Understanding Business Flashcards
What is the primary sector of industry?
Businesses involved in exploiting natural resources.
Examples include farming, mining, and oil drilling.
What does the secondary sector of industry do?
Involves manufacturing and construction by turning natural resources into goods.
Examples include car production and house building.
Define the tertiary sector of industry.
Businesses providing services rather than goods.
Examples include retail outlets, banks, hotels, and hospitals.
What is the quaternary sector of industry?
Businesses providing information and knowledge-based services.
Examples include consultancy, teaching, ICT, and R&D.
What does ‘adding value’ mean in a business context?
Increasing the worth of a product as it moves through different sectors of industry.
Example: A denim jeans manufacturer adds value by turning cotton into jeans.
What characterizes the private sector?
Businesses that primarily aim to maximize profits.
Includes all profit-making organizations.
What is the public sector?
Consists of government-owned organizations aimed at providing services to society.
Examples include NHS, police, and education.
Define the third sector.
Organizations set up to provide goods or services to benefit others.
Examples include charities, voluntary organizations, and social enterprises.
What is a private limited company (Ltd)?
A company owned by shareholders who have limited liability and shares not available to the public.
Aims to maximize profits and is controlled by a board of directors.
List advantages of a private limited company.
- Limited liability for owners
- Ownership remains within a close group
- High level of customer service
- Expertise from an experienced board
What are the disadvantages of a private limited company?
- Profits shared among shareholders
- Complicated legal setup
- Limited capital from private shares
- Financial statements are public
What is a public limited company (PLC)?
A company owned by shareholders who can sell shares publicly and aim to dominate the market.
Controlled by a board of directors.
List advantages of a public limited company.
- Limited liability for shareholders
- Large finance raised through public share sales
- Easier borrowing due to size and reputation
- Market dominance potential
What are the disadvantages of a public limited company?
- Shared dividends among many shareholders
- Loss of control as shares can be bought by anyone
- Annual accounts must be published
- Costly and complex setup
What is a franchise?
A business model allowing individuals to own a branch of a well-known business by paying a fee.
Aims for growth and increased market share.
List advantages for the franchiser.
- Low-risk growth as franchisee invests capital
- Receives a percentage of franchisee profits
What are disadvantages for the franchiser?
- Reputation can be harmed by poor franchisees
- Only receives a share of profits
List advantages for the franchisee.
- Well-known business with existing customer base
- Industry knowledge and training provided
- Benefits from national advertising
What are disadvantages for the franchisee?
- Limited autonomy over business decisions
- Annual royalties must be paid
- High initial startup fees
Define a multinational business.
A business with operations in more than one country.
List advantages of multinationals.
- Lower wages and raw material costs in host countries
- Avoidance of home country legislation
- Government grants for locating in certain countries
- Avoidance of quotas and tariffs
What are disadvantages of multinationals?
- Language barriers can hinder communication
- Cultural differences may affect production
- Exchange rates can affect financial transactions
- Time differences can hinder communication
What does the central government in the public sector do?
Provides national services that are difficult for the private sector to offer.
Examples include NHS and armed forces.
Define nationalized companies.
Private sector businesses bought by the government to prevent them from going bankrupt.
What is privatization?
The process of selling a public sector organization to the private sector.
What does local government provide?
Essential services to the public free of charge, funded by taxation and local business rates.
Define charities.
Organizations set up to raise money for the benefit of others, controlled by a board of trustees.
List advantages of charities.
- Exempt from some taxes
- Low wage costs due to volunteers
- Increased donations from private companies
What are disadvantages of charities?
- Difficulty competing with large marketing budgets
- Reliance on volunteers who may leave for paid work
What are voluntary organizations?
Organizations aiming to provide services for their members and community, funded through membership subscriptions.
Define social enterprises.
Organizations aiming to make a profit to benefit a specific group or cause.
List advantages of social enterprises.
- Attract customers through social aims
- Attract good-quality employees
- Likely to receive government grants
What is a democratic enterprise?
Businesses that share profit and decision-making among members, aiming for profit without necessarily maximizing it.
Define cooperatives.
Businesses aimed at providing quality service for members and customers, with shared ownership and decision-making.
What are factors affecting business objectives?
- Sector of industry
- Size of organization
- Changing circumstances
What does maximizing profits mean?
Bringing in more money than spent on materials and running costs.
What does survival mean for a business?
Avoiding going out of business.
Define satisficing.
Aiming for a satisfactory result rather than the best possible outcome.
What is the objective of providing a quality service?
To meet customer needs and improve standards of living.
What does increasing market share refer to?
The percentage of total shares in a market that a business holds.
What are managerial objectives?
Objectives pursued by managers that may improve their status within the company.
What does working within a budget mean?
Sticking to an annual budget without overspending.
What does sales maximization mean?
Focusing on selling as many units as possible, sometimes at the expense of overall profits.
Define corporate social responsibility (CSR).
Aiming to act in an ethical manner that benefits society or the environment.
List methods to ensure good CSR.
- Ethical responsibilities
- Philanthropy
- Legal responsibilities
What are advantages of positive CSR?
- Good reputation
- Attracting like-minded customers
- Attracting high-quality staff
- Societal and environmental benefits
What does growth mean for a business?
Making the business larger.
List advantages of growth.
- Reduces risk of failure
- Increases profits
- Avoids being taken over
- Removes competition
- Economies of scale
What is internal/organic growth?
Growing the business independently without involving other organizations.
List methods of internal/organic growth.
- Launching new products/services
- Opening new branches
- Introducing e-commerce
- Hiring more staff
- Increasing product capacity
Define diversification.
Launching products across different markets to spread risk.
What is horizontal integration?
When two businesses from the same sector merge.
List advantages of horizontal integration.
- Market dominance
- Economies of scale
- Increased profits due to reduced competition
What are disadvantages of horizontal integration?
- Potential breaches of competition rules
- Quality may suffer
- Higher prices for consumers
Define forward vertical integration.
When a business merges with another in a later sector of industry.
List advantages of forward vertical integration.
- Control over supply
- Increased profits by cutting out middlemen
Define backward vertical integration.
When a business merges with a supplier in an earlier sector of industry.
List advantages of backward vertical integration.
- Guaranteed supply
- Lower inventory costs
- Quality control of supplies
What are disadvantages of vertical integrations?
- Possible mismanagement of new activities
- Focus on new activities may harm core activities
- Legal repercussions of monopolizing markets
Define lateral integration.
When a business merges with another in the same industry but not in direct competition.
List advantages of lateral integration.
- Target new markets
- Complement existing products
What are disadvantages of lateral integration?
- Lack of market knowledge may affect performance
- Potential impact on core activities
Define conglomerate integration.
When businesses in different markets join together.
List advantages of conglomerate integration.
- Spread risk of failure
- Overcome seasonal fluctuations
- Larger and more financially secure business
- Acquisition of customers and sales
What are disadvantages of conglomerate integration?
- Potential market unfamiliarity leading to failure
- Loss of focus on core activities
- Inefficiency due to size
What is a takeover?
When one business buys another business.
List advantages of takeovers.
- Gaining market share and resources
- Spreading risk of failure
- Achieving economies of scale
- Reducing competition
What are disadvantages of takeovers?
- Integration may lead to job losses
- Potential negative impact on the taken-over business
What is a takeover?
A takeover involves one business acquiring control over another business, often resulting in hostility.
Advantages of takeovers include:
- Gaining market share and resources
- Spreading risk of failure
- Achieving economies of scale
- Reducing competition, which can increase sales
Disadvantages of a takeover include:
- Job losses in the taken over business
- Negative impact on local economy if headquarters are moved
- Higher prices for customers due to reduced competition
- Potential loss of loyal customers due to name change
- High costs of acquisition
What is a merger?
A merger involves two businesses agreeing to join forces and become one organization, often resulting in a new name or logo.
Advantages of merging include:
- Shared market share and resources
- Spreading risk of failure
- Achieving economies of scale
- Combining areas of expertise
- Higher likelihood of job preservation
Disadvantages of merging include:
- Customer dissatisfaction with changes
- High marketing costs to inform customers
- Higher prices for customers due to reduced competition
What are retained profits?
Retained profits are profits made by the business that are kept for funding growth rather than given to shareholders.
What is divestment?
Divestment involves selling off parts of an organization, such as a subsidiary or brand, to focus on more profitable areas.
What is deintegration?
Deintegration occurs when a business sells off part of its supply chain that it owns.
Advantages of deintegration include:
- Focus on core activities
- Increased choice in the vertical chain
Disadvantages of deintegration include:
- Higher prices for supplies
- Risk of competitors acquiring integrated components
What is asset stripping?
Asset stripping is taking over another company to sell off its assets for profit.
What is a de-merger?
A de-merger occurs when a single business splits into two or more separate components, still owned by the same organization.
Advantages of de-mergers include:
- Focus on individual activities for growth
- Increased operational efficiency
- Ability to divest components to meet competition regulations
Disadvantages of de-mergers include:
- Potential customer abandonment
- Significant financial costs for rebranding and marketing
What is a management buy-in?
A management buy-in is when management from another business takes over the company.
What is a management buy-out?
A management buy-out occurs when the management of a business buys the company they work for.
What is outsourcing?
Outsourcing is when an organization arranges for another organization to carry out certain activities instead of doing them in-house.
Advantages of outsourcing include:
- Focus on core activities
- Reduced need for labor and equipment
- High-quality work from specialized businesses
- Potential cost savings from economies of scale
- Flexibility in using services as needed
Disadvantages of outsourcing include:
- Less control over quality
- Need for clear communication
- Risk of sharing sensitive information
- Potential higher costs due to specialist expertise
What are political factors
Arise from decisions made and actions taken by the government, either at a local or national level
This can be changes in laws and legislations or alterations to government’s fiscal policy
What is the positive impact of changing laws and legislation
The government could include environmental protection laws and policies such as zero waste scotland and by complying, organisations will be seen in good light. this is good PR and can attract potential customers
What is the negative impact of changing laws and legislation
The government could increase the minimum wage so that organisations have higher wage costs. This will result in a lower profit for the year
What is the positive impact of changing income tax rates
The government could reduce taxes, such as income tax. This will give the customers a higher disposable income. This means customers are more likely to buy products
What is the negative impact of changing income tax rates
The government could increase income tax. This will give the customers a lower disposable income. This means customers would be less likely to spend money on a business’ products unless it is essential. This will reduce sales overall
What is the positive impact of changing VAT rates
The government could lower VAT. This is a tax on goods and services. Reducing the VAT rate will make products more affordable for customers, increasing sales for a business
What is the negative impact of changing VAT rates
The government could raise VAT. this will increase the selling price which could put customers off purchasing products and reduce sales
What is the positive impact of changing corporation tax
Many types of businesses, such as limited companies, have to pay tax on their profits. The government could lower the rate of corporation tax which would mean less money is taken from the business and given to the government, which would increase profits
What is the negative impact of changing corporation tax
The government could raise the rate of corporation tax which means more money would be taken from the business and given to the government which would reduce the profit for the organisation
What is the positive impact of public spending on infrastructure
The government could decide to fund the development of infrastructure. Examples include building new motorways, car parks, tram networks and so on. This will increase the likelihood of attracting customers for businesses in these areas
Public spending also creates jobs which gives people wages and enables them to spend money on other goods and services
What is the negative impact of public spending on infrastructure
Public spending is a contentious issues as it only improves certain areas. For example, the edinburgh tram network greatly improved edinburghs infrastructure, however businesses in glasgow saw no benefit. This is known as opportunity cost
What is completion policy
Aim to investigate markets and enforce completion policy in order to promote competition for the benefit of consumers
This is done to keep prices low for consumers, ensure products and services are high quality, ensure customer service is good, ensure entire markets improve and grow, ensure healthy markets can attract foreign investment.
What is the impact of completion policy
Cartels- organisation cannot participate in cartels. This means colliding with other businesses to fix prices to make higher profits
Mergers- The CMA can block mergers if it is likely to lead to a substantial lessening of competition in any market
Anti competitive behaviour - organisations cannot use their dominant position in the market to change drastically low prices, pay lower prices to suppliers or control the supply of goods to the detriment of the market
Consumer protection - consumers have rights and are protected from unfair practises such as hidden charges and poor customer service
What is economic cycle
Economic factors arise from the state of the economy.
Explain Boom Stage
GDP and employment levels are very high. Demand for products is very high
Businesses can take advantages of the demand for products and the wealth of consumers by increasing prices. This will improve profits for the business. However, a side effect is an increase in inflation. This is a rise in prices over time and often leads to wage rises, so people can afford to keep up with inflation
Explain Recession stage
GDP and employment levels fall. Demand for products falls
Businesses have to react to falling demand by making staff redundant, which will cost them redundancy payments and lose them the skills and knowledge of employees. Prices will have to be cut to try and increase demand, which will lower the amount of profit a business can make and may even lead to losses
Explain recovery stage
GDP and employment levels begin to rise. Demand for products increases
Businesses can rely on consumers being in a better position to spend money due to rising employment, so therefore sales will increase. Businesses can develop new products and start to increase prices, which will lead to bigger profits for the business
What is economic policy
The economic policy of a government can be divided into two areas, fiscal policy and monetary policy
1. fiscal policy- a governments fiscal policy concerns the tax rates it sets and its level of public spending.
2. monetary policy - a governments fiscal policy is the ways in which it controls the supply of money into the economy and therefore affects spending. This can be done by varying interest rates
What is interest rate
Determine the percentage that is added to borrowings or savings.
The bank of England sets the base rate of interest which is the minimum rate of interest that banks and building societies must apply to loans and savings
What is the effect on savings when there is a rise in interest rate
customers are more likely to save due to attractive rates as they will earn more money on their savings. This means customers will spend less on businesses’ products as they are saving their money instead
What is the effect on borrowing when there is a rise in interest rate
Customers are less likely, or able, to take out loans or to spend using credit cards as they will have to pay back more money on their borrowing. This means customers will be able to spend less on businesses’ products
What is the effect on savings when there is a reduction in interest rate
Customers are less likely to save as interest rates are unattractive, so are more likely to spend money on a businesses’ products
What is the effect on borrowing when there is a reduction in interest rate
Customers are more likely to borrow money as it is less expensive to pay back loans and credit cards debts, so are more likely to spend money on a businesses’ products
What is exchange rate
Determines the amount of one currency that can be bought using another currency. The exchange rate of the pound sterling against foreign currencies changes on a daily basis.
What is the effect on exports with a strong pound
If the value of the pound is high compared to the foreign currencies, UK exporters will struggle to sell their product abroad as they will be more expensive than foreign goods and sales will fall
What is the effect of imports with a strong pound?
If the value of the pound is high compared to foreign currencies, imports will become cheaper. This will decrease costs for businesses that source materials from abroad which will increase their profits
It will also allow a lower selling price to be charged for products made in the UK to attract customers
What is the effect of exports with a weak pound?
If the value of the pound is low compared to foreign currencies, UK exporters will be able to sell more goods to foreign countries as their goods will be less expensive for customers outside the UK
What is the effect on imports with a weak pound?
If the value of the pound is low compared to foreign currencies, imports will become more expensive. This increases costs for businesses that source their materials from abroad and may lead to an increase in prices
What are social factors?
Concern the ways in which society changes and the need for businesses to adapt in the same way. social factors could be either a change in the demographics, the characteristics of the population, or a change in cultural behaviour
What is a positive impact of UK aging population?
This is a vast, and growing, market segment. Businesses that can produce products tailored for this market should succeed. Many potential customers in this segment are retired and well off so there is a potential to offer quality products at high prices
What is a negative impact of UK aging population?
Extensive market research must be carried out which costs time and money
What is a positive impact of more women with professional careers?
As more women are taking up high profile professions and managerial roles they are waiting longer to have a family. As a result, couples are generally better off when they have their first child so businesses can offer high quality maternity and baby products that sell for a high price.
What is a negative impact of more women with professional careers?
More women will be taking maternity leave once they are established in their careers which will mean organisations have to consider flexible working arrangements, such as part time or job share. This will result in the organisation having to spend time recruiting and training replacement staff
What a positive impact of evolving work life balance
Fewer employees are working the traditional 9-5 working week. As a result, businesses must cater for the needs of a society that works around the clock for 7 days a week. This has led to a trend of convenience in the UK
What is a negative impact of evolving work life balance?
Organisations will have to provide more staff to work 24 hours a day, 7 days a week to meet customer needs, which will increase wage costs
what is a positive impact of changing fashion trends
Businesses can cater for the latest fashion trends and offer products that customers want, therefore increasing sales.
What is a negative impact of changing fashion trends?
Businesses have to spend time and money researching and developing new products. Some products also have a very short shelf life
What is a positive impact of flakes for working arrangements?
flexible working arrangements means staff will be able to work at a time when they are most productive which will improve quality in the organisation as well as raising morale. Additionally, businesses can save money on renting office space and more employees work from home.
What is a negative impact of a flexible working arrangements?
flexible working arrangements can lead to a lack of supervision and direction from staff which can reduce productivity. Organisations may also have to provide staff with equipment such a smart phones and laptop so they can work at home which can be costly.
what is a positive impact of ethical considerations?
businesses that practice ethically will be seen in a good light by customers
what is a negative impact of ethical considerations?
often unethical practice is carried out purely to keep cost low so operating ethically will increase costs and perhaps reduce overall profits.
What are technical factors?
concern the quickly evolving technological advancements that can impact on organisations.
what is a positive impact of cloud computing?
Through technology such as onedrive or dropbox, organisations can save money on their own IT hardware. Additionally, they will not require as many IT staff to maintain equipment, saving on wage costs
What is a negative impact of cloud computing?
there is a heavy reliance on the cloud performing. If internet connection is unavailable, the organisation wont be able to access files stored on the cloud, causing production to stop. There are also privacy and confidentiality issues regarding storing information on the cloud
What is a positive impact of social media?
Having a social media presence allows organisations to keep in touch with customers and raise their profile to a potentially worldwide market.
What is a negative impact of social media?
Social media can be used by customers to spread bad reviews about an organisation, leading to a poor reputation that could put customers off and cause them to take their business to the competition
What is a positive impact of Wi-Fi?
Organisations that provide a free WIFI service are more likely to attract customers who wish to use wifi for work or personal reasons
What is a negative impact of Wi-Fi?
There is a financial cost of setting up and maintaining wifi
What is a positive impact of 4G?
4g will enable organisations’ employees to communicate and download information while on the move much more quickly
What’s a negative factor of 4G?
Not all areas are equipped with 4g capabilities, which could leave organisations in these areas behind
what are environmental factors?
Arise from the ways in which the natural environment impacts on organisations or the ways that organisations act in an ethical and environmentally friendly manner
What is a positive impact on the weather?
A business could be impacted by spells of favourable weather, for example, during prolonged periods of snow the ski industry in Scotland will see an increase of customers
What is a negative on the weather?
Prolonged spells of adverse weather such as snow can affect the transport networks across the UK. This will make it difficult for deliveries of materials to arrive and for staff to get to work, therefore causing production to slow down or cease entirely
What is a positive impact of recycling?
Organisations encourage recycling by their customers in order to impact less negatively on the environment. Retailers discourage plastic bags, which will lower the cost to the retailer of providing the bags and gain the company a favourable reputation for being environmentally friendly
What’s a negative factor recycling?
Organisations need to undertake recycling which takes time, effort and money to recycle rather than just disposing of waste
What’s a positive impact of carbon footprint?
Organisations are encouraged to reduce their carbon footprint. This means to lower the amount of emissions from fossil fuels released into the atmosphere. Businesses that do this, will eventually save money on fuel bills
What’s a negative impact of carbon footprint?
There is a financial cost associated with investing in renewable energy.
What is a competitive factor?
Refers to rival organisations that provide the same or similar product and attempt to take their customers, attract new customers or keep their own customers.
what are the positive effects of competitive factors?
Competition opening up a physical store next to a business can be good as it provides more choice for customers and brings passing trade to the area
Competition improves a market as it brings with it more choice, new ideas and keeps prices low, which can benefit all businesses in the market
What are negative impacts of competitive factors?
The competition could lower prices, undercutting another business. Businesses will either have to lower prices too, reducing profits, or risk losing customers to the competition
The competition could launch new or improved products. Businesses will have to spend money researching and developing products to keep up with the competition
what are possible constraints due to no finance
The organisation may not be able to implement decisions and take courses of action that it wishes to such as expanding the business by developing new products, or offering wage rises to motivate staff
The organisation may have to take drastic action to cut costs such as making staff redundant, removing a layer of management.
How can managers impact on an organisation?
Level of Risk - sometimes managers go for the safe option which wont necessarily meet the objectives of the business, such as maximising profits. On the other hand some managers take too much risk and when things go wrong, put an organisation into financial difficulties
Experience and expertise - A good manager can lead and motivate a team to success, while a bad manager can cause low morale, a high turnover of staff and a drop in productivity
How can technology impact on a business?
Breakdowns can be catastrophic - contact centre losing wifi so being unable to serve customers
Loss of relationships can impact negatively on employee morale and rapport as staff email each other more rather than having face to face conversations
Lack of technology can leave the organisation behind its competitors, not selling online misses out on global market
Financial cost of installing and replacing technology
Staff need to be trained in how to use new technology or new versions of existing technology
what are methods used to promote corporate culture?
Company values - these need to be developed by the founder as values are hard to adopt years down the line.
Office layout - an open plan layout can encourage a relaxed environment. it can also encourage better communication and idea sharing among staff
Corporate colours - give organisations and their staff a strong corporate identity. colours can also help customers identify the organisation easily
Uniformity of layout - Uniformity of branches makes it easier for staff to transfer between branches and encourages customers to feel at ease, no matter what branch they are in
Language and jargon - An organisation can invent its own quirky words and phrases that help give employees a sense of belonging and appeal to customers looking to buy from a business which is a bit different.
Slogans and logos - Use of brand logos helps give organisations identity that are easily recognisable.
Reward culture - many employees respond well to financial incentives such as bonuses, commission or pay rises
Flexible working arrangements- Utilise arrangements such as flexitime or working from home, creates culture of trust
More advantages of strong corporate culture
Flexible working arrangements mean staff work when and where they are most productive
Employees feel part of the organisation through use of uniforms, jargon and so on
Customers gain a sense of quality product/service
Rituals create a relaxed ethos and can improve employee relations
Employee loyalty is increased as they are happy in their jobs and feel sense of belonging to the business
High quality staff are attracted to the business as they like the idea of working in the culture
A relaxed working environment, empowerment and a flat hierarchy can motivate staff
Word disadvantages of corporate culture
Culture is hard to introduce unless it starts from the founders
Staff have to be made aware of changes to culture and if they aren’t they may resist change
Modern office cultures can leave some employees physically and socially distant from others, demotivating them
Some cultures can be seen as a bribe to get staff on board
Management can lose focus and control if a culture is too loose
what is a stakeholder?
An individual or group of people who have an interest in the success of an organisation. Internal stakeholders are from within the organisation. External stakeholders are from outside the organisation.
explain different types of stakeholders
Owners: profits in order to see a return on their investment. can invest more money and can make important decisions
Managers: may be given bonuses or promotions based on performance. Can make decisions
Employees: Want job security and perhaps a pay rises. Can affect standard of work, can take industrial action
Customers: demand a quality product/service and value for moment. Can take their custom elsewhere, can spread good/bad word to others
Suppliers: want continued business and the business to pay its debts. Can change prices, can adjust quality of supplies, can change account terms
What is conflict of interest?
Although all stakeholders want a business to succeed, they can often conflict in their individual aims.
What are some examples of conflict of interest?
Employees vs owners/managers: Employees want a pay rise, whereas owners want to maximise profits
Customers vs owners/managers: Customers want low prices and value for money whereas owners want to raise prices to maximise profits and meet their own objectives.
Suppliers vs owners/managers: Suppliers want to be paid as soon as possible ideally in cash whereas the owners want trade credit to keep good cash flow in the business
Government vs owners/managers: Government may want to introduce legislation to improve society however owners may disagree with the legislation as it will impact negatively on their business
What are interdependent stakeholders?
Owners/managers and governments: Owners/managers need governments to make good decisions, such as lowering taxes to improve the spending power of customers and therefore sales, while governments need owners to create jobs
Owners/managers and suppliers: managers need suppliers to provide quality raw materials to improve the quality of the finished products while suppliers need managers to keep buying from them and keep them in business
Owners/managers and customers: owners need customers to buy their products and customers need a good quality of product and customers service from the owners of the business
Owners and employees: owners need employees to perform their best to increase sales and profits through work rate or customer service while employees need owners to make good decisions to keep business profitable and jobs safe
Managers and employees : Employees and managers need to work together to help the business to succeed in order to keep their jobs secure
What is a tall structure?
Board of directors/owners
Senior management
Middle Management
Supervisors
Employees
What are advantages of tall structures?
Each staff member knows their role and who to report to
With many levels come many promotion opportunities
There is a narrow span of control which means managers have more time for planning, supervision and decision making.
what are disadvantages of a tall structure
Communications take time to flow down through the levels, which slows down decision making
The organisation can be slow to react to changes in the market
The narrow span of control means managers supervise work more closely which can put staff under pressure.
What is a flat structure?
Board of directors
Management
Employees
What are advantages of a flat structure?
Information can be communicated quickly between levels
The organisation can respond quickly to external factors such as competition
There is a wide span of control which means managers have to delegate tasks to staff which can raise morale as staff feel trusted and also staff are empowered to make decisions themselves
What are disadvantages of a flat structure?
Fewer levels means fewer promotion opportunities so quality staff may leave the organisation to gain promotion in larger organisations
As there are fewer management levels, staff may be delegated more tasks which could put them under pressure
The wide span of control means managers’ time is at a premium which can lead to snap decisions, less time for planning and subordinates may have no one to seek help from
what is delayering?
Removing one or more levels of management from a tall structure to make it flatter
what are advantages of delayering
Money is saved on paying the salaries of management levels that are removed
Quicker decision making and communication are possible as there is a shorter chain of command
The organisation can be more responsive to changes in the market as there are fewer levels for information to pass through
There is a wider span of control.
what are disadvantages of delayering
There are fewer promotion opportunities for staff
Redundancy payments will cost the organisation a significant amount of money
The organisation will lose key members of staff in the restructure
There is a wider span of control
What is a centralised structure?
Decision making and control is kept at the very top level of a centralised organisation. In organisations with many branches this means important decision making being retained within head office and the senior management, directors or owners that work there.
what are advantages of centralised structure?
A high degree of corporate identity and strategy exists as decisions are made for the entire organisation
Procedure are standardised which ensures consistency
There is a low risk of important information leaking from branches or departments
What are disadvantages of a centralised structure
Less responsibility is given to subordinates which can result in demotivated staff
Decisions will not meet the needs of local markets
The organisation will react slowly to external factors
what is a decentralised structure?
Decision making and control is delegated to individual branches or departments. This type of structure is best used in retail chains that need to respond to the needs of their local markets.
What are advantages of a decentralised structure?
The business reacts quickly to external changing factors
Decisions are made quickly as local managers dont need to consult senior managers before implementing decisions
More subordinates are empowered which encourages creativity
Senior management at head office are relieved of the burden of constant decision making
What are disadvantages of the centralised structure?
The organisation can lose an overall corporate image if each branch is operating differently
Local branches could start to compete with each other if they are allowed to make key decisions
Additional training required fir middle management
Lower level management can make decisions which could harm the business as a whole
What is the matrix structure?
Involves an organisation being arranged into temporary project teams to carry out a particular task, such as developing a new product or service, or a large scale construction operation.
What are advantages of matrix structure?
Each team has specialised staff from all functional areas
Complex problems can be solved
Staff can use their expertise and as such have job satisfaction and motivation
What are disadvantages of a matrix structure?
Many managers across all project teams will mean high wage costs
Duplication of resources such as administration staff and equipment
Staff can be confused as to who to report to
What is entrepreneurial structure?
Usually they have one main decision maker, the owner. Other staff can have some input but generally they are rarely consulted and final decisions are made by the owner
What are advantages of an entrepreneurial structure?
Decisions are 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
What are disadvantages of an entrepreneurial structure?
This structure can create a heavy workload for the main decision maker
If the owner is busy or not available, key decision cant be made
Other staff dont get a chance to show initiative, stifling creativity and possibly demotivating some staff
what is functional grouping
Grouping an organisation into departments called functional areas, based on skills and experience. The main functional areas of most organisations are marketing, finance, operations and human resources.
what are advantages of functional grouping
Staff with similar skills and expertise are together, allowing for specialisation
Staff know who to report to and can get guidance from more experienced staff in their area of expertise
Clear structure, lines of authority and career paths are mapped out for employees
What are disadvantages of functional grouping?
The organisation can become too large to manage if functional departments grow rapidly
Functional grouping is often coupled with a centralised structure so communication can take a while to filter through to functional departments, causing slow reactions to external factors
Functional departments can be more interested in their own objectives rather that’s the organisations objectives as a whole
what is location grouping?
Grouping an organisation into geographical divisions. Each division will operate to serve customers in a particular location
what are advantages of location grouping?
Each division can meet the needs of its local market
The business can react quickly to changing external factors
It is easy to identify a falling area and hold regional managers accountable
What are disadvantages of location grouping?
Duplication of resources such as administration staff or computer equipment across each group is inefficient
Divisions may compete against eachother and forget the overall objectives of the organisation
Local knowledge and relationships with local customers are lost if staff leave
What is product/service grouping?
This is grouping an organisation into divisions that deal with different products or services.
What are advantages of product/service grouping?
The business can react to changing external factors that affect each particular group’s market quickly
It is easy for management to identify struggling products/services
What are disadvantages of product/service grouping?
Duplication of resources can occur
A new group needs to be set up every time the business launches a new product meaning more staff, equipment and premises costs
what is technology grouping?
Similar to product/service grouping but involves businesses organising their activities according to the technology or production processes used
What are advantages of technology grouping?
High degree of specialisation can occur in production
Problems in the production process can be easily identified
Capital intensive which can reduce wage costs
What are disadvantages of technology grouping?
High degree of specialised training is required
Only an option for very large businesses with different production processes
Capital intensive which is expensive
What’s customer grouping?
Involves grouping the organisations into divisions that deal with a different type of customer
What are advantages of customer grouping?
Each group can tailor its product or service to its own type of customer
Customer loyalty can build up to the high level of personal service that can be achieved
What are disadvantages of customer grouping
Duplication of resources can occur A new
This is only suitable for large businesses with many customer types/segments that are of sufficient size. It is inefficient to offer a group for a small customer segment.
What are advantages of downsizing?
This can cut the costs of wages and rent
The business is leaner and can become more competitive
What is downsizing?
This involves an organisation either closing an unprofitable division, such as a location group, altogether or merging two divisions together
What are disadvantages of downsizing?
Valuable skills and knowledge are lost when redundancies are made
Remaining staff feel vulnerable and are demotivated
Explain strategic decision-making
Long term decision making by senior managers to meet the overall purpose and direction of the organisation
High Risk
Explain tactical decision-making
Medium term decision making by middle managers to achieve the strategic decisions
Medium risk
explain operational decision-making
Short term/day to day decisions made by supervisors and all staff to react to situations as they arise
Low risk
Explain centralised and centralised decision-making
Centralised decision making is kept at the senior level of the business
Decentralised decision making is delegated to branches or outlets
explain SWOT analysis
An organisation can use a structured decision making model known as SWOT analysis. This allows it to look at its internal strengths and weaknesses as well as external opportunities and threats.
What are advantages of using SWOT?
Identifies strengths and allows a business to build upon them
Identifies weaknesses and allows them to be addressed
Identifies opportunities and allows them to be exploited
Identifies threats and allows them to be turned into opportunities
Time is taken to analyse the business’s current position so no rash decisions are made
What are disadvantages of using SWOT?
A SWOT analysis is very time consuming which can slow down decision making
A SWOT analysis is very structured process which can stifle creativity and gut reactions from managers
A SWOT analysis can generate many ideas; however it doesn’t help pick the right one
A SWOT analysis produces a result that reflects the opinions of those who carry it out which could lead to bias
A SWOT analysis considers information that is available at a particular moment and may be outdated quickly
what are factors affecting the quality of decisions?
Human resources - managers’ ability, training and experience. How much risk the managers will take. Staff resistance to change. Managers ability to handle stress.
Technology - spreadsheets can improve accuracy, databases can improve the speed of decision making, email can be used to communicate information, internet sites can be used to find out a vast amount of information, video conferencing can reduce the need for mangers to travel to meetings saving on time and costs
Availability of finance - whether finance is available to exploit the opportunities, financial constraints may mean an organisation cannot choose the best solution to a problem
What is the role of a manager?
Plan - the function of management is to be looking ahead, seeing potential opportunities, or problems, setting targets and strategies.
Organise - management must set tasks for other employees that need to be carried out to achieve set targets
Command - managers should issue instructions to employees
Co-ordinate - managers must bring together the resources of the business to achieve the overall objectives that have been set
Control - managers need to ensure they are measuring and correcting the activities of the organisation.
what are modern day roles
Delegate - give subordinates the authority to carry out management level tasks. This helps lessen the manager’s workload and achieve the next role
Motivate - give his team a reason to enjoy their work.
How can employees impact the organisation
- Training - a well trained employee fulfils their role effienctly and is an asset to the company, a badly trained one can be incapable of performing basic functions such as interacting with customers and is detrimental to the organisation
- Morale - employee morale needs to be high as if morale is low, it could impact on the performance levels of staff, increase staff absenteeism or worse lead to industrial action such as strike
- Experience - employees need to have experience of doing the job in order to develop the skills and expertise to carry out their jobs effectively
- Capacity - a business will not be able to perform to its best if it is not fully staffed. Sometimes when a business tries to recruit more staff, labour shortages can prevent success
How do managers assess effectiveness of a decision?
Measuring sales levels to see if they have increased
Analysing profit levels to see if they have improved
Interviewing staff to assess their opinion of the decision
Monitoring staff morale, absence and turnover following major decisions
Finding out from customers about improvements in service
Tracking changes in share prices to major decisions
Researching customer review sites or social media feedback
What are strengths
Availability of finance
Well known brands or products
Goods/services that make the most profits
Products that are benchmarks in the market which competitors try to copy
Assets the business owns such as a large modern factory or outlet in a prime location
High quality staff and good staff morale
What are weaknesses
Lack of finance
Lack of technology
Poor customer service reputation
Faulty products
Products or branches that are making losses
Assets that are in a state of disrepair, such as a crumbling factory
Untrained staff or low staff morale
What are opportunities
A competitor going bust so the business could take on its customers
A boom period in the economy that the business could exploit
Customer tastes and fashions falling in line with an organisations specialism
Governments introducing favourable legislation
Advancements in technology that the business could exploit
What are threats
A competitors actions, such as cheaper prices or better quality products
A downturn in the economy such as recession
Customer tastes and fashions changing away from those the business specialises in
Governments introducing legislation that impacts badly on the organisation
Advancements in technology that could leave the business behind it’s rivals
