Understanding Business Flashcards
Stakeholders
- People with a key interest in the business
- Stakeholders affect businesses by exerting influence over decisions.
- Their influence depends on the degree of involvement or relative interest
- Can be internal or external
Stakeholder objectives and aims
OWNERS want high profits, high dividends, successful decisions to be made
MANAGERS want promotion, bonuses, job security, meet targets/deadlines
EMPLOYEES want better wages, better working conditions, job security
SUPPLIERS want regular orders, prompt payments
CUSTOMERS want low prices, high quality
BANKS want loans repaid on time
Stakeholders influence
OWNERS put capital in, vote at AGM, change board of directors
MANAGERS hire/ fire employees, create policy and rules, make decisions
EMPLOYEES go on strike, increase/decrease productivity, provide good/bad customer service.
SUPPLIERS raise/lower prices, change delivery tunes, change credit terms
CUSTOMERS can choose whether to buy products, affect word of mouth, repuatation
BANKS grant or deny loans. change interest rates. change repayment details
4 main methods of growth
- Merger
- Takeover
- De-merger
- Divestment
Advantages and disadvantages of horizontal integration
Advantages
- Eliminates competitors
- Increases market share
- Can achieve greater economies of scale as a result of being able to buy inputs in larger quantity
- Acquires assets of other firm
- Become more powerful and therefore more secure from hostile takeover bids
Disadvantages
- Can become very large and dominate the market
- Eliminates competitors therefore able to exploit customers and raise prices
- Can undercut competitors and push smaller businesses out the market
Advantages of vertical integration
- Eliminates the middleman and his profit
- Greater economies of scale
- Link processes more easily
- Secures a source of supplies
- Source outlets to sell products
What does PESTEC stand for?
Political factors Economic factors Social factors Technological factors Environmental factors Competitive factors
Political Factors
- Tax (VAT)
- Government Legislation (minimum wage)
- Environmental legislation (Kyoto agreement)
- Trade restrictions
- Political stability
Economic Factors
- Economic growth
- Interest rates
- Exchange rate
- Inflation (high and crippling or stable)
- Unemployment
Social Factors
- Demographics (nature of the population)
- Lifestyles (hobbies, health)
- Structure of labour market (more women in high jobs)
- Trends and fashion
- Attitudes
- Education levels
- Ethnic markets
Technological factors
- ICT
- Research and development (innovation)
- Automation (machines reducing staff)
- E-commerce
Environmental factors
- Global warming
- Pollution and industrial waste
- Recycling
- Organic foods
Competitive factors
- Product differentiation (usp)
- Price wars
- Profit margins
- Imitators
Types of Decisions
- Strategic
- Tactical
- Operational
Strategic decisons
- Long term
- Made by senior management
- Long lasting impact
E.g - What products to make? Which segment to target?
Tactical decisons
- Medium term
- Made by middle managers
- Based on goals and aims
- Detailed and specific
- changes due to PESTEC
E.g - Hire / Fire, In-store promotions, float share issue, re-branding
Operational decisons
- Day to day decisions, routine
- Mainly made by low - level managers
- Responds to regular problems
E.g - Staff rotas, raw materials from suppliers, pay-roll, customer enquires and complaints
What are the factors of production?
Capital
Enterprise
Land
Labour
What are the sectors of business?
- Private sector
- Public sector
- Third sector / social enterprises
Examples of private sector businesses
- Sole Trader
- Partnership
- Public Limited Company (plc)
- Private Limited Company (ltd)
- Multinationals
- Franchise
