Unit 9 (5.4, 1.6, 2.2) Flashcards
Location
Geographical place where the business is actually located
- Hairdressers located in the town centre high street
- Supermarket located om the edge of town in a retail park
- Car factory located outside of town
- Online business run out of a garage
Quantitative factors that determine where the business is located
Cost of rent/morgage
- High street versus out of town
Labor costs
- Different parts of the country
- Or a different country
Government policies
- Subsidies/grants for locating in a certain area
Distance to the market/inputs
- Near the market (customer footfall)
High street vs out of town
- Factory’s costs of transporting product to retailers
Distance to inputs
- E.g. oil refinery, strele manufacturer
Qualitative factors that determine where the business is located
Near to potential employees
- Tech company in Silicon Valley
Infrastructure
- Access to transport
- Telecommunication - e.g. internet
Political and legal factors
- E.g. maximum working horus
- E.g. environmental laws
Where is the competition?
Room for expand premises
Offshoring
Transferring part of the business to another country
- E.g. transferring production to China
- E.g. transferring call center to India
Pros of Offshoring
- Potentially access cheaper labor costs
- Avoid tariffs
- Access to specialized labor
- Timezone benefits
Cons of Offshoring
- Lose some control
- Culture/language barriers
- Possibility of negative publicity
- Possibility of lower quality
Reshoring/Inshoring
Transferring part of the business back to the original country, having previously offshored it
- E.g. A US business originally transferred production to China and now are bringing it back to the US
Possible reasons for Inshoring
Higher transportation costs (e.g. higher oil prices)
Political reasons - pressure to move jobs home
No longer have the same cost-benefit
- Labor costs are now higher
Outsourcing/Subcontracting
Transferring part of the business to an external firm rather than doing it within the business
E.g.
- Manufacturing
- Payroll
- Catering and food
- Security
- Marketing
Pros of Outsourcing
- Potential cost savings, as the outsourced business should have economies of scale
- The outsourced business should have expertise, so higher quality
- Can focus on core activities of the business
Cons of Outsourcing
- Loss of control and need to monitor the quality
- Negative publicity (redundancy) from the loss of jobs within the business
- The outsourced business might not know your business well
Insourcing
Transferring part of the business that was previously outsourced to an external firm back to the business
Possible reasons for Insourcing
- No longer cost-efficient
- Worries over quality
- Want more control over production
Organizational Structure
The system of relationships between individuals in an organization, which determines:
- Communication
- Work
- Responsibility
- Decision-making
Levels of Hierarchy
The number of levels within an organization.
Employees at the same level having the same authority responsibilities.
- Tall - Many Levels
- Flat - Few Levels
Span of control
The number of employees that a manager directly oversees
- Tall - Low span of control
- Flat - High span of control
Chain of command
The route that information and responsibilities move up and down the structure
- Tall - Long chain of command
- Flat - Short chain of command
Tall/Vertical
- Each team is smaller so easier to control
- Better team morale as smaller teams
- More opportunities for promotion
- Clear hierarchy and structure
Flat/Horizontal
- Less managers required = less costs
- Quicker communication and decision-making
- More delegation and responsibility
- High trust environment
- Empowered - closer to the top
Delegation
Giving authority and responsibility of a task to another employee, usually to someone in a lower level of hierarchy
Bureaucracy
An administrative system which defines how things are run in the organization
- Paperwork
- Rules and employee handbooks
Organizational Chart - By Function
- Organized by their functions (Marketing, Finance, HR)
Pros:
- Employees now specialize in one function
Cons:
- Managers might only consider their function in decision making, not the entire organization
Organizational Chart - By Product
- Organization by each product
- Departments can specialize in one product
- Marketing team just for iPhones
- Finance team just for Apple Watch
- Possible lack of coordination (e.g. research the same thing)
Organizational Chart - By Region
- Organized geographically by country, region or continent
- Easier communication (e.g. similar culture), local knowledge
- Possible job duplication, lack consistency across areas
Delayering
- Taking away a level of hierarchy in the organizational structure
- Makes the organization flatter
Pros of Delayering
- Reduces costs - Two manager salaries
- Quicker communication
- More power to lower levels
Cons of Delayering
- Fewer opportunities for promotion
- Employees have more work
- Same work for fewer employers
- Higher span of control for CEO
- Redundancy costs
Centralization
When a business’s key decisions are made in HQ - or at the center of the business
Determines working hours
- HQ determines for all departments - e.g. sales and HR departments the same
Marketing Campaigns
- HQ in Germany determines the rest of the world
Cons of Centralization
- Employee demotivation - little decision-making power
- Pressure of decision-making at the HQ
- Lack of flexibility
Pros of Centralization
- Quick and easier decision-making
- More control and standardization of the brand
Decentralization
When a business key decision are passed down to middle and junior managers within the business or other countries
- Passing down decisions making
Pros of Decentralization
- Decisions more tailored to the local culture
- Empower other parts of the business - improved morale and teamwork
Cons of Decentralization
- Lack of consistency across the business
- Decisions may not be made with the whole business in mind
Matrix Structure (HL)
- Project-based
- Structure that creates temporary teams for a specific subject
E.g. Project 1 requires a: Business Analyst, Developer, Tester
Handy’s Shamrock Organization (HL)
Core staff
- Full time, permanent workers
- E.g. teachers
Temporary Workforce
- Part-time, paid per hour
- E.g. substitute teachers
Outsourcing (subcontractors)
- A business hired other business to perform
specific tasks - E.g. school cleaning
Multinational Company
Operates in many countries, with the HQ located in home country and other operations in another country
Host Country
The country that the business is moving into
Positive Impacts on the Host country
- Creates more jobs in the host country
- Training opportunities for these local employees
- MNCs might buy other inputs locally
- Boosts the economy
- More production (GDP), taxes paid for the
government (corporation tax) - Increased consumer choice
- Enhanced competition for local businesses
- An incentive to improve in efficiency for local businesses
Negative Impacts on the Host Country
Potential bankruptcy of local businesses who can’t compete (sunrise/sunset industry)
Depletion of non-renewable resources in the host
country
Potential of negative impact on environment
- Emporting pollution
Erosion of local culture
Factors determining whether the impact will be positive or negative
- Respect given to the local culture
- Whether corporation tax is paid in the country
- Whether they hire local employees or bring employees from the HQ
- Labor conditions they use
- Can local businesses survive and thrive?
