Unit 1 Flashcards
1.1 business
aims to meet the needs and wants of individuals
or organizations by combining human, physical,
and financial resources (1.1)
1.1 business activit
Resource inputs (human, physical, financial,
enterprise)–processes to add value
(production)–Product outputs (goods and
services) (1.1)
1.1 business
functions
human resources, finance and accounts,
marketing, operation (production) (1.1)
1.1 Role of Human
resources
Ensure: appropriate people are employed to
make the product or service and that the people
are suitably rewarded. Recruitment, training,
dismissal, determine compensation (1.1)
1.1 Role of Finance
and accounts
Ensure: appropriate funds are available. forecast
requirements, keep accurate records, procure
financial resources from various providers, and
ensure proper payment for operation (1.1)
1.1 Role of
Marketing
Ensure: business offers a product/service that is
desired by a sufficient # of people (operation is
profitable) Appropriate strategies to promote,
price, package, and distribute (1.1)
1.1 Role of
Operations
Management or
Production
Ensure: appropriate processes are used to make
product of desired quality. Control quantity and
flow of stock, determine method of production,
look for ways to produce more efficiently (1.1)
chain of production
the steps through the different sectors that must
be made to turn raw materials into a consumer
good that is marketed
corporate social
responsibility
business practice that involves participating in
initiatives that benefit society
horizontal
integration
a business acquiring or merging with another
business same line off business and same stage of production
–›increased market share
vertical integration
involve in earlier or later stages in the chain of
production either through acquiring other
business or internal growth
benefit of vertical
integration (6)
lower transaction cost, reliable supply, avoid
regulation, increasing market power (gain
flexibility in pricing), better promotion, eliminate
other business
sectoral change
size of each sector changes, change in
composition in economy–social technology
(social context supporting certain sectors to
grow)
impact of sectoral
change (5)
factor substitution, some businesses are obsolete,
strain on human resources, reallocation of finance,
demand for physical resources, environmental
impacts
business plan
set out how org will meet its objectives, applies to
specific period, include long-term and short-term
objectives, should be reviewed and updated,
detailed budget planning
purpose of business
plan (5)
support launch of new org or business idea;
attract finance; support strategic planning
provide a focus for development, work as a
measure of business success
element of business
plan (6)
business idea, aims and objectives (set out the
idea in a context: USP, how to develop
idea);business organization (location, structure,
type, decision-making, profit-sharing, legal
requirement to set up);HR (HR plan, type of
contract, responsibility and reward;finance (start
up capital, projected budgets, income statement,
cash-flow forecasts);marketing (market research,
sales forecast, 4P);operations (lead time, supply
chain)
Criteria for business type identification
the owner of the business, the runner of the
business, no legal distinction/limited liability,
close/less communication, access to finance,
privacy and accountability, start-up paperwork
and expense
benefit of sole
trader (7)
complete control, flexible working hours and
change, privacy, minimal formalities, close ties to
customer, fast decision-making, responsive to
change
disadvantage of
sole trader (7)
100% liability, stress and responsibility, lack of
continuity, limited growth, limited access to
finance, challenging competition in market, false
decision-making,
Partnerships
formed by 2~20 people, joint decision-making
owned and managed by more than one person,
no legal distinction, more finance, sleeping
partners, offer more varied service, greater
accountability, maybe don’t share profit equally
advantage of
partnership (5)
creativity and innovation, specialization and
division of labor, expertise, stability and lower
risk, continuity, more access to finance
disadvantage of
partnership (4)
slower decision-making and conflicts, not enough
access to finance, profit it shared, unlimited
liability
why become a
company? (5)
limited liability, enhanced status and recognition,
sell share to purchase capital, stability and
continuity, access to finance
advantage of
owning a share
share value may increase, receive dividend,
limited liability
disadvantage of
owning a share
share value may decrease, may not receive
dividend, share can be diluted
Company
shareholders own, do not run; separate legal
entity, business record are public (Memorandum
of Association, Articles of Association), greater
finance available, more accountability (Annual
General Meeting, Extraordinary General Meeting)
advantages of
company (6)
stability and continuity, access to finance, limited
liability, enhanced status, possibility for growth,
established organizational structure
disadvantages of
company
set-up difficult and costly, sell shares may not be
successful (risk), only partial control, loss of
privacy, no control over stock market and buyer
of shares, decision-making slow and irresponsive
for-profit social
enterprise
business that has a social purpose, profit not
priority (not maximized), aims to improve human,
social, or environmental well-being, no
compromise
Cooperative
form of partnership whereby the business in
owned and run by all the “members”, member
participate actively
types of
cooperatives (5)
financial; housing; worker’s; producer; consumer
financial
cooperative
social aim takes precedence over profit, lower
interest rate, provide cheaper service, lower the
standard to give loans
housing
cooperatives
provide housing for members, surplus reinvested,
social harmony, member follow rules
worker’s
cooperatives
no salary to managers, employment of workers is
priority, often no dividend
producer
cooperatives
collaborate in stage of production, maximize
utilization of capital, enjoy economy of scale
consumer
cooperatives
consumer pay lower price as members
Public Private
Partnership
collaboration between business and community,
greater democracy and transparency, same
function, profit not priority
advantage of PPP
(3)
favorable legal status, strong communal identity,
benefits to stakeholder community
Disadvantage of
PPP (3)
decision making is complex and slow, insufficient
capital for growth, insufficient financial strength
nonprofit social
enterprise
generate surplus; NGO and charities
charities
rely on donations, unclear ownership and control,
exempt from tax
advantage of NPOs
(4)
CSR, foster philanthropic spirit in community,
foster informed discussion. innovation
disadvantage of
NPOs (3)
lack of control but intense lobbying, employees
may act inappropriately for good means, irregular
funding
vision statement
forward looking, speak to long-term aims and
highest aspirations, less specific, guiding principle
mission statement
more grounds in the aims of accomplishing
objectives to achieve the mission
difference between
vision and mission
statement
concept, purpose (future or present) audience
(inspire internally, bind external
stakeholders;define accountability, measure
success), no change
three types of
objectives
strategic, tactical, operational
strategic obj
medium- and long-term objective set by senior
managers to guide company
determines the actions necessary to
achieve the goals and mobilises
resources to execute the actions.
(affects: whole company) How will
the goals/aims be achieved by the resources?
tactical obj
medium- and short-term objectives set by middle
managers to achieve strategic objectives, affects department
operational
day-to-day objectives set by managers or
workers to reach tactical objectives as efficiently as possible affects teams
hierarchy of
objectives
increasingly specific in content, increasing
quantity, follow the organizational hierarchy,
SMART
specific, measurable, achievable, relevant, time-
specific
business strategy
plan to achieve a !strategic objective! in order to
work towards the aims of the business (when.
what, where, why)
business strategy
involves? (4)
where, planning, implementation, evaluation of
process
business tactic
plan to achieve tactical objective to work towards
the strategies of the business, short-term,
changeable, achieve measurable target,
reason to change
objectives (6+7)
internal: leadership, HR, organization, product,
finance, STEEPLE
why set ethical
objectives
building up customer loyalty, create positive
image, positive working environment, reduce risk
of legal redress, satisfy customer’s ethical
expectations, increasing profits (access to finance)
impact of
implementing
ethical objectives
business itself (reaction or resistance to change),
competitors, suppliers, customers, local
community, government
why SWOT analysis
help business set objective through identification
of SWOT
4 strategies using
SWOT
S+O growing, W+T defensive, W+O re-orientation,
S+T defusing
why Ansoff Matrix
help business plan and set objectives
what do aims do?
direct, control, review
how to enforce
aims (3)
appropriate strategies, resource used correctly,
review constantly
common objectives
(5)
profit maximization, growth, increasing market
share, CSR, maximizing shareholder value
market penetration,
e+e, increase market share, 4P and marketing
key factor to
succeed in market
penetration (3)
growth potential of the market, strength of
customer loyalty, power and ability of
competitors
market
development
look for new markets for existing product, identify
clientele base, e-commerce
to success in market
development (3)
effective market research, local knowledge,
effective distribution
to reduce the risk of
product
development (3)
market research, strong R&D system, first mover
advantage
risk of
diversification (2)
lack of familiarity in market, untestedness of
products
to succeed in
diversification (4)
market research, diligent testing (both the market
and the cost of entry), recognition from existing
business, possible tie-ups
economies of scale
reduction in average unit cost as a business
increases in size
diseconomies of
scale
increase in average unit cost as a business
increases in size
internal economies
of scale (6)
technical, managerial, financial, marketing,
purchasing, risk-bearing
external economies
of scale (2)
consumers, employees
internal
diseconomies of
scale
technical, managerial, financial, marketing,
purchasing, risk-bearing
external
diseconomies of
scale
employees
advantages of
being a small
business (5)
greater focus, greater cachet, motivation,
competitive advantage (personalized service),
less competition
advantages of
being a big business
(5)
survival, economies of scale, higher status, market
leader status, increased market share
entrepreneurship
and
intrapreneurship
entre: an individual who demonstrates enterprise
and initiatives in order to make a profit;
intra: an individual employed by a large org who
demonstrates entrepreneurial thinking in the
development of new products or service
Innovation
- market reading; 2. need seeking; 3. technology
driving
stakeholders
an individual or group who has an interest, often
financial, in the activities and success of an
organization
internal
stakeholders
include
shareholders, CEO, senior managers, middle
managers, foreman and supervisors, employees
and unions
external
shareholders
include
government, suppliers, customers, local
community, financiers, pressure groups, media
stakeholder analysis
in: owners, managers; middle: suppliers,
employees, consumers, financiers; outer: gov,
community, media, pressure groups
power-interest
model
minimal effort, keep informed, keep satisfied, key
players
Micro-financier
idea by Muhammad Yunis: provide small amount
of finance to those who traditionally don’t have
access to.
Vision statement dleffinition
a philosophy, vision, or set of principles which
steers the direction and behavior of an
organization
primary sector
engaged in farming, fishing, oil extraction and all
other industries that extract natural resources so
that they can be used and processed by other
firms
secondary sector
firms that manufacture and process products from
natural resources, including computers, brewing,
baking, clothing and construction
tertiary sector
provide services to consumers and other
businesses, such as retailing, transport, insurance,
banking, hotels, tourism and telecommunications
Quaternary sector
subsector of tertiary sector: focused on
information technology (IT) businesses and
information service providers
Reasons to start up
a business
rewards, independence, necessity, challenge,
interest, finding a gap, sharing an idea
steps of starting up
a business
organize the basics-›researching the market-›plan
the business-›establish legal requirement-›raise
finance-›test the market
problems that a
new business may
face
organization (eg. bad location, registered name,
unsuitable structure); market research (eg.
inappropriate target, too optimistic, weak channel
of communication); bad business plan; vague
goal, finance.
NGO
social enterprises aiming to support a socially
desirable cause; not organized by government
charity
a specific form of NGO whose aim is to provide as
much relief as possible for those in need; focus on
philanthropy
advantage of
charity (4)
help people or causes in need; foster a
philanthropic spirit in the community; foster
informed discussions in the community about
allocation of resources; fosters innovation;
disadvantage of
charity (4)
unclear ownership; lack of control and intense
lobbying; employees’ passion and zeal that ill
serve the org; irregular funding
CSR
the concept that all businesses have an obligation
to operate in a way that will have a positive
impact on society.
franchise
An original business, known as the franchisor, that
developed the business concept and product,
then sells to other businesses (franchisees) the
right to offer the concept and sell the product
in franchising,
franchisors provide
stock, fittings, uniforms, staff training, legal and
financial help, global advertising, global
promotions
in franchising,
franchisees-
employ staff, set prices, set wages, pay royalty,
create local promotions, sell franchisor’s
products, advertise locally
adv of franchise for
franchisees (5)
established brand and product; established
format of selling; reduced set-up costs, secure
supply of stock; legal, financial, technical help
disadv of franchise
for franchisees (5)
unlimited liability, pay royalties; no control over
product, no control over supply, no global
decision-making
adv of franchise for
franchisors (4)
quick access to larger market, makes use of local
knowledge; no risk/liability; more profit from
royalty
disadv of franchise
for franchisors (2)
lose some control; image may suffer if franchise
store fails
impact of
globalization (4)
increased competition; greater brand awareness;
skill transfer; closer collaboration
reasons for the
growth of
multinational
companies (4)
improved ICT; dismantled trade barriers;
deregulated global financial market; Increasing
economic and political power of the multinational
companies
MNC’s + impact on
host countries (4)
economic growth; new ideas; skill transfer;
product variety; short-term infrastructure projects
MNC’s - impact on
host countries (4)
MNC avoid local tax; loss of cultural identity; loss
of domestic talent to MC in other countries;
domestic companies lose market share; MNCs
may quickly shift overseas for cheaper resources
available
types of growth(2)
internal (organic), external (inorganic, fast-track)
Internal growth
occurs slowly and steadily, out of existing
operations of the business, lower risk, slower,
selling more products/ developing product range,
self-financed using retained profits
external growth
quick and riskier, entering into an arrangement to
work with another business
types of external
growth (4)
M&A, joint venture, strategic alliance, franchise
Merger
two businesses become integrated by joining
together and forming a bigger combined business
acquisition
one business taking over another
takeover/hostile
takeover
when an acquisition is unwanted by the company
being acquired
M&A integration (4)
horizontal integration, backward and forward
vertical integration, conglomeration
(diversification)
why
conglomeration?
- reduce overall corporate rick;2. have
complementary seasonal activity
ADV of integration
(4)
economies of scale, innovation of combined HR
control up or down the chain of production,
complementary activity
disadvantage of
M&A (3)
costly (legal fees), culture clash, risk
joint venture
two business agree to combine resources for a
specific goal over a finite period of time; separate
business created by two parent businesses
adv of joint venture
(3)
increased sales, shared skills and expertise, does
not lost legal existence or identity,
disadv of joint
venture (2)
shared profit, conflict
strategic alliance
businesses collaborate for a specific goal, can be
2+ businesses, no new business created,
independent, more fluid (membership)
disadv of strategic
alliance (4)
more businesses make coordination of agreement
more difficult, no legal existence-›less force
extant, no economies of scale, lacks stability
internal
stakeholders
include (6)
shareholders, CEO, senior managers, middle
managers, foreman and supervisors, employees
and unions
external
shareholders
include (8)
government, suppliers, customers, local
community, financiers, pressure groups, media,
(competitors)
power-interest
model
minimal effort, keep informed, keep satisfied, key
players
sole trader
An entrepreneur who owns the entire business
and received 100% profit.
Examine the potential problems that Subway may face as a
result of its planned rapid expansion.
The following are examples of potential problems for Subway as a
result of its planned rapid expansion.
Liquidity problems can occur where working capital is
“squeezed to the limit” in order to sustain rapid rates of
growth. This will jeopardize a firm’s ability to meet its
short-term liabilities.
Coordination of human resources may become too
complex as spans of control widen. Managers may not be able
to keep up with the pace of change and productivity could start
to suffer. Diseconomies of scale will result. Linked to this point
are the problems of maintaining consistent and effective
communication across operations leading to further
diseconomies of scale.
However, the planned rapid expansion will provide opportunities
for Subway (as we saw in concept 1: Globalization). Subway is
currently the largest franchised organization in the world and
further expansion would bring considerable opportunities in
global marketing and economies of scale (financial and risk
bearing). The interview with the CEO of Operations in unit 4.7
indicates that Subway would be able to take advantage of local
entrepreneurial spirit and motivation (especially in potentially
very large markets such as India).
Judgment
Even as Subway grows and sales revenues rise inevitably, the
impact of the first three points combined is that direct costs
could rise and ultimately the increased sales activity may not be
translated into increasing profitability. With rapid expansion, it is
important to keep a close eye on the key financial ratios (outlined
in units 3.5 and 3.6) to detect potential diseconomies of scale.
However, it would appear that, given Subway’s significant growth
to date, it has been able to manage this change successfully.
Enterprise
Enterprise: the entrepreneur develops a business idea, and then organises other
resources to carry out the business activity.
Unicorponated business
Unincorporated businesses businesses where there is no legal distinction
between the owner of the business and the business itself-everything is
carried out in the name of the owners (e.g. sole traders and
partnerships)
Incorporated business
Incorporated businesses businesses that have a separate legal entity from
their owners (e.g. private limited companies and public limited
companies
Ltd.
-private limited companies
PLC
Public limited company
Deed of partnership
Legal document, which states each partner’s’ rights in the event of a dispute.
Ltd advantages
Advantages
• Limited liability.
• No limit on the number of owners.
• Shares can only be sold privately.
• Better decision making.
• Easier to raise additional funds.
Ltd disadvantages
Disadvantages
• Profits have to be shared among much
larger number of members.
• Setting up business takes time and it’s
costly.
• Company’s financial accounts are
public.
• No member has full control of the
company.
• Firms are not allowed to sell their
shares to the public.
PLC advantages
Advantages
• Shares can be sold to the public.
• Limited liability.
• Easier to raise loans from banks.
• Because of their size, they can dominate
the market.
PLC disadvantages
Disadvantages
• Setting up business takes time and it’s
costly.
• Company’s financial accounts are
public.
• Less able to offer personal services to
their customers.
• Risk that an outsider take control of
the company.
Pressure groups
Pressure groups circles of people that attempt to influence decision makers
in politics, business and society (e.g. Greenpeace, which aims at
exposing global environmental issues)
PPC
Public-private cooperation (PPC)
occurs when the government creates a
commercial partnership with the private sector to provide certain
goods or services (e.g. government school project that is managed by a
private consortium)
Business aim
Business aims
define the firm’s purpose and long-term goals, often expressed
in the mission statement
Relationship between aim and objectives
Aim → strategic objective → tactical objective → operational objective
CSR aims to
• treat customers and suppliers fair and equally;
• compete fairly (i.e. not engaging in predatory pricing);
• treat the workforce with dignity and listening carefully to their needs.
Technical economies of scale
Technical Increasing the size of the units of production decreases costs.
Managerial EOS
Managerial Managers can specialize in doing one particular job rather then attempting to do several different tasks at the same time - every manager can do better by
focusing on an aspect of the business they know the most about /are the most
interested in.
Financial EOS
Financial Larger firms have an advantage over small firms when it comes to raising
finance.
Marketing EOS
Marketing Larger firms can have bigger and effective marketing campaigns. They are
able to spread their advertising budget over higher output.
Purchasing EOS
Purchasing Larger businesses can get discounts when purchasing their inputs through
bulk buying as they have a higher bargaining power.
Internal growth definition
A business grows by using its own resources to increase the of operation
External growth definition
Business grows by collaborating with buying up, or merging with another firm.
Backward vertical integration
Different stages of production, merger with previous stage of production
