understanding business Flashcards
What is corporate culture?
The values, beliefs and norms relating to the organisation that are shared by all staff.
This is an internal factor
Why would a business want to grow?
If the business grows it has greater control of its market, it is able to compete better with other firms and it can reach more customers, it is more able to resist takeovers and has a better chance of survival
How can organic/ internal growth be achieved?
Opening new outlets
Increasing sales
Increasing profits
Operating in more markets/ countries
Introducing new products (diversifying)
Three benefits of organic growth?
Can be less risky than taking over another business
Can be financed through internal sources
Can build on existing strengths such as brands and good customer relations
Drawbacks of organic growth?
A slower method of growth
Limited by the size of the existing market
How can external growth be achieved?
By buying or taking over another business or by merging with another business
What is backward vertical integration?
When a business takes over a supplier
What are the benefits of backward vertical integration?
Allows the business to control its own source of goods/ materials
Adds the suppliers profit to its own
Can ensure the quality and quantity of supplies
Can control supplies to competitors
What is forward vertical integration?
When the business takes over its customer
What are three benefits of forward vertical integration?
Guarantees an outlet for its goods
Can control the marketing mix for its products
Adds the profit of the customer to its own
How can external growth be achieved?
By buying or taking over another business or by merging with another business
What is horizontal integration?
When two business’ at the same stage in the production process join together. They can be seen as competitors.
It can involve one business completely taking over another business or it may be a joining of the two to create a new business
Benefits of horizontal integration?
Larger, more financially secure
Gets the profits of the other business
Increases its customer base
Greater marker presence
What is a business?
A business organises resources (workers, raw materials and machinery) to produce goods and services for customers.
What’s the difference between goods and services?
A good is a physical product - it is tangible (you can touch it!) e.g. a mobile phone.
A service is provided for a customer. It cannot be touched - intangible e.g. education.
What does businesses exist?
To satisfy needs and wants - Needs are essential for survival e.g. food & shelter, Wants are things we believe will enhance our lives.
To create wealth - A business does this by adding value at each stage of production e.g. the value of a car is more than the
sum of all of the parts.
What is capital?
Man-made resources used in production of a good or service, for example machinery.
What is enterprise?
The idea and the skills to combine the other factors of production.
What are primary sector of Industry?
Raw materials are extracted from the earth, for example wheat.
What are secondary sectors of industry?
Raw materials are processed and transformed into finished products, for example baker.
What are tertiary sectors of industry?
Provision of a service, for example a sandwich shop.
What are quaternary sectors of industry?
Information and knowledge based advice services, for example ICT specialists.
What is a private sector of economy?
Consists of businesses that aim to maximise profits owned by individuals, for example nike.
What are public sectors of economy?
Consists of organisations owned by the government aim to provide services, for example the NHS.
What is a public sector of economy?
Consists of organisations that have been set up for the benefit of others.
Consists of: charities, voluntary organisations, social enterprises & co-operatives. E.g. Blood Bikes (charity), Scouts (voluntary), Social Bite (social enterprise)
Features of a private limited company?
Owned by shareholders
Have limited liability
Financed by selling shares only to people the main shareholders know e.g. friends, family, business associates - cannot sell on stock market
Controlled by the Managing Director
Features of a public limited company?
Owned by shareholders
Have limited liability
Financed by selling shares on stock market
Controlled by Board of Directors
Must register with Companies House
Must have both Memorandum of Association and Articles of Association
What are advantages of a private limited company?
Shareholders have limited liability.
Control is kept of who can buy shares = control is not lost to outsiders.
Finance can be raised by selling shares (although limited as cannot sell publicly).
Skills & experience can be gained through shareholders.
Disadvantages of public limited company?
Profits have to be shared among shareholders.
A complicated legal process has to be followed to become incorporated = time consuming.
Complicated legal process means that PLCs must pay for lawyers = expensive.
Control is lost of who buys shares.
Final accounts must be published = competitors can gain a competitive advantage if they see low profits
What’s a franchise?
A franchise is a business model that allows one business to pay for the right to trade under the name of another. The original business is known as the franchiser. The business that buys the right to trade under the name of the other is known as the franchisee. Examples include McDonalds, Subway & Red Driving School.
What’s a multinational?
A multinational company/corporation (MNC) is an organisation that has its headquarters in one country (home country) and operations in at least one other country (host country). - Operations = has productive capacity e.g. an office or factory. Increase in the number of MNCs due to globalisation which in turn leads to increased globalisation. - Increased infrastructure, e-commerce, cheaper transport and travel
Advantages of multinationals?
Wages may be cheaper in less developed countries where there is a lower cost of living.
Raw materials may be cheaper in other countries e.g. Ikea buying forests in Romania.
MNCs may receive grants from host governments to set up in their country.
Can avoid trade barriers such as quotas or tariffs by producing in a country the MNC wanting to sell in rather than exporting to it.
Can reduce transport costs by producing in the country the MNC wants to sell in rather than shipping the product to the country.
Disadvantages of operation a multinational?
Language barriers can slow down and communication.
Cultural differences can affect productivity e.g. in Saudi Arabia women are only allowed to work until 11pm and must have separate workspaces from men.
Time differences can make communication more difficult and slow down decision making.
Fluctuations in exchange rates can mean that costs have to be recalculated regularly and profit margins change frequently.
Laws may be different in each country and therefore costs may increase as lawyers / specialists must be hired to ensure the MNC is adhering to them.
Advantages of Charities?
Charities are exempt from paying some taxes such as VAT.
Can have low wage costs due to volunteers.
Can attract high quality paid staff who want to work for a charity.
Private sector organisations will be willing to donate as it is seen as good ‘PR’ (public relations).
Disadvantages of charities?
Rely heavily on volunteers who may leave for paid work.
Can be difficult to compete with large private sector organisations due to their large marketing budgets
What is objectives?
Objectives
The overall aim or goal of an org.
An org’s. choice of objective will be influenced by:
- The sector of the economy
- Size of organisation
- Phase of economic system e.g recession
Ideology of owners e.g Lush
What is PPIGSS?
Provision of a Service
Profit Maximisation
Increase Market Share
Growth
Survival
Social Responsibility
What is Provision of a Service?
Applicable to organisations in all sectors of the economy.
Want to provide a high quality service to satisfy the wants of customers.
This is justified as by providing a high quality service, customers will return increasing long-term sales.
What is profit maximisation?
To reduce costs as much as possible and if possible, increase the selling the price.
Private sector organisation want to maximise profits as it will be able to grow if it has increased retained profits.
Social enterprises may want to maximise profits to have more money to help their cause.
What is increased marketshare?
Market share is the percentage of total sales within a market that a business achieve.
In order to increase their market share a business can release a new product or increase their promotion.
The benefit of increasing market share is that the business can
become market leader. Customers often choose the market
leader as they believe it to be the best, in turn increasing sales
even further.
By increasing their sales they may be able to benefit from
economies of scale
What’s is growth?
Increasing the size of the organisation through increasing production capacity, number of brands/products in a portfolio, sales outlets.
An organisation would like to grow as they will be able to benefit from economies of scale
What’s is survival?
This is ensuring a business has enough cash to cover short-term debts.
Usually the objective of smaller organisations until big enough to maximise profits and increase market share.
Larger org’s. may have this objective during economic downturns
as fewer customers are buying goods & services.
What is social responsibility?
This is when a business aims to carry out its activities AND benefit society or the environment.
Advantages:
Good reputation
Customers are attracted by wanting to support an ethical business
Good quality employees may be attracted to an ethical business
May be able to attract ethical investors
What are objectives of the public sector?
Provide a wide range of goods & services.
Provide high quality services.
Social responsibility.
Maximise a budget to give the most benefit to the public.
What are objectives of a charity?
Advance education.
Advance religion.
Relieve poverty.
Maximise donations.
Maximise awareness of a cause.
Social responsibility
What are objectives of a social enterprise?
Social responsibility
Profit maximisation for their cause.
Maximise awareness of a cause.
Growth - to help more people/of their cause.
What are methods of growth?
Internal/Organic
Horizontal Integration
Backward Vertical Integration
Forward Vertical Integration
Lateral Integration
Conglomerate Integration
What is Internal/organic growth?
This is growth without involving other businesses. This can be done by:
Launching new products
Opening new branches/expanding existing branches
Introducing e-commerce
Hiring more staff
Increasing production Capacity
Part of internal growth might be diversification, This is where a business releases products in different markets - this spreads risk across different markets, if one fails they have another to fall back on.
What is Horizontal Integration?
This is when two businesses from the same sector of industry become one business. E.g two banks merging together
What are advantages of Horizontal Integration?
Competition is reduced - can increase market share
Competition is reduced - can raise prices - increasing profit margin
Increased size of organisations means economies of scale can be achieved
Can benefit from R&D carried out by the other organisations - improved products - increased customer satisfaction
What are disadvantages of horizontal integration?
By joining with a business in the same sector the merger/takeover may breach competition rules e.g ASDA/Sainsburys
Communication may be slower in a larger organisation - slower decision making
Redundancies may take place as don’t need duplication of functions - lower staff morale
Due to reduced competition quality may decrease, decreasing customer satisfaction
Larger costs involved in integrating the two businesses e.g new branding
What is backwards vertical integration?
This is when a business merges with/takeover a business in an earlier sector of industry e.g a manufacturer taking over a primary sector supplier
What are advantages of backwards vertical integration?
Controls the supply chain and can choose not to supply to competition = giving the org. a competitive advantage
Supplier no longer trying to make a profit on sale to org. therefore raw materials are cheaper
Can arrange better terms including trade credit and delivery times
Can control the quality of supply
What are disadvantages of backwards vertical integration?
The organisation may not have experience of the sector they are now involved in and may not be as efficient
May lose focus of core activities meaning poor decisions may be made
Monopolising markets e.g taking over the only supplier may not be allowed by the competition authorities
What is Forward Vertical Integration?
This is when a business merges with/takes over a business in a later sector of industry e.g a manufacturer taking over a retailer
Advantages of Forward Vertical Integration?
The organisation now has its own channel of distribution meaning they can choose not to supply other retailers.
No need to sell it at a reduced price to enable another retailer to make a profit
Has control over how the product is is displayed in its own retailers - increased brand awareness and clarity
Disadvantages of Forward Vertical Integration?
The organisation may not have experience of the sector they are now involved in and may not be as efficient
May lose focus of core activities meaning poor decisions may be made
Monopolising markets for example, not supplying to other retailers if they are the only supplier may be against competition rules
What is lateral integration?
This is when a business merges with/takes over a business in the same industry but does not provide the exact same product
What are advantages of lateral integration?
Can target new markets = increased sales
New products gained can compliment existing ones which can create new products/combinations
Can benefit from resources gained
Disadvantages of lateral integration?
The organisation may not have the experience of the market they are now involved in and may affect performance
May lose focus of core activities meaning poor decisions may be made
May lead to redundancies of duplicate departments =low morale + high redundancy payments
What is Conglomerate Integration?
This when two businesses in completely different markets and are complete unrelated join together
Advantages of Conglomerate Integration?
The businesses can spread risk - if one fails they have others to fall back on
The businesses can overcook seasonal fluctuations in their markets to have more consistent sales revenue e.g a business that provides snow shovels
Increase in sales as gain customers through the deal
Gains assets that could be sold
Benefits from economies of scale
Can benefit from the research and development of the other company
Disadvantages of Conglomerate Integration?
Means the business may be operating in markets they know nothing about
Can lose focus on core products may impact on quality
May become too large, diseconomies of scale - poor communications, managers have too many activities to oversee
What are ways to achieve growth?
- Takeovers
- Mergers
- Franchising
- Internal Growth
What are Takeovers?
One larger business buys a smaller business. The larger business then owns the smaller business
What are advantages of takeovers?
The larger business gains the customers of the smaller business, increasing market share
Gains the assets of the smaller business - can be sold
Benefits from economies of scale
Increased products - risk of failure can be spread
Reduced competition - may be able to increase prices
What are disadvantages of takeovers?
Redundancies can cause low morale in taken over business
A name change can put off loyal customers - don’t like change
Expensive to buy the other business - including cost of org. but also lawyers etc to negotiate it
Diseconomies of scale
May come up against challenges from the Competitions & Markets Authority (CMA)
What are Mergers?
Two businesses decide to join together. The businesses may decide to rebrand completely e.g T-Mobile & Orange became EE
Advantages of mergers?
Can share R&D - reducing costs of carrying it out themselves
Increase in market share - can become market leader
Benefit from economies of scale
Increased profits - risk of failure can be spread
Reduced competition - may be able to increase prices
What are disadvantages of mergers?
Redundancies can cause low morale in taken over business
A name change can put off loyal customers - don’t like change
Marketing campaigns to informs customers of change can be expensive
Diseconomies of scale
May come up against challenges from the Competitions & Markets Authority (CMA)
Ways of funding growth?
Retained Profits
Divestments
De-integration
De-merger
Asset Stripping
Management Buy-Out/Buy-In
Outsourcing
What are retained profits?
Profits made from previous years that have not been given to shareholders - no interest has to be paid, doesn’t have to paid back - once used cannot be used again, once used, leaves the business without a safety net
What is deinvestment?
When a business sells of a subsidiary company or a brand - can focus on core activities or a specific target market
Generates cash to invest into existing business
What is de-integration?
When a business decides to separate from a business that it had vertically integrated with (either backward or forward)
What are advantages of de-integration?
Business can focus one core activities
Now not in a ‘vertical chain’ can look for alternative suppliers that may have different technologies
Now not in a ‘vertical chain’ can look for alternative selling opportunities who may target a different market
What are disadvantages of de-integration?
Business will now have to pay increased prices for suppliers
Will have to sell at a reduced price to allow retailer to make profit
A competition may gain the supplier and control the supply chain
What is De-merger?
When a business splits into two or more operate components. Still owned by the same organisation but operate as two separate entities
What is advantages of de-merging?
Each new component can focus on it’s core activities and can grow
Brand of each component can become stronger as not associated with the other
De-merger component can be divested (sold) - generates cash, can comply with CMA regulations
What are disadvantages of de-merging?
De-merger leads to change and customers may be put off by the uncertainty that a de-merger brings
Financial costs of implementing the de-merger including changing logos, signs and marketing
What is asset stripping?
This is when a business buys another business and then sells it off asset by asset (piece by piece): factories, shops, brands
The individual assets are worth more sold individually that as a whole - can gain bad reputation as people lose jobs, risky as may not be able to sell the individual components
What is management buy out?
Management Buy-Out is when the management of a business buy the business they work for.
What is management buy in?
Management Buy-In is when the management of another organisation buys the business - both lead to new management with ideas being able to lead the business in a different direction, can save jobs at the organisation
What is outsourcing?
When a business organises for another business to carry out non-core activities e.g legal services, marketing, reprographics
What are advantages of outsourcing?
Allows the business to concentrate on what they are good at rather than getting bogged down managing non-core services
Reduced wages as don’t have to pay for staff for those services e.g no need to pay for a marketing department
As the contractor is a specialist, the work should be of a higher quality
Contractor may be able to provide the services at a lower cost due to them being able to benefit from economies of scale
The business only uses the service when they need it so therefore it isn’t paying for specialist machinery that isn’t being used
What are disadvantages of outsourcing?
Business loses control over outsourced work - may not be of the right quality
Communication problems can mean that work isn’t completed correctly
Might have to share sensitive information with contractor which could be breached
May be more expensive as specialists and expertise can charge higher prices
What are external factors?
When something CHANGES in the external environment - something outwits the organisation control.
Political - decisions made by government
Economic - arising from anything in the economy
Social - changes in society
Technological - technology advancements outside the business
Environmental - impact of the natural
environment
Competitive - actions of competitors
Political factor?
Changes to legislation - organisation must adapt which can increase costs
Increasing income tax - customers have less disposable income = reduced sales (Fiscal Policy)
Government spending on infrastructure creates jobs. More customers have more disposable income = increased sales (Fiscal Policy)
Local Government can deny planning permission - stops a business from expanding
Government campaigns, for example healthy eating can decrease sales of unhealthy products
Competition Policy
Why competition is important:
Lower prices
Higher quality
More choice for consumers
Impact of competition policy on orgs.:
Orgs. not allowed to enter cartels
Mergers can be blocked if it limits competition
Not allowed to use anti-competitive prices e.g. destroyer pricing
Not allowed to hide additional costs from consumers
Owners can be fined or imprisoned if found guilty of price fixing
Economical factor?
Economic Policy
Fiscal Policy (taxes & government spending)
This is covered under the ‘political factor’
Monetary Policy
This is the control of interest rates. This is controlled by the Bank of England
If interest rates increase - sales of orgs. decrease:
People are encouraged to save as they receive more return for their savings
People who have variable loans and mortgages have to pay back more
Taking out loans for big items is more expensive = less people take them out = less spending
If interest rates decrease - sales for orgs. increase:
People are less encouraged to save and therefore spend more
People who have variable loans and mortgages have to pay back less each month
Loans are cheaper
Exchange Rates - the value of one currency in terms of another e.g. 1.15€ : £1
A strong pound means that exports will be more expensive as foreign buyers can buy fewer pounds for the same value of their currency.
A strong pound also means UK buyers can buy more of a foreign currency for the same value of GBP, therefore imports are cheaper which means we buy fewer UK goods
Tariffs - a tax placed on imported goods. Goods coming into the UK will be more expensive therefore people in the UK may choose to buy UK goods as they may be cheaper. This means that sales of UK businesses may increase
Inflation - a general rise in prices. If there is an increase in the rate of inflation it means that prices are rising faster. A firm will have to pay more for its raw materials, decreasing profits. If they choose to pass on the increased costs to their customers by increasing prices, their sales may fall
Social factor?
UK ageing population - may have to carry out market research to find out what the ‘grey pound’ want.
More women in professional careers - couples are more wealthy when they have children meaning so businesses may be able to promote more luxury goods at this market e.g. Longchamp Baby Bag
Changing fashion trends
Social issues becoming more prevalent e.g. veganism
Business may have to carry out market research
Develop & release new products
Technology factor?
Advancements in technology OUTSIDE of the organisation
Advancements in cloud computing
Reduces data storage costs for orgs.
Increase in the use of social media
Have to employ social media managers
Introduction of 5G internet
Makes processes quicker
Voice activated technology inc. smart home products
Businesses may have to incorporate new technology into their products as customers expect them to be included
Environmental factors?
Weather - unexpected snow can stop deliveries / good weather in spring/summer increases sales of alcohol and BBQ products
Increasing amounts of landfill/waste in the environment means businesses are encouraged to recycle - increases costs
Increasing effects of CO² means organisations are encouraged to lower their use of fossil fuels
Reduces cost in long-term if using renewable energy such as solar panels
Environmental factors?
A competitor opening a new store nearby increases choice for customers - reduces sales
A competitor lowers the price of their product. The org. has to lower prices too or else they lose sales. This decreases profit margins.
Competitive factors?
A competitor opening a new store nearby increases choice for customers - reduces sales
A competitor lowers the price of their product. The organisation has to lower prices too or else they lose sales. This decreases profit margins.
What are Internal factors?
Factors WITHIN the business that the organisation can control.
Employees
Managers
Finance available
Technology available
Corporate culture
Use of employees?
Training - well trained staff make fewer mistakes
Morale/motivation - motivated staff provide better customer service
Experience - experienced staff carry out their job to a higher standard
Capacity - not having a full staff means lead times may be longe
Use of managers?
Experience - more experienced managers make better decisions based on previous knowledge
How open they are to risk - managers who are okay with higher risk may be more successful in maximising profits but may find themselves making bigger losses than managers who take low risk decisions
Use of finance?
Business may not be able to implement best decisions for example, to carry out market research
Business may have to cut costs such as make staff redundant
Business may not have cash to pay debts and therefore may fail
Use of technology?
Breakdowns means production may stop
Loss of relationships leading to low morale
Can fall behind its competitors by not having e-commerce
Use of Corporate culture?
Corporate culture is the values, beliefs and customs that are shared with all people in the organisation.
Methods used to create corporate culture are:
Company values for example, strong CSR policy - not testing on animals
Office layout - open office = better communication
Corporate colours - easy to recognise
Uniform - feel part of a team
Layout - easy to transfer between branches
Language/jargon - gives employees a sense of belonging (in the know)
Symbols, slogans & quotes - can make the business recognisable
Rituals - doing things together to make create a strengthened team
Stories - help shape the ideals of an organisation
Reward culture - e.g. employee of the month - motivates staff to do better
Flexible working arrangements - employees feel trusted, creating loyalty
What are advantages of corporate culture?
Flexible working arrangements mean staff can manage their work-life balance and can work when they are most productive
Employees feel part of a team (motivated) through the use of uniforms and jargon
Rituals such as Friday Drinks create a relaxed atmosphere and can improve communication
Employee loyalty is increased due to feeling part of a team - reduced staff turnover
As motivation is high there is reduced absenteeism
High quality staff are attracted to the business
What are disadvantages of corporate culture?
Culture is hard to introduce unless it comes from founders
Strong culture can make staff resistant to change
A negative corporate culture where workers are physically and socially distant from one another means staff may be demotivated
Some corporate cultures can seem forced and as a ‘bribe’ to employees, making them suspicious
If corporate culture is too relaxed some staff may take advantage and management lose control
What are stakeholders? Conflict?
Customers want high quality at low prices WHEREAS shareholders want to charge high prices to maximise profits
The local community may want the business to hire local staff to provide jobs for the area WHEREAS shareholders may want to offshore jobs for cheaper labour
Governments want to charge high rates of corporation tax to maximise revenue WHEREAS shareholders want low rates to
maximise profits to be shared
What are stakeholders interdependencies?
Employees need customers to shop with the business so that they can keep their job AND customers need employees to provide a high quality service
Banks need managers to take out loans to receive an income AND managers need banks to provide loans to improve their cash flow
Suppliers need shareholders to continue investing in the organisation so that they keep receiving orders AND shareholders need suppliers to provide the high quality materials at a good price so that profits can be made
What is the management structures?
Management structures are the methods used to organise staff and resources.
Tall structure
Flat structure
Centralised
Decentralised
Matrix
Entrepreneurial
What is the tall structure?
Has many layers of management in the hierarchy. Long chain of command and management have a narrow span of control.
What are advantages of the tall structure?
Each employee has a specific role and therefore everyone knows who to report to
Due to many layers of management there are many promotional opportunities
Narrow span of control means:
Managers have more time for planning and
making decisions = better decisions made
Managers can support subordinates as fewer of them
What are disadvantages of the tall structure?
Long chain of command may mean that communication is slow
As communication is slow the organisation can take a long time to react to changes in external factors
Due to a narrow span of control managers watch staff more closely = staff under increased pressure which can lead to stress and absenteeism
Managers have fewer staff to share ideas = problem solving & creativity may be limited
Increased number of managers means higher manager salaries
Narrow span of control means less delegation takes place - not motivating for employees
What is the flat structure?
Has few layers of management. Short chain of command and management have a wide span of control.
What are advantages of the flat structure?
Short chain of command means information can be communicated quickly between levels
As communication is faster the organisation can react quickly to external factors
Wide span of control means managers delegate tasks to subordinates which can boost morale due to feeling trusted
Managers are responsible for more members of staff which can motivate managers
What are disadvantages to the flat structure?
Due to fewer layers of management there are fewer promotional opportunities = quality staff may leave
Wide span of control means:
Staff may be delegated more tasks which could put them under pressure causing stress
Managers have less time for planning and making decisions = rushed decisions may be made
Employees may not be able to gain help from managers as they are so busy
What is delayering?
Removing one or more layers of management to flatten a tall structure.
What are advantages of delayering?
Fewer manager salaries to pay reduces costs
Shorter chain of command means communication is quicker
Due to faster decision the organisation is more responsive to changes in the external environment
Wider span of control means managers are more likely to delegate tasks which will motivate subordinates.
What are the disadvantages of delayering?
Fewer promotion opportunities for staff may lead to lower motivation
Good employees may leave as they don’t see how they can further their careers at the organisation
Redundancy payments will cost the organisation a significant amount of cash in the short-term
May lose highly skilled workers in the restructure
May cause job insecurity in remaining employees
Due to increased delegation employees may feel overwhelmed leading to stress
Due to remaining managers having a wider span of control they may have less time leading to rushed decisions being made
What is centralised structure?
Decision making and control is kept by top level management in the headquarters.
What are the advantages of centralised structure?
A high degree of brand identity can be created as decisions are made for the organisation as a whole
Ensures all branches are meeting the objective of the org. as not focussing on the objectives of an individual branch
Procedures are standardised which ensures consistency - encourages customers
Allows flexibility as employees can move between branches
Low risk of important info being leaked from individual branches as sensitive info is kept at HQ
What are the disadvantages of centralised structure?
Due to decisions being made by HQ managers in branches don’t get to make important decisions which could be demotivating
Decisions might not reflect local wants as decisions are made by managers for the whole organisation
The organisation may react slowly to changes in the external environment as information has to come in from all branches and then communicated out to them before solutions can be implemented.
What is decentralised structure?
Decision making and control is delegated to individual branches.
What are the advantages of decentralised structure?
Branches can make the decisions based on their local knowledge - satisfy closely the wants of local people
Decisions can be made quickly as no need to consult HQ - react quickly to changes in the local market
Managers get to make the delegated decisions - will be more motivated
Senior managers in HQ can focus on making the strategic decisions for the organisation more likely to meet strategic objectives
What are the disadvantages of decentralised structures?
Can lose overall corporate image as each branch is operating differently
Branches can start to compete with one another and may lose sight of overall business objectives
Additional training may be needed for branch managers - increases expenses
Low level managers may not have the experience to make important decisions - may harm company image
What are matrix structures?
The organisation is arranged into project teams for a specific purpose. Once the project is over the team is disbanded. Teams are made up of employees from each functional area with a project manager.
What are the advantages of the matrix structure?
Each team has specialised staff from different functional areas = high quality decisions can be made
Complex problems can be solved as many different solutions can be proposed due to different experiences & expertise
Due to staff being the ‘expert’ of their field within the team motivation may be high
Can give variation to employees’ day to day job, giving greater job satisfaction = less likely to leave if these opportunities exist
What are the disadvantages of the matrix structure?
Many managers exist as have both project managers and functional area managers = high salary costs
Duplication of resources such as admin staff and equipment
Staff can find it difficult having two managers
What is entrepreneurial structures?
Usually used in smaller organisations where the owner (entrepreneur) makes all of the decisions.
What are the advantages of Entrepreneurial structures?
Decisions can be made quickly as there is little consultation with staff
Staff are never confused as who to report to as only one decision maker
High degree of brand consistency as only one person making decisions
What are the disadvantages of Entrepreneurial Structures?
Huge workload for decision makers
If owner is busy or not available decisions cannot be made
Can be demotivating for other staff as they are not able to make decisions
What are the groupings?
Functional
Location/Geographical
Product/Service
Technology
Customer
What is functional groupings?
This is dividing an organisation into departments based on skills and expertise for example marketing, operations, HR, finance.
Usually used by larger organisations as smaller organisations don’t have sufficient staff to organise in this way.
What are the advantages of functional grouping?
Staff with similar skills work together which allows for specialisation
Fewer mistakes are made
Able to work faster which increases productivity
Clear structure means staff know who to report to or who to get guidance from
Clear structure allows for clear career paths which can be motivating
What are the disadvantages of functional grouping?
Organisation can become to large if functional areas grow too rapidly
Communication can take a long time as information must flow down through the hierarchy of the functional area
Functional areas can become more interested in their own objectives rather than the organisation as a whole
Can be difficult to know if a department is under performing as it can’t be compared to another
What is Locations/Geographical Groupings?
This is dividing an organisation into geographical divisions based on the regional markets they serve for example Europe, Asia, North America
What are the advantages of locational grouping?
Each division can meet the needs of a local market
Being closer to each market means the org. can respond to changes in the external
environment
Easy to identify a failing division and hold regional managers to account
What are the disadvantages of locational grouping?
Duplication of resources can exist eg each division will have an administration team which is inefficient
Divisions may compete against each other and forget the objectives of the organisations as a whole
Local knowledge and relationships may be lost if staff leave.
What is product/service grouping?
This is dividing the organisations resources based on the different products or services they offer for example Virgin group have: Virgin Money, Virgin Atlantic, Virgin Galactica
What is the advantages of product/service grouping?
Easy for management to identify a failing product/service
The organisation can react to changes in the external environment that affect each particular product’s market
Allows for specialists to be created of the market and the product/service offered
What’s the disadvantages of product/service grouping?
Duplication of resources can occur which is inefficient
Divisions may compete against each other and forget the objectives of the organisations as a whole
What is technology grouping?
This is dividing an organisation into departments based on the technology or production processes involved.
What are advantages of technology grouping?
High degree of specialisation can occur in each production technique
Problems in the production process can be easily identified
Capital intensive = reduction in wage costs
What is disadvantages of technology grouping?
High degree of specialised training is required
Only an option for very large organisations with different, large production processes
Capital intensive. Expensive to set up and has maintenance costs
What is customer groupings?
This is dividing an organisation into departments based on different types of customers they serve.
What are the advantages of customer grouping?
Can tailor the product to each set of customer requirements = greater customer satisfaction
Customer loyalty can be built up due to high level of personal service
Can respond to changes in the external environment that are affecting each customer grouping
What are the disadvantages of customer grouping?
Duplication of resources
Only suitable for large organisations as inefficient to have a group for a small customer segment
Relationship may be lost of key staff members leave.
What is downsizing for a business?
This is when a business closes an unprofitable division or merging two divisions together.
What are the advantages of downsizing?
Costs can be reduced such as wages and rent
Can focus on specific groups making it more likely to achieve the objectives of those groupings
If they sell that grouping/division off then can generate income
What are the disadvantages of downsizing?
Redundancies may have to be made which means valuable knowledge and skills may be lost
Due to redundancies taking place staff may feel insecure in their jobs = demotivated
What are the types of decisions?
Strategic
Tactical
Operational
What is strategic decisions?
Made by senior management
Long term
Concerns the long term objectives of the organisation
For example to grow the organisation
What is tactical decisions?
Made by middle management
Medium term
Concerns how to meet the long term objectives
For example, to launch a new product
What are operational decisions?
Made by junior management & staff
Short term
Concerns day to day decisions
For example, to offer a discount to a customer when they complaine
What are factors affecting the quality of decision making?
Managers - experienced managers have made decisions before and therefore may make more informed decisions
Some managers may also be risk takers
Ability of managers to handle stressful situations
Employees - if employees are resistant to change they may not implement decisions
How motivated they are to make a success of the decision
Finance available - may not have the finance to implement the best solution to the problem
Technology - using spreadsheets will help predict future scenarios of alternative solutions using ‘if statements’
Email can be used to communicate
decisions effectively giving the same message to all employees at the same time
Company policies
Time constraints
Information available
Not consulting staff
What is the SWOT analysis?
SWOT Analysis is a decision making tool used by managers to assess the organisation’s:
INTERNAL strengths and weaknesses
EXTERNAL opportunities and threats
What are Internal strengths for SWOT analysis?
What the organisation is good at or resources it has for example:
Availability of finance
Recognisable brands/products
Products with high profit margins
Market leading products
Up to date technology
Large following on social media
Good location of retail outlets
Highly skilled & motivated staff
What is SWOT analysis internal weaknesses?
What the organisation is ineffective at or lacks in resources:
Lack of finance/ poor cash flow
Out of date technology
Poor reputation for customer service
Poor quality products
Unprofitable products or branches
Ageing or small premises
Inexperienced managers
What is the SWOT analysis external opportunities?
Possible chances organisations could take due to a change in the EXTERNAL environment for example:
A competitor going out of business
A boom period in the economy causing consumer confidence to be high
High levels of unemployment meaning they can employ higher skilled workers
Changing consumer tastes that more closely align with the org.’s products
Change in legislation e.g. plastic bag charge = increase in demand for canvas shopping bags
What are the SWOT analysis external threats?
Changes in the external environment that may hinder an organisation in achieving its objectives. For example:
A new, cheaper competitor
A high rate of inflation increasing costs of raw materials
Changing consumer tastes away from the organisations products
Government legislation that negatively impacts the organisation for example, sugar tax on Irn-Bru
Advancements in technology that make the organisations products obsolete
Advantages of the SWOT analysis
Identifies strengths of the organisation which it can then build upon
Identifies weaknesses of the organisation which it can then rectify before they get worse
Identifies opportunities for the organisation which it can then exploit to gain a competitive advantage
Identifies threats for the organisation so that it can then put measures in place to turn them into opportunities for example, identifying advances in technology so that they can incorporate it into their product design before competitors
Takes time to carry out analysis so no rash decisions are made
Lots of information is gathered to complete it which lead to better quality decisions
What are the disadvantages of the SWOT analysis?
Time consuming to carry out which can slow down decisions being made
Not able to react quickly to changes in the external market
A very rigid, structured process which can stifle creativity
Can generate lots of information and solutions but doesn’t help pick the best solution
Can contain bias as it reflects the opinions of the people who carried out the analysis
Information only up to date when it was carried out & can quickly become out of date
Explain the role of the manager?
Plan - the objectives of the organisation, this can be either long term or short term in order that the organisation has a vision/direction
Organise - the staff and resources required to carry out the decision
Control - measure current performance against targets and make adjustments if not likely to achieve them
Command - inform the staff of decisions that have been made and instruct employees on what they should do
Coordinate the activities that all employees are doing, ensuring that they are done in the correct order perhaps by using a critical path analysis
Delegate decision making to junior staff to give them experience/empower them
Motivate - by empowering staff to make decisions or by giving praise for a job well done
How to assess the effectiveness of a decision?
Sales volumes
Profit levels
Interviewing/surveying staff
Staff turnover/absenteeism rates
Customer feedback
Share price
Why do senior managers make decisions?
They are long term and only senior managers would make long term decisions
They have far reaching or lengthy consequences
They shape the objectives/direction of the organisation
They have a high financial risk
Require a knowledge of the whole organisation and its policies
