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Higher Business Management > Understanding Business > Flashcards

Understanding Business Flashcards

1
Q

Private Limited Company

A

Owner - Shareholders

Controlled - Board of directors

Finance - Selling shares to family & friends

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2
Q

Private Limited Company - Advantages

A

Owners have limited liability

Ownership not lost to outsiders

Business retains close feel with a high level of customer service

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3
Q

Private Limited Company - Disadvantages

A

Profits split with many shareholders by issuing dividends

Complicated legal process required to set up company

Financial statements have to be shared with Companies House
- Profits not kept private

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4
Q

Public Limited Company

A

Owners - Shareholders

Controlled - Board of directors

Finance - Shares sold publicly through stock market

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5
Q

Public Limited Company - Advantages

A

Shareholders have limited liability

Finance can be raised through public sale of shares

PLCs can dominate the market

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6
Q

Public Limited Company - Disadvantages

A

Dividends shared with many shareholders

Annual accounts have to be published

Setting up a PLC is complicated

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7
Q

CSR

A

Organisations aiming to act in any way that benefits society or the environment

Legal responsibilities
Economical responsibilities

Business gains a good rep for its caring nature
Customers who agree with aims likely to use business
Business can attract high-quality staff who believe in businesses ethics

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8
Q

Internal Growth

A

Introducing e-commerce
- Business can trade 24/7 to a global market

Hiring more staff
- Improves business’s ability to make sales

Increasing production capacity
- Businesses can invest in new technology to make more products

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9
Q

Diversification

A

Products launched across different markets

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10
Q

Horizontal Integration - Advantages

A

Two businesses from the same sector become one business

New business will dominate market as competition is reduced

New business can raise prices due to lack of competition

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11
Q

Horizontal Integration - Disadvantages

A

Quality may suffer due to lack of competition

Customers may have to pay higher prices for the same goods

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12
Q

Forward Vertical Integration

A

Business takes over or merges with a business from a later section of industry

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13
Q

Backward Vertical Integration

A

Business takes over or merges with a business from an earlier section of industry

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14
Q

Forward Vertical Integration - Advantages

A

Business can control supply of products

Can increase profits by adding value itself

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15
Q

Backward Vertical Integration - Advantages

A

Guaranteed & timely supply of inventory

Quality of supplies strictly controlled

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16
Q

Vertical Integration - Disadvantages

A

Focusing on new activities can adversely affect core activities

Monopolising markets may have legal repercussions

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17
Q

Lateral Integration

A

Business merges with a business that is in the same industry but doesn’t provide the exact same product

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18
Q

Lateral Integration - Advantages

A

Business can target new markets & increase sales

New products can complement existing ones

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19
Q

Lateral Integration - Disadvantages

A

Lack of knowledge in a slightly different market may affect performance of the products

May adversely affect core activities

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20
Q

Conglomerate Integration

A

When businesses in different markets join together

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21
Q

Conglomerate Integration - Advantages

A

Business is larger & more financially secure

Buyer acquires assets of the other company

Business gains customers & sales of the acquired business

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22
Q

Conglomerate Integration - Disadvantages

A

One business may take on another in a market they know nothing about

Business may become too large & inefficient to manage

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23
Q

Outsourcing

A

When an organisation arranges for another organisation to carry out certain activities for it instead of doing it itself

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24
Q

Outsourcing - Advantages

A

Able to use service when required

Allows business to concentrate on doing what it’s good at

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25
Q

Outsourcing- Disadvantages

A

Business will have less control over outsourced work so quality may fall

More expensive that in-house as specialists come at a price

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26
Q

Political Factors - Advantages

A

Changing laws & legislation
- Government could introduce environmental laws & by complying, organisations will gain a good rep

Changing income tax rates
- Government could reduce tax rates giving customers a higher disposable income meaning they are more likely to buy products

Changing VAT rates
- Government could lower VAT making products more affordable for customers

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27
Q

Political Factors - Disadvantages

A

Changing laws & legislation
- Government could increase minimum wage meaning organisations have higher wage costs resulting in a lower annual profit

Changing income tax rates
- Government could increase income tax giving customers a lower disposable income

Changing VAT rates
- Government could raise VAT & selling price could put customers off buying

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28
Q

Third Sector - Charities

A

Set up with sole purpose of raising money to benefit others

Financed - Donations or sponsorships
Controlled by - Board of trustees

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29
Q

Charities - Advantages

A

Exempt from paying some taxes

Low wage costs as volunteers work for free

Private companies more willing to donate as it’s good PR

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30
Q

Charities - Disadvantages

A

Difficult to compete with large marketing budgets of organisations in the private sector

Charities rely on volunteers who may leave for paid work

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31
Q

Third Sector - Voluntary Organisations

A

Aim to provide a service for their members & the local community

Financed by - Membership subscriptions

Controlled by - Elected committee & helped by volunteers

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32
Q

Third Sector - Social Enterprises

A

Aim to make a profit to benefit a specific group

Owned by - Sole trader, partnership or shareholders in a limited company

Controlled by - Board of directors

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33
Q

Social Enterprise - Advantages

A

Social aims can endear a social enterprise to customers

Likely to receive government grants due to positive impact on society

Good-quality employees who believe in social mission attracted to organisation

‘Asset lock’ means if it shuts down the sale of any profits will benefit their cause

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34
Q

Franchiser

A

Aims to grow & increase market share

A - Low-risk form of growth as franchisee invests the majority of the capital
- Receives a percentage of franchisee’s profits each year

D - Reputation of whole franchise can be tarnished by one poor franchisee
- Only a share of the profits is received

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35
Q

Franchisee

A

Aims to maximise profits

A - Well known business with existing customers
- Industry knowledge & training provided by the franchiser
- Benefits from national advertisements carried out by the franchiser

D - Little autonomy over decisions as the franchiser decides it all
- Royalties have to be paid each year
- High initial start-up fees

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36
Q

Multinationals

A

A business that has operations in more than one country

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37
Q

Multinationals - Advantages

A

Wages & raw material costs lower in host country

Business can avoid legislation in the home country

Grants can be issued by governments to locate in their country

Businesses can avoid quotas & tariffs issued by their own governments

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38
Q

Multinationals - Disadvantages

A

Language barriers can slow down communication

Cultural differences can affect production

Exchange rates can affect purchasing & paying expenses in different countries

Time differences can hinder communication between head office & branches around the world

39
Q

Primary Sector

A

Consists of businesses that are involved in exploiting natural resources

40
Q

Secondary Sector

A

Businesses involved in manufacturing & construction, by taking natural resources & turning them into goods that can be sold later

41
Q

Tertiary Sector

A

Businesses that are involved in providing services rather than goods

42
Q

Satisficing

A

Aiming for satisfactory result rather than best possible outcome

Could aim only to make a level of profit good enough to satisfy main stakeholders

43
Q

Managerial Objectives

A

Try to achieve objectives they believe will improve their status within the country

44
Q

Working Within a Budget

A

Aiming to stick to their annual budget & not overspend

45
Q

Mergers & Takeovers

A

Involves one business buying another business

46
Q

Takeovers - Advantages

A

Risk of failure can be spread

Economies of scale can be achieved

Competition reduced which increases sales

Buying business gains market share & resources of taken-over business

47
Q

Takeovers - Disadvantages

A

Can lead to job losses in taken-over business as buying business wants own employees

Integration can be bad for customers as less competition means higher prices

Change of name can put off loyal customers of taken-over business

Can be expensive to acquire another business

48
Q

Merger

A

Involves 2 businesses agreeing to join forces & become one organisation

49
Q

Merger - Advantages

A

Economies of scale can be achieved

Each business can bring different areas of expertise to the merger

Jobs more likely to be spared in both businesses

Can overcome barriers to entering a market

50
Q

Merger - Disadvantages

A

Customers may not like the changes a merger brings

Marketing campaigns to inform customers of changes can be expensive

Can be bad for customers as less competition will mean higher prices

51
Q

Other Ways to Achieve Growth

A

Franchising

Becoming a multinational

52
Q

Retained Profits

A

Profits made by the business that aren’t given to shareholders

53
Q

Divestment

A

Selling off part of an organisation in order to concentrate on other more profitable areas of the business

54
Q

De-integration

A

When a business sells off part of the supply chain it owns

55
Q

De-integration - Advantages

A

Business can focus on core activities

Increased choice in ‘vertical chain’ as the business can look for supplies outside its organisation

56
Q

De integration - Disadvantages

A

Business will now have to pay marked-up prices for supplies

Competitors could acquire de integrated components & take control of the supply chain

57
Q

Asset Stripping

A

Taking over another company with intent to sell off its assets for a profit

58
Q

De-merger

A

When a single business splits into 2 or more separate components

59
Q

De-merger - Advantages

A

Each new component can concentrate on its own core activities & grow as a result

Each new component has the best chance to operate efficiently

De-merged components can be divested which can meet competition regulations

60
Q

De-merger - Disadvantages

A

Customers may be put off & abandon the businesses altogether

Significant financial costs involved

61
Q

Buy-in

A

Management of another business takes over the business

62
Q

Buy-out

A

Management of a business buy the company they work for

63
Q

Outsourcing

A

When an organisation arranges for another organisation to carry out certain activities for it instead of doing it itself

64
Q

Outsourcing - Advantages

A

Allows the business to concentrate on doing what it’s good at

Should be high-quality work from outsourced activities

Less labour & equipment required for outsourced activities

Business is able to use the service when required

65
Q

Outsourcing - Disadvantages

A

Business will have less control over outsourced work so quality may fall

Communication between businesses needs to be clear to make sure specifications are met

Business may have to share sensitive information that could get into hands of competitors

More expensive than in-house as specialists come at a price

66
Q

Competition Policy

A

In order to promote competition for consumer benefit

Prices kept low for customers
Customer service is good
Products & services are high quality

Organisations can’t participate in cartels
The CMA can block mergers

67
Q

Economic Policy

A

Fiscal policy
- Concerns tax rates it sets

Monetary policy
- The ways it controls the supply of money into the economy

68
Q

Boom

A

High demand for products & employment

Can increase prices improving businesses profits

Inflation means increasing wage costs

69
Q

Recession

A

Little demand for products & employment

Have to make staff redundant & pay redundancy

Prices cut meaning little profit

70
Q

Recovery

A

Demand for products & employment increases

Customers in a better position to purchase products, increasing sales

Developing new products & increasing prices leading to bigger profits

71
Q

Social Factors - Advantages

A

Ageing population
- Can produce tailored products
- Most are retired & can afford products so prices can increase

Changing fashion trends
- Can offer products customers want, increasing sales

Ethical considerations
- Businesses that practise ethically seen in a good light by customers, suppliers & the government

72
Q

Social Factors - Disadvantages

A

Ageing population
- Market research needed which is expensive & time consuming

Changing fashion trends
- Some products have a short shelf-life

Ethical considerations
- Operating ethically will increase costs & therefore reduce overall profits

73
Q

Technological Factors - Advantages

A

Social media
- Organisations can keep in touch with customers & raise their profile to worldwide market

Wi-Fi
- Providing free wi-fi will attract customers who need to use it

4G
- Enables employees to download information quickly

74
Q

Technological Factors - Disadvantages

A

Social media
- Customers can use it to spread bad reviews leading to a bad reputation

Wi-Fi
- Expensive to set up & maintain

4G
- Not everywhere is equipped for 4G leaving these organisations behind

75
Q

Environmental Factors - Advantages

A

Weather
- Could be impacted by favourable weather

Recycling
- Encourage recycling by their customers to impact less negatively on the environment

Carbon footprint
- Businesses that use renewable energy will save money on fuel bills

76
Q

Environmental Factors - Disadvantages

A

Weather
- Adverse weather can affect transport networks

Recycling
- Takes time & effort to recycle rather than dispose

Carbon footprint
- Expensive to invest in renewable energy

77
Q

Competitive Factors - Advantages

A

Competition opening next door provides more choice to customers

Improves market as it brings more choice & keeps prices low

78
Q

Competitive Factors - Disadvantages

A

Competition could lower prices which forces business to lower prices or risk losing customers

Competition could launch new products meaning businesses will have to spend money developing products

79
Q

Conflicts of Interest

A

Employees vs owners
- Employees want a pay rise, owners want to maximise profits

Government vs owners
- Governments want to introduce legislation to improve society, owners may disagree with legislation as it will impact their business

Customers vs owners
- Customers want low prices whereas owners want to maximise profits

Suppliers vs owners
- Suppliers want to be paid as soon as possible in cash whereas owners want to trade credit to keep good cash flow

80
Q

Interdependence

A

Owners & suppliers
- Owners need suppliers to provide quality raw materials while suppliers need owners to keep buying from them

Owners & customers
- Owners need customers to buy their products & customers need a good quality product

Owners & employees
- Owners need employees to perform their best to increase sales while employees need owners to make good decisions & keep their job safe

Managers & employees
- Employees & managers need to work together to help the business succeed

81
Q

Tall Structure - Advantages

A

Each staff member knows who to report to

More promotion opportunities can motivate staff

Narrow span of control means managers can support subordinates

82
Q

Tall Structure - Disadvantages

A

Many levels slows down decision-making

Organisation can be slow to react to changes in the market

Narrow span of control means managers have fewer staff to share ideas with

83
Q

Flat Structure - Advantages

A

Information can quickly be communicated through levels

Can quickly respond to external factors

Wide span of control means staff are empowered to make decisions themselves

84
Q

Flat Structure - Disadvantages

A

Fewer promotion levels so staff may leave

Staff may be delegated more tasks increasing pressure

Wide span control means there’s less time for planning

85
Q

Delayering - Advantages

A

Money saved on managers salary

Quick communication as shorter chain of command

Wider span of control

86
Q

Delayering - Disadvantages

A

Fewer promotion opportunities

Will lose key staff in restructure

Wider span of control

87
Q

Centralised Structure - Advantages

A

Standardised procedures ensures consistency

Low risk of important info leaking from branches

High degree of corporate identity as decisions made for the whole organisation

88
Q

Centralised Structure - Disadvantages

A

Less responsibility given to subordinates demotivating staff

Decisions won’t reflect needs of local markets

Organisation will react slowly to external factors

89
Q

Decentralised Structure - Advantages

A

Quick decisions as local managers don’t need to consult senior managers

More subordinates empowered encouraging creativity

Senior management relived of constant decision-making

90
Q

Decentralised Structure - Disadvantages

A

Local branches may compete with each other

Additional training required for middle management

Lower-level management can make decisions harmful for the whole business

91
Q

Downsizing - Advantages

A

Can cut wage costs

Business is more competitive

92
Q

Downsizing - Disadvantages

A

Valuable skills lost when redundancies are made

Remaining staff are demotivated

93
Q

Centralised Decision Making

A

Kept at senior level of business

Higher Business Management (6 decks)

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