Unit 2 Flashcards
Internal/organic growth
Growth within the business
Eg.opening more stores
External/inorganic growth
Growth from outside the business
Eg. Merging stores
Merging business
Businesses that merge together
+more customers
+more money
-disagreements
Takeover
A business buying another business
+access to different markets
+less competition
-costly
-negative publicity
Public limited company
•form of business ownership •limited liability •must be a minimum of 2 shareholders •can sell shares on the stock exchange Meaning access to large capital
Advantages and disadvantages of internal finance
+natural
+no interest
- may not be a lot
- can be slower
Examples of internal finance
- retained profit
- selling assets
Advantages and disadvantages to external finance
+money
+potentially skills from shareholders
- potentially giving up a percentage of the business
- potentially giving up control over the business
Examples of external finance
- loans
- shares
Retrenchment
A business downsizing the scale of its operation
Efficiency
The attempt to avoid wasting materials, energy, effort, money and time with the aim of reducing costs more effectively
Globalisation
When a business operates on an international scale and gain international influence of power
Examples of globalisation
- have stores in different countries
- deliver to more places
- suppliers from other countries (sometimes cheaper)
- workers moving all over the world for work
Multinational company
A multinational company is a large company with facilities and markets all over world
Imports
The flow of goods and services into one country from another
Exports
The flow of goods and services out of one country to another
Business location
The area the business operates
International trade
Buying or selling of goods and services between countries
However there can be many barriers preventing countries from trading
Free trade
There are no barriers to international trade
ie trade between countries
Protectionism
When countries take action that restrict the flow of imports into their country
Types of tariffs
•tax charged on imports
•quotas
Provides a physical limit put on that import
Eg. 2000 bottles of whiskey
•non tariff barriers
Imposing difficult quality or safety standards on imported goods
Ethics
Moral guidelines which govern good behaviour
Advantages of acting ethically
- competitive advantage
- brand loyalty
- avoids negative media
Pressure group
A group of people who join together to try and influence government policy or business policy for a particular cause
Direct pressure groups
Directly impacting the business or service eg. Boycotting
Indirect pressure groups
Promotion of issues through education, debate and lobbying eg in schools and colleges
What are the 3 things in the design mix?
- Function
- cost
- Aesthetics
What are the 4 stages of a Product life cycle?
- introduction
- growth
- maturity
- decline
Product extension strategies
- finding new users
- finding new markets
- targeting a specific market with promotion
- changing the appearance
- lowering prices
- encouraging people to use the product more often
Pricing strategies factors
- the volume of the product
- the profit margin
- popularity
- brand loyalty
High volume, low margin strategies
- lower prices
* sell more
High margin, low volume strategies
•higher prices
•sells less
•adding value
Eg.Gucci
Mass market
- everyone
- lots of competitors
- lower prices
Niche market
- specific customers
- less competition
- higher prices
- less customers
Supply chain
The sequence of process involved in the production and distribution of a product/service
Producer to consumer
- most direct route
- products may be customised
- prices may be lower (as there are less profit margins to be considered)
Producer to superstores to consumer
-most common route for food, clothes and most household items
-producers sell to superstores in bulk
-superstores store items in warehouses and distribute it to different stores
Eg. Morrison’s
Traditional method (producer to wholesaler to small business to consumer)
- buy in bulk
- sell in small quantities to village shops
- the wholesaler carries out the important function of “breaking bulk”
Income statement
Shows the profit or loss that a business makes
A business makes an income statement annually
Gross profit
The profit the business makes on selling its product.
It takes into account all costs to make and supply the product but not the businesses expenses
Expenses
Not direct link to cost of sales
Eg.advertising, utility bills, administration (usually fixed costs)
Turnover
Revenue
Net profit
The amount of money left over when all expenses have been deducted from the gross profit
ARR (average rate of return)
ARR is used to compare different investment opportunities in order to identify which is the most profitable
Business operations
Transforming resources into finished goods
Benefits of technology
- lower costs (bulk-buying)
- faster (machinery)
- higher quality (less mistakes)
- flexible (can change the output)
Disadvantages of technology
- initial costs may be high
- repair is expensive
- staff need training
- problems are harder to detect until it’s too late
- a robot can’t react to unexpected changes
Job production
Making one product at a time
Advantages of job production
+specific to the individual needs of customer
+high profit margin
Disadvantages of job production
- expensive for customer
- takes skilled workers
- slower than other production techniques
Batch production
Relatively large production runs (in batches)
Eg. A bakery
Advantages of batch production
+allows customers to be flexible (eg. Ingredients)
+reduced costs due to large scale production (bulk-buying)
Disadvantages of bulk production
- high wastage (eg.bakery)
- downtime between batches (where the rate of production falls)
Flow production
Production on a mass scale, standardised products
Eg. Cars
Advantages of flow production
+low cost of production
+can be done by low skilled workers
+mostly done by machinery
Disadvantages of flow production
- lower salaries
- initial cost of machinery
- not flexible
Procurement
The process of obtaining the right supplies from the right supplier
Factors entrepreneur needs to consider when picking a supplier
- quality
- delivery
- availability
- cost
- trust
Stock management
The task of ordering, storing, tracking and controlling a businesses stock
Effect of ordering too much stock
- waste
- takes up space
- obsolete products
- profit decreases
2 ways of managing stock
- Just in case (bar gate chart)
2. Just in time (JIT)
Just in time (JIT)
Supplies are delivered when a business needs them
Eg. Some small businesses or bakery
Pros and cons of just in time
+business holds no stock
+less waste
-relies on supplies arriving on time
-trustworthy suppliers
Just in case
Where a business has stock and is automatically reordered when stock reaches a certain level
Eg. Supermarkets
5 areas of promotional mix
- special offers
- public relations (eg. Sponsorships)
- advertising
- direct marketing
- personal selling
Pros and cons to just in case
+have a buffer stock
+doesn’t need too much trust in suppliers
-holding stock can be costly
-more wastage
Buffer stock/ minimum level
Lowest amount of stock you want to keep
Bar gate stock graph
The graph to show just in case stock control
Shows when supplies need to be ordered and how much stock a business has
Quality
Being fit for the customers purpose
A good quality product should meet the customers requirements
The 2 ways businesses can ensure quality
- Quality control
2. Quality assessment
Quality control
Checking standard of products at the end of product process
Quality assurance
Checks products at all stages of production
Kite mark
Given to products where safety is an important aspect of quality
CE mark
Products that comply with the essential requirements of European safety and environmental protection
Investors in people
Awarded to organisations committed to training and developing their staff
5 steps of the sales process
- Customer interest
- Speed and efficiency of service
- Customer engagement
- Post-sales service
- Customer loyalty
Customer interest (Sales process)
To grab attention
- branding
- sponsorship
- advertising
- sales promotions
Speed and efficiency of service
Sales process
- not too long to purchase
- customers may choose a business who are quick & convenient
- e-tailing user friendly
- retailing minimal queues
Customer engagement
The sales process
Interaction between customer and business during the sales transaction
Post sales service
Sales process
Support the business provides after sale
Eg. Surveys
Customer loyalty
Sales process
Customers keep coming back due to the effective sales service
Hierarchy
The management structute of a business
Chain on command
Line on which orders and decisions are passed down
Span of control
The number of employees that are managed by a manager.
If a person manages four their span of control is four
Advantages of a hierarchical organisational structure
+more promotions
+less work for managers
Disadvantages of a hierarchical organisational structure
- not as easy to communicate
- more expensive (more managers)
Advantages of a flat organisational structure
+easier communication
+cheaper (less managers)
Disadvantages of a flat organisational structure
- less promotions
- more work for managers
Hierarchical organisational structure
- many layers of management
- narrow span of control
- long chain of command
Flat organisational structure
- few layers of mangement
- wide span of control
- short chain of command
Centralised structure
Decisions are made at the top of the company
Decentralised structure
Decisions are made locally or at a lower level in the business
Advantages of centralised structure
+consistency
+clear direction
+operations and decisions are closely controlled
+chain of command is clear
Disadvantages of centralised structure
- can demotivate employees
- a standardised approach may not work in all business locations
- may lower productivity
Advantages of decentralised structure
+improved employee motivation
+allowing managers lower down the chain to make decisions which suit their local area
+more responsibility for employees
Disadvantages of decentralised structure
- not consistent over the business
- managers can make ineffective decisions
- may negatively impact on sales, reputation and overall business performance
Problems when communicating:
- communicates too much
- communicates too little
- bad technology
- accents/languages
- time differences
Ways of working
- hours worked
- contracts used
- technology used
Flexible hours
Flexible hours, suits the employyee
Zero hours contract
Casual contract, “on call” work
Contract
Written agreement between two people or organisations
3 examples of contracts
- permanent
- temporary
- freelance
Permanent contract
An employee will be employed by a business on an ongoing basis
Pros and cons to a permanent contract
+employees feel secure
+less likely to leave the business
-most expensive contract
Temporary contract
An employee will be employed for a fixed amount of time
Eg.maternity leave
Pros and cons to temporary contract
+evaluate potential employees (could offer them a permanent contract)
+required for business operations
- less job security
- less employee loyalty
Freelance contract
Self employed, paid by the business to do a specific job/project
Pros and cons to freelance contracts
+fills business needs
- may not be available
- lack of trust
Benefits of motivated staff
+productivity
+business reputation improves
+higher attendance
+employees want to contribute ideas
Unmotivated staff are:
- inefficient
- make more mistakes
- damage business reputation
2 methods of motivation
- Financial
* Non-Financial
Remuneration
The money paid to an employee for working
-overtime pay for staff who work etra
Advantages of remuneration
+staff want to work overtime
+more motivation
Disadvantages of remuneration
-costs the business more
Bonuses
An additional payment if they acheive a target or high level of performance
Advantages of bonuses
+staff want to work harder
+more motivation
Disadvantages of bonuses
- costs the business
- staff make be pushy towards customers trying to sell things
Comission
An extra amount of money paid to an employee, usaully if they can make a certain amount of sales
Promotion
A promotion is when an employee is given a more senior role within the organisation usually with more responsibilities
Fringe benefits
Benefits by the business that financially benefit employees
Eg. Gym membership, comapany car, free childcare etc
Non financial methods of motivation
- job rotation
- job enrichment
- autonomy
Job rotation
When employees rotate between jobs. Taking on different tasks
Pros and cons to Job rotation
\+gain experience \+gives employees a better understanding of the business -time consuming -possible lower standard of work -teaching
Job enrichment
Giving employees more responsibility
Pros and cons to job enrichment
+ increased productivity
+ opportunities
-may be overwhelming
-pay hasn’t increased
Autonomy
Employees are able to make more choices and have more freedom/independence
Eg. Team decisions or working your own hours
Pros and cons to autonomy
+freedom
+staff feel in control
-wrong decisions
-employees make take advantage of freedom
