Understanding business Flashcards
public limited company
Advantages
Large amounts of finance can be
raised through the public sale of
shares
easier to growth and diversify
disadvantages
Threat of take over
Annual accounts have to be
published
Dividends are shared with many
shareholders
Discuss franchiser
advantages
A low risk form of growth as the
franchisee invests the majority of the
capital
Receives a % of all franchisee’s profits
each year known as ROYALTIES
disadvantages
The reputation of the whole franchise can
be tarnished by one poor franchise
Only a share of profits is received rather
than all the profits
franchisee
advantages
The franchise is a well-known business
with an existing customer base
Industry knowledge and training is
provided by the franchiser
disadvantages
There is very little autonomy over
decisions such as shop layout, uniforms,
products etc.
Royalties have to be paid each year
DIscuss multinational
adv
Wages and raw material costs are
lower in host countries
Business can avoid legislation in
the home country
creating jobs. This boosts the local economy and employs more workers who will contribute tax.
dis adv
Language barriers can slow down
communication
Cultural difference can affect
production e.g. ‘siestas’ in Spain
cutting corners. Social responsibility may be overlooked.
discuss organic growth
advantages
No loss of control as outsiders are not involved
Hiring more staff will bring new ideas
Opening new branches means the company can reach new markets
disadvantages
can be a slow method of growth
May be limited by the size of the market
Restricted by the amount of finance available
methods of organic growth
Launching new
products/services
Businesses can meet the needs of different market segments
if they diversify
Opening new
branches =Opening up in new locations, it can also expand existing
premises to cater for more products/staff and more
customers = more sales
Hiring more staff = increasing the number of staff will improve the businesses
ability to make more sales and make better decisions
horizontal integration (with adv and dis)
When TWO businesses from the SAME sector of
industry become ONE business
For e.g. TWO dairy farms merging (primary sector) or
TWO banks merging (tertiary sector)
adv
Removes a competitor from the market
Business gains a greater market
dis
Hostility and job losses may occur
Can be expensive to purchase another company
forward vertical integration
when a business takes over a company at a later stage in the sector of industry
example a customer a retail outlet for selling goods.
adv
Guarantees an outlet to sell products
Cuts out the middle man leading to increased profits
dis
Entering into new markets may affect core activities as resources and expertise need to be share
backward vertical integration
when the business takes over a company at an earlier stage in the production process
example its supplier/source of goods and materials
adv
Cuts out the middle man leading to increased profit
More limit supplies to competitors
dis
Entering into new markets may affect core activities as resources and expertise need to be shared
conglomerate integration
Is when businesses in different markets join
together
A merger of two businesses who’s core activities are
unrelated
Businesses do this to spread the risk of failure
It can increase their chances of maximising profits
lateral integration
hen a business moves into a different market but within a related industry for example a hairdresser merging with a beauty therapist
adv
Spreads risk across different markets
Targets new markets increasing customer base
dis
Entering into new markets may affect core activities as resources and expertise need to be shared
May not have the knowledge required to successfully run the new business
sectors of industry
Primary – extracts raw materials from the ground i.e.
fishing, oil and mining
Secondary – manufactures and construction of goods i.e.
house building and car manufacturers
Tertiary – providing services rather than goods i.e.
hairdressers, banks and hotels
Quaternary – businesses providing information and
knowledge-based services i.e. consultancy (offering advice to
businesses on how to improve) and research and development
corportate social responsibility
Corporate Social Responsibility (CSR) refers to
organisations aiming to act in an ethical way or in
any way that benefits either society or the
environment
methods
Ethical responsibilities
(avoiding child labour)
Philanthropy (donating to
charity)
Economic responsibilities (fair
marketing campaigns)
advantages
Business gains a good
reputation for its caring
nature
Customers who agree will
become loyal
Business can attract high
quality staff
tall structure
It will take time for instructions or info to
pass down the chain of command
Command flows down from the decision
makers at the top – known as chain of
command
Tall structures = many levels of management
Suitable for large organisations
flat structure
Fewer layers of management
Shorter chain of command
Found in smaller organisations
This takes less time for
info/instructions to pass
through
matrix structure
Formed when a
specific
task/project is
being carried out
Various
departments comes
together
adv
a good way of having different viewpoints and skills involved in a project
provide staff with an opportunity to learn new skills from other members of the team which may lead to greater motivation and productivity
dis
it is very expensive
team members may have priority issues when having to report to two bosses
the types of decisions
(easy)
strategic =Long term =
Senior Manager,
Sets out company’s
objectives (visionary –
vague)
Tactical
Medium term
Middle Manager
To achieve the
strategic decisions
(launch new products)
Operational
Short term
(day-to-day)
Supervisor/All
Staff
React to situations as
they arise (staff
absence or customer
complaint)
Factors affecting quality of decisions
Human Resources – staff may be resistant to change.
Availability of Finance – financial constraints may mean the
business cannot choose the best solution.
Technology – internet (websites) can be used to research a vast
amount of information and can help make informed decisions.
Other Factors – company policies may restrict options for
decision-makers.
corporate culture discuss
Customers gain a sense of a high quality product/service
High quality new staff can be attracted to the organisation
Staff are more likely to feel valued and want to work for a firm if it promotes excellence or quality in their culture
Staff will feel as if they belong to the firm, and this will increase their loyalty. As a result fewer staff will leave.
Culture is hard to introduce unless it’s been there from day 1 with the founders
Some cultures can be seen as a ‘bribe’ to convince staff
funding growthpro
Retained Profits
These are profits made by the business that
aren’t given to shareholders
They can be used to fund growth
divestment = Is selling off part of an organisation
They do this if they wish to concentrate other
more profitable areas of the business
deintegration = Is when a business sells off part of the supply
chain that it owns
Example: If Tesco sold off Booker
De-merger
A De-merger occurs when a single business
splits into two or more separate components
The de-merged components are still owned by
the same organisation, however, they are
managed differently
chain that it owns
Example: If Tesco sold off Booker
groupings
Functional Grouping = Involves grouping an organisation
into departments called functional
areas, small orgainisations do not have enough staff to group this way
product grouping
Grouping into divisions
that deal with different
products or services.
Suitable for large
conglomerate
organisations.
E.g. Virgin Media, Virgin
Atlantic etc.
Location Grouping
Grouping an
organisation into
geographical divisions.
Each division will
operate to service
customers in different
locations.
downsizing
This involves an organisation wither closing down an
unprofitable division or merging two division together.
Business can cut wages
☹ Valuable skills/knowledge is lost when redundancies are made.
Advantages and disadvantages of swot analysis
advantages
Identifies strengths and allows
the business to build upon these
Identifies weaknesses and
allows the business to action
these
Can turn threats into
opportunities
Disadvantages
SWOT analysis is time
consuming – slow down
decision-making
Structured process – stifles
creativity of managers
Generates (at times) too many
ideas – hard to pick one
diversification
This is when products are launched across different
markets
For e.g. SAMSUNG sell mobile phones, tablets, TV’s but also
fridges and washing machines
This increases potential customers and spreads risk across
different markets HOWEVER … it does require numerous
resources to offer such a vast product range
adv and dis of outsourcing
advantages
allows organisation to focus on core activities - the core
service can be improved
fewer employees required - may lead to cost savings
specialist equipment - saves costs on purchasing equipment
dis advantages
Employees may be de motivivatsz as they have not been picked for a task
The business has less control
Private firms could increase costs - this could lead to cash flow problems occurring
few competitors – limits the NHS’s choice to find suitable new
suppliers
Matrix structure
Formed when a
specific
task/project is
being carried out
Various
departments comes
together
advantage
good way of having different viewpoints and skills involved in a project
disadvantage
team members may have priority issues when having to report to two bosses
entrepenural structure
Found in smaller organisations
Decisions made by the owner
with little/or no input from
employees
Decisions made quickly ☺
Reduces employee’s
motivation – can’t share
creative ideas
centrilised and decentriled
centrillised
Important decisions
are made at the head
office (top level)
Very little delegation
Easier to promote a
corporate image
decentrillised
Delegated out to
branches (e.g. retail)
Important decisions made
by managers
Employees are motivated
and empowered
Conflict
Managers will want to
make high profits on
goods and services
Customers want the
best quality for the
cheapest price
Managers may want
to close a branch to
save on staff wages
Employees will want to
keep their jobs
interdependence
Owners need
employees to be as
productive as they
can. Employees need
owners to provide
the necessary job
training
Owners need customers
to buy products from
them to make profit
Customers need owners to
provide them with the
product they want
role of manager
Role of a Manager
Plan
Looking ahead, seeing potential opportunities or threats.
Organise
Management must set tasks for other employees that need to be
carried out to achieve targets.
Command
Managers should issue instructions to employees.
Co-ordinate
Management must bring together the resources in order to achieve
targets.
Control
Managers need to measure and check activities to check what is
being done.
Delegate
Give subordinates the authority to carry out management level
tasks.
Motivate
Give the team a reason to enjoy their work (financial /
non-financial ways of motivating).
