Understanding Business Flashcards
What is the basic economic problem
Scarce Resources: what to produce, how to produce, and who to produce for
What is a planned economy
When the resources are used by Government for everyone: Decides what people need, who to produce for such as free education, and how to produce such as using the cheapest production methods
What is a market economy
Resources belong to who can afford: Products are produced for businesses and consumers, produced for whatever consumers can pay and for pricing for businesses and is made using the cheapest method or the best quality
What is a mixed economy
Private Sector and public sector
What are the two equations of equilibrium in the circular flow of income
income = expenditure Savings + taxes + imports = bank investment + govt investment + exports
What are the leakeges
savings , tax and imports
What are the injections
Bank investment, govt investment and exports
What is the paradox of thrift
when households save their income instead of spending on goods and services, the economy is worse off
What are the two methods of government intervention
raising interest rates and taxes and cutting spending during times of inflation In times of recession the government can put more money into the economy by reducing taxes and interest rates and investing
What is a business
A business is any organisation that provides goods or services to society
What are the three sectors of the economy
Private, public and third sector
What are the four sectors of industry
Primary Secondary Tertiary Quarternary sector
What is the Quartenary Sector
businesses which provide information and technology services
Who controls a franchise
Franchiser makes the long-term strategic decisions, which affect the whole franchise. Franchisee makes the day-to-day decisions for their own branch.
What are the sources of finance in a franchise
Each Franchisee pays a start-up fee to the Franchiser as well as a percentage of their profits each year. Banks will be willing to lend to Franchisees as they are buying into an established business.
Who controls local authorities
Locally elected Councillors, who sit on various committees and devolve running of the authority to managers.
Who controlls public corporations and agencies
A Cabinet Minister, called a Secretary of State for — who sets the objectives but devolves the running of the organisations to agency managers.
Who controls government funded service provides
A Cabinet Minister, called a Secretary of State for — who sets the objectives but devolves the running of the organisations to service managers.
Who controls are charities
Board of trustees
Four advantages and disadvantages of running a franchise
Advantages · Effective method of raising finance · Franchisees motivated to increase profits · Franchisees will enhance reputation of company · Day-to-day control of outlets is delegated Disadvantages · Need to invest in effective training of franchisees · Co reputation depends on the performance of all the franchisees
Four advantages and disadvantages of being a franchisee
Advantages · buying into established Co so more likely to survive and to get bank loans · Training and support is provided by the Franchiser · Main decisions made by experienced staff · Some decision making for their own outlet Disadvantages · Constrained by company policy – eg not allowed to introduce own ideas without first checking with Franchiser · Must hand over share of profits or sales to the Franchiser
Four advantages and disavantages of running an ltd
Advantages · Owners have limited liability · Greater amount of capital can be raised by selling shares · Owners retain control as shares sold by invitation · No requirement to publish annual reports but these can be accessed through the Registrar of Companies Disadvantages · Quite expensive to set up as must comply with Companies Acts legislation. · Need to have a Memorandum and Articles of Association and apply for a Certificate of Incorporation from the Registrar of Companies
Four advantages and disadvantages of running a plc
Advantages · Owners (shareholders) have limited liability · Greater amount of capital can be raised (by selling shares on Stock Exchange) · Reputation and stability due to being quoted on the Stock Exchange · Public have access to financial reports - accountability Disadvantges · Responsibility and decision-making shared over wide range of shareholders – possible conflicts may arise · Costly to set up (due to legal requirements (as above) and the cost of launching on the Stock Exchange) · Division between ownership and control (shareholders and management) · Division between employees and management
Two advantages and disadvantages of running a local authorite
Advantages · Know what services are required for specific area · Individual authorities know best how to allocate finance and support in own areas – ie decentralisation Disadvantages · Financial difficulties may affect some authorities more than others (eg Aberdeen City Council overspend/budget cuts in recent years)
Two advantages and disadvantages of public corporations and agencies
· Allows the public to have a say in how these organisations are run and managed (BBC) · Protects the public from the actions of corrupt or dishonest business practices. Disadvantages · There is little accountability for poor decision making and budget overspending (eg BBC decision making has been shown to be poor lately)
Business Objectives of a franchise
· Good Reputation and Growth · Sales and Profits
Business Objectives of a Private LTD
· Survival · Adequate profits (Satisficing) · Maintaining reputation · Growth (within limits)
Business Objectives of a PLC
· To maximise sales and profits · Satisficing · Growth · Increased market share
Three Business objectives of Local Authorities
· Delegated control of local services – eg education and health · Targeting needs of own area · To work within the budget available
Business objectives of Charities
· To raise awareness of a cause eg poverty, education, health · To raise funds to help the cause · To help as many people in need as possible
What is internal(organic growth)
When a business grows by itself by taking on more staff and by opening new branches
What are the methods of integration
Horizontal integration Vertical integration Lateral integration Conglomerate Diversification
What is integration
when two businesses combine in order to become larger and more powerful.
What is integration on equal terms called
A merger
What is integration when one business takes over another called
A takeover or acquisition
What is horizontal integration
When two businesses at the same stage of production and in the same line of business merge together
What are the benefits of horizontal integration
Elimate the competition and gain a larger market share Achieve greater economies of scale Become stronger and therefore more secure from hostile takeover
What is vertical integration
Occurs when two businesses at different stages of production join together
What are the benefits of vertical integration
Eliminate the middleman and his profit Benefit from economies of scale Control where products are sold Control source and cost of supplies
What are the two types of vertical integration
Backward vertical integration Forward vertical integration
What is backward vertical integration
When a Business merges with or takes over a business at an earlier stage in production
What is forward integration
When a Business merges with or takes over a business at a later stage of production.
What is lateral integration
When two businesses with related goods which do not compete with each other join together. For example, Google and Youtube.
What is conglomerate diversification
When a business either merges with or takes over a business operating in a completely different market
Why may a company choose to grow through conglomerate diversification
To spread the risk of being in business Acquire more assets Develop into new markets and gain new expertise complementary to core business
What are the positive and negative effects of integration
Positive Customers will benefit from more choice, expertise and better prices Negative Staff may find that their jobs are at risk, or they may be moved to different position or even location within the company A business may have purchased the company simply for asset stripping purposes.
What is de-integration or de-merger
When a business is cutting back by separating from a business it had previously merged with to form 2 separate businesses again.
The reasons for de-integration or de-merger
So they can concentrate on their core business activities and raise more funds on the stock market for the separate business activities.
What is divestment
When a business sells of a subsidary business in order to raise finance
What is a management buy-out
When a subsidary business is being sold because it is making a loss, and managers of the business get together to raise the finance to buy it out and run it as their own business.
What is management buy-in
A similar situation but occurs when the management who buy the business do not already work for the business
What are economies of scale?
Economies of scale arise when the cost per unit falls as output increases
What are internal economies of scale
As a business grows in scale, its costs will fall due to internal economies of scale - an ability to produce units of output more cheaply
What are external economies of scale
These are advantages gained for the whole industry, not just individual businesses. The oil industry in Aberdeen is a good example for this.
What is diseconomies of scale
When a business grows so large that it has grown larger than its most efficient scale, resulting economies of scale being reversed.
What causes internal diseconomies of scale
Mainly caused by difficulties of managing and communiating in a very large business. This can lead to low staff morale and more unrest within the workforce.
What causes External diseconomies
This is caused by overcrowding in certain geographical areas where larges industries are located. This can lead to congestion on roads leading to staff and deliveries taking longer to arrive .
What is a multi-national
A very large business which has outlets or production facilities in a number of different countries, while maintaining a definite home base.
Four advantages of a multi-national
Host countries may offer grants and financial incentives such as tax breaks to entice them to open a facility in the country Costs of land and labour can be considerably lower in the host countries, thus reducing costs and increasing profits Can sell more in the host country than they could if they had been exporting as they are not restricted by quotas and tariffs. Corporation tax may be lower in host countries which means owners can keep more of their profits
Four disadvantages of a multi-national
The local currency may be too weak to allow profits to be converted back at a good rate Technical expertise and local infrastructure may be poor, requiring a lot of investment The host country may be politically unstable Local legislation may restrict business practices that are legal in other countries
What are the benfits of a global market
Can market and sell goods and services to a much larger area, thus increasing sales and profits Can develop an international brand more easily Greater external economies of scale
What are the costs of a global market
There is increased competition from both local and international businesses Transportation costs to reach international markets is higher Language barriers may make it more difficult to trade with some countries cultural differences may restrict what some markets will buy
What is stakeholder interpendence
Each stakeholder group is dependent on another stakeholder group
What are four examples of stakeholder conflict
Shareholders and employees Managers and employees Customers and Business Owners Local community and the Business Owners
Explain the shareholders and employees conflict
Shareholders want good dividends whereas employees want good pay and conditions of work.
Explain the Managers and Employees conflict
Managers want to keep within the budget so they get a bonus while employees want more pay.
Explain the customers and business owners conflict
Customers want good value for money while owners want good profits.
Explain the local community and the business owners
The local community can suffer at the hands of businesses through the effects of pollution, noise, congestion and the building of new factories.
What are internal factors
Avaliability of Finance Corporate Culture Staff Abilities and Atitudes Use of technology
What are the external factors
Political Economic Social Technological Environmental/Ethical Competition
What are some problems with large firms
Less agile than smaller firms It can be difficult to motivate workers Firms can suffer from diseconomies of scale It can be more difficult to communicate
What are the three roles in mintzberg’s theory
Interpersonal - the relationship the manager has with others Informational - the collection and passing on of information within and between departments Decisional - the making of all kinds of decisions
What are the five function of management in fayols theory
Planning Organising Commanding Co-ordinating Controlling Modern managers: Delegating Motivating
What are three styles of management
Autocratic Democratic Lassez-faire
What are theory x workers
lazy and need autocratic managment to make them work
What are theory y workers
Though to be motivated by being given responsibility and enjoy their work. This lends itself to a more democratic or laissez-faire approach to management
Four factors that impact leadership style
The task Organisational culture Type of workforce The size of the business
What are the three types of decisions
Strategic Tactical Operational
What are strategic decisions
Long term decisions about where the organisation wants to be in the future. They don’t go into great detial about how the decisions will be acheived.
What are Tactical decisions
How strategic decisions are going to be achieved in the short term. They go into detail about the resources needed how these will be used to achieve the aims.
What operational decisions
Day-to-day routine decisions
What are four activities of the marketing area
Finding out what the customer wants by conducting market research and communicating with operations to make sure products are designed and produced to meet customer requirements Ensuring the customer continues to be satisfied with the product after it has been purchased (after sales service) Devising ways to extend the product life cycle of products that have been on the market for a long time Making sure the product is available to buy in a place that is convenient for the customer, whether this is a shop, a discount warehouse or by e-commerce
What does the operational area do
Transforms inputs through a process into outputs
Four operational area activities
distributing the product Deciding on the best production method, including using technology effectively Ensuring the quality of output is high Deciding which suppliers for raw materials to use and managing stock
Human Resource Activities
Conducting workforce planning to ensure adequate staffing now and in the future Recruitment and Selection of staff for job vacancies Training and development of staff Managing grievance with disciplinary procedures.
Finance activities
Sourcing finance which enables the business to meet its objectives Receiving and processing requests for payment Managing the payroll (paying staff) Preparing end of year financial statements to establish if the business is profitable
What is a functional grouping
Where the activities in an organisation are grouped into departments based on similar skills, expertise and resources used.
What are four advantages of a functional grouping
Business has a clear structure and direction Staff expertise is contained in one department, which encourages specialisation Support avaliable from colleagues in functional grouping Easy to identify what each functional grouping deals with
What are four disadvantages of a functional grouping
Can be slow at responding to external change Staff can become loyal to their department at the expense of the business as a whole Communications between functional groupings can be poor Can be difficult to manage as the business expands
What is a product/service grouping
The grouping of activities are based around a particular product or service and is described as a divison
What are four advantages of product/service grouping
Improved responsivness to external change Staff become experts for their product/service Allows managment to identify successful and unsuccesful product/service divisions Allows a differentiated approach to be adopted to suit each product/service
What are three disadvantages of product/service grouping
Rivalry between divisions Duplication of equipment , administration and staffing for each division Communication between divisions can be poor
What is customer grouping
Businesses can be structured around groups of customers who have similar needs, for example a medical practice could have two groupings: one for NHS patients and one for private patients
What are four advantages of customer grouping
Improved customer loyalty due to the specialised service recieved Allows management to identify poorly performing groupings improved responsivness to the changing needs of the customer Easier to anticipate future customer needs
What are four disadvantages of customer grouping
Duplication of equipment, administration and staffing Very expensive to staff Continuity of customer care lost if staff change Record keeping and administration can be very time consuming
What is place/territory grouping
When a business groups around a geographical location. For example, NHS Tayside, NHS Grampian
Three advantages of territory grouping
The needs of specific customers can bet met, for example different languages and cultures Improved customer service, as staff are familiar with local customs and cultures More cost-effective to employ a local workforce, especially unskilled and semi-skilled workers
Three disadvantages of territory grouping
Continuity of local client care can be lost if staff change Communication can be difficult between branches due to time and language differences Duplication of equipment, administration and staffing
What are technology grouping
Activities will be grouped around the technological requirments of the product or service Staffing will be grouped around the stages of technical input/processes required This is mainly used in car manufacturing businesses
What are four advatanges of technology grouping
Can achieve a high degree of specialisation in production processes Technology can reduce wastage caused by human error and its associated cost Lends itself to large organisations with complex production processes Problems with technology can be easily identified
What are four disadvantages of technology grouping
Extensive capital investment will be required in the technology required Staff will require a lot of training to keep up with technological changes Duplication of resources will occur Lost production time due to technology breaking down
What factors influence the structure of a business
Size of a business: Larger businesses have more managers and thus a more formal structure the market place: a small business is more likely to operate in a local market and need fewer formal structures The technology used: introducing e-commerce will result in the business altering its structure The skills of staff: highly-skilled staff may be given more independce
What is a Hierarchial (tall) structure
Decisions and instructions are passed down from senior staff to the workforce and information passes back up through levels of management. Many levels of management
Who uses a tall structure
Commonly found in traditional organisations such as .NHS .Local Authorities .Armed Forces .Police
What are four advantages of hierarchial structures
There is a high level of control as important decisions are made by senior staff and are then passed down through various levels of managment The role and responsibility of each employee is clearly defined, along with the procedures to be followed Staff become specialists in their role in their role Supervisors/managers have a narrow span of control, making it easier to oversee the work of their staff
What are four disadvantages of hierarchial strcutures
Slow responses to market and consumer demands because of the length of the chain of command Decisions-making is slow as many individuals in the various levels of managment must be consulted The system is rigid and inflexible and causes an emphasis on close control rather than what the business exists to do The level of responsibility and authority in the structure can be seen as a status symbol, causing divisions between managers and staff.
What is a flat structure
A flat structure has a very few levels of management
Who uses a flat structure
flat structures are commonly found in smaller organisations and those that need to be very responsive to their market Doctors Dentists Vets Lawyers Accountants
Four advantages of flat structures
Faster communication and decision making as there are fewer levels of management to be consulted Faster response to changes in the market place Employees have more responsibility and wider variety of tasks to complete, which can be motivating Organisation works well as ‘a team’ and there is less rivalry between departments
Four disadvantages of flat structures
Supervision of employees becomes more difficult as each managers span of controlis wide The level of support recieved by staff is reduced as managers are now responsible for more staff there is an increased workload for the staff in the levels of managment above and below the level that is removed when the structure is ‘delayerd’ fewer promotion oppourtunities
What is a matrix structure
This structure emphasises getting people together who have particular specialist skills and placing them in project teams to complete specific tasks
Who uses the matrix structure
Oil industry Construction
Four advantages of the matrix structure
It gives scope for all individuals to use their talents effectivley There is no hierarchy - everyone in the project team has the same level of responsibility and authority Staff get the chance to develop skills in other areas which increases job satisfaction and motivation It gives the organisation the ability to work closely with customers
What are four disadvantages of the matrix structure
It is costly in terms of support as each project team may need its own dedicated back-up staff There can be problems co-ordinating a team made up of individuals from different functional departments Loyalty of staff may lie with the project instead of with the business as a whole Economies of scale, avaliable with the hierarchial structure, are not avaliable
What is an entrepenurial structure
A system in which decisions are made centrally with very little input from staff, and are based on the expertise of only one or two individuals
Who uses the entrepuniral structure
Newspaper/magazine industry Commerical banks Clothes designers
What is an advantage of using an entrepreneurial structure
Decisions making is quick and is made by experts, so should be accurate
What are two disadvantages of using an entrepreneurial structure
They place too much stress on the staff making the decisions which can quickly lead to ‘burn out’ There is little or no consultation with other staff, which can be demotivating for them
What are centralised structures
These tie in closely with the hierarchial structure and traditional businesses. All of the control and decision-making lies with a few key individuals in the business,such as senior directors or managers
What are four advantages of centralised structures
Business may benefit from strong leadership from the top Senior managment have control of all aspects of finance and budgeting Procedures, such as ordering, purchasing and storage, can be standardised,which can lead to the organisation benefiting from economies of scale decisions are made from the point of view of the business as a whole, not for the particular benefit of one department or another
What are three disadvantages of centralised structures
Little consultation with staff before decisions are made Little oppourtunity for staff progression Staff morale and motivation may be low due to lack of oppourtunity/involvment in decision making
What are decentralised structures
When decision-making and control is delegated to and carried out by subordinates
What are four advantages of a decentralised structures
The delegation of authority is felt by many to be a key motivator for subordinates and allows them to be groomed for senior positions when they become avliable Subordinates often have better first-hand knowledge of the requirments of their departments or customers, and can therefore make better quality decisions based on this knowledge Delegation allows a more proactive approach and much greater flexibility of roles Decision-making is quicker and more responsive to external changes
What are two disadvantages of decentralised structures
Senior management lose some control over the organisation Company policy may be at competition with local decisions
What is re-structuring
The size of the organisation has changed The availability of finance has changed market conditions have changed New technology has become available
What is delayering
thie involves removing levels of managment withi the ornaisation in order to flatten the structure
What is delayering
thie involves removing levels of managment withi the ornaisation in order to flatten the structure
What is downsizing
This involves the removal of certain areas of the business’s activities in an atempt to cut costs. Whereas delyaring affects only managment jobs, downsizing can affect many different jobs
What are four advantages of outsourcing
Improved focus on core business activities
Increased efficiency due to specialisation
Increased reach due to access facilities
Greater competitive advantages due to leveraged knowledge
What are four disadvantages of outsourcing
Confidentiality and security may be at risk
lack of flexibility within contract
service delivery may fall below expectations
instability of the outsourcing business
