understanding business

Question 1

Needs

Answer 1

the basic requirements that are essential for survival such as food, water, clothing, shelter and warmth.

Question 2

Wants

Answer 2

things we would like to have but don’t need to survive. These include luxuries such as laptop computers or TV.

Question 3

Goods

Answer 3

products that can be seen and touched (tangible) such as cameras, sportswear or food.

Question 4

Services

Answer 4

products that cannot be seen or touched (intangible) such as a train journey, a haircut or the Internet.

Question 5

consumer

Answer 5

a person who uses a product and may also buy it.

Question 6

The primary sector

Answer 6

extracts raw materials or natural resources from the land, eg, farming and coal mining.

Question 7

The secondary sector

Answer 7

manufactures goods, using raw materials and converts them into new products, eg, clothing production, house building and car manufacture.

Question 8

The tertiary sector

Answer 8

industry is made up of services, eg, banks, cinemas, schools and hospitals.

Question 9

The quaternary sector

Answer 9

consists of those industries providing information services, such as computing, ICT (information and communication technologies), consultancy (offering advice to businesses) and R&D (research, particularly in scientific fields).

Question 10

Private Sector

Answer 10

Private sector organisations are owned and controlled by private individuals. Their primary aims are to survive and make a profit.

sole trader
partnership
private limited company

Question 11

Public Sector

Answer 11

Public sector organisations are owned and controlled by the government. They aim to provide a service to the public and are funded by taxes.

National Health Service
education and schools
local government

Question 12

Third Sector

Answer 12

Third sector organisations are set up to help a cause or provide a service to members. They aim to raise money and increase awareness for good causes.

charities
voluntary organisations
social enterprises

Question 13

features of a sole trader

Answer 13

owned - the sole trader
control - the sole trader
finance - government grant, bank loan, personal savings

Question 14

partnership

Answer 14

owned - 2-20 partners
control - 2-20 partners
finance - bank loan, individual capital, mortgage

Question 15

private limited company

Answer 15

owned - shareholders
control - board of directors
finance - selling shares internally, bank loans

Question 16

public limited company

Answer 16

owned - shareholders
control - board of directors
finance - selling shares externally, bank loans

Question 17

Advantages of being a company

Answer 17

Limited liability means that If the company fails, the investors in a limited company are protected, so that they only lose their original investment (the share capital).
Companies are not personally liable for the debts of the business, so are not at risk of having to sell personal assets in the way that sole traders and partnerships may have to.
Limited companies are able to raise more money than sole traders or partnerships money by borrowing through the share issue of ordinary shares.
Larger limited companies are often able to raise larger amounts of finance through borrowing.

Question 18

Disadvantages of being a company

Answer 18

Shareholders own a Plc but directors control it. This means that directors may make decisions that the shareholders disagree with.
By allowing the public to buy shares of the company, there is always the threat that someone will buy enough shares to take over the whole company.
Shareholders generally want to make as much profit as possible so it can be difficult to pursue other objectives, such as providing a quality service or acting ethically.

Question 19

Multinationals

Answer 19

A multinational is a company which has its headquarters in one country but has production facilities in other countries. Examples of multinationals include Apple, Adidas and BP.

Question 20

Advantages: Multinationals

Answer 20

Access to a wider market – producing overseas expands the market the company’s product and leads to increased sales revenue, market share and increased profitability.
Producing overseas increases brand awareness beyond the home country.
Cheaper production costs – the cost of land and labour is cheaper in developing countries, eg lower wage rates.
Economies of scale - cost per unit can be lowered through specialisation.
Greater access to cheaper suppliers and skilled workers.
Tax breaks – different nations have different levels of corporation tax.

Question 21

Disadvantages: Multinationals

Answer 21

Much overseas production work is deskilled jobs that may be low-paid, repetitive assembly line work. This does not benefit the host country in the long term.
Profits are not retained in the host country, for example, profits made by Apple from production to Vietnam would still go back to HQ in California.
Relaxed legislation may lead to cutting corners, for example health and safety laws.

Question 22

Franchises

Answer 22

A franchise is a joint venture between a franchisor and a franchisee.

The idea is that the franchisor (original business) has gone through the process of establishing the brand, gained customer loyalty and, through experience, learned how to scale up the business.

Franchising sells the right to someone else (the franchisee) to copy the business format, using the same name and brand. The franchisor will provide the knowledge and expertise so that the franchisee is able to replicate that success in a different location.

Question 23

Advantages of a franchise

Answer 23

Faster growth - for small business owners, franchising is a way to expand more quickly and cost-effectively than opening further company outlets.
Lower risk - opening a franchise is usually less risky than setting up as an independent retailer. The franchisee is adopting a proven business model and selling a well-known product in a new local branch.
Lower capital outlay - once the model is established, expansion comes mainly through the investment of franchisees, meaning it costs much less to grow.
Lower operating costs - franchisees employ each outlet’s staff and pay the operating costs.
Better performance - because they have a vested interest in the business, franchisees will do what it takes to succeed, as opposed to a manager who is largely rewarded the same regardless.
Strength in numbers – franchises can benefit from harnessing the considerable power of shared know-how, experience and ideas from a group pulling in the same direction.

Question 24

Disadvantages of a franchise

Answer 24

Poor performance by some franchisees could give the brand a bad reputation.
Costs may be higher for the franchisee. As well as the initial costs of buying the franchise, they have to pay continuing management service fees to the franchisor.
Profits (a percentage of sales) are usually shared with the franchisor.

Question 25

Public sector

Answer 25

The public sector represents all the jobs and services provided by the Government. This includes the national health service, the armed forces and state education.

Question 26

features of the public sector

Answer 26

owned - government
control - elected councillors
finance - tax

Question 27

Third sector features

Answer 27

owned - board of trustees
control - board of trustees
finance - donations

Question 28

Aims of third sector organisations

Answer 28

Their aims often include raising awareness and promoting a cause.
Generally, surpluses or profits are reinvested to support the cause.
They aim to operate ethically and be socially responsible.

Question 29

Charity

Answer 29

A charity is an organisation set up for a specific cause. They receive grants from many fund raising organisations such as the National Lottery. Money is also raised for them by sales in charity shops and through public donations.

Question 30

Community groups

Answer 30

Community groups exist to provide a service for people. They are non-profit making and all of the profit goes back into the organisation to ensure it can keep running.

Question 31

Social enterprise

Answer 31

A social enterprise is an organisation that exists with a clear goal to help the community but runs the organisation like a business. All profits are reinvested back into the organisation. They benefit from specific funding and grants to help tackle social problems.

Question 32

Aims and objectives of business

Answer 32

survival
maximising profit
Satisficing - aiming for a satisfactory or adequate result, rather than an optimal solution such as maximising profits
growth
Corporate social responsibility - where an organisation integrates social and environmental concerns into its business operations
customer satisfaction

Question 33

Benefits of growth

Answer 33

Bigger businesses benefit from economies of scale which gives then competitive advantage over smaller businesses
Economies of scale means lower unit costs of production
Lower unit costs enables the business to charge lower prices and increase sales and market share
Increased sales and lower costs means that larger businesses enjoy a higher profit margin
Larger businesses have more influence over market price

Question 34

Business Growth

Answer 34

A business grows when it expands in size as measured by, eg:

Sales turnover (or sales revenue)
Number of employees
Share capital (the number of shares times the price of each share)
Market share
Number of outlets (e.g. shops)

Question 35

Organic or Natural Growth

Answer 35

Organic growth means the business grows naturally by expanding its sales or its operations. A business can grow organically by:

Hiring more staff and equipment to increase its output.
Opening new outlets or selling in a different location.
Developing or introducing new products.
Marketing activities, such as advertising and sales promotion, to increase demand.
Franchising – selling to a franchisee the right to sell the product or service of the business.

Question 36

Horizonal Integration

Answer 36

Horizonal integration – often referred to as a Merger - is where two or more businesses agree to join together to become one larger firm. If, say, Levis joined with Wrangler to make one firm producing denim clothing, this would be an example of horizonal integration.

Question 37

Vertical Integration

Answer 37

Vertical integration occurs when a business takes over another business buy buying its assets or operations (usually called Acquisition). There are two kinds:

Forward vertical integration – when a business takes over a company at a later stage in the production process. For example a clothing manufacturer taking over a retail high street business.
Backward vertical integration – when the business takes over a company at an earlier stage in the production process for example a supermarket chain taking over a dairy farm

Question 38

Diversification

Answer 38

Diversification happens when firms move into new markets that are different from their core business. There are two types of diversification.

Conglomerate integration – when a business moves into an entirely different market, eg, a sportswear manufacturer merging with a technology and communications company.
Lateral integration – when a business moves into a different market but within a related industry, for example a health club merging with a beauty therapist.

Question 39

Organic Growth: discuss

Answer 39

Advantages

No loss of control.
New staff can bring new ideas and experience.
Introducing new products can reach different markets.
Less risky than a takeover.
Disadvantages

Can be a slow method of growth.
May be limited by the size of the market.
Finance to grow organically may be limited.

Question 40

Horizontal Integration: discuss

Answer 40

Advantages

Reduces competition if the acquired business is a rival in the market.
Can result in economies of scale, which reduces unit costs.
Increases market share which means the business can charge higher prices.
Other businesses can bring new skills and specialist departments to the business.
Larger businesses often find it easier to raise funds.
Disadvantages

Diseconomies of scale may occur if the business becomes too large, which leads to higher unit costs.
Clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration.
May need to make some workers redundant, especially at management levels – this may have an adverse effect on motivation.

Question 41

Vertical Integration: discuss

Answer 41

Advantages

Guarantees a market to sell a product (FVI).
Guarantees the quality of inputs and supply of stock (BVI).
Cuts out the middle man leading to higher profits.
More control over pricing.
Limits the supply to competitors.
Disadvantages

Integration can take time and resources away from core activities.
Diseconomies of scale may occur if the business becomes too large, which leads to higher unit costs.
Clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration.

Question 42

Diversification: discuss

Answer 42

Advantages

Spreads risk across different markets.
New markets can increase the customer bases.
Business gains customers and assets from the business taken over.
Acquisitions can result in new knowledge, skills and experience.
Disadvantages

Integration can take time and resources away from core activities.
Diseconomies of scale may occur if the business becomes too large, which leads to higher unit costs.
Acquisitions can result in job losses, harming motivation and morale.

Question 43

Methods of funding growth

Answer 43

Retained profit - a business can decide not to distribute profit to its shareholders and use it to reinvest into the business.
Divestment – where a business sells off an asset to raise finances to grow.
Asset stripping - when a business is purchased for the value of its assets which are then sold for profit.
Buy-in - when managers not employed by the firm purchase the business as they believe they can run it more profitably.
Buy-out - when managers or employees who are currently employed by the business purchase the business from the owners.
Outsourcing – where when a firm hires another business to perform some of its activities.

Question 44

Ways of establishing and promoting corporate culture

Answer 44

Staff uniforms.
The corporate logo and colour scheme.
The organisation’s mission statement and values.
Company policies.
Incentives and rewards for staff.
Training and development programmes for staff.

Question 45

Benefits of corporate culture

Answer 45

Happier, more contented staff who identify with the organisation.
Lower staff turnover/absences.
Values/beliefs/perks can attract quality staff which results in a better quality service.
Use of relaxed and informal language means staff feel comfortable working there and perform well.
Staff can move between branches/departments more easily as they will all be using the same policies and practices.

Question 46

Managers can influence the effectiveness of a business through

Answer 46

Effective leadership of staff.
Effective decision-making to increase productivity, increase profits and grow the business.
Creating policies that motivate employees and setting realistic goals.
Recruiting, training and managing staff effectively.
Motivating staff and creating a positive work environment.
Delegating responsibility and tasks to staff.

Question 47

Employees can influence the effectiveness of a business through

Answer 47

Being productive and fulfilling their job/skill set.
Being motivated and committed to the organisation.
Satisfying customers through quality of service.
Levels of attendance and absenteeism.
Improving their skills through training.
Taking industrial action.

Question 48

Types of finance that may be available

Answer 48

Retained earnings
Bank loan or mortgage
Overdraft
Commercial credit
Grant from the government

Question 49

Lack of finance may mean

Answer 49

unable to hire new staff
unable to buy new equipment
unable to develop new products
unable to undertake marketing activities
adversely affects growth and success.
unable to pay wages
may be forced to shut down

Question 50

benefits of technology

Answer 50

improve efficiency
enables staff to work while away from the office
travel expenses can be saved (travelling to meetings)
use social media to promote products
e-commerce
competitive advantages over rival firms

Question 51

Political factors

Answer 51

Governments can affect businesses by increasing value-added tax on products or business rates. Government can introduce new laws like the National Minimum Wage, which impacts on profits and employment rights.
Governments can also introduce new health and safety legislation meaning that a business has to change the way it works, for example by training its staff.

Question 52

Economic factors

Answer 52

In a recession consumers will not be spending as much on goods and services.
In times of low unemployment firms may have to pay higher wages to attract staff.

Question 53

Social factors

Answer 53

An ageing population means that there will be greater demand for goods and services in health care.
Lifestyles changes means that consumers are becoming more health-conscious, so healthy foods and health/sports apps are becoming more popular.

Question 54

Technological factors

Answer 54

E-commerce widens the number of customers, lowers the costs of production and enables customers to buy online.
Automation enables machines to do work that was previously done by people, reducing unit costs of production and making the business more profitable.

Question 55

Environmental factors

Answer 55

Bad weather such as snow can disrupt deliveries.
Agricultural produce can be affected by poor weather in spring and summer.

Question 56

Competitive factors

Answer 56

When a successful product is introduced, rival organisations will often respond by trying to undercut it by quickly producing cheaper alternative versions, which will affect the sales of the existing company.
Rival businesses may start a price war in order to gain customers and increase market share. A price war happens when companies compete for customers by dropping their prices below the rate of their competitors. This can mean customers get the goods and services at lower prices.

Question 57

Conflicting interests of stakeholders

Answer 57

Shareholders/managers seek high profits which conflicts with employee demand for higher wages.
Managers may want to pay for goods later to improve cash flow whereas the suppliers will want payment as soon as possible to protect their own cash flow.
Managers want the highest profit possible on sales whereas customers want low prices for high quality goods.
Shareholders want a low rate of corporation tax whereas the Government may wish to increase it.
Shareholders will be looking for a return on their investment whereas managers may want to reinvest profits for product development.
The owners/managers may want to increase the size of a factory but the local community believes this may harm the local environment.

Question 58

Interdependence of stakeholder

Answer 58

managers need suppliers to provide them with high quality stock when required and suppliers need managers to buy supplies from them to keep them in business
owners need employees to work hard for them to help satisfy customers and increase sales and employees need owners to provide them with fair wages and good working conditions
customers need owners to provide them with the goods and services they require, and owners need customers to buy their products

Question 59

Entrepreneurial organisational structures

Answer 59

An entrepreneurial structure is a common feature in small or start-up businesses. In this structure, decision-making is centralised, typically around a single leader or a small group of leaders, such as the founder or owner. It often features a flat structure with few layers of hierarchy to allow for more agility and quicker responses.

Question 60

Advantages: Entrepreneurial organisational structures

Answer 60

Centralised control enables quick decision making and swift responses to challenges and opportunities, which is crucial in the early stages of a business.
Employees know who makes the decisions, resulting in clear leadership and streamlined communication.
The founder or leader often has a strong vision which can directly shape the company’s direction and culture.

Question 61

Disadvantages: Entrepreneurial organisational structures

Answer 61

Centralised leadership can lead to decision-making bottlenecks if the leader is overwhelmed.
As the business grows, this structure can become inefficient and may struggle to scale.
The success of the business is heavily reliant on the capabilities of one or a few people.

Question 62

Tall organisational structure

Answer 62

A tall organisational structure is a hierarchical model where there are many levels of management, with a clear chain of command. This structure is typically found in large organisations with the following features.

There are several levels of authority, from senior managers to supervisors, leading down to lower-level employees.
Each employee reports to a specific manager, and decision-making follows a top-down approach.
Employees typically have specialised roles within departments, making communication and tasks more focused.

Question 63

Advantages of a tall organisational structure

Answer 63

Managers oversee fewer employees, allowing them to closely monitor and guide their employees, leading to better performance management.
Managers and employees in each layer can focus on specific areas of expertise, leading to a higher level of skill development in their respective roles.
The chain of command is well-defined, so employees know who to report to, and responsibilities are clear at each level.
With many levels of management, employees may have more opportunities for promotions and advancement within the organisation.

Question 64

Drawbacks of a tall organisational structure

Answer 64

With many layers of management, decisions may take longer to pass through the hierarchy, leading to delays in action and response.
The rigid structure can stifle creativity and innovation, as employees at lower levels may not have the authority to make decisions or propose new ideas.
Having many layers of management increases overhead costs, as more managers are needed to oversee each level of the organisation.

Question 65

Flat organisational structure

Answer 65

A flat organisational structure is one where there are few or no levels of middle management between staff and executives. This structure is typically found in small to medium sized organisations with the following features.

There are only a few layers between the top executives and the rest of the employees, sometimes only one or two.
Managers oversee a larger number of employees, leading to broader responsibilities for each manager.
Authority is often distributed among employees, allowing them to make decisions without needing approval from higher-ups.
Employees often have more independence and flexibility in how they carry out their tasks, with less direct supervision.

Question 66

Advantages of a flat organisational structure

Answer 66

With fewer layers of management, decisions can be made more quickly, leading to greater agility in responding to changes or opportunities.
With fewer managerial positions, overhead costs related to management salaries and bureaucracy are reduced.
The decentralized nature of the structure allows employees more freedom to be creative and suggest new ideas, which can foster innovation.
With fewer layers to pass through, communication is more direct, reducing the chances of distortion and promoting transparency.

Question 67

Drawbacks of a flat organisational structure

Answer 67

Managers in flat organisations may be stretched thin, as they have to oversee a larger number of employees, leading to potential high levels of stress and even burnout.
With fewer clear hierarchies and levels of management, employees might experience confusion about their responsibilities or who to report to.
In a flat structure, there are fewer opportunities for promotion or advancement, which could result in employee dissatisfaction over time.

Question 68

Delayering

Answer 68

Delayering involves removing one or more levels of hierarchy from the organisational structure.

Frequently, the layers removed are those containing middle managers. For example, many high-street banks no longer have a manager in each of their branches, preferring to appoint a manager to oversee a number of branches.

Delayering does not always involve cutting jobs and overheads, if the people affected can be moved elsewhere in the business.

Delayering is, however, seen as a way of reducing operating costs, particularly as a response to an economic downturn.

Question 69

Advantages: Delayering

Answer 69

It offers opportunities for better delegation, empowerment and motivation as the number of managers is reduced and more authority passed down the hierarchy.
It can improve communication within the business as messages have to pass through fewer levels of hierarchy.
It can reduce costs as fewer (expensive) managers are required.
It brings managers into closer contact with the business’ customers – which should (in theory) result in better customer service

Question 70

Disadvantages: Delayering

Answer 70

Not all organisations are suited to flatter organisational structures - mass production industries with low-skilled employees may not adapt easily.
Delayering can have a negative impact on motivation due to job losses, especially if it is really just an excuse for redundancies.
A period of disruption may occur as people take on new responsibilities and fulfil new roles.

Question 71

Downsizing

Answer 71

Downsizing is when a firm closes down or merges aspects of their operations in order to:

reduce costs
remain competitive in the marketplace

Question 72

Centralised Organisations

Answer 72

A centralised structure keeps decision making and authority at the top of the hierarchy, amongst the senior managers.

Question 73

Advantages of Centralised Organisations

Answer 73

Easier to implement common policies and standardised procedures across the whole business.
Easier to co-ordinate and control from the centre.
Quicker decision-making (usually).

Question 74

Disadvantages of Centralised Organisations

Answer 74

More bureaucratic – often extra layers of managers in the hierarchy.
Lack of authority down the hierarchy may lead to lack of motivation for junior managers.
Can lead to demotivated staff who are not being given the opportunity to be involved in the decision-making process.

Question 75

Decentralised Organisations

Answer 75

Decentralised organisations delegate decision making further down the hierarchy, away from the centre.

Question 76

Advantages of Decentralised Organisations

Answer 76

Involving staff in decision making can improve levels of motivation and commitment.
The business will be more responsive to changes in individual/local markets as staff in each. department have a greater local knowledge.
Involving staff in decisions can lead to greater creativity and innovation.
Decentralisation is well suited to businesses aiming for a flat structure.
Decentralisation is a good way of training and developing junior managers.

Question 77

Disadvantages of Decentralised Organisations

Answer 77

Decentralised organisations delegate authority down the chain of command, thus reducing the speed of decision-making.
Decentralisation may lead to poor decisions as junior managers may not be as experienced as the managers in the head office.
Decision-making may be less strategic.

Question 78

Matrix organisational structures

Answer 78

In a matrix structure, individuals from different functional areas or departments work come together to work in project teams.

Question 79

Advantages: matrix structure

Answer 79

Can help to break down traditional department barriers, improving communication across the entire organisation.
Can allow individuals to use particular skills within a variety of contexts.
Different employees can be a project leader at different times.
Allows employees to develop new skills on different projects.
Likely to result in greater motivation amongst the team members.
Share good practice and ideas encourages cross-fertilisation of ideas across departments.

Question 80

Disadvantages: matrix structure

Answer 80

Employees may have to report to two different managers, potentially leading to divided loyalties.
Working simultaneously on a project team while also in a functional role can create a heavy pressure of work for individuals.
There may not be a clear line of accountability for project teams given the complex nature of matrix structures.

Question 81

Functional Grouping

Answer 81

A functional grouping is an organizational structure in which the business is divided into smaller groups based on specialized functional areas, such as IT, Finance, or Marketing.

The department head of each functional area reports to the CEO; the CEO then coordinates and integrates the work of each function.

Question 82

Advantages: functional grouping

Answer 82

Brings together employees with similar skills allowing expertise to develop.
It may be more efficient since there is less duplication of resources, eg, there is only one finance department, rather than each department having its own.
Functional grouping often allows for greater operational efficiency because employees with shared skills and knowledge are grouped together.
This arrangement allows for increased specialisation.

Question 83

Disadvantages: functional grouping

Answer 83

Different functional groups may not communicate with well with one another, leading to poor decision making.
Staff working in silos can potentially decrease flexibility and innovation.
The business can become slow to respond to external changes in the market.

Question 84

Product or Service Grouping

Answer 84

Product or Service Grouping is a framework in which a business is organised in separate divisions, each focusing on a different product or service. Such divisions may be according to:

the particular line of products or services they produce (eg, IT Services, Financial Services, Property Services);
the customers they deal with (eg customers in retail stores and customers online);
the geographical area they serve (eg, UK division, Europe division, Asia division.

Question 85

Advantages: product or service grouping

Answer 85

Easier to focus on specific market segments.
Easier to identify products that are poorly performing.
Meets customer needs more effectively.
Extends knowledge or expertise within specialised divisions.
Able to respond to market changes more flexibly and quickly.

Question 86

Disadvantages: product or service grouping

Answer 86

Duplication of functions and resources, eg, a different sales team for each division.
More difficult to share expertise and resources across departments.
Departments based on products may end up competing with each other, creating negative rivalries.

Question 87

Customer Grouping

Answer 87

This type of grouping occurs when an organisation divides its operations by types of customer. A large outdoor clothing business such as Mountain Warehouse or North Face may divide its customers into Retail (high street sales) and Online operations.

Question 88

Advantages: customer grouping

Answer 88

Customer groups are more responsive to changing customer needs.
Better organised to meet the needs of local markets, eg, different tastes or fashions in different towns or countries.
Customer grouping encourages concentration on customer needs, which can lead to higher levels of customer satisfaction and loyalty.
Develops knowledge and expertise in the customer area, eg what advertising works best in retail stores compared with online selling.
Easy to compare performance for each customer grouping and find out what works and what doesn’t.

Question 89

Disadvantages: customer grouping

Answer 89

More difficult to share expertise and resources across departments.
Departments may compete against each other – eg, retail division competing with the online sales team.
Departments based on products may end up competing with each other, creating negative rivalries.

Question 90

Strategic Decisions

Answer 90

Concerns the overall goals of the organisation
Long term
Made by senior managers
Usually involves high risk

Question 91

Tactical Decisions

Answer 91

Made to achieve the strategic objectives
Medium term
Made by middle managers
Medium risk

Question 92

Operational Decisions

Answer 92

Day-to day-decisions
Short term
Made to ensure smooth running of the business
Made by junior managers
Little or no risk

Question 93

Evaluating the Success or Quality of a Decision

Answer 93

Research customer’s opinions using surveys
Gather feedback from staff at meetings
Assess the situation to see if a problem has been solved
Compare profits/sales figures to see the impact of the decision
Use other financial information, for example ratio analysis
Check whether targets have been met

Question 94

SWOT analysis

Answer 94

A SWOT analysis is a compilation of a company’s strengths, weaknesses, opportunities and threats. The primary objective of a SWOT analysis is to help organisations develop a full awareness of all the factors involved in making a business decision.

Strengths are areas that the organisation is performing well in or is good at, such as having a strong brand image or a good corporate culture.
Weaknesses are areas that the company is not doing well in or is performing more poorly, such high levels of customer complaints or a poorly performing product.
Opportunities are things that could help the business to help them grow or become more profitable, such as the chance to take over a competitor or a boom in the economy.
Threats are external factors that could prevent a business from meeting its goals, for example a new competitor entering the market, a rise in interest rates or a possible recession.