Understanding Business Flashcards
Sectors of Industry (4)
Primary - extraction of raw materials/exploiting natural resources eg mining, farming
Secondary - manufacturing, taking natural resources and producing goods with them eg car production
Tertiary - businesses providing a service eg hotel, bank
Quaternary - providing knowledge and information-based services eg business consultancy and research & development
Types of Organisation
Public sector
Private limited Company (PLC)
Objectives of a PLC (5)
Profit maximisation
Sales maximisation
Satisficing - aiming for satisfactory result rather than the best possible outcome
Survival – to continue to be in business, especially important in a recession
Growth – to have more outlets, staff and higher turnover, increased market share
Provide quality service
Working within a set budget
Managerial objectives - managers pursuing objectives which they may believe improve their status etc
Corporate Social responsibility – aiming to act in an ethical way in order to benefit the environment or society
Advantages of CSR (3)
Gains good reputation, Customers with similar views use business, Attract high quality staff with same ethical values
Methods of Growth (4) (one has two in it)
Organic/Internal
External Growth
Merger
Takeover/acquisition
Franchising
Becoming a multinational
A D Organic/Internal Growth 3 A 2 D
A
Less risky than taking over the other business
Can be financed through internal funds e.g. retained profits.
Builds on a business’ strengths, eg brands, and customers.
D
Growth may be dependent on the growth of the overall market.
Slower method of growth - shareholders may prefer a more rapid growth.
Horizontal Integration
Desc
Firm not in the same sector producing the same type of product/service join together
A
Dominate the market and obtain cheaper supplies due to bulk buying.
D
Merger may breach competition rules.
Lateral integration
Desc
Business acquires / merges with a business that is in the same industry but does not provide the same exact products. Eg Greggs buys a wedding cake bakery. Both bakeries but competing for different customers.
A
The business can target new markets and therefore increase sales.
D
Lack of knowledge in a slightly different market may affect the performance of the products.
Backwards Vertical
Desc
Takes over a business in an earlier sector of industry e.g supplier
A
Guaranteeing supply of stock.
D
Focusing on new activity may affect focus on core activity.
Forward Vertical
Desc
Takes over a business later stage of production
A
Control of distribution is possible.
D
Monopolizing markets may have legal repercussions.
Diversification
Desc
Products are launched across different markets eg Samsung sells phones but also washing machines.
A
Reduces risk of failure across different markets.
D
A large product range requires numerous resources such as using a product grouping structure.
Conglomerate
Desc
Businesses in different markets join together ie two businesses merge whose activities are totally unrelated.
A
Overcome seasonal fluctuations in markets leading to more consistent year-round sales.
D
The business may become too large and inefficient to manage.
A D of Outsourcing 2 A 2 D
Allows them to concentrate on core activities.
High qualified work from outsourced business as it has the expertise and specialist equipment.
D
Sensitive information shared with outsourced business could get into the hands of competitors.
Clear communication required to ensure exact specifications are met.
Delayering
Removing a level of management to make a tall structure flatter.
Structures (2)
Tall – many levels of management, long chain of command, narrow span of control (how many people a manager is directly responsible for)
Flat – fewer levels of management, shorter chain of command, wide span of control
