Unit 1 - Understanding Business Flashcards
Sectors of Industry
Primary
Secondary
Tertiary
Quaternary
Explain all sectors of Industry
Primary- Involved in the extraction of raw materials from the Earth (E.g. fisherman, miners)
Secondary- Turning the raw material into a product (E.g. factories)
Tertiary- They are businesses that do not produce products but provide a service (E.g. hairdresser)
Quaternary- A knowledge based organisation, providing help (E.g. IT Consultants, Accountants)
Public Sector Organisations
Public Sector Organisations are owned by the Government
Public Sector Organisations are controlled by a Board of Trustees
Public Sector Organisations are financed via Taxes (e.g. income tax, council tax)
Public Limited Companies (PLC)
Public Limited Companies are owned by shareholders
Public Limited Companies are controlled by a Board of Directors
Public Limited Companies are financed via selling shares publicly on the stock market
Aims & Objectives of Public sector Organisations
To satisfy the needs of the community and provide services to the public
To work within a given budget
To be ethically responsible:
- Use renewable energy such as solar
- Offer safe working conditions for staff
- Paying fair wages to employees
Offer customers fair prices for products and proper marketing
Aims & Objectives of Public Limited Companies (PLC) & CSR
Managerial Objectives- Managers try to achieve objectives which they believe will improve their status
- They may aim to also have many subordinates reporting to them to increase their responsibility and therefore their salary
Satisficing- Making enough profit to satisfy/cover satisfactory dividends to shareholders
Sales Maximisation- Making the most sales possible by dropping prices to get more commission for the number of sales made Methods to ensure good CSR: - Use renewable energy - Sustainable raw materials - Paying fair wages to employees
Methods of growth
Merger Takeover Organic growth Vertical integration Backwards vertical integration Forward vertical integration Horizontal integration Conglomerate integration
Describe: Organic Growth
“Organic Growth” is an internal method of growth used by a business. This method allows for a business to increase market share without losing control of the business.
This can be done by increasing the number of employees and increasing the variety of products they sell
Advantages- reduced risk of failure, increased sales and profit
Disadvantages- very expensive
Describe a merger and a takeover
Merger- when 2 or more organisations join together to form one large organisation
Takeover- when a large business takes over a smaller struggling business and takes control of there finances
Describe Vertical Integration
When a business joins with another business that operates in a different stage of production. e.g. A cider manufacturer joining together with a apple farmer
Advantages:
- Greater control over stages of production
- Eliminates middle man and his profits
- Gives the firm greater scales of economy
Disadvantages:
- The company may be incapable of managing new activities efficiently, meaning higher costs
- Focussing on new activities can negatively affect core activities
Describe Forward Vertical Integration
When a firm takes over another firm in a later stage of production
this is usually done to control the distribution outlets for the product
Advantages:
- Can increase profits by cutting out the middle man and adding value its self
Describe Backwards Vertical Integration
When a firm takes over another firm in an earlier stage of production (It’s supplier)
This means a business can ensure availability and quality
Advantages:
- Guaranteed and timely supply of stock
- No need to pay supplier marked-up prices, cheaper stock
- The quality of supplies can be strictly controlled
Describe Conglomerate Integration
This refers to when a business takes over a company in a completely different market
Advantages
- It allows the business to spread the risk of failure
- Enables a firm to overcome seasonal fluctuations
- It makes a firm larger and more financially secure
Disadvantages:
- May take on another business in another market they have no experience in causing them to fail
- Can cause the business to lose focus on core activities, affecting the product
- The business may become to large and hard to control
Methods of funding growth (Outsourcing)
Outsourcing- When an organisation contracts another to do work for them
Advantages:
- Reduces cost of employing staff in non-core activities
- Saves cost of specialised equipment
- Allows firm to concentrate on their core activities
- Specialist firms may be able to provide a higher quality service
Disadvantages:
- Confidentially issues
- May be very expensive
- The organisation will have reduced control
External factors
Political Economic Social Technological Environmental Competition
External factors and their impact on an organisation (Political)
This refers to decisions made by the government affecting organisations. Such as changes in:
- Laws and Regulations: The organisation must comply with new Laws and Regulations or they could potentially be fined or closed down.
- Changing Income Tax Rates: The government could reduce taxes giving people more disposable income, meaning they are more likely to buy products
- Changing VAT Rates: If VAT prices are increased the selling price of the product will be increased meaning customers are less likely to buy the products.
External factors and their impacts on an organisation (Economic)
This refers to the state of the national economy, if the economy is in a;
- BOOM: it means businesses are producing more products meaning more jobs are created. This leads to people having more disposable income, leading to an increase of profit for the organisation.
- RECESSION: When there is high levels of unemployment meaning people have less disposable income leading to a lack of sales for the organisation.
External factors and their impact on an organisation (Social)
This refers to a change in customer taste and wants;
- Change in demographic: Ageing population means more products have to be produced to care towards them e.g. increased care providers.
- Changes in Lifestyle: More women are working meaning there is an increase in different products e.g. chid care, ready meals
- consumer tastes change all the time potentially meaning a business may be left with products they cant sell
- Ethical considerations: If a business is seen in a positive light by customers it could lead to an increase in market share
External factors and their impact on organisations (Technological)
If a business has old and outdated technology they may fall behind competitors losing sales and profit.
Having the best and most up to-date technology means a business can increase the rate of production.
Maintaining and ensuring a business has the most up to-date technology is very expensive potentially causing cash flow issues.
External Factors and their impact on an organisation (Environmental)
This is when organisations aim to be socially reasonable and environmentally friendly
- Weather;
- Bad weather conditions may prevent customers from being able to go to the business, therefore decreasing profits
- If it is a very hot day and you sell ice creams you may see a large increase in sales
- Poor weather may damage the businesses premise meaning they are unable to re-open
Methods to ensure CSR:
- Recycling
- Population and industrial waste
External factors that impact an organisation (Competitive)
- New competition in the market may mean your business loses customers
- If a competitor brings out a new product similar to yours it may become outdated and fall in sales
- If a customer lowers the price of a product your business will need to do the same or risk losing customers
- If competitors have better advertisement this could lead to a fall in profits
Describe a Tall structure
A tall structure can also be known as a “Hierarchical” structure
A tall structure has many layers of management
It has a long chain of command meaning it takes time for instructions to be passed up/down the chain
Advantages and Disadvantages of a Tall structure
Advantage:
- Each staff member knows their role and who to report to
- With so many layers the opportunity for promotion is high which can motivate staff
- A narrow span of control means that managers have more time for planning, supervision and decision making
- Managers can support subordinates
Disadvantages:
- Communication can take a long time to flow down the many layers of management
- The organisation can be slow to respond to changes in the market
- Having a narrow span of control means employees may feel under pressure
- Managers have less staff to discuss ideas with
Strategic Decisions
Strategic decisions
- These are long term decisions, aims of the organisation
- These decisions are often made by senior management (e.g. Mr Abbot)
- These decisions are often high risk.
Examples: increasing market share, expanding the business into a foreign country
Types of Decisions
Strategic
Tactical
Operational
Types of Decisions (Tactical)
Tactical Decisions
- These are medium term decisions, required to achieve strategic decisions
- These decisions are often medium risk
- These decisions are often made by middle management (e.g. department head)
Types of Decisions (Operational)
Operational Decisions
- These decisions are often short-term decisions (day to day)
- These decisions are often made by low level management (any employees)
- These decisions are often low risk, dealing with customer complaint
Factors affecting the quality of decisions
Human Resources
- Managers ability, training and experience to make good decisions
- How much risk managers are willing to take when making decisions
- Managers ability to handle stressful and complex situations
Technology
- Spreadsheets: they can improve the accuracy of calculations using formula to perform “what if” statements to calculate the projected outcome of a decision.
- Databases: can improve the speed of decision-making by making it easy to search for information quickly using queries and sort functions.
- Email: can be used to communicate information regarding decisions to many employees at once and attachments containing information can be sent which reduces printing costs
Role of the Manager
Plan Organise Command Coordinate Control Delegate Motivate
Role of the Manager (Explain)
PLAN- a manager plans the objectives which means they have to decide what has to be done in order to reach the objectives
ORGANISE- a manager organises resources therefore ensuring the organisation is successful in achieving the objectives
COMMAND- a manager commands by giving instructions this reduces confusion amongst staff
COORDINATE- a manager coordinates to make sure everyone is working towards the same goal which means the task is done more efficiently
CONTROL- a manager controls by evaluating what has been done and checks it against what was expected therefore they can put different plans in place to rectify the situation
DELEGATE- a manager delegates responsibility to carry out a task to a subordinate which gives the manager more time to focus on other work
MOTIVATE- a manager motivates staff and inspires them therefore the objectives may be achieved by staff working harder
Ways of assessing the effectiveness of a decision
Managers will assess the effectiveness of a decision in the following ways:
- Research customer’s opinions using surveys
- Gather feedback from staff at meetings
- Assess the situation to see if the problem has been solved
- Compare the profits/sales figures for an increase this will include assessing using other financial information for example ratio analysis
- Monitoring staff morale, absence and turnover following major decisions
- Check if targets have been met and assess key performance measures for staffReview the number of complaints made
- Researching customer review sites or social media feedback
