Unit 1 - Understanding Business

Question 1

Describe the private sector (run by, objectives, businesses, financed by)

Answer 1

Owned and controlled by Private individuals
Objective is to make a profit
Business include sole trader, partnership, franchise, companies; PLC, LTD, MNC
Financed by savings, loans, grants and bank overdraft

Question 2

Describe the public sector (run by, objectives, financed by)

Answer 2

Owned and controlled by central and local governments
Objectives are to provide a service, make effective use of funds
Financed via taxes paid by publics

Question 3

Describe the third sector (objectives and financed by)

Answer 3

Objectives are to raise awareness and raise funds

Financed by donations

Question 4

What is a business objective?

Answer 4

What a business aims to achieve

Question 5

What is satisficing?

Answer 5

Aiming for a satisfactory result rather than the ‘best possible’ result, allows survival rather than profit maximisation

Question 6

What are managerial objectives?

Answer 6

When managers set objectives they believe will improve the status of the company (expanding into new markets etc)

Question 7

What is corporate social responsibility?

Answer 7

When a business aims to act in an ethical way so that they benefit society or the environment (good pay and working conditions, recycling etc)

Question 8

What is growth?

Answer 8

Making the business larger

Question 9

What are the factors affecting structure?

Answer 9

SIZE - as the business grows it becomes harder to control

TECHNOLOGY - introduction of new technology can change the structure

MARKET - if the market is small then the organisation will be small with an entrepreneurial structure

Question 10

What is a flat structure?

Answer 10

Only a few levels of management
Short chain of command
Wider span of control for managers
Managers are directly responsible for employees

Question 11

What are advantages and disadvantages of a flat structure?

Answer 11

Advantages

• info flows quickly
• consulting staff on decisions takes less time
• business is more able to respond to market changes
• customers needs are quickly dealt with

Disadvantages

• removal of management levels means there is less control
• mistakes are easier to make

Question 12

What is a hierarchical structure?

Answer 12

Has many layers of management
Long chain of command
Each manager has a narrow span of control
Information and decisions need to go through each level

Question 13

What are the advantages and disadvantages of a hierarchical structure?

Answer 13

Advantages

• great deal of control and supervision
• clearly defined roles and procedures

Disadvantages

• decision making can take a long time as every level must be consulted
• communication can be slow

Question 14

What is an entrepreneurial structure?

Answer 14

One or two main decision makers
Usually used in small businesses
Relies on the expertise of the decision maker

Question 15

What are advantages and disadvantages of an entrepreneurial structure?

Answer 15

Advantages

• decisions are made quickly
• decision makers are experienced
• staff know who they are accountable to

Disadvantages

• decisions can’t be made if the decision maker is unavailable
• difficult to use in large businesses

Question 16

What is a matrix structure?

Answer 16

Used when the business is involved in a number of large projects/long-term contracts
Staff teams are formed within their functional departments

Question 17

What are the advantages and disadvantages of a matrix structure?

Answer 17

Advantages

• specialist teams provide innovation
• new skills can be learned from working in teams

Disadvantages

• two managers to report to
• can be conflict and duplication of tasks between departments
• can be costly to set up and manage

Question 18

What is functional grouping?

Answer 18

When organisation is split into departments which represent the main functional areas (HR, marketing, admin etc)

Question 19

What are the advantages and disadvantages of functional grouping?

Answer 19

Advantages

• resources are better used
• good communication and cooperation

Disadvantages

• staff loyalty to the department rather than the business
• rivalries between departments

Question 20

What is customer grouping?

Answer 20

Gives close contact with customers
Caters to individual needs of customers
Most likely to exist in the service sector

Question 21

What are the advantages and disadvantages of customer grouping?

Answer 21

Advantages

• highly responsive to customer needs
• personal service
• respond faster to individual needs

Disadvantages

• admin can be time consuming
• large staffing costs
• competition between groups

Question 22

What are the external factors?

Answer 22

PESTEC
political
economic
social
technological
environmental
competitive

Question 23

Describe the political external factor

Answer 23

Decisions made by the government can influence a business
Both local and national governments can influence

Changes to laws - if a business adheres it is shown in a positive light, changes to minimum wage can result in increased costs for business

Changes to tax rates - if taxes were reduced, customers would buy more due to their higher income, opposite effect if taxes increase

Changes to VAT rates - if VAT was lowered products would be more affordable, works opposite way

Question 24

Describe the technological external factor

Answer 24

Includes the use of social media, e-commerce, order tracking, mobile pay etc

Social media - enables business to keep in touch with customers and raise their profiles, but bad reviews spread faster

WiFi - offering free WiFi can attract customers, but costs a lot to set up and maintain

Question 25

Describe the competitive external factor

Answer 25

Most businesses face competition

To compete, business can : alter prices to attract new customers, bring out improved versions of products, launch new marketing campaigns, introduce better customer service/support

Stores next door - provide choice and brings trade to the area, but competition could undercut prices therefore business may have to reduce prices to keep up or lose customers

Market/products - competition improves a market as it brings new ideas and keeps prices low, however businesses will have to spend more money on developing new products of their own

Question 26

Describe the economic factor

Answer 26

Economic influences are anything that encourages people to spend/not spend due to the state of the economy

Boom - demand is high so business can take advantage and raise prices, rise in prices leads to wage rises so that people can keep up

Recession - high unemployment rates so demand falls, may need to make staff redundant to survive

Recovery - sales will increase as more employment and spending, business may find it hard to employ due to previous redundancies

Question 27

Why are shareholders and customers in conflict?

Answer 27

Shareholders want to maximise profits

Customers want a quality product for low prices

Question 28

Why are shareholders and employees in conflict?

Answer 28

Shareholders want to pay as low a wage as possible so that profit is high
Employees want high wages for their work

Question 29

Why are shareholders and suppliers in conflict?

Answer 29

Shareholders want to buy on credit to ensure good cash flow

Suppliers want to be paid ASAP

Question 30

Describe internal growth

Answer 30

Achieved through

• hiring more staff
• opening new outlets
• introducing new products

Question 31

What are the advantages and disadvantages of internal growth?

Answer 31

Advantages

• hiring more staff brings new ideas
• less risky than a take over
• no loss of control as no outsiders are involved

Disadvantages

• can be a slow method of growth
• restricted by the amount of finance available

Question 32

What is horizontal integration?

Answer 32

When two business from the same sector of industry become one business by take over or merger

Question 33

What are the advantages and disadvantages of horizontal integration?

Answer 33

Advantages

• the new business can dominate the market as competition is reduced
• due to reduced competition, the new business can raise prices and make more profit

Disadvantages

• quality may suffer due to lack of competition
• customers may have to pay more for the same goods

Question 34

What is forward vertical integration?

Answer 34

When a business takes over/merged with a business in the next sector of industry
Eg a mobile phone manufacturer taking over a mobile phone shop

Question 35

What are the advantages and disadvantages of forward vertical integration?

Answer 35

Advantages
-business can control how the finished product is sold I.e price charged

Disadvantages
-company may not manage the new businesses activities effectively

Question 36

What is backward vertical integration?

Answer 36

When a business takes over/merged with a business in an earlier sector of industry

E.g a coffee shop taking over a coffee bean plantation

Question 37

What are the advantages and disadvantages of backward vertical integration?

Answer 37

Advantages

• guaranteed stock on time
• no need to pay supplier

Disadvantages
-may be a duplication of staff which can lead to redundancies

Question 38

What are the three types of decision?

Answer 38

Operational
Tactical
Strategic

Question 39

What are operational decisions?

Answer 39

Short term decisions made on a day to day basis
Can be made by all staff but mainly by lower level managers

E.g. responding to customer complaints, dealing with staff absences, organising rotas

Question 40

What are tactical decisions?

Answer 40

Medium-term decisions
Made by middle managers
Made to help achieve strategic decisions

E.g. developing new marketing campaign, carrying out market research

Question 41

What are strategic decisions?

Answer 41

Long-term decisions about the general aims and targets
Take a long time to be implemented
High financial risk

E.g. increase market share, diversify or expand into a foreign market