Theme 1 - Marketing and People Flashcards
Mass market
Large market that targets a broad audience with generic products or services, rather than catering to specific customer needs or preferences
Niche market
Small, specialised segment of a larger market that targets a specific group of consumers with unique needs or preferences
Homogeneous
Products or markets that are uniform and identical in nature, with little to no differentiation
Advantages of operating in a mass market
- Economies of scale, higher production volumes lead to lower unit costs, improving profitability
- Large customer base, more potential customers mean greater sales and revenue opportunities
- Easier marketing, standardized products simplify advertising and promotional strategies
Disadvantages of operating in a mass market
- High competition, many businesses compete, making it harder to stand out
- Less flexibility, harder to adapt quickly to changing consumer preferences
- Lower profit margins, prices are often competitive, reducing potential profit per unit
Advantages of operating in a niche market
- Higher profit margins, customers are often willing to pay premium prices for specialized products
- Less competition, fewer businesses operate in the niche, reducing direct competition
- Customer loyalty, stronger relationships with customers due to tailored products/services
Disadvantages of operating in a niche market
- Limited customer base, fewer potential customers can restrict growth opportunities
- Higher costs, lower production volumes mean fewer economies of scale, leading to higher unit costs
- Market vulnerability, changes in consumer preferences or market conditions can have a significant impact
Market size
The total sales revenue or total number of potential customers within a specific market over a given period. It is usually measured in terms of value or volume
Formula for market share
(Sales of X / Total sales in whole market) * 100
Dynamic market
Market that is constantly changing due to factors like consumer preferences, technology, competition, and external influences
Advantages of online retailing
- Lower costs, no need for physical stores, reducing rent and operational expenses
- Wider customer reach, can sell to customers globally, expanding the potential market
- 24/7 availability, customers can shop anytime, increasing sales opportunities
Disadvantages of online retailing
- High competition, the online market is highly competitive, making it harder to stand out
- Technical problems, website crashes, payment failures, or cybersecurity issues can disrupt sales
- Lack of personal interaction, customers cannot physically see or test products before purchase
Risk
Possibility a business will have lower than anticipated profits or experience a loss rather than a profit
Risks of becoming an entrepreneur
- Financial risk, personal savings or loans may be lost if the business fails
- Uncertain income, no guaranteed salary, especially in the early stages
- Workload and stress, long hours and high pressure can impact well-being
Uncertainty
When businesses are unable to predict external shocks or future events
Product orientation
Business approach where a company focuses on developing high-quality products based on its expertise and innovation, rather than prioritizing customer needs or market demand
Market orientation
Business approach where a company focuses on identifying and meeting customer needs and preferences through market research and analysis. This strategy ensures products or services are designed based on consumer demand rather than just the company’s expertise
Primary market research
Process of collecting new, first-hand data directly from sources such as surveys, interviews, focus groups, and observations
Advantages of primary market research
- Specific to business needs, data is tailored to the company’s exact requirements
- Up-to-date and relevant, information is current and directly applicable
- Better accuracy, first-hand data is more reliable than secondary sources
Disadvantages of primary market research
- Time-consuming, collecting, analyzing, and interpreting data can take a long time
- Expensive, conducting surveys, interviews, and focus groups can be costly
- Potential bias, responses may be influenced by question design or researcher expectations
Secondary market research
Process of collecting and analyzing existing data that has already been gathered by other sources, such as government reports, industry studies, market analysis, and online databases
Advantages of secondary market research
- Cost-effective, it is cheaper than primary research since the data is already available
- Time-saving, data can be accessed quickly without the need for new data collection
- Wide range of sources, information is available from government reports, industry studies, and online databases
Disadvantages of secondary market research
- May be outdated, data might not be current or relevant to present market conditions
- Not specific to business needs, information is general and may not fully address a company’s specific questions
- Competitors have access, since the data is publicly available, competitors can use the same information
Quantitative research
Research that focuses on gathering numerical data and analyzing it using statistical methods. It aims to quantify variables and generalize results from a larger sample population. Common methods include surveys, experiments, and data analysis of measurable factors like sales, ratings, or demographic information
Qualitative research
Research that focuses on understanding opinions, motivations, and behaviors through non-numerical data. It explores deeper insights into customer attitudes and experiences using methods like interviews, focus groups, and open-ended surveys
Limitations of market research
- Human behaviour
- Bias
- Sample size
Market segmentation
Process of dividing a broader market into smaller groups of consumers with similar characteristics, needs, or behaviors. This allows businesses to target specific customer segments more effectively
Types of market segmentation
- Demographic segmentation
- Geographic segmentation
- Psychographic segmentation
- Behavioral segmentation
Demographic segmentation
Dividing the market based on factors like age, gender, income, education, or occupation
Geographic segmentation
Segmenting customers based on location, such as country, region, city or climate
Psychographic segmentation
Grouping consumers based on lifestyle, personality, values, or interests
Behavioral segmentation
Categorising customers based on their purchasing behavior, brand loyalty, usage rate, or response to a product
Benefits of market segmentation
- Increased customer satisfaction, tailored products and services lead to higher customer satisfaction and loyalty
- Better targeting, allows businesses to focus on specific customer needs, improving marketing effectiveness
- Efficient use of resources, marketing budgets are spent more effectively by focusing on the most relevant audience
Market positioning
Process of establishing a brand, product, or service in a specific way within the minds of consumers relative to competitors. It involves creating a unique value proposition and differentiating the product based on factors like price, quality, features, or target audience
Market mapping
Visual tool used to analyze how products or brands are positioned in the market based on key attributes, such as price and quality. It helps businesses identify gaps in the market, understand competitor positioning, and make strategic decisions about differentiation and targeting
Competitive advantage
Unique strengths or factors that allow a business to outperform its competitors. This can be achieved through cost leadership (offering lower prices), differentiation (offering unique products or services), or focus strategies (targeting a specific niche market)
Product differentiation
Process of making a product or service stand out from competitors by emphasising unique features, design, branding, quality, or customer experience. It helps businesses attract specific target markets, reduce price competition, and build brand loyalty
Added value
Increase in worth a business creates for a product or service by enhancing its features, quality, branding, or customer experience
Demand
Quantity of a good or service that consumers are willing and able to buy at a given price over a specific period of time
Basic law of demand
As the price of a good or service decreases, the quantity demanded increases, and as the price increases, the quantity demanded decreases. This creates an inverse relationship between price and demand
Factors causing a shift in the demand curve
- Income levels
- Consumer tastes and preferences
- Seasonal factors
- Price of substitutes and complements
- External shocks
Substitute goods
Products that can replace each other because they fulfill the same need or function. If the price of one substitute increases, demand for the other is likely to rise
Complementary goods
Products that are typically used together, meaning that an increase in demand for one leads to an increase in demand for the other or if the price of one complementary good rises, demand for both may fall
Normal goods
Goods for which demand increases as consumer income rises and decreases when income falls
Inferior goods
Goods for which demand decreases as consumer income rises and increases when income falls
Luxury goods
High-quality, often expensive products for which demand increases more than proportionally as consumer income rises
Supply
The quantity of a good or service that producers are willing and able to offer for sale at a given price over a specific period of time
Basic law of supply
As the price of a good or service increases, the quantity supplied increases, and as the price decreases, the quantity supplied decreases. This creates a direct (positive) relationship between price and supply
Factors causing a shift in the supply curve
- Changes in production costs
- Technological advances
- External shocks
- Government policies
Subsidy
Financial payment or benefit provided by the government to businesses or industries to reduce production costs and encourage supply. Subsidies help lower prices for consumers, support economic growth, and promote specific industries, such as renewable energy or agriculture
Market equilibrium
Point where demand and supply are equal, meaning the quantity of a good or service consumers are willing to buy matches the quantity producers are willing to supply at a given price
Excess demand
When the quantity demanded of a good or service exceeds the quantity supplied at a given price, creating a shortage in the market
Excess supply
When the quantity supplied of a good or service exceeds the quantity demanded at a given price, creating a surplus in the market
Price Elasticity of Demand
Measures how responsive the quantity demanded of a good or service is to a change in its price
Formula for Price Elasticity of Demand
% Change in quantity demanded / % Change in price
Price elastic
A good which is very responsive to a change in price, meaning that the change in demand is greater than the change in price and PED>1
Price inelastic
A good which is unresponsive to a change in price, meaning that the change in price is greater than the change in demand and PED<1
Factors influencing Price Elasticity of Demand
- Availability of substitutes
- Necessity vs. Luxury
- Proportion of income spent
- Brand loyalty
- Time period
Income Elasticity of Demand
Measures how responsive the quantity demanded of a good or service is to a change in consumer income
Formula for Income Elasticity of Demand
% Change in quantity demanded / % Change in income
Income elastic
Demand changes more than proportionally in response to a change in income, meaning that YED>1
Income inelastic
Demand changes less than proportionally in response to a change in income, meaning that YED is between 0 and 1
Factors influencing Income Elasticity of Demand
- Necessity vs. Luxury
- Proportion of income spent
- Time period
- Consumer preferences
- Availability of substitutes
The 4Ps in the marketing mix
- Product
- Price
- Place
- Promotion
Design mix
- Function
- Aesthetics
- Economics manufacture
Ethical sourcing
Process of ensuring that raw materials, products, and services are obtained in a responsible and sustainable manner. This includes considering factors such as fair wages, safe working conditions, environmental sustainability, and animal welfare
Promotion
Marketing activities used by businesses to communicate with customers, increase awareness, and encourage sales of a product or service
Above the line promotion
Paid, mass-media advertising used to reach a large audience. It is typically non-targeted and focuses on building brand awareness and reaching as many potential customers as possible
Advantages of above the line promotion
- Wide audience reach, mass media advertising (TV, radio, newspapers) allows businesses to reach a large and diverse audience
- Brand awareness and recognition, helps establish and reinforce a strong brand image in consumers’ minds
- Credibility and trust, advertising in traditional media sources like TV and newspapers can enhance a brand’s credibility
Disadvantages of above the line promotion
- High costs, TV, radio, and newspaper advertising can be very expensive, making it less accessible for small businesses
- Less targeted, mass media advertising reaches a broad audience, meaning a large portion may not be potential customers
- Ad avoidance, many consumers skip TV ads, ignore radio commercials, or use ad blockers online, reducing effectiveness
Below the line promotion
Targeted, direct marketing activities aimed at specific customer segments rather than mass audiences
Advantages of below the line promotion
- Highly targeted, methods focus on specific customer segments, ensuring marketing efforts reach the right audience
- Cost-effective, generally cheaper than above the line promotion, making it ideal for small businesses or startups
- Direct customer engagement, methods like personal selling and direct marketing allow businesses to interact with customers and build relationships
Disadvantages of below the line promotion
- Time-consuming, strategies like personal selling and direct marketing require more effort and time compared to mass advertising
- Customer resistance, some consumers may find direct marketing methods (e.g., cold calls, emails) intrusive or annoying
- Difficult to create brand awareness, unlike above the line promotion, below the line promotion is less effective for building widespread brand recognition
Branding
Process of creating a distinct identity for a business, product, or service in the minds of consumers. It includes elements like a logo, slogan, design, colors, and brand personality to differentiate the business from competitors
Types of branding
- Manufacturer
- Own-label
- Generic
Manufacturer brands
Brands created, owned, and marketed by the producer of the product rather than a retailer. These brands are widely recognized and sold through multiple retailers
Own-label brands
Products that are manufactured by a third party but sold under a retailer’s brand name. These brands are exclusive to the retailer and often positioned as lower-cost alternatives to manufacturer brands
Generic brands
Unbranded or minimally branded products that focus on offering the lowest possible price by avoiding advertising and brand identity. These products are usually found in supermarkets or pharmacies and often have simple packaging with basic labels
Benefits of strong branding
- Higher price premium, strong brands can charge higher prices as customers perceive them as high quality (e.g., Apple, Nike)
- Customer loyalty, a well-established brand creates trust, leading to repeat purchases and long-term customer relationships
- Competitive advantage, a strong brand differentiates a business from competitors, making it harder for rivals to copy
Viral marketing
Marketing strategy that encourages people to share a brand’s message quickly and widely, often through social media, word of mouth, or digital platforms. The goal is to create high engagement and organic reach, similar to how a virus spreads
Social media
Online platforms that enable users to create, share, and interact with content in real time. It is widely used for communication, entertainment, and marketing by both individuals and businesses
Emotional branding
Marketing strategy that aims to create deep emotional connections between a brand and its customers. It goes beyond product features and price, focusing on feelings, values, and personal experiences to foster customer loyalty
Cost-plus pricing
Pricing strategy where a business sets the selling price by adding a fixed percentage (markup) to the cost of production. This ensures the business covers costs and makes a profit
Formula for cost-plus pricing
Costofproduction + Markup
Predatory pricing
Aggressive pricing strategy where a business deliberately sets prices very low, often below cost, to drive competitors out of the market. Once competition is eliminated, the firm raises prices to maximize profits
Price skimming
Pricing strategy where a business initially sets a high price for a new or innovative product and then gradually lowers it over time. This helps maximize revenue from early adopters before targeting more price-sensitive customers
Penetration pricing
Pricing strategy where a business sets an initially low price to attract customers and gain market share quickly, then gradually increases the price over time. This is often used to enter highly competitive markets
Competitive pricing
Strategy where a business sets its prices based on the prices charged by competitors rather than focusing solely on costs or demand. The goal is to stay competitive while maintaining profitability
Price war
When businesses continuously lower their prices in response to competitors, aiming to gain or protect market share. This aggressive competition can lead to significant reductions in profit margins
Psychological pricing
Strategy that influences customer perception by setting prices in a way that makes them seem more attractive or affordable. It is based on the idea that certain price points affect buying behavior
Dynamic pricing
Pricing strategy where businesses adjust prices in real-time based on factors such as demand, competition, and customer behavior. It allows companies to maximize revenue by charging different prices at different times
Product life cycle
Business model that describes the stages a product goes through from its introduction to its decline in the market. It helps businesses plan marketing, pricing, and production strategies
Stages in product life cycle
- Development
- Introduction
- Growth
- Maturity
- Decline
Extension strategies
Tactics used by businesses to extend the life of a product in the maturity or decline stage of the product life cycle. These strategies help maintain sales and profitability instead of letting the product decline
Examples of extension strategies
- Product modifications, improving or updating the product (e.g., new features, better design)
- Rebranding or repositioning, changing the product’s image or target market
- Price reduction, lowering the price to attract new customers
Product portfolio analysis
Strategic tool used by businesses to assess and manage their range of products to maximize profitability and market growth. It helps companies decide where to invest, develop, or discontinue products
Four categories of the Boston Matrix
- Dogs, low market share and low market growth
- Question marks, low market share and high market growth
- Cash cows, high market share and low market growth
- Stars, high market share and high market growth
Distribution channel
Path a product takes from the producer to the final consumer
Retailers
Businesses that sell goods and services directly to consumers. They act as the final link in the distribution channel, buying products from manufacturers or wholesalers and selling them to end customers
Wholesalers
Business that buys goods in bulk from manufacturers and sells them in smaller quantities to retailers or other businesses. They act as an intermediary in the distribution channel, helping products reach the market efficiently
Direct distribution
When a business sells its products directly to consumers without using intermediaries like wholesalers or retailers
Indirect distribution
When a business sells its products through intermediaries such as wholesalers, retailers, or agents instead of selling directly to consumers
Advantages of direct distribution
- Higher profit margins, no intermediaries, so businesses keep all the revenue instead of sharing it with wholesalers or retailers
- Stronger customer relationships, direct interactions allow businesses to build brand loyalty and provide personalised service
- Greater control, businesses have full control over pricing, branding, and customer experience
Disadvantages of direct distribution
- Higher costs, businesses must cover costs for warehousing, logistics, marketing, and customer service, which can be expensive
- Limited market reach, without retailers or wholesalers, businesses may struggle to reach a large customer base
- Time-consuming, managing sales, delivery, and customer interactions requires significant effort and resources
Advantages of indirect distribution
- Wider market reach, using retailers, wholesalers, or agents allows businesses to access a larger customer base across multiple locations
- Retailer and wholesaler expertise, retailers and wholesalers have experience in marketing, selling, and positioning products effectively
- Bulk selling opportunities, wholesalers buy in large quantities, ensuring steady revenue and reducing stockholding risks
Disadvantages of indirect distribution
- Lower profit margins, intermediaries take a share of the revenue, reducing the business’s overall profit
- Slower feedback loop, businesses receive less direct customer feedback, making it harder to adjust products or marketing strategies quickly
- Dependence on intermediaries, if retailers or wholesalers choose not to stock a product, it can negatively impact sales
Multichannel distribution
When a business uses multiple distribution channels to reach customers, such as selling through physical stores, online platforms, wholesalers, and direct sales simultaneously
Advantages of multichannel distribution
- Increased customer reach, businesses can attract different types of customers through multiple sales channels
- Stronger brand presence, a business becomes more visible and accessible in multiple places
- Diversification of risk, if one channel underperforms, others can compensate
Disadvantages of multichannel distribution
- Complex logistics, coordinating stock across different channels can be challenging
- Pricing conflicts, differences in pricing between channels can create customer dissatisfaction or retailer disputes
- Channel competition, selling directly and through retailers can create conflicts (e.g., retailers feeling undercut by direct sales)
Treating staff as an asset
Treating employees as the most important resource in the business, planning their needs accordingly
Features of treating staff as an asset
- Strong and regular two way communication with staff
- Employees are empowered and encouraged to take responsibility
- Focus on the needs of the employee such as their roles, rewards and motivation
Benefits of treating staff as an asset
- Lower staff turnover
- Motivated employees making them more productive
- Lower hiring and advertising costs for replacments
Drawbacks of treating staff as an asset
- Higher costs of wages and providing benefits
- Lower staff turnover could result in fewer new ideas coming into the business
Treating staff as a cost
Treating employees simply as a resource of the business
Features of treating staff as a cost
- Minimal communication
- Paying just enough to recruit and retain staff
- Little empowerment or delegation
Benefits of treating staff as a cost
- Lower cost of wages and providing benefits
- Higher staff turnover could bring new ideas into the business
Drawbacks of treating staff as a cost
- Higher staff turnover
- Demotivated employees who are less productive
- Higher hiring costs to replace leavers
Flexible working
Where there are a variety of options offered to employees in terms of working time, working location and the pattern of working
Ways to increase workforce flexibility
- Multiskilling
- Part time and temporary staff
- Zero hour contracts
- Flexible hours and home working
- Outsourcing
Multiskilling
Process of increasing the skills of employees
Zero hours contract
A contract that doesn’t guarantee any particular number of hours’ work
Outsourcing
Practice of hiring a party outside a company to perform services or create goods, doing work that was originally done in house
Benefits of a flexible workforce
- Saving on overheads as no need to provide an office
- Staff retention through higher job satisfaction and staff morale
Drawbacks of a flexible workforce
- Additional administrative work is required in setting up and running flexible working
- Potential loss of customers if key employees reduce their working hours
- Potentially lower employee productivity
Benefits of outsourcing
- Enables specialist skills and resources at a lower cost than maintaining in house operations, improving cost efficiency
- Outsourcing non core functions can allow organisations o focus on their core competencies and strategic activities
- Provides access to global pool of talent and expertise
Drawbacks of outsourcing
- Loss of control can impact quality and reliability, affecting the business’ brand image
- Communication barriers may lead to misunderstandings or delays in outsourced tasks
- Concerns of data security, confidentiality and quality control
Dismissal
Termination of the employment by the employer due to gross misconduct or ongoing performance issues
Redundancy
When an employer eliminates a job role or reduces the workforce leading to termination of employment
Employee representation
When employees are part of a formal structure for involving them in the decision making process of a business
Advantages of employee representation
- Increased empowerment and motivation of the workforce
- Employees become more committed to the objectives and strategy of the business
- Better decision making employee experience and insights taken into account
- Lower risk of industrial disputes
Disadvantages of employee representation
- Time consuming
- Conflicts between employer and employee interests may be a block to change
- Managers may feel their authority is being undermined
Main roles of trade unions
- Protect and improve the real incomes of their members
- Provide or improve job security
- Protect workers against unfair dismissal
- Lobby for better working conditions
Methods of industrial action
- Work to rule
- Overtime ban
- Go slow
- Strike
Work to rule
When employees the strict conditions of their employment contract
Overtime ban
When employees refuse to work overtime
Go slow
When employees work at the slowest or least productive pace that is allowable under their employment contract
Damage for the business from industrial action
- Lost sales and profit from the lost output
- Damage to customer satisfaction
- Internal distraction for management
- Damaged relationship with staff may affect motivation and productivity
Damage for the employee from industrial action
- Lost pay
- Potential loss of jobs if the action results in action to cut costs
- Possible loss of customer and public support
- Risk that illegal action will result in legal proceedings
Typical agenda for a works council
- Business objectives and performance
- Workforce planning issues
- Employee welfare issues
- Training and development programmes
- Compliance with legislation
Mediation
Involves an independent, impartial person helping two or more individuals or groups to reach a solution acceptable to everyone, with an aim to restore and maintain the employment relationship wherever possible
Conciliation
Used when an employee is making or could make a specific complaint against their employer to an employment tribunal, conciliator discusses the issues with both parties to help them reach a better understanding of each other’s position
Arbitration
An alternative to a court of law, involving an impartial outsider being asked to make a decision on a dispute
Internal recruitment
Process of filling job vacancies within an organisation by considering existing employees
External recruitment
Process of filling job vacancies by seeking candidates from outside the organisation
Benefits of internal recruitment
- Cheaper and quicker to recruit
- People already familiar with the business
- Provides opportunities for promotion
Drawbacks of internal recruitment
- Limits number of potential applicants
- No new ideas from outside the business
- May cause conflict over who was chose for the promotion
- Creates another vacancy that needs to be filled
Benefits of external recruitment
- Outside people can bring in new ideas
- Larger pool of candidates
- People have a wider range of experience
Drawbacks of external recruitment
- Longer process
- More expensive due to costs of advertising and interviews
- Selection process may not be effective to reveal the best candidate
Potential benefits of training
- Better productivity
- Higher quality
- More flexibility through better skills
- Less supervision required
- Improved motivation through greater empowerment
- Better recruitment and employee retention
On the job training
When an employee receives training whilst remaining in the workplace
Methods of on the job training
- Demonstration
- Job rotation
- Projects
Benefits of on the job training
- Most cost effective
- Employees are productive
- Training with real colleagues
Drawbacks of on the job training
- Quality depends on trainer and time available
- Bad habits might be passed on
- Potential disruption to production
Off the job training
Employee training that takes place away from the work place
Methods of off the job training
- Day or part time attendance at college
- Professional development courses or conferences
- Online training
Benefits of off the job training
- Wider range of skills can be obtained
- Can learn from outside experts
- Employees can be more confident when starting the job
Drawbacks of off the job training
- More expensive
- Lost working time
- New employee may still need some induction training
Span of control
The number of employees a manager is responsible for
Chain of command
The lines of authority within a business, those at the top have more authority and can delegate tasks to subordinates
Levels of hierarchy
Number of layers of management or supervision in the organisation structure
Features of a tall structure
- Many layers of hierarchy
- Narrow spans of control
- Less delegation
- More opportunities for promotion
- Takes longer for communication to pass through the layers
- More layers means there is more staff increasing costs
Features of a flat structure
- Few layers of hierarchy
- Wide spans of control
- More delegation and empowerment
- Fewer opportunities for promotion
- Faster communcation
- Fewer layers means there is less staff reducing costs
Matrix structure
Individuals work across teams and projects as well as within their own department or function
Benefits of a matrix structure
- Helps break down traditional department barriers improving communication
- Individuals get to use their skills within a variety of contexts
- Likely to result in greater motivation amongst team members
- Encourages sharing of good practices and ideas across departments
- Good way of sharing resources across departments
Drawbacks of a matrix structure
- Members of project teams may have divided loyalties as they report to two line managers
- May not be a clear line of accountability for project teams
- Difficult to co-ordinate
- Team members may neglect their functional responsibilities
- Takes time for matrix team members to get used to working in this structure
Delayering
Removing layers of management from the hierarchy of the organisation
Benefits of delayering
- Lower labour costs
- Faster decision making
- Shorter communication paths
Delegation
The assignment to others of the authority for particular functions, tasks and decisions
Advantages of delegation
- Reduces management stress and workload
- Allows senior management to focus on key tasks
- Subordinates are empowered and motivated
- Better decisions or use of resources
- Good method of on the job training
Drawbacks of delayering
- Reduced promotion opportunities
- Resistance to change
- Increased workload for remaining staff
Disadvantages of delegation
- Should not delegate responsibility
- Depends on quality and experience of subordinates
- Harder in a small firm
- May increase workload and stress of subordinates
Employee empowerment
Giving employees the power to do their job
Centralisation
When decision making is firmly kept at the top of the hierarchy
Benefits of centralisation
- Easier to implement common policies and practices for the whole business
- Prevents other parts of the business from coming too independent
- Easier to co-ordinate and control from the centre
- Economies of scale and overhead savings are easier to achieve
- Usually quicker decision making
Drawbacks of centralisation
- More bureaucratic as often extra layers in the hierarchy
- Local or junior managers are likely much closer to customer needs
- Lack of authority down the hierarchy may reduce manager motivation
- Less flexibility and slower speeds of local decision making
Decentralisation
When decision making is spread out to include more junior managers in the hierarchy as well as individual business units or trading locations
Benefits of decentralisation
- Decisions are made closer to the customer
- Better able to respond to local circumstances
- Improved level of customer service
- Consistent with aiming for a flatter hierarchy
- Good way of training and developing junior management
- Should improve staff motivation
Drawbacks of decentralisation
- Decision making is not necessarily strategic
- Harder to ensure consistent practices and policies at each location
- May ne some diseconomies of scale
- Harder to achieve tight financial control
Financial incentives to improve employee performance
- Wages and salaries
- Bonus system
- Commission
- Profit sharing
- Performance related pay
- Fringe benefits
- Share options
- Piece rate payment
Non-financial incentives to improve employee performance
- Empowerment
- Praise
- Promotion
- Job enrichment
- Job enlargement
- Better communication
- Team working
- Job rotation
Piece rate payment
Pay per item produced in a period of time
Advantages of piece rate payment
- Requires low level of management supervision
- Encourages high speed production
- Provides good incentive for workers who are mainly motivated by pay
Disadvantages of piece rate payment
- Workers are focused on quantity not quality
- It is repetitive for workers and can be demotivating
- Workers are only used to one set method of production and may resistant change
Job enrichment
Giving employees more challenging and interesting tasks
Job enlargement
Giving employees more tasks of a similar complexity
Job rotation
When employees are regularly moved between different tasks, roles or departments within a company
Taylor’s scientific management
Theory that workers are motivated mainly by money and that businesses should use financial incentives (e.g., piece-rate pay) to increase output
Mayo’s human relations management
Theory that employees are motivated more by social factors (teamwork, communication, and recognition) than by financial incentives. His research, known as the Hawthorne Studies, showed that improving working conditions and fostering good relationships increased productivity
Maslow’s hierarchy of needs
Theory that suggests employees have different levels of needs that must be fulfilled in a specific order. Once a lower-level need is satisfied, individuals seek to fulfill the next level
The five levels in Maslow’s hierarchy of needs
- Physiological, basic needs like food and shelter
- Safety, a safe working environment and job security
- Social, sense of belonging and being part of a team
- Esteem, self respect and level of status
- Self-actualisation, intellectual needs and fulfilling potential or achieving targets
Herzberg’s two factor theory
Theory that employee motivation depends on two factors, hygiene factors and motivators
Hygiene factors in Herzberg’s two factor theory
Factors that can demotivate employees if not present but don’t actually motivate employees to work harder, such as pay and working conditions
Motivators in Herzberg’s two factor theory
Factors that directly motivate employees to work harder, such as responsibility at work and recognition
Roles of leaders
- Inspire people
- Build relationships
- Take risks
- Have followers
Roles of managers
- Enact the plan
- Use their authority
- Manage risks
- Have subordinates
Types of leadership style
- Autocratic
- Democratic
- Paternalistic
- Laissez faire
Features of autocratic leadership
- Focus of power is with the manager
- Communication is top down and one way
- Formal systems of command and control
- Use of rewards and penalties
- Very little delegation
Features of democratic leadership
- Focus of power is more with the group as a whole
- Leadership functions are shared within the group
- Employees have greater involvement in decision making
- Emphasis on delegation and consultation
Features of paternalistic leadership
- Leader decides what is best for employees
- Links with mayo addressing employee needs
- Similar to a parent and child relationship
- Softer form of autocratic leadership
Features of laissez faire leadership
- Leader has little input into day to day decision making
- Conscious decision to delegate power
- Managers and employees have freedom to do what they think is best
- Effective when staff are ready and willing to take on responsibility
Advantages of autocratic leadership
- Quick decision-making
- Clear direction
- Effective in low-skill workforces
Disadvantages of autocratic leadership
- Low employee motivation
- Lack of creativity
- High staff turnover
Advantages of democratic leadership
- Higher employee motivation and satisfaction
- Stronger teamwork and collaboration
- Encourages creativity and innovation
Disadvantages of democratic leadership
- Not effective for unskilled workers
- Slower decision-making
- Risk of poor decisions
Advantages of paternalistic leadership
- Increases employee loyalty
- Decisions benefit employees and business
- Clear direction and structure
Disadvantages of paternalistic leadership
- Employees have little say
- Can lead to over-dependence
- May not work in large businesses
Advantages of laissez faire leadership
- Works well with highly skilled teams
- Flexible work environment
- Encourages fast decision-making
Disadvantages of laissez faire leadership
- Lack of direction can lead to chaos
- Risk of inconsistent quality
- Lower productivity in some cases
Factors affecting leadership style
- Managers experience
- Confidence in subordinates
- Size and structure of the organisation
- Skills and experience of subordinates
- Effectiveness of teams and groups
Entrepreneur
Person who organsises, operates and assummes the risk for a business venture
Characteristics of an entrepreneur
- Passionate
- Calculated risk taker
- Resilient
- Visionary
- Decisive
Intrapreneurship
People within a business creating or discovering new business opportunities which leads to creation of new parts of the business or a new business
Barriers to entrepreneurship
- Lack of capital
- Market and competition barriers
- Legal and regulatory barriers
Rewards for enterprise
- Profits
- Capital gains
- Self esteem
- Personal development
- Sense of control
Financial motives for starting a business
- Profit maximisation
- Profit satisficing
Non-financial motives for starting a business
- More control over working life
- Pursue an interest or hobby
- Being your own boss
- Escape an uninteresting job or career
- Change in personal circumstances
Drawbacks of being an entrepreneur
- Lack of financial security
- High risk
- Long working hours
- High responsibility
Mission
Qualitative statement of the business’ aims
Aim
Long term plan from which business objectives are derived
Objective
Time assigned target which must be achieved to realise the stated aim
Examples of corporate objectives
- Increase sales
- Reduce costs
- Improve cash flow
- Improve customer satisfaction
Examples of functional objectives
- Successfully launch five new products in the next two years
- Increase factory productivity by 10%
- Reduce the average time taken for customer to pay invoices from 75 to 60 days
- Achieve a 95% level of high customer service
SMART objectives
- Specific
- Measurable
- Achievable
- Relevant
- Time bound
Factors influencing business objectives
- Age of the business
- Views of owners and managers
- Competition
- Corporate culture
- Market conditions
Features of strategic objectives
- Focused on long term
- Set by the board
- Involve higher risk and uncertainty
Features of tactical objectives
- Focused on short term
- Set by line management
- Relatively low risk
Mission statement
Short, clear statement that defines a business’s purpose, objectives, and values. It explains why the business exists and what it aims to achieve
Criticisms of mission statements
- Not always supported by the actions of the business
- Often too vague and general
- Often just stating the obvious
Cost efficiency
Aim to achieve the most cost effective way of delivering goods and services to the required level of quality
Benefits of cost efficiency
- Lower unit costs
- Improved cash flow
- Higher operating profit
Incorporated business
Company that has legal identity separate from its owners, meaning it can own assets, incur debts, and enter contracts in its own name. The owners have limited liability, meaning they are not personally responsible for the company’s debts
Unincorporated business
Company that does not have a separate legal identity from its owner(s). This means the owner is personally responsible for the business’s debts and liabilities, and the business ceases to exist if the owner leaves or dies
Limited liability
When owners (shareholders) of a business are only responsible for the debts of the business up to the amount they have invested. Their personal assets are protected and cannot be used to repay business debts
Unlimited liability
When owners are personally responsible for all debts of the business. If the business cannot pay its debts, the owner’s personal assets (e.g., house, car, savings) can be used to cover the costs
Sole trader
Business owned and operated by one person, although they may employ others
Benefits of operating as a sole trader
- Quick and easy to set up
- Owner has complete control over business decision making
- Easy to shut down
Drawbacks of operating as a sole trader
- Has unlimited liability
- Harder to raise finance
- May have to pay a higher tax rate than a company
Partnership
Business owned and run by two or more people who share responsibility, profits and risks
Benefits of operating as a partnerships
- Greater potential to raise finance as each partner can provide finance
- Business has expertise and efforts from more than one owner
- Simple to set up
Drawbacks of operating as a partnership
- Unlimited liability
- Profit sharing
- Potential disagreements
Limited company
Business that has a separate legal identity from its owners, meaning the company can own assets, sue and be sued in its own name
Benefits of operating as a limited company
- Limited liability
- Easier to raise finance
- Stable form of structure meaning business continues to exist even when shareholders change
Drawbacks of operating as a limited company
- Greater admin costs
- Public disclosure of company information
- Directors’ legal duties
Public Limited Company (PLC)
Shares are traded on the stock exchange, allowing the public to invest
Private Limited Company (Ltd)
Shares are privately owned and cannot be sold on the stock exchange
Not for profit organisations
Business that does not aim to make a profit for owners or shareholders. Instead, it reinvests any surplus income to achieve its social, environmental, or community-focused objectives
Franchising
Business model where a franchisor (the original business) allows a franchisee (the buyer) to operate a business using the franchisor’s brand, trademark, business methods, and support. In return, the franchisee pays an initial fee and ongoing royalties
Benefits of operating as a franchisee
- Established brand reducing risk
- Franchisors provide training, marketing and operational support
- Easier to secure finance
Drawbacks of operating as a franchisee
- Initial cost and royalties
- Limited control
- Franchisees must continue to pay for marketing, supplies and fees even if business performance is weak
Opportunity cost
Measures the cost of the choice made in terms of the next best alternative forgone or sacrificed
Trade off
When having more of one thing potentially results in having less of another
Examples of trade offs
- Less market research to reduce costs, but may cause a less successful product launch reducing sales
- Higher quality standards to build reputation, but results in higher quality control and assurance costs
- Increasing advertising online, but results in reduced advertisement on TV
Roles of an entrepreneur
- Identifying opportunities
- Innovation and creativity
- Risk taking
- Resource management
- Creating value
Moving from an entrepreneur to a leader
- Strategic focus
- Delegation
- Decision making
- Team management and motivation
Difficulties in developing from an entrepreneur to a leader
- Relinquishing control
- Developing leadership skills
- Handling increased pressure and stress
- Adapting mindset
- Building trust
