assesment 1

Question 1

Private Limited Companies

Answer 1

Controlled by a board of directors, financed through private shares (meaning shareholders must be invited to invest, e.g. family and friends), owners and shareholders have limited liability (meaning that if the business fails, they will only lose their initial investment)

Question 2

Public Limited Companies

Answer 2

Controlled by a board of directors, financed through public shares (meaning shares can be bought on the stock market) and debentures (a type of long-term loan that is not backed by collateral), owners and shareholders have limited liability (meaning that if the business fails, they will only lose their initial investment)

Question 3

Private Sector

Answer 3

Consists of businesses whose main objective is to maximise profits and are owned and controlled privately. These businesses could be Sole Traders, Partnerships, Private Limited Companies or Public Limited Companies. They can be financed in many ways, e.g. owners own money, retained profits, loans and the sale of goods and services.

Question 4

Public Sector

Answer 4

Consists of government owned organisations whose main objective is to provide a necessary service to the community, e.g. the NHS, schools. They are financed through taxes and controlled by elected politicians.

Question 5

Third Sector – Charities

Answer 5

Set up with the sole purpose of raising money for a social cause and to help a specific issue. They are owned by a trust and controlled by a board of trustees, as well as paid management. They are financed through donations.

Question 6

Third Sector – Social Enterprises

Answer 6

Operates like private sector businesses, however their main objective is not to maximise profits for themselves – but for a social cause or a specific group. They can be sole traders, partnerships etc. They can be financed in many ways, e.g. a grant – which is likely to be awarded.

Question 7

Maximising Profits

Answer 7

All businesses in the private sector aim to maximise profits, as well as social enterprises – for their cause.

Question 8

Maximising Sales Revenue

Answer 8

To make as much money as possible from sales, this could mean selling products for cheaper and not being too concerned about gross profit – high profits can then be made in after sales services.

Question 9

Provide a Quality Service

Answer 9

All businesses aim to provide a quality service for their customers and/or members.
- Private Sector: encourage repeat custom and good reputation
- Public Sector: satisfy community needs and avoid complaints
- Third Sector: satisfy stakeholders

Question 10

Increasing Market Share

Answer 10

To increase the percentage of total sales the business has in the market, if the business has the biggest percentage they are known as the market leader.

Question 11

Survival

Answer 11

All businesses want to survive – avoid going out of business.

Question 12

Satisficing

Answer 12

Aiming for a satisfactory result, e.g. lowering expectations during tricky times.

Question 13

Managerial Objectives

Answer 13

Managers aiming to achieve objectives which they believe will improve their status and reputation, e.g. developing new technology.

Question 14

Corporate Social Responsibility (CSR)

Answer 14

Organisations acting in an ethical way or in a way that benefits either society or the environment, e.g. using renewable energy or sustainable materials.

Question 15

Tall Structure

Answer 15

• Pyramid Structure
• Organisations that have a hierarchy; different levels of authority and responsibility
• Instructions and commands come from the decision makers at the top, throughout the workers down to the bottom; this is a chain of command
• Many levels of management
• They are typically large organisations with many specialise departments

Question 16

Tall Structure Advantages

Answer 16

• Clear structure
• Many opportunities for promotion
• Narrow span of control; managers have more time and can support subordinates

Question 17

Tall Structure Disadvantages

Answer 17

• Slower communication and decision-making
• Can make reactions to changes in the market slower
• Managers can put staff under pressure by examining work closely (narrow span of control)

Question 18

Flat Structure

Answer 18

• Another pyramid structure
• Fewer levels of management
• Shorter chain of command
• Typically small to medium organisations

Question 19

Flat Structure Advantages

Answer 19

• Information can be passed between levels quickly
• Can make changes to suit the market quickly
• Wide span of control; staff don’t feel closely supervised

Question 20

Flat Structure Disadvantages

Answer 20

• Less opportunities for promotion
• More tasks will be delegated staff; may result in too much pressure
• Subordinates have less support

Question 21

Methods of Internal Growth

Answer 21

• Launching new products or services
• New branches/offices/factories
• Introduce e-commerce
• Hire new staff
• Expand already existing or increase production capacity

Question 22

Horizontal Integration

Answer 22

When two businesses from the same sector of industry become one business, e.g. two farms merging.

Question 23

Lateral Integration

Answer 23

A business merging or taking over a business that makes similar goods to them but are not in direct competition, e.g. a bakery and a wedding cake shop.

Question 24

Lateral Integration Advantages

Answer 24

• Competition is reduced; could raise prices
• Can compete with or be the market leader on a wider range of products
• Can cut expenses through rationalisation, e.g. 1 CEO rather than 2

Question 25

Lateral Integration Disadvantages

Answer 25

- Quality may suffer due to lack of competition - If new branding is put in place, loyal customers may be put off - Often become too big and complex to manage - May breach competition rules

Question 26

Forward Vertical Integration

Answer 26

When two businesses from different sectors of industry become one business FORWARD vertical integration is when a business takes over/merges with a business in a later sector of industry, e.g. an american wholesaler buying superdry

Question 27

FVI Advantages

Answer 27

- Can control supply of their products, could decide not to supply to competition - Can control marketing/image - Increase profits; ‘cutting out the middle man’

Question 28

Backward Vertical Integration

Answer 28

When a business takes over a business in an EARLIER sector of industry; their supplier. For example Starbucks buying coffee plantations.

Question 29

Advantages of BVI

Answer 29

- Guaranteed and timely supply of stock - Supplies are cheaper - Can lower prices for customers - Product’s quality is strictly controlled

Question 30

Disadvantages of Vertical Integration (as a whole)

Answer 30

- Training and rebranding can be costly - Monopolies have legal reprucussions - Can have a bad affect on core activties - Company may find it difficult to manage new activities effectively

Question 31

Conglomerate Integration

Answer 31

When businesses in different markets join together, e.g. Virgin buys businesses in many markets.

Question 32

Conglomerate Integration Advantages

Answer 32

- Spread risk - Meets the needs of other markets - Overcome seasonal fluctuations in their markets

Question 33

Conglomerate Integration Disadvantages

Answer 33

- Failure can occur due to limited experience in other markets - Can lose focus on core activities - The business may become too large and ineffecient to manage