Understanding business Flashcards
What are the 4 sectors of industry
Primary
Secondary
Tertiary
Quaternary
What is the primary sector of industry
Concerned with extraction of raw materials and natural resources from the land e.g farming, mining, fishing
What is the secondary sector of industry
Concerned with construction and manufacturing. Takes the raw materials from primary sector and converts them into new products
What is the tertiary sector of industry
Concerned with providing a service for consumers, e.g hairdresser, banks, supermarket
What is the quaternary sector of industry
Consists of those providing information services, e.g computing ICT, consultancy and R & D (specifically in scientific fields
Features of the private sector
Controlled by board of directors
Owned by private individuals
Financed by owners saving, share issue, grant/ bank loan
Aims to make a profit
E.g sole trader, partnership, limited companies
Features of public sector
Controlled by MPs and elected officials
Owned by government
Financed by taxation
Aims to provide a high quality service
E.g BBC, NHS, Schools.
Features of third sector
A business which is set up to support a good cause.
Owned by founders
Controlled by board of trustees
Financed by fundraising, donations and subscriptions
E,g British heart foundation, the big issue, Melrose rugby club
What is a private limited company
Businesses with their own legal identity which exists in the private sector of the economy.
People are invited to buy shares
Advantages of LTD 5
Limited liability
Easier to control
Don’t have to disclose as much financial information to the public.
Not a subject to hostile takeovers as sales of shares is agreed
No minimum share capital
Disadvantages of LTD 3
Set up requires registering with companies house which can be time consuming and expensive
Capital might be limited as do not seek shares in the stock exchange
Large businesses can become difficult to manage
What is a public limited company
Businesses with their own legal identity which exist in the private sector
Owned by shareholders
Controlled by board of directors
Sells shares on the public stock exchange
Advantages of PLC 3
Limited liability
Possible to raise large volumes of capital by selling shares in the stock exchange- easier to grow.
Large companies can benefit from economies of scale- reduced production cost may be attractive to investors as they can resell shares on the stock exchange if required
Disadvantages of PLC 4
Set up requires registering with companies house- expensive and time consuming
Have to disclose full financial info which can be viewed by public and competitors
Can grow large and become difficult to manage
Are subject to hostile take-overs
Similarities of LTDs and PLCs
Shareholders have limited liability
Owned by shareholders
Must be registered with companies house and complete the memorandum of association and articles of association
Run by board of directors
Differences between LTDs and PLCs
LTD minimum 1 shareholder
PLC minimum 2 shareholders
LTD minimum 1 director
PLC minimum 2 directors
LTD no minimum shares capital
PLC minimum of £50000 shares capital
LTD invite people to buy shares
PLC sell shares on public stock exchange
What is an MNC
A business which has its headquarters in one country but has assembly/ operations/ production facilities in other countries. MNCs have subsidiaries in more than one country
Advantages of an MNC
Can increase market share, sales and brand exposure by entering new markets
Secure cheaper premises, labour and raw materials which reduces operating costs
Avoid tax, trade barriers and tariffs
Gain access to natural resources
May be government grants available for setting up production
Save money on the cost of transporting goods to marketplace/ customers
Cheaper legislation may be more relaxed in host country- meaning production can be much cheaper
Increasing sophistication of ICT means that it is much easier and less costly for organisations to operate as a multinational business due to ease of communication.
What is a franchise
A method of setting up a business which involves a franchiser, who owns brand, product or service and the franchisee, who buys the rights to sell the franchisers product.
Advantages for the franchisee
Less risky as adopting a proven business model and selling a well known product with an existing customer base
The franchiser may carry out national advertising which will benefit the franchisee
The franchisee may receive support, training, advice and administration from the franchiser.
Disadvantages for the franchisee
The franchisee has very little autonomy over decision making, little opportunity for creative thinking.
Initial high investment and a % of profits has to be paid to the franchiser- loyalty fee
Reputation and profitability may depend on performance of other branches and the marketing of the franchiser
Advantages for franchiser
Quick way to increase market share and expand geographically increasing beans exposure with limited investment
% of profit from the franchisee is paid as a royalty payment each year.
Franchisees are usually highly motivated due to their high investment meaning they will work hard to succeed
Disadvantages for franchiser
Reliant on the franchisee to maintain the image and reputation of the business/ brand
Profits are split so the franchiser does not get as much as they would had they operated the branch themselves
Lose some control, even with agreed procedures- the quality of goods/ services are dependant in the skills and ability of the franchisee
What are the 8 different business objectives
Maximise profit
Growth
Maximise sales
satisfice profits
Provide high quality services
Managerial objectives
Corporate social responsibility
Increase market share
What are the objectives of the private sector 5 (with description)
Maximising profit- give shareholders good return on investment, allows capital investment to grow business
Growth- benefit from Economies Of Scale, increase market share, become no1
Social responsibility- enhance reputation- attract customers, high calibre employees and investors
Maximise sales- drive out competition and benefit from EOS
Managerial objectives- I.e adhering to a budget or looking to acquire bonus or promotions
What are the public sectors objective
Manage budget effectively- ensure tax payers are satisfied with public spending
Provide efficient high quality service- to satisfy public services users and minimise complaints
Ethically and environmentally friendly- to ensure transparency, honesty while also reducing waste and costs
Well trained staff and attract high calibre employees- in order to provide high quality service to the public
What are the third sectors objective
Charities and voluntary orgs.
Charities
Increase awareness of their cause in hope to increase donations
Increase donations and funds to tackle their cause
Attract volunteers
Make best use of funds
Voluntary orgs
Provide service, friendship and opportunity to participate
Spend funds appropriately and effectively
Attract members
What is a merger
Where 2 firms agree to join together
What is a takeover/ acquisition
One company will buy a controlling interest in another
What is backward vertical integration
When a company joins with another at an earlier stage of production
What is horizontal integration
When a company joins with another at the same stage of production
What is internal/ organic growth
Growing naturally
Increasing production capacity
Employing more staff
New products
Opening new outlets
Using e-commerce
What is conglomerate integration
When a company johns with another in an unrelated industry
What is forward vertical integration
When a company joins with another a stage later in the production process
What is lateral integration
When a company joins with another in an related industry e,g hairdresser and beautician
What are the advantages of organic growth 4
No loss of control- no outsiders involved
New staff= new ideas
New market accessed= increase sales/ profits and increased market share
Less risk involved compared to a takeover or merger
Disadvantages of organic growth
Slow method of growth
Limited size of market
Restricted by amount of finance available
Advantages of forwards vertical integration
Can control supply to customer
Cut out middle man- increase profits
Disadvantages if forwards vertical integration 3
Fewer economies of scale because production is at different stages
Inexperience- difficult to coordinate and manage
Negative impact on core activities
Advantages of backwards vertical integration (3)
Quality of inputs is guaranteed
Cut out middle man- reduces cost of sales
Can control supply of materials to competitors
Disadvantages of backwards vertical integration (3)
Fewer economies of scale because production is at different stages
Inexperience- difficult to coordinate activities
Negative impact on core activities
Advantages of horizontal integration 3
Economies of scale
Eliminates a competition- increase market share
Can dominate market- control prices
Disadvantages of horizontal integration 3
Can break competition and market authority (CMA) rules
Quality could suffer due to lack of competition
Higher prices for consumer
Advantages of conglomerate integration
Can spread the risk of failure as have a wide portfolio
Overcome seasonal fluctuations
Larger org- more financially secure- less chance of takeover
Can gain assets from other company
Disadvantages if conglomerate integration
Lack of knowledge of industry
Difficult to manage due to size (diseconomies of scale)
Loss of focus on core activities.
Advantages of lateral integration 2
Spreads the risk as not relying on one product or service, targets a new market, increasing sales
Experienced in a similar industry- easier to manage
Disadvantages of lateral integration 2
Large financial investment to merge with another company
New focus can affect core activities
What is outsourcing
When a company hires another business to do some work for them e.g IT services, cleaning, accountancy
Advantages of outsourcing 6
Finance saved as no need to purchase specialist equipment
Reduced staffing and training costs
Only need to pay for service when required
Improves quality of service due to specialist
Specialist company benefits from economies of scale which means they can provide the service cheaper
Allows you to focus on core activities of the business
Disadvantages of outsourcing
Can be tied to a contract which can restrict the business (financial penalty to get out)
Lose control of quality
Loss of confidentiality may mean General Data Protection Regulation issues
Can be expensive as paying for a specialist service
Could be redundancies as current staff no longer required (payments/ bad pr)
Mistakes could arise due to a lack of communication
What do stakeholders include
Any internal or external person or groups that have an interest in the success of the business
What does a stakeholder not include
Competitors
What is the interdependence between an owner and employees
Owners need employees to produce goods whereas the employee needs the owner to provide job security and a salary
What is the interdependence between employees and customers
Employees need customers to buy goods to help pay wages whereas customers need employees to provide good customer service.
What is the interdependence between owners and customers
Owners need customers to buy products, increasing revenue whereas customers need owners to provide them with the goods and services they want
What is the conflict between owners and employees
Owners want to pay minimum wage to increase profits whereas employees want high wages to improve standard of living, which reduces profit
What is the conflict between employees and customers
Employees want customers to spend more money on goods and services to increase commission whereas customers want employees to provide discounts and good value for money.
What is the conflict between owners and customers
Owners want to charge customers high prices to maximise profits whereas customers want owners to charge low prices to gain value for money, which reduces profits
What is the interdependence between owners and suppliers
Owners need suppliers to provide quality raw materials on time whereas suppliers need owners to provide repeat orders and payments for goods
What is the interdependence between owners and the local community
Owners need the local community to support the business and provide employees whereas the local community needs owners to provide them with jobs and contribute to the local area.
What is the interdependence between owners and the government
Owners need the government to maintain/ decrease tax rates to increase profits whereas the government need owners to decrease unemployment/ increase tax payments
What is the conflict between owners and suppliers
Owners want suppliers to provide low prices and discounts to reduce production costs whereas suppliers want to charge high prices or give small discounts to increase their profits
What is the conflict between owners and the local community
Owners want to keep costs low for high profits so may spend less on corporate social responsibility whereas the local community want owners to invest in CSR to help the local area.
What is the conflict between owners and the government
Owners want to maximise profits so would like to dominate the market whereas the government does not want one owner to dominate the market as they control prices which means restrictions will be out in place.
What are the external factors and what do they include
Political
Increase/decrease corporation tax
Increase/decrease VAT
increase minimum/ living wage
Economic
Recession/ boom
Increase/decrease interest rates
Social
Changing tastes and fashion
Aging population (demographics)
Technological
AI
Social media
Environmental
Weather
Ethical actions leg recycling
Competitive
Decreasing prices
New competition opening
What is an economic policy
Actions taken by the government that impact borrowing and spending
What is a FISCAL policy
changing tax levels to influence demand in the economy
What is a competition policy
The CMA (competition market authority) implements rules to make the market place competitive
What is a monetary policy
Decisions made by the government to control the quantity of money in the economy e.g interest rates.
What is an advantage of increased interest rates
Greater return on savings which leads to more finance being available for growth
What is a disadvantages of increased rates
Cost of borrowing increases which results in increasing expenses and reducing PFTY
What is the result of increased taxation
Reduces profits after tax (corporation tax) which reduces shareholders dividends.
What is the result of the internal factor of available finance
Lack of finance may mean cash flow problems which could lead to cost cutting measures e,g delayering
Lack of finance means there is no moment available to expand meaning objectives are not met
What is the result of the internal factor existing technology
Technology owned by the organisation may break down which will halt production and lead to expensive repairs
What is the result of the internal factor of HR
Ability of managers and employees
Ability of managers
Managers who make good decisions will have a positive impact on meeting objectives
If managers motivate employees this will improve quality and quantity of production
Ability of employees
Expert and capable staff will require less supervision, reducing management salaries.
Capable staff will also make less mistakes which will reduce wastage
Inexperienced staff will require additional training, increasing financial costs which reduces profits.
What is the result of the internal factor availability of information
If there is too much information available it will take time to read and analyse which slows decision making down, making it harder to respond to market changes
Good quality info would ensure an informed decision is made, helping to meet objectives
What is corporate culture
Corporate culture is a set of values or beliefs shared by all the people on the organisation.
How do you build corporate culture
Company values
Setting mission statements
Company policies
Stores or jargon
Staff uniform
Staff training and development
Staff perks and rewards
Provide flexible working practises
Team building
Company colours
Logos and slogans
Shop/ office layout and decor.
Advantages of corporate culture
Team building and uniforms promoted a sense of belonging which increases production quality and quantity.
Flexible working increases motivation leading to a better work life balance, which reduces absenteeism and reduces staff turnover
Training and development opportunities will attract high quality applicants to apply for vacancies.
Colours and logos make products instantly recognisable which boosts brand loyalty
Disadvantages of corporate culture
Takes time and finance to implement leg buying uniforms and providing training
Can be difficult to change the culture once it has been developed
Flexible working practises can make employees feel isolates which reduces their sense of belonging.
What are the 6 different types of structures
Tall
Flat
Entrepreneurial
Matrix
Centralised
Decentralised
What is a chain of command
Route through which decisions are passed down and information is passed back up the hierarchy
What is a span of control
The number of staff/ subordinates under a supervisor or manager
What is delayering
Delayering is removing layers of management from a taller structure to create a flatter structure
What are the advantages of delayering
Finance savings on salaries
Quicker decision making
More responsive to change and information is passed on quickly
What are the disadvantages of delayering
Fewer promotional opportunities
Initial redundancy costs
May lose key skills/ members of staff
What is downsizing
Downsizing is a reduction in the organisations size, labour force and operating costs in order to improve organisational efficiency, productivity and or the competitiveness of the organisation
What are the advantages of downsizing
Reduce costs of wages, rents, overheads
A leaner business can focus on core activities and key strength= increased competitiveness
Incentive and opportunity for current staff to increase productivity/ show talent to keep their employment
Disadvantages of downsizing
Redundancy costs initially, lose key skills, experience and knowledge form business
Possible bad publicity could impact on the reputation
Remaining staff feel vulnerable due to uncertainty= lower motivation and possible less productivity
What is a tall structure
Has many levels of hierarchy, most responsibility and authority is at the top and the least is at the bottom.
There is a long chain of command and narrow span of control.
Advantages of tall structure
More opportunities for promotion which can lead to greater staff motivation
Staff gain more support from their line manager
Their is a higher degree of supervision as each line manager has a limited number of people they are responsible for
Disadvantages if tall structure
Span of control is narrow and the chain of command is long, making communication slower as instructions take longer to travel through the levels of the organisation
Longer lines of communication can make the firm less responsive to change
Can be expensive to run due to high wage costs
what is a flat structure
Few levels of management, shirt chain of command so information passes quickly
Wide span of control
What are the advantages of a flat structure
Lines of communication are short making the form responsive to change and decision making quicker
Staff working in a flat structure can be empowered to work independently and take on more responsibility
What are the disadvantages of a flat structure
Wide span of control means that tasks must be delegated which can lead to employees feeling stressed and managers feeling overstretched
Less promotion opportunities within a flat structure, which may lead to the company losing staff to other organisations.
What is the entrepreneurial structure
Used primarily by small organisations
There is usually one key decision maker- the owner
Staff may have some input but are rarely consulted
Final decision made by owner
Advantages of entrepreneurial structure
Decisions are often made quickly as there is little consultation
Staff know who they need to report to
High quality decisions are made as decision makers are experienced
Disadvantages of entrepreneurial structures
There is a workload issue for the decision makers as responsibility for many tasks will fall to them
If owner is busy or not available key decisions can’t be made
Staff may not get opportunity to show initiative, stifling creativity and possibly demotivating staff.
What is the matrix structure
Used when cross-functional teams are created to run a project
Team members may come from different disciplines. The yea, will disband when the project is complete.
Advantages of matrix structure
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
Disadvantages of matrix
It is very expensive as managers needed for teams and departments
Team members may have priority issues when having to report to 2 bosses (line manager and project leader)
Duplication of resources such as administration and ICT
What is a centralised structure
Where most decisions are taken by senior managers and then passed down the organisational hierarchy from head office
This structure relies on having strong and competent managers.
Advantages if centralised structure
Centralised management structures can lead to greater uniformity and corporate identity within the organisation
Standardised procedures ensure consistency
Disadvantages of centralised structure
Often less responsive to localised external pressures
Decisions may not reflect local needs
Lead to demotivated staff who are not being given the opportunity to be involved in the decision making process
What is a decentralised structure
Authority is delegates down the chain of command to individual departments or branches
Each department within the organisation has the authority to make their own decisions
Can be seen in retail chains
Advantages of decentralised structure
The business will be more responsive to changes in individual/ local markets as staff in each department have a greater local knowledge
Employees will be more motivated as they are given the opportunity to make decision and be creative
Disadvantages of decentralised structure
Overall control of the organisation is delegated to departmental managers which can lead to poor decisions as the branch managers may not be as experienced as those in the head office
Individual branches may begin to compete and the overall corporate culture may be harder to develop.
What is product/ service grouping
Divisions where each deals with a different product or product range. Each division has its own functional staff
Advantages if product grouping
Each member of staff in that division will have the knowledge about the product, which. An encourage customer loyalty due to the high level of personal service
It is easier to see which parts of the organisation/ products are having a problem
Improves responsiveness to change as employees are more in touch with their individual/ specialist area
Differentiated approach can be adopted to suit each product
Disadvantages if product grouping
There may be unnecessary duplication of resources tasks of staff across different products
Divisions/ departments may find themselves competing with one another
Communication between divisions can be poor and it may be difficult to shade expertise across departments/ products
A new group will be set up every time the business launches a new product this can be expensive due to needing to employ more staff and purchase more equipment etc.
What is customer grouping
Divisions dealing with different types of customers. There may be a different division for retail, trade, overseas and mail order customers
Advantages of customer grouping
Each division is able to give a service, price and promotion suited to its own type of customer
Customer loyalty builds up because of personal service
Allows management to identify poorly performing groupings
Improved responsiveness to the changing needs of the customer
Disadvantages of customer grouping
If a new group of customers is created a whole new group of staff needs to be employed and trained.
Possible duplication of administration, equipment and staffing
Competition between departments may occur
Difficult to share expertise and resources across departments
What is functional grouping
Departments where staff have similar skills, expertise and do similar jobs
Advantages of functional grouping
Staff with similar expertise are kept together allowing specialisation and skills to develop
Organisation has a clear structure, lines of authority/responsibility, therefore staff know who to turn to when they need a job done or to seek advice
Staff are motivated as this structure maps out career paths and promotion opportunities
Less duplication of resources
Disadvantages of functional grouping
Individual departments may become more concerned about their own interests rather than the organisations overall strategic objectives
The organisation may be less responsive to change in the market as communication and decision making is often slower as functional groupings often couples with centralised structures
Organisation may become too large to be managed effectively if functions grow rapidly
Rivalry between functions may cause tension or poor relationships
What is place grouping
Divisions dealing with a different geographical area or religion
Advantages of place grouping
Local offices with local knowledge can cater for local clients needs and consider language and cultural differences
Customer loyalty can be built up by providing a service that suits the local customers and their culture
Can be more responsive to changing external factors a in local markets
Failing departments can be easily identified
Disadvantages of place grouping
Divisions may begin to compete with each other, forgetting the overall organisations objectives
Expensive to produce products in different geographical locations because of different languages and cultures
Communication can be difficult between branches due to time zones and language differences
Duplication of equipment administration and staff= high costs
What is technology grouping
Grouping used by large manufacturing businesses which produce diverse products that require different technological processes.
Advantages of technology grouping
Specialists are all working together which may result in a higher quality product
Wastage and costs may be reduced due to specialist equipment and staff knowledge
Easier for management to identify problems in the production processes
Disadvantages of technology grouping
Duplication of equipment, administration and staffing
Technology groupings focus on their objective at the cleanse of organisational objectives
High cost of specialised training
Strategic decisions
What
Why
Who
Examples
Long term decisions (5-10 years) usually high risk
Evaluate the long term goals and set overall direction of business (while considering external environment/ resources)
Senior managers
Increase market share
Become no.1 in the market
Become a MNC
Tactical decisions
What
Why
Who
Examples
Medium term decisions, medium risk
Take to help achieve the strategic aims and objectives
Middle managers
Developing a new marketing campaign
Looking for a cheaper supplier
Launching a new product
Operational decisions
What
Why
Who
Examples
Short term and day to day decisions, usually low risk
Made as a result of changing circumstances to ensure the smooth running of the business (reactive)
Supervisors, all employees
How much overtime to allow
How to deal with a staff absence
What are the 6 factors that affect decision making
Availability of finance- enough to exploit new opportunities or make the best cost effective decisions
How much skills, expertise and training do managers have to make door decisions? What is the managers attitude to risk?
Is there enough time available to analyse alternatives and all info? Pressure for quick decisions could lead to a bad one
PESTEC external pressures e.g economic stability could affect decision making
Availability of technology- can help to make informed decisions and analyse data or compare alternatives
Quality and quantity of info, inadequate info can lead to wrong decision but too much can delay decisions being made.
6 ways to assess if the decision was effective
Financial performance- before and after. Had profitability increased or costs decreased?
Market research. Questionnaire before and after of customers to assess impact of decision
Staff monitoring/ feedback- levels of staff turnover/ absences, feedback in appraisals and meetings
Sales monitoring- measuring sales levels to see if they have increased
Share prices- track the ride and fall do share prices following a major decision
Customer satisfaction- measure customer loyalty no volume of complaints- reviews, social media
What is S in swot
Include examples
Strengths
Well known brands or products
Goods/ services that make the most profits
Products that are benchmarks in the market that competitors try to copy
Assets the business owns e,g modern factory, modern technology, retail outlet in a prime location.
Availability of finance
High quality staff with high morale and motivation
What is W in swot
Include examples
Weaknesses
Lack of finance
Lack of up to date technology
Poor customer service reputation
Faulty products
Products or branches that are making losses
Assets in a state of disrepair e.g crumbling factory or aging fleet
Untrained staff or low staff morale
What does O stand for in swot
Give examples
Opportunities
Competition going bust so you could take their customers
A boom period in the economy that the business could exploit
Customers tastes and fashions falling in line with an organisations specialism
Governments introducing favourable legislation
Advancements in technology that the business could exploit e,g e-commerce
What does T stand for in swot
Gives examples
Threats
Competitors actions such as cheaper prices or better quality products
A downturn in the economy e.g a recession
Customers tastes and fashions changing away from this the business specialises in
Governments introducing legislation that impacts badly on the organisations
Advancements in technology that could leave the business behind its rivals
Disadvantages of SWOT
Can be time consuming leading to slow decisions
The structured process can stifle creativity and gut decisions of managers
Can generate many ideas but does not help pick the best one
Produces results based on the opinions of those who carry it out, could lead to bias
Considers info at that point in time so quickly becomes outdated
Advantages of SWOT decision making
No hasty rash decisions are made as time is taken to analyse current business position
Identify strengths to build on
Identify weaknesses to address
Propose and assess alternative solutions
Identify opportunities allowing them to be exploited
Identify opportunities allowing them to be exploited
Identify threats allowing them to be turned into opportunities
More likely to be quality decisions with long term effectiveness
What are the roles of managers
POCCCDM
Plan
Looking ahead to set aims and strategies, identify threats and opportunities
Organise
Makes arrangements for all the resources if the organisation to be in the right place at the right time. Set tasks do be carried out in order to achieve targets and objectives
Command
Tell subordinates what their duties re. Issues instructions to employees
Coordinate
Make sure everyone is working towards the same aims and that the activities of individual workers fit in with the work of other parts of the organisation
Bring together the resources of the business to achieve the overall aim and objectives set
Control
Measures evaluates and compares results against planes, and supervises and checks work done
Delegate
Makes subordinates responsible for tasks and gives renminbi the authority to carry them out
By delegating management level tasks this helps lessen the managers workload
Motivate
Encourages and inspires others to carry out their tasks effectively often by introducing team work, empowerment, worker participation in decision making and other non-financial methods
