are unhappy with the pace ofgrowth, As a result, the share price can fall, Thiscould make the company at risk of a takeover</li></ol>

Answer 171

A

<ol><li>Organic growthmay prevent the business from using the resourcesowned by other businesses. As a result, it mightmiss out on some profitable developments.</li><li>Forexample, a construction firm might want to developexpertise in energy-saving technology. This wouldhelp it to build more houses with solar panels,It could do this by gradually developing its own expertise.</li><li>However, it might be better to buy a company that already does this, rather than trying to do it for themselves. Such companies will be specialists and can provide the knowledge and experience required by the housebuilder.</li></ol>

Answer 172

A

<ol><li>A business that growsslowly may be left behind inthemarket. The businessmay end up feeling small if competitors are growingthrough mergers and acquisitions, As a result, it maylose its ability to compete effectively.</li><li>For example, itmay not be able to match the advertising budgets ofits larger rivals,</li></ol>

Answer 173

A

<ol><li>A business may be able to exploit economies ofscale as it grows. However, if a business is growingorganically it may take some time before sucheconomies are fully exploited. This could mean thata business is having to operate with higher costsfor longer periods of time. This could lower profit margins and make it less competitive.</li><li>Also, somebusinesses, such as shipbuilding, require investmentin large-scale production before trading can begin.Businesses that grow organically may be preventedfrom entering such industries</li></ol>

Answer 174

A

<ol><li>Organic growth maynot be appropriate if a market is growing rapidly.</li><li>For example, when mobile telephones were first introduced, the market expanded very quickly. Businesses making the best progress were thosethat were growing through mergers or acquisitions. The three firms now remaining in the UK market areall the result of multiple takeovers and mergers.</li></ol>

Answer 175

A

a business model where a business owner (thefranchisor) allows another person (the franchisee) to trade under their name

Answer 176

A

profit after tax that is 'ploughed back' into thebusiness

Answer 177

A

a financial interest in a business which entitles theinvestor to part-ownership

Answer 178

A

<ol><li>exploit synergies</li><li>Sometimes Buying another business is cheaper than growing internally</li><li>Extra cash</li><li>Defensive reasons</li><li>Response to economic changes</li><li>Gain entry into foreign markets</li><li>Globalisation culture</li><li>Economies of scale</li><li>Asset stripper firms</li><li>Growth is a main objective of the business</li></ol>

Answer 179

A

<ol><li>One of the main motives for integration (i.e, joining)is to exploit the synergies that might exist following a merger or takeover. This means that two businessesjoined together form an organisation that is more powerful and efficient thanthe two companiesoperating on their own. Synergy occurs when thewhole is greater than the sum of the parts'.</li></ol>

Answer 180

A

Synergiesmay arise from economies of scale, the potential forasset stripping (i.e. removing assets; see below), thereduction of risk through diversification (i.e. providinga wider range of products) or the potential for gainsby management

Answer 181

A

<ol><li>A business may calculate that thecost of internal growth is $80 million. However, itmight be possible to buy another company for$55 million on the stock market.</li><li>The process ofbuying the company might inflate its price. But, itcould still work out much cheaper.</li></ol>

Answer 182

A

<ol><li>Some businesses have cash available which theywant to use. Buying another business is one way ofdoing this.</li><li>eg - In 2018, in many countries around theworld the returns on cash were only about 1 percent. Many businesses would be keen to generatehigher returns than this,</li></ol>

Answer 183

A

<ol><li>Mergers take place for defensive reasons, Onebusiness might buy another to consolidate itsposition (i.e. make its position more powerful) in themarket.</li><li>Also, if a firm can increase its size throughmerging, it may avoid a takeover itself.</li></ol>

Answer 184

A

<ol><li>Businesses respond to economic changes, Forexample, some businesses may have merged to dealwith Brexit in the UK. A larger organisation may beable to cope with the uncertainties arising from Brexit,</li></ol>

Answer 185

A

<ol><li>Merging with a business in a different country is oneway in which a business can gain entry into foreignmarkets.</li><li>It may also avoid restrictions that prevent itfrom locating in a country or avoid paying tariffs ongoods sold in that country.</li></ol>

Answer 186

A

<ol><li>The globalisation of markets has encouragedmergers between foreign businesses, This couldallow a company to operate and sell worldwide,rather than in particular countries or regions.</li></ol>

Answer 187

A

<ul><li>A business may want to gain economies of scale. Firms can often lower their costs by joining with another firm.</li></ul>

Answer 188

A

<ol><li>Some firms are asset strippers, They buy a company,sell off profitable parts, dose down unprofitablesections and perhaps integrate other activities intothe existing business.</li><li>Some private equity companieshave been accused of asset stripping in recent years.</li></ol>

Answer 189

A

<ol><li>Management may want to increase the size ofthe company, This is because the growth of the business is their main objective.</li><li>It may also bebecause the financial rewards to managers is oftenlinked to growth and the size of the company.</li></ol>

Answer 190

A

<ol><li>A merger is where two (or more) businessesjoin together and operate as one Mergers are usuallyconducted with the agreement of both businesses. Theyare generally 'friendly' The name of the new business is often formed out of the names of the two originalbusinesses.</li><li>For example, one of the biggest mergersrecently was between Swiss-based cement producerHolcim Ltd and French cement company Lafarge SA, forming LafargeHolcim. The merger helped to cut costsand cope better with overcapacity (i.e, when an industryproduces more than it is able to sell) and weak demand</li></ol>

Answer 191

A

<ol><li>A takeover, sometimes called an acquisition, occurs when one business buys another,</li><li>Takeoversamong public limited companies can occur because theirshares are traded openly and anyone can buy them. Onebusiness can acquire another by buying 51 per cent ofthe shares. Some of these can be bought on the stockmarket and others might be bought directly from existing shareholders.</li><li>When a takeover is complete, the companythat has been 'bought' loses its identity and becomespart of the predator company (i.e. the company that`hunted' the other),</li><li>However, private limited companiescannot be taken over unless the majority shareholders`invite' others to buy their shares.</li></ol>

Answer 192

A

<ol><li>In practice, a firm can take control of another company by buying less than 51 per cent of the shares. This mayhappen when share ownership is widely spread and littlecommunication takes place between shareholders.</li><li>Insome cases, a predator can take control of a company by purchasing as little as 15 per cent of the total shareissue. Once a company has bought 3 per cent of another company, it must make a declaration to the stock market.This is a legal requirement to ensure that the existingshareholders are aware of the situation</li></ol>

Answer 193

A

<ol><li>Takeovers of public limited companies often result ina sudden increase in their share price. This is due to thevolume of buying by the predator and also speculationby investors. Once it is known that a takeover is likely,investors quickly buy shares, anticipating a quick price rise.</li><li>Sometimes more than one firm might attempt to takeover a company. This can result in very sharp increases inthe share price as the two buyers bid up the price.</li></ol>

Some of the biggest takeovers in 2017 include:

<ul><li>CVS Health Corp, a US drugstore chain, agreed to pay US$69 billion to buy Aetna, a health insurer</li><li>Walt Disney bought film and television businessesfrom 21st Century Fox for US$52 billion.</li></ul>

Answer 194

A

Integration is when businesses join together to formone

Answer 195

A

<ol><li>Horizontal integration occurs when two firms that arein exactly the same line of business and the same stage of production join together.</li><li>eg- The merger between the two cement producers, Lafarge SA and Holcim Ltd, is an example of a horizontal merger</li></ol>

Answer 196

A

<ol><li>a common knowledge of the markets in which theyoperate</li><li>less likelihood of failure than merging two differentareas of business</li><li>similar skills of employees</li><li>less disruption.</li></ol>

Answer 197

A

<ul><li>Vertical integration occurs when firms in different stagesof production join together.</li><li>Forward vertical integrationis where a business joins with another that is in the nextstage of production.</li><li>Backward vertical integration iswhere a business joins with another in the previous stageof production.</li></ul>

Answer 198

A

<ol><li>Themain motive for such a merger would be to guarantee and control the supply of components and raw materials.</li><li>Another motive would be to remove the profit margin that the supplier would demand. Forward vertical integrationinvolves merging with a firm that is in the next stage ofproduction.</li><li>For example, the mountain bike manufacturermight merge with a retail outlet selling bikes. This removes the profit margin expected by the firm in thenext stage of production. It also gives manufacturers guaranteed outlets for their output.</li></ol>

Answer 199

A

a very large single business organisation madeup of many different businesses producing unrelated products

Answer 200

A

<ol><li>Each businessusually operates as a separate entity with its own board of directors.</li><li>However, each business is still under the control of the owner (conglomerate).</li><li>The group ofbusinesses are usually acquired through mergers andtakeovers.</li><li>They normally have a wide range of business interests.</li><li>An example of a conglomerate is Tata, which is based in Mumbai, India. Some of the major companiesowned by Tata include Tata Steel, Tata Motors (includingJaguar Land Rover), Tata Consultancy Services, Tata Power, Tata Chemicals, TataGlobal Beverages, Tata Coffeeand The Indian Hotels Company Limited (TajHotels). In2017, the group's revenue was over $100 billion</li></ol>

Answer 201

A

<ol><li>The main advantage of operating as a conglomerate is that these organisations have a very wide range ofbusiness interests. This spreads the risk of businessenterprise. If one of the businesses is not doing verywell, group revenues and profits can be supported by other businesses in the conglomerate.</li><li>Anotheradvantage is that they are very large and powerful. Theycan exploit economies of scale and often have influencein markets.</li></ol>

Answer 202

A

<ol><li>One of the disadvantages of a conglomerate is that diversification can result in difficulties. For example,the specialist skills built up in the original company orgroup of companies may not be relevant in the new acquisitions. This means the original management team may not fully appreciate the forces that drive success in some of its component parts.</li><li>Over time, a conglomeratecan become a confusing body that fails to maximise its full potential. For example, sometimes a conglomeratemay be too slow to get rid of failing companies. Thismight be due to the fear of losing the required levels ofdiversification.</li></ol>

Answer 203

A

<ol><li>stakeholder benefits</li><li>stronger balance sheet</li><li>lower costs</li><li>lower taxes</li></ol>

Answer 204

A

<ol><li>Shareholders in the'target' company often get an immediate premiumwhen taken over. This is because the share price often rises sharply during the process of a bid.</li><li>eg - Primero shareholders received a 200 per cent premium on the shareprice following the takeover by First MajesticSilver</li></ol>

Answer 205

A

<ol><li>If an acquisition is successful shareholders in the 'predator' company (the company makingthe acquisition) will also benefit.</li><li>However, their benefits may be long term. It may take a while forthe integration process to be completed and theremay be a delay in the improvement of financialperformance.</li><li>But if all goes well, shareholdersshould get higher dividends in the future and the share price should rise. In the long term, job securitymight also improve as the business becomesstronger due to the merger or takeover. It is alsolikely that the remuneration packages of someemployees (i.e. the money paid to them), particularlysenior management, will be better.</li></ol>

Answer 206

A

<ol><li>A takeover or mergerresults in a larger single organisation. As a result, thestrength of the balance sheet improves. The companywill have more assets which are also likely to bemore diverse.</li><li>It is possible that the cash flow of thecompany will also improve since greater revenues willbe generated by the larger organisation.</li></ol>

Answer 207

A

<ol><li>One of the main motives formergers and takeovers istolower costs. Followingacquisitions, corporations will be larger. As a result they will be able to exploit economies of scale andlower their costs.</li></ol>

Answer 208

A

<ul><li>Itis possible for a company to lower itstax liabilities following a takeover. This is likely to occur if a business acquires another which is located in a `low-tax' country.</li><li>lTax liabilities can be reduced by registering all the activities of the business in the country where tax rates are lower</li></ul>

Answer 209

A

<ol><li>integration costs</li><li>overpayment</li><li>bidding wars</li></ol>

Answer 210

A

<ol><li>After a merger or takeoverhas been agreed, the next step is to physicallyintegrate the two organisations. This can be avery complex, expensive and time-consumingprocess, the effects of which may be felt for many years.</li><li>Some of the costs incurred result from the organisational and personnel changes, severancepay for dismissed workers (i.e. the money paid toworkers who are forced to leave), technical changes,systems changes, training and many others,</li><li>It is notuncommon for businesses to underestimate thesecosts and encounter problems when carrying outthe consolidation process. For example, merging twodifferent cultures can be particularly problematic</li></ol>

Answer 211

A

<ol><li>There is some evidence to suggestthat businesses often pay too much when making anacquisition. Numerous studies over the years reckon that the failure rate of mergers and acquisitions aresomewhere between 70 per cent and 90 per cent.One of the main reasons for this is overpayment.This may be because the financial benefits are overestimated, or the costs of acquisition areunderestimated, or both, Therefore, the price thatthe acquirer is willing to pay is inflated.</li><li>For example,Yahool® felt that it paid too much ($1 billion)for social network site Tumblr, Yahoo! said thatassessing the value of a fast-growing new businesswhich has only a small amount of revenue can be difficult. Tumblr's assets were $353 million, and it liabilities were $114 million, according to Yahoo!,</li></ol>

Answer 212

A

<ol><li>In some cases, it is possible that one business attracts more than one potential buyer. If this happens the price of the acquisition will start to rise,as it would do in an auction. This makes the takeovermore expensive.</li><li>One example of this was the takeoverof the American food company Hillshire Brands Co.by Tyson Foods Inc. Previously another company,poultry producer Pilgrim's Pride, had made an offer of $6.4 billion for Hillshire. However, within 48 hours,Tyson offered $6.8 billion. Pilgrim then raised its bid to $7.7 billion, but this was outstripped by Tyson'sfurther bid of $8.55 billion, which was finally acceptedby Hillshire, This case shows how the cost of atakeover can escalate when more than one business isinterested in a target. The overall price rose from $6.4billion to $8.55 billion, an increase of 33.6 per cent.</li></ol>

Answer 213

A

<ol><li>speedy growth</li><li>strategic benefits</li><li>economies of scale</li><li>eliminate competition</li></ol>

Answer 214

A

<ol><li>Businesses can grow far morequickly through mergers and takeovers than growingorganically. This means that the benefits of growth,such as larger market share, lower costs resultingfrom economies of scale, more market power andhigher profitability, can be enjoyed more immediately.This might benefit a range of stakeholders.</li></ol>

Answer 215

A

<ol><li>Acquisitions and mergers canhelp businesses to improve their strategic position.Firms often join together because their activitiesmay complement each other.</li><li>For example, if twocompanies join together, collectively they may have amore balanced and diverse global product portfolio.A business can fill gaps in its product portfolio veryquickly by making acquisitions.</li><li>Inorganic growthoften means that strengths in one company cancompensateforrelative weaknesses in the other,</li></ol>

Answer 216

A

<ol><li>Economies of scale.An important advantage ofinorganic growth is that a company may benefitfrom economies of scale almost overnight.</li><li>For example, when two companies join, the neworganisation will only need one head office.Therefore, one can be closed down, reducingadministration costs significantly.</li><li>Sometimes, afteran acquisition, the size of a business can double.This provides scope for making cost savings in theform of bulk buying, increased specialisation ofresources and raising capital.</li></ol>

Answer 217

A

<ol><li>Inorganic growth can help toreduce competition in the market. Clearly, if a company takes over a rival, there will be fewer operators in themarket, If the process of acquisitions continues in thesame market, competition will decrease.</li><li>This maylead to one firm (or just a few firms) dominating themarket, which might allow the remaining companies toraise prices, restricting consumer choice.</li></ol>

Answer 218

A

<ol><li>regulatory intervention</li><li>drain resources</li><li>culture clash</li><li>alienation of customers</li><li>loss of managerial control</li></ol>

Answer 219

A

<ul><li>Australian conglomerateWesfarmers bought the UK DIY chain store Homebasefor £340 million in 2016.</li><li>However, in 2018 Wesfarmersadmitted that the takeover had gone badly. Wesfarmerssaid the 250-store UK business was expected to makean underlying loss of £97 million in the half-year after a £54 million loss in the year to June 2017. As a result,Wesfarmers is taking a £584 million write down on the business, most of which relates to the value of theHomebase brand.</li><li>A spokesperson for Wesfarmers said the problems were 'through our own doing', asthe company had ditched popular lines and removedconcessions such as Laura Ashley":, Habitat'⁾ and Argos"..</li></ul>

Answer 220

A

<ol><li>Mergers and takeoversin most countries can attract the attention of marketregulators (i,e. people or organisations that makesure an industry is being run fairly), If they thinkthat a merger or takeover acts against the interestsof the consumer, they have the power to order aninvestigation. This takes time and may cause delays.After the investigation, the regulator often has thepower to recommend that the merger be blocked.</li><li>Alternatively, it may allow a merger or takeover togo ahead, but with certain conditions. Delays inproceedings and undertakings, such as the sale of assets, take time and cost money</li></ol>

Answer 221

A

<ol><li>Mergers and takeoverscan cost a lot of money.</li><li>For example, in 2017, Aerospace supplier United Technologies Corp paid$30 billion for avionics and interiors maker RockwellCollins Inc. This is clearly a very large amountof money and companies that spend such sumson mergers and takeovers have to be very wellresourced.</li><li>If a company grows too rapidly by goingon an aggressive acquisition trail, it may stretchfinancial resources and damage other aspects ofthe business.</li></ol>

Answer 222

A

<ol><li>When businesses merge, theintegration process can be challenging because lots of changes have to be made, One of the maindifficulties is merging two different cultures. It can bevery difficult to impose a new culture on a businessand there may be resistance (e.g. disagreements).</li><li>For example, a business that prizes flexible workingpractices and quality of life, may lose importantmembers of staff after merging with a firm whereemployees are expected to be in the office at alltimes. If changes are forced through too quickly,without proper discussion for example, this resistanceis likely to be stronger.</li><li>Such problems are likely tobe more intense if growth is too rapid and firms arecombining two contrasting cultures too quickly.</li></ol>

Answer 223

A

<ol><li>Companies thatare growing too fast might lose touch with theircustomers. Too much attention and resourcesget focused on the process of growth. As aconsequence, the needs of customers can beoverlooked.</li><li>For example, after a takeover ormerger the name of a business may change; someconsumers may be confused, wondering what the new brand is and what values might be attached to it. Ultimately, this could damage the image of thecompany and result in the loss of customers,</li></ol>

Answer 224

A

<ol><li>If growth is toorapid the company might get too big too fast.This can result in a loss of control by the seniorexecutives.</li><li>A bigger organisation means thatadditional layers of management are required. Thismeans that communication channels take longerto reach the intended recipient and might impactnegatively on the chain of command. As a result,costs may start to rise as diseconomies of scaleset in</li></ol>

Answer 225

A

where markets become so large that products could be sold anywhere in the world

Answer 226

A

the combining of two or more activities or businesseswhich creates a better outcome than the sum of the individual parts

Answer 227

A

<ul><li>Internal diseconomies of scale are the rising costs caused by excessive growth in the business.</li></ul>

Answer 228

A

<ol><li>poor communication</li><li>control and coordination</li><li>poor worker motivation</li><li>technical diseconomies</li><li>bureaucracy</li></ol>

Answer 229

A

<ol><li>Very large firms oftensuffer from poor communication. The flow ofinformation between individual employees,departments, divisions or between head office andsubsidiaries becomes more difficult to managewhen a firm is very large. This is because the chainof command in such organisations may be long.There may be many layers of management in thehierarchical structure (i.e. one that is organisedinto levels of importance from top to bottom). Bothinternal and external communication might beaffected.</li><li>In a very large organisation it is possible tolose touch with customers and as a result a business may fail to identify changes in customer needs.</li><li>Also,large businesses often employ automatic telephoneanswering services which keep customers waiting, direct them to inappropriate departments or failto provide a swift solution. Many customers findthese answering systems annoying.</li></ol>

Answer 230

A

<ol><li>The control andco-ordination of large businesses is also demanding.Thousands of employees, large amounts ofresources and many different operational locationsall mean added responsibility and more supervision.In many cases, businesses have to employ alarger number of managers and supervisors tomaintain adequate control. This can result in rising costs.</li><li>There have been examples where ithas been challenging for senior managers in bigcompanies to be in complete control of such a huge quantity of resources spread out all over theworld, For example, Volkswagen (VW)®, the giant car manufacturer which employs around 600 000 people worldwide, had problems in 2015. It wasdiscovered that many cars had been fitted with a'defeat device' to help it pass certain environmentaltests. However, when the cars returned to the road,the emissions levels rose again. It is possible thatVW had grown too big and unmanageable. It wasclaimed that the CEO of VW did not know aboutthis activity. In such a large organisation this mightbe true.</li></ol>

Answer 231

A

<ol><li>Motivation may sufferas individual workers become a minor part of thetotal workforce. For example, in an organisationthat employs thousands of people globally, eachindividual worker may feel unimportant. This maylead to an attitude of wanting to `do the absoluteminimum'. There may be higher levels of staffturnover, increased absence and poor time-keeping,which will raise labour costs.</li><li>There may also bepoor relations between management and theworkforce in a very large organisation. For example,managers might lose touch with the needs ofemployees. As a result, conflicts may occur andtrying to resolve them maycostmoney.</li></ol>

Answer 232

A

<ol><li>Plants, machinery andequipment will usually have an optimum (i.e. mostefficient) capacity. If these resources are overused,they are likely to become inefficient. For example, inthe agricultural industry, if a tractor is overworkedthe engine may run 'too hot', causing it to stopworking properly. This might reduce its output orresult in a breakdown which will cost money torepair.</li><li>Another example is in the chemical industry,where construction problems often mean that twosmaller plants are more cost-effective than one verylarge one. If a business employs one huge plant and a breakdown occurs production will stop.Withtwosmaller plants, production can continue even if onebreaks down.</li></ol>

Answer 233

A

<ol><li>If a business becomes too bureaucratic, it means that too many resources are used in administration. Too much time may be spent filling in forms or writing reports.</li><li>Also, decision making may be too slow and communication channels too long, If resources are wasted in administration, average costs will start to rise</li></ol>

Answer 234

A

External diseconomies of scale:External diseconomies occur when anindustrygrows too big (rather than the individual firm)

Answer 235

A

<ol><li>Rapid growth</li><li>Industry growing in the same geographical location</li></ol>

Answer 236

A

<ol><li>Rapid growth in an industry can result in the price of production factors rising sharply, This isbecause growing demand for them drives up the price.</li><li>For example. the construction industry in Japan hasgrown as the country develops the infrastructure (e.g.transport networks, water and power supplies) needed tostage the 2020 Olympics. This has driven up the wagespaid to construction workers, resulting in all businesses in the Japanese construction industry facing rising labourcosts as output expands.</li></ol>

Answer 237

A

<ol><li>External diseconomies are perhaps most likely tooccur when an industry grows in the same geographicallocation. The price of land, labour, services and materialsmight rise as firms compete with each other in the same area for a limited amount of resources.</li><li>Also, congestion (i.e, too much traffic) in the area might leadto inefficiency, as delays are caused to deliveries and employees travelling to work.</li></ol>

Answer 238

A

<ol><li>Internal communication is the exchange of messages andthe flow of information inside a business; for example,between individual workers or between departments.</li></ol>

Answer 239

A

<ol><li>Withthe rapid development in information and communication technology (ICT), some of these problemsmay have been reduced. For example, any number ofpeople can be copied into an email so that importantmessages can be shared instantly to thousands of peopleall over the world, The use of video conferencing mightalso help internal communication, where members ofstaff in different geographical locations can communicateface to face.</li><li>However, it might also be argued that IT has brought a whole new set of communication problems. Forexample, communications can be seriously affected whenIT systems fail.</li></ol>

Answer 240

A

<ol><li>Distortion of information</li><li>Resource duplication</li><li>Competition between departments</li></ol>

Answer 241

A

<ol><li>Sometimes resources might be wasted due to a lackof effective communication, One problem that mightoccur is the duplication of resources. This is where twoor more identical activities or projects are being followedin the same organisation at the same time.</li><li>For example, a division of a company in Germany may be writing a newcomplaints procedure policy. If another division, say the Indonesian division, is doing exactly the same, resourceswill be wasted. Better communication would ensure thatonly one new complaints procedure policy is produced</li></ol>

Answer 242

A

<ol><li>If a business grows too big, there could be a problemwith internal communication. This is because the numberof layers in the management structure are also likely to grow. As a result, channels of communication getlonger and the scope for error in sharing messagesincreases. Distortions to information may occur (i.e.changes that make the information no longer correct) as it is passed through the managerial hierarchy. At worst, this could lead to misunderstandings and argumentsbetween workers and managers, Such arguments use upresources. Any cost resulting from a misunderstanding orargument will reduce productivity.</li></ol>

Answer 243

A

a situation where a business does not have enough cash to support its production and sales, usuallybecause it is growing too fast

Answer 244

A

<ol><li>This is more likely to affectyoung, rapidly growing businesses.</li></ol>

Answer 245

A

<ol><li>business does not have enough capital</li><li>offers too much trade credit</li><li>operating with small profit margins</li></ol>

Answer 246

A

It is fairly common for a new business to be undercapitalised. This meansthat it has started trading with insufficient capital. Itdoes not have enough cash to buy the resourcesneeded to meet the growing orders

Answer 247

A

It may betempting for a new business to allow its customers90 or 120 days' trade credit, However, this meansthat the business has to wait that length of time, ormore, to be paid. During this time it will be short ofcash to buy the resources needed to meet new orders

Answer 248

A

In order tomake an impact in the market, a new business mayoffer its products at lower prices. However, withlower prices (and therefore lower profit margins), itmay not generate enough profit to fund the growingvolume of business.

Answer 249

A

A method used in the calculation of a moving average where the average is plotted or calculated in relation to the central figure.

Answer 250

A

The relationship between two sets of variables.

Answer 251

A

A measure of the extent of the relationship between two sets of variables.

Answer 252

A

A succession of averages derived from successive segments (typically of constant size and overlapping) of a series of values.

Answer 253

A

A graph showing the performance of one variable against another independent variable on a variety of occasions. It is used to show whether a correlation exists.

Answer 254

A

A method that allows a business to predict future levels from past figures.

Answer 255

A

- Trend
 - Seasonal Fluctuations
 - Cyclical Fluctuations
 - Random Fluctuations

Answer 256

A

- Moving Average --> to calculate this you add the number or sales up per year/quarter etc. then divide by the same amount you have added up
 - four-period centred moving average --> can be used by finding the midpoint of a four-year moving total and a eight-year moving total.
 - to work this out divide the eight year moving total by eight

Answer 257

A

- Using a line of best fit
 - by plotting the values from the four-period moving average onto a graph accurately and then adding the line of best fit 'by eye', so that points fit equally either side of the line.
 - This line can be extended should help give a reasonable prediction

Answer 258

A

- when drawing a line of best fit it should pass through the coordinates (X,Y), where X is the average of the years and Y is the average sales:
 
 - X = (the sum of the years)/ (number of years)
 - Y = (the total sales in the trend)/ (the number of years)

Answer 259

A

- predictions may not be accurate because it is taken from the trend, and the trend 'smoothed out; variations in sales.
 - To make an accurate prediction the business will have to fine the average variation over the period and take this into account.
 - To find out how much variation there is we must --> V= Actual Sales - Trends

Answer 260

A

- trends are the smoothed out figures that smoothed out the variation.
 - If a set of data has been sorted with four-period centred average using the financial Quarters in the year we can make a more accurate prediction by calculating the average seasonal variation in the each quarter ( e.g. average of the 4th Quarters from the data etc.)

Answer 261

A

- The forecast is for a short period of time in the future, such as six months, rather than a long time. such as five years
 - The are revised frequently to take account of new data and other informaiton
 - The market is slow changing
 - Market research data, including test marketing data, is avaible
 - Those preparing the forecast have a good understanding of how to use data to produce a forecast
 - Those preparing the forecast have a good 'feel' for the market and can adjust the forecast to take account of their hunches and guesses about the future

Answer 262

A

- by creating a forecast range
 - by preparing 3 set of figures --> a optimistic, a pessimistic and a central forecast
 - these give the best and worst case scenarios aswell as the central forecast, the one that is most likely to occur
 - this give the departments in a business an indication of the possible variations they might have to face.

Answer 263

A

- Time series analysis only describes what is happening to information
 -Casual modelling tries to explain data, usually by finding a link between on set of data and another
 - this can be done by plotting the two variables on a scatter graph and looking at the correlations which can be show better with a line of best fit

Answer 264

A

- It can be calculated form two sets of data that would usually go on a scatter graph
 - it is possible to calculate the extent of the relationship through the following formula;
 r = ΣXY/sqrt((ΣX^2) x (ΣY^2))

Answer 265

A

- means that there is an absolute positive relationship between the two variables.
 - All points in the scatter graph fall on the line best fit and the line slopes upwards from left to right.
 - As the value of the independent variable, increase so do the dependent variable values

Answer 266

A

means that there is no relationship between the variables

Answer 267

A

- means that there is an absolute negative relationship between the two variables.
 - All points in the scatter graph fall on the line of best fit and the line slopes downwards from left to right.
 - As the value of the dependent variable falls

Answer 268

A

- Any value that falls below 0.7 make it difficult to see any correlation from the scatter graph
 - A large rise in one of the Variable may be unrelated to other other factors and could have been affect by something completely different
 - There are sometimes examples of 'nonsense correlations'. These are correlation coefficients that appear to show a strong relationship between two variables, when in fact the relationship between the figures is pure coincidence

Answer 269

A

- uses people's opinions or judgements rather than numerical data
 - a business could base its prediction on the views of so-called experts, or on the opinions of experience managers
 - these methods are useful when there is insufficient numerical data or where figures date quickly because the market is changing rapidly

Answer 270

A

A method of investment appraisal that measures the net return per annum as a percentage of the initial spending.

Answer 271

A

The amount of money spent when setting up a new venture.

Answer 272

A

A method of investment appraisal that takes interest rates into account by calculating the present value of future income.

Answer 273

A

The purchase of capital goods.

Answer 274

A

The evaluation of an investment project to determine whether or not it is likely to be worthwhile.

Answer 275

A

Cash inflows minus cash outflows.

Answer 276

A

The present value of future income from an investment project, minus the cost.

Answer 277

A

The amount of time it takes to recover the cost of an investment project.

Answer 278

A

The value today of a sum of money available in the future.

Answer 279

A

Investment or Capital Investment describes the process of purchasing fixed assets, such as new buildings, plant, machinery and office equipment. It refers to the purchase of any asset which the business plans to own, and will pay for itself, over a period of more than 1 year.
 
 This may include:
 - Replacement or renewing existing assets that have worn out (depreciated) or become obsolete
 - Introduce new assets to meet changes in demand

Answer 280

A

- describes how a business might objectively evaluate an investment project to determine whether or not it is likely to be profitable
 - It also allows businesses to make comparisons between different investment projects
 - There are several quantitative methods that a business might use when evaluating a project
 - However, they all involve comparing the capital cost of the project with the net cash flow

Answer 281

A

the payback period refers to the amount of time it takes for a project to recover or pay back the initial outlay.
 - The payback period can also be found by calculating the Cumulative Net Flow.
 - it is a measure of time, ie days, weeks or years

Answer 282

A

There are certain advantages to a business of the use the payback method to appraise the potential success of an investment
 - This method is useful when technology changes rapidly as it is important to recover the cost of investment before a new model or equipment is designed.
 - It is simple to use
 -Firms might adopt this method if they have cash-flow problems. This is because the project chosen will 'payback' the investment more quickly than other
 - Emphasises cash flow requirements - help planning

Answer 283

A

- This method measure the net return each year as a percentage of the capital cost of the investment
 - Firms want to achieve as high a percentage as possible, certainly higher than they could achieve by keeping the assets invested in a bank as cash.

Answer 284

A

(Net return (profit)) / ((initial cost) x (time)) x 100
 - If the ARR is greater than the return available investment markets, ie cash or giving debentures, then its worth it

Answer 285

A

- it clearly shows the profitability of an investment project
 - Not only does it allow a range of projects to be compared, the overall rate of return can be compared to other uses for investment funds.
 - % result makes it easy to compare against other investment choices
 - Can show true profitability as takes account of all expenditure at face value
 - % terms are easily understood by non accountants

Answer 286

A

- Money in the future is worth less than the same amount now (the present value )
 - This is because money available today could be invested and it could earn interest
 - Note that is a completely different idea to the fact that money in the future can also because devalued due to the effects of inflation
 - Discounted Cash -flow techniques just deal with one of these, the effect of interest rates

Answer 287

A

- The payback and ARR methods assume the timing of payments and receipts are not important, they ignore the time value of money
 - As such, any payment you receive in the future are discounted (reduced) to reflect their lower future value.
 - in essence, it is taking a discount rate of the investment now and adding the total present values together to give you the total return on investment
 - the higher the rate of discount the less the present value of cash flow in the furture

Answer 288

A

- take the discount rate. starting at 1 each year after divide by the discount rate
 - multiple each year's total revenue by their relevant discount factor to give you the present value
 - total the present values to give you the net present value
 - take the net present value and take away the initial cost to give you the value

Answer 289

A

- Only method that considers time value of money
 - As future monies are discounted heavily, less risk if incorrect
 - Only system to give precise answer

Answer 290

A

- Calculation ignores revenues or costs that occur after point of payback
 - Estimates over long periods can be inaccurate
 - Takes no account of the future value of money
 - Long payback terms may put off investment, leading to short-termism

Answer 291

A

- Harder and more time consuming to calculate.
 -Takes no account of the future value of money

Answer 292

A

- Time consuming and difficult to calculate
 - Difficult to understand, particularly for non financially trained
 - Flat discount rate is unrealistic.

Answer 293

A

Firms take the following actions to allow for the risks and uncertainties:
 - Build in contingencies – allow extra funds to account for changes in costs so that would make the project run over budget.
 - Calculate alternative scenarios – expected, best and worst case scenarios
 - Set demanding targets – high ARR’s or short payback terms. Covering costs early removes future uncertainties.

Answer 294

A

<ol><li>Human relations.Some investment projects can have a huge impact on the staff in anorganisation. For example, investment in plantautomation (i.e. replacing workers with machines)might lead to mass redundancies. A business might decide to postpone plans to automate theirplant if it thought the damage to human relationsin the organisation would be too severe.</li><li>Ethical considerations.Along with many other business decisions, managers are being moreethical (i.e. thinking about what is right and wrong)when choosing courses of action. For example, achemicals producer might decide to build a newplant in a location that does not minimise financialcosts but does reduce environmental damage. This decision might help to further improve theimage of a company. Companies are increasinglykeen to be seen as 'good corporate citizens'.</li><li>Risk.One factor in assessing the risk of aninvestment project is a business's financialsituation. Other factors include the state of the economy and the markets into which a businesssells. Investment projects that have long paybackperiods are also riskier than ones with shorterpayback periods.</li><li>Availability of funds.Some investment projectsdo not start because businesses are unable toraise the money needed to fund the project. Alarge number of these will be small businessesthat find it difficult to persuade investors andlenders to provide finance.</li><li>Business confidence.Entrepreneurs, managersand businesses tend to have different attitudesand cultures to each other. One aspect of this isconfidence or optimism (i.e. a feeling that goodthings will happen). Some decision makers tendto be very cautious, seeing all the problems thatmight arise if things go wrong. Some decisionmakers are confident and optimistic. They see thefuture as much better and brighter than others.This has a crucial impact on investment. The cautious, unconfident entrepreneur or managermay delay or abandon investment projects. In thesame circumstances with the same investmentprojects, confident and optimistic managers will tend to go ahead and authorise the expenditure.So, the deeply held attitudes of decision makershave an important influence on investmentdecision making.</li></ol>

Answer 295

A

a technique which shows all possible outcomes of a decision. the name comes form the similarity of the diagrams to the branches of trees

Answer 296

A

- A decision tree is a method of identifying all the alternative outcomes for a decision so that they can be compared to the results of undertaking an action.
 - Numerical values are given to each potential option, then calculations can be used to determine the best outcome.

Answer 297

A

- Decisions Points
 - Outcomes
 - Probability or Chance
 - Expected Monetary Value

Answer 298

A

where a decision needs to be made. Represented by a square.

Answer 299

A

points where the different possible outcomes. Represented by circles and referred to as chance nodes.

Answer 300

A

- the likelihood of success or failure of an outcome.
 - These probabilities will be assessed based on market research data and previous experience (using a businesses backdata)

Answer 301

A

this is the financial outcome of the decision

Answer 302

A

EMV = S + F
 
 S = probability of success x expected profit if successful
 
 F = probability of failure x expected profit if it fails
 
 If they are numerous outcomes you simply add all value of EMV together instead

Answer 303

A

- Can be applied to complex scenarios to allow visual comparison
 - May allow possible courses of action to be identified that have been considered.
 - Numerical values helps decision making
 - Helps identify the risks associated with decisions, allowing management to them to separate important decision from those not important

Answer 304

A

- Due to the reliance on probabilities, may not be accurate.
 - Time lag – by the time decision made, information may be out of date
 - It can be time consuming, although computerised modelling can be quicker.
 - Decision makers may have an agenda which means they manipulate the probabilities to distort the results.

Answer 305

A

How soon a task in a project can begin. It is influenced by the length of time taken by tasks which must be completed before it can begin.

Answer 306

A

The tasks involved in a project which, if delayed, could delay the project.

Answer 307

A

A method of calculating the minimum time required to complete a project, identifying delays which could be critical to its competition.

Answer 308

A

The time by which a task can be delayed without affecting the following task.

Answer 309

A

The latest time a task in a project can finish.

Answer 310

A

A chart showing the order of the tasks involved in completing a project, containing information about the times taken to complete the tasks.

Answer 311

A

Positions in a network diagram which indicate the start and finish times of a task.

Answer 312

A

The time by which a task can be delayed without affecting the project.

Answer 313

A

In business, the sooner a task is completed, the better. Once completed, the business can:
 - re-direct resources to new projects,
 - Satisfy the customer,
 - Receive payment sooner, which
 - Increases efficiency and profitability
 
 - Critical Path Analysis (CPA) makes use of network diagrams to calculate the minimum time needed to complete a project.
 - CPA will allow a business to identify areas where delays may occur and whether those delays may be crucial to the timely completion of a project.
 - It is commonly used in the construction, engineering, software design, aerospace and defence industries, amongst others.

Answer 314

A

- Efficiency
 - Decision Making
 - Time-based Management
 - Working Capital Control

Answer 315

A

- Allows business to identify jobs that can be completed simultaneously and those dependent on others.
 - Allows for accurate use and delivery of resources
 - Can identify where delays may occur

Answer 316

A

- Use of models allows for more objective decision making
 - Past experience will guide development of plans to increase accuracy

Answer 317

A

- Identifies tasks which can be completed together and those done in order
 - Increases efficiency by allowing resources to be used elsewhere until needed

Answer 318

A

9 As with a cash flow forecast, it will allow you to see which resources are required at which time, allowing for more accurate use of working capital.
 - this is especially important if a business operates a 'just-in-time' system of stock control

Answer 319

A

- These are the name given to the diagrams used in Critical Path Analysis
 - Some are relatively simple requiring activities to be complete in a certain sequence, other may have to have multiple tasks completed before moving onto the next one

Answer 320

A

- Business will frequently undertake large projects, which will require a series of tasks to be completed, in a certain order, for the project to be completed on time.
 - Network allows a business to see which activities need to be completed at certain stages for the project to be completed on time, the “critical” tasks.
 - It also allows businesses to see which jobs can be delayed and the project will still be completed on time.
 - This allows a business to “path” the tasks that must be completed in order to ensure completion.

Answer 321

A

- Arrows and lines show tasks
 - Some tasks can be completed at the same time (B&C can both be started after A)
 - Arrows and lines cannot cross
 - Each task takes a period of time
 - Task must be completed in order
 - Circles (nodes)show the start and end of each activity
 There is always a node at the start and end of the project.
 Nodes contain information about the timings of the project.

Answer 322

A

- This is the earliest time you can start at task (EST)
 - This can be calculated by going through the diagram from start to finish and working out all the possible times an activity can start and calculating the earliest one
 - This goes in the top box on the node
 - The start node is 0, and have 0 in both of its boxes (it can finish any later than 0)

Answer 323

A

- This is the latest time a project must be finish in order to complete the task on time (LFT)
 - We work back from the End node picking the largest value routes to go back on to calculate the LFT
 - This goes in the bottom box on the node
 - The end node has the same EST and LFT

Answer 324

A

- This shows the task which, if delayed, will lead to a delay in the project.
 - To find the Critical Path it is the route where the Earliest Start Time and Latest Finish Time are the same
 - But it also needs to be the route that takes the Longest time

Answer 325

A

- Once the network diagram has been completed and the CPA identified, businesses can identify the “total float” within the project. That’s how long a certain task can be delayed without the total project time being affected. It’s calculated by:
 
 LFT of activity – EST of activity – duration
 
 - The easiest way to remember this is the bottom number of the activity node minus the total number of the node before minus the weight of the time inbetween
 - Total float only applies to task not on the critical path

Answer 326

A

- This is the amount of time by which a task can be delayed without affect the following task and is calculated by;
 
 EST of the next task - EST start of this task - duration
 
 - The easiest way to remember this is the top number in the activity node minus the top number in the previous node minus the weight of the line in the middle

Answer 327

A

Whilst CPA is a valuable tool in project planning and project appraisal, there are limitations to the technique:
 - Information used to create estimates may be incorrect.
 - Changes may occur during the project, particularly those with long completion times.
 - Businesses should factor in contingency plans to allow for this.
 - Just because a resource has been identified in this project as being needed on a certain date, doesn’t mean to say its available. It may be being used somewhere else.
 - The larger the project, the harder to manage, due to the increased volume of tasks to be completed.

Answer 328

A

It is the amount of money left over from a sale after variable costs have been covered

Answer 329

A

overheads an overhead cost or expense, for example lighting,equipment and any extras paid for out of a centralised budget

Answer 330

A

Contribution per unit =

selling price — variable cost

Answer 331

A

option1) Total contribution =

total revenue — total variable cost

option 2) Total contribution = unit contribution x number of unitssold

Answer 332

A

<ol><li>calculate the break-even level of output</li><li>calculate the amount of profit made by a business</li><li>calculate the amount that needs to be sold to reacha specific profit target</li><li>help a business to decide which order to accept when faced with a choice</li><li>help a business decide what price to charge for a product.</li></ol>

Answer 333

A

break even = fixed costs/contribution

Answer 334

A

Profit =

total contribution — fixed costs

Answer 335

A

output = (fixed costs + profit target) / contribution

Answer 336

A

<ol><li>contribution costing - the use of contribution to help makedecisions based on costs, such as which order to accept</li><li>A business might use contribution when making certain types of decision. For example, sometimes a business will have to decide which order(s)or contract(s) to accept when faced with a choice fromdifferent customers. This may be because the business does not have enough capacity to accept all the orders it receives. Or it may be that they are not all financiallyviable (i.e. capable of financial success). Contributioncosting can help here.</li></ol>

Answer 337

A

<ul><li>the use of contribution to help makedecisions based on costs, such as which order to accept</li><li>A business may use contribution when deciding what price to charge. This involves setting a price that exceeds the value of variable cost.</li><li>This means that a particular order orproduct will always make a contribution when sold.</li><li>This approach ignores fixed costs because a single order orproduct may not generate enough contribution to coverfixed costs. This approach needs to be used carefully.Obviously, to make a profit fixed costs have to be covered.</li><li>.</li></ul>

Answer 338

A

Contribution pricing is more likely to be usedwhen fixed costs are low or when a business, throughexperience, knows that fixed costs will be covered

Answer 339

A

The practice of buying businesses and breaking them up. The profitable parts are sold for cash and the rest are closed down.

Answer 340

A

An approach to decision making that involves gathering information and using a systematic and rational approach to reach a conclusion.

Answer 341

A

The time period where decisions have an impact on the vision, mission and objectives of a business. Typically longer than five years.

Answer 342

A

The time period where decisions only have an impact on the operational activities of a business – typically less than five years.

Answer 343

A

Decisions concerning policy that can have a long-term impact on a business. Can be risky.

Answer 344

A

An approach to decision making where the personal opinions of the key decision maker strongly influence the course of the action chosen.

Answer 345

A

- Corporate Influences
 - Corporate Culture
 - Stakeholder Perspective
 - Business Ethics

Answer 346

A

- Short term goals conflicting with long term objectives.
 - Focus on need for immediate profit can affect long term growth
 - For example - limiting pay rises
 - Another Corporate influence is whether business decision are based on evidence or the subjective view of key decision makers
 - Subjective decision making is likely to carry more risk

Answer 347

A

- The corporate culture can affect decision making.
 - Open cultures will be more flexible and innovative
 - More restrictive cultures can lead to being more cautious, leading to being less competitive

Answer 348

A

- Some businesses will focus on corporate social responsibility
 - Others will have less consideration for factors such as environmental or local issues

Answer 349

A

- Businesses focused on shareholder opinions tend to leave other stakeholders marginalized.
 - Others will consider a range of stakeholders, such as customers or workers, this focus may appeal to more customers

Answer 350

A

- Maximise Short-Term Profits
 - Invest Less Money in Research and Development (R&D)
 - Invest less in Training
 - Return Cash to Shareholders
 - Engage in Asset Stripping
 - Arrange more Short-Term Contracts
 - Pursue External Growth rather than Organic Growth

Answer 351

A

- Most companies that pursue short-term objective aim to increase shareholder value
 - They are likely to do this by trying to maximise short-term profits
 - For example. they might try to maximise revenue by charging higher prices, invest in advertisement, use cheaper resources etc.

Answer 352

A

- This is because research and develop can be a big drain on cash reserves.
 - A company will prefer to use this to help fund short -term objectives
 - Investment in R&D is also risky, returns could be negative if R&D projects are fruitless
 - Even if R&D is successful, the financial returns can take many years to reap

Answer 353

A

- Training staff is also expensive and the returns are not immediate
 -The returns from training are likely to be positive because workers will be better motivated, better equipped to do their job and staff turnover will be lower
 - However, it will take time for the benefit to materialise

Answer 354

A

- A business with a large cash reserves may pay special dividends to shareholders instead of investing for the long-term

Answer 355

A

- Once the other business has been asset stripped, the profitable parts are sold for cash and the loss-making sections are closed down.
 - This practice is often considered unethical because there is no regard for the future of the company and its stakeholders
 - However, in the short term it can generate a quick cash return for shareholders of the predator

Answer 356

A

- They may also employ more agency and temporary staff, and favour short-term leases for machinery and other essential assets.
 - entering short-term contracts obviously does not really commit a business to any long-term objectives

Answer 357

A

- Organic growth may be considered too slow for companies with a short-termist approach
 - growth through mergers and acquisitions is much faster and may generate swifter returns, if successful

Answer 358

A

- Long term profitability of a business could be threatened by focusing on short term goals.
 - Companies can lose competitive edge, particularly in overseas markets
 - Requirements of financial reporting – particularly quarterly reports – mean that too much time is spent by executives focusing on non productive activities.
 - Over reliance on short term contract – can lead to inefficient use of resource in long term

Answer 359

A

- Essentially, the benefits of long-termism is the opposite of short-termism.
 - Businesses less likely to miss profitable long term products as will be willing to accept longer payback periods
 - Increases in R&D spending will lead to greater chances of developing new products and other innovations
 - With increased training budgets, long term will lead to more qualified, experienced staff, improving productivity

Answer 360

A

- Evidence-based decision making --> requires a systematic and rational approach to researching analysing all the available information before a conclusion is reached
 - Subjective decision making --> is where the personal opinions of the key decision maker strongly influence the course of action chosen

Answer 361

A

-Setting/Identifying Objectives
 - Gathering Ideas and Data
 - Analysing Ideas and Data
 - Making a Decision
 - Implementing the Decision
 - Monitoring and Evaluation

Answer 362

A

- identify the objective a business wants to achieve
 - The objective might be a corporate objective, such as growth or survival in a poor trading period --> decisions are likely to be complex and might be taken by the board of directors
 - For lower-level objectives, such as filling a part-time vacancy, decisions may be taken by junior managers
 - Objectives might be different at different stages in its growth
 - government owned companies will have different objectives from PLCs
 -The business also needs to develop criteria to measure whether it has achieved its objectives
 - Quite often the objective is to solve a problem

Answer 363

A

- The amount and nature of the information needed will depend on the decision e.g. launching a new product would require alot of information compared to deciding who would be best to hire for a new position
 - It could take several months to collect all this information
 - Whereas some decisions can be made with the information a company already has e.g. dismissing an employee
 - A business may get this information with a working party set up in the firm who could produce reports and presentation
 - Alternatively, individual and departments might submit ideas and information

Answer 364

A

- the next stage in the process is to analyse information to look for alternative course of action
 -Possible course of action may be based on previous ideas or completely new ideas
 - The aim is to identify which course of action will best achieve the business's objective or solve the problem- it may be possible to test the alternatives before the one that is chosen is carried out

Answer 365

A

- this is the most important stage in the process
 - decision makers have to commit themselves to one course of action
 - It is difficult to change the decision, so getting it right is vital e.g. if a new product doesn't sell, it can lead to a lose of money
 - Some decision can be reversed e.g. if a owner of a shop decisions to close on Tuesday afternoon but the loss of sales in intolerable, the owner can easily reopen
 - Sometimes the decision makers feel that they cannot reach a decision
 - They may have to obtain more information and complete the previous two stages in the process again

Answer 366

A

- once a decision has been made, personnel are informed and the decision is carried out
 - Quite often the people making the decision are not those that carry them out
 - Instructions may be passed by the decision makers to someone else, probably a manager, explaining what action should be taken

Answer 367

A

- Once a decision has been carried out it will take time before the results are known
 - Sometimes this can be quite a long time e.g. the companies which decided to build to Channel tunnel will not know for several decades whether or not it will be a commercial success

Answer 368

A

- Finally, decision makers need to evaluate the outcome of their decisions
 - This is often present as a report
 - It may be necessary to modify the course of action on the basis of the report e.g. revise the objective or collect some more information
 - there may be problems in following such as approach
 - Objectives may be difficult to identify or unrealistic
 - Information may be limited, incorrect or misleading
 - People making decisions in the process may have different views and this may lead to differences of opinion about what is the best course of action

Answer 369

A

- This method of making decisions involves “feelings” and “hunches”.
 - Some might argue that subjective decision making is too risky when making strategic decision
 - This is because subjective decision maybe based purely on the opinions and emotion of perhaps just one person

Answer 370

A

- If there is a lack of current, accurate and meaningful information relating to a decision
 - Some corporations are dominated by powerful and persuasive leaders, there may be occasions where such a leader makes strategic decisions singled-handedly, without consultation. This is acceptable, particularly if he leader is experience and has a good track record with decisions
 - In some industries subjective decision making may be quite normal e.g. the fashion industry
 -There are times when some decision have to be made very quickly and there maybe not be enough time to follow the scientific approach outlined earlier

Answer 371

A

A set of characteristics that form the international context of business culture.

Answer 372

A

The values, attitudes, beliefs, meanings and norms that are shared by people and groups within an organisation.

Answer 373

A

A culture where the values, beliefs and ways of working are deeply embedded within the business and its employees.

Answer 374

A

- It provides a sense of identity for employees. They feel part of the business. This may lead workers to be flexible when the company needs to change or is having difficulties.
 - Workers identify with other employees. This may help with aspects of the business such as teamwork.
 - It increases the commitment of employees to the company. This may prevent problems such as high labour turnover or industrial relations problems.
 - It motivates workers in their jobs. This may lead to increased productivity.
 - It helps employees understand what is going on around them. This can prevent misunderstanding in operations or instructions passed to them.
 - It helps to reinforce the values of the organisation and senior management.
 - It acts as a control device for management. This can help when setting company strategy.
 In comparison to a strong culture, a weak culture exists where it is difficult to identify the factors that form the culture or where a wide range of sub-cultures exists, making the culture difficult to define. There are certain factors that are likely to determine whether a business has a strong or weak culture.

Answer 375

A

In comparison to a strong culture, a weak culture exists where it is difficult to identify the factors that form the culture or here a wide range of sub-cultures exist making the culture difficult to define

Answer 376

A

- Surface Manifestations
 - Core Organisation values
 - Basic Assumptions

Answer 377

A

- Artefacts
 - Ceremonials
 - Courses
 - Heroes of the Business
 - Language (used in a business-specific way)
 - Mottoes
 - Stories
 - Myths
 - Norms
 - Physical Layout (of the premises)
 - Rituals

Answer 378

A

Such as furniture, clothes or tools- wearing a uniform would be an example.

Answer 379

A

Such as award-giving ceremonies or the singing of the company song at the start of work.

Answer 380

A

Such as induction courses, or ongoing training courses for workers used to instil the organisational culture.

Answer 381

A

Referring to workers as ‘colleagues’ or calling workers ‘crew members’.

Answer 382

A

Which are short statements that never change, expressing the values of an organisation.

Answer 383

A

Which tell of some important even that exemplifies the values of the business, such as the history and role of the founders.

Answer 384

A

Which are frequently told stories within a business about itself, but are not necessarily literally true.

Answer 385

A

Which are the ways in which most workers behave, such as worrying if you turn up for work late, always being prepared to cover for workers who are off sick, or not using the company’s telephone to make personal calls.

Answer 386

A

Such as open plan offices, ‘hot desking’, or allocating the size of an office according to a manger’s place in the hierarchy.

Answer 387

A

Which are regular events that reinforce the culture of an organisation, such as always supporting Red Nose Day (we are a caring organisation), having a weekly ‘dress down day’ (we are a relaxed organisation), or holding an annual Christmas party (we are a sociable organisation).

Answer 388

A

Living or dead, such as Bill Gates, Richard Branson or Walt Disney, whose way of working provides a role model within the business.

Answer 389

A

- Core values are located below the surface manifestations of organisational culture.
 - They are consciously thought-out and expressed in words and policies.
 - The values expressed in a mission statement would be am example.
 - Often these are the values that have come from the top of an organisation.
 - They may have come from the original founders of the business, or the current senior management, which has attempted to impose a culture on the business.
 - Core organisational values can reflect the actual culture of a business, but, equally, they might not.
 - Workers at the bottom of the hierarchy might have very different values from the ones that senior management want them to possess.
 - For example, workers who face a very difficult environment where customers often complain might not share the views of the CEO that the customer is always right and at the heart of the business.

Answer 390

A

- Basic assumptions are the unsaid beliefs and ways of working; they form the general attitude of the workforce and represent the totality of individuals’ beliefs and how they then behave. -- - They are ‘invisible’ and below the surface, and therefore often difficult to see, understand and change.

Answer 391

A

There are many ways of classifying organisational culture. One attempt was made by Charles Handy in Understanding Organisations (1993). He argued that there were four main types of organisational culture.
 - Power Culture
 - Role Culture
 - Task Culture
 - Person Culture

Answer 392

A

- A power culture is one where there is a central source of power responsible for decision making.
 - There are few rules and procedures within the business and these are overridden by the individuals who wold power when it suits them.
 - There is a competitive atmosphere amongst employees.
 - Among other things, they compete to gain power because this allows them to achieve their own objectives. - This creates a political atmosphere within the business.
 - Relatively young, small-to medium-sized businesses, where a single owner founded the firm and is still very much in control, could typically have power cultures.

Answer 393

A

- In a role culture, decisions are made through well-established rules and procedures.
 - Power is associated with a role, such as marketing director or supervisor, rather than with individuals.
 - In contrast to a power culture, influence and control lies with the roles that individuals play rather than with the individuals themselves.
 - An organisation with a role culture will have a tall- or flat- hierarchy with a long chain of command.
 - Role cultures could be described as bureaucratic cultures.
 - The Civil Service is an example of a role culture.

Answer 394

A

In a task culture, power is given to those who can accomplish tasks.
 - Power therefore lies with those with expertise rather than a particular role, as in a role culture. In a task culture, team working is common, with teams made up of the experts needed to get a job done.
 - Teams are created and then dissolved as the work changes.
 - Adaptability and dynamism are important in this culture

Answer 395

A

- A person culture is one where there are a number of individuals in the business who have expertise, but who don’t necessarily work together particularly closely. - - The purpose of the organisation is to support those individuals.
 - The business will be full of people with a similar background, skills set and training.
 - Examples of person cultures could be firms of accountants, lawyers, doctors or architects.

Answer 396

A

- Motivation
 - Organisational Structures
 - New Management
 - Mergers and Takeovers

Answer 397

A

- Organisational culture affects the motivation of staff. - It can have a direct effect because the way in which treat each other impacts on motivation.
 - For example, motivation is likely to be greater if the culture of organisation respects individual workers and their achievements.
 - A highly competitive culture might motivate some workers and demotivate others.
 - Organisational culture can also indirectly affect motivation.
 - An organisational culture which leads to a successful business is likely in itself to motivate staff because they feel part of the successful business.

Answer 398

A

- Organisational culture can affect the organisational structure of a business.
 - Differences can occur because a number of key workers share the senior management roles an example could be a Doctors’ Practice.
 - In contrast there are likely to more layers of management in a large multinational business that might require regional and divisional managers and multiple product teams
 - The larger the business, the more layers in the hierarchy there are likely to be as specialist role are assigned

Answer 399

A

- One way for a business to change for new management to be appointed.
 - The greater the change needed, the more likely it is that the new management will have to confront the existing organisational culture.
 - The organisational culture is likely to be part of the problem that needs addressing if the business is to be turned around.

Answer 400

A

- The process of creating a single business out of the two organisations will involve changing organisational culture
 - In a takeover, one simple way of making that change quickly is for the senior management in the company being taken over to be made redundant.
 - Without powerful advocates at the top of the organisation, those lower down will find it difficult to resist the change that will be imposed upon them.
 - However, motivation and morale is often low in a company that has been taken over for the first year or so because they are being forced to change

Answer 401

A

- In the same way that you might identify a patent on an invention or an established brand as an asset, culture too can be a distinctive and sustainable competitive advantage.
 - Unit 45 discussed distinctive capabilities as a route to achieving competitive advantage for a business.
 - John Kay (1993) referred to 'architecture as one of the types of distinctive capability that could lead to competitive advantage.
 - Architecture refers to the relationships and networks within an organisation and those that it develops with its external stakeholder’s corporate culture would fall into this category.
 - Whenever discussing corporate culture, it is worth considering it in terms of an asset that can be used to add value and compete in the market.
 - However, it is also worth remembering that culture is very difficult to manipulate and shape in order to meet the changing needs of the business.

Answer 402

A

- Many factors contribute to the formation of organisational culture.
 - These include the role of the founding members of the organisation, their personalities and beliefs. often a strong leader's attitudes will permeate the organisation.
 - For example, Jan Koum, the CEO of WhatsApp, has refused to let advertisers buy space on the WhatsApp application.
 - His belief has influenced the strategy and values of the company.
 - Other factors that are likely to have a significant impact on the formation a firm's culture are the environmental factors that the business was born into.
 - For example, the history or heritage of a business may determine certain values and norms because they form part of what employees buy into.
 - However, such a factor may not play a part in a new company such as Pinterest, which was set up in 2010.
 - Similarly, the success of a company will play a big part in setting the values and expectations of staff.
 - Pinterest was the most rapidly growing social network site in 2012 and 2013, and was named one of the most innovative companies, all of which will contribute to the motivation and belief of its workforce.
 - The type of product is another factor in creating culture.
 - For example, the technological complexity of a product may determine the skill and expertise of the workforce (perhaps contributing to a role culture) and the pace of change or need for innovation.

Answer 403

A

- From time to time it might be desirable for a business to change its culture to one that is stronger and more productive.
 - A firm's culture can provide with a competitive advantage over its rivals. The problem with organisational culture that although it may be easy to describe, identifying the factors that contribute towards that culture and their significance is very difficult.
 - Even changing one of these factors may not have significant influence on shifting the culture.
 - Furthermore, most organisations have sub-cultures within specific teams or functions.
 - Some aspects of organisational culture might also be easier to change than others.
 - For example, it might be easy to change the policies, rules and working practices within a firm these are tangible factors.
 - However, it is much harder to manipulate people's attitudes and beliefs.
 - Overall, culture can be changed if the right factors are influenced and the leaders within the organisation are strong. but changing culture is not easy and can be a long process
 - Many factors contribute to the formation of corporate culture. is important for the directors of a company to understand these factors and the role they play before they can hope to manage cultural change.

Answer 404

A

<ol><li>Power distance This is the distance between managers and subordinates. A high-power distance culture suggests that managers will have significantly more power and privileges than their subordinates. They probably will not socialise and communication is generally top down. A lower-power distance culture has greater collaboration and discussion between employees of different rank</li><li>Individualism This is how people see themselves within their organisation. Where individualism is high, people tend to focus on their own success above that of the organisation or their team. The level of individualism versus collectivism within a culture can determine organisational structure, motivation and internal competition.</li><li>Masculinity versus femininity Hofstede theorises the management style in a masculine organisation might be described as competitive and assertive. Its counterpart approach might be described as caring and co-operative. According to him, this could influence how people respond to targets and goals, and relate to one another in the business.</li><li>Uncertainty avoidance This is the level at which an organisation will accept risk. A high level of uncertainty avoidance suggests a business will want evidence, security and proof before acting. By contrast a business with a low uncertainty avoidance might take 'a long shot' if it believes the rewards are worthwhile. Organisations with low uncertainty avoidance are more entrepreneurial and agile in their decision making.</li><li>Long-term versus short-term orientation This addresses a culture's time horizon' and the basis on which decisions are made. A high score indicates business decisions are made to achieve success in the long term. A low score suggests an organisation makes decisions to achieve short-term rewards and immediate gratification in terms of shareholder value. Hofstede's cultural dimensions go beyond simply identifying behavioural differences — they present a useful framework for understanding the cultural setting of a business. This is particularly useful when analysing businesses across borders and interpreting how international businesses might react and interact in different circumstances, such as international trade, partnerships, mergers and takeovers. </li></ol>

Answer 405

A

Groups outside a business with an interest in its activities.

Answer 406

A

Groups inside a business with an interest in its activities.

Answer 407

A

A measure of company performance that combines the size of dividends with the share price.

Answer 408

A

Groups or individuals who can affect or be affected by the actions of a business.

Answer 409

A

- Business Owners
 - Employees
 - Managers and Directors

Answer 410

A

- A business is the property of the owner
 - Owners are stakeholders because they stand to gain or lose, financially from the performance of the business
 - They will benefit if the value of the business increases
 - However if the business fails the owners may lose the money that invested in the business
 - Most large plcs some of the senior managers and members of the board are likely to own shares
 - One reason for this is because part of their remuneration often consist of shares
 - Finally, in some companies employees may own a small number of shares

Answer 411

A

- Employees depend on businesses for their livelihood
 - Most employees have no other sources of income and rely on wage to live on
 - Some employees are represented at work by trade inions
 - If this is the case, then trade unions also become stakeholders,
 - The needs of employees are often in conflict with those of other stakeholders, such as owners and managers

Answer 412

A

- In small businesses managerial tasks, such as organising, decision making, planning and control are undertaken by the entrepreneur themselves
 - However, in large businesses the key decisions relating to company policy and strategy are made by the board of directors
 - It is then the responsibility of managers to ensure that the policies and strategies are implemented
 - Large businesses employ specialists in managerial position
 - Managers have to show leadership, solve problems make decisions etc.
 - Managers are likely to help plan the direction of the business with owners
 - they also have to control resources such as finance equipment, time and people
 -Manager are also accountable, this means they are responsible for their actions and the actions of their subordinates
 - Managers are accountable to senior manager in the managerial hierarchy.
 - The board of directors is accountable to the shareholders

Answer 413

A

- Shareholders - Customers - Creditors - Suppliers - Pressure groups - The Local Community - The Government - The Environment

Answer 414

A

- Most Shareholders in large companies are not involved in the day-to-day running of the business
 - They are investors and have a purely financial interest
 - External shareholders, who might be individual, or more likely , financial institutions, invest their money to get a financial return
 - Shareholders are also entitle to a vote at the AGM of a PLC
 - They can vote to re-elect or dismiss the current board of directors
 - However, many external shareholders do not take up these entitlement, If they are not happy with the way the company is being rub, or the return they get is inadequate, external shareholder can sell their shares and invest their money elsewhere

Answer 415

A

- Customers buy the goods and services that businesses sell
 - Through their purchases they provide the revenue and profit that businesses need to survive
 - However, customers need businesses because they provide the goods and services they require and want
 - Most customers are consumers (individuals and families) who use or 'consume products
 - However, some may be other businesses
 - For example, JCB manufactures a range of construction machinery that it sells to other businesses

Answer 416

A

- Creditors lend money to a business
 - They may be banks, but could also be individuals, such as family members, or private investors, such as venture capitalists
 - Clearly, these stakeholders have a financial interest in a business and will be keen for it to do well
 - Creditors will expect their interest payments to be met and their money returned at the end of the loan period
 -They will also want clear communication links with the business

Answer 417

A

- Businesses that provide raw materials, components, commercial services and utilities to other businesses are called suppliers
 - Relations between businesses and their suppliers need to be good because they rely on each other
 - Businesses want good-quality resources at reasonable prices.
 - They also want prompt delivery, trade credit (buy now pay later) and flexibility.
 - In return suppliers require prompt payment and regular orders
 - As with customers and businesses, there is a mutual dependence between suppliers and businesses

Answer 418

A

- A business may employee people locally and if the business foes well the community may prosper.
 - there may be more jobs, more overtime and possibly higher pay
 - This will have a knock-on effect in the community e.g. shops, restaurants and cinemas may benefit form extra spending

Answer 419

A

- A business may be criticised by the local community
 - For example, if a factory is noisy, polluting or works at nigh t there may be complaints form local residents
 - If a business that employed a lot of local people closes down, the impact on the community can be devastating
 - In the 1980s when many coal mines were closed in the UK, the mining communities suffered badly due to very high unemployment

Answer 420

A

- The government has an interest in all businesses
 - Generally the government will want businesses to be successful
 - They provide employment ,generate wealth and pay taxes
 - Taxes form businesses and their employees are used to fund government expenditure
 - It helps to pay for benefits, the NHS, schools and other services
 - If businesses fail, the government loses tax revenue and has to by benefits to the unemployed
 - However, the government will also require businesses to comply with the law
 -A significant amount of legislation exists to protect those who might be exploited by businesses if they were too powerful

Answer 421

A

- Business activity can have an impact on the environment
 - For example, if a business releases toxic waste into the waterway system, wildlife and its habitats could be destroyed
 - Thus, representatives of the environment have an interest in business activity
 - These representative may be individuals or environmental groups, such has Friends of Earth and Greenpeace
 - An increasing number of people are concerned about environmental issues; consequently environmental groups are becoming more influential in business decision making

Answer 422

A

- The majority of shareholders ill want the business to maximise shareholder value
 - This is a measure of a company performance that takes into account the size of dividends (share in profits) and the share price
 - Over time shareholders want this to grow
 - if the growth in shareholder value is not to the satisfaction of external investors they may sell their shares
 - This could result in a fall in the share price which might make the company vulnerable to a takeover

Answer 423

A

- Employees want the business that they work for to prosper.
 - If a business is growing and profitable, employees are likely to get higher wages, more perks and perhaps a bonus
 - They will also feel more secure in their jobs
 - It could be argued that, according to Herzberg, employees expect good pay and comfortable working conditions
 - However, they will also want responsibility, interactions with colleagues, to be valued, personal development, fair and honest treatment, and opportunities for promotion
 - Safety at work is also important as are issues to do with equal opportunities
 - Generally, employees will want to maximise there financial rewards and welfare

Answer 424

A

- Managers and Directors are likely to have similar needs to those of employees
 - Many managers (and employees) have part of their remunerations linked to the performance of the business and will therefore want the business to perform well
 - Mangers may also press for other benefits, for instance bonus payments if they perform well, expense allowance when travelling on company business, and benefits such as a company, free health insurance and more flexibility
 - Some senior executives may see power as an objective; they like 'empire building' As a result , the shareholder may lose the ability to influence key decisions in the organisation

Answer 425

A

- Customers want good-quality products at a fair price
 - They also want clear and accurate information about products and high-quality customer service
 - they may also want choice, innovative products and flexibility
 - For some products, such as machinery, electrical goods and children's products, safety is an important issue
 - If these needs are not met, customer will spend their money elsewhere
 -Customers have a powerful influence on businesses
 -They are also more aware today about the range of products available and about their rights as consumers
 - In competitive markets only those businesses that meet customers needs are likely to survive

Answer 426

A

- Suppliers want to be treated fairly by businesses
 - They will also want a fair price for their goods and service and to be paid in reasonable time
 - In 2013/14 it will suggested in the media that some businesses might 'bully' suppliers
 - For example, some stores might put pressure on suppliers and demand price cuts because of the fall in commodity prices
 - They might threaten to withdraw products if suppliers refuse to comply
 - IN cases such as these, an investigation might take place by the Groceries Code Adjudicator, for example

Answer 427

A

- The government will want businesses to grow and make more profit
 - They will also want them to comply with legislation and not exploit vulnerable groups

Answer 428

A

- Environmental groups will want businesses to avoid having any negative impact on the environment
 - For example, they will demand that business activity does not damage wildlife and its habitats, pollute the atmosphere or waste resources

Answer 429

A

- Local communities will want businesses to contribute to the prosperity of the community and be good corporate citizens
 - Communities would probably want businesses to create employment and, depending on their size, nature of business and capabilities, build links with schools and charities, maintain open communications, and avoid or minimise congestion and pollution in the area

Answer 430

A

- Recognise the interests of other stakeholders and take their views into account when running the business and making decisions
 - Maintain open communication channels with other stakeholders and consult with other stakeholders and consult with then before making radical changes
 - Recognise the interdependence that exists between different stakeholders, ensuring that the benefits of enterprise are distributed fairly after taking into account the level of effort and risk each group contributes
 - Minimise or eliminate the adverse effects of business activity, Id such effect cannot be avoided then those affected should be adequately compensated

Answer 431

A

- Some Businesses might claim to have adopted this stakeholder approach
 - Part of the reason for this is that corporations are coming under increasing pressure form stakeholders, the media and the wider public to be more socially responsible
 - It might be argued that some businesses like to give the impression that they consider the needs of wider range of stakeholders but in reality they are still more focused on shareholders needs
 - For example, a business might claim to adopt an ethical stance purely to increase sales, revenue and profit

Answer 432

A

- Traditionally, many corporations have focused on growth or profit when making important business decisions
 - The objective of shareholders have had more influence on decision making than those of their stakeholders
 - This approach was based on the ideas that directors and mangers are employed by shareholders and should therefore serve their interests
 - this meant that they should make as much money as possible for the owners of the business provided they comply with the law
 - Some businesses still adopt this approach and their main objective is to maximise shareholders returns by raising both dividends paid to shareholders and the share price

Answer 433

A

- offering higher wages, better conditions, more perks and bonuses training and improving welfare comes at a cost
 - If the needs of employees are met in full there is likely to be negative impact on profit and dividends
 - Conflict will arise if shareholders insist tat the rewards to employees should not come at the expense of dividends
 - Employees may try to put pressure on the business to ensure their objectives are met by threatening industrial action
 - However, i f this action is too disruptive it may jeopardise the survival of the businesses
 - Employees have to be careful not to push their claims too far

Answer 434

A

- Most likely to arise if a business charges prices that are too high
 - Higher prices will help boost shareholders return but reduce the purchasing powers of customers e.g. in 2014 Gas prices rose even though the cost of gas paid by suppliers fell
 - Customers might also come into conflict with businesses if levels of customer service are poor or if businesses fail to invest in R&D and bring out new products
 - however, if businesses can cut back on R&D expenditure they can pay shareholders higher dividends

Answer 435

A

- Senior Managers and Directors are employed to further the interests of shareholders
 - however, conflict may arise if they start to prioritise their own objectives, such as maximising remuneration, expenses, perks and other beneits
 - If these are too high, profit and dividends may suffer
 - This is most likely to happen if shareholders lose some of their control over the business --> there may be a 'divorce of ownership and control'
 - This can happen if shares are held by a very large number of different shareholders where no single shareholder has any significant control
 - A common conflict between shareholders and directors is the balance between paying dividends and retaining profits for investments

Answer 436

A

- in an effort to maximise profit, a business might neglect its responsibilities towards the Environment e.g. in 2011 some UK Water companies were draining rivers that were at risk of completely drying up which led to the death of some wildlife and a build up of chemicals
 - The report suggested that companies were extracting water from theses sources as they were the cheapest
 - Activities such as these may attract the attention of the media and environmental groups, resulting in conflicts between the company and environmentalists

Answer 437

A

- Conflicts between shareholders, and the government is likely if businesses break the law
 - However, the judicial system should resolve such conflicts
 - in 2013/14 there was evidence that some big corporations were avoiding the payment of tax in the UK e.g. Amazon only paid £4.2 mil of tax on a revenue of £4.3 bn
 - If corporations can reduce the amount of tax they pay then the shareholders will enjoy bigger profits
 - However, if businesses are able to avoid paying taxes the government if likely to be criticised
 - In the future, governments might have to pursue such businesses for the payment of taxes or risk losing their political support

Answer 438

A

<ol><li>Pressure groups such as tradeunions or environmental groups like Greenpeace maytry to influence business activities. They may do this ifspecific activities threaten the interests of that group.Pressure groups can exert influence by finding alliesin the media, by organising protest marches, and by running marketing campaigns to express their concerns.</li><li>For example, Greenpeace might publish an article in the media that draws attention to a business which isthreatening a wildlife habitat.</li></ol>

Answer 439

A

a business assessing and taking responsibility for its effects on the environment and its impact on social welfare. It involves the idea that businesses bear a responsibility that stretches beyond their shareholders

Answer 440

A

statements about how employees in a business should behave in particular circumstances where ethical issues arise

Answer 441

A

in the context of business ethics, considerations of the moral 'rights and wrongs' of a decision at an often strategic level, in accordance with the law, and a businesses's code of conduct in relationship to Corporate Social Responsibility

Answer 442

A

an hourly rate of pay based on the basic cost of living, set independently of government and updated annually

Answer 443

A

the minimum pay per hour all workers are entitled to by law

Answer 444

A

the reward for work in the form of pay, salary or wages, including allowances and benefits, such as company cars, health insurance, pension, bonuses and non-cash incentives

Answer 445

A

Sanctions are Restrictions imposed on trade or investment with the aim of influencing a policy change in another country
 - Trade embargoes can be included on sanctions, where commercial shipments are banned in and out of a particular country, or where an embargo is placed on a particular product

Answer 446

A

- Ethics in the context of business ethics considers the moral rights and wrongs of a decision, focusing more on a strategic level rather than decision made by, as an example, individual employees.
 - All businesses have to make ethical decisions. Some of these will be governed by the law, but many decisions have to be made without the help of the law – should a worker be allowed a paid day off to look after their sick child?
 - Every business should have a stated code of conduct within which employees operate in respect of ethical business decisions, although employees at different levels might have different opinions, for example:
 - Some employees may argue about whether it is okay to manufacture violent video games or toy guns.
 - Some employees may have religious concerns about selling meats or alcohol in restaurants.

Answer 447

A

- Ethics of strategic decisions
 Strategic decisions are those that impact how a business operates in the long term. All businesses have to make some sort of ethical decision as part of their corporate strategy and these are usually the responsibility of management.
 - Over the past 20 years, a number of issues have arisen for large corporations that require strategic decisions based on ethics:
 - The Environment
 - Animal Rights
 - Workers in Developing Countries
 - Corruption
 - New Technology
 - Product Availability
 - Trading Issues

Answer 448

A

- in countries like the UK or the USA, the law limits the amount of pollution or damage a business can do. However, businesses must decide whether to adopt an even more stringent measure to protect the environment. Should they still recycle if it lowers profits?
 -Multinational businesses often face lower environmental standards in developing countries. Should they lower their own environmental standards in such locations to take advantage of this?

Answer 449

A

some companies, like pharmaceutical companies or make up manufacturers might use animals to test products. Some people see this as impractical. Other businesses may play a part in ruining environments. Wildlife conservation groups argue against farming activities that destroy forests or other habitats.

Answer 450

A

a number of companies have been criticised for exploiting workers in developing countries. Companies manufacture in countries with emerging economies because production costs are much cheaper. However, there is an ethical question about the extent to which low costs should be at the expense of workers.

Answer 451

A

in some industries bribes might be used to persuade customers to sign contracts. It has been suggested that this takes place in certain emerging economies. The ethical question is whether it is right to use bribes or even if a business knows that competitors do this.

Answer 452

A

most new products, such as mobile phones or a new chocolate bar, do not cause ethical issues, but some technological advancements do seem to cause controversy. Examples of this are nuclear power generation and GM crops.

Answer 453

A

if a person cannot afford an expensive car or some other luxury goods, most would not see this as an ethical issue. But if someone is HIV positive in South Africa and they cannot afford drugs for treatment because of the price, many would argue it is an ethical issue. The direction of research is also important. Companies may choose to investigate something that only affects a few people in the industrialised world, or they may choose to look into malaria, that kills millions of people each year.

Answer 454

A

some countries have been condemned internationally for the policies their governments have. They may have sanctions or embargoes and companies will have to decide whether to invest.

Answer 455

A

Ethical codes of practice may develop from ethical objectives of businesses. For example, a large business may have its states objectives as:
 - It will not test products on animals
 - It will deal with suppliers fairly
 - It will not accept bribes from customers
 
 Explicit objectives will have been carefully thought out. Partly this is because the business could get bad publicity if it went against statements. A business may also have implicit rules about how they deal with customers – they are not written down but they become part of corporate cultures.

Answer 456

A

Some large businesses have responded to concerns about CSR, their responsibility not just to their shareholders, but to all stakeholders, by auditing relevant activities.
 - These audits may then be made available to the public in a Corporate Responsibility Report.
 - Auditing involves inspecting evidence against established standards. Social and environmental audits are voluntary and there are no rules as to how they should be done.
 -Many businesses choose not to look into this at all.

Answer 457

A

- Employment indicators
 -Human rights indicators
 - The communities in which the business operates
 - Business integrity and ethucs
 - Product Responsibility
 - The environment

Answer 458

A

how well does the business treat its staff? This might include looking at pensions, healthcare, training, accidents, payment, equality.

Answer 459

A

how well does the company perform on human rights issues? Does it encourage workers to join trade unions, does it have work councils, does it use child labour, does it discriminate?

Answer 460

A

what impact does the business have on the life of the communities in which it operates? How much does it give to charity, how much is spent locally?

Answer 461

A

how ethical is the business? Have they traded against legislation, do they make political contributions, have they been involved with unfair competition?

Answer 462

A

what was the social impact of the products sold? Were there safety issues, was the after-sales service adequate, was advertising accurate?

Answer 463

A

these factors can form a separate audit. Indicators may include:
 - the amount of energy or raw materials,
 - how much waste was produced,
 - levels of gas and pollution,
 - the damage it caused.
 -Some of these measures are financial, but some are not.
 -Due to the fact that sociaql and environmental audits are qualitative, it can be harder to compare performances over the years

Answer 464

A

- To attract employees with the right skills, experience and knowledge. Where jobs are less skilled the available number of workers is high, meaning pay can be low. Where skills are high, pay needs to be high.
 - To reward and motivate staff. The ultimate aim of businesses is to make profit. Rather than pay the lowest rates of pay ensure that staff are motivated to work to the best of their ability.
 - Maximise productivity levels. Pay is an important motivator are highly motivated staff are more productive.

Answer 465

A

- It can raise costs – for example, paying higher wages to workers overseas may increase costs. Finding ways to test products that doesn’t include animals may be more expensive. Adopting an ethical code of conduct can be expensive, as all staff have to be aware of it. It takes management time to prepare.
 - It can reduce revenues – a business might lose a contract if it refuses to give a bribe. Selling medicines at lower prices to emerging economies may increase sales but reduce profits. Acting ethically can result in the destruction of a company; for example, if a cigarette manufacturer took full account of the costs it causes to customers it would probably cease trading.

Answer 466

A

- Some companies have used their ethical stance for marketing purposes, but having an ethical stance is no guarantee of sales.
 - For most companies that have taken Corporate Social Responsibility seriously, informed by ethics, it can also act as the equivalent of an insurance policy. In 2002, Enron, a US energy trading company collapsed after it was found to have manipulated accounts to look more profitable.

Answer 467

A

- business have responsibilities to a wide range of shareholders not just shareholders, while profit may satisfy shareholders, employees may be less happy if they are paid low wages
 - A business that treats its workers well be it with pay or opportunities in the workplace is more likely to retain its employees. This is important when recruitment is costly
 -Being good actually increases the chance of being profitable. an ethical stance can bring reputation benefits

Answer 468

A

- UNprofitable business do not survive - ethical stance is a luxury that can be indulged when the business is established and successful
 - A trade-off can exist between being ethical and profitable e.g. paying the living wage will increase costs of business that would otherwise have paid them the minimum wage
 - Profitable businesses are more able to invest and innovate products that improve society e.g. new medicines. these development and advancements wouldnt happen without profits

Answer 469

A

interest paid by a business on any borrowed money

Answer 470

A

interest received by a business on any money help in deposit accounts

Answer 471

A

There are 2 main financial statements that all companies are required to produce, by law for each financial year. They are:
 - Statement of financial position (balance sheet)
 - Statement of comprehensive income (profit & loss account)
 
 Unincorporated businesses are also required to create financial statements, but they will not be as detailed as those required by companies. However, they will usually take a similar format to those listed above.

Answer 472

A

- Otherwise known as an income statement or profit and loss account, the statement of comprehensive income will record the income and expenditure of a business over a period of time.
 - The period of time is usually 1 year (but can vary from 6 months to 18 months)
 - It will be used to calculate whether a business has made a profit or a loss over the accounting period.

Answer 473

A

- Revenue
 - Cost of Sales
 - Gross Profits
 - Selling Expenses
 - Administrative expenses
 - Operating Profit
 - Finance Costs
 - Profit for the Year (net profit)
 - Profit for the year (net profit) after tax

Answer 474

A

- This is the money the business receives from selling goods and services.
 - Revenue must not include VAT. This is because VAT does not belong to the business

Answer 475

A

- This refers to the production costs of a business
 - More specifically it relates to direct costs, such as raw materials and labour

Answer 476

A

- This is the cost of sales subtracted from the revenue
 - It is the profit made before the deduction of general overheads

Answer 477

A

A business is likely to incur a range of expenses that are directly related to the selling its products e.g. sales commissions, advertising, distribution and promotional costs.

Answer 478

A

- These are the general overheads or indirect costs of the business e.g. office salaries, expenses claimed by senior staff, stationery supplies, IT expenses etc.

Answer 479

A

- If the selling and administrative costs are subtracted from gross profit we get the operating profit
 - The operating profit is the profit generated from the firm's core acitivites
 - It does not include any income from financial investments made by the business

Answer 480

A

- If a business borrows money it will have to pay interest to the lender.
 - The amount paid will be entered in the statement as a finance cost
 - However, a business may also recieve interest if it has money in deposit accounts this will appear as finance income in the account

Answer 481

A

- If the cost of finance is subtracted from the operating profit the net profit for the year is determined
 - This is the profit before taxation

Answer 482

A

- This is the amount of money that is left over after all expenses, including taxation, have been deducted from revenue
 - It is often referred to as the 'bottom line'
 - The money belongs to the owners of the business,
 - In case of a limited company it belongs to the shareholders, Some of it may be retained

Answer 483

A

- Shareholder
 - Managers & Directors
 - Employees
 - Suppliers
 -Government

Answer 484

A

- Naturally the owners of a business will be interested in its performance
 - Shareholders are likely to be interested in the profit made by the business - particularly the profit for the year (net profit) after tax
 - Rising profits are an indicator of improving performance --> probably calculate the net profit and gross profit margin from the statement of financial income to assess performance more rigorously
 - It is also possible to gauge the growth of the business by looking at the statement of comprehensive income --> if the revenue is rising this suggests that the business is growing

Answer 485

A

- Since managers and directors are responsible for running the business, they are likely to use key information in the statement of comprehensive income to monitor progress
 - For example, they might be setting annual targets for growth in revenue or profit for the year (net profit).
 - Changes in the revenue, for example will show how fast a company has grow and whether targets have been met

Answer 486

A

- If employees, or their representatives, are seeking a wage increase, it may be helpful to have access to some of the information in the statement of comprehensive income when presenting a claim

Answer 487

A

- Before a supplier accepts an order form a new customer on trade credit, it is prudent to carry out a check on their creditworthiness
 - One way to do this is to look at the trading history of the customer
 - If the customer can provide several years of authenticated accounts, this might help to show whether the customers is able to pay what is owned at the end of the credit period
 - If the statement of comprehensive income show that a customer is consistently profitable, this might be enough proof for the supplier

Answer 488

A

- Companies have to produce a statement of comprehensive income by law
 -It is needed by the tax authorities to help assess how much tax a business has to pay
 - HMRC collects taxes on behalf of the government and requires all business owners to provide documentary evidence of the profits or losses made by the business ever year
 - Also, the ONS (Office for National Statistics), a government agency, may have an interest in business accounts because it collects economic data, which is collated and presented for public consumption

Answer 489

A

Previously known as the balance sheet, the Statement of Financial Position catalogues the a businesses assets and liabilities on a particular date in time.
 
 It is broken down into 3 section:
 - Assets
 - Liabilities
 - capital

Answer 490

A

- These are items that a business owns or uses. They are divided into current or non-current assets.
 - Current assets, such as raw materials and inventory (stock) are used up in the production process.
 - Non-current assets, such as factories and machinery, are used repeatedly over a period of time. A business would expect to retain these assets for beyond the next accounting period.

Answer 491

A

- These are debts that of a business, money owed to other parties. Again they will be categorised as either current or non-current.
 - These may be short term, an overdraft or a supplier who’s provided trade credit, or long term, such as a mortgage, bank loan or hire purchase agreement

Answer 492

A

This is the money provided to the business by the owners or shareholders. It is a source of funds usually used to purchase assets.

Answer 493

A

- Non-current Assets
 - Current Assets
 - Non-current Liabilities
 -Current Liabilities
 - Net Assets
 - Equity

Answer 494

A

- Goodwill --> This is a non-physical asset of a business, it is the amount the business is worth above the value of net assets. Goodwill exists if a company has built up a good reputation and its customers are likely to return
 - Other intangible assets --> e.g. brand names, copyrights, trademarks and patents
 - Property, plant and equipment --> These are the tangible assets that the business owns,
 - Investments --> These are the financial assets owned by the company e.g. the shares held in other companies. If investments are listed under non-current assets it means that they are not expect to be sold for at least 12 months

Answer 495

A

- Inventories --> This refers to stocks of raw materials and components, stocks of finished goods and work in progress
 - Trade and other receivables --> These are trade debtors, prepayments and any other amount owed to the business that are likely to be repaid within 12 months
 - Cash at bank and in hand --> This is the money held by a business on the premises or in bank accounts

Answer 496

A

- Borrowing --> Any short-term loans or bank overdrafts taken out by the business
 - Trade and Other Payables --> Trade creditors and other amounts owed by the business to suppliers or goods services and utilities
 - Dividends Payable --> When the balance sheet is prepared *(at the end of the financial year perhaps) it is possible that the company has decided how much it will pay the shareholders in dividends. However the money has not yet been paid so it appears in the balance sheet as dividends payable
 - Current Tax Liabilities --> Corporation tax, employees' income tax and any other tax owed by the business that must be repaid within 12 months

Answer 497

A

- Other loans and borrowings --> Money owed by the company that does not have to be repaid for at least 12 months e,g, bank loans and mortgages
 - Retirement Pension Obligations --> Companies need to show any money owed to past employees in the form of pension obligation
 - Provisions --> Provisions have to be made if a company is likely to incur expenditure in the future, such expenditure might arise as a result of agreements in contract or warranties.

Answer 498

A

- Net assets is simply the value of all assets minus the value of all liabilities
 - It will be the same value as shareholders' equity at the bottom of the balance sheet

Answer 499

A

- Share Capital --> The amount of money paid by shareholders for their shares when they were originally issued. It does not represent the current value of those shares on the stock market. Share capital is not usually repaid to the shareholders in the lifetime of a company
 - Share Premium Account --> this shows the difference between the value of new shares issued by the company and their nominal
 - Other reserves --> Refers to any amounts owing to the shareholders not covered by the other entries under equity
 - Retained Earnings --> The same as retained profit. It is the amount of profit retained by the business to be used in the future

Answer 500

A

- Shareholders
 - Managers and Directors
 - Suppliers
 - Others

Answer 501

A

- Shareholders might use the balance sheet to analyse the asset structure of the business
 - This shows how the funds raised by the business have been put to use
 - The balance sheet also shows the capital structure of the business, i.e. the different sources of funds used by the business
 - the balance sheet can also be used to assess the solvency of the business
 - A business is solvent if it has enough liquid assets to pay its bills
 - The value of working capital will help to assess solvency of the business
 - the value of a business is roughly equivalent to the value of net assets in the business
 -This means that shareholders can use the balance sheet to see if their investment is growing

Answer 502

A

- the balance sheet might be used by the management of a business e.g. it is important for senior managers to be aware of the firm;s financial position at any given point in time
 - It will need to monitor working capital levels to ensure that the business does not overspend
 - Also, if the business is considering raising some more finance, it will have consider the current capital structure before choosing a suitable source

Answer 503

A

- Suppliers will be most interested in the solvency of the business
 - Suppliers are not likely to offer trade credit to a business that only has a limited amount of working capital

Answer 504

A

- It is possible that employees might use the balance sheet to assess whether a business can afford a pay rise or whether their jobs are secure
 - The office for National Statistics (ONS) sheet to compile national statistics

Answer 505

A

Exploration of the capital structure of the business by comparing the proportions of capital raised by debt and equity.

Answer 506

A

Illustration of the relative profitability of a business.

Answer 507

A

A numerical approach to investigating accounts by comparing two related figures.

Answer 508

A

The profit of a business as a percentage of the total amount of money used to generate it.

Answer 509

A

The legal manipulation of accounts by a business to present a financial picture that is to its benefit.

Answer 510

A

Ratio analysis – a method of assessing a firm’s financial situation by comparing two sets of linked data.
 - Analysts use ratios to compare the relative performance of one company against another, or within a company, of departments against budgets.

Answer 511

A

If ratios are to be useful its important to use the right one. The following process allows for this:
 1 - Identify the reason for the investigation
 2 - Decide on relevant ratio(s)
 3 - Gather the information required, then calculate the ratio
 4 - Interpret the ratio
 5 - Make the appropriate comparisons
 6 - Take action based on results
 7 - Repeat process again

Answer 512

A

Ratios are meaningless on their own, they need to be compared with other results:
 1 - Inter-firm comparisons – comparisons between companies. A company compares itself against others in order to asses their relative performance. Ideally selecting the competitors with the most in common.
 2 - Intra-firm comparisons – comparisons within the company. The efficiencies of different divisions or locations can be compared
 3 - Comparisons to a standard – certain ratios are recognised as efficient within the business community
 4 - Comparisons over time – comparing quarterly or annual data allows you to assess progress over time.

Answer 513

A

- The Gearing Ratio measures the levels of borrowing within a business ( the relationship between loans on which interest is paid and shareholder's equity on which dividends might be paid) in which . It is important for a business to measure the amount of debt as too much can impact on the ability of the business to service (pay) that debt.
 - If the company can’t meet the interest and capital repayments, it will impact on the company’s solvency.

Answer 514

A

GR = (Non-current Liabilities)/(Capital Employed) x 100
 
 Capital Employed = (NCA + CA - CL)

Answer 515

A

- If the gearing ratio is greater than 50%, then the business is said to have a high capital gearing.
 - If the gearing ratio is less than 25%, then the business is said to have a low capital gearing.
 - Between 25% and 50% is said to be a normal level of capital gearing.

Answer 516

A

High capital gearing offers several benefits:
 - There are relatively few shareholders, so easier for existing shareholders to keep control
 - If interest rates are low, it can be a very cheap source of finance.
 - In times of high profits, interest payments would likely be lower than dividend expectations of shareholders, allowing the business to retain more profits for investment.

Answer 517

A

Low capital gearing also has advantages:
 - With more capital provided through shares, less opportunity for payables (creditors) to force business into liquidation.
 - Low geared companies avoid large interest repayments in times of high interest rates
 - The company avoids the pressure of having to repay all the debt at some stage in the future.

Answer 518

A

- Highly profitable businesses prefer high gearing to shareholder funds as a source of finance, as interest payments can be managed from profits, but little shareholders to take those profits as dividends
 - Lower gearing tends to suit businesses that are less profitable, where the ability to adapt to increased interest payments if rates change is limited.

Answer 519

A

- Return on capital employed shows the operating profit (before tax) as a percentage of capital employed.
 - Tax is ignored because it is determined by the government and is therefore outside the control of the company
 - Interest is excluded because it does not relate to the business's ordinary trading activities
 - Operating Profit is used as it only covers profits from trading, not exceptional items.
 - Capital employed is the total equity provided by shareholder funds (share capital and retained profit) plus non-current liabilities (long term loans + debentures)

Answer 520

A

ROCE = (OP before tax)/ (NCA + CA - CL) x 100

Answer 521

A

- The ROCE will vary between industries, but the general rule is, the higher the better.
 - It is effectively measuring the return made from an activity based on the capital being used. You could consider it as an investment appraisal method.
 - Much like a ARR calculation, you are comparing the return against other potential uses for the capital, the opportunity cost.

Answer 522

A

- The basis for comparison --> Comparison over time, Inter-firm comparisons and Other Differences
 - The quality of final account
 - Limitations of the balance sheet
 - Qualitative information is ignored
 - Window Dressing

Answer 523

A

- Care must be taken when comparing ratios from the same company over time
 - Many companies remain broadly in the same industrial sector overtime, but other can diversify and change very rapidly
 - Equally, some companies remain the same size over time, Other, grow rapidly or shrink quickly
 - Such factors can affect the way in which ratios can be used as a measure of performance

Answer 524

A

- Caution must also be used when comparing ratios between companies at a point in time
 - Comparing Ratios between comparing ratios between companies at a point in time
 - Comparing the ratios of two companies that make broadly the same product is likely to say something about their relative performance
 - But comparing the ratios of a supermarket chain with those of a cement manufacturer is unlikely to be helpful

Answer 525

A

- Even when companies are well matched in their activities and operating circumstances, there may be other difference between them that must be observed e.g. two similar companies may use different accounting techniques, different ends to the financial year etc.

Answer 526

A

- Ratios are based on financial accounts, such as as balance sheets and income statements
 - Consequently ratio analysis is only useful if the accounts are accurate
 - One factors that can affect the quality of accounting information is the change in monetary values cause by inflation
 - Rising prices can distort comparisons made between different time periods e.g. in times, of high inflation there might be no increase in real terms
 - There is also the possibility that the accounts have been window dressed

Answer 527

A

- Because the balance sheet is a 'snapshot of the business at the end of the financial year, it might not be representative of the business's circumstances throughout the whole of the year
 - For example, a business experiences its peak trading activity in the summer and it has its year end in January when trade is slow, figures for stock and debtors will be unrepresentative

Answer 528

A

- Ratios only use quantitative information
 - However, some important qualitative factors may affect the performance of a business that are ignored by ratio analysis
 - For example, in the service industry the quality of customer service may be an important performance indicator
 - However, ratio analysis cannot isolate the impact that good customer service might have on sales
 - Sales might be higher as a result of good customer service but there might be other factors that have helped to increase sales, such as advertising

Answer 529

A

- Account must represent a 'true and fair record' of the financial affairs of a business.
 - Legislation and financial reporting standards place limits on the different ways in which a business can present financial information
 - These limits are designed to prevent fraud and misrepresentation in the compilation and presentation of accounts
 - However, businesses ca manipulate their accounts legally to present different financial pictures
 - This is know as window dressing

Answer 530

A

- Managers of companies might want to put as good a financial picture forward as possible for shareholders and potential shareholders . Good financial results will attract praise and perhaps rewards. They might also prevent criticism from shareholders and the financial press
 - If a business wants to raise new capital from investors, then it will want its financial accounts to look as good as possible
 - Where a business has experienced severe difficulties during the accounting period, it may decide to take action that will make the financial position look even worse now, bur which will improve figures in the future
 - Making the financial picture look worse may be way of lowering the amount of tax that is paid
 - If the owners of a business want to sell it , the better the financial position shown on the accounts the higher the price they are likely to get

Answer 531

A

- a business may manipulate its sales by increasing the level of revenue recorded in the income statement
 - This will increase profit in that accounting period. It may be able to suppress costs by changing its accounting policies or choosing when to 'write off' unprofitable activities.
 - It can also 'write off' bad debts revalue property, boost liquidity through the sale and leaseback of assets, and manipulate current assets and current liabilities

Answer 532

A

<ul><li>illustrate the profitability ofa business compared to other business</li><li>They usually focus on profit, capital employed and revenue,</li></ul>

Answer 533

A

gross profit x 100 / revenue

Answer 534

A

net profit before tax x 100 / revenue

Answer 535

A

<ol><li>Higher gross margins are preferable tolower ones because it means that more gross profit isbeing made per £1 of sales.</li><li>The gross profit marginwill vary between different industries. The quicker theturnover of inventory, the lower the gross margin that is needed.</li><li>For example, a supermarket with a fast inventoryturnover is likely to have a lower gross margin than a car retailer with a much slower inventory turnover. Some supermarkets are therefore very successful with relativelylow gross profit margins because of the regular and fastturnover of inventory.</li></ol>

Answer 536

A

<ol><li>Gross profit margins may be used by businesses tohelp make decisions. For example, if gross margins arebelow the industry average, action might be needed. Thebusiness may look for new suppliers of key raw materialsor find new working practices to improve efficiency inproduction.</li><li>Alternatively, a business may decide to raisethe price of the product — if the market can stand suchan increase.</li></ol>

Answer 537

A

<ol><li>The profit forthe year (net profit) margin focuses on the 'bottom line' in business. The bottom line refers to the very last linein the statement of comprehensive income. It shows theprofit that is left after all deductions have been made,i.e. the final amount of profit left over for the owners</li></ol>

Answer 538

A

<ul><li>abusiness is able to meet its short-term debts. This meansthat a business must have enough liquid resources to pay its immediate bills</li></ul>

Answer 539

A

current assets / current liabilities

Answer 540

A

current assets - inventories / current liabilities

Answer 541

A

<ol><li>A business is said to have enough liquidresources if the current ratio is between 1.5:1 and 2:1.</li><li>If the current ratio is below 1.5 then the business maynot have enough working capital. Thismightmean that a business is over-borrowing or overtrading (doing more business than can be supported by the resources available).</li><li>However, some businesses, such as retailers, often havevery low current ratios, such as 1:1 or below. This isbecause they hold fast-selling stocks and generate cashfrom sales.</li><li>In contrast, operating above a ratio of 2:1 may suggest that too much money is being used unproductively.</li></ol>

Answer 542

A

<ol><li>If a business has an acid test ratioof less than 1:1, it means that its current assets minusstocks do not cover its current liabilities. This could indicate a potential problem.</li><li>However, as with the currentratio, there is variation between the typical acid test ratiosof businesses in different industries. Again, retailers withstrong cash flows may operate comfortably with an acidtest ratio of less than 1.</li></ol>

Answer 543

A

Output per worker in a given time period.

Answer 544

A

The number of employees that remain in a business over a period of time.

Answer 545

A

The rate at which staff leave a business.

Answer 546

A

The number of staff who are absent as a percentage of the total workforce. This can be calculated for different periods of time.

Answer 547

A

- Productivity is an important measure is an important measure of the efficiency of a workforce.
 - If 2 identical teams, with the same equipment, worked for the same period of time, the group that makes the most would be deemed to be more productive.
 - However, it not so easy when comparing businesses. A company’s figures may be distorted if they have a large amount of robotics involved in their production as workforce would be lower, but the infrastructure costs would be far higher.
 - Increasing labour productivity can be seen as increasing competitiveness. This is because increased production will allow a business to drive down its unit cost.
 - This would allow them to either reduce prices and potentially gain more sales, or keep prices the same and increase the profit per unit.

Answer 548

A

Labour productivity is defined as the output produced per worker.
 
 - LP = Total output (per period of time)/ Average No. of employees (per period of time)

Answer 549

A

- Rivals may improve productivity even faster
 - New businesses may set up again, with lower wage costs, reducing cost per unit
 - Other factors – a business may produce a new, more attractive product, which customers prefer to buy

Answer 550

A

- Staff turnover can be another method of measuring a businesses effectiveness.
 - It measures the number of staff leaving a business, relative to the whole workforce over a period of time.
 
 Its calculated as follows:
 (No. of Staff Leaving (per period of time))/(Average No, of Staff (per period of time)) x 100

Answer 551

A

- Relatively low paid jobs mean employees leave for higher paid jobs
 - Little training or promotion opportunities may lead people to leave to further their careers
 - Poor working conditions, low job satisfaction, bullying or harassment in the workplace
 - Poor recruitment selection mean staff are not suited to the role
 - Economic cycles – in recession, people are afraid to leave their jobs in case they don’t get another. In a boom, more opportunities are created, which leads to greater turnover.

Answer 552

A

- Staff recruitment is costly
 - New staff need to become familiar with procedures and practices, this reduces productivity
 - Larger companies will usually provide corporate inductions, which increase costs further.
 - If internal appointment, training may be needed for a worker moving from a different role.

Answer 553

A

- New staff bring fresh ideas and experience
 - Some old staff may need to leave – getting rid of ineffective staff will increase turnover, but may also increase productivity
 - If a business is shrinking, it will need to lay ff staff, this will increase turnover.
 - In low skilled jobs, it may be more effective to have a high turnover of low paid staff, than increase wages and working conditions

Answer 554

A

The opposite of labour turnover, labour retention measures how many people stay with an organisation over a period of time. It is calculated as follows:
 
 - (No. of staff staying (per period of time))/(Average No. of Staff (per period of time)) x 100

Answer 555

A

The benefits to a business of a high retention rate are the same as the advantages of a low staff turnover rate, such as lower recruitment and selection costs, more continuity and a stable workplace

Answer 556

A

Absenteeism is linked to the number of staff taking time of work through sickness or injury. This is a problem because:
 - If staff are off ill, the business needs to pay sick pay
 - If temporary staff are recruited to cover, this increases costs further.
 - Equally, permanent staff working overtime to catch up will increase wage costs
 - Output can fall if those replacements are not as effective as the original worker
 - There may be quality issues
 Can be a symptom of low morale and demotivated staff
 - The higher the absenteeism, the more people report as ill. It may lead to a culture of people taking “sick days” for holiday

Answer 557

A

(Number of staff absent on a day)/(total number of staff employed) x 100

Answer 558

A

Differences in rates can occur for different reasons:
 - Smaller businesses tend to have lower rates of absenteeism as there is much more teamwork and commitment. Workers in larger businesses will feel there’s less issue if they’re off.
 - Health & safety. Businesses with good H&S procedures tend to suffer less absenteeism. However, some jobs are inherently more dangerous than others.
 - Nature of the job can lead to increased absenteeism. Boring repetitive jobs can lead to low job satisfaction and motivation.
 - Workplace culture will have an impact. Overworked employees tend to suffer from work-related stress, which can lead to long term absence.
 - Stress related illness can also occur more frequently where staff are over-supervised and feel like they’re not trusted to do a job.
 - Poorly paid workers tend to have higher absenteeism as they feel undervalued.

Answer 559

A

- Financial Rewards
 - Share Ownership
 - Consultation
 - Empowerment

Answer 560

A

- Employees who are involved, or feel they are involved, in the business’ decision making will feel more motivated and as such, tend to be more productive.
 - Staff will feel demotivated if they are given tasks to do, or decisions are made, without consultation or explanation.
 - If staff are consulted when decisions are being made, they are more likely to accept it, even if the decision is contradictory to their own idea.

Answer 561

A

- Psuedo Consultation
 - Classical Consultation
 - Integrative Concultation

Answer 562

A

- Managers make decisions and workers are informed about it through representatives, such as unions.
 - Employees have no influence over the process
 - Some would say it more giving information than consultation

Answer 563

A

- Is a method that involves employees giving their views to a representative, who collates and reports those views to the management.
 - This allows the views of the employees to be heard and may influence management decisions

Answer 564

A

- The other methods do not directly involve the employees whereas this method is about a more open democratic process.
 - Whist every employee may not be directly consulted, management and representatives may consider solutions and then put it to the staff for consideration.

Answer 565

A

Empowerment is about allowing the employees to make the most of their knowledge, experience and creative talents. It is also a way of improving morale, which can have a positive effect on productivity.
 
 - Training
 - Providing Resources
 - Delegation
 - Inspire Confidence
 - Positive Feedback

Answer 566

A

It is not really possible to empower staff effectively without first equipping them with the skills needed to take on more advanced tasks
 - A business needs to identify any 'skills gap'
 - This is this difference between an employee's current skills and those required to undertake new tasks
 - This gap can be bridged by training

Answer 567

A

There is little point empowering staff if they are not given the resources and information needed to undertake more complex task
 - For example, if an employee is tasked with leading a small team to solve a problem, such as improving the response time to customer complaints, they will need a range of information and enough resources to make improvement

Answer 568

A

- Once employees have been empowered they must be confident they have complete authority to make decisions
 - The methods they choose and approaches they take must not be questioned
 - If employees are challenged or asked to explain themselves each time they make a decision, empowerment is not likely to work

Answer 569

A

If employees are being empowered it is important that they feel confident about their new role
 -A lack of confidence can lead to anxiety, hesitancy and mistakes
 - Senior managers can help to inspire confidence by emphasising the strengths that an individual has, showing trust, and by recognising and praising achievements

Answer 570

A

- At an appropriate time it will be necessary to provide positive feedback to empowered workers
 - Workers need to know how they have performed in their new roles
 - Feedback will help you guide them in the future and build more confidence

Answer 571

A

a type of performance measurementthat evaluates the success of an organisation or of a particularactivity

Answer 572

A

<ol><li>The method used to calculate labourturnover may not be very effective as it can be difficult tomeasure the output of workers accurately. This is particularlythe case when trying to measure the output of some serviceproviders. For example, how do you measure the output ofthose working in research and development, product creation,healthcare and maintenance? Their output is often intangible(i.e, not a physical thing) and so very difficult to quantify.</li><li>There may also be problems in manufacturing when severalpeople are involved in the production of a single unit. Forexample, how do you measure the output of a dozen differentworkers all contributing to the construction of a house?</li><li>Calculating labour productivity is also limited in highlyautomated businesses that employ large quantities of plantand machinery. One problem is that different plants are likelyto be at different technological stages. Labour productivity ina brand-new car plant will be much higher than that in an oldplant. Labour productivity is not likely to be very meaningfulin business activities such as oil refining, chemicalprocessing and food processing.</li><li>Another problem with measuring labour productivityis that it usually ignores the quality of work, Workers maybe able increase their output by working faster.</li><li>However,if they make mistakes then the quality of output declines.This is likely to have a negative impact on sales,</li></ol>

Answer 573

A

<ol><li>The method used above to calculate labour turnover may be limited. One reasonis because of the difference in labour turnover between part-time and full-time workers, Labour turnover amongst part-time workers will be higher than that of full-time workers, even whendoing the same job. This may be because many part-timeworkers are looking for a full-time job and will leave as soon as they get one.</li><li>Alternatively, some part-time workers leave their part-time jobs regularly, One example might be students at the end of the college year. This means the labour turnover forbusinesses that have more part-time workers will be distorted.</li><li>Similar distortions may arise if businesses use more temporary or seasonal staff. These workers are only employed for short periods. This means that the labour turnover of seasonally or temporary workers will be high</li></ol>

Answer 574

A

<ol><li>Absenteeism rates can becomedistorted very easily. For example, a small businessmay have a very low rate of absenteeism. However, if a single member of staff is of on long-term sickness due aserious illness, this will raise the absenteeism rate.</li><li>The way absenteeism is defined or recorded by abusiness may also distort calculations. For example, ifan employee leaves work at lunchtime to collect a sickchild from school, some businesses might ignore that absence. However, others might record this as a half dayabsent. This means an employer's policy or culture willhave an effect on the official absenteeism rates,</li></ol>

Answer 575

A

<ol><li>F.W. Taylor (an Americanengineer and businessman), outlined his theory ofscientific management. Taylor suggested identifyingthe best way to carry out a task then paying workersaccording to what they produce. He suggested thatpeople should be paid 'a fair day's pay for a fair day'swork'.</li><li>He argued that people are motivated mainly by money and would work harder to earn more.</li><li>Therefore,employees should be paid piece rates (i.e. an amount of money paid for the amount of work produced).</li><li>The mainbenefit of piece rates for businesses is that it rewardsproductive workers. Slow or lazy workers will not earn asmuch as those who work hard and are more productive.</li><li>This system helps to motivate workers, and businessesare likely to get more out of their employees.</li></ol>

Answer 576

A

<ol><li>performance-related pay</li><li>bonus systems</li><li>profit-related pay</li><li>commission systems</li></ol>

Answer 577

A

<ol><li>All of these methods reward employees for their effort —both in terms of results and attendance. It is unlikely that staff will want to leave a business if the financial rewardsare large, so staff turnover will be lower. For example, bonuses can be paid in addition to the basic wage or salary.Operatives may be paid a bonus if they reach a weeklyproduction target.</li><li>The main advantage to businesses ofbonus payments is that they are only paid if targets are met.This means that money is only paid if it has been earned. Some businesses pay their staff loyalty bonuses that areusually paid annually.</li><li>Such bonuses are not necessarilylinked to productivity but they are designed to rewardworkers for their loyalty and to help to reduce staff turnover</li></ol>

Answer 578

A

For example, inAustralia absenteeism is a major problem. In 2016 it wasestimated that the cost to the Australian economy of lostproductivity through absenteeism was AUS$33 billion. Atotal of 92 million working days were lost throughunexpected absences.

Answer 579

A

<ol><li>These schemes are often used toreward senior managers and executives in plcs. The ideais that certain employees will be paid a portion of shares(sometimes in addition to cash bonuses). This happensif the business reaches important performance targets, such as growth in turnover, profit or share price.</li><li>Some businesses offer shares to a wider range of employees. A common method of share distribution is to use a sharesave scheme, sometimes called a savings related share option scheme. These involve employees saving someof their monthly pay for a fixed number of years. At the endof the period, employees can use the money saved to buy shares at a price that was fixed from the beginning, often at a discount. If the share price has increased over the timeperiod, employees can often make a capital gain.</li><li>However, if the share price has fallen to below the price that was fixedat the outset, employees get their cash back, perhaps with asmall cash bonus. Such schemes are considered to be safe and so are very popular with employees.</li><li>The benefit to employers is that workers are likely to be better motivated and more loyal to the company if they own shares. They may work harder, take less time off sick and are less likely to leave. For example, once staff have signed up for a five-year sharesave scheme, they may not want to leave halfway through the term and miss out on possible gains</li></ol>

Answer 580

A

A process in which a large company or organisation changes its working methods or aims, for example in order to develop and deal with new situations or markets

Answer 581

A

Where new leadership such as a new CEO brings about change with the purpose of improving business performance

Answer 582

A

- Changes to organisational size
 - Poor business performance
 - New ownership
 - Transformational leadership
 - The market and other external factors (PESTLE)

Answer 583

A

There are significant advantage to growth in the form of EoS, brand recognition and financial security

Answer 584

A

- Firms are certainly more productive as they grow in size
 - However, in order to capitalise on size a business will have to alter the scale and methods of production
 -For some organisation this may require investment in automated production facilities and the loss of a highly skilled small workforce

Answer 585

A

- With growth comes the need to invest
 - This investment could come from the reinvestment of profits, but more often than not, a firm will need to finance growth through borrowing
 - A highly geared business is a risky business
 - Nevertheless, growth will often bring with it increased profit in real term and this is likely to please shareholders

Answer 586

A

- Growth brings with it new opportunities for employees through bonuses and promotion prospects
 - It may also be necessary to recruit new employees and this is another important change to manage, individual workers might be concerned that they will no longer work with 'friends', or may be moved to a job that they dislike
 - As a firm grows there is danger of losing connections with its customer base
 - Larger organisation sometimes find it more difficult to offer a personal service
 - Trying to maintain a personal service has been focus of many high street banks
 - The expansion of business can also create pressures for local communities

Answer 587

A

- The size of an organisation will naturally change as it seeks to grow
 - growth is a key corporate objective as it allows a firm to satisfy shareholders and create security for its stakeholders
 - One of the most significant drivers of change as a business grows is the need to restructure and adopt policies and processes to manage expansion
 - Sometimes a business will look to grow externally by merger or takeover
 -This can bring a very sudden change to all aspects of the business
 - How an organisation manages growth can be difference between success and failure
 - Most businesses are unable to operate as thy once did where they were a small business, which can be lost as companies grow

Answer 588

A

- This poor performance of an organisation will invariably bring with it a period of change as the company strives to regain customers, sales , profit or reputation
 - Often the change after a period of poor performance will happen quickly as the business leaders try to 'turn the tide' and improve the fortunes of the company before failure and possible closure
 - For this reason, change will often be very quick and may focus on corporate strategy
 - Sometimes when a large business has a period of poor performance, a change of higher management or the CEO is made
 - New leadership usually bring significant change as the new boss attempts to assert themselves and strike a new course for the business

Answer 589

A

Poor performance will often go hand in hand with a loss of competitiveness

Answer 590

A

With poor performance comes a fall in sales, productivity and profitability
 - A fall in production will leave the business with a low rate of capacity utilisation
 -the key question is hoe will the firm manage its excess capacity and the threat of rising unit costs?
 - Business must take account of changes in their human resource planning
 - This could mean employing a more flexible workforce that could be changed quickly to meet the needs of the business for example , employing part-time workers, introducing job sharing.
 - It might also mean employing workers in low-cost countries, such as in call centres abroad

Answer 591

A

- A firm going through a period of poor performance is likely to be subject to liquidity problems
 -A reduction is sales will result in a reduction in cash flow and this might lead to cost cutting
 -In times of financial difficulty it is important for a business to find ways of being leaner and more efficicent

Answer 592

A

- Poor performance brings uncertainty and this can have a negative impact on motivation within the workforce
 - A firm can find itself manage low morale and giving reassurances
 - Nevertheless, poor performance sometimes signals redundancies and this can be an extremely difficult process to manage
 - All corporations are answerable to their shareholders and a poor performing company is likely to lose value on the stock markets

Answer 593

A

- The introduction of new technology can affect a business in many ways
 - Advances in even more powerful computer components
 - Telecommunications and the power of handheld devices change not only how businesses communicate with their customers and suppliers, but also the pace of innovation and business processes

Answer 594

A

- Businesses must be prepared for changes in the tastes of consumers e.g. include the increasing demand for environmentally friendly products, the desire for greater knowledge and products or the need for more convenient methods of shopping , such as purchasing via the internet
 - Population changes will also affect the age and make-up of the workforce
 - The ageing of the population in the UK in the early part of the twenty-first century is likely to result in changing recruitment policies for businesses
 - A falling population is also likely to change how a business plans its human resources

Answer 595

A

- Government legislation can force changes in business activity,
 - Taxation of pollution for instance, would affect the production methods of many firms.
 - Safety standards, such as EU regulations, the minimum wage or the governance of zero hour contracts are likely to determine how businesses operate

Answer 596

A

- It is argued that economies go through periods of boom and slump, recession and recovery
 - This is known as the business cycle
 - Income, spending, saving, investment and economic variables, such as unemployment and inflation, are all likely to be different at different stages in the cycle
 - Business have to deal with these economic factors e.g. the financial crisis of 2008 many firms had to find ways of becoming leaner and more efficient in order to survive

Answer 597

A

- This impact on competitiveness of PESTLE factors is very much determined by how quickly a business is able to respond to these changing forces
 - For example, if a business is the first to innovate or adopt a new technology, responds fastest to consumer needs or embeds policies that adhere to new legislation, it might be able to gain an advantage over its competitors

Answer 598

A

- New technology can feed into the production processes of a business
 - Whether that be a manufacturer or service provider, new technology brings with it the opportunity to increase scale, productivity and efficiency.
 - As the economy goes through periods of boom and slump, businesses will be required to adapt to changing demands for their products and services
 - As productivity rises and falls a business must change to cope with different levels of capacity utilisation
 - These can require fast expansion or the need to rationalise

Answer 599

A

- In most instances any change in these external forces means an increase in costs for a business
 - From simply having to adapt its packaging to meet new consumer legislation or the complete revamp of its product line to introduce new technology, these changes are not going to be cheap
 - However, it is likely what the costs will have to be absorbed by the whole industry and not just one firm

Answer 600

A

- The impact of change as a result of business having to respond to external influences is likely to be felt by all stakeholders
 - Any impact of rising costs though legal implications is likely to be passed on to consumers
 - New technology may require retaining or, in a worse case scenario. could lead to parts of the workforce becoming redundant

Answer 601

A

- The change in ownership of a business may come fro internal growth, the transition from a private limited company to a public limited company and flotation of a firm's shares on the stock market
 - With the flotation of a business on the stock market comes the opportunity to raise fresh capital for further investment and expansion, again fuelling more change ahead
 - A change in ownership may also become necessary as a business goes through the process of a merger or acquisitions which can bring very sudden change to a company

Answer 602

A

- the impact on competitiveness will very much be determined by how the companies integrate and complement one another
 - However, significant economies of scale may come from two firms merging

Answer 603

A

- Productivity may eventually rise as a result of a merger, but in the short term it is likely that business operations will be disrupted as the two firms work out how to get along and integrate all aspects of the business

Answer 604

A

Acquisitions can be very expensive, and should the venture fail it can lead to huge losses being incurred by the buyer
 - However, acquisitions are good for share prices and the announcement of an acquisition or merger can increase demand for the company's stock

Answer 605

A

- With a merger or acquisition comes the danger of a clash between two corporate culture
 - One of the most famous merger failures occurred in 1998 when Daimler and Chrysler attempted to merge
 - The merger was quoted as being like 'trying to mix oil and water'
 -The occurrence of a merger will always lead to restructuring of the two companies (or at least one of them) and may also lead to redundancies

Answer 606

A

<ol><li>- Occasionally change occurs as a result of a change in management or leadership</li><li>When a new CEO takes the helm of a business it is often because the previous CEO has retired, stepped down or has been replaced due to poor performance</li><li>- In these circumstances the new CEO will being in their own ideas and changes to the company</li><li>- This transformational leadership might be in the form of a new vision or strategic direction for the business</li><li>- If the new CEO has been brought in following a challenging period of performance, they might have been chosen as a catalyst for change to bring and fresh ideas</li><li>New leaders can have a very positive impact on a company. They may have been appointed because theyhave a proven track record. They are expected to inspirethe whole organisation. They are likely to make bigchanges and motivate the workforce</li></ol>

Answer 607

A

The process of organising and introducing new methods of working with a business

Answer 608

A

- Change Management is the process of organising and introducing new methods of working a business
 - These changes can be driven from with the business or as a result of responding to the external environment
 - the management of change in business is becoming increasingly important
 - Under pressure from competitors, higher costs and tougher economic conditions, many firms in the UK have development company-wide change programmes
 - Some firms have made only minor changes to their business operations and remained successful
 - Some company still retains many of their original production methods and design feature that they have had for years arguing that these 'original' features that attract consumers
 - However, many businesses need to change to stay successful in business

Answer 609

A

- Organisation Culture
 - Size of the Organisation
 - Speed of Change
 - Managing Resistance to Change

Answer 610

A

- Organisational culture in its simplest form can be described as 'the way things are done around here'.
 - this is a simplistic view of extremely powerful phenomena that play a significant role in the success of a business
 - Customs and practices are embedded in systems that reflect the norms and values may give stability, but it also presents problems of rigidity when a business needs to change
 - While a strong culture may give a company a competitive advantage, it can also be its downfall for example, changes in the digital market moved quickly and some competitors had organisational culture that responded at a faster pace than Kodak to meet market demand.
 - This led for the previously dominant Kodak to them filing for bankruptcy in 2012
 - One of the most significant drivers for organisational change is external growth as a result of a M&A
 - In such cases two organisational culture will come together and their compatibility will often be the key factor that leads to success or failure

Answer 611

A

- the size of a business may significantly affect its ability to manage successful change
 - it is a fair generalisation that the larger the organisation the less adaptable
 - This might simply be because there is more change to manage and on a larger scale, but also because decision making takes longer in firms with a longer chain of command and subdivision
 - In contrast, smaller businesses are far more flexible because decisions can be taken quickly and implemented without the involvement of a large number of stakeholders
 - As companies expand it is also necessary for them to change the way decisions are made e.g. MNCs or regional businesses may be required to adapt their approach to suit the local context
 - Where is it necessary for a business to move from a centralised decision- making approach to a decentralised strategy, change management may be more difficult to implement
 - Culture is a key factor in any change process, However, it is also true that in large organisations it is easier for sub-cultures develop.
 - Multiple culture are more difficult to manage through nay change than simple ones

Answer 612

A

- Size is just one factor that can determine the pace of change in a business. Other factors also play their part e.g. in some contexts change can take its time and happen organically
 - The development of new products, technology and processes can then evolve in the knowledge that the business is in a safe position e.g. Apple have been the forefront of innovation in the personal computing market through continual change at a steady, but regular pace.
 - By contrast, other organisations have to go through change very rapidly such as the Fashion Industry that is forever involved in product development and innovation
 - Similarly crisis can also lead to very fast change e.g. after the financial crash many organisations had to change very quickly to rationalise and improve efficiency in order to survive

Answer 613

A

- Workforce
 - Owner
 - Customers and Suppliers
 - Stakeholders

Answer 614

A

- Business are likely to face a certain amount of resistance to change form parts of the workforce for a number or reasons:
 - Fear of the unknown. people often feel safe with familiar work practices conditions and relationships
 - Employees and managers may fear that they will be unable to carry out new tasks, may be made redundant or may face a fall in earnings
 - Individual workers might be concerned that they will no longer work with their preferred colleagues or may be moved to a job that they dislike
 If change is to be carried out effectively, they business must make certain that these fears are taken into account. Only if employees feel they can cope with change will the business be able to adjust to new situations be forced out of business

Answer 615

A

- Owners of businesses may also be resistant to change for similar reasons.
 - they might fear operating in unknown markets and conditions
 - They might not want the cost of any changes
 - they may also fear that they might not be able to adjust to new situations and be forced out of business

Answer 616

A

- These too may resist change
 - They may be unwilling to change their own practices when they business they are dealing with changes
 - For example, a company may reorganise its sales force and decide that it will no longer visit clients that give it less that £5000 worth of orders per year
 - Instead, it will develop a website and telesales operation to deal with small customers,
 -Inevitably, the company will lose some customers who are not prepared to place order in the new way

Answer 617

A

- Generally speaking therefore, stakeholders in a business may resist change for any of the following reasons
 - Disagreement with the reasons for or necessity to change
 - Fear of the impact
 - Lack of understaing
 - Disagreement with the process involved in delivering the change
 - Lack of involvement
 - General inertia - satisfaction with the current situation/ way of working
 - John Kotter a Professor at Harvard Business School proposed in Leading Change , a process which creates a sense of urgency - getting people to actually see and feel the need for change
 - Stakeholders must understand the need for change through effective communication if anger and fear are to be overcome and the management of change has any chance of succeeding

Answer 618

A

- Need to be approached with care in any examination because it can incorporate all aspects and functions of a business
 - It is therefore worth examining change and the management of change in a systematic way:
 - What are the driving forces behind the change? Are these internal or external?
 - What is the likely impact of the change?
 - What factors might determine its success?
 - What are the key steps the business must take to ensure the change is successful? This will often come from the context of the business you are analysing

Answer 619

A

<ol><li>Identify and analyse cultural differences before amerger goes ahead. This might be done by analysingprocess flow charts to see how work is done;interview customers to see how they view the twobusinesses, interview managers to find out about their styles; and get feedback from the workforce to identify norms and beliefs,</li><li>Communicate with employees to explain thepurpose of the merger and its possible effects, butalso gather feedback from the workforce to identifytheir concerns and feelings.</li><li>Define and implement a new culture by clarifyingbehavioural norms, the structure of the organisation and the organisation's strategy. Ideally, the newculture should make employees feel that they arestarting a new and better job.</li></ol>

Answer 620

A

Shows how a business will operate after a serious incident and how it expects to return to normal in the quickest time possible.

Answer 621

A

Identifying and evaluating the potential risks that may be involved in an activity that a business proposes to undertake, ensuring compliance with health and safety legislation.

Answer 622

A

Identify, assess and prioritise risks, and plan responses to deal with the impact of these risks on the operation of the business.

Answer 623

A

A strategic planning method designed to explore uncertainties, learn how to protect the business from their worst consequences and prepare how to exploit any opportunities that might present themselves.

Answer 624

A

Identifying and developing people who have the potential to occupy key roles in a business in the future.

Answer 625

A

- Many business undertake scenario planning in an effort to deal with unforeseen events
 - Scenario is not about trying to predict future events
 - It is a strategic planning method designed to explore uncertainties,, work out how to protect the business from their worst consequences and prepare how to exploit any opportunities that may present themselves

Answer 626

A

- clarify some of the future uncertainties in business identify risk and opportunities and prepare for their eventuality
 - teach managers how events may transpire, develop and affect the business
 - understand the causes and effects of change in business and how to manage

Answer 627

A

1 - Identify possible trends and issues --> scanning internal and external environment - using PESTLE analysis
 2 - Build possible scenarios --> imagine a range of possible scenarios that might affect operations
 3 - Plan response --> identifying the impact the scenarios will have on the business and developing plans to deal with them
 4 - Identify the most likely scenarios --> priorities the most likely and thoroughly plan for each
 5 - Capitalise on Scenarios --> implementing the planned response when scenarios appear - not all scenarios end with a negative outcome

Answer 628

A

- After a business has identified possible scenarios it might face in the future it might use a risk assessment
 - Involves examining what might cause harm to people and identify the precaution that might be take to protect them from harm
 - One of the main purposes of risk assessment is to help comply with health and safety legislation
 - However the use of risk assessment might be extended to assess risk on the business in general --> therefore helpful with scenario planning

Answer 629

A

- Natural Disasters
 - IT system failure
 - Loss of Key Staff

Answer 630

A

- set up in a location that is not vulnerable to flooding, earthquakes, bush fires and other natural disasters
 -take out adequate insurance policies to cover losses resulting from disasters
 - ensure that data strewed on computers is as secure as possible and that back-up systems are adequate
 - organise back-up power, such as a generator, to ensure that vital machinery an other equipment can still be used in the event of a power interruption
 - ensure that there are adequate communication channels are set up to deal with crises
 - produce a business continuity plan to deal with crises

Answer 631

A

- whwen an incident occurs, a business will want to minimise disruption, after safeguarding human life, on of the most important priorities is to get the business 'up and running' again
 - Some firms produce business continuity plans, these show how a business will operate after a serious incident and how it expects to return to normal in the quickest time possible, there are four stages:
 1 - Carry out a business impact analysis
 2 - Formulate Recovery Stategies
 3 - Plan development
 4 - Testing and Training`

Answer 632

A

- identifies those functions and processes that are essential to the running of the business
 - This involves gathering information so that appropriate recovery strategies can be designed - -This process also involves identifying the financial consequences of such incidents, like loss of revenue, customer defections etc.

Answer 633

A

- these are actions to restore the business to a minimum acceptable level after an incident
 - This will involve identify the resources needed such has people, facilities, equipment, utilities, IT and material to aid recover
 - Some examples may include: maintaining higher stock levels, shifting production form one plant to another, setting up agreements with another business to share resources and support each other should either part encounter a serious disruption

Answer 634

A

- this involves developing a detailed plan to ensure that the recover strategies are carried out in an organised way
 - A business is likely to appoint recovery teams, develop relocation plans, and document recovery strategies and procedures so that key staff are aware of what is expected of them

Answer 635

A

- Once the recovery plan has gained approval it is necessary to design testing exercises and train staff in their roles during the execution of the recovery plan
 - The recovery teams will be the main focus of such training
 - After testing and training it maybe necessary to update the business continuity plan to take into account any discoveries made during this process
 - Finally it may be necessary to review and update the plan on a regular basis to take into account any changes that have occurred in the business, such as key personal, vital equipment or premises

Answer 636

A

- Part of risk mitigation involves identifying and developing current employees who have the potential to occupy key roles in the future
 - Succession Planning is an important process because it will help a business deal with the problems of losing key staff members while helping develop the staff needed to fill the post when the business expands
 - Failing to do so could lead to a business promoting a person who is not equipped to do the job or recruiting an unknown outsider at a far greater risk and expense

Answer 637

A

- Identify the characteristic a successor should possess
 - Decide how the successor will be found
 - Undertake a rigorous selection process
 - Make the decision
 - Communicate the decision
 - Implement a training and preparation plan

Answer 638

A

<ol><li>Natural disasters are extremelybad events that usually happen suddenly. They arecaused by factors beyond our control.</li><li>Examplesinclude floods, hurricanes, volcanic eruptions, tsunamis,earthquakes, forest fires, snowstorms and epidemics.</li><li>Such events can result in high levels of damage, deathand disruption (i.e. when things are unable to happen in the normal way).</li><li>Many firms are multinationals withoperations in places where some of these events aremore likely to occur, So, multinationals are likely to bemore exposed to the risk of natural disasters.</li><li>Another common problem around the world is flooding. In recent years, flooding in the USA has been responsiblefor reduced shipping, damaging crops and shutting downports. Last year, three-quarters of Louisiana's rice fieldswere affected by flooding. It was estimated by expertsthat the cost to Louisiana rice fields alone would beapproximately US$14.3 million.</li><li>Volcanic eruptions can cause large-scale disruptionto business. If a volcano erupts, business activity in theimmediate area will be affected by lava (extremely hot liquid rock) and huge clouds of ash. However, the cloudsof ash can sometimes be so large that flight paths aremade unusable, In 2010, Eyjafjallajokull volcano in Icelanderupted, sending millions of cubic feet of ash over Europe.This posed a threat to aircraft and many airports in Europewere closed for a period of time. Estimates suggested thatthe cost of grounded flights to the global airline industrywas over £1 billion.</li><li>However, some businesses actuallybenefited from the closure of European airspace, Airporthotels were full of travellers who were unable to leave, andtrains, buses and coaches were extremely busy. Eurostartrains between London and Paris or Brussels were soldout.</li></ol>

Answer 639

A

<ol><li>Most businesses employ IT systems in their organisation. The extent to which businesses depend on such systems will vary,</li><li>Generally, the larger the business, the more investment it will have in IT. This means that an IT systems failureor acyberattack could be a serious disaster.</li><li>Manysmall businesses may have only modest investments in IT systems, For example, computers are used for data storage. email communication, research andwebsite display. However, even smaller businesses areincreasing their reliance on IT, such as for online salesand other transactions. This makes them more likely toexperience breakdowns.</li><li>Businesses and the public are becoming more andmore concerned about the threat of cyberattacks, Mostpeople don't know the consequences of such attacks,</li><li>However, as the number of attacks increases, awarenessof their effects is being raised,</li><li>One problem is personaldata being stolen by hackers from businesses. It hasbeen reported that these data breaches' happen on a daily basis, but most of the incidents are small.However, some are large and worrying.</li><li>Finally, IT systems can be attacked by hackers that useransomware, This is where the control of a computer islost to a hacker. The only way users can get back controland recover all their stolen files is to pay a ransom</li></ol>

Answer 640

A

<ol><li>People leave businesses all ofthe time. This may not be a problem but losing keymembers of staff can cause difficulties — especially ifthe business has not prepared well enough for it.</li><li>It canalso be a very serious problem in small businesses, which are often dominated by a single person. It has been reported in the past that around 55 per cent of businesses would stop trading if they lost one ormore key people, Unexpected losses through illness, long-term incapacity or death are the most commoncauses of such an event.</li><li>In a small business, wherethe owner employs only a few other people, the loss ofthe owner could result in the closure of the business.This is because the other employees may not have the resources or the desire to take ownership of thebusiness. Finding an outsider (i.e, somebody who is notalready part of the business) to take over the business might also be difficult.</li></ol>

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