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business > theme 3 > Flashcards

theme 3 Flashcards

1
Q

corporate objectives

A

objectives of a medium to large sized business as a whole

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2
Q

mission statement & why it may be formed?

A

brief statement written by business describing its purpose and objectives, designed to encapsulate its present objectives

  1. to make commitment to customers
  2. brings company’s workforce together w a shared purpose

e.g., to create practical and beautiful homes for our customers

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3
Q

objective

A

target of or outcome for a business that allows it to achieve its aims

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4
Q

SMART

A

attributes of a good objective:

specific
measurable
agreed
realistic
time specific

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5
Q

corporate strategy

A

plans and policies developed to meet a company’s objectives. concerned w what range of activities the business needs to undertake in order to achieve its goals.
also concerned w whether the size of the business organisation makes it capable of achieving the objectives set.

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6
Q

distinctive capability

A

form of comp advantage that is sustainable as it cannot easily be replicated by a competitor

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7
Q

difference between objectives for business size

A

small - break eve, survival for the first year, hire new staff, build loyalty

large - tends to be more financial e.g. increase market share by 5%

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8
Q

Limitations of the mission statement

A

Not always supported by business actions
Viewed as public relations stunt

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9
Q

portfolio analysis

A

method of categorising all the products and services of a firm to decide where each fits within the strategic plans

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10
Q

what is market penetration - ansoff matrix

A

existing market, existing product
low risk
can be done through: loyalty cards

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11
Q

what is market development - ansoff matrix

A

new market, existing product like moving to a new country
need to know different markets different tastes and preferences and make changes to fit it

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12
Q

what is diversification- ansoff matrix

A

new market, new product e.g. conglomerate
lots of risk, increased product portfolio

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13
Q

what is porters matrix

A

you can gain competitive advantage through:

cost leadership - having lowest cost so that you can charge market price or low prices and make profit usually works if you’re market leader

differentiation - differentiating product by adding value to it
focusing on a small segment on market and targeting them. can be cost focus (cost minimisation in a niche market) or differentiating focus (differentiation in a niche market)

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14
Q

What is a SWOT analysis?

A

analysis of strengths and weaknesses (internal), opportunities and threats (external)

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15
Q

what does kays capabilities consist of

A

knowing what strengths are and using them to achieve competitive advantage

architecture - organisation or relationship with stakeholders
reputation - brand image, quality
innovation - developing new products or processes

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16
Q

aim of portfolio analysis

A

stars: high market share, high growth.
require investment

cash cows: low growth, high share
generate more cash than they consume

?: high growth, low share
consume lots of cash, but give little in return

dog: low growth, low share

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17
Q

gathering info to help develop a strategy

A

internal audit: analysis of business itself and how it operates, attempts to identify strengths & weaknesses of operations. may cover:

  • products, cost, quality
  • finance (profit, assets, cash flow)
  • HR
  • internal organisation

external audit: analysis of environment in which the business operates over and has little or no control. may address key 3 areas:
market, competition, political, environmental, etc.
should analyse market:
- size and growth potential of market
- characteristics of customers in market
- products on offer

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18
Q

PESTLE

A

Political - can discourage fdi, members joining/leaving eu, changes in government, pressure groups

Economic - unemployment levels, stable prices, exchange rate, interest rate, stage in economic cycle

Social - uk population is ageing, more people going uni, increased migration, more people becoming health conscious

Technological - can shorten product life cycle as more replaceable, replace capital with labour, can improve communication with customers

Legal - level of regulation and taxes

Environmental - people are more inclined to buy green goods, investment in new generation of power could be cheaper in long term

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19
Q

structure of markets

A

competitive: likely to be a large number of buyers and sellers and products sold by each business are close subs for each other

uncompetitive: come markets are dominated by a single producer or just a few large businesses. e.g., dominated by monopolies and oligopolies

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20
Q

impact of changing competitive environment

A

new entrants - keep up with they’re doing e.g., going online, being price competitive, more innovative

new product - adapting own product or price

consolidation - risks of firms having monopoly power so may want to participate in their own merger or look to diversify products

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21
Q

porters 5 forces

A

threat of entry(create barriers to entry e.g brand loyalty)

threat of substitute (can be reduced through patents)

supplier power(reduced through vertical integration)

buyer power, and competitive rivalry (form cartels or ant-competitive pricing)

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22
Q

economies of scale

A

reduction in average cost as output increases

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23
Q

internal economies of scale

A

purchasing
financial - larger firms are more likely to get access to bank loans or investment

managerial - can ensure efficiency so less waste and reduction in average cost

technical - investment in capital can make businesses more productive

risk bearing - diversifying can give competitive edge and reduce risk

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24
Q

external economies of scale

A

The cost benefits that all firms in the industry can enjoy when the industry expands

labour: build up of a labour force equipped w skills required by industry, training costs may reduce if workers gained skills at another firm

ancillary/commercial services: an established industry tends to attract smaller firms trying to serve its needs

co-operation: firms in the same industry are more likely to co-operate of concentrated in same region

disintegration: when production is broken up so more specialisation can take place

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25
Q

increased market power

A

more dominant, rivals left w smaller market.
if a business is large enough it may be able to dominate 2 particular stakeholders:

  • customers: charge higher prices
  • suppliers: force costs of materials down in market if it buys large quantities from small suppliers
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26
Q

increased market share / brand recognition:

A
  • charge higher prices
  • differentiate products from rivals
  • create customer loyalty
  • develop an image
  • launch new products more easily
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27
Q

increased profitability

A

more profit for investment and innovation, allows business to develop and launch new products and make acquisitions, if these investments are successful, the business is likely to grow further

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28
Q

problems arising from growth

A
  • diseconomies of scale: if a business expands the scale of its operations beyond the min efficient scale, deos may result. this is where average costs rise as output rise
  • internal deos: communication becomes more complex due to departments, added responsibility, more supervision, motivation may suffer
  • external deos: may occur from overcrowding
    in industrial areas, price of land, labour, services and materials may rise as firms compete for a limited amount
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29
Q

overtrading

A

occurs when a business expands too quickly without the resources to support that growth.

most likely to occur if:
- does not have enough capital
- offers too much trade credit to customers
- operating w slim profit margins

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30
Q

reasons for mergers and takeovers

A

exploit synergies like monopoly power and being more efficient, quick and easy, cheaper than growing internally

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31
Q

Merger vs Takeover

A

A merger involves the mutual decision of two companies to combine and become one entity.

Whereas a takeover is the purchase of a smaller company by a larger one. It doesn’t have to be a mutual decision.

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32
Q

financial risks of external growth

A
  • regulatory intervention
  • could result in job losses which may
  • demotivate employees or cause strikes
  • integration costs
  • bidding wars for takeover
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33
Q

financial rewards

A

employees may get higher salaries as part of bigger business, speedy growth, increased profitability

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34
Q

problems of rapid growth

A

can be costly to aquire and stretch resources, could be culture clash, loss of control

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35
Q

vertical / horizontal integration

A

vertical: joining of 2 businesses at diff stages of production

horizontal: joining of businesses that are in exactly the same line of business

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36
Q

forwards / backward vertical integration

A

forward: joining w a business in the next stage of production

backward: joining w a business in the previous stage of production

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37
Q

integration
merger
synergy
takeover

A

integration: joining together of 2 businesses as a result of a merger or takeover

merger: occurs when 2 or more businesses join together and operate as one

synergy: when the value of two businesses brought together is higher than the sum of the value of the two individual businesses

takeover: process of one business buying another

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38
Q

organic / inorganic growth

A

organic: a business growth strategy that involves a business growing gradually using its own resources e.g., franchising

inorganic: a business growth strategy that involves 2 or more businesses joining together to form one much larger one

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39
Q

Methods of organic growth

A
  • new customers
  • new products
  • new markets
  • new business model - developments in tech or social change
  • franchising
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40
Q

Adv of organic growth

A

they can go at a slower pace than external so its less risky and less likely to make errors so less diseconomies of scale
can be cheaper if they use retained profits
business retains more control

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41
Q

disadvantages of organic growth

A
  • This is a long term strategy, and it is significantly slower than growing inorganically. This could mean competitors gain more market power by expanding in the meantime, It could also make shareholders unhappy if they want faster growth.
  • prevents firms from tapping into resources from other businesses
  • might take time to exploit economies of scale hence long periods of higher average costs
  • if its dynamic market organic growth wont be suitable because they need to grow rapidly
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42
Q

reasons for staying small

A
  • add personalised customer experience
    owners preference doesnt want additional stress
  • more flexible and can react quicker to changes in market and tech, management can make decisions quickly without hving it take long to reach everyone
  • lower costs
  • low barriers to entry
  • small firms can be monopolies
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43
Q

how can a small business survive in a competitive market with large businesses

A

having a usp or differentiating product/service
flexibility to customer needs - can adapt orders for customers even if production started, adapt to special requests

offering high quality customer service - know customers better, personal touch, build relations

e-commerce - makes it harder for customers to distinguish between small and large businesses

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44
Q

flexibility in responding to customer needs

A
  • smaller businesses can often make changes to customer orders even though a start has been made on production
  • small business can often respond to changes in external factors e.g., shift in customer needs, exchange rates, legislation.
  • customers may have special requests
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45
Q

customer service

A
  • provides comp edge
  • smaller retailers have geo adv over larger rivals
  • communication is more efficient in small businesses
  • easier to build rs
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46
Q

four main components of time series data

A

cyclical fluctuations
seasonal fluctuations
random fluctuations
trend

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47
Q

limitations of quantitative sales forecast

A

past may not mean this is going to happen in the future only useful when :

  • forecast is for a short period of time
  • revised frequently
  • market is slow changing
  • those preparing forecast have good understanding of how to use data and what market is like
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48
Q

extrapolation

A

The prediction of future sales from past data

Extrapolation can often be done simply by extending a line of best fit

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49
Q

correlation

A

Where there is a link between two variables there is a correlation

Correlations may be positive or negative

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50
Q

moving averages

A

A series of averages calculated from successive segments of a series of data

These averages smooth data so that trends may be more easily identified

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51
Q

how to calculate moving average

A
  1. moving total = adding together sales figures for a specified number of periods

e.g., A three-month moving total is calculated by adding the first three months

  1. centred average = dividing the moving total by the specified number of periods

e.g., A three-month centred average is calculated by dividing the three month moving total by three

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52
Q

casual modelling

A

tries to find a link between data sets

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53
Q

Correlation coefficient

A

sum of xy / sqrt (sum of x^2)(sum of y^2)
plus one means there is positive correlation, -1 means neg and 0 means none

measure of extent of the rs between 2 sets of variables

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54
Q

scatter graph

A

graph showing the performance of one variable against another independent variable on a variety of occasions, used to show whether a correlation exists between the variables

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55
Q

what is investment / investment appraisal

A

investment: purchase of capital goods

investment appraisal: Evaluating the profitability or desirability of an investment project

56
Q

capital cost

A

amount of money spent when setting up a new venture

57
Q

payback period

A

The length of time that it takes for a project to fully recover its initial cost out of the net cash inflows that it generates.

58
Q

Advantages of Payback Period

A

simple to use,

Focuses on cash flows - good for use by businesses where cash is a scarce resource

Emphasises speed of return; may be appropriate for businesses subject to significant market change

59
Q

dis of payback method

A

May encourage short-term thinking

Ignores cash flows which arise after the payback has been reached - i.e. does not look at the overall project return

60
Q

Average rate of return

A

Average annual net return / Investment x100

61
Q

adv and dis of arr

A

adv - allows for range of products to be compared, Focuses on profitability - a key issue for shareholders

dis - Does not take into account cash flows - only profits, Takes no account of the time value of money

62
Q

Discounted Cash Flow (Net Present Value only)

A

takes account of the time value of money to estimate the present value of future cash flows associated with an investment project with use of interest rates
idea is that money in the future is worth less than having that money now

63
Q

adv and dis of dcf

A

accounts for value of future earnings, can be changed as risks and conditions in financial markets change
however, more complex than others

64
Q

decision tree

A

method tracing alternative outcomes of any decision

65
Q

adv of decision tree

A

Allow managers to set out problems in a clear and logical manner

All potential options can be seen at the same time uses numerical values so more likely to be accurate

66
Q

dis of decision trees

A
  • other factors to consider which cannot be shown through numerical value
  • time lags often occur
  • process can be time consuming
67
Q

Critical path analysis

A

a process that helps determine a project schedule

68
Q

benefits of cpa

A

shows what tasks can be run at the same time so more efficient, can help decision making, organise time based management, identifies when resources are required

69
Q

critical path

A

shows the tasks which if delayed could lead to a delay in project can be shown by drawing // on the line

70
Q

limitations of critical path analysis

A

info to estimate times may be incorrect
unforeseen events can occur
with large projects, the analysis can become complex

71
Q

total float

A

This is the total time an activity can be delayed without delaying project completion.

72
Q

free float

A

The time by which a task can be delayed without affecting the following task

73
Q

how does corporate culture affect decision making

A

if a business is open to innovation and flexibility, it is more likely to make decisions involving change.

if the culture is more resistant, decisions are likely to be more cautious and have less risk

74
Q

stakeholder perspective influence on decision making

A

shareholder approach is when views of shareholders influence decision making more while others are slightly disregarded.

whereas stakeholder approach looks at wider range of stakeholders

75
Q

business ethics influence on decision making

A

ethical businesses will look at helping local communities and environment. but even those with little care for it will still be influenced by these issues or risk of bad publicity

76
Q

short-termism

A

designed to achieve goals in a year e.g. maximise short term profits, invest less in r&d and training, return cash to shareholders instead of investing

77
Q

short-termism drawbacks

A

long term profitability might be threatened, may lose competitive edge if dont invest in tech etc, time cost for making quarterly financial reports which are needed

78
Q

Long termism

A

looking at aim and vision of future business e.g investing in r&d, new product development and innovation

79
Q

evidence based vs subjective decision making

A

evidence based is when they gather and analyse info to make decisions but subjective is based on opinion and can be more risky

80
Q

evidence based decision making process

A

identify objective business wants to achieve
collecting info and ideas
analyse info and ideas
make decision
communicate decision
wait for outcome
evaluate results

81
Q

when is subjective decision making appropriate

A

when there is lack of information to make a decision, if the leader has experience and the business has a culture of trust, might be the industry norm, decisions may need to be made quickly but it has more risk

82
Q

what is a business culture

A

the norms, values, attitude and beliefs shared by people in an organisation

83
Q

what is a strong culture

A

one that is deeply embedded into the way a business does things

84
Q

advantages of a strong culture

A
  • provides a sense of identity for employees
  • increases employees commitment to the business
  • motivates employees
    -acts as a control device for management
85
Q

how to create a business culture

A

surface manifestations - physical layout, mottoes, language

core organisational values - words and policies

basic assumptions - form general attitude

86
Q

what is power culture

A

Power and decision making authority is centered on an individual, creates competitive atmosphere amongst employees

87
Q

what is role culture

A

decisions are made through rules and procedures and power is associated with a role, more flat structure

88
Q

what is task culture

A
  • power is given to those with expertise
  • Teams are created for specific tasks
  • This culture works well in dynamic markets as it is flexible
89
Q

what is person culture

A

number of individuals with expertise but dont work together

90
Q

effects of organisational culture

A
  • Motivation on employees
  • competitive culture creates motivation or successful culture has knock on effect
  • Organisational structures
  • New Management
  • Mergers and takeovers
91
Q

how is corporate culture formed

A

leaders attitude, history or heritage of a business, type of product

92
Q

Difficulties in changing an established culture

A

difficult to identify factors and their significance

difficult to manipulate peoples attitude and beliefs

93
Q

what is a stakeholder

A

any group or individual who can affect or is affected by the decisions of the organisation

94
Q

what is an internal stakeholder

A

people with a direct interest in its survival e.g business owners, employees, managers and directors

95
Q

what is an external stakeholder

A

groups that have an interest in a businesses activities

96
Q

who are external shareholders

A

shareholders - purely financial interest
customers

creditors - financial interest

suppliers -want prompt payment and regular orders

local community

government - taxes and monopoly power
representatives of the environment

97
Q

stakeholders objectives

A

shareholders - high dividends and share price
employees - good pay and working conditions, job security
managers - benefits, bonuses and same as employees
customer - cheap prices, good quality
supplier - long term contract, regular orders, paid on time
government - high tax revenue, control monopoly power
environmental - want to avoid negative impact on environment
local community - create employment, develop infrastructure

98
Q

conflict between shareholder and employees

A

the employees want a higher pay and conditions which increases cost but shareholders want high profits and low cost to get high dividends

99
Q

conflict between shareholder and customers

A

customers want cheap prices but shareholders want to maximise revenue so high prices and may want cheaper supplier which could mean reduced quality

100
Q

conflict between shareholder and managers/directors

A

managers may want to maximise perks and directors may want to reinvest profit rather than increase dividends

101
Q

conflict between shareholder and government

A

tax evasion/avoidance and power

102
Q

what are ethics

A

considers moral ‘right and wrongs’ of a decision

103
Q

what are some ethical issues

A

environment, animal rights, workers in developing countries, corruption, new tech advancements, product availability (accessibility), trading issues

104
Q

what is a code of practice

A

say how employees should respond in situations with ethical issues.
they include environmental responsibility, dealing with customers and suppliers, competing fairly

105
Q

how can you measure how true a company is to its social corporate responsibility

A

employment indicator
human rights indicator
impact on communities
business integrity and ethics
product responsibility
the environment

106
Q

what is remuneration

A

reward for work in form of pay, wages or salary

107
Q

why do businesses use remuneration

A

attract suitable employees, reward and motivate staff, maximise productivity level

108
Q

corporate social responsibility

A

a business assessing and taking responsibility for its effects on the environment and its impact on social welfare.

it involves the idea that businesses bear a responsibility that stretches beyond their shareholders

109
Q

implications of trade off

A

being ethical:
- raise costs (higher wages, other ways than animal experiments)
- reduce revenues (business may lose contract if it refuses to give a bribe)

benefits of ethical:
- marketing
- act as equivalent as insurance policy

110
Q

comprehensive income

A

includes revenue, cost of sales, gross profit, sales expenses, administrative expenses, operating profit, interest, net profit, net after tax

111
Q

stakeholder interest of comprehensive income

A

shareholders - interested in profit but also want to look at growth of business

managers and directors - monitor progress

employees - use it to argue increase in wages

suppliers - want to check if business is credible for trade credit

government - need to see how much tax is owed

112
Q

Statement of financial position (balance sheet)

A

A summary of the value of a firm’s assets, liabilities and capital

113
Q

components of a balance sheet

A

assets - resources a business owns
liabilities - debts of a business
capital - money from owners
non-current assets - assets that are long term resources not likely to be sold in a year
current assets - liquid assets e.g inventory
current liabilities - debts to be paid back in a year
non current liabilities - long term debts
net assets - value of assets - value of liabilities
equity - money owed to shareholders

114
Q

interpreting gearing ratios

A

ideal - 25-50%

highly geared - over 50% means they have loads of loans compared to capital so may be risky for creditors

115
Q

interpreting roce

A

the higher, the better but also have to look at industry average roce and also compare with if capital was invested elsewhere (opportunity cost) so for investment to be worthwile, roce should be much larger than capital invested

116
Q

limitations of ratio analysis

A
  • only useful if compared over time and with competitors
  • only accurate if financial accounts are accurate, balance sheet
  • only shows snapshot at end of year but doesnt show circumstances throughout year
  • ignores qualitative factors
  • window dressing (businesses can manipulate accounts to present different financial picture)
117
Q

increase in productivity - why would it not increase competitiveness

A

rivals may increase productivity at a quicker rate, factors other than cost - rivals may bring out better products

118
Q

labour retention

A

(Number of employees remaining over a period of time/ average number of employees over a period of time) x 100

119
Q

absenteeism

A

when an employee doesn’t show up for work
absenteeism rate = number of staff absent / total staff employed x 100

120
Q

how to improve productivity and retention and reduce turnover and absenteeism

A

financial reward e.g. piece rate, employee share ownership, consultation strategies, training, feedback, responsibility and authority

121
Q

types of consultation strategies

A

pseudo-consultation - management makes decision and informs employees through reps

classical - reps discuss and have influence

integration consultation - management an d unions come to joint decision

122
Q

empowerment strategies

A

training
provide necessary resources
hand over authority
inspire confidence
provide feedback

123
Q

effects of changes in organisational size / bad performance

A
  • competitiveness
  • productivity
  • financial performance
  • stakeholders
124
Q

Organisational culture

A

The values, attitudes and beliefs of the people working in an organisation that control the way they interact with each other and with external stakeholder groups
e.g the leadership style

125
Q

Size of organisation

A

as a business grows, it becomes less flexible and adaptable
they have to make changes with the way decisions are made

126
Q

speed of change

A

how quickly it adapts to new tech, new products and processes

127
Q

Managing Resistance to Change

A

employees may be scared they wont be able to carry out new tasks, owners might be scared entering an unknown market, customers many not feel comfortable with new processes

128
Q

scenario planning

A

identifies alternative future scenarios and makes plans to deal with each

129
Q

Steps in Scenario Planning

A
  • Identify possible trends and issues
  • Build possible scenarios
  • Plan response
  • Identify the most likely scenarios
  • implement planned response when needed
130
Q

risk assessment

A

examining what might cause harm to people and identifying precautions to protect them
usually used to comply with health and safety law

131
Q

possible scenarios

A

natural disaster - multinationals more at risk than firms in uk

it system failure - risk of cyber attack or system failure especially concern for larger businesses
loss of key staff

132
Q

risk mitigation plans

A

Identify, assess and prioritise risks and plan responses to deal with the impact of these risks on the operation of the business

133
Q

Business Continuity Plan

A

Shows how a business will operate after a serious incident and how it expects to return to normal in the quickest time possible

134
Q

Business Continuity

A
  • carry out a business impact analysis - see what business’s main functions and processes are
  • formulate recovery strategies
  • develop a detailed plan to ensure recovery strategies are carried out in an organised way
  • test strategy and train
135
Q

succession planning

A

identifying and developing current employees who have potential to occupy key roles in the future

136
Q

succession planning steps

A
  • identify characteristics they should possess
  • decide if they want internal or external candidates
  • undertake a rigorous selection process
  • make decision
  • implement training or ‘shadowing’

business (6 decks)

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