Unit 3 Flashcards
Adv and disadv of evidence based decision making
- based on facts, easier to justify.
-used validated decision making tools. - decision is well structured
- take a long time to reach a decision
- focusing on evidence may lead the firm to forget about ethics
Adv and disadv of subjective
- decisions made quickly
- used when there’s a lack of data and an opinion is needed e.g if deciding when something looks
- peoples opinions may be wrong. Poor decisions.
- difficult to justify
- lead to making snap decisions
What is corporate culture
It is the way things are done in the business, it reflects firms values and is a way to shape expectations and attitudes of staff
4 types of corporate culture
Power culture - centralised structure, authority is limited to a small number of people.
Role culture - more common in bureaucutic firms, decisions come from senior managers and employees don’t have power.
Person culture - common in loose organisations of individual workers, usually professional partnerships e.g solicitors
Task culture - emphasis on getting specific tasks done, small teams together to get tasks done
Stakeholders
A stakeholder is everyone who is affected by a business e.g employees, shareholders, people that live by the industry
4 ethical issues a business has to deal with
Location - labour costs may be cheaper overseas. But this can be because their is fewer laws for employees welfare.
Suppliers - suppliers may be exploiting employees to keep prices low.
Bribery & corruption - to get business activities approved
Selling tactics - staff might persuade customers to sign up for contracts, but fail to provide customers with any hidden costs e.g high exit fees
What is CSR
Corporate social responsibility. E.,g Barclays partnership with teach first
Adv of CSR
Gain competitive advantage
Improves brand loyalty
Attracts new customers
People will choose to work for people with good CSR records
Attract more talented applicants
Disadv of CSR
Shareholders may see as a misuse of funds
Costs passed on to the customers
What is gearing
Shows where a business gets their capital from.
Shows the proportion of firms finance in non-current liabilities rather than share capital and total equity
Equations for capital employed
Capital employed = non current liabilities + total equity
Gearing ratio = non current liabilities/ capital employed X100
What is return on capital employed
Shows how much money the business is making compared to how much is invested
Equation for return on capital employed
Operating profit/capital employed X100
Ratio analysis adv
- by interpreting ratios, stakeholders can spot trends in financial strengths and weaknesses.
- can be used to make business decisions e.g managers can use gearing ratio to decide how to financially grow
- potential lenders can use accounting ratio to decide whether to lend to a firm.
- useful to compare with other firms
Disadv of ratio analysis
- data can change from day to day
- internal strengths like quality of staff don’t show.
- external factors like economic factors are also not included, so a business will have to compare figures to understand their own.
- future changes like technology can’t be predicted.
Equation for labour productivity
Output per period/number of employees.
Average rate of return
Average net return/investment x100
Advantages of payback
- easy to calculate and understand
- good for high tech projects
Disadvantages of payback
- ignores cash flow after payback
- ignores time value of money
Advantages of ARR
- easy to calculate and understand
- takes into account the cash flow after the project
Disadvantages of ARR
- ignores timing of cash flows e.g a firm may put more value on money they get now than later
- ignores time value of money
What is ansoff matrix
Existing - existing = market penetration - least risky strategy
Product development - existing market, new product.
Market development - new market, same product
Diversification - most risky - new product and new market.
Porters strategic matrix
- cost leadership
- differentiation
- cost focus
- Differentiation focus
What is swot analysis
Strengths
Weaknesses - both internal factors the business can influence
Opportunities
Threats - external factors that the business has to understand to be able to react appropriately.
What is pestle analysis
- political
-economic
-social
-technological
-legal
-environmental
Porters 5 forces - barriers to entry
- trademarks
- tariffs
- established business take control of distribution channels
Porters 5 forces - buyer power
- buyers have more power when there are not many buyers and loads of sellers
- easier for sellers to charge higHer prices for differentiated goods
Porters 5 forces - supplier power
- suppliers have more power when there aren’t many of them.
(Long term contracts) make it harder to switch suppliers
Porters 5 forces - threat of subsitutes
- business can make it expensive to switch to a substitute.
- customers increase brand loyalty if they think the brand are good.
Porters 5 forces - rivalry
- bigger promotional campaigns to attract more customers
