Understanding Business Flashcards
Explain wealth creation
Created by a business by adding value.
When the final value of goods + services provided in the UK is added up it is known as the Gross domestic product (GDP)
Benefits of wealth creation
- Jobs created - reduces unemployment
- Other businesses keen to invest
- Infrastructure improved + roads + transport links
- Because of reduced unemployment, demand for goods + services increases as does the standard of living
Costs of wealth creation
- Volume of non-renewable resources can decrease
- Too much demand for goods + services can cause inflation
- Greenfield sites are lost
- Businesses can have environmental impact on a country or specific location
Types of business organisations
Private:
- Sole traders
- Partnerships
- Public + private limited companies
Public:
- National government
- Local government organisation
Third:
- Non profit making organisation
- Social enterprises
Public limited company
Ownership - Shareholders
Control - Board of directors
Liability - Limited
Financed - Selling items on stock exchange
Advantages - Take advantage of economies of scale because of size and large amounts of capital can be raised by selling shares
Disadvantages - Financial statements have to be produced annually and no control over who buys shares in the company
Objectives - Maximise profits and sales
Private limited company
Ownership - Private individuals
Control - Board of governors
Liability - Limited
Financed - Issuing shares, borrowing loans
Advantages - limited liability, set up costs decreased and legal process is simpler
Disadvantages - Profits shared among shareholders
Objectives - Maximise profit and sales
What is a franchise
A person who starts a business and provides a product or service supplied by another business
Advantages for franchisee
- Can begin trading in the new established reputation of the franchiser immediately - reduces failure
- Franchiser will offer training and business support and advice
- Franchiser is likely to advertise nationally saving the franchisee money
Disadvantages for franchisee
- Requires significant capital investment to set up
- A percentage of the revenue is paid to the franchiser
- Franchiser may impose strict rules on the franchisee and restrict the ability to operate on their own initiative - can be demotivating
Advantages for franchiser
- Gain a larger gain market share without spending large amounts of money
- Earns a percentage of franchisees revenue each year
- Risks and uncertainties are shared between franchisee and franchiser
Disadvantages for franchiser
- Reputation of whole business is dependant on the success of individual franchisees
- Time and recourses are devoted to support franchisee
- Only a percentage of the franchisees revenue goes to the franchiser which could be lower than what the franchiser earns themselves
Name the sectors of industry and explain them
Primary - Extraction of raw materials from the ground
Secondary - Manufacturing and assembly of goods. Take raw materials and transform them into a tangible finished product.
Tertiary - Provide a service, an intangible product.
Quaternary - Knowledge based and info service, concerned with innovation, research and development.
Explain horizontal integration
Two businesses providing the same service, or producing the same product, join together.
Allows to gain market share and grow bigger and reduce the no. of competitions in the market.
Explain Vertical integration
When businesses in the same industry, but who operate different stages of production, join together.
Explain backward vertical integration
Taking over a supplier.
Should have sufficient supplies available at reasonable prices.
Explain forward vertical integration
Taking over a customer
Explain diversification
Two businesses that provide different goods and services join together. Aka conglomerate.
Reduces risk of failure by operating in more than one market and allows profit to be obtained in more than one market.
Explain takeover
One large business takes control and ownership of a smaller business
Explain merger
Two businesses of about the same size agree to become one.
Allows sales and market share to increase
Explain organic growth
When the business increases the number of goods and services it offers or increases the no. of branches / outlets and employees that it has.
Explain deintregation / demerger
When a business splits into two or more separate businesses
Explain divestment
When a business sells off some of its assets or smaller parts of the business to raise finance
What is corporate culture
The values, beliefs and norms relating to the organisation that are shared by all staff
How can a business created a strong corporeal culture?
They can create symbols or logos that customers recognise
Make staff uniforms consistent throughout the organisation
Develop policies for dealing with customers
Merchandising products linked to the organisation
How is a corporate culture communicated?
Staff training YouTube videos Uniform Social events Company events Honouring employees
What are the external factors that affect a business?
Political Economic Social Technological Environmental Competition
Influence that external factors can have on a business
Political - A change in, or introduction of, a new law. this may reduce restrictions on trade and allow the business to gain greater sales and profit
Economic - Changes to economic policies by the government. This may restrict the ability of banks to lend money which may cause cash flow problems.
Social - changes in fashion trends and taste. A business can take advantage of new opportunities by producing products that customers demand, increasing sales.
Technological - new piece of technology becomes available. Technology can be expensive to purchase and maintain, which could result in less profit
Environmental - changes in weather. Depending on a certain product, the temp may increase demand, increasing sales.
Competition - competitor introducing a new product. Gives customers a wide range of products to choose from.
Definition of internal and external stakeholder
Internal:
People inside the business who are interested in influencing its activities because it affects them in some way. - employees, managers, owners.
External:
People outside the business who are interested in influencing its activities because it affects them in some way - government, banks, customers, suppliers, the local community.
Definition of interdependence
When someone internal or external in a business are dependent on each other
Example of conflict between owners and employees
Owners want to pay employees low wages to maximise profit whereas employees want high wages to have a high standard of living.
Different types of decision making
Strategic - long term, made by senior managers, concern the overall objectives and direction of business. Example - to expand into a new country
Tactical - Medium term, made by middle managers (Head of department), concern to achieve the strategic decisions of the business. Example - to bring out a new product
Operational - short term, made by junior managers, concern the day to day activities of the business. Example - training, working hours.
What are the main functions of management
Planning Organising Controlling Co-ordinating Commanding Delegating Motivation
(POCCC DM)
How can a manager evaluate if a decision has been effective?
- Check to see if objectives have been reached
- Look at financial info
- As employees - they’re implementing decision
- Ask customers
Why do senior managers make strategic decisions?
- More skilled + experienced
- Have an overview of entire organisation
- Have significant knowledge of the market they operate
- High up in business
Political influences on a business
- A change in, or introduction of, a new law.
- A change in amount of tax to be paid
- New gov targets to protect environment
Economic influences on a business
- No. Of people unemployed
- Change in interest rate
- Changes to economic policies by gov
Social influences on a business
- Changes in fashion trends and taste
- Changes in demographics
- Increase in no. of family friendly arrangements employers need to offer
Technological factors influencing a business
- New piece of technology
- Growth of s - commerce
Environmental influences on a business
- Changes in weather
- Increased pressure to recycle
Competition influences on a business
- New competitor entering market
- Competitor introducing new product
Explain POGADSCIE
P - Identify the problem O - Identify the objectives G - Gather information A - Analyse information D - Devise possible solutions S - Solve the problem C - Communicate the decision I - Implement the decision E - Evaluate effectiveness
Definition of Multinationals
A business that has operations in more than one country.
They have a home country and subsidery offices
Advantages of multinationals
- Health and safety legislation may be more relaxed in other countries - don’t have to spend as much to comply with them = decreased costs
- Access to a larger market, can sell products in countries they operate = increased sales
- Lower labour costs in some countries, especially in developing countries due to lower costs of living = decreased costs
Disadvantages of multinationals
- Different cultures and language barriers can cause problems in communication = slower decision making - lower productivity.
- Lots of different legislation to comply with in each country - time consuming and expensive to lay lawyers
- Changing exchange rates between countries can cause problems in calculating costs and profits may lead to wrong decisions being made
Discuss the use of customer grouping (4)
Advantages:
- Understand needs and wants of the customer better leading to higher customer satisfaction - repeat sales
- Relationship can be developed between the business and the customer - brand loyalty - repeat sales
- Can respond to changes in the external environment quicker
Disadvantages:
- Expensive due to duplication of resources
- If the contact leaves: loss of continuity
- Need to create new grouping for new customer = expensive due to staffing/ resources
