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Business a level > Theme 3 > Flashcards

Theme 3 Flashcards

1
Q

What is a corporate objective?

A

The objectives of a medium to large-sized business as a whole.

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2
Q

What is a mission statement?

A

A brief statement describing the business’s purpose and objectives, designed to encapsulate it’s current operations.

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3
Q

Reasons to create a mission statement

A
  • To form a promise to it’s customers on what they can expect the business to strive for.
  • To bring a company’s workforce together.
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4
Q

What is Ansoff’s Matrix?

A

A strategic tool to help a business achieve growth by selecting the appropriate marketing strategy.

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5
Q

Ansoff’s Matrix strategies

A
  • Market penetration
  • Market development
  • Product development
  • Diversification
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6
Q

What is Porter’s Strategic Matrix?

A

A tool that helps identify the sources of competitive advantage that a business might achieve in a market.

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7
Q

Porter’s strategies

A
  • Cost leadership
  • Differentiation
  • Focus
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8
Q

Cost leadership

A

Striving to be the lowest cost provider in the market.

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9
Q

Pros and cons of cost leadership

A

+Increase profits
+Increase market share

-Requires high level of market share

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10
Q

Differentiation

A

Striving to achieve a high level of product differentiation.

  • Quality
  • Design
  • Brand identity
  • Customer service
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11
Q

Pros and cons of Differentiation

A

+May be adopted by any business
+Premium price

  • Development costs
  • Marketing costs
  • Easy to copy
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12
Q

Focus

A

Targeting a narrow range of customers by either

  • Cost focus
  • Differentiation focus
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13
Q

Pros and cons of Focus

A

+Customer satisfaction
+Loyalty
+Less competition
+Higher profit margins

-Low bargaining power with suppliers

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14
Q

What is portfolio analysis?

A

A method of cathegorising all the products and services of a firm to decide which fits within the strategic plans.

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15
Q

Aims of portfolio analysis

A 
To find out:
•Projected sales
•Projected costs
•Future competition
•Risks that may affect performance
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16
Q

What is competitive advantage?

A

An advantage that enables a business to perform better than it’s competitors in the market.

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17
Q

What is a distinctive capability?

A

A form of competitive advantage that is sustainable because it cannot be easily replicated by a competitor.

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18
Q

Ways of achieving competitive advantage through distinctive capabilities

A
  • Architecture: Relationships with employees, partners, suppliers and customers.
  • Reputation: Quality, reliability, service, prestige and honesty
  • Innovation: Products, production.
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19
Q

What is SWOT analysis?

A

An analysis of internal strengths and weaknesses and external opportunities and threats involving a business.

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20
Q

Strengths

A

What a business is good at:

  • Leadership
  • Motivation
  • USP
  • Production
  • Loyalty
  • Marketing
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21
Q

Weaknesses

A

Undermine the performance of a business:

  • Motivation
  • Organisational structure
  • Product range
  • Poor cash flow
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22
Q

Opportunities

A
  • New markets
  • Cost reduction
  • Low interest rates
  • Low exchange rates
  • Low regulations
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23
Q

Threats

A
  • New competitors
  • New legislation
  • Social pressures
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24
Q

What is PESTLE analysis?

A

Analysis of the external political, economic, social, technological, legal and environmental factors affecting a business.

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25
Q

Political factors

A
  • Members leaving the EU
  • National security issues
  • Pressure groups
  • Government changes
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26
Q

Economic factors

A
  • Unemployment
  • Price stability
  • Exchange rates
  • Interest rates
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27
Q

Social factors

A
  • Literacy rate

* Migration

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28
Q

Technological factors

A
  • Development
  • Capital over labour
  • Communications
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29
Q

Legal factors

A
  • Taxes
  • Bans
  • Health regulations
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30
Q

Environmental factors

A
  • Bio products
  • Renewable energy
  • Recycling
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31
Q

What are Porter’s five forces?

A

Five factors that determine the profitability of an industry:

  • Bargaining power of suppliers
  • Bargaining power of buyers
  • Threat of new entrants
  • Substitutes
  • Rivalry
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32
Q

What are the 4 objectives of growth?

A
  • Economies of scale
  • Market power
  • Market share
  • Profitability
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33
Q

Pros of economies of scale

A
  • Fall in production costs per unit

* More efficiency

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34
Q

Pros of market power

A
  • Higher prices
  • Less competition
  • Less development costs
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35
Q

Pros of market share

A
  • Higher prices
  • Product differentiation
  • Customer loyalty
  • Product recognition
  • Brand developing
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36
Q

What 3 problems can arise from growth?

A
  • Diseconomies of scale
  • Bad internal communication
  • Overtrading
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37
Q

Diseconomies of scale

A

Rise of average costs as output rises.

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38
Q

Economies of scale

A

The reduction of average costs as output increases.

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39
Q

What is a merger?

A

Occurs when two or more businesses join together to operate as one.

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40
Q

What is a takeover?

A

The process of one business buying another.

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41
Q

Reasons for mergers and takeovers

A
  • Exploit synergies
  • Quick expansion
  • Cheaper than internal growth
  • Defensive reasons
  • Entering new markets
  • Economies of scale
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42
Q

Disctinction between mergers and takeovers

A

Mergers:
•Agreement on both sides
•New combined brand

Takeovers:
•Through buying of shares
•Bought brand disappears
•51% of shares are necessary

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43
Q

Horizontal integration

A

The joining of businesses that are exactly in the same line of business.

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44
Q

Vertical integration

A

The joining of two businesses at different stages of production.

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45
Q

Reasons for horizontal integration

A
  • Common knowledge of the market
  • Less risk of failure
  • Similar skills
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46
Q

Finacial risks for mergers

A
  • Regulatory intervention
  • Resistance from employees
  • Integration costs
  • Bidding wars
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47
Q

Finsncial rewards for mergers

A
  • Fast growth
  • High remuneration for senior staff
  • Rewards to previous owners
  • Increased profitability
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48
Q

Problems of rapid growth

A
  • Drain of resources
  • Coping with change
  • Alienation of customers
  • Loss of control
  • Shortage of resources
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49
Q

What is organic growth?

A

A business growth strategy that involves a business growing gradually using its own resources.

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50
Q

What is inorganic growth?

A

A business growing strategy that involves two or more businesses joining together to form a much larger one.

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51
Q

Methods of growing organically

A
  • New customers
  • New products
  • New markets
  • New business model
  • Franchising
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52
Q

Advantages of organic growth

A
  • Less risk
  • Cheaper
  • More control
  • Less likely to encounter diseconomies of scale
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53
Q

Disadvantages of organic growth

A
  • Too slow for some stakeholders
  • Slow adaptation
  • Slow economies of scale
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54
Q

What are reasons for a business wanting to stay small?

A
  • Personal service
  • Owner’s preference
  • Flexibility and efficiency
  • Lower costs
  • Low barriers to entry in markets
  • Small firms can be monopolists
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55
Q

How does Product differentiation allow a small business to survive in a competitive market?

A
  • Hand-crafted products
  • Personalized service
  • Larger product choice
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56
Q

How does flexibility allow a small business to survive in a competitive market?

A
  • Less complex organisational structures
  • Changes to customer’s orders
  • Faster response to shifts in vustomer needs, exchange rates and legislation
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57
Q

How does customer service allow a small business to survive in a competitive market?

A
  • Easier to offer
  • Convenience for customers
  • Easier to communicate
  • Fast customer feedback
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58
Q

How does e-commerce allow a small business to survive in a competitive market?

A
  • Online shops/ easier competition
  • Social media consultants
  • Information and advice sites
  • Tutoring, training or mentoring
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59
Q

What is quantitative sales forecasting?

A

The prediction of future sales based on past numeric figures.

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60
Q

What are 2 methods of quantitative sales forecasting?

A
  • Predicting the line of best fit
  • Variations from the trend
  • Seasonal variations
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61
Q

What is moving average?

A

A succession of averages derived from successive segments of series of values.

62
Q

What is a scatter graph?

A

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

63
Q

What is investment appraisal?

A

The evaluation of an investment project to determine whether or not it is likely to be worthwhile.

64
Q

What are the 3 methods of investment appraisal?

A
  • Simple payback method
  • Average Rate of Return
  • Discounted cash flow
65
Q

Simple payback period

A

The amount of time it takes for a project to recover or pay back the initial outlay.

66
Q

Pros and cons of simple payback period

A

+Useful for fast recover or costs
+Simple to use
+Useful for cash flow problems

  • Cash earned after payback is ignored
  • Profitability is overlooked
67
Q

Average Rate of Return

A

ARR(%)= (Net return per annum/Capital cost) x 100

68
Q

Pros and cons of ARR

A

+Clearly shows the profitability of an investment project.

-The effects of time on the money value are ignored.

69
Q

Discounted cash flow

A

A method of investment appraisal that takes interest rates into account by calculating the present value of future incomes.

70
Q

Pros and cons of discounted cash flow

A

+Correctly accounts for the value of future earnings by calculating present values
+Flexible

  • Complex calculation
  • Rate of discount is critical.
71
Q

What is a decision tree?

A

A technique which shows all possible outcomes of a decision.

72
Q

Structure of a decision tree

A
  • Decision points
  • Outcomes
  • Probability
  • Expected monetary values
73
Q

Expected monetary value

A

EMV= (probability of success x expected profit) + (probability of failure x expected profit)

74
Q

Pros and cons of decision trees

A

+Shows all possible action courses
+Use numerical values
+Shows all the risks

  • Based on estimations
  • Time-consuming
  • Dynamic markets
75
Q

What is critical path analysis?

A

A method of calculating the minimum time required to complete a project, identifying delays which could be critical to it’s competition.

76
Q

Critical path analysis diagram structure

A
  • Nodes
  • Time taken for each activity
  • EST
  • LFT
77
Q

Earliest Start Time

A

How soon a task in a project can begin.

78
Q

Latest Finish Time

A

The latest time that a project can begin

79
Q

Pros and cons of critical path analysis

A

+Efficiency
+Faster decision making
+Working capital control

  • Inaccurate
  • Unexpected changes
  • Large projects can be complicated.
80
Q

What are the 2 corporate timescales?

A
  • Short-termism

* Long-termism

81
Q

Short termism

A

Taking decisions which will only impact the next five years of a business.

82
Q

Long-termism

A

Taking decisions that will impact the vision, mission and objectives of a business.

83
Q

Pros and cons of short-termism

A

+Reduced costs
+Increased profits

  • Overlooking of long-term opportunities
  • Costs can be larger in the short term
84
Q

Pros and cons of long-termism

A

+More long-term and international opportunities
+More innovative
+High staff quality
+Better relationships with suppliers

85
Q

What are the 2 types of decision making?

A
  • Evidence-based

* Subjective

86
Q

What is evidence-based decision making?

A

An approach to decision making that involves gathering information and using a rational approach to reach a conclusion.

87
Q

What is subjective decision making?

A

An approach to decision making where personal opinions affect the course of action chosen

88
Q

Structure of evidence-based decision making

A
  • Identifying objectives
  • Collecting information and ideas
  • Analysing information and ideas
  • Making a decision
  • Communication
  • Outcome
  • Evaluate the results
89
Q

What is corporate culture?

A

The values, attitudes, beliefs, meanings and norms that are shared by people and groups within an organisation.

90
Q

Features of a strong corporate culture

A
  • Sense of identity
  • Teamwork
  • Commitment
  • Motivation
91
Q

4 types of company cultures

A
  • Power culture
  • Role culture
  • Task culture
  • Person culture
92
Q

Power culture

A
  • Centralised
  • Few rules
  • Competitive atmosphere
93
Q

Role culture

A
  • Power is associated with a role

* Tall structures

94
Q

Task culture

A
  • Power is given to those who can accomplish tasks
  • Teamworking
  • Adaptability and dynamism
95
Q

Person culture

A
  • Small number of expert individuals

* Accountants, lawyers, doctors, architects

96
Q

Factors that help create a corporate culture.

A
  • Leader
  • Environment
  • Nationality
  • Policies
  • Beliefs
  • History
  • Structure
  • Values
97
Q

Difficulties in changing an established structure

A
  • Identifying the factors

* Change people’s attitudes and beliefs

98
Q

Who are internal stakeholders?

A

Groups inside a business with an interest in it’s activities.

  • Staff
  • Managers
99
Q

Who are external stakeholders?

A

Groups outside the business with an interest in its activities.

  • Shareholders
  • Suppliers
  • Customers
  • Governments
  • Local residents
100
Q

Common stakeholder objectives

A
  • Growth
  • Rising profit
  • Product quality
  • Innovation
101
Q

Stakeholder influence on businesses

A
  • Listened views and interests

* Open communication channels

102
Q

Stakeholders influence on businesses

A
  • Prioritise short term needs of shareholders
  • Boost immediate cash flow and profitability
  • Good relationships with suppliers
103
Q

Potential conflicts between shareholders and stakeholders

A
  • Shareholders-employees: Higher welfare means higher costs
  • Shareholders-customers: Higher prices mean less sales
  • Shareholders-directors: Higher dividends means less retained profit
  • Shareholders-environment: Higher profit means less environmental care.
  • Shareholders-government: Higher proftis mean neglecting taxes.
104
Q

What is business ethics?

A

The moral rights and wrongs of a decision, focusing more on a strategic level.

105
Q

What are trade-offs?

A

Situations where the selection of one choice results in the loss of another.

106
Q

Common trade-offs

A 
Acting ethically can mean
•Raised costs
•Reduced revenue
•Better reputation
•Better marketing
107
Q

What is Corporate Social Responsibility?

A

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

108
Q

What is remuneration?

A

The reward for work in the form of pay, salary or wages.

109
Q

Ethical codes of practice

A
  • Environmental responsibility
  • Dealing with customers and suppliers in a fair and honest way
  • Competing fairly
  • Responding fairly to staff needs
110
Q

What are the 2 form of financial statements?

A
  • Statement of financial position

* Statement of comprehensive income

111
Q

What is a statement of comprehensive income?

A

A document that shows the income and expenditure of a business for a period of time.

112
Q

Key information in statement of comprehensive income

A
  • Revenue
  • Cost of sales
  • Gross profit
  • Selling expenses
  • Administrative expenses
  • Operating profit
  • Finance costs
  • Net profit
113
Q

Which stakeholders might be interested in the statement of comprehensive income?

A
  • Shareholders
  • Managers
  • Employees
  • Suppliers
  • The government
114
Q

What is a statement of financial position?

A

A document that shows a summary of a firm’s assets, liabilities and capital.

115
Q

Key information in a statement of financial position

A
  • Current assets
  • Non-current assets
  • Current liabilities
  • Non-current liabilities
  • Net capital
116
Q

Non-current assets

A
  • Goodwill
  • Names
  • Copyrights
  • Trademarks
  • Patents
  • Property
  • Equipment
  • Investments
117
Q

Current assets

A
  • Inventories
  • Trade
  • Cash
118
Q

Current liabilities

A
  • Borrowings
  • Trade
  • Dividends
  • Tax
119
Q

Non-current liabilities

A
  • Loans

* Provisions

120
Q

Net assets

A
  • Share capital
  • Share premium account
  • Retired earnings
121
Q

Which stakeholders might be interested in the statement of financial position?

A
  • Shareholders
  • Managers
  • Suppliers
  • Creditors
122
Q

What 2 ratios are used for ratio analysis?

A
  • Gearing ratio

* Return on capital employed

123
Q

ROCE formula

A

ROCE=(Operating profit/Capital employed) x 100%

124
Q

What is ROCE?

A

The profit of a business as a percentage of the total amount of money used to generate it.

125
Q

What is gearing ratio?

A

Comparison of the proportion of capital raised by debt and equity.

126
Q

Gearing ratio formula

A

Gearing ratio=(Non-current liabilities/Capital employed) x 100%

127
Q

Limitations of ratio analysis

A
  • The basis for comparison
  • The quality of final accounts
  • Limitations of the balance sheets
  • Qualitative information is ignored
  • Window dressing
128
Q

What is labour productivity?

A

Output per worker in a given time period.

129
Q

Labour productivity formula

A

Labour productivity=Total output/Average number of employees

130
Q

What is labour turnover?

A

The rate at which staff leaves a business

131
Q

Labour turnover formula

A

Labour turnover=(Number of staff leaving over time period/Average number of staff in during time period) x 100%

132
Q

What is labour retention?

A

The number of employees that remain in a business over a period of time.

133
Q

Labour retention formula

A

Labour retention=(Number of staff staying/Average number of staff in post) x 100%

134
Q

What is absenteeism?

A

The number of staff who are absent of the total workforce.

135
Q

Absenteeism formula

A

Rate of absenteeism= (Number of staff absent on a day/Total number of staff) x 100%

136
Q

What are the 4 strategies to increase productivity?

A
  • Financial rewards
  • Enployee share ownership
  • Consultation strategies
  • Empowerment strategies
137
Q

Pros and cons of financial rewards

A

+Fair pay
+Less staff turnover
+Reduce absenteeism

-Should not penalise for entitled breaks

138
Q

Pros and cons of employee share ownership

A

+Motivation
+Loyalty

-Depends on the share value at that time

139
Q

Pros and cons of consultation strategies

A

+Motivation
+Productivity
+Feel valued
+Less resistance

  • Time taking
  • Could be ignored
140
Q

Pros and cons of empowerment strategies

A

+Motivation
+Productivity
+Less absenteeism

  • Costs
  • Time taking
141
Q

What are the 5 causes of change in a business?

A
  • Changes in organisational size
  • Poor business performance
  • Market change
  • Ownership change
  • Transformational leadership
142
Q

Effects of changes in organisational size

A
  • Competitiveness
  • Productivity
  • Financial performance
  • Stakeholders
143
Q

Effects of change on business performance

A
  • Competitiveness
  • Productivity
  • Financial performance
  • Stakeholders
144
Q

Efects of market change

A
  • Competitiveness
  • Productivity
  • Financial performance
  • Stakeholders
145
Q

Effects of change in ownership

A
  • Competitiveness
  • Productivity
  • Financial performance
  • Stakeholders
146
Q

What are the 4 key factors which change can impact?

A
  • Organisational structure
  • Size of the business
  • Speed of change
  • Managing resistance to change
147
Q

What is scenario planning?

A

A planning method design to explore uncertainties, prepare against risks and exploit opportunities

148
Q

What is risk assesment?

A

Identifying and evaluating the potential risks in an activity that a business is about to undertake.

149
Q

What is a business continuity plan?

A

A document that shows how a business will operate after a serious incident and how it expects to return to normal

150
Q

What is succession planning?

A

Identifying and developing people who have potential to occupy key roles in a business in the future.

Business a level (3 decks)

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