Unit 1 - Introduction to Business Management Flashcards
Why do businesses exist?
To meet the needs/wants of individuals/organizations, usually in return for a profit.
What do businesses do?
Combine factors of production to produce goods and services.
What are the factors of production?
Labour, Land, Capital, Entrepreneurship.
What is the role of Human Resources in a business?
Selecting, hiring, training, compensating, and firing employees. It ensures employees are organized to achieve business objectives and determines the appropriate organizational culture.
Give an example of a Human Resources function.
Recruitment of staff.
What is the role of Finance in a business?
Managing and reporting on the economic sustainability of the business, handling funds, records, payments, and balance sheets.
Provide an example related to Finance.
Allocating resources to purchase capital equipment.
What is the role of Marketing in a business?
Satisfying the needs/wants of customers through market research, advertising, and branding (4Ps).
Give an example related to Marketing.
Setting prices of products.
What is the role of Operations Management in a business?
Handling the manufacturing of products (goods) and the delivery/execution of services, focusing on processes, quantity, efficiency, and production.
Provide an example related to Operations Management
Establishing quality management processes.
What activities are involved in the Primary sector?
Activities with the end purpose of exploiting natural resources.
Give examples of activities in the Primary sector.
Agricultural farming, Extraction of oil and gas, mining, fishing/hunting.
What characterizes the Secondary sector?
Activities consisting in varying degrees of processing raw materials.
Provide examples of activities in the Secondary sector.
Car manufacturing, construction, energy production, carpentry.
What characterizes the Tertiary sector?
Industries that provide services rather than produce goods.
Give examples of activities in the Tertiary sector.
Advertising, banking, education, communications, healthcare.
What activities are part of the Quaternary sector?
Activities involving the creation/sharing of knowledge using computer and digital information technologies.
Give examples of activities in the Quaternary sector.
Software and app development, management consultancy, Tertiary and higher education.
Define Entrepreneurship.
The trait of individuals who run their own business(es) and are described as visionaries.
What challenges do entrepreneurs face?
Lack of finance, lack of market research, poor marketing strategy, limited HR, long hours, lack of knowledge/experience/skills.
What does a Mission Statement declare?
The purpose of the organization, core purpose, identity, and focus.
What does a Vision Statement represent?
The ultimate dream and core values of the organization, providing a clear guide for stakeholders.
What are Strategic Objectives?
Long-term goals that an organization continually strives to achieve, often related to the owner’s focus, requiring a greater level of human/financial investment.
What are Tactical Objectives?
Short-term/specific goals with definitive timelines, often delegated to lower levels in the organizational hierarchy.
Define CSR.
An organization using ethical objectives to commit to behaving in a socially responsible way towards its internal & external stakeholders.
Who are Stakeholders?
People or small groups with the power to respond to, negotiate with, or change the strategic future of the organization.
How are businesses classified by sector?
Private or Public.
What characterizes the Private Sector?
Owned and run by private individuals or organizations, usually aiming to earn a profit independently of the government.
Provide examples of Private Sector entities.
Sole traders, Partnerships, Privately traded companies, Publicly traded companies, Social enterprises.
What characterizes the Public Sector?
Controlled by regional or national government, aiming to provide essential goods/services for the general public.
Examples of activities in the Public Sector.
Infrastructure, housing, health care, education, national defense, emergency services.
How are businesses classified by the nature of business (purpose)?
For Profit, For Profit Socials, Non-for-Profit (NGOs).
What characterizes a Sole Trader?
Minimal legal procedures, owner as the sole owner, privacy in financial statements, unlimited liability.
What characterizes Partnerships?
Partners sign a deal, 2-20 owners, financial statements elaborated but not presented to the commercial register.
What characterizes a Private Held Company?
Separate legal entities from owners, lower fees to form than public held company, owned by shareholders.
What characterizes a Public Held Company?
Separate legal entities from owners, shares available to the public, detailed financial statements published for the public.
What characterizes Cooperatives?
All member shareholders expected to run the cooperative, owned by members, elected board of directors.
Who are considered Internal Stakeholders?
Individuals or groups that are part of the organization, such as employees, managers, directors, shareholders.
Who are considered External Stakeholders?
Those not part of the business but have a direct interest in its decisions, actions, and performance, such as customers, competitors, financiers, trade unions.
What are the interests of Employees as Internal Stakeholders?
Improved terms & conditions, better pay, equal opportunities, improved job satisfaction, improved job security, wider career opportunities.
What are the interests of Managers as Internal Stakeholders?
Improve operational efficiency, productivity, profits, customer relations, and their own salaries and bonuses.
What are the interests of Directors as Internal Stakeholders?
Improve share ownership rights, performance-related bonuses, organization’s RoI for shareholders, competitiveness.
What are the interests of Customers/Consumers as External Stakeholders?
Looking for the best product that meets their needs (price, quality, convenience), and the business must carefully listen to their opinions.
What are the interests of Suppliers as External Stakeholders?
Maintaining stable relationships, competitive prices, and ensuring bills are paid on time.
What are the interests of Pressure Groups as External Stakeholders?
Placing demands on the organization to act in particular ways or influence change in behavior.
What are the interests of Government as External Stakeholders?
Concerned with how the business operates in the legal and responsible business environment
What are the interests of the Local Community as External Stakeholders?
Concerned with the impact of the business on jobs, corporate social responsibility (CSR), and financial support.
What are the interests of Competitors as External Stakeholders?
Gathering information, financial performance, benchmark data to measure their own performance, reputation, and sales.
What are the interests of Financiers as External Stakeholders?
Regular payment, positive return on investment (RoI).
What are the interests of Trade Unions as External Stakeholders?
Improving rights, labor conditions, salaries, and reducing working hours.
What is a Merger in the context of business?
When two or more companies agree to form a single, larger company and operate at a larger scale.
What is the difference between a Merger and an Acquisition?
In a merger, companies agree to form a single entity, while in an acquisition, one company buys a controlling interest in another.
What is Horizontal Integration in the context of M&A?
M&A between two or more companies operating within the same industry.
What is Vertical Integration in the context of M&A?
Involves buying up the value chain, either backward (buying a supplier) or forward (expanding into the primary sector).
What is Conglomerate M&A (Diversification)?
M&A between businesses in unrelated industries.
What is a Takeover in the context of business?
When a company purchases a controlling interest (majority stake) in another, almost always hostile (against the wishes of the owner).
What are the advantages of M&A and Takeovers?
Quick entry into new markets, operating at a larger scale, spreading fixed costs and risks, synergies, opportunities to diversify.
What are the disadvantages of M&A and Takeovers?
Expensive (in terms of money and time), loss of management control, resistance to change, cultural conflicts, requires reorganization.
What is a Joint Venture?
When two or more organizations join to create a new business entity for a finite period of time
What are the advantages of Joint Ventures?
Can be dissolved easily without compromising parent companies’ operations, combined expertise increases chances of success, cheaper and quicker than M&A.
What are the disadvantages of Joint Ventures?
Conflicts between parent companies, more difficult to terminate than strategic alliances, usually short-lived.
What is a Strategic Alliance?
When two or more organizations join without setting up a separate entity or making major changes to their business models.
What are the advantages of Strategic Alliances?
Benefit from pooling resources, businesses retain individual corporate identities, cheaper and quicker than Joint Ventures, fosters cooperation and less competition.
What are the disadvantages of Strategic Alliances?
Easier for members to pull out, limits options for external growth, potential mistakes/misconduct from other members.
What is Franchising?
A franchisor sells licensing rights to franchisees to sell goods/services using the franchisor’s name.
What are the advantages for the Franchisor in Franchising?
Faster than internal growth, receives royalties + initial upfront fee, benefits from a motivated franchisee, gains local knowledge.
What are the advantages for the Franchisee in Franchising?
High success rate, access to a tested business model, brand recognition, ongoing support, gains from purchasing economies of scale.
What are the disadvantages for the Franchisor in Franchising?
Corporate image at risk, breaking agreements can be costly, franchisee keeps profits, not applicable to all businesses.
What are the disadvantages for the Franchisee in Franchising?
Expensive and time-consuming initially, constrained by standards, risk of damaged reputation, not applicable to all businesses.
Define Economies of Scale.
Businesses benefit from lower average costs as the size of operations increases, leading to cost-saving benefits.
Define Diseconomies of Scale.
When a firm grows beyond its ability to perform efficiently, and the average cost of production increases.
What is the Optimal Output Level?
The level of output where economies of scale are fully exploited, and profits are maximized
What is the formula for Average Cost of Production?
Total Cost = Total Fixed Costs + Total Variable Costs.
How do businesses benefit from Internal Economies of Scale?
Financial: Lower interest rates on loans, Marketing: Spreading fixed costs by promoting a greater range of brands/products, Managerial: Improved efficiency with specialist managers, Technical: Cost-saving through
What are examples of External Economies of Scale related to location?
Reduction in unit costs for all firms in an area due to improvements in location infrastructure.
What is the role of Specialist Labor in External Economies of Scale?
It helps cut recruitment costs and increases labor productivity, such as relocation of suppliers, specialist R&D facilities, and new production processes
What problems can lead to Internal Diseconomies of Scale?
Problems within the organization causing productivity to fall and inefficiencies to occur.
What are examples of External Diseconomies of Scale related to problems outside the business?
Traffic congestion, increasing cost of rent due to high demand for land, higher labor costs due to shortages.
What is a Multinational Company (MNC)?
A business that operates in two or more countries, with its headquarters in one country and operations in others.
What is Foreign Direct Investment (FDI)?
Cross-border investment where a foreign company establishes an ongoing and significant stake in its operations in another country.
What are the positive impacts of MNCs on host countries?
Employment opportunities, support for the workforce, support for local businesses, choice and quality for consumers, efficiency gains, tax revenues for the host country.
What are the negative impacts of MNCs on host countries?
Negative impact on local businesses, repatriation of profits, exploitative business practices, loss of cultural identity.
How do MNCs impact local businesses negatively?
Local firms may lose customers, experience a fall in market share and profits, potentially leading to bankruptcies and job losses.
What is repatriation of profits in the context of MNCs?
Profits declared at interest and tax payments may be repatriated to the home country rather than being reinvested in the host country.
What are exploitative business practices by MNCs?
MNCs may be socially irresponsible, exploiting workers with poor pay and working conditions, and causing environmental damage.
How do MNCs contribute to the loss of cultural identity?
The growing presence of MNCs may lead to a depletion of local cultures, causing a cultural shift in how people live.
