Unit 1 - Understanding Business Flashcards
Describe the private sector (run by, objectives, businesses, financed by)
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
Describe the public sector (run by, objectives, financed by)
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
Describe the third sector (objectives and financed by)
Objectives are to raise awareness and raise funds
Financed by donations
What is a business objective?
What a business aims to achieve
What is satisficing?
Aiming for a satisfactory result rather than the ‘best possible’ result, allows survival rather than profit maximisation
What are managerial objectives?
When managers set objectives they believe will improve the status of the company (expanding into new markets etc)
What is corporate social responsibility?
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)
What is growth?
Making the business larger
What are the factors affecting structure?
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
What is a flat structure?
Only a few levels of management
Short chain of command
Wider span of control for managers
Managers are directly responsible for employees
What are advantages and disadvantages of a flat structure?
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
What is a hierarchical structure?
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
What are the advantages and disadvantages of a hierarchical structure?
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
What is an entrepreneurial structure?
One or two main decision makers
Usually used in small businesses
Relies on the expertise of the decision maker
What are advantages and disadvantages of an entrepreneurial structure?
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
What is a matrix structure?
Used when the business is involved in a number of large projects/long-term contracts
Staff teams are formed within their functional departments
What are the advantages and disadvantages of a matrix structure?
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
What is functional grouping?
When organisation is split into departments which represent the main functional areas (HR, marketing, admin etc)
What are the advantages and disadvantages of functional grouping?
Advantages
- resources are better used
- good communication and cooperation
Disadvantages
- staff loyalty to the department rather than the business
- rivalries between departments
What is customer grouping?
Gives close contact with customers
Caters to individual needs of customers
Most likely to exist in the service sector
What are the advantages and disadvantages of customer grouping?
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
What are the external factors?
PESTEC political economic social technological environmental competitive
Describe the political external factor
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
Describe the technological external factor
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
Describe the competitive external factor
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
Describe the economic factor
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
Why are shareholders and customers in conflict?
Shareholders want to maximise profits
Customers want a quality product for low prices
Why are shareholders and employees in conflict?
Shareholders want to pay as low a wage as possible so that profit is high
Employees want high wages for their work
Why are shareholders and suppliers in conflict?
Shareholders want to buy on credit to ensure good cash flow
Suppliers want to be paid ASAP
Describe internal growth
Achieved through
- hiring more staff
- opening new outlets
- introducing new products
What are the advantages and disadvantages of internal growth?
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
What is horizontal integration?
When two business from the same sector of industry become one business by take over or merger
What are the advantages and disadvantages of horizontal integration?
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
What is forward vertical integration?
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
What are the advantages and disadvantages of forward vertical integration?
Advantages
-business can control how the finished product is sold I.e price charged
Disadvantages
-company may not manage the new businesses activities effectively
What is backward vertical integration?
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
What are the advantages and disadvantages of backward vertical integration?
Advantages
- guaranteed stock on time
- no need to pay supplier
Disadvantages
-may be a duplication of staff which can lead to redundancies
What are the three types of decision?
Operational
Tactical
Strategic
What are operational decisions?
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
What are tactical decisions?
Medium-term decisions
Made by middle managers
Made to help achieve strategic decisions
E.g. developing new marketing campaign, carrying out market research
What are strategic decisions?
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
