CH1 QB Introduction to busiess Flashcards
Organisations can be defined or described in various ways. Which three of the following are the key characteristics that are shared by all organisations? A Synergy B Social arrangement C Collective goals D Specialisation E Controlled performance F Exchange of goods and services
B,C,E
An organisation is a social arrangement that: pursues collective goals; controls its own
performance; has a boundary separating it from its environment. The other options are
all ways that enable an organisation to increase productivity.
What are the primary objectives of profit-oriented and non-profit oriented organisations?
Profit-oriented organisation Non-profit oriented organisation
A Output of goods/services Minimise costs
B Output of goods/services Provision of goods/services
C Maximisation of wealth Minimise costs
D Maximisation of wealth Provision of goods/services
D Profit-oriented organisations should aim to maximise shareholder wealth. Non-profit
oriented organisations, such as charities, should aim to provide goods and/or services.
At the Annual General Meeting (AGM) of Vortex plc, a major shareholder claimed that the
company was suffering from the symptoms of ‘satisficing’. In the context of corporate
objectives, ‘satisficing’ means that:
A managers seek to make satisfactory profits rather than maximise wealth
B managers seek to keep all stakeholders satisfied
C owners seek to meet a satisfactory level of corporate responsibility obligations
D owners seek to make satisfactory profits
A Satisficing is when managers are not maximising wealth for owners (which they should
in fact be doing) but are merely making enough profits to keep owners satisfied.
Beyond that they simply choose to pursue their own management objectives. This is
the classic agency problem caused by the separation of ownership and control.
Joe, the Managing Director of Gargoyle Ltd, has set a primary objective of growth in profits
for the company. He aims to concentrate on product development to support this objective.
Identify whether the following will be suitable secondary objectives to achieve the growth in
profits via product development.
1 Bringing in new products
2 Reducing labour turnover
3 Investing in research and development
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
C Listed under the broad heading of product development, Joe might choose to: bring
in new products; develop a product range; invest in research and development;
provide products of a certain quality at a certain price level. If he was concentrating on
employees and management to support his primary objective, then he might aim to
reduce labour turnover.
Maximising the wealth of its shareholders is the stated goal of Avernanche plc. The
company’s objectives have been expressed as a hierarchy of primary and secondary
objectives. Identify which of the following is most likely to be Avernanche plc’s primary
business objective.
A To increase the annual profit after tax by 125% in the next 10 years
B To introduce an average of two new products each year for the next six years
C To double the share price within the next 10 years
D To become the market leader in four market segments within the next 10 years
C Doubling the share price within the next 10 years is most likely to be the primary
business objective. The other three options would be typical secondary objectives for
Avernanche plc in pursuit of the primary objective.
A major shareholder has stated that for three years the directors of Barrington plc have run
the company in a manner designed solely to increase their prestige in the business
community. According to William Baumol, this is most likely to be shown in the directors’
aim to:
A maximise wealth
B maximise sales revenue
C minimise costs
D minimise social impact
B William Baumol argued that businesses act to maximise sales revenue if managers are
rewarded on the basis of the size of the organisation rather than its profitability or
relative performance.
To establish whether a particular organisation should be classified as a business or not, it is
necessary to enquire about the nature of its:
A primary objective
B mission
C vision
D secondary objective
A Organisations whose primary objective is to make profits for their owners are classified
as businesses.
The primary objective of ABC Car Rental Ltd is as follows: “We aim to be the fastest growing
company with the highest profit margin in the global vehicle rental and leasing business.”
One of its secondary objectives is: “To increase our market share for global family car
rentals to 20% within three years.”
Which three components of the SMART acronym are present in the company’s secondary
objective?
A S
B M
C A
D R
E T
A,B,E
S = specific; M = measurable; A = achievable; R = relevant; T = time-bound
The secondary objective is: specific (market share is a manageable feature of the
company); measurable (20% is a quantifiable yardstick of attainment); time-bound (the
deadline to complete the objective is within three years). There is no information about
whether the secondary objective is either achievable or relevant.
For a business, which two of the following would be classified as secondary objectives?
A The business’s market share target for next year
B The business’s productivity improvement target for next year
C The business’s mission statement
D The business’s financial objective of shareholder wealth maximisation
E The business’s vision
A,B The mission statement and vision are general expressions of the business's basic function and planned future status. Shareholder wealth maximisation would rank as the primary objective of any organisation classified as a business
A major airline, FlotAir plc, has been drawing up a mission statement.
Which three of the following items could be expected in it?
A We will double profits in three years
B We will encourage diversity in the workplace
C We intend to be the best airline in the world
D We aim to give excellent customer service
E We intend to take over Lufthansa
F We intend to have a 30% market share on the London to New York route
B,C,D
A mission statement should answer the following fundamental questions: What is our
business? What is our value to the customer? What do we want our business to
become? What should our business be? A and F are numerical targets and more likely
to be secondary objectives; E is a detailed tactic.
Two of Sunshine Tours plc's stakeholder groups are putting the company under pressure to improve its return on investment. These are most likely to comprise which two of the following groups? A Shareholders B Customers C Bankers D Suppliers E Employees
A,C The two groups most likely to put the company under pressure to improve its return on
investment are shareholders and bankers. Customers want products of a certain quality
at a reasonable price; suppliers are interested in regular orders in return for reliable
delivery and good service; and employees’ objectives include job security, good
conditions of work and job satisfaction.
Cruciform is a charity providing medical services in South America. The Chief Executive is
preparing a brochure which outlines the services provided by the charity. In the brochure,
the Chief Executive states that the charity wants to be the largest global provider of
charitable medical services by 20X5. By highlighting this, the Chief Executive is stressing the
charity’s:
A vision
B mission
C primary objective
D secondary objective
A The primary objective (C) is the provision of medical services, whilst doing this
efficiently would be an example of a secondary objective (D). Vision (A) concerns how
the charity sees itself at some future time, whilst mission (B) is its basic function.
The directors of Gordon Ltd have recently appointed two members of its unionised
workforce to an internal committee. The committee makes suggestions to the company’s
main board of directors about all aspects of the company’s strategies and policies.
These appointments illustrate the company’s concern for which stakeholder?
A Lenders
B Suppliers
C Customers
D Trade unions
D Trade unions are the stakeholders most likely to press for employee representation in
the company’s affairs.
Mandrake plc processes waste for local authorities. It has stated that it seeks to provide “our
shareholders with increased value, our customers with value for money, our employees with
secure and interesting jobs and the public with safe and sustainable waste disposal.”
This is analysed below into four statements. Identify which is Mandrake plc’s primary
business objective.
A To provide our shareholders with increased value
B To provide our customers with value for money
C To provide our employees with secure and interesting jobs
D To provide the public with safe and environmentally sustainable waste disposal
A The primary business objective of a profit-seeking company is the maximisation of
shareholder wealth (A). The other statements are secondary objectives that will be
pursued in support of this primary objective. SAMPLE PAPER
The ability to meet the needs of the present without compromising the ability of future
generations to meet their own needs is known as:
A corporate responsibility
B sustainability
C business ethics
D natural capital
B This is the definition of sustainability as set out in the Brundtland report.
