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Introducing the business environment Flashcards

1
Q

What are the five sectors of business activity and what do they mean?

A

Primary: sourcing raw materials, eg fishing
Secondary: manufacture, eg building a house
Tertiary: providing finished goods and services, a bank
Quaternary: aka the knowledge economy, linked to intellectual services, eg scientific research
Quinary: the highest level decision makers in an economy, eg top government officials

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2
Q

What are the four categories of organisational size and how many employees are generally in each?

A

Micro: 0-9 employees
Small: 10-49 employees
Medium: 50-249 employees
Large: 250+ employees

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3
Q

Why do we categorise organisations according to size?

A

It helps inform government policy, such as tax rates and eligibility criteria for subsidies
It helps when analysing the impact of different types of businesses on the economy

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4
Q

What does SME stand for?

A

Small and medium sized enterprises

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5
Q

What percentage of all businesses in the EU and UK are SMEs?

A

99%, an important part of the economy

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6
Q

What is the problem with defining organisations according to size?

A

Criteria varies so widely, within the UK and across different countries
Size doesn’t always indicate turnover

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7
Q

What are the three main sectors of the economy?

A

Public
Private
Voluntary

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8
Q

Give six examples of a private sector organisation.

A 
Sole trader (aka sole proprietor)
Partnership
Limited company
Parent and subsidiary
Unincorporated association
Cooperative
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9
Q

How many people own a sole trader?

A

One

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10
Q

How is a sole trader often financed?

A

Usually the owner’s personal funds and sometimes topped up with borrowed funds

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11
Q

What are the advantages of a sole trader?

A

All profits go to the owner
The owner will often reinvest a significant proportion back into the business which can help ease loans or pay back debts
Easy to be legally established
Have fewer document filing requirements
Accounts are not publicly available, so the owner has some privacy

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12
Q

What are the disadvantages of a sole trader?

A

The business does not have a separate legal entity so the owner has UNLIMITED personal liability
The owner is personally responsible for any losses and their own assets can be seized to pay off debts

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13
Q

How many people own a partnership?

A

Two or more

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14
Q

How is a partnership financed and who gets the profits?

A

Two or more people combine their money and skills

They share the profits and losses of the business

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15
Q

What are the advantages of a partnership?

A

Easy to establish
Combines skills and resources
Owners receive a share of the profit
Non-public disclosure of accounts, giving privacy to the owners

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16
Q

What are the disadvantages of a partnership?

A

Owners have unlimited personal liability jointly for any losses and liabilities incurred by the business
Their assets can be seized to pay debts

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17
Q

What kind of agreement can be put in place for a partnership?

A

A written, legal agreement can be put in place to agree to share liabilities and losses or one or more partners having limited liability

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18
Q

Which types of businesses is a limited liability partnership popular with?

A

Trade
Accountancy
Law
Architecture

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19
Q

What are the benefits of a limited liability partnership?

A

If one partner is sued for misconduct or negligence, the assets of the other partners are not put at risk

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20
Q

What are the general arrangements of a limited liability partnership?

A

Combines practice of general partnership and limited liability partnership
At least one general partner has unlimited personal liability for the debts
One or more partner is only liable for what they have invested but cannot be involved in day to day management of the business aka silent partner

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21
Q

How is the company viewed in a limited company?

A

It is a company set up as a legal person in its own right

Company property and assets belong to the company and not its members (the shareholders)

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22
Q

Who is liable for what in a limited company?

A

The company is liable for debt if it goes into insolvency

The members are only liable for the their initial investments

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23
Q

Who has the responsibility for the day to day running of a limited company?

A

Shareholders delegate the responsibility to the board of directors

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24
Q

What is incorporation?

A

The process by which a new or existing business registers as a limited company
They are limited by shares or guarantees

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25
What rights do shareholders have in a company limited by shares?
A right to share in the profits a business makes through dividends, the amount depends on how much they have invested A right to vote
26
How is a company limited by guarantee financed?
There are no shares and the company is owned by members (aka guarantors) instead of shareholders Guarantors are normally appointed as directors and must guarantee to contribute a fixed some of money if the company winds up
27
What types of companies are usually companies limited by guarantee?
Non-profit businesses | Charitable organisations
28
Explain what a parent and subsidiary is.
50% of subsidiary is owned or controlled by the parent (aka holding) company Parent remains legally separate Companies might form subsidiaries to spread the risk of liability when expanding business
29
Explain what an unincorporated association is.
An organisation set up through an agreement between a group of people with no aim to make profit, ie sports club Doesn’t need to be registered with Companies House Members are personally responsible for their debts or contractual obligations
30
Explain what a cooperative is.
Owned and run by members Not run for benefit of shareholders Operate in the interest of members who have an equal say in how the business is run
31
Name the three types of public sector organisations
Central and local government Public corporations Municipal enterprises
32
How are public sector organisations financed?
Taxes people pay to the government
33
What is the difference and what are some examples of central and local government?
Central is nationwide, eg police, defence, healthcare | Local is for the local community, eg social services, refuse and recycling, parks
34
Explain what a public corporation is.
Owned by central government Chairperson and board of directors appointed by a government minister to run the company on behalf of the government Financed through grants and charges to the general public eg, BBC charging for TV licenses
35
Explain what a municipal enterprise is.
Owned and operated by local government for the purpose of generating income, eg hospital car park or local community theatre
36
What are the advantages of a municipal enterprise?
Creates jobs Provides service for local community Reduces the reliance on tax generated funds Lower rates than their private sector equivalents
37
Why are municipal enterprises criticised?
Critics argue that money generated from taxes should not be used to provide capital to start the businesses Critics doubt that local governments have the skills to effectively run the businesses
38
What does NGO stand for?
Non-governmental organisation, eg voluntary organisations
39
Who owns a voluntary organisation?
They are not owned by individuals but someone (eg individual or Board) is responsible for ensuring they break even
40
What does CIO stand for?
Charitable incorporated organisation, a legal form of voluntary organisation
41
What does CIC stand for?
Community interest companies, a legal form of a voluntary organisation
42
Give example organisational objectives for: A: new sole trader B: large established private sector company C: voluntary sector organisation
A: breaking even and establishing its place in the market B: generating large profits for shareholders or pursuing growth C: generate revenue to fund projects that meet charitable purposes
43
What three things might influence an organisational objective?
The sector, ie private sector more focused on profits The legal structure, ie a coop can’t legally go after maximising profits Influence of stakeholder goals, ie shareholders want more profit to maximise returns whereas directors want to show progress to enhance their career
44
Simply define mission, vision and values.
Mission is why the organisation is doing what its doing Vision is where it’s trying to go Values is how it’s going to go about doing it
45
What are some potential uses of vision and mission statements (four for inside the organisation and three for outside)?
Inside: Assist senior management in developing strategic plans Developing KPIs Motivating and focusing employees by creating common goals Assisting the development of an ethical framework Outside: Encouraging support and endorsements from third parties Creating closer links and better communication with customers, suppliers and other stakeholders Serving as an effective PR tool
46
What is a core values statement?
It declares how the organisation will behave during the process of realising its mission and vision. It articulates the principles and values that leaders will follow when carrying out the activities of the organisation.
47
What should an organisational structure do? How does it help?
It should set out hierarchy, define job roles and how they fit into the organisation, how roles are delegated, controlled and coordinated. It helps management make more effective decisions on how to adapt or change the organisation to reach objectives or business goals.
48
What is the key thing to look at when creating an organisational structure?
Layers of management, where authority for key decisions is concentrated.
49
What are the advantages and disadvantages of a tall hierarchy?
Advantages: tasks are easily designated, employees and depts have well defined responsibilities Disadvantages: if leadership at the top is weak, poor decision making will ripple down the organisation, leaving staff demotivated and inefficient
50
What are the advantages and disadvantages of a flat hierarchy?
Advantages: higher level managers have more control over their area of operations, are given more authority over decisions, are more empowered, higher employee morale, fewer levels of management to go through for decisions, cost less to run, more transparency Disadvantages: fewer promotion opportunities, roles can be less well defined, difficult to delegate tasks, difficult to maintain if organisation grows
51
Who has the authority for key decisions in centralised and decentralised structures?
Centralised: senior management in the centre makes decisions and delegates to lower level management Decentralised: authority is delegated across a larger group, including individual business units or managers
52
What are the advantages and disadvantages of a centralised structure?
Advantages: control is retained at the centre, consistency is maintained, customer experience and quality as standard policies are decided at the top and implemented through the organisation, easier to show strong leadership, decision making can happen quickly, communication and reporting are easier as information is stored in one place Disadvantages: more bureaucratic, less flexible in responding to customer needs, demotivating for managers lower down the chain
53
What are the advantages and disadvantages of a decentralised structure?
Advantages: individual trading units have their own authority, decisions can be made with the local market in mind, good tailored customer service, more empowering for local managers, more opportunities for staff progression, decisions are directly relevant rather than coming from ‘faceless’ centre, reduces bureaucracy Disadvantages: costs can be increased, some functions are duplicated throughout different locations, decisions are less strategic, service is less consistent
54
What are the three ways organisations can choose to structure themselves?
By function, division or matrix (combination of the two)
55
What are functional, divisional and matrix structures?
Functional: divided into smaller groups based on specialised functions they perform Divisional: divided into discrete operating units with own complete sets of functions Matrix: each product line has its own function
56
What are the advantages and disadvantages of a functional structure?
Advantages: promotes efficiency and cost effectiveness because employees with similar specialised knowledge are grouped together Disadvantages: more bureaucratic with complicated communication and decision making processes, less efficiencies across functional areas, results in silo working, leads to poor transparency and tendency towards groupthink
57
What are the advantages and disadvantages of a divisional structure?
Advantages: easy to respond to local business needs, more flexible, staff can concentrate on their product line or service Disadvantages: can be costly, resources (like HR, marketing etc) are duplicated, office politics can become the basis for decisions, divisions can undermine each other
58
What are the advantages and disadvantages of a matrix structure?
Advantages: minimises silo working, more dynamic, fewer communication barriers, employees have opportunities to increase their specialised knowledge Disadvantages: employees need to report to both project managers and heads of functions, chain of command is complex, blurred lines of authority can result in slow decision making, costly,
59
Name the five roles which make up a Board.
``` Chairperson Chief Executive Officer Executive Director Non Executive Director Senior Independent Director ```
60
What are the responsibilities of the Chair of a board?
Ensures effectiveness as a decision making group Sets agendas Acts as liaison between shareholders and the board
61
What are the responsibilities of a CEO?
Day to day running of an organisation Development and execution of long term strategies and long term and short term plans Liaison between board and management team Communicates to stakeholders on behalf of the company
62
Why is it good practice to have separate Chairs and CEOs?
Reduces risk of one person dominating the board | Allows constructive challenge during discussion, leading to effective decision making
63
What is the role of an Executive Director?
FTE Usually works for the organisation Often responsible for functional areas of the business Often highest earners in an organisation Usually have NED roles with other organisations
64
What is the role of a NED?
``` Independent advisor to the board Not employed but may receive flat fee Provide balanced influence Minimise conflicts of interest Acts as mentor to Chair or CEO Make decisions on directors’ pay and benefits Usually make up 1/3 to 1/2 of the board ```
65
What is the role of the Senior Independent Director?
Provides support for the Chair Intermediary for other Directors Alternative point of contact for investors who feel their needs are not addressed by the Chair Meet with other NEDs to annual appraise the Chair Meets with shareholders to understand their issues and concerns Acts as mediator between CEO and Chair
66
What is the difference between a unitary and a two-tier board structure?
``` Unitary (or one tier) has one board with executive and non-executive members and day to day business is run by the CEO and senior management team Two tier (or dual board) separates those responsible for operations (executive board) and those responsible for supervision (supervisory board, usually consisting of NEDs representing the shareholders) ```
67
Name two types of internal stakeholders.
Shareholders (invested money and are directly affected by profit) Workers / employees (invested labour in the business and are directly affected by decisions that impact salaries and job security)
68
Name eight external stakeholders.
Customers - interested in price and quality Suppliers - interested in financial success to understand if their services will be paid for and continually wanted Creditors - interested in financial success to understand if their loans will be repaid Debtors - they owe money to the business so can affect their financial success Government - changes in policy and processes affect businesses by increasing costs and limiting investment opportunities Local and national communities - rely on goods and services and job opportunities Trade unions - want to protected and enhance interests of the workers Pressure groups - can influence government policy through activities
69
What is the difference between a primary and secondary stakeholder?
Primary - functional or financial interest in the business | Secondary - influence the business without being directly involved in day to day activities
70
Give examples of conflicting stakeholder interests.
Owners wanting high profits, employees wanting high wages Directors wanting higher sales, owners wanting higher profits Customers wanting better service, owners wanting higher profits
71
What does stakeholder theory suggest?
That organisations should make decisions that consider and create value for all of its key stakeholders, not just their owners or shareholders This supports the argument in favour of corporate social responsibility
72
What does CRS stand for?
Corporate social responsibility (where organisations should be accountable to their wider stakeholders for their actions)
73
Why should organisations analyse the business environment?
To be able to develop relevant strategies to achieve business purposes and objectives Effective situational analysis is crucial in helping organisations realise their vision by identifying factors that may impact their current mission activities Helps organisations identify potential issues and anticipate changes Organisations should constantly analyse their environment because it is always changing
74
What are the consequences of not understanding the external business environment?
Can result in managers developing or implementing unrealistic strategies or being slow to respond to issues or not developing a appropriate responses to issues, which can cause a decline in profits, loss of market share, reputations damage, decreased level of sales or total failure
75
What does a PEST/PESTEL/LoNGPESTEL help with?
This helps with situational analysis of an organisation’s external environment It gathers information about their product and the market they sell it in It informs decision making, resource direction and implementation strategies
76
What does LoNGPESTEL stand for?
Political - government regulations and legal issues Economic - anything that influences the economy Sociocultural - consumer behaviour, potential customers, buying trends Technological - levels and advancements of technology Environmental - ecological factors such as climate change, weather patterns Legal - relevant laws covering consumer protection, health and safety, data protection Local O National Global
77
What are the benefits of a SWOT analysis?
Helps understand organisation’s current and future situation to help plan strategies Helps capitalise on strengths and reduce weakness
78
What does SWOT stand for?
Strengths - positive attributes, internal and within control Weaknesses - aspects that detract from value, within control Opportunities - external attractive factors Threats - external factors that can place risk, out of control

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