Understanding business Flashcards
what are the 4 factors of production
capital
enterprise
land
labour
what are the 4 sectors of industry
primary sector
secondary sector
tertiary sector
quaternary sector
what are the 3 types of business organisations
private sector (private individuals and investors) public-sector (government ie: moray council) third sector (charities)
3 advantages of a private limited company
shareholders have limited liability
control of company not lost to outsiders
more finance can be raised from shareholders and lenders
3 disadvantages of a private limited company
profits must be shared amongst more people(shareholders dividends issued)
A legal process is required to set up a private limited company(LTD)
(raising finance can be difficult as) shares cannot be sold to the public
What are the 3 sectors of economy
1: Private sector (profit making businesses)
2: public sector (government)
3: third sector (charities)
3 advantages of public limited companies
1: shareholders have limited liability
2: large amounts of finance can be raised due to use of public sales through shares
3: easy to borrow finance due to PLCs size and reputation
3 disadvantages of a public limited company
1: dividends are shared with many shareholders
2: setting up a PLC is costly and complicated
3: control of the business can be lost as anyone can buy shares on the stock market
What is 4 statements describing a public limited company
PLCs owned by shareholders
Who have limited liability
Controlled by a board of directors
Can sell shares publicly unlike LTDs
What is 4 statements that describe a private limited company
Have limited liability
Owners of the company are shareholders
Shares are not available to the general public
They share ownership of business with others
What is 3 statements that describe a franchise
Business model allows businesses to use their brand name
Franchiser=original business owner
Franchisee=owner of each individual branches
2 advantages of a franchiser
Low risk form of growth as franchisee invests majority of capital
Receives a percentage of all franchisees profits yearly(royalties)
2 disadvantages of a franchiser
Reputation of whole franchise can be lost due to one bad franchisee
Only a share of profits are received yearly not all profits
3 advantages of a franchisee
Well known business with an existing customer base
Industry knowledge and training is provided by franchiser
Franchisee benefits from national advertising from franchiser
3 disadvantages of a franchisee
Very little autonomy over decisions as franchiser decides
Royalties have to be paid yearly
High initial start up fees
3 statements describing a multi national company
A business that operates in more than one country
Most multinationals are limited company’s
Head offices usually based in home country
3 advantages of multi national companies
Wages and raw materials cost less in host countries
Business can avoid legislation in home country
Grants can be issued by governments to locate in their county
3 disadvantages of multi national companies
Language barriers can slow down communication
Cultural differences can affect production (siestas in Spain)
Exchange rates can affect purchasing and paying expenses in different countries
3 statements that describe public sector businesses
Uk government providing national services (NHS, police)
Gain finance through tax payments
Aim to provide a quality service
3 statements that describe third sector
Set up to raise money to benefit others
Raise finance through donations fundraising
No individual owner set up as a trust
3 advantages of a charity
Charities are exempt from paying some taxes such as VAT
Low wage costs due to volunteers working for free
Private companies more willing to donate and sponsor charities due to good PR
2 disadvantages of a charity
Can be difficult to compete with large marketing budgets of organisations within private sector
Charities rely heavily on volunteers who may leave for paid work
What is 2 statements that describe voluntary organisations
Aim to provide service for local community
Raise finance through membership subscriptions
2 statements that describe social enterprises
Organisations that aim to make a profit to benefit a specific group or cause
Operate as a private sector business in that they can be owned by one person partnership or shareholders
2 advantages of a social enterprise
Employees that believe in the social mission are attracted to organisation
Likely to receive grants due to their positive impact on society
What are 4 objectives
Maximising profits
Survival
Provide a quality service
Increase market share
3 advantages of growth
Reduces risk of failure
Increases profits
Avoids being taken over
5 methods of internal growth
Launching new products
Opening new branches/ expansion
Introducing e-commerce
Hiring more staff
Increased product capacity
What is integration
Integration is two businesses becoming one there are two ways in which this can happen
Takeover( one buys another business)
Merger ( two businesses join forces becoming one)
3 advantages of integration
Risk of failure is spread
Competition is reduced increasing sales
Buying business gains market share and resources of taken over business
3 disadvantages of integration
can lead to job loss due to buying business wants its own management/employees
Change of name can put off loyal customers of the taken over business
Can be expensive to acquire another business
3 advantages of merger
Market share and resources are shared which can spread risk and increase profits
Jobs are more likely to be spared unlike takeovers
Each business can bring different expertise to merger
3 disadvantages of merger
Customers may dislike the changes merger may bring (new logo)
Marketing campaigns to inform customers of change can be expensive
Can be bad for customers as less completion means higher prices
What is horizontal integration
It occurs when two businesses from same sector of industry become one
3 advantages of horizontal integration
Competition will be reduced due to the joining of businesses
New business can benefit from economies of sale (buying in bulk to reduce sales)
Due to reduced competition new larger businesses prices can be raised increasing profits
3 disadvantages of horizontal integration
Merger/ takeover may breach EU rules
Quality may suffer due to lack of competition
Customers may have to pay higher prices for the same goods
What is forward vertical integration
When two businesses from different sectors become one business
One of the businesses being in a later sector (ie htc taking over carphone warehouse)
Normally a secondary business would sell goods to a tertiary business (mobile phone manufacturer sells to phone retailer)
What is backward vertical integration
Business takeover/ merge with a business in an earlier sector of industry (takeover their supplier)
(Starbucks taking over coffee bean plant)
2 advantages of forward vertical integration
The business can control supply of their products and choose to not supply to competitors
Can increase profits by (cutting out the middle man)
3 advantages of backward vertical integration
Guaranteed and timely supply of stock
No need to pay supplier their marked up prices so supply’s is cheaper
Quality of supplies can be strictly controlled
3 disadvantages of backward vertical and forward vertical integration
Company may be incapable to f managing new activities effectively meaning higher costs
Focusing on new activities can adversely affect core activities
Monopolising markets may have legal repercussions
What is conglomerate integration
It occurs when businesses in different markets join together
This is done primarily to spread risk of failure
3 advantages of conglomerate integration
The business is larger therefore more financially secure
The buyer acquires the assets of the other company
Can overcome seasonal fluctuations in their markets and have more consistent year round sales
3 disadvantages of conglomerate integration
One business may take on another in a market they know nothing about may cause failure
Business May become too large and inefficient to manage
Having to many products can cause the company to lose focus on core activities impacting on other products
What is outsourcing
A method of growth
when an organisation arranges for another organisation to carry out activities for them
(It work, accountancy)
3 advantages of outsourcing
Outsourcing allows business to concentrate on doing what they are good at
Less labour and equipment required for outsourced activities
Should be high quality work from the outsourced business as it should have greater expertise and specialist equipment
3 disadvantages of outsourcing
Business will have less control over outsourced work so quality may fall
Communication between the business needs to be very clear to make sure exact specifications are met
Business may have to share sensitive information with the outsourced business that could get into the hands of competitors
2 statements that describe a de-merger
Occurs when a single business splits into 2 or more separate components
Still owned by same organisation but managed independently of each other
3 advantages of de-merger
Each new component can concentrate on its own core activities and grow as a result
Each new component has the best chance to operate efficiently
De-merged components can be divested which can meet competition regulations set by EU
2 statements that describe asset stripping
Taking over another company with intent to sell off its assets
Individual assets like factories may be more valuable than the organisation as a whole
What 5 levels consist in the tall structure top to bottom
Board of directors/ owners
Senior management
Middle management
Supervisors
Employees
3 advantages of a tall structure
Each staff member knows their role and who to report to
Many levels means many promotion opportunities which can motivate staff
Narrow span of control meaning managers have more time for planning supervision and decision making
3 disadvantages of a tall structure
Communications take time to flow down through levels which slows down decision making
Organisation can be slow to react to changes in the market
Narrow span of control meaning
•managers supervise work closer which can put staff under pressure
•Managers have fewer staff to share ideas with
2 statements that describe a flat structure
Fewer levels than tall structure
Shorter chain of command than a tall structure
What 3 levels consist in a flat structure top to bottom
Board of directors/owners
Management
Employees
3 advantages of a flat structure
Info can be communicated quickly between levels
Organisation can respond quickly to external factors such as competition
There is a wide span of control meaning
•managers have to delegate tasks to staff which can raise morale as staff feel trusted
•staff make their own decisions
3 disadvantages of a flat structure
Fewer levels means fewer promotion opportunities so quality staff may leave to gain promotion in larger organisation
Less management levels means staff may be delegated more tasks which could put them under pressure
Wide span of control means
•less time for planning
•subordinates May have no one to seek help
Describe delayering
Removing one or more levels of management from a tall structure to make it flatter
3 advantages of delayering
Money is saved on paying the salaries of the management level that is removed
Wider span of control
Quicker decisions made due to shorter chain of demand
3 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
Describe centralised management
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
3 advantages of centralised management
High degree of corporate identity and strategy exists as decisions are made for the whole organisation
Procedures are standardised which ensures consistency
Low risk of important info leaking from branches or departments
3 disadvantages of centralised management
Less responsibility given to subordinates which means demotivated staff
Decisions will not reflect the needs of the local markets
Organisations will react slowly to external factors such as the competition improving product range
What is decentralised management
Decision making and control is delegated to individual branches or departments in decentralised organisations
Best used in retail chains that need to respond to the local markets (supermarkets)
While overall strategy like Tesco will still be centralised but there decisions will be decentralised such as buying/ selling local products
3 advantages of decentralised management
Business reacts quickly to changing external factors
Decisions are made quickly as local managers don’t need to consult senior managers before making a decision
Senior management at the head office are relieved of the burden of constant decision making
Describe the matrix structure
Involves an organisation being arranged into temporary project teams
To carry out specific tasks like developing a new product
Teams made up of employees from different functional areas (marketing,operations etc)
Each staff member will have two managers one functional(finance) and one project manager
3 advantages of matrix structure
Each team has specialised staff from all functional areas
Complex problems can be solved
Staff use their expertise and as such have job satisfaction and motivation
3 disadvantages of matrix structure
Many managers across all project teams will mean high wage costs
Duplication of resources such as staff equipment and administration
Staff confused as to who to report to
What 4 statements describe an entrepreneurial structure
Used primarily by small organisations
One main decision maker
One owner makes final decisions
Other staff rarely consulted
2 advantages of an entrepreneurial structure
Decisions made quickly as little consultations
Staff know who they need to report to
2 disadvantages of an entrepreneurial structure
If owner is busy or not available key decisions can not be made
This structure can create heavy work load for the main decision maker
What 3 statements describe functional groupings
Involves grouping organisations into departments called functional areas based on skills and expertise
Main groups are marketing finance operations and Human Resources
Small organisations cannot group staff in this way
2 advantages of functional grouping
Staff with similar skills are together meaning each department becomes excellent at what they do
Staff know who to report to and can get guidance from more experienced staff in their area of expertise
2 disadvantages of functional grouping
Organisation can become to large to manage of functional departments grow rapidly
Functional departments can be more interested in their own objectives rather than organisations objectives as a whole
3 statements describing location grouping
Organisation in geographical divisions
Each division will operate to serve customers in a particular location
(May have many different locations)
2 advantages of locational grouping
Each division can meet the needs of its local Market (different trends)
The business can react quickly to changing external factors
2 disadvantages of locational grouping
Duplication of resources such as admin staff or IT equipment across each group is inefficient
Divisions may compete against each other and forget the overall objectives of the organisation as a whole
2 statements that describe product service grouping
Grouping organisations into different divisions that deal with a different product/ service
Suitable for large organisations like virgin(virgin money, virgin media)
2 advantages of product/service grouping
The business react quickly to changing external factors that affect each particular groups market
It is easy for management to identify struggling product/ services
2 disadvantages of product/service grouping
Duplication of resources can occur
New group needs to be set up every time a new product is launched(more staff costs,equipment, premises)
2 statements describing customer grouping
Grouping organisations resources into divisions that deal with different type of customer
Ie business might have divisions for customer retail, online customers
2 advantages of customer grouping
Each group can tailor its product or service to its own type of customer
Customer loyalty can build up due to the high level of personal service that can be achieved
2 disadvantages of customer grouping
Duplication of resources can occur
This is only suitable for large businesses with many customers types/segments that are of sufficient size
What is downsizing
Closing an unprofitable division or merging two divisions
2 advantages of downsizing
This cut the costs of wages and rent
The business is leaner(more efficient) and can become more competitive
2 disadvantages of downsizing
Valuable skills and knowledge are lost when redundancies are made
Remaining staff feel vulnerable and are demotivated
What are the 4 internal factors
Finance
Technology
Human Resources
Corporate culture(beliefs)
What are the six external factors
Political(decisions made actions taken by government)
Economic (economy, product consumption,exchange rates)
Social(changes in society fashion)
Technological(quickly evolving advancements, faster broadband connection)
Environmental( natural environment ie recycling)
Competitive(competitors)
What is a stakeholder
An individual or group of people who have an interest in the success of an organisation
Page 41 interest influence of stakeholders
Conflicting stakeholders
No question
Page 42
Interdependent of stakeholders
What are the 3 different type of decisions that can be made (page 43 table to use)
Strategic long term
Tactical middle term
Operational short term
What does a swot analysis contain
Strengths
Weaknesses
Opportunities
Threats
What 3 factors affect the quality of decisions (PAGE 46)
Human Resources(managers experience, staff resistance)
Availability of finance(can impact decisions being made)
Technology( availability of technology to help make decisions
What are the 5 roles of a manager
Plan(planning ahead,setting targets)
Organise( tasks set for employees)
Command(issuing instructions to employees)
Co-ordinate(resources brought in to achieve objectives set)
Control(manager looks at what’s being done and checks this against what was expected)
