Paper 2 Flashcards
What is a business
Organizations involved in the production of goods or services.
Differentiate between product, goods, and services
Product refers to both goods and services
Goods - physical products
Services - intangible products
Needs vs Wants
Needs -Basic necessities to survive. Wants are people’s desires, things that they would like to have.
Customer vs Consumer
Customer - People or organizations that buy the product
Consumer - People or organizations who actually use a product
Describe the three types of products
Consumer goods - sold to public
Capital Goods - sold to businesses
Services - intangible products provided by businesses
What are the 4 functions of a business? describe their role.
Human resource - responsible for managing the personnel of the organization (workforce planning, recruitment, training
Finance and accounts - managing the organization’smoney
Marketing - identifying and satisfying the needs and wants of customers.
It is ultimately in charge of ensuring that the firm’s products
sell. (Product, price, promotion, place)
Operations management - responsible for the process of converting raw materials and
components into finished goods, ready for sale and delivery. (Extraction of oil, or providing services in a restaurant, nail salon, or hotel)
Distinguish between revenue and costs of production
Revenue - The money that a business makes through the sale and purchase of its products or goods.
Costs of production - the costs associated with a business in the production process of its goods or services.
Describe the operations of the four main sectors
Primary - involved with
the extraction, harvesting and conversion of natural resources,
e.g. agriculture, fishing, mining, forestry and oil extraction. Occurs in LEDC’s. As economies develop, there is less reliance on the primary
sector in terms of employment and national output, partly
because there is little value added in primary production
Secondary - involved
in the manufacturing or construction of products, e.g. clothes
manufacturers, publishing firms, breweries and bottlers,
construction firms, electronics manufacturers and energy
production companies. MEDC’s. Wealth creating sector.
Tertiary - Businesses in the tertiary sector specialise in providing services
to the general population.Examples ofindustries in the tertiary
sector include: retailing, transportation and distribution,
banking, finance, insurance, health care, leisure and tourism,
and entertainment. MEDC’s (canada, germany) tends to be the most substantial sector in terms of both
employment and as a percentage of gross domestic product
Quatrenary - involved in intellectual, knowledgebased activities that generate and share information. Examples
include information communication technology (ICT),
research and development (R&D), consultancy services, and
scientific research.
What is the chain of production?
tracks the stages of an items production
Production -) manufacturing -) services (tertiary and quatrenary output -) consumer
What is sectoral change? List some factors that cause sectoral change
refers to a shift in the relative share of national
output and employment that is attributed to each business sector
over time.
- higher household incomes
- greater focus on customer services
- More leisure time
What is an entrepreneur?
an individual who plans, organizes and manages a business, taking on financial risks in doing so.
What is intrapreneurship/an intrapreneur?
the act of being an entrepreneur but as an employee within a large organization. They described an intrapreneur as an employee who thinks and acts as an entrepreneur within a section of the organization.
Describe the four factors production
describes the resources necessary for the production process.
Land
Labor
Capital
Entrepreneurship
Outline differences between intrapreneurs and entrepreneurs
Entrepreneurs
* Owners and/or operator of organization
* Takes substantial risks
* Visionary
* Rewarded with profit
* Responsibility for workforce (labour)
* Failure incurs personal costs
Intrapreneurs
* Employees of organization
* Takes medium to high risks
* Innovative
* Rewarded with pay and remuneration
* Accountability to the owner / operator
* Failure is absorbed by the organization
Outline the reasons for starting a business
Growth
Transference and inheritance
Autonomy
Earnings
What are some start-up costs for a new business?
Premises, e.g. purchase costs, mortgage deposit
payment or rental deposit costs.
* Buildings, e.g. alterations, fixtures and fittings and
insurance costs.
V Capital equipment, e.g. office furniture, telephones,
computers, machinery,tools, and motor vehicles.
* Legal and professional fees, e.g. costs of solicitors,
licenses, permits and copyright permission.
* Marketing costs, e.g. market research, advertising and
promotional campaigns.
* Human resources, e.g. recruitment, Induction and
training costs.
What are some problems that a new business may face?
Lack of finance
Cash flow problems
Competition
Unestablished customer base
Legalities
Human resource problems
What is a business in the private sector?
Organizations that operate in the private sector are
owned and controlled by private individuals and
businesses, rather than by the government. The main aim of most, although not all, private
sectororganizations is to make profit
What is a business in the public sector?
Organizations that operate in the public sector are under
the ownership and control of the government. Traditionally,
they provide essential goods and services that would be
underprovided or inefficiently provided by the private
sector, e.g. health care, education and emergency services.
Sales Revenue
(the money earned from selling
its products)
Costs
production expenditure such as
wages and rent).
State-owned corporations
Organizations that are wholly owned by the government
Reasons for public sector business activity
- Ensures that everyone has access to basic services
such as education, health care, public parks and public
libraries. - To avoid wasteful competition as the government is
- able to achieve huge economies of scale (cost savings
from operating on a large magnitude) in the provision
of certain services, such as postal services or national
defence. - To protect citizens and businesses through Institutions
such as the police or the courts that govern the law and
order system. - To create employment, e.g. governments tend to be a
large employer of teachers, doctors and nurses. - To stabilise the economy, e.g. several private sector
banks were nationalised (bought by the government)
during the global credit crisis to prevent further
financial turmoil.
Aims between business in public vs private sector
Sole trader
A sole trader (or sole proprietor) is an individual who
runs and owns a personal business. The owner is held
responsible for its success or failure. It is the most common
type of business ownership. Examples include self-employed
decorators, plumbers, mechanics, restaurateurs and freelance
photographers. Sole traders may work alone or they
might employ other people to help run the business. S
Unincorporated
An important legal point about sole traders is that the business is
unincorporated. This means the owner is the same legal entity
as the business. Full responsibility and liability
Advantages and disaadvantages to being a sole trader
Advs.
- Few legalities
- Full profit
- Privacy
- Personalised service
Disadvs.
- Unlimited liability
- Limited sources of finance
- Unestablished customer base
- Limited economies of scale
- Stress
Partnerships. What are the types?
A partnership is a profit-seeking business owned by two or
more persons. For ordinary partnerships, the maximum
number of owners is 20
Silent partners - raise money from owners who do not actively take part
in the running of the partnership but have a financial stake
in it.
At least one owner must have unlimited liability
What does a deed of partnership include?
- the amount of finance contributed by each partner
- the roles, obligations and responsibilities of each partner
- how profits or losses will be shared among the partners
- conditions for introducing new partners
- clauses for the withdrawal of a partner
- procedures for ending the partnership.
What is unlimited liability?
Unlimited liability exists to prevent sole traders and
partners from making careless decisions in managing
their businesses. It makes private individuals accountable
for their actions and decisions. Your personal assets will not be protected in the case of an adverse event.
What are the advantages and disadvantages of a partnership?
Advs
- Financial strength
- Delegation of labor
- Cost effectiveness
Disadvs
- Conflict
- Unlimited liability
What is a company?
businesses owned by their shareholders
What can corporations also be called? Why?
Corporations
are sometimes called joint-stock companies because the shares
of the business (or ‘stock’) are jointly held by numerous entities.
Limited liability
- shareholders
do not stand to lose personal belongings if the company goes
into debts.
Board of directors
A board of directors (BOD) is elected
by shareholders to run the company on their behalf.
Private limited company vs Public limited company
A private limited company is a company that cannot raise
share capital from the general public. Instead, shares are sold
to private family members and friends.
By contrast, a public limited company is able to advertise and
sellits shares to the general publicvia a stockexchange.
Before companies can begin trading, what are the two documents that must be submitted to appropriate authorities? Once this process is completed, what is issued to the company?
- Memorandum of Association - a relatively brief
document outlining the fundamental details of the
company, e.g. its name, its main purpose, the registered
address and the amount of share capital invested. - Articles of Association (or Articles of Incorporation) -
the longer of the two documents, stipulating the internal
regulations and procedures of the company,
What is flotation? WHat is an IPO?
Flotation occurs when a business first sells all or part of its
business to external investors (shareholders), a process known
as an initial public offering (IPO). The IPO makes the company
listedon a stock exchange
What is an Annual General Meeting? What are the three main processes typical at an AGM?
All companies must hold an Annual General Meeting (AGM)
to allow the owners to have a say (or vote) in the running of the
business.
Shareholders vote on (promises or declarations) and
the re-election (or sometimes election) of the board of
directors.
* Shareholders ask questions of the chief executive officer
* Shareholdersapprovethe previousyear’sfinancialaccounts
after the directors present the annual report containing
information about the company’s performance.
What are some advantages/Disadvantages of companies/corporations
Advs
- raising capital
- limited liability
- economies of scale
disadvs
- loss of control
-disclosure of financial accounts
- communication problems
What are social enterprises?
Socialenterprisesarerevenue-generatingbusinesses withsocial
objectives at the core of their operations.
There are three main types of for-profit social enterprises:
cooperatives, microfinance providers and public-private
partnerships (PPP).
What are cooperatives? What are the types of cooperatives?
Cooperatives are for-profit social enterprises owned and run
by their members, such as employees or customers, with the
common goal ofcreating value for theirmembers byoperating
in a socially responsible way.
-Consumer cooperatives are ownedbythe customerswho
buythegoods and/orservices for personal use.
-Worker cooperatives areset up, owned andorganized by
their employee members.
-Producer cooperatives are cooperatives that join and
support each other to process or market their products.
What are some advantages/disadvantages of cooperatives
- Incentives to work
- Decision making power
- Public support
- disincentive effects
- limited sources of finance
- slower decision making
What are microfinance providers?
Microfinance is a type of financial service aimed at entrepreneurs
of small businesses, especially females and those on low
incomes. As a social enterprise, microfinance providers enable
the disadvantaged members ofsocietyto gain access to essential
financial services to help eradicate poverty.
What are the advantages and disadvantages of microfinance providers?
- financial independancy
- job creation
- limited finance
- limited eligibility
What are public-private partnerships?
Public-private partnerships (PPP) occur when the
government works together with the private sector to jointly
provide certain goods or services. It is argued that a public-private partnership can benefit from
the dynamics, finance and efficiency of the private sector
alongside the benefits of public sector funding and support.
Examples of such projectsinclude London’s OlympicStadium
Discuss whether a government should use tax revenues to fund public-private partnerships
What are non-profit social enterprises?
Non-profit socialenterprises arebusinessesrun in acommercial
like manner but without profit being the main goal. Instead,
non-profit organizations (NPOs) use their surplus revenues to
achieve their social goals rather than distributing the surplus
as profits or dividends.
What is an NGO? What are the two types of NGO’s?
A non-governmental organization (NGO) is non-profit
social enterprise that operates in the private sector, i.e. it is
not owned or controlled by the government. However, unlike
most private sector businesses, NGOs do not aim primarily to
make a profit. Instead, NGOs , are set up and run for the benefit of
others in society.
Operational NGO’s - releif-based community projects
Advocacy NGO’s - defend a cause
What is a charity?
A charity is a non-profit social enterprise that provides
voluntarysupport forgood causes
What are the advantages and disadvantages of charities?
- social benefits
- tax exemptions
- ## limited sources of finance
What is a vision statement?
vision statement therefore
outlines an organizations aspirations (where it wants
to be) in the distant future.
What is a mission statement?
A mission
statement tends to be a simple declaration of the underlying
purpose of an organizations existence and its core values. No time frame
Examine the role of vision and mission statements in a business
(1) communicate the purpose of the organization to stakeholders, (2) inform strategy development, and (3) develop the measurable goals and objectives by which to gauge the success of the organization’s strategy.
Aims vs objectives (what are the three reasons they are important)
Aims are the general and long-term goals of an organization.
Objectives are the short-to-medium-term and specific targets
an organizationsets in order to achieve its aims.
Strategies vs Tactics (name three levels of business strategy)
Strategies are the plans of action to achieve the strategic
objectives of an organization.
Tactics are short-term methods
usedtoachieve anorganization’stacticalobjectives.
- Operational strategies
- Generic strategies
- Corporate strategies
What are two tactical objectives?
- Survival
- Sales revenue maximisation
What are four strategic objectives?
What are some factors that cause business to change? 5 internal, 4 external
- Corporate culture
- type and size of organization
- finance
external
- state of economy
- government constraints
- new tehcnologies
What are ethics? What are some examples of ethical objectives?
Ethics are the moral principles that guide decision-making
and strategy.
What is CSR? What are three broad views relating to CSR?
Socially responsible businesses are those thatactmorallytowards
their stakeholders, such astheir employees and
thelocal community. These obligations areknown ascorporate
social responsibility
What is an ethical code of practice?
Thecode refersto the documented
beliefs and philosophies of the business.
What are the advantages and limitations of ethical behavior
- improved brand image
- increased support from stakeholder groups
- motivation
- efficiency
- cannot please all groups
- lower profits
Talk about the evolving role of CSR
Attitudes towards CSR may change over time. What was once
considered acceptable by society, may no longer be the case. Changes in societal norms mean that businesses need to
review their CSR policies and practices from time to time.
- Providing accurate information and labelling
- Adhering to fair employment practices
What is a SWOT analysis?
decision-making tool. Strengths, weaknesses, opportunites, threats
What are the advantages and disadvantages to a SWOT analysis?
- wide range of applications
- reduces risks
- static model
- only useful if true (don’t lie about weaknesses)
What is an ansoff matrix?
The Ansoff matrix (1957) is an analytical tool that helps
managers to choose and devise various product and market
growth strategies.
Market penetration Product development
market development diversification
What is a stakeholder? What is an internal stakeholder? Provide examples. WHat are extrenal stakeholders? provide examples.
A stakeholder is any person or organization with a
direct interest in, and is affected by, the activities and
performance of a business. Internal stakeholders are
members of the organization, i.e. the employees, managers,
directors and shareholders of the organization. External stakeholders do not form part of the business but
have a direct interest or involvement in the organization, e.g.
customers, suppliers, pressure groups, competitors and the
government.
What are some possible actions that could be taken by pressure groups?
- boycotting
- lobbying
- direct action (protests)
- public relations
stakeholder conflict
As different stakeholder groups have varying interests in a
business, it is likelythat conflict will arise, i.e. situations where
peopleare in disagreement due to differences in their opinions
thus creating friction between stakeholders of the organization
- pay and benefits
- product pricing
- CSR
Mutual benefits ofstakeholders’
interests
modern management thinking suggests that there
are mutual benefits in simultaneously meeting the competing
needs of different stakeholders. For example, addressing
the needs of both employees and managers can lead to a
highly motivated and productive workforce with low rates
of absenteeism and staff turnover. This can lead to improved
customer relations, corporate image, market share and profits.
STEEPLE analysis
Social, Technological, Economic, Environmental, Political, Legal and Ethical
opportunities and threats of the external business
environment. beyond the control of any individual
organization.
Human resource management
- Workforce planning
- The recruitment, selection and induction of new
employees - Training and development of staff
- Performance management and staff appraisals
Short term vs long term workforce planning
deals with existing and upcoming demands
deals with foreseeable future events
workforce planning can be achieved by looking at:
- Historical data and trends -
- sales and income levels
- labor turnover ratess
labor turnover (CLAMPS)
measures the percentage of the workforce
that leavesthe organization in a given time period, usually one
year.
Number of staff leaving Labour turnover = x 100
Total number of staff
factors that influence human resource planning
- demographic change (birth rate, migration rate, more women, longer life expectancy)
- labor mobility (people are scared of leaving, cost of living can be higher in some places)
- new technology
Recruitment and selection
- vital to business
- managers carry out job analysis
- job advertisment
- job description
- person specification (TRAPS)
advantages and disadvantages of internal recruitment
- cost effective
- fast
- less risky
- fewer applications
- no new ideas
- bias
external recruitment
hiring people that dont alreday affiliate with the company
induction training
on the job training, meet personnel, tour
name some advantages and disadvantages of on the job training
- cost effective
- fast
- understand exactly what they are supposed to be doing and where everything is
- takes time out of other peoples work
- takes time to plan
- information overload (overwhelming)
name some advantages and disadvantages of off the job training
- using experts to train
- more comfortable learning at own pace (more motivation)
- is it relevant to job?
- paying for transportation
- paying for other mentors to come
name some types of training
behavioral, cognitive, mentoring, on the job, off the job
appraisal
the formal assessment of an employees
performance in fulfilling his/her job based on the tasks and
responsibilities set out in their job description.
name the types of appraisal
formative, summative, 360, self appraisal
advantages and disadvantages of appraisal
- feedback
- motivational
- incentives
- time consuming
- cost
- subjective
-one time occurence
dismissal and reasons for dismissals
termination due to incompetence
- incompetence
- misconduct
- gross misconduct
- legal requirements
redundancies
business can no longer afford to employ worker
- voluntary
- compulsory
name some changing employment patterns and practices
- aging population
- flexible working (homeworking, flexitime)
- employment sector
- portfolio worker
advantages and disadvantages of flexible working
- stress
- autonomy
- motivation
- control
- cost
outsourcing, offshoring, reshoring
- transferring business activities to seperate firms
- relocating business activities abroad
- transferring business activities back to their country of origin
delegation
spreading out business activities
span of control
refers to the number of people who are
directly accountable to a manager. Hence, the higher up a
person is in a hierarchy, the wider his/her span of control tends
to be.
Narrow vs wide span of control
hierarchy
The hierarchy in a business refers to the organizational
structure based on a ranking system.
chain of command
l line of authority
through which orders are passed down in an organization
delayering (advantages, disadvantages)
removing layers from the hierarchy to flatten the organizational structure
- motivation
-costs less - delegation
- demotivation for senior workers
- lacking sense of control and authority
- overloading staff
middle managers
a link between the senior management and the lower (junior) levels of the organization.
bureaucracy
The execution of tasks that are governed by
official administrative and formal rules of an organization.
- paperwork
- legalities
- rules and policies
centralized vs decentralized
- decision-making is made by a very
small number of people - whereby decision-making authority and responsibility is
shared with others
adv of centralization
- better control
- more expertise
- efficient
disad
- demotivating
- stress
- inflexible/stagnant business
adv of decentralization
-morale
- input
disadv
- communication issues
- mistakes (little expertise)
- loss of control
organizational chart
- chain of command
- functional departments
- span of control
- levels of hierarchy
- channels of communication
flat vs tall
flat = wide span of control
- specialization
- cheaper
- communication within small teams
tall = narrow span of control
- cost effective
- level playing field
- better communication
organization by product, region, function
- broad range of products?
- marketing, human resources, production?
- multinational company?
project based organization
human resources are
organized around particular projects.
adv
- specialization
- bonding with people wroking in same project
- efficient
disad
- cannot develop outside of bubble
- conflict
Matrix structure
Functional
departments still exist, although the project team has the
opportunity to work with colleagues from other departments.
Handy’s shamrock organization (three groups of workers)
businesses ought to
place greater emphasis on meeting the needs of workers
through methods such as job enrichment (giving workers
more interesting and challenging tasks) and flexible working
practices.
- core staff
- peripheral workers
- outsourced workers
functions of management
- planning
- commanding
- controlling
- coordinating
- organizing
management vs leadership
- getting things done through people
- inspiring and motivating people
leadership styles
- autocratic (one makes all the decisions)
- laissez faire
- paternalistic
- democratic (involves employees)
- situational
motivation theories
Taylor
- pay is the main source of motivation
Maslow
-people are motivated by more than just money (psychological (emotional and mental) needs to be fulfilled
Herzberg
- hygiene does not motivate, but needs to be met to prevent dissatisfaction
Adam
- workers are motivated if there is fairness in remuneration packages
Pink
- autonomy, mastery, and purpose are drivers of motivation in modern societies of the 21st century
Financial rewards
- Salary
- Wages (piece rate)
- Commision
- Profit related pay
- Performance related pay
- Fringe payments (perks)
non-financial rewards
- job enrichment (more difficult)
- job rotation
- job enlargement
- empowerment
- purpose
- teamwork
Social opportunites and threats
- Language
- Support for environmental protection
- Pressures for business to act ethically
- Support for women
- Migration and acceptance of multicultarism
Technological opportunities and threats
- working practices
- communication
- job creation/removal
- opportunities for innovation
- costly
- shorter product life cycle
Economic opportunities and threats
- exchange rate
- economic growth (boom, recession, trough, recovery)
- inflation (controlled)
reduced unemployment
environmental opportunities and threats
- climate
- increasing awareness of environmental practices
Political opportunities and threats
- fiscal policy (deflationary and expansionary)
- Corruption
- War
Legal opportunities and threats
- laws
- employee protection
- consumer protection
Ethical opportunities and threats
- attraction and retention of talent
- brand image
- competitive advantage
economies of scale
larger businesses enjoying a lower cost of production due to operational effeciencies
average cost
total cost divided by total number
average fixed costs
dividing total fixed costs by level of output
average variable costs
dividing total variable costs by level of output
internal economies of scale
- economies of scale that are within the company’s control
- machinery
- borrowing money
- purchasing
external economies of scale
-outside the business due to location or industry
- skilled labor
- transportation networks
- technological progress
internal and external diseconomies of scale
- higher unit costs as a company grows in size
- managers may lack control as organization grows
- outsizing factories
- poor working relationships
- rent, competition
- traffic congestion
- need to offer higher wages and financial rewards
small vs large organizations
- market share
- number of employees
- profit
adv of small
- control
- private
- loyal customers
-flexibility
adv of large
- brand recognition
- loyalty
- ability to expand and innovate
- choice
internal (organic) growth
- improving products
- changing price
- improving training and development (employee knowhow)
adv
- control
- risk
- inexpensive
disad
- slower
- need to restructure
- diseconomies of scale
external (inorganic) growth
- mergers
- acquisitions
- takeovers
- integration
- franchising
- joint venture
- strategic alliance
adv
- fast
- economies of scale
- synergy benefits
disad
- less control
- risky
- conflict
- diseconomies of scale
joint venture
occurs when two or more businesses
split the costs, risks, control and rewards of a business project.
In doing so, the parties agree to set up a new legal entity.
adv
- cheap
- liability
- stress
- knowledge
- synergy
disad
- conflict
strategic alliance
main purpose is to gain synergies from the different strengths of the businesses by pooling their resources. similar to joint venture, main goal is synergies
franchising
A franchise is a form of business
ownership whereby a person or business buys a license to trade
using another firm’s name, logos, brands and trademarks. In
return for this benefit, the purchaser of a franchise (called the
franchisee) pays a license fee to the parent company of the
business (known as the franchisor). The franchisee also pays a
royalty payment (like commission) based on the sales revenue
of the franchisee.
closing stock
an amount of unsold stock lying in your business on a given date
loss, break-even, profit
- when costs of production exceed revenues
- when costs of production equal revenues
- when revenues exceed costs of production
Break even calculation
Fixed costs divided by contribution per unit
contribution per unit
price - average variable costs
benefits and limitations of break even analysis
- produce or sell a single product
- operate in a single market
- make products to order
- assumes that all costs are linear
- assumes that a business will sell all its output
- not useful in dynamic business movement
intangible assets
non-physical fixed assets that have the ability to raise revenue for a business
intellectual property rights
intangible assets are legally protected by intellectual property rights. They give the owner the legal right to own pieces of work or inventions.
- brand recognition
- patents
- copyright
- trademarks
do a profit and loss account
do a break even analysis
do a balance sheet
horizontal and vertical integration
- amalgamation of firms operating in the same industry
- occurs when business merge that are at two different stages of production or are in two different markets
globalization
growing integration and interdependence of the worlds economies. decisions in one part of the world will affect other parts of the world.
- increases competition
- inxreased customer base
- increases market share
- increases brand awareness
- economies of scale
- increased sources of finance
multinational company
operates in two or more countriues.
transnational corporation
regional offices rather than a single international base
host countries
allow multinational companies to come in
- greater gdp
- creates jobs
- causes unemployment
- profits do not stay in host country
share capital
Share capital is the money a company raises by issuing common or preferred stock.
