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A Level Business AQA > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

The role of managers

A

1) Set SMART objectives - the manager sets goals for a group and decides what work needs to be done.
2) Organise and make clear decisions - the manager divides the work into manageable activities and selects the people to undertake them.
3) Lead, motivate & communicate to staff - the manager creates a team of people who work together.
4) Analyse/measure the situation - the manager not only sets targets but also analyses and appraises performance.
5) Review the decision & develop people - it is up to the manager to develop people, who may be looked upon as the most important asset of a business.

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2
Q

What did Henri Fayol outline as the 5 elements of management?

A
  • Planning
  • Organising
  • Commanding
  • Coordinating
  • Controlling
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3
Q

Distinction between a manager and a leader

A

Managers & leaders are those people with responsibility for the day-to-day running of a business & the decisions made to drive a business towards achieving its goals.

A managers’s primary responsibility is:
- To plan, organise, and control resources to achieve specific goals within an organisation.
- Focus on managing people & processes to ensure that operations run smoothly and efficiently.

A leader is responsible for:
- Setting a clear vision & direction for the entire business.
- To inspire & motivate people to achieve that common goal (corporate objective).

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4
Q

Define ‘leadership style’

A

Leadership style is the way in which a leader approaches his or her role of planning, organising, directing and controlling.

The way in which managers & leaders behave and the decisions they make will impact on all aspects from the motivation of the employees to the perception of the consumer.
- Not all leaders behave in the same way.
- They have different leadership styles.

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5
Q

Name the 4 main basic leadership styles

A
  • Autocratic/authoritarian
  • Paternalistic
  • Democratic
  • Laissez-faire (meaning “leave alone” or “hands off”)
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6
Q

What are the key features of an autocratic leadership style?

A
  • Keeps information and decision making among the senior managers, and the workers are not involved.
  • Sets objectives and allocates tasks; leader remains control throughout.
  • One-way communication from leader to subordinates.
  • Useful when quick decisions are required.
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7
Q

What are the advantages and disadvantages of an autocratic leadership style?

A

ADVANTAGES:
- Decisions and direction of business will be consistent and made quickly as they are done by the most skilled employees (managers).
- May project image of confident, well-managed business.

DISADVANTAGES:
- Lack of information, so subordinates are highly dependent on leaders; supervision needed.
- Lack of two way communication can be demotivating for workers and creates a ‘them and us’ attitude in the workplace.

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8
Q

What are the key features of a democratic leadership style?

A
  • Entails running a business on the basis of decisions agreed by the majority, often decided in teams.
  • Encourages participation and makes use of delegation.
  • Extensive, two-way; encourages contributions from subordinates.
  • Useful when complex decisions are made requiring a range of specialist skills.
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9
Q

What are the advantages and disadvantages of a democratic leadership style?

A

ADVANTAGES:
- Commitment to business, satisfaction and quality of work may all improve.
- Workers feel social needs are being met which can motivate employees.

DISADVANTAGES:
- Slow decision making and need for consensus may make it hard to take ‘best’ decisions.
- If workers lack skills and experience, mistakes or errors may be made

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10
Q

What are the key features of a Laissez-faire leadership style?

A
  • Leader has a peripheral role, leaving staff to manage the business and ‘do nothing’.
  • Leader evades duties of management and uncoordinated delegation occurs.
  • Mainly horizontal communication, though little communication occurs.
  • Can encourage production of highly creative work by subordinates.
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11
Q

What are the advantages and disadvantages of a Laissez-faire leadership style?

A

ADVANTAGES:
- May bring the best out of highly professional or creative groups.
- The weight on employees shoulders encourages personal development and independence, allowing innovation to thrive.

DISADVANTAGES:
- May not be deliberate, but bad management - staff lack of focus and sense of direction; much dissatisfaction.
- If employees are not self-motivated, productivity could decrease.

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12
Q

What are the key features of a paternalistic leadership style?

A
  • Gives attention to the social needs & views of their workers.
  • Typical paternalistic leader explains the specific reason as to why he has taken certain actions.
  • Still little delegation.
  • Similar to a parent/child relationship where the leader is seen as a “father-figure”.
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13
Q

What are the advantages and disadvantages of a paternalistic leadership style?

A

ADVANTAGES:
- Paternal leaders use compassion and empathy to understand employees’ feedback or concerns and take their input into consideration when making business decisions, so high job satisfaction.
- Sense of belonging.
- For example, they may encourage employees to use their vacation time because they believe in the importance of a healthy work-life balance. This workplace environment often leads to increased employee loyalty and high retention rates, which can improve a company’s culture and productivity.

DISADVANTAGES:
- If paternal leaders make decisions that employees may disagree with, it can cause tension in the workplace, leading to low morale among employees.
- Lack of delegation may cause employees to question whether leaders trust them with important tasks or projects.

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14
Q

What is delegation?

A

Delegation means the passing of responsibility for a particular task, project or decisions from a manager to a subordinate. The manager is still responsible for the successful completion of the task.

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15
Q

What is a subordinate?

A

A subordinate is a person further down the organisational hierarchy/structure.

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16
Q

Amount of delegation in autocratic leadership styles and the advantages and disadvantages of this

A

Managers make ALL decisions.
Communication: top -> down : NO delegation.
PROS:
- Business crisis
- Unskilled / new workers
CONS:
- Demotivating
- Low staff recognition

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17
Q

Amount of delegation in democratic leadership styles and the advantages and disadvantages of this

A

Managers give employees greater involvement in decision making.
Some delegation.
PROS:
- Increase motivation
- Frees up managers
CONS:
- Slow decision making process
- Are employees capable

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18
Q

Amount of delegation in Laissez-faire leadership styles and the advantages and disadvantages of this

A

Managers have no input in decision making.
Full delegation.
PROS:
- Competent & highly skilled employees.
- Aligned incentives?
CONS:
- Ineffective if just a way for manager to shirk responsibility.

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19
Q

Internal influences on leadership styles

A
  • Personality & style of the leader/founder.
  • The type of business: manufacturing or service.
  • The type of job: repetitive or creative.
  • The skills of the staff.
  • The performance of the business.
  • Where the business is in life cycle.
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20
Q

External influences on leadership styles

A
  • Labour market: how easy is it to recruit staff?
  • Competitors’ leadership styles & how successful they are.
  • Power of trade unions.
  • The market conditions & the economy.
  • Business culture.
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21
Q

Possible reasons for why in the UK there has been a gradual shift away from autocratic leadership

A
  • Changes in society’s values.
  • Better educated workforce.
  • Focus on need for soft HR skills.
  • Changing workplace organisation.
  • Greater workplace legislation.
  • Pressure for greater employee involvement.
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22
Q

Define autonomy

A

Autonomy means allowing a great deal of freedom to make choices in the workplace.

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23
Q

What is the Tannenbaum-Schmidt continuum?

A

The Tannenbaum Schmidt continuum (leadership theory) demonstrates the relationship between the level of freedom that a manager chooses to give a team (delegation), and the level of authority used by the manager.
As the team’s freedom is increased, so the manager’s authority decreases.
Continuum = scale

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24
Q

Give the order of scales on the Tannenbaum-Schmidt continuum from manager-centred leadership to subordinate-centred leadership

A

Manager-centred leadership, manager has most authority (1) to subordinate-centred leadership, subordinates have more freedom (4):

1) TELL:
- Manager makes decision & tells staff about it.
2) SELL:
- Manager “sells” decision to his staff.
3) CONSULT:
- Manager presents ideas & invites questions from staff.
- Manager presents tentative decision subject to change.
- Manager presents problem; gets suggestions, then makes the decision.
4) JOINS:
- Manager asks group to make decision within the limits he/she sets.
- Manager allows team to develop options & decide on actions defined by manager.

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25
Q

Detailed description including situation, group, and leader factors of the “tell” approach of leadership decision making

A

DESCRIPTION:
- Use orders to give assignments.
- One-way communications predominate.
- Leader doesn’t want feedback.

SITUATION FACTORS:
- Use in true, time-critical emergencies.
- Use in training for safety and integrity of valuable equipment, materials, and supplies.

GROUP FACTORS:
- Group needs direction for safety and/or training.
- Group expects this style of direction.

LEADER FACTORS:
- Need knowledge and a broad background of experience.
- Must be natural and comfortable with this style.

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26
Q

Detailed description including situation, group, and leader factors of the “sell” approach of leadership decision making

A

DESCRIPTION:
- Must be used in honest and forthright manner.
- Necessity of using this style must be convincing.
- Questions of the group must be answered.

SITUATION FACTORS:
- Use to implement policy or instructions from higher organisational levels.
- Use in mediation situations to get people to accept a compromise.

GROUP FACTORS:
- Group goals are at variance with those of the leader.
- Group goals are at variance with those of the organisation.

LEADER FACTORS:
- Leader must be effective at persuading.
- Leader must be confident of his or her abilities.

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27
Q

Detailed description including situation, group, and leader factors of the “consult” approach of leadership decision making

A

DESCRIPTION:
- Leader asks for and receives input from the group.
- Atmosphere is one of trust, honesty, and open communications.
- Leader demonstrates to staff that their input is valued.

SITUATION FACTORS:
- Enough time must be available for this group to become involved.
- Problem must be large and complex enough to require the attention of the group.

GROUP FACTORS:
- Group must have the necessary knowledge and experience.
- Group must trust the leader and feel they will be treated fairly and honestly.

LEADER FACTORS:
- Leader must have excellent ability to discuss problems with the group.
- Leader must have high level of confidence in the group.

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28
Q

Detailed description including situation, group, and leader factors of the “join” approach of leadership decision making

A

DESCRIPTION:
- Problem must be well-defined.
- Decision boundaries must be clear.
- Leader must be willing to accept group decision.

SITUATION FACTORS:
- Enough time must be available for the decision to be made.
- Decision limits need to be clearly defined.

GROUP FACTORS:
- Group must feel they can handle the problem.
- Group must be mature and willing to assume responsibility.

LEADER FACTORS:
- Leader must be confident of group abilities.
- Leader must be willing to accept group decision.

29
Q

What kind of decisions need to be taken in business?

A

EXAMPLES:
- What price to charge
- How much stock to hold
- Who? How many to employ
- Whether to expand the business

30
Q

What are the four key decision-making factors?

A

RISK:
- What might happen if the consequences of the decision made are negative.
- Usually associated with a financial loss, the degree of risk can be calculated by multiplying the outcome by the probability.

REWARD:
- This is the opposite to risk, the positive consequences of the decision made.
- For businesses this is often revenue and profit.
- Managers need to ensure any potential reward is greater than the risk if the decision does not pay off.

UNCERTAINTY:
- Questioning how reliable the information is of which the decision was based.
- This also includes taking into account the impacts of the external environment.

OPPORTUNITY COST:
- Ensuring the resources the business has are being put into the decision with the greatest reward, the opportunity cost represents the potential benefits a business misses out on when choosing one option over another.

31
Q

Define opportunity cost

A

Opportunity cost is the cost of the next best alternative foregone. E.g. the opportunity cost of taking a holiday instead of spending the money on a new car is not getting a new car.

32
Q

Ways of making decisions

A

Decision making is a key role of management. Business decisions will be made using quantitative and qualitative information, and use both scientific techniques (data, logic, rationale) and the intuition of the manager (experiences & hunches).

33
Q

What is intuition or ‘hunch’ decision making process

A

Refers to making decisions based on gut feeling or instincts rather than on evidence and rational processes. Data will not always be correct or not always available, e.g. in the case of an innovation.
- For innovative products, it may be impossible to judge consumer reaction if they have never seen the product.
- Especially if the manager is experienced.

34
Q

Example of intuition used in decision making in real life businesses

A

Despite market research showing that people wouldn’t like a transparent container for the dust, James Dyson decided to make a transparent container anyway & this turned out to be a popular & enduring feature which has been heavily copied. The DC01 became the biggest selling vacuum cleaner in the UK in just 18 months.

35
Q

What is scientific decision making?

A

Scientific decision making means making decisions based on quantifiable data (facts & figures) & using rational methods (mathematical methods), as well as taking into account qualitative factors through a systematic approach.

This involves the collection and analysis of data and the use of analytical tools such as:
- breakeven output
- the Boston matrix
- the product life cycle
- investment appraisal
- ratio analysis
- decision trees

Managers may also consider the opportunity cost when making a decision. If resources are limited, a business will need to make a choice between different options.

36
Q

Explain the decision making process set out in 5 steps that fulfils managers’ main roles of planning, organising, directing/leading, and controlling

A

1) Set objectives
- What is wanted to be achieved by the decision.
2) Gathering & analysing information
- In order to make the most appropriate decision factors such as risk, reward & uncertainty will be taken into account.
3) Choosing the course of action
- This can be done scientifically or managers may use their own experience & intuition.
4) Implementation
- Putting into place the course of action or strategy using resources and communicating to stakeholders.
5) Review
- It is important to check the outcome of the actions taken & whether the objectives set have been achieved, or if it needs amending.

37
Q

Advantages and disadvantages of scientific decision making

A

ADVANTAGES:
- Reduces the risk of making mistakes as decisions are based on data.
- Using data provides guidance for managers who may have limited intuition through lack of experience.

DISADVANTAGES:
- Can be time-consuming to collect the data required.
- Relying on data may mean experience/expertise of staff may not be considered.
- Using out of date or poor data is unreliable and can affect the quality of the decision made.

38
Q

Advantages and disadvantages of intuition decision making

A

ADVANTAGES:
- Some managers may have gut feelings and hunches following years of experience and so their intuition is accurate.
- Decisions can be made quickly as there is no need to collect and analyse data.

DISADVANTAGES:
- In new situations, or for staff lacking experience, mistakes can be made as there is not enough prior experience to provide accurate intuition.
- With intuition, decisions can be made for illogical reasons as data is not considered.

39
Q

What are the influences on decision making?

A
  • Mission & objectives
  • Organisational structure
  • Attitude to risk
  • Availability & reliability of data
  • Business resources
  • External environment
  • Ethics
  • Competition
40
Q

Explain mission & objectives as an influence on decision making

A

The mission of a business is its essential purpose and, to some extent, a business will be guided in its decision making by its mission and the objectives it sets, therefore the direction the business is heading in, thus decisions made must work towards the objectives.

E.g. decision making at Poundland will be influenced by its pricing policy.

E.g. a business aiming to grow its sales by 10% may choose to open new stores, and opt not to cut marketing expenditure.

41
Q

Explain organisational structure as an influence on decision making

A

Decision making may be centralised and made only by management or decentralised with the employees able to make some operational decisions themselves.

E.g. when a disgruntled customer asks for a refund, the employee on the till may be able to authorise this instead of needing to call in the manager.

42
Q

Explain attitude to risk as an influence on decision making

A

This ties in closely with the culture of the business and whether risks are encouraged (risk tolerant) and punished and frowned upon (risk averse).

E.g. a business may encourage employees to regularly engage in Blue Sky thinking and try new things such as stocking a new product.

43
Q

Explain availability & reliability of data as an influence on decision making

A

Questioning the skills and expertise of those making the decisions, and their ability to interpret data to make the best decision possible. Use of data is closely linked with scientific decision making vs intuition decision making.

E.g. a manager who has been in the same role for 30 years will be good at making decisions based on the data whereas a new start-up with a new manager will lack the data to make large decisions.

44
Q

Explain business resources as an influence on decision making

A

A business will only be able to do what it is physically possible to do. Production capacity, the skills of the workforce and financial resources will, in the short term, limit what a business can do. In the long term, it may be possible to overcome these constraints, but a business needs to be certain about any decision being made.

E.g. a business with low profits will want to be careful on the risk they are taking on as it could be a matter for survival.

45
Q

Explain the external environment as an influence on decision making

A

The pace the external environment is changing and how severely it is need to be assessed both in terms of the potential outcome itself and the reliability of the data used for scientific decision making.
- A downturn in the economy or rise in interest rates could see decisions being postponed or even totally abandoned, whereas an expanding economy or fall in interest rates might see decisions being brought forward.
- Decision making will also be influenced by changing demographics (e.g. the growing elderly population), increased environmental awareness and changes in law.

E.g. in March 2020, the external environment changed extensively (COVID-19). Forecasted data became meaningless.

46
Q

Explain ethics as an influence on decision making

A

Ethics is about making decisions that are morally correct. In the past this influence was seen in the growth in fair-trade products such as chocolate and coffee. More recently it has been seen in the move to reduce the amount of packaging in supermarkets.

47
Q

Explain competition as an influence on decision making

A

All business operates within a competitive environment and decisions will be influenced by this. Some business decision making will be aimed at first-mover advantage and getting ahead of competition, whereas other decision making will simply be responding to the actions of competitors.

E.g. the major supermarket chains have all been forced to respond to the actions of the discount retailers such as Aldi and Lidl.

48
Q

What are decision trees?

A

Decision trees (also known as probability trees) are tree-like diagrams and are a scientific and logical decision making method that can be used to determine the optimum course of action in situations where several possible alternatives with uncertain outcomes exist. The ultimate goal is to calculate the expected ‘net gain’ from any decision made. They are a visual representation of the various risks, rewards and potential values of each option.

They enable managers to make decisions based on:
- Expected financial outcomes
- Probability of success & failure
- Initial costs

49
Q

What are the symbols/shapes used in a decision tree and what do they represent?

A
  • The square represents the net gain / decision to be made.
  • The circle represents the expected value.
  • The triangle represents the forecast/outcome.

SQUARE <– CIRCLES <– TRIANGLES

50
Q

How do you draw a decision tree?

A

Drawn from left to right:
1) Begins with a square on the left.
2) At least two lines will come out of the square towards the right, representing the possible options. There will often be a third line (the do-nothing option).
3) A circle is then drawn at the end of each line.
4) Lines are then drawn from each circle towards the right showing the possible outcomes, these lines represent the probabilities, e.g. for success or failure.
5) At the end of these lines are the triangles.

51
Q

What do the lines in the decision tree need to be labelled with?

A
  • The cost of each option (first lines on the right)
  • The potential outcomes
  • The probabilities (the lines on the left)
52
Q

What are associated costs in a decision tree?

A

The costs to make a certain option happen.

53
Q

What are financial results in a decision tree?

A

The estimated additional profit/loss that will be enjoyed/suffered if a particular outcome occurs.

54
Q

What is probability in a decision tree?

A
  • The percentage chance or possibility that an event will occur.
  • Ranges between 1 (100%) and 0.
  • If all the outcomes of an event are considered, the total probability must add up to 1.
55
Q

How do you calculate a decision tree?

A

Calculated from right to left:
1) First calculated the expected value of each outcome.
2) Then you calculate the net gain.
3) Decide which option has the best net gain (e.g. if one option has a negative net gain and the other has a positive net gain, then the option for the positive net gain will be best to choose. If both options are negative, would be best to ‘do nothing’)

56
Q

What is expected value and how do you calculate it in a decision tree?

A

The financial value of an outcome calculated by multiplying the estimated financial effect by its probability and then adding these probabilities together.
E.g. If the financial effect of an outcome being successful is £8.5m and the probability of success is 0.7, and the financial effect of failure is £0.5m and the probability of failure is 0.3, then the expected value for that option is (0.7 x £8.5m + 0.3 x £0.5m) = £5.95m + £0.15m = £6.1m

57
Q

What is net gain and how do you calculate it in a decision tree?

A

The value to be gained from taking a decision. It is calculated by subtracting the associated cost from an option from its expected value.
E.g. if the expected value for relaunch of a product is £6.1m and the associated cost for pursuing this option is £2.5m, then the net gain for this option will be £6.1m - £2.5m = £3.6m

58
Q

Benefits of using decision trees

A
  • Choices are set out in a logical way so can be a useful analytical tool as they make managers think and quantify decisions rather than just rely on intuition.
  • Potential options and choices are considered at the same time.
  • Use of probabilities enables the ‘risk’ of the options to be addressed.
  • Likely costs are considered as well as the potential benefits.
  • Easy to understand and tangible results.
59
Q

Drawbacks of using decision trees

A
  • Managers may be influenced by their own bias towards one decision rather than another, meaning they may make the returns for their favoured approach more attractive and thereby justify their decision.
  • Also the problem of establishing probabilities as it may be possible to base these on past experiences which may be out of date, but even so they are likely to just be guesstimates, so always prone to error.
  • Uses only quantitative data, ignores the qualitative aspects of decisions, e.g. PESTLE+C
  • Depends on how optimistic or pessimistic a manager making the decision tree is.
60
Q

What is sensitivity analysis?

A

A technique to study how various sources of uncertainty in a mathematical model contribute to the model’s overall uncertainty by posting ‘what if’ questions. For example:
- What if the probabilities are wrong?
- What if the associated costs are incorrect?
- What if the expected returns are miscalculated?
- What if there are changes in the external environment?

61
Q

What is a stakeholder?

A

A stakeholder is a person, group of people or an organisation affected by a business’ activities or decisions and have an interest in an organisation’s operation, decisions and performance. They can be internal or external to the business.

62
Q

Difference between stakeholders and shareholders

A

STAKEHOLDERS:
- Have an interest in the business but does not own it (unless they are also a shareholder)
- May work for the business (Director or staff) or transact with it (e.g. supplier or customer)

SHAREHOLDERS:
- Own part of the business (shares)
- May work for the business
- Benefits from dividend and increase in share value (capital gain)

63
Q

What are the types of stakeholders?

A

Internal:
- Individuals or groups that are within the organisation itself.
- E.g. employees, managers, shareholders.

External:
- Individuals or groups which are interested in the activities of the business, but from outside of the organisation.
- E.g. suppliers, banks and lenders, government, local community, customers.

64
Q

What are the possible needs and interests of the stakeholder group: shareholders?

A
  • Steady return on investment in form of dividends.
  • Investment that does not lose value.
  • Capital growth.
  • Preferential treatment as customers - e.g. lower prices.
65
Q

What are the possible needs and interests of the stakeholder group: employees?

A
  • Steady and regular income.
  • Good and safe working conditions.
  • Job security.
66
Q

What are the possible needs and interests of the stakeholder group: customers?

A
  • Reliable supply of goods.
  • Clear pricing policies.
  • Safe products.
  • After-sales customer service and technical support.
  • Value money.
67
Q

What are the possible needs and interests of the stakeholder group: suppliers?

A
  • Frequent and regular orders.
  • A sole-supplier agreement.
  • Fair prices and on-time payment.
68
Q

What are the possible needs and interests of the stakeholder group: creditors?

A
  • Repayment of money owed at agreed date.
  • Profitable returns on investments.
  • Minimal risk of failure to repay money owed.
69
Q

What are the possible needs and interests of the stakeholder group: local community?

A
  • Steady employment.
  • Avoidance of pollution and noise.
  • Provision of facilities

A Level Business AQA (4 decks)

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