Topic 1 - What Is A Buiness ? Flashcards
What do businesses provide for markets ?
Goods and services
What are goods ?
Tangible products that can be physically felt
What are services ?
Intangible products
How can a business impact a country ?
Provide employment so more people can make an income
Create goods and services to enhance lives of consumers
Improve a countries reputation
What’s the ‘transformation process’ of a business ?
When inputs (raw materials) get made into outputs (finished goods)
What is B2C ?
Business to customer
When businesses sell goods and services directly to consumers
What is B2B ?
Business to Business
When businesses sell goods and services directly to businesses
How can businesses be categorised ?
Into the types of goods and services they supply
What are the three sectors ?
Primary - business that extract raw materials e.g. mining, sheep shedding, fishing and forestry
Secondary - businesses that manufacture goods using raw materials e.g. clothing
Tertiary - businesses that provide services e.g. hotels and cinemas
What do businesses have which sets out the business’s beliefs and values ?
mission statements
What are mission statements used for ?
To create corporate aims that are long term aims of the entire business
What do mission statements order out ?
Mission statement
Corporate aims
Corporate objectives
Functional, team and individual objectives
What are needed in order for corporate aims to fulfil the businesses mission?
Business objectives
What are 4 business objectives ?
SMART targets
Profit maximisation
Survival
Growth
Social objectives
What are SMART targets ?
Specific
Measurable
Attainable
Realistic
Timely
Why do objectives need to be Specific ?
Specific so that employees know exactly what they are working towards
Why do objectives need to be Measurable ?
so that employees can actually work out whether they have met their objective
Why do objectives need to be Attainable/achievable ?
or achievable so that employees are committed to achieving them
Why do objectives need to be Realistic ?
Objectives must be Realistic otherwise employees may feel demotivated and overwhelmed
Why do objectives need to be Timely ?
so that employees know when they must achieve them by
What is profit maximisation as an objective ?
Profit maximisation is a business objective that requires a business (and its management) to achieve the highest amount of profit for shareholders.
Satisficing would mean making enough or some minimum required level of profits.
What is survival as a business objective ?
Survival is a business objective which requires a business to continue trading despite challenges in the external environment.
What is growth as a business objective ?
Growth is a business objective which requires the growth of stores or locations, sales value, sales volume or product range
What are social objectives as business objectives?
Social, ethical and environmental objectives require a business to focus on supporting society through initiatives including sustainability and fair trade
What are the benefits of setting business objectives ?
Business objectives provide direction and can support planning and operations.
Business objectives allow a business to co-ordinate resources and ensure that all employees are working towards the same overall aim
What is revenue ?
Revenue is the income earned by a business from the sale of its goods and services
What’s the equation for revenue ?
Revenue = number of sales x sales price.
E.g. if a stationery store sells 500 pens for £2 each, then the revenue is £1000 (500 x £2).
What are costs ?
Costs are all of the expenses that a business incurs (pays)
What are total costs the sum of ?
The total costs are calculated as the sum of the fixed costs and the variable costs
What are fixed costs ?
Fixed costs don’t vary as the business changes its output.
So whether a business produces 10,000 units of a product or 2 units of a product, its fixed costs will be the same.
Snapchat registering as a business would cost the same regardless of how many adverts they sold or how many users they had.
Note that fixed costs can increase as the business grows.
What are examples of fixed costs ?
Office rent
insurance
fixed employee salaries
What are variable costs ?
Variable costs are the costs that change directly with output (they change as a business changes output)
What are examples of variable costs ?
Wages paid for factory labour
raw materials
transport costs
What is cost leadership ?
The business in the industry with the lowest costs
What did Michael Porter argue about cost leadership in 1980 ?
Michael Porter, the man who came up with the 5 Forces analysis also wrote a paper in 1980. He argued that a business cannot be a cost leader (the business in the industry with the lowest costs), whilst also having a differentiated (or innovative product).
He argued that a ‘sustainable competitive advantage’ over other people in the industry came from focusing on 1 thing.
In 2019, Ryanair had what in the airline industry ?
Cost leadership
Focused scope = a decision to focus on 1 particular type of customer or market segment. Ryanair focused on the price-sensitive market segment. To win this audience, Ryanair had to build cost leadership.