Understanding Business Flashcards
Sectors of Economy
Primary (gathering raw materials)
Secondary ( manufacturing)
Tertiary (providing a service)
Quaternary (Information Services eg IT)
Sectors of Economy
Private
Public
Third
Aims of Private Sector
Survive
Make a profit
Growth
Operate ethically
Maximise sales
Provide a service
Aims of Public Sector
Use taxpayers money in the best way
Provide a service to local community
Work within budget
Provide a service
Operate ethically
Aims of third sector
Maximise funds/ donations
Raise awareness
Increase volunteers
Operate ethically
Types of organisations?
Sole Trader
Partnership
PLC
LTD
Multinational
Franchise
Sole Trader?
Business set up and owned by one person who’s trying to make a profit
ADV of sole trader
Keep all profit
Make all decisions
Business is run how they want
DISAD of some trader
Unlimited Liability
Hard to raise finance
Long hours
Partnership?
Business run by 2 to 20 people
ADV of partnership?
Jobs are split so workload is shared
Different partners bring different expertise
Easier to raise finance
DISAD of partnership?
Arguments likely due to shared decisions/ might need to compromise
Unlimited Liability
Profits are shared
PLC?
company with 20+ partners
owned by shareholders who are random members of the public
ADV of PLC?
Easier to raise finance through selling shares
DISAD of PLC?
No control who is buying shares
Shareholders could buy enough shares to take over entire business
Directors may make decisions shareholders don’t agree with
Ownership and Control of PLC?
Owned by shareholders
Controlled by Directors
LTD?
Business with more than 20 partners
Owned by shareholders known to the business
ADV of LTD?
Limited Liability
Easy to raise finance by selling shares etc
Profits only shared between stakeholders
DISAD of LTD?
Legal costs are expensive
Hard to motivate workers who do not own shares
Multinational Company?
Company which has HQ’s in one country but operates in other countries
ADV of multinational
Increased availability of skilled workers
Some countries may have reduced Corporation Tax etc
Countries may have more relaxed laws such as reduced minimum wage
Reduced costs for exportation etc
Creates jobs
DISAD of multinational?
Exploiting workforce
Not keeping profits in host country
Relying on deskilled workers in less developed countries
Ownership and control of Public Sector
Owned by Government
Controlled by Government
Corporate Social Responsibility examples?
Reducing Carbon Footprint
Improve if working conditions
Reducing, Reusing, recycling where possible
Organic Growth?
Natural growth
ways to organically grow?
Open new stores
Hire more staff
Introduce new products
ADV of Organic Growth?
no loss of control as outsiders not involved
hiring more staff brings new ideas and skills
opening new stores will increase customers base
DISAD of organic growth?
very slow
may be limited by finance
Horizontal Integration?
When two companies at the same stage merge
ADV of horizontal integration?
Removes a competitor
Increases customer base
Disadvantages of Horizontal Integration?
Business may argue about best way to run business
Hostility for Jobs
Can be expensive to purchase another company
Forward Vertical Integration?
When a business take over another business at a later stage eg. Pixar buys Netflix
ADV of forward vertical integration?
ensures outlet to sell produce
more control over pricing and product display
Backwards vertical integration?
Business buys another company at an earlier stage eg. Ford buying a tire manufacturer
ADV or backwards vertical integration
Guarantees high quality of materials for final product
Ensures high supply of stock
Limits supplies to competitors
Diversification?
when firms move into different markets from their original business
Conglomerate Diversification?
When business move into a market completely different from the original product
Lateral Diversification?
When business move into markets related to their original products
EG of conglomerate diversification?
Grocery store merged with bank
Eg. of lateral diversification?
Hairdresser merged with beauty therapist
ADV of diversification?
Risk spread across different markets
Increases customer base
Business gains customers/ assets from merging business
Experience/ Knowledge from different business
DISAD of diversification?
May not have knowledge or funds to run new business
Entering new market may affect original product
External Factors
Political
Economic
Social
Technological
Environmental
Competition
Political factors affecting business
New legislation or laws may increase minimum wage or corporate tax meaning product price may need to be increased which may reduce sales
Economic factors affecting business
Employment
Book/ Recession
Inflation Rates
Interest rates
Social factors affecting business
Things that affect customers spending habits eg. age, lifestyle, trends etc
old people more likely to need food shopping delivered as they are more frail
Technological factors affecting business
New technology always coming out so business needs to keep up to date with technology to stay competitive
Environmental factors affecting business
Weather conditions maybe delay material deliveries meaning production is delayed therefore resulting in customers waiting longer for their products
Hotter weather increases sales of ice lollies, Colder weather increases sales of hats
Competitive factors affecting business
Customers may look at rival business for better prices and products before purchasing
Internal Factors affecting a business?
Corporate Culture
Finance
Technology
Staffing
Corporate Culture
Way things are done in the business
staff uniforms, logo and colour scheme, incentives etc
ADV of Corporate culture?
Staff will feel like they belong to the business
Staff will feel motivated due to rewards
Business can be easily recognised by brand image
DISAD of corporate culture
Takes time to develop brand image
Time and Money used on improving brand imaging and adapting new staff
Staffing Impacts on business?
- Staff may be poorly trained so don’t produce high quality products
- Staff may take industrial action which reduces production
Financial Impacts on business?
- Firm may not have enough money to buy new technology
- Firm may not have enough money to hire enough staff
- Firm may not have enough to research and develop product
+ Enough finance to increase wages which increase productivity
Technological Impact of business
- Breakdowns of machines are expensive as loss of production
- May not have up to date tech
+ effective use of machinery can give business competitive advantage
+ business can use social media to increase customer base and advertise
Internal stakeholders
Managers
Employees Shareholders
Interest of Employees?
Good Salary
Good working Conditions
Promotional opportunities
job security
Influence of employees?
May take part in industrial action
Can change standard and rate of work/ production
Interests of Managers
Good salary/ bonuses
Responsibility and status
Influence of managers
Make decisions such as hiring staff, buying new assets
Interest of shareholders?
Getting back good dividend
Want business to be profitable
Influence of shareholders?
Choice to sell shares
Can influence decisions within business
External Stakeholders?
Suppliers
Banks
Government
Local Community
Customers
Interest of Suppliers
Will want business to be successful to ensure sales of materials
Influence of suppliers?
Change price
Offer discounts eg. bull buying
Interest of banks?
Will want business to be successful to ensure repayment
Influences of Banks?
Increase interest rates
refuse/ accept loans
Interest of a government?
Job creation in local areas
Increased corporation tax
Influence of Government
Set Legislation
Increase tax rates
Interest of local community?
Ensures business is operate ethically
Creates jobs so reduces unemployment
Businesses offer goods/ services
Influence of local community
Can make complaints
Can protest against company
Interest of customers?
Want best quality product at lowest price
Want to receive a good customer service
Influence of customers?
Can choose whether or not to buy products
May recommend business to relatives
Hierarchical Stricture?
Lots of layers of managerial positions
Long chain of command
Managers have narrow span of control
ADV of Hierarchical Structure?
Great deal of supervision
Defined roles
Promotion opportunities
DIASAD of Hierarchical Structure?
Decisions can take a long time
Flat structure?
Delayering- less layers of managerial positions
Shorter chain of command
Managers have wider span of control
ADV of flat structure?
Decisions made more quickly as less deliberation
DISAD of flat structure?
Less chance of promotions
Less defined roles, may lead to conclusion
Matrix structure?
often used during products
experts from different department work together
team leaders but no mangers
ADV of matrix structure?
Experts from all departments work together meaning high quality product
Allows relationships to be built within business
DISAD of matrix structure?
No clear manager, can lead to confusion
Expensive to set up and run
Entrepreneurial Structure?
Decisions made by few key middle member of organisation
Centralised Structure
All decisions made my top managers
Decentralised Structure?
Decisions made by different department depending on decision subject
Types of decisions?
Strategic
Tactical
Operational
Strategic Decisions
Made by senior managers
Long term decisions
Concerned with aims of business
eg. changing name
tactical decisions?
medium term
made my middle managers
concerned with how strategic decisions will be achieved
eg. opening more stores
Operational Decisions?
Short Term Decisions
Made in response to daily problems
Made by all managers
eg. dealing with complaints
SWOT analysis meaning
Strength
Weaknesses
Opportunities
Threats
