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AS Business > Unit 1: Business and its environment > Flashcards

Unit 1: Business and its environment Flashcards

1
Q

Define entrepreneur

A

An individual who has an idea for a new business, starts it and carries most of the risks but benefits from the awards.

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2
Q

Define customer

A

An individual consumer or organization that purchases goods and services from a business.

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3
Q

Define consumer

A

An individual who purchases goods and services for personal use.

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4
Q

Define consumer goods

A

The physical and tangible goods sold to consumers that are not intended for resale.
- Durable consumer goods: cars & washing machines.
- Non-durable consumer goods: food, drinks & sweets (used only once).

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5
Q

Define consumer services

A

The non-tangible products sold to consumers that are not intended for resale. these include hotel accommodation, insurance services and train journeys.

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6
Q

Define factors of production

A

the resources needed by business to produce goods or services.

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7
Q

State the 4 factors of production

A
  • Land: Renewable and non-renewable resources of nature, such as coal, crude oil, and timber.
  • Labour: Manual and skilled labour make up the workforce of the business.
  • Capital: finance needed to set up a business and pay for its operations and the manufactured resources used in production called capital goods.
  • Enterprise: Entrepreneurs who take the risk of setting up the business and this includes managing, decision-making and coordinating roles.
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8
Q

Define capital goods

A

The physical goods used by industry to aid in the production of other goods and services, such as machines and commercial vehicles.

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9
Q

Define enterprise

A

The action of showing initiative of taking the risk to set up a business.

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10
Q

Define adding value

A

Increasing the difference between the cost of bought-in inputs (materials) and the selling price of the finished goods.

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11
Q

Define added value

A

The difference between the cost of purchasing bought-in inputs (materials) and the selling price of the finished goods.

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12
Q

Define branding

A

The process of differentiating a product by developing a symbol, name, image or trademark of it.

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13
Q

Define economic problem

A

There are insufficient goods to satisfy all of our needs and wants at any one time.

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14
Q

Define opportunity cost

A

The next most desired option that is given up.

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15
Q

What are the changes of business environment

A
  • New competitors entering the market.
  • Legal changes - examples include new safety regulations or limits on who can buy the product.
  • Economic changes that leave the customers with less money to spend.
  • Technological changes that make the products or processes of the business outdated.

All these changes make owning/operating a business risky. Can be a reason why others fail/succeed.

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16
Q

Why do some businesses succeed

A
  • Good understanding of customer needs - leads to sales targets being achieved.
  • Efficient management of operations - keeps costs under control.
  • Flexible-decision making to adapt to new situations (by entrepreneurs) - allows investment in new business opportunities.
  • Appropriate and sufficient sources of finance - prevents cash shortages and allows for expansion.
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17
Q

Why do businesses fail

A
  • Poor record keeping - keeping records on computer or paper for back-up.
  • Lack of cash/working capital - important for holding inventories, trade credit to customers who could become debtors, buying supplies and paying suppliers. If not done, business could close down. That is why some implement solutions to reduce cash flow problems like having a cash flow forecast.
  • Poor management skills - many new formed entrepreneurs may not have developed skills in:
    Leadership and decision-making.
    Cash handling and management.
    Planning, coordinating and communication.
    Marketing, promotion, and selling.

To minimize the risks: can gain experience from employment or gaining advice from professional trainers from a specialist organization which offers management support. But could be expensive and is a risk strategy.

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18
Q

How can cash flow problems be reduced?

A
  • Implementing an up to date cash flow forecast.
  • Having sufficient capital at start-up of the business allowing it to operate during the first months when cash flow from customers can be slow to build up.
  • Good relations established with the bank so short term cash problems can be financed with an overdraft.
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19
Q

Define multinational business

A

A business organization that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries.

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20
Q

Define intrapreneur

A

A business employee who takes direct responsibility for turning an idea into a profitable new product or business venture.

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21
Q

Qualities of successful entrepreneurs & intrapreneurs

A
  • Innovation: By identifying a gap in the market which fits the wants of consumers. Attracting customers in innovative ways and promoting the business to be dif from others. Being able to have original ideas.
  • Commitment and self-motivation: Having the ambition and discipline to succeed (consistency).
  • Multi-skilled: Will have to make the product, promote it, sell it and keep accounts. to handle cash flow and keep records well.
  • Leadership skills
  • Self confidence and an ability to bounce back: Failure shall not discourage a true entrepreneur who believes in themselves and their business idea.
  • Risk-taking: eg. investing their own savings.
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22
Q

What are the barriers to entrepreneurship?

A
  • Lack of business opportunity: important for being an effective entrepreneur. Original ideas can come from an entrepreneur’s own skills and hobbies (dressmaking/car bodywork repairing), employment experience, franchising conferences offering a wide range of business ideas, small budget market research.
  • Obtaining sufficient capital due to: insufficient savings - no knowledge of financial support or grants - a poor business plan (unable to convince banks/lenders/investors).

-Cost of good locations: its important to keep the level of output at which revenue covers all costs low. Most entrepreneurs work at home, however it sets drawbacks like: - Family tension - Difficult to separate private life with working life - Low status - Not being in an area of high market potential.

  • Competition: Entrepreneur may therefore have to provide a product with a unique selling point/better consumer service or product in order to stand out from other businesses/competitors.
  • Lack of customer base: Must establish itself in the market and build up customers quickly to survive. Good customer service can be provided by: personal customer service - knowledgeable pre- and after-sales service - supplying one-off customer requests that large firms are reluctant to provide.
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23
Q

What are the roles of enterprise in a country’s economic development (the benefits to an economy from successful business enterprise?)

A
  • Employment creation: a new business that creates job will employ more ppl so the national level of unemployment will fall.
  • Economic growth: Any increase in output of goods or services from a start-up business will increase the GDP of the country (called economic growth).
  • Business survival and growth: Those who start-up and grow to expand become important. They will employ a large number of workers, boost economic growth, and take the place in businesses where they may be in decline or closing due to changing consumer tastes and technology.
  • Innovation and technological advances: Businesses being innovative and creative can stimulate other businesses to help and can make the nation’s sector more competitive.
  • Exports: Some businesses expand to export their products in markets in other business. This increases the value of the nation’s exports and improve international competitiveness.
  • Personal development: Setting up a business can help an individual working on self-actualization.
  • Increased social cohesion: Unemployment leads to serious social problems and this can be reduced if is a successful expanding small business sector. Leads to creating jobs and career opportunities. Entrepreneurship can help in social cohesion.
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24
Q

Benefits of intrapreneurship to existing businesses

A
  • Injecting creativity and innovation into the business: developing new products to increase sales.
  • Developing new ways of doing business: creativity in solving problems is more efficient than old ways.
  • Driving innovation and change within the business: generating excitement within the business about a new opportunity makes change more acceptable.
  • Creating a competitive advantage: developing innovative products.
  • Encouraging original thinkers and innovators to stay in the business.
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25
Q

Define business plan

A

A detailed written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts.

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26
Q

What are the elements of a business plan?

A
  • Summary: an overview of the new business and its strategies.
  • Description of the business opportunity: details of the entrepreneur’s skills and experience; nature of the product; the target market at which the product is aimed.
  • Marketing and sales strategy: details of why the entrepreneur thinks customers will buy the product and how the business will sell them.
  • Management team and personnel: details of the entrepreneur’s skills and experience and the people they intend to recruit.
  • Operations: premises, production facilities, IT systems.
  • Financial forecasts.
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27
Q

Benefits of business plans

A
  • To obtain finance for the start-up by investors/creditors.
  • Forces the owners to think seriously about the proposal, its strengths and potential weaknesses.
  • Gives the owners and managers a clear plan of action to guide their actions and decisions in the early months and years of business.
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28
Q

Limitations of business plans

A
  • Business plans can create a false sense of certainty with the owners. They can rely so much on the plan that they overlook that it is based on forecasts and predictions.
  • The business plan must be detailed and supported by evidence such as market research. If not, investors/creditors may delay making a finance decision.
  • The plan can lead to entrepreneurs being inflexible.
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29
Q

Define private limited company

A

A business that is owned by shareholders who are often members of the same family; this company cannot sell shares to the general public.

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30
Q

Define initial public offering (IPO)

A

An offer to the public to buy shares in a public limited company.

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31
Q

Define public limited company (PLC)

A

A company whose shares are traded on a stock exchange and can be bought and sold by the public.
- Unlike PTE’s, they can advertise their shares for sale to the general public which means they can raise large sums from public issues or shares.

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32
Q

Define primary sector business activity

A

Firms engaged in farming, fishing, oil extraction and all other industries that extract natural resources so that they can be used and processed.

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33
Q

Define secondary sector business activity

A

Firms that manufacture and process products from natural resources, including computers, brewing, baking, clothes-making and construction.

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34
Q

Define tertiary sector business activity

A

Firms providing services to consumers and other businesses, such as retailing, transport, insurance, banking, hotels and tourism.

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35
Q

Define quaternary sector business activity

A

Businesses providing information services, such as computing, web design, ICT, management consultancy, and R&D.

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36
Q

Benefits and problems with industrialization

A

Benefits:
- Total national output (GDP) increases which raises average standards of living.
- Increasing output of goods can result in lower imports and higher exports of products.
- Expanding manufacturing businesses will result in more jobs being created.

Problems:
- The work in manufacturing can encourage a huge movement of people from the countryside to towns, which leads to housing and social problems.
- Imports of raw materials and components are often needed, which can increase the country’s import costs.

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37
Q

Consequences of deindustrialization

A

The decline in of importance in primary and secondary sectors and increased importance of tertiary and quaternary sectors include:
- Job losses in agriculture, mining and manufacturing industries.
- Movement of people towards cities.
- Job opportunities in service industries - tertiary and quaternary services.

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38
Q

Define public sector

A

Organizations accountable to and controlled by central or local government.

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39
Q

Define private sector

A

Businesses owned and controlled by individuals or groups of them.

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40
Q

Define mixed economy

A

Economic resources are owned and controlled by both private and public sectors.

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41
Q

Define free-market economy

A

Economic resources are owned largely by the private sector with very little sale intervention.

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42
Q

Define command economy

A

Economic resources are owned, planned and controlled by the state.

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43
Q

Define public corporation

A

A business enterprise owned and controlled by the state.

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44
Q

Advantages of public corporations

A
  • They are managed with social objectives rather than profit objectives.
  • Finance is raised by government.
  • Loss-making services might still be kept operating if the social benefit is great enough.
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45
Q

Disadvantages of public corporations

A
  • There can be a tendency towards inefficiency due to a lack of strict profit margins.
  • Subsidies from government can encourage inefficiencies.
  • Goveronment may interfere in business decisions for political reasons.
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46
Q

Define sole trader

A

A business in which one person provides the permanent finance has full control of the business and is able to keep all of the profits. They have unlimited liability for business debts.

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47
Q

Define unlimited liability

A

Business owners have full legal responsibility for the debts of the business.

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48
Q

Advantages of a sole trader

A
  • Easy to set up - no legal formalities.
  • Owner has full control - not answerable to anybody else.
  • Owner keeps all profits.
  • Owner can choose working schedule.
  • Business can be based on interests and skills of the owner.
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49
Q

Disadvantages of a sole trader

A
  • Unlimited liability - all of the owner’s assets are potentially at risk.
  • Difficult to raise additional capital.
  • Often intense competition from larger firms.
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50
Q

Define partnership

A

A business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities.

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51
Q

Advantages of partnerships

A
  • Partners may specialize in different areas of business management.
  • They share decision-making.
  • Additional capital is injected by each partner.
  • Business losses are shared between the partners.
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52
Q

Disadvantages of partnerships

A
  • All partners have unlimited liability.
  • Shared profits.
  • There is no continuity and the partnership will have to be reformed in the event of death of one of the partners.
  • All partners are bound by the decision of any one of them.
  • Impossible to raise capital by selling shares.
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53
Q

Define limited liability

A

The only liability - or potential loss - a shareholder has, if the company fails, is the amount invested in the company, not the total wealth of the shareholder.

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54
Q

Define share

A

A certificate confirming part-ownership of a company and entitling the shareholder owner to dividends and certain shareholder rights.

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55
Q

Define shareholder

A

A person or institution owning shares in a limited company.
- They have the advantage of limited liability. People are prepared to provide finance so company can expand.
- The risk of the company failing to pay its debts is transferred from investors or creditors.

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56
Q

Advantages of private limited companies

A
  • Shareholders have limited liability.
  • The company has a separate legal personality.
  • There is continuity in the event of the death of a shareholder so ownership continues through inheritance of the shares.
  • The company has greater status than an unincorporated business.
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57
Q

Disadvantages of private limited companies

A
  • There are legal formalities involved in establishing the business.
  • Capital cannot be raised by the sale of shares to the general public.
  • It is difficult for shareholders to sell shares.
58
Q

Advantages of public limited companies

A
  • Shareholders have limited liability.
  • The company has a separate legal identity from its owners.
  • There is continuity.
  • It is easy for shareholders to buy and sell shares, encouraging investment.
59
Q

Disadvantages of public limited companies

A
  • Formation entails legal formalities.
  • There can be high costs of paying for advice from business consultants when creating a plc.
  • Share prices are subject to fluctuation, sometimes for reasons beyond a business’s control (e.g. the state of the economy).
  • There is a risk of takeover due to the availability of the shares on the stock exchange.
  • Directors may be influenced by the short-term objectives of the major investors.
60
Q

What are the legal formalities in setting up a company

A
  • Memorandum of Association must be completed. It is an interest to shareholders. Being aware of a company’s aims means that shareholders can avoid businesses that operate in markets and products - like weapons - that they don’t want to be associated with.
  • Articles of Association - after completed private limited companies can begin trading.
61
Q

Define Memorandum of Association

A

This states the name of the company, the address of the head office through which it can be contacted, the maximum share capital for which the company seeks authorization and the declared aims of the business.

62
Q

Define Articles of Association

A

This document covers the internal workings and control of the business, the names of directors and the procedures to be followed at meetings.

63
Q

Define cooperatives

A

A jointly owned business operated by members for their mutual benefit, to produce or distribute goods and services - as in consumers’ cooperatives or farmers’ cooperative.
Features:
-All members can contribute to running the business and sharing the workload, responsibilities and decision-making.
- All members have one vote at important meetings.
- Profits are shared equally among members.

64
Q

Benefits and drawbacks of cooperatives

A

Benefits:
- Buying in bulk.
- Working together to solve problems and take decisions.
- Good motivation for all members to work hard as they will benefit from shared profits.

Drawbacks:
- Poor management skills, unless professional managers are employed.
- Capital shortages because the sale of shares to non-members is not allowed.
- Slow decision-making if all members are to be consulted on important issues.

65
Q

Define franchise

A

The legal right to use the name, logo and trading systems of an existing successful business.

66
Q

Define franchiser

A

A person or business that sells the right to open stores and sell products or services, using the brand name and brand identity.

67
Q

Define franchisee

A

A person or business that buys the right from the franchiser to operate the franchise.

68
Q

Advantages of franchises

A
  • There are fewer chances of a new business failing because it is using an established brand name and product.
  • Advice and training are offered by the franchisor.
  • The franchiser pays for national advertising.
  • Franchisor agrees not to open another branch in the local area.
69
Q

Disadvantages of franchises

A
  • A share of profits/revenue has to be paid to the franchisor each year.
  • Buying into a franchise is expensive.
  • Franchisee has limited control due to strict rules of pricing and layout of the outlet.
70
Q

Define joint venture

A

Two or more businesses agree to work closely together on a particular project and create a separate business division to do so.

71
Q

Benefits of joint ventures

A
  • The costs and risks of a new business venture are shared, which is a major consideration when the cost of developing new products is rising rapidly.
  • Different companies may have different strengths and experiences, therefore will fit well together.
72
Q

Risks of joint ventures

A
  • Styles of management and culture might be different that the two teams don’t blend well together.
  • The business failure of one of the partners may put the whole project at risk.
73
Q

Define social enterprise

A

A business with mainly social objectives that re-invests most of its profits into benefiting society rather than maximizing returns to owners.

74
Q

Features of social enterprises

A
  • They do not have profit objectives but use business principles to achieve social objectives.
    Features:
  • They directly produce goods or provide services.
  • They have social aims and use ethical aims of achieving them.
  • They need to make profit to survive as they cannot rely on donations as charities do.
75
Q

Problems of measuring business size

A
  • There are several different ways of measuring business size. They often give comparative results. A business might appear large by one measure but quite small by another.
  • There is no internationally agreed definition of a small, medium or large business.
76
Q

What are the different measures of business size

A
  • Number of employees: A simple measure which is easy to understand. However, some businesses only need to employ a few people even though they have invested a lot of capital in the business and achieve high annual sales.
  • Revenue (or sales turnover): Used when comparing businesses in the same industry. Less effective when comparing businesses from different industries as some may be engaged in high or low value production.
  • Capital employed.
  • Market capitalization: can only be used for businesses who have shares on the stock exchange. As shares tend to change everyday, this form of comparison is not a stable one.
  • Market share.
  • The number of shops that can be used for retailers.
  • The number of units sold could be used to compare businesses in the same industry.
77
Q

Define revenue

A

The total value of sales made during the trading period = selling price x quantity sold.

78
Q

Define capital employed

A

The total value of all long-term finance invested in the business.

79
Q

Define market capitalization

A

The total value of a company’s issued shares.
Formula:
Current share price x total number of shares issued.

80
Q

Define market share

A

Sales of the business as a proportion of total market sales.
Formula:
Total sales of business/total sales of industry x 100

81
Q

Roles of small businesses

A
  • They create employment.
  • They are often run by dynamic entrepreneurs with new ideas for consumer goods and services. This helps to create variety and consumer choice in the market.
  • They create competition for larger businesses. Without competition, larger firms can exploit consumers with high prices and poor service.
  • They can be important suppliers to larger businesses.
  • All great businesses were small at one time - can become a more established organisation in the future.
  • They might have lower average costs than larger ones.
82
Q

Advantages of small businesses

A
  • Can be managed and controlled by the owners - little risk of losing control.
  • Often able to adapt quickly to meet changing customer needs.
  • Offer personal service to customers to help build customer loyalty.
  • Easy to know each worker.
  • If family-owned, the business culture is informal therefore employees are well-motivated and family members perform multiple roles.
  • Can be started up and operated with low capital investment.
83
Q

Disadvantages of small businesses

A
  • Limited access to source of finance.
  • Owner has to carry a large burden of responsibility and is usually unable to afford to employ specialist managers.
  • If the owner or important workers are absent/ill, other employees may not have necessary skills to operate the business.
  • Few opportunities of economies of scale.
84
Q

Strengths of family businesses

A
  • Commitment: Family owners often show dedication in seeing the business grow and passed on to future generations, leading to many family members to identify with the company and have incentive to work harder and re-invest part of their profits into the business.
  • Reliability and pride: Family businesses strive to increase the quality of their output and maintain a good relationship with stakeholders.
  • Knowledge continuity: Families in business make it a priority to pass their knowledge, experience and skills to the next generation.
85
Q

Weaknesses of family businesses

A
  • Succession/continuity problem: Many family businesses fail to be sustainable in the long-term. May be due to lack of skills and ability of later generations or the splitting management responsibilities between family members to give them a role in it.
  • Informality: Can lead to inefficiencies and internal conflicts.
  • Tradition: Lack of innovation.
  • Conflict: problems within the family may reflect on the management of the business and make effective decisions less likely.
86
Q

Why do owners want business growth?

A
  • Increased profits - expanding the business and achieving higher sales to become more profitable.
  • Increased market share.
  • Increased economies of scale.
  • Increased power and status of the owners and directors.
  • Reduced risk of being a takeover target.
87
Q

Define organic growth

A

Expansion of a business by means of opening new branches, shops or factories (internal growth).

88
Q

Define external growth

A

Business expansion achieved by integrating with another business by either merger or takeover.

89
Q

Define merger

A
  • An agreement by owners and managers of two businesses to bring them together in a new combined business (friendly merger).
90
Q

Define takeover

A

When a company buys more than 50% of the shares of another company and becomes its controlling owner (an acquisition).

91
Q

External growth and its impact

A

Referred to as integration as it involves bringing together two or more businesses.
This can lead to rapid expansion which is vital in a competitive and expanding market.
However, it leads to management problems, which is caused by the need for different management systems to deal with bigger organizations. There may also be conflict between the two teams of managers and of culture and business ethics.

92
Q

Define horizontal integration

A

Integration with a business in the same industry and at the same stage of production.

93
Q

Define vertical integration

A

Integration with a business in the same industry.

94
Q

Define forward vertical integration

A

Vertical integration with a customer business.

95
Q

Define backward vertical integration

A

Vertical integration with a supplier business.

96
Q

Define conglomerate integration

A

Integration with a business in a different industry.

97
Q

Advantages, disadvantages and impact of horizontal integration.

A

Advantages:
- It eliminates one competitor and increases market share and power.
- Economies of scale.
- May be increased power over suppliers to obtain lower prices.

Disadvantages:
- Rationalization may bring bad publicity and redundancies.
- There may be customer opposition to less competition and less choice.

Impact on stakeholders:
- Consumers have less choice and have to pay higher prices.
- Workers may lose job security as a result of rationalization:
- Suppliers may have to offer lower prices to bigger integrated businesses.
- Local communities may have job losses.

98
Q

Advantages, disadvantages and impact of forward vertical integration

A

Advantages:
- The business is able to control the promotion and pricing of its own products.
- It gives a secure outlet for the products of the business may now exclude competitors’ products from retail outlet.

Disadvantages:
- Consumers may suspect an attempt to act uncompetitively and react negatively.
- The business may lack experience in this sector of industry.

Impact on stakeholders:
- Workers may have greater job security because the business has secure outlets.
- There may be more varied career opportunities.
- Consumers may resent the lack of competition in the retail outlet because of the withdrawal of competitor products.

(Shareholder impact depends on whether profit rises or not).

99
Q

Advantages, disadvantages and impact of backward vertical integration

A

Advantages:
- It gives control over quality, price and delivery times of supplies.
- It encourages joint research and development into improved quality of components.

Disadvantages:
- The business may lack experience of managing a supplying company.
- The supplying business may become complacent due to having a guaranteed customer.

Impact on stakeholders:
- Workers may have more career opportunities.
- Consumers may obtain improved quality and more innovative products.
- Control over supplies to competitors may limit competition and choice for consumers.
- Profit might rise to benefit shareholders.

100
Q

Advantages, disadvantages and impact of conglomerate integration.

A

Advantages:
- It diversifies the business away from its original industry and markets.
- This should spread risk and may take the business into a faster-growing market.

Disadvantages:
- There may be lack of management experience in the acquired business sector.
- There could be a lack of clear focus and direction now that the business is spread across more than one industry.

Impact on stakeholders:
- Workers may have more career opportunities.
- There may be more job security because risks are spread across more than one industry.
- Profits could rise to benefit shareholders.

101
Q

Why do mergers/takeovers want to achieve objectives?

A
  • The integrated business will be able to share research facilities and innovative ideas that achieve better results than two separate businesses.
  • The economies of operating a larger scale of business, such as buying supplies in large quantities, should cut average costs and increase efficiency (economies of scale).
  • The larger combined businesses can save on marketing costs and distribution costs by using the same sales outlets and sales teams.
  • Rationalization of property and other assets will reduce duplication and costs.
102
Q

Why do mergers/takeovers fail to achieve objectives?

A
  • The integrated firm is too big to manage and control effectively. This is a diseconomy of scale.
  • A different business and management culture.
  • There may be little benefit from combined research departments or marketing/distribution facilities if the original businesses produced different products.
  • The rate of growth is too rapid for the directors to manage effectively.
103
Q

Define synergy

A

‘The whole is greater than the sum of parts’ - it is often assumed that the new business will be more successful than the original separate businesses.

104
Q

What are the financial problems of growth through mergers/takeovers and the strategies to overcome these problems?

A

Problems (financial)
- Costly, stretching the financial resources of the business.
- Additional fixed capital and working capital will be required quickly.
- A merger/takeover could lead to a negative cash flow and an increase in long-term borrowing and interest payments.

Strategies:
- Use internal sources of finance (retained profits).
- Raise finance from shared issues.
- Offer shares to pay for a takeover.

105
Q

What are the managerial problems of growth through mergers/takeovers and the strategies to overcome these problems?

A

Problems (managerial):
- Existing management may be unable to cope with problems of controlling an operation which may have doubled in size overnight.
- Lack of coordination between divisions of an expanding business.
- Culture clash.

Strategies:
- New management systems and structures are required: a policy of delegation and employee empowerment should reduce the pressure on senior managers.
- A decentralization policy could provide motivated managers with a clear local focus.
- A new management culture.

106
Q

Define strategic alliance

A

Agreement between two organizations to commit resources to achieving a specific objective while remaining independent.

  • Once the objective of the alliance has been reached, it is often ended.
  • The most successful strategic alliances bring together businesses with different skills and strengths so that the combination of these achieves the planned objectives.
107
Q

Define business objective

A

A stated measurable target that a business plans to achieve.

108
Q

Objectives of private sector organisations and their limitations (long)

A

Profit maximization, limitations:
- The focus on high-term short term profits encourages competitors to enter the market.
- Many businesses seek to maximize sales to gain higher market share, rather than profits.
- Other stakeholder groups have objectives other than profit, e.g.: managers care of the job security of employees.
- Difficult to identify whether this has been reached, so constant changes to pricing leads to negative customer reactions.

Profit Satisficing
- Common aim for small business owners
- Earning just enough profit to satisfy the owners
- Once a satisfactory level of profit is achieved, the owner might focus on other business/personal aims.

Growth
- Larger firms, unlikely to be taken over + benefit from economies of scale
- Managers will be motivated with bus. growth
Limitations:
- Rapid expansion leads to cash flow problems.
- Larger businesses experiencing diseconomies of scales.
- May lead to a loss of focus/direction if growth is focused on other areas/activities.

Increasing market share
Benefits:
- Retailers are keen to stock and promote the best selling brand.
- Products can be supplied to retailers at a low discount rate, gives the producer a higher profit margin.

Survival
- Key objective of start-ups.

Corporate social responsibility (CSR)
- Social, environmental and ethical based objectives (not just profit objectives).

Maximizing short-term revenue
- Limitation: if increased sales are achieved by reducing prices, the profits of the business may fall.

Increasing shareholder value
- To increase returns (dividends) to shareholders by incorporating strategies.

109
Q

Define corporate social responsibility

A

When businesses consider the interests of society by taking responsibility for the impact of their decisions and activities on customers, employees, communities and the environment.

110
Q

Define pressure groups

A

Organizations created by people with a common interest or aim, who put pressure on businesses and governments to change policies so that an objective is reached.

111
Q

What are objectives of social enterprises?

A

Referred to as the triple bottom line:
- Economic (financial) - to make profit so it can be re-invested into the business and provide dividends.
- Social - to provide jobs/support to local/disadvantaged communities.
- Environmental - sustainability.

112
Q

Define triple bottom line

A

The three objectives of social enterprises: economic, social and environmental.

113
Q

What are the objectives of public sector businesses?

A
  • To provide an efficient/reliable source to the public.
  • To encourage economic and social development.
  • Creating employment and prevent major job losses.
  • Meeting financial targets set by the government.
  • To achieve high environmental standards.
114
Q

Define stakeholders

A

Individuals or groups who can be affected by, and have an interest in, any action taken by an organization.

115
Q

Define external stakeholders

A

Individuals or groups who are separate from the business but are affected by or interested in its operations.

116
Q

Define internal stakeholders

A

Individuals or groups who work within the business, or own it, and are affected by the operations of the business.

117
Q

Stakeholders roles, rights and responsibilities: Customers

A

Role:
- To purchase goods & services.
- To provide revenue from sales.

Rights:
- To receive goods & services that meet local laws (h&s, design, performance).
- To be offered replacements, repairs or compensation.

Responsibilities:
- Being honest.
- Not stealing.
- Not making false claims abt poor service, etc.

118
Q

Stakeholders roles, rights and responsibilities: Suppliers

A

Roles:
- To supply goods and services to allow the business to offer its products to customers.

Rights:
- To be paid on time.
- To be treated fairly and not exploited by the customer business.

Responsibilities:
- To supply goods and services ordered by the business in specific time/condition laid out in contract.

119
Q

Stakeholders roles, rights and responsibilities: Employees

A

Roles:
- To provide manual/labour services too the business.

Rights:
- Offered employment contracts that meet legal standards.
- Paid as stated in employment contract.
- To join a trade union by choice.

Responsibilities:
- Honesty.
- To meet conditions/requirements of the employment contract.
- To cooperate with management.

120
Q

Stakeholders roles, rights and responsibilities: Local community

A

Roles:
- To provide the labour services required by business.

Rights:
- To be consulted about major changes that affect it.

Responsibilities:
- To cooperate with the business on expansions/other plans,

121
Q

Stakeholders roles, rights and responsibilities: Local government

A

Roles:
- To provide local services/infrastructure to the business so it can operate.

Rights:
- Not to have community’s lives affected by activities of the business.

Responsibilities:
- To meet reasonable requests from the business for local services such as public transport for employees and waste disposal.

122
Q

Stakeholders roles, rights and responsibilities: Government

A

Roles:
- To pass laws that restrain aspects of business activity.
- To provide law and order and economic stability so business activity takes place.

Rights:
- To expect the business to meet all legal constraints, eg: pay taxes/produce legal goods.

Responsibilities:
- To treat businesses equally under the law.
- Prevent unfair competition.
- Establish good trading links w/ other countries to allow international trade.

123
Q

Stakeholders roles, rights and responsibilities: Lenders

A

Roles:
- To provide finance to the business in different forms.

Rights:
- Repaid on agreed date.
- To be paid finance charges.

Responsibilities:
- To provide agreed amount of finance on agreed date & time period.

124
Q

Stakeholders roles, rights and responsibilities: Managers

A

Roles:
- To control, command and direct resources.

Rights:
- To have contract of employment & sufficient authority to fulfil roles.

Responsibilities:
- To report to stakeholders & act legally and ethically.

125
Q

Stakeholders roles, rights and responsibilities: Owners/stakeholders

A

Roles:
- To provide finance.

Rights:
- To receive a share of profits & receive accurate reports on business performance.

Responsibilities:
- To set targets for managers; give managers adequate time and resources to meet targets.

126
Q

Define trade union

A

An organization of working people with the objective of improving the pay and working conditions of its members and providing them with legal support and services.

127
Q

Define stakeholder concept

A

The view that businesses and their managers have responsibilities to a wide range of groups, not just shareholders.

128
Q

What are the possible business decision that might affect the stakeholders?

A
  • Large expansion of the business. e.g. building new office or factory.
  • Take over of a competing firm.
  • Significant application of IT into production methods.
129
Q

What are the possible impacts on employees of large expansion of business?

A

More jobs and career opportunities.
- Disruption during building and more complex lines of communication after expansion.

130
Q

What are the possible impacts on the local community of large expansion of business?

A
  • More jobs for locals.
  • Wipe out local businesses.
  • Disruption caused by increased traffic and loss of greenfield sites, pollution.
131
Q

What are the possible impacts on the customers of large expansion of business?

A
  • Better service might be provided due to an increase in size and staff.
  • Larger business could be less personal and therefore offer inferior customer service.
132
Q

What are the possible impacts on the employees of horizontal integration (take over a competing firm)?

A
  • Larger business may be more secure and offer career promotion and opportunities
  • Rationalization may occur to avoid waste and cut costs => jobs might be lost.
133
Q

What are the possible impacts on the local community of horizontal integration (take over a competing firm)?

A
  • Expansion leads to increase in employment.
  • Rationalization of duplicated offices or factories might lead to some closures of job losses.
  • Wipe out local businesses.
134
Q

What are the possible impacts on the customers of horizontal integration (take over a competing firm)?

A
  • Larger business mean that they might benefit from economies of scale => costs of products are cheaper.
  • Reduced competition => less customer choice => higher prices.
135
Q

What are the possible impacts on the employees of changing the production methods using technology?

A
  • Training and promotion opportunities might be offered
  • Automation => redundancy.
136
Q

What are the possible impacts on the customers of changing the production methods using technology?

A

Standardisation of products, no human errors => improve quality and may offer more product variety.

137
Q

What are the possible impacts on the local community of changing the production methods using technology?

A
  • Local suppliers from IT services could benefit from increased orders.
138
Q

Benefits of accepting responsibility to customers (a business decision impacting this stakeholder group).

A
  • Customer loyalty.
  • Repeat purchases.
  • Good publicity when customers give word of mouth.
  • Good customer feedback.
139
Q

Benefits of accepting responsibility to suppliers (a business decision impacting this stakeholder group).

A
  • Supplier loyalty.
  • Requests for special orders.
    Reasonable credit terms more likely to be offered.
140
Q

Benefits of accepting responsibility to employees (a business decision impacting this stakeholder group).

A
  • Employee loyalty.
  • Low labour turnover.
  • Ease of recruiting good workers.
  • Employee suggestions for improving efficiency/customer service.
    -Improved motivation.
  • Effective communication.
141
Q

Benefits of accepting responsibility to local communities (a business decision impacting this stakeholder group).

A
  • More likely to give planning permission to expand the business.
  • More likely to accept the negative effects caused by business operations if they provide financial support for community groups/projects.
142
Q

Benefits of accepting responsibility to government (a business decision impacting this stakeholder group).

A
  • Receiving planning permission for expansion.
  • Receive valuable government contracts.
  • Request for subsidies to expand.

AS Business (2 decks)

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