Understanding business (DONE) Flashcards
What are multinationals?
Companies that are so large they operate on an international scale, i.e in more than one country.
Advantages of multinationals?
Creates employment. Economies of scale achieved. Can introduce new management styles. Allows for experts to be brought in.
What is economies of scale?
The cost of units is cheaper for the business because of its size. It can bulk buy raw materials cheaply.
Benefits of introducing new management styles?
Increased staff motivation.
Disadvantages of multinationals?
Profits earned in the host country, often get transferred to the businesses origin.
In some cases low skilled assembly jobs may be the only jobs available, any high skilled jobs being kept in origin.
If demands are not met by the government of the host country, the business may withdraw and cause employment issues.
Exploiting workers, some may work under minimum wage.
What achieving growth allows for the business?
To increase sales and profits and become the market leader
Take advantage of large scale production or economies of scale.
Reduce the risk of business failure.
Develop a well-known business name.
Merger what is it?
Its an equal of integration of two companies
Takeover what is it?
Its when one firm takes control, they can be friendly some businesses will allow this if its best for the business. But they can also be hostile.
Horizontal integration what is it?
Its the combining of two firms operating on the same stage of production. I.e asda and walmart.
Advantages of horizontal integration?
Eliminates competitors.
Increases market share.
Acquire the assets of the other firm.
Become more powerful, so there’s less risk of a hostile takeover.
Disadvantages of horizontal integration?
Eliminates competitors to the point that the business can raise prices to earn higher profits.
Can undercut competitors, and force smaller businesses out of business.
Changes to the business may affect customer loyalty.
What is vertical integration?
The joining of two firms on different stages of production.
Backwards integration?
When one firm takes over another firm on an earlier stage of production.
Forwards integration?
When one firm takes over another firm on a later stage of production.
Advantages of vertical integration?
Eliminates the middleman, increasing profits.
Has greater economies of scale.
Secures a source of supply.
Can link processes more easily.
Disadvantages of vertical integration?
May not have the expertise to oversee both retailing and supplying.
Will cost lots of money to purchase another business.
What is diversification?
The combining of companies in completely different markets.
Reasons for diversification?
Allows firm to spread risk.
Makes the firm larger and more financially secure.
The firm acquires assets from other companies.
It allows for the overcome of seasonal fluctuations in its markets.
What’s the P in PESTEC stand for?
Political
What’s the E in PESTEC stand for?
Economic
What’s the S in PESTEC stand for?
Social
What’s the E in PESTEC stand for?
Environmental
What’s the C in PESTEC stand for?
Competitive
How Political factors can impact the business
Tax, Laws
How Economic factors can impact the business
Unemployment, Interest rates, Exchange rates, Inflation
How Social factors can impact the business
Lifestyles, tastes and trends, ethical
How Technological factors can impact the business
E-commerce, Automation, Research and development, ICT
How Environmental factors can impact the business
Global warming, Weather, Recycling
How Competitive factors can impact the business
Price wars, Product differentiation, Imitators
What are strategic decisions?
Set out long term goal, i.e improve profitability.
Who makes strategic decisions?
Made by the owners or their representives.
What are tactical decisions?
Set out medium term goals, usually bringing resources together, less complexed than strategic.
Who makes tactical decisons?
Made by middle managements or heads of departments.
What are Operational decisions?
They are short term decisions usually addressing problems on a day to day basis.
Who make operational decisions?
Made mostly by section heads and team managers but all staff can make them.
Factors affecting decision making
Employees are resistant to change, i.e industrial action.
Time available to make decisions.
Experience and ability of management
Quantity and quality of information available
State of technology within the organisation
Finance at the organisation’s disposal.
Company policies that direct the organisation.
The willingness of organisation to take risks.
Centralised Decision Making is?
Is when all control and decisions are made by other most senior managers.
Decentralised Decision Making is?
Is when all control and decisions are made by different departments or subordinates.
Advantages of a tall organisation?
More opportunities for promotion which can lead to greater staff motivation.
Staff gain more support from their line manager.
There is a higher degree of supervision as each line manager has a limited number of people they are responsible for.
Disadvantages of a tall organisation?
Many levels of hiarchy.
Span of control is narrow, and the chain of command is long, making communication slower as instructions take longer to travel through the levels of the organisation.
Can be expensive to run due to high wage costs.
Longer lines of communication can make the firm less responsive to change.
Advantages of a Flat organisation?
Few levels of hierarchy.
Lines of communication are short, making the firm responsive to change and decision-making quicker.
Staff working in a flat management structure can be empowered to work independently and take on more responsibility.
Disadvantages of a Flat organisation?
Wide span of control means that tasks must be delegated, which can lead to employees feeling stressed and managers feeling overstretched.
Less promotion opportunities within a flat structure, which may lead to the company losing staff to other organisations.
What is Delayering?
When the business removes a layer of management.
Why delayer?
To save the company money on managerial wages.
Or to make the business more responsive to change due to the reduction of layers of management.
What is Downsizing?
Downsizing is when a business closes down or merges aspects of the their operations together.
Why Downsize?
To reduce costs.
To remain competitive in the marketplace.
Advantages of centralised organisations?
Greater uniformity within the business due to the use of standardised structures.
Disadvantages of centralised organisations?
Centralised organisational structures are often less responsive to localised external pressures. It can also lead to demotivated staff who are not being given the opportunity to be involved in the decision-making process.
Advantages of decentralised organisations?
Reduced decision making speed.
More responsive to changes due to staff having a greater local knowledge.
Employees will be more motivated to make decisions and be creative.
Disadvantages of decentralised organisations?
May lead to poor decisions as branch managers may not be as experienced.
Corporate culture may be harder to develop.
What is a matrix structure?
Its a type of organisational structure where employees report to multiple bosses instead of just one and allows employees to work together.
Advantages of a matrix structure?
A good way of having different viewpoints and skills involved in a project.
Provides staff with an opportunity to learn new skills from other members of the team which may lead to greater motivation and productivity
Disadvantages of a matrix structure?
Its very expensive.
Team members may have priority issues when having to report to two bosses (their regular line manager and their project leader)
Whats an entreprenurial structure?
When decisions are made by one or two key personnel, usually in small businesses this will be the owner.
Advantages of an entreprenurial structure?
Decisions are often made quickly by the entrepreneur who is experienced within the business.
Disadvantages of an entreprenurial structure?
There is a workload issue for the decision makers as responsibility for many tasks will fall to them.
Name private sector stakeholders?
Shareholders. Employees. Customers. Suppliers. Goverment. Local Community. Directors/managers. Lenders. Trade Unions. Pressure Groups.
Name Public Sector Stakeholders?
Central Goverment. Local Goverment. Councils. Voters. Pressure Groups. Trade Unions.
Name Third Sector Stakeholders?
Board of trustees. Volunteers. Donors. Club Members. Office of the scottish charity regulation. Prssure Groups.
What are managers interested in?
Getting promoted.
Winning Bonuses.
Having Job Security.
What can managers influence?
Hiring and firing of employees.
Creating company policies.
Making day to day and long term decisions.
What are employees intersted in?
job security.
higher pay.
improved working conditions.
What can employees influence?
increasing or decreasing productivity.
providing good or bad customer service.
in extreme cases, withdrawing their labour and going on strike.
What are customers interested in?
quality products and services.
low prices.
value for money.
What can customers influence?
deciding whether or not to purchase the product or use the service.
affecting an organisation’s reputation by word of mouth.
What are banks interested in?
the organisation can pay their loans in full and on time.
What can banks influene?
permitting or denying loan requests.
changing interest rates on loans offered.
changing repayment lengths.
Goverments are interested in?
Businesses paying corporation tax.
Creating jobs and wealth for the population.
providing goods and services for the population
Goverements can influence?
The raising or lowering of corperation tax.
Introducing or repealing laws that affect businesses.
Offering grants to incentivise firms to locate to depressed areas.
Whats a conflict between managers and employees?
Managers want profit but employees want higher wages and job security.
Whats a conflict bewteen customers and shareholders?
Customers want a good quality product or service at a good price whereas shareholders want reduced costs and higher profits.
