Chapter 1 - Introduction to Business Flashcards
What is the definition of an organisation?
A social arrangement for the controlled performance of collective goals, which has a boundary separating it from its environment.
4 characteristics of an organisation
Social arrangement: individuals gathered together for a purpose
Controlled performance: performance is monitored against the goals and adjusted if necessary to ensure the goals are accomplished
Collective goals: the organisation has goals over and above the goals of the people within it
Boundary: the organisation is distinct from its environment
Give an example of a profit-oriented organisation.
A multinational car manufacturer (e.g., Ford).
Give an example of a not-for-profit organisation.
A charity.
What is a Social arrangement?
Social arrangement:
individuals gathered together for a purpose
What is the social arrangement in a car manufacturer organisation?
People work in different divisions, making different cars.
What is the social arrangement in an army?
Soldiers are in different regiments, and there is a chain of command from top to bottom.
What is Controlled performance?
Controlled performance: performance is monitored against the goals and adjusted if necessary to ensure the goals are accomplished
How is controlled performance ensured in a car manufacturer?
Costs and quality are reviewed and controlled. Standards are constantly improved.
How is controlled performance ensured in an army?
Strict disciplinary procedures and training.
What is Collective goals?
Collective goals: the organisation has goals over and above the goals of the people within it
What are the collective goals of a car manufacturer?
Sell cars and make money.
What are the collective goals of an army?
Defend the country, defeat the enemy, and maintain international peacekeeping.
What is a Boundary?
Boundary: the organisation is distinct from its environment
What are the physical boundaries of a car manufacturer?
Factory gates.
What are the physical boundaries of an army?
Barracks.
What are the social boundaries of a car manufacturer?
Employment status.
What are the social boundaries of an army?
Different rules than for civilians.
What are the two types of ownership organisations can have?
Public sector (owned by the nation and managed by the government) and private sector (owned by private investors/shareholders).
Who controls a private sector organisation?
The owners (members/shareholders) themselves, or by people working on their behalf (directors).
Who controls a public sector organisation?
Government-sponsored regulators.
List three examples of activities organisations can engage in.
Manufacturing, healthcare, services.
What is the goal of a profit-oriented organisation?
To make a profit.
What is the goal of a non-profit organisation?
To achieve its mission rather than make a profit (e.g., an army or charity).
What are the different sizes organisations can be?
Small local businesses to multinational corporations.
What are the legal statuses organisations can have?
Company, unincorporated body (club, association, partnership, sole trader).
What are the sources of finance for organisations?
Borrowing, government funding, share issues.
How does technology use differ between organisations?
High use (e.g., computer firms) versus low use (e.g., corner shops).
What is the definition of a business?
An organisation (however small) that is oriented towards making a profit for its owners to maximise their wealth and can be regarded as an entity separate from its owners.
What are profit-oriented organisations commonly referred to as?
Businesses, though this is a loose term.
What are the three legal structures of profit-oriented businesses? 3
- Companies owned by shareholders, 2. Sole traders owned by one individual (proprietor), 3. Partnerships owned collectively by partners.
How are not-for-profit organisations structured?
They are frequently structured and run on the lines of a business to benefit from the 3 E’S economy, efficiency, and effectiveness in using resources that profit orientation brings. Economy (Inputs e.g. cost vs quality) x Effcienct (Conversion process) = effectveness (Outcomes)
3 E’s
3 E’S economy, efficiency, and effectiveness.
Economy (Inputs e.g. cost vs quality) x Effcienct (Conversion process) = effectveness (Outcomes)
What is the main focus of not-for-profit organisations?
Providing goods and services to their beneficiaries at minimised cost.
Does the type of work determine if an organisation is profit-oriented or not-for-profit?
No, the type of work does not determine this. For example, a private school may be profit-oriented.
What is the definition of a stakeholder?
A person or group of persons who has a stake in the organisation.
Why is it important for businesses to consider stakeholders?
To decide on strategies or actions that align with the objectives of the business while considering the reaction of stakeholders.
Who are considered primary stakeholders in a business? 1
- Shareholders (or partners or proprietors)
What is at stake for shareholders in a business?
Money invested.
What do shareholders typically expect from a business?
A return on their investment through steady, growing profits and growth in the capital value of their share.
Who are considered secondary stakeholders in a business? 7
- Suppliers and other business partners,
- Directors/managers, employees, and trade unions,
- Customers
- Lenders,
- Government and its agencies,
- The local community and public at large,
- The natural environment.
What is at stake for directors/managers, employees, and trade unions?
Livelihoods, careers, and reputations.
What do directors/managers, employees, and trade unions expect from a business?
Fair and growing remuneration, career progression, safe working environments, training, and pensions.
What is at stake for customers in a business?
Their custom.
What do customers typically expect from a business?
Products/services of good quality and value, fair terms of trade, and continuity of supply.
What is at stake for suppliers and other business partners?
The items they supply.
What do suppliers and business partners expect from a business?
Fair terms of trade, prompt payment, and continuity of custom.
What is at stake for lenders?
Money lent.
What do lenders expect from a business?
A return on their investment through interest and repayment of capital.
What is at stake for government and its agencies?
National infrastructure used by businesses, welfare of employees, and tax revenue.
What do government and its agencies expect from a business?
Reasonable employment and other business practices, and a steady or rising stream of tax revenue.
What is at stake for the local community and public at large?
National infrastructure and welfare of employees.
What does the local community and public expect from a business?
Reasonable employment and other business practices.
What is at stake for the natural environment?
The environment shared by all.
What does the natural environment expect from a business?
Reasonable environmental and other business practices.
What is the primary financial objective of a business?
Profit maximisation to increase shareholder wealth. This however is too simplistic and it’s important for a business to break this down into smaller more manageable chunks in order to enable the organisation as a whole to understand what is expected of them.
Why is it important to break down the primary objective of a business into smaller chunks?
To make it manageable and enable the organisation as a whole to understand what is expected of them.
What factors limit a business from pursuing profit at any cost?
Laws and regulations of the country and the business’s social responsibilities.
What are examples of secondary objectives that support the primary objective? 4
Market position, product development, technology, and employees and management.
Is wealth maximisation always the primary objective of a business?
No, there are cases where it may not be the primary objective.
What are some reasons why wealth maximisation may not be the primary objective? 4
- Management has no personal interest in maximising wealth,
- The market lacks competitive pressure,
- Managers choose profit satisficing,
- The business seeks to maximise revenue over profit.
What is ‘profit satisficing’?
Choosing to achieve a satisfactory level of profit rather than maximising it.
What does focusing on revenue maximisation aim to achieve?
Increasing market share and discouraging competition.
Planning and Control system 5
- Objectives
- Plans and standards
- Actual performance
- Comparison of performance with plans/standards
NOW WE CAN GO TWO WAYS
A. On target no corrective action required
B. Deviations identified so we go back to stage 2/3 to control action
INTERACTIVE QUESTION 2: PLANNING AND CONTROL SYSTEMS
You are an accountant who works for a large car manufacturer. Consider the deviations in both the standards and actual performance that may be identified during a review at the end of the period.
- Standards – Unexpected increase in material costs
- Standards – Increase / decrease in the overall market size
- Performance – Actual material usage higher than planned
- Performance – Actual labour cost per hour higher than planned
- Sales - Volume of sales
- Output - Volume of cars produced
What is the first step in the planning and control system?
Setting objectives.
How is actual performance evaluated in the planning and control system?
By comparing it with the plans and standards.
What are control actions in a planning and control system?
Steps taken to bring actual performance in line with plans and standards.
What is the definition of a mission?
‘The business’s basic function in society,’ expressed in terms of how it satisfies its stakeholders.
What are the four elements of a mission? 4 ACRONYM RSVP
- Reason/Purpose: Why does the organisation exist and for whom?
- Strategy: What does the organisation do, and how does it do it?
- Values: What the organisation believes to be important.
- Policies and standards of behaviour: How people behave in line with the mission.
RSVP
Four elements of a mission
1. Reason/Purpose: Why does the organisation exist and for whom?
2. Strategy: What does the organisation do, and how does it do it?
3. Values: What the organisation believes to be important.
4. Policies and standards of behaviour: How people behave in line with the mission.
What is the purpose element of a mission?
Explains why the organisation exists and for whom (e.g., shareholders).
What is the strategy element of a mission?
Provides the operational logic for the organisation: what it does and how it does it.
What is the role of policies and standards of behaviour in a mission?
To influence what people actually do and how they behave.
What is the values element of a mission?
Represents what the organisation believes to be important (its principles).
What is a vision in the context of a business?
A vision represents the future state of the industry or business, guiding the mission. For instance, ‘being the leading provider of X by 20X5’ is a vision of the future, which ties it in with a mission of ‘providing high-quality environmentally-friendly X to all our customers’.
How does a vision tie into a mission?
It sets out the desired future state, aligning with the mission’s purpose (e.g., ‘providing high-quality environmentally-friendly products’).
What is the definition of goals?
‘The intentions behind decisions or actions’ (Henry Mintzberg) or ‘a desired end result’ (Shorter Oxford English Dictionary).
What are the characteristics of operational goals (SMART)? 5
- Specific, 2. Measurable, 3. Achievable, 4. Relevant, 5. Time-bound.
Provide an example of a SMART objective.
Objective: Reduce budgeted expenditure on office stationery by 5% by 31st December 2016.
What do plans in a business state?
What should be done to achieve operational objectives.
What do standards and targets specify?
A desired level of performance.
What are the three types of standards in a business? 3
- Physical standards,
- Cost standards,
- Quality standards.
What is the definition of sustainability?
The ability to ‘meet the needs of the present without compromising the ability of future generations to meet their own needs’ (Brundtland Report).
What is sustainable development?
The aim of pursuing economic activity without causing permanent harm to society and the planet.
What is natural capital?
The stock of renewable and non-renewable natural resources that yield benefits or ‘services’ to people, such as food, air, water (renewable), and oil and gas (non-renewable).
What are ecosystem services?
Benefits to people from ecosystems, ranging from timber and pollination to climate regulation and mental health benefits.
What are abiotic services?
Benefits from geological processes, such as minerals, metal, oil, wind, tides, and changing seasons.
What is biodiversity?
The range of life forms (animals, plants, fungi, microorganisms) found in one area that make up an ecosystem.
What is enterprise value?
Expectations over the short to long-term value of future cash flows, considering the entity’s risk profile, access to finance, and cost of capital.
What is social value?
Value for money in profit and financial terms while generating long-term positive impacts on local communities, the environment, and other parties.
What are ESG issues?
Environmental, Social, and Governance issues that may affect the risk and return of investments.
What are the two fundamental aspects of sustainability? 2
- Impacts: How an organisation’s actions affect ESG issues.
- Dependencies: How current ESG issues affect the entity’s ability to maintain value.
What are the three categories of sustainability? 3
- Social sustainability: Meeting the needs of society as a whole.
- Environmental sustainability: Avoiding harm to the biodiversity of the planet.
- Economic sustainability: Providing long-term returns to stakeholders while respecting social and environmental concerns.
What is the triple bottom line?
A framework for sustainability based on people, planet, and profit. aka social, environmental, economic sustainability
What is social sustainability?
Meeting the needs of a wider group of stakeholders and society, avoiding exploitation, treating suppliers fairly, and avoiding bribery and corruption.
What is environmental sustainability?
Avoiding harm to biodiversity and considering the use of natural capital.
What is economic sustainability?
Providing a long-term return to stakeholders while respecting social and environmental concerns.
What is climate change?
Long-term shifts in temperatures and weather patterns, primarily driven by human activities since the 1800s.
What does ‘net zero’ mean?
The global reduction of greenhouse gas emissions to net zero by 2050 to limit temperature rise to 1.5 degrees Celsius.
What commitment has the UK made regarding net zero emissions?
The UK government has committed to a legally binding target of net zero emissions by 2050.
What is the The GHG Protocol Corporate Accounting and Reporting Standard? 1, 3
The GHG Protocol Corporate Accounting and Reporting Standard categorises greenhouse gas (GHG) emissions by Scope 1, 2 & 3:
Scope 1: GHG emissions produced directly by the organisation. For example, running vehicles and factories.
Scope 2: GHG emissions produced indirectly by the organisation. For example, purchasing electric or energy produced on its behalf.
Scope 3: GHG emissions an organisation is indirectly responsible for, through its supply network (downstream GHG emissions) or its customers and treatment at the end of the product’s life (upstream GHG emissions).
What are Scope 1 GHG emissions?
Direct emissions produced by the organisation, e.g., running vehicles and factories.
What are Scope 2 GHG emissions?
Indirect emissions produced by the organisation, e.g., purchasing electricity or energy.
What are Scope 3 GHG emissions?
Indirect emissions the organisation is responsible for, e.g., through its supply network or customers. GHG emissions an organisation is indirectly responsible for, through its supply network (downstream GHG emissions) or its customers and treatment at the end of the product’s life (upstream GHG emissions).
What are the UN’s Sustainable Development Goals (SDGs)?
A set of 17 global goals, including no poverty, zero hunger, gender equality, clean water and sanitation, climate action, and more.
Name five examples of the UN’s SDGs. 5
- No poverty,
- Quality education,
- Climate action,
- Gender equality,
- Sustainable cities and communities.
What is the 4Rs framework to support sustainability? 4
- Reduce waste,
- Reuse packaging and machinery,
- Recycle to avoid landfill,
- Replace utilised resources.
What is the purpose of the 4Rs of recycling?
To support sustainability by reducing environmental impact and resource use.
What is the purpose of mitigation hierarchies?
To reduce an organisation’s impact on the environment.
What are the four steps (rungs) in the mitigation hierarchy in the Institute of Environmental Management and Assessment (IEMA)? 4
- Compensate: Those affected by the harm.
- Substitute: Replace energy sources with low-carbon equivalents.
- Reduce: The amount of waste that is produced.
- Eliminate: Prevent the impact from occurring in the future.
