Year 13 Autumn Assessment - 3.1.2, 3.2.1, 3.2.3, 3.3.2, 3.4.2, 3.4.5, 3.5.2, 3.6.2, 3.6.3, 3.7.1, 3.7.7, 3.8.1 Flashcards
What is a soletrader
- 1 exclusive owner
- have employees
- entitled to all the profits (after tax)
Advantages of soletrader
- easiest set up
- own boss
- decides what to do with profit
- easy to change legal structure if circumstances change
Disadvantages of soletrader
- unlimited liability = no legal distinction between the sole trader’s assets and business’ assets
- hard to raise finance = banks see them as riskier
- own responsibility = sharing decision making can improve performance
- harder to keep good employees = not given a share of profits
What does Ltd mean
Private Limited Company
What is an Ltd
Companies where ownership of shares is restricted. For the company to sell shares, all the current shareholders must agree to sell them.
Advantages of Ltd
- limited liability
- restricted ownership = shareholders must agree to sell shares, owners retain (keep) a lot of control over how the business is managed
- easier for an Ltd to get a loan as it’s seen less risky. This (should) increase a company’s access to finance
Disadvantages of Ltd
- Finance need to incorporate a business = upfront fee as well as costs associated with paperwork = may not be possible for smaller firms (or brand new firms)
- Legally obliged to publish their accounts each year and competitors may use these to become more competitive
What does PLC mean
Public Limited Company
What is a PLC
A company that sells shares on stock exchange ( anybody 18+ can buy shares - often through brokers )
When a firms likely to become a PLC and an example
The desire to expand because selling shares on the stock exchange allows them to raise finance for investment.
- e.g = 2017, Snapchat went through this process (flotation)
Advantages of PLC
- selling shares on stock exchange = raise money for investment so company can grow faster or bigger
- easier to raise capital from banks if they are PLCs due to presenting less of a risk (number and size of investors)
- Limited liability because the company is incorporated
Disadvantages of PLC
- owners have little say over running of business - hard to agree on how it runs
- anyone can take over the company if they buy 51+% share, then they have control
- account public = competitors can see the success / failure
What is a Not-For-Profit organisation?
Any profit made by these organisations is reinvested (put back) in the business. Any profit cannot be kept by the owners.
Types of Not-For-Profit organisations
- Unincorporated association
- Charities
- Social enterprise
Features of an Unincorporated association and example
- unlimited liability = no profit and are legally responsible for all the debt
- e.g Oxfam
Features of a Charity and example(s)
Getting charitable status lets a business to get tax relief and lets it apply for certain grants. For a business to get a charitable status, they must follow rules and regulations.
- e.g Save the Children
Features of a social enterprise and examples
- Similar to for-profit business
- they make a surplus through selling goods or services. This profit is reinvested to support the social enterprise’s aim
- e.g Big Issue or TOMs
What is franchising
Where a business gives someone the right to sell its products and use its trademarks. The ‘franchisee’ usually pays the business an upfront fee and a % of the profits.
Example of franchising
KFC, part of the TacoBell Group.
Many KFC’s all over the world are not owned by KFC but instead owned by individuals who pay a fee and % of the profits to KFC. This lets them use the KFC brand name and the “original recipe”
Advantages of franchising
- Can expand without needing large investment = doesn’t incur costs involved with opening new stores
- not to be concerned about some of the risks of becoming a larger corporation, e.g, diseconomies of scale (which may be caused by the growth from opening and operating new stores themselves)
- increases brand awareness of the firm’s products or services
Disadvantages of franchising
- Franchiser doesn’t have complete control over how they operate
- If a franchise is run badly, then a single franchise or store can negatively affect the brand image
Other examples of franchises
- Subway
- Krispy Kreme
- McDonald’s
What is a partnership
Two or more owners involved in the day-to-day running of the business.
Up to 20
What document is needed to set up a partnership
Deed of Partnership
What is included in the Deed of Partnership
- Amount capital each partner invested
- How profits / losses should be divided
- How many votes each partner has
- Rules on how to take on new partners
- How the partnership is brought to an end, how a partner leaves
Advantages of a soletrader becoming a partnership
- Increase risk across more people, more to share the burden of debt
- Partner may bring money and resources to the business
- Increased skills and ideas
- Increased credibility with potential customers and suppliers - who may see dealing with the business as less risky than trading with just a sole trader
Disadvantages of becoming a partnership
- shared profits
- less control for each partner
- workload disputes
-problems could arise if partners disagree over direction of business
Advantages of remaining a partnership rather than becoming an Ltd
- Costs money to set up limited company (solicitor may be needed to set up paperwork)
- Company accounts are filed so the public and competitors can view them
- May need to spend money on an auditor to check the accounts before they are filed
What are shareholders
Individuals / groups who buy shares in limited companies
Ordinary share capital definition
The amount of finance raised through selling shares to shareholders. Businesses usually use this as a source of long-term finance
Market capitalisation calculation
no. shares issued X current market price of one share
- one way of valuing a business
What is Royal Mail’s market capitalisation
£3.95 billiob
Dividend definition
A proportion of a business’ profits that is given to shareholders
Advantage of a dividend for a business
Makes shareholders satisfied - won’t sell shares
Disadvantage of a dividend for a business
Profit is not spent on long-term growth which can limit the growth potential of the business
What is the benefits of shareholders to a PLC
They provide finance, though they are not routinely involved in the running of the business
Who is involved in the running of a PLC
Board of directors
Are shareholders involved in the running of an Ltd
Yes
What do shareholders have a right to attend and what is it
The business’ Annual General Meeting (AGM), where votes can be made on key decision affecting the business, including appointing a Board of Directors
Factors why shareholders may decide to invest in a business
- If share price may increase in future years = creates a return for shareholder
- Would like to receive an annual dividend
- IF they agree with a company’s aims and values and wish to be part of the company’s future journey
Factors influencing the value of shares
- Business performance = greater performance increases demand, so increases share price
- Economic performance = gives individuals confidence in the market, might increase demand for shares and increases share price
- News articles = businesses accused of scandal involvement may receive a bad reputation, decreases demand for shares so decrease in share price
Impact of changing the value of shares
Future investors are concerned about the business and this will make it more difficult for the company to raise additional finance through the sale of shares
Impact of changing the value of shares
Future investors are concerned about the business and this will make it more difficult for the company to raise additional finance through the sale of shares
Analyse franchising as a method of growth for a business - EXPLAIN FRANCHISING (1)
1) Franchising involves the franchisor selling a license to the franchisee, who can then own a business that used the brand of the franchisor. Many larger businesses, such as McDonald’s operates as franchises. Entrepreneurs running their own franchise of McDonald’s take on less risk because people already know & like the product, and they benefit from an established brand name and product portfolio. Franchising is often used as a method for businesses like McDonald’s for external growth.
Analyse franchising as a method of growth for a business - INCREASED REACH (2)
Allowing franchisees to open franchises allows for faster growth, both in terms of the number of stores and the number of geographic location. The business does not have to find the finance to open every store and franchisees often have to pay a large lump sum to purchase the license. Franchisees are motivated and have the drive to start and run a new business. Franchising can be a cost-effective way of reaching a wider target market and increasing sales.
Analyse franchising as a method of growth for a business - FINDING THE RIGHT FRANCHISEE (3)
However, it is important for the franchisor to find the right franchisee for the business and brand. If one franchise is run badly and a customer has a particularly negative experience, this can impact the reputation of the overall business and all franchises within this. The franchisee is restricted in terms of lots of decision (e.g the branding, uniforms, processes) and so it is important for them to be bought into the business and the culture, to ensure that the individual business is aligned to the overall business that owns the brand and trademarks.
What do franchisees usually pay the franchisor
- upfront fee
- royalties
A further disadvantage of franchising shown in the failure of Blockbuster
Reduces the potential strategic options of a business. Once you have franchisees, technology can change & your business model may have to change. Franchisees might make it harder to change
Is a sole trader incorporated?
No
What are managers responsible for?
Ensuring tasks are completed in the day-to-day running of the business
Characteristics of managers in a small business
The leaders and managers are often the same people
What happens to leaders and managers once a business grows
Their roles become distinct from one another
What is the role of a leader in a growing business
Provide a focus on long-term vision and direction is often needed
What is the role of a manager in a growing business
Focus on ensuring tasks are completed, and deadlines are met, in such way to support the long-term vision and direction of the leader
Roles of a manager, as a decision maker
- Set objectives so that success criteria are available to later establish whether or not a task has been completed successfully
- Review and analyse data so that adaptations to current processes ca be made if required
- Select strategies and implement these to ensure processes are working efficiently and are supporting overall objectives
- Review the impact of their decision and use this review to inform the setting of future objectives
Factors which influence styles of management and leadership
- External environment ( appropriate for the business)
- Culture of business (best suited to the business’ needs)
e.g = in businesses with a very clear and well-defined culture, a change of leadership style may be difficult to introduce without resistance from the majority of employees - Skill level of workforce (may or may not want workforce to be in decision making process = value the knowledge of skilled and qualified staff)
Autocratic leadership
An approach by leaders or managers to keep control of decision making and ensure that employees are closely supervised
When is an autocratic approach most suited
If a business has a largely unskilled workforce so a manager or leader may wish to maintain decision making powers
Democratic leadership
An approach by leaders or managers to discuss and consult with employees, delegate decision making authority and empower employees through their involvement
When is a democratic approach most suitable for a business
In businesses which employ highly skilled and highly qualified employees, such as universities, Google & Microsoft, a manager or leader may decide that the contributions of such staff could be highly valuable to the business. Employees can contribute their expertise to the decision making process
What does Blake Mouton’s Theory grid classify
Styles according to whether a manager or leader places more emphasis on concern for people or concern for task completion
Blake Mouton’s Grid:
Low Concern about task, Low concern about people
Impoverished
Blake Mouton’s Grid:
Low Concern about task, High concern about people
Country club
Blake Mouton’s Grid:
High concern about task, low concern about people
Produce or persih
Blake Mouton’s Grid:
High concern about task, High concern about people
Team leader
Blake Mouton’s Grid:
In the middle
Stuck in the middle
What is country club leadership
Real focus on business’s employees, though this may be an enjoyable place to work, it can be detrimental to the business’s levels of production
Example of a business with country club leadership
Virgin- some employees have unlimited holidays - ensures employee satisfaction but comes at cost in terms of production and efficiency
What is team leader
Values both the importance of task completion and people. People are satisfied, feel valued and production is also a focus.
What is produce or perish leadership
So focused on production that the effect of this on employees is of no concern to the business in any way. e.g call centres- accused of focussing heavily on no. of outbound calls made p/h with no concern for staff well-being
What is impoverished leadership
Ineffective - often difficult to find examples for this type of leader as leaders in this category usually fail and do not become well known
What is middle of the road / stuck in the middle
some focus on task completion and people; neither gains the advantage of a full focus so there will be a poorer performance in each area
What did Tannenbaum and Schmidt make to show theories on management
The management continuum
What is to the left of the management continuum
- managers maintain full authority and decision making power
- managers communicate such decisions to employees who have to comply
- similar to an approach of autocratic leadership
What is to the right of the management continuum
- employees are given authority ad decision making power
- democratic leadership
Stages of the continuum (left - right)
- manager alone makes a decision and tells employees
- manager sells their decision to employees
- manager presents decision t employees and asks for questions
- manager presents decision to employees and is open to change
- manager presents an issue and asks for suggestions
- manager outlines limits of an issue and asks employees to make a decision
- manager allows employees to make their own decision, within limits
What leadership focus increases from left to right on the management continuum
employees (freedom)
What leadership focus decreases from right to left on the management continuum
manager (authority)
When is appropriate to change style of leadership
- state of emergency = managers/leaders may prefer to retain decision making and authority
- fast communication required = e.g BP’S Deepwater Horizon oil spill (killed 11 people, 2010)
- if employees’ views are valued, managers/leaders may adopt position on right so these views can be gathered
What are stakeholders
groups or individuals affected by a business and its decisions
Employees are an internal stakeholder, what are they affected by
- decisions made in terms of salaries/ wages, recruitment policies and job security
External stakeholders and what affects them
- suppliers = decisions in terms of order quantities and payment terms
- communities = decisions in terms of local jobs, traffic congestion in residential areas because of deliveries, noise pollution etc
- customers = decisions in terms of products and services sold and prices charged
How can businesses manager their relationship with stakeholders
Through communication and consultation
communication = between business and stakeholders to share info, through methods such as email and newsletters so stakeholders can remain informed of developments within the business
consultation = used to investigate the views and feeling of stakeholders so that they feel involved in any decisions made by the business, though the power of stakeholders to change decisions made is still limited as the business defines the stakeholder’s influence
The power of stakeholders
- diff levels of power and interest - business must consider this when deciding how to manager their relationship
- the business may wish to ensure that certain stakeholder groups remain satisfied and this may require consultation instead of communication
Stakeholder map
Low Interest, Low Influence
Monitor
Stakeholder map
Low Interest, High Influence
Keep satisfied
Stakeholder map
High Interest, Low Influence
c
Stakeholder map
High interest, High influence
Manage closely
Stakeholder map, Manage closely means
Consultation may be appropriate for these individuals and groups
Stakeholder map, keep satisfied means
they have the power to influence the business if they become dissatisfied
Stakeholder map, monitor means
they lack influence and interest in many business decisions
Stakeholder map, keep informed means
consultation may be appropriate
What can affect the relation with stakeholders
- Power and influence
- Expertise and skill level of staff as an employer may wish to consult with staff if they are able to contribute their expertise to a decision being made
- The business’ performance, poor financial performance may require the business to build a stronger relationship with customers and suppliers so that more favourable payment terms can be negotiated
How can you measure a business’ success
By calculating market growth, sales growth and market share
What is market growth
When an industry grows in terms of either volume or value
What is sales growth
When a business increases its sales in terms of volume or value
What is market share
The proportion of a market that a business controls in order to satisfy customer needs
How to calculate market share
( sales of one product / total market sales of that product ) X 100
What is market research
The process of collecting and processing information about the market that a business operates in.
Market research gathers info on…
- Demand
- Competition
- Target Market
What info does market research gather on demand
- insights into customers’ wants and needs = help improve the product, spot market opportunities and stay competitive
- insights into overall demand trends can help a business to spot opportunities for growth and potential threats from new products / technology
What info does market research gather on competition
- understand the major threats in the market and then prepare the business to deal with these
What info does market research gather on target market
insights into their customers’ wants and needs and how they are changing over time
What is Qualitative research
info about opinions and views
What is quantitative research
facts and figures
When is market mapping used and why
- once business have segmented the market
- can identify a gap in the market by looking at what competitors offer
What variables are commonly used when market mapping
Quality and price
Methods of market research are
- Sampling
- Technology
What is sampling in market research
When a business selects a sample of the population to save collecting data from everybody in that population
Advantage of sampling
Reduces cost as a business can choose a cross-section of the population instead of collecting data from everybody
Disadvantage of sampling
May not accurately reflect the full target market if the sample is not chosen properly
Why is technology a method of market research
Used to analyse market research data by completing calculations and creating graphs and charts which can be used by managers and leaders
How to calculate PED
% change in quantity demanded / % change in price
What is the co-efficient
a value / number
What elasticity is penetration pricing pricing likely to have
Elastic
What elasticity is price skimming likely to have
Inelastic
What does PED measure
The responsiveness of demand after a change in price
What does PED actually mean - simpler
For every 1% change of price, demand is going to change by the co-efficient value
PED:
Co-efficient GREATER than 1 means a product is…
Price Elastic
PED:
When a product is price elastic it means…
% change in quantity demanded is GREATER THAN the % change in price
PED:
Co-efficient LESS THAN 1 means a product is…
Price Inelastic
PED:
When a product is price inelastic it means…
the % change in quantity demanded is less than the % change in price
PED:
When the price elasticity is exactly 1, it means…
the % change in quantity demanded = the % change in price
PED:
Impact on profit & sales revenue if a product/service is price ELASTIC
Decrease in price = increase in sales revenue
WHEREAS
Increase in price = decrease in sales revenue
PED:
Impact on profit & sales revenue if a product / service is price INELASTIC
Decrease in price = decrease in sales revenue
WHEREAS
Increase in price = increase in sales revenue
Example of a product that is price inelastic
Petrol - it is a necessity
What does YED stand for
Income elasticity of demand
What does YED measure
The responsiveness of quantity demanded to a change in consumer income
How to calculate YED
( % change in quantity demanded ) / ( % change in income )
YED:
If the co-efficient is positive it means…
An increase in income will increase demand
AND
a fall in income will decrease demand
YED:
If the co-efficient is negative it means…
An increase in income will decrease demand
AND
a fall in income will increase demand
YED:
The larger the YED co-efficient…
The greater the responsiveness if quantity demanded to a change in income
YED less than 1 means it is
Income Inelastic - a change in income will lead to a change in quantity demanded which is LESS THAN the change in income
YED more than 1 means it is…
Income Elastic - a change in income will lead to a change in quantity demanded which is GREATER THAN the change in income
Example of a product that is income elastic
Premium cars
Role of the operations department
Looks after the production of the products that a business sells - collects data bout the production of products and this date can be used to support different calculations
How to calculate labour productivity
Output per period of time / no. of employees in that period
How to calculate unit costs
Total costs / units produced
How to calculate capacity utilisation
( total output / total capacity ) X 100
What is inventory
A list of all the stock held by a business
What is an inventory control diagram
- shows the maximum stock level that a business is willing to operate at
- shows the re-order level which is the point at which further stock is order
- shows the buffer stock which is the spare stock a business holds in case there is an unexpected increase in demand
- shows lead time which is the time taken for the stock to arrive after it is ordered
What is outsourcing
When a business uses another business to make part of its product or provide part of its service
Advantage of outsourcing
Provides cost savings because a third party business may be able to create or produce a product or service at a lower cost than the original business
Disadvantages of outsourcing
- can lead to quality problems if the business that wins the outsourcing contract does not uphold the same quality standards
- the business may lose its influence on quality control
Example of outsourcing
Many schools outsource their IT network management services as other businesses with specialisms and expertise in this area can provide a more reliable service, at a lower price, than the school can offer itself
Why will a business use cash flow forecasts
To estimate their total cash inflows and their total cash outflows for a future period of time
What is shown a cash flow forecast and what are they
- total inflows = include all cash inflows coming into the business during the period
- total outflows = includes all cash outflows leaving the business during the period
- net cash flow = difference between total inflows and total outflows
- opening balance = the balance at the start of the month and is the same as the closing balance the previous month
Why do businesses have cash flow problems
Businesses that are profitable but have cash-flow or liquidity problems can become bankrupt as they lack short-term cash to pay short-term debts
How can a business improve cash flow
- Money owed to the business is known as a RECEIVABLE and businesses can reduce the trade credit period given to increase how quickly they receive their receivables
- Money owed by the business to others is known as a DEBTOR (or payable) and a business can ask others for longer trade credit to reduce how quickly they must pay payables
How to calculate net cash flow
Total inflows - total outflows
What is a revenue budget
Forecasts expected revenues for a business during a period.
Favourable variance = actual revenue higher than forecast
Adverse variance = if revenue is less than expected
What is an expenditure budget
Forecasts expected costs for a business during a period
Favourable variance = lower actual cost than forecast
Adverse variance = higher actual cost than forecast
What is a profit budget
Revenue and expenditure budgets can be used to create profit budgets.
Favourable variance = overall profit is higher than forecast
Adverse variance = Overall profit is lower than forecast
Advantages of budgeting
- helps businesses achieve targets and objectives
- help managers and leader focus on cost control which can increase profit
- can be used to motivate staff by providing spending authority to individual departments and teams
Why do businesses use breakeven analysis
To predict the level of output at which total costs and total revenues will be the same
What is contribution per unit
The amount of revenue which contributes to covering a business’ fixed costs after the variable cost per unit has ben taken away from revenue per unit
How to calculate contribution per unit
Selling price per unit - variable cost per unit
What is total contribution
The amount of revenue from the sale of all products which contributes to fixed costs once total variable costs have been taken away
How to calculate total contribution
Total revenue - total variable costs
What are gross profit targets
involve the amount of profit remaining once direct costs ( cost of sales ) have been paid by the business
How to calculate gross profit margin
How to calculate gross profit margin
What is operating profit
Involve the amount of profit remaining once direct costs ( costs of sales ) and indirect costs (expenses) have been paid by the business
How to calculate operating profit
(operating profit / sales revenue) X 100
What is a profit for the year target
Involves the amount of profit remaining once all costs and financing fees have been considered
How to calculate profit of the year
(profit for the yar / sales revenue) X 100
How to calculate profit of the year
(profit for the year / sales revenue) X 100
How to calculate labour turnover
(total number of staff leaving / average number of total staff) X 100
Why could there be a high labour turnover
- if competitors offer higher wages and salaries
- if employees are demotivated
Advantages of low staff turnover
- experienced employees remain within the business
- training and recruitment costs are low as there are fewer vacancies to be filled
Disadvantage of low staff turnover
Fewer opportunities for the business to recruit new talent, skills and ideas
How to calculate retention rates
(total number of staff who worked at a business for the whole period of time / total number of staff at the beginning of the period of time) X 100
A cause of high retention rates is
- the business pays a higher salary or wage than its competitor - employees are motivated, empowered and valued
How to calculate labour productivity
Total output / total number of employees
Why does calculating labour productivity benefit HR managers
They may reward employees if productivity is increasing, though may plan training for employees if productivity is decreasing
Why does calculating employee costs as a % of turnover allow HR to assess
the amount that is spent on staffing costs
How to calculate employee costs as a % turnover
(Total employee costs / total revenue) X 100
How to calculate labour cost per unit
(total labour costs / total units produced)
importance of labour costs per unit
- HR managers can compare data to previous years, to competitors and to the wide industry
- if HR managers are unhappy with their current labour cost per unit, they may decide to increase productivity, so that employees produce more, or they may reduce employee costs
How to improve labour costs per unit
Increasing productivity or reducing employee costs
What is job design
Refers to an employer’s creation and planning of a job considering the job’s aspects
What does the job design include
- the roles & responsibilities of the job itself
- the systems & methods used by an employee to carry out their role
- the relationships between the employer and the employee, and between other managers, subordinates and stakeholders
How does business objectives influence job design
The overall business objective may influence job design as all jobs within the business should contribute to the overall business objectives and they should be designed in such a way to do so
How can an individual influence job design
If employees are demotivated and there is a problem with productivity, managers may use job design to motivate employees and improve productivity
How available resources influence job design
Major changes to job design may require the additional support of resources such as labour and capital, and these resources must be available for the change to be successful
How market research influences job design
If a HR manager is expecting there to be a change in the external environment, jobs may be designed or redesigned to reflect the demands of a changing external environment
Examples of approaches an employer can to take to job design
Job enlargement, enrichment, empowerment & rotation
When will job enlargement used
When a business is considering the motivation and productivity of its employees
What is job enlargement
When an employer increases the number of jobs an employee is responsible for in order to increase the challenge of their role. Additional jobs assigned to employees are usually at a level similar to their original duties
When is job enrichment used
When a business is considering the motivation and productivity of its employees
What is job enrichment
When an employer provides and employee with jobs which are more complex and challenging jobs assigned to employees are usually at a level above their original duties in terms of complexity and challenge
What is job empowerment
When an employer gives an employee more control over their job, including the ability to decide the best way to fulfil their duties
What is job rotation
It is an example of job enlargement and refers to an employer allowing an employee to move from one role or duty to another, regularly
What does hackman and Oldham’s job model show
That there are five core characteristics of a job which motivate employees
Hackman and Oldham’s Job Model: skill variety
Refers to employees being given opportunities to use a range of skills as part of their normal duties and responsibilities
1st core characteristic
Hackman and Oldham’s Job Model: task identity
Refers to employees being given a sense of conclusion or completion
2nd core characteristic
Hackman and Oldham’s Job Model: task significance
Refers to employees feeling as though their duties and responsibilities contribute to the overall business success
3rd core characteristic
Hackman and Oldham’s Job Model:
What does the 1st, 2nd and 3rd characteristic lead to
- Allows employees to experience meaningfulness of work
- results in high motivation
Hackman and Oldham’s Job Model: autonomy
Refers to employees having some independence within their duties and responsibilities
4th core characteristic
Hackman and Oldham’s Job Model:
What does the 4th characteristic lead to
- allows employees to take responsibility for outcomes
- results in high job satisfaction
Hackman and Oldham’s Job Model: Feedback
Refers to employees receiving feedback, whether oral, written or verbal, on the work they have completed.
Hackman and Oldham’s Job Model:
What does the 5th characteristic lead to
- Allows employees to develop knowledge or their own results
- leads to lower absenteeism and lower turnover
What is organisational design
Involves making sure that an organisation is designed appropriately to increase its chances of meeting its aims and objectives.
When leaders are planning the design of their organisation, they will consider…
- authority
- spans of control
- hierarchies
- delegation
- centralisation and decentralisation
What is authority
Linked to delegation. Delegation involves passing authority to employees further down in the hierarchy.
- can motivate and empower employees = increases productivity
What is spans of control
The number of people who report directly to a supervisor or manager
- tall hierarches = narrow spans of controls , monitored more easily
- flat hierarchies = wider spans, harder to monitor as each manager will manage & lead a larger group of employees
What are hierarchies
Levels and layers of management. Tall hierarchies = many layers, flat = few levels
- communication more difficult in tall hierarchy = more layers for communication to pass through
- tall hierarchies = promotional opportunities
What is delayering
Reducing the number of layers in the hierarchy of a business, usually by removing middle managers
What is delegation
Refers to a manager passing responsibility or authority to a employee below them in the hierarchy
What is a business mission statement
Aims to set out the organisation’s purpose
Influences that affect a business’ mission statement
- culture
- ethos and values (of the founders)
- shareholders (their views)
- stakeholders (community and employees)
What are corporate objectives
Overall business objectives that are designed to steer a business towards achieving its overall mission
Influences that affect business’ corporate objectives
- short-termism
- business ownership
- internal business environment
- external business environment
What is short-termism
Pressures for short-termism, of focussing on short-term gains at the expense of long-term gains, can influence corporate objectives as managers may seek short-term profit at the expense of long-term investment in R&D
Why does business ownership influence corporate objectives
Owners in the private sector are likely to place emphasis on profit maximisation
How can a business analyse their strategic direction
Using Ansoff’s Matrix
Ansoff’s Matrix:
Existing goods & services, existing markets
Market penetration
Ansoff’s Matrix:
Existing Goods & services, new markets
Market development
Ansoff’s Matrix:
New Goods & services, existing markets
Product development
Ansoff’s Matrix:
New goods & services, new markets
diversification
Market penetration
Involves increasing sales of existing products to existing markets
Market development
Involves targeting existing products at new markets to increase sales
Product development
Involves targeting products in existing markets to increase sales
Diversification
Involves targeting new products at new markets to increase sales
Advantages of diversification
- can provide large rewards as a business can benefit from both selling a new product and accessing a new market
- spreads risk as it gives businesses an alternative if demand for one product declines
Disadvantage of diversification
Have limited expertise in each market and product which increases risk
Influences on strategic direction
- The level of risk accepted by a business
- opportunity costs = a business may need to decide whether it is willing to forfeit the benefits of an alternative direction
- business culture = culture and leadership must support the strategic direction chosen
Porter’s Five Forces model - what does it show
Allows you to analyse the competitiveness of a business environment
What is in the middle of porter’s five forces
Rivalry between existing competitors
What is outside the middle of porter’s five forces
- barriers to entry
- buyers’ bargaining power
- threat of substitutes
- suppliers’ bargaining power
Porter’s five forces:
What is bargaining power of SUPPLIERS
- How much power suppliers in the market have. More power = less attractive market = suppliers can charge higher prices
Porter’s five forces:
What is bargaining power of BUYERS
- How much power buyers have in the market. More power = less attractive market = buyers can demand a lower price
Porter’s five forces:
What is barriers to entry
How easy it is for new business to enter the market - if barriers are low = market will be more competitive as new businesses are likely to enter
Porter’s five forces:
What is the threat of substitutes
Whether customers are likely to buy an alternative product. If threat is high = market less attractive = customers likely to shop elsewhere
Porter’s five forces:
What is rivalry
Refers to competition that currently exists within the market. More competition = less attractive to other businesses.
Advantages of porter’s five forces
- allows businesses to understand the competitiveness of a market and make decision about their own competitiveness
- allows new entrants to consider how profitable a market may be
- it is a good framework to identify strengths, weaknesses, opportunities ad threats
