COMPONENT 1 (Business functions) Flashcards
(343 cards)
1
Q
What does marketing involve?
A
-Researching the market
-Analysing the market
-Setting of marketing goals
-Developing a marketing strategy
2
Q
What does a product portfolio do?
A
-spreads fixed costs
-allows for greater economies of scale
-allows the targeting of wider markets
-reduces risk
-smooths out overall sales
-creates opportunities for growth.
3
Q
What is breadth?
A
Breadth is the number of product lines a business produces or retails
4
Q
What is depth?
A
Depth is the number of product varieties within each product line
5
Q
What is market orientated?
A
When a business bases its marketing mix on its perception of
what the market wants
6
Q
What are key features of a market orientated approach?
A
-consumers are central to a business’ decision making and there is a strong understanding of their needs
-being able to respond quickly to changes in the market
-being in a strong position to meet the challenges of new competitors entering the market
-being more able to anticipate market changes
-being more confident that the launch of a new product will be a success
7
Q
What are the advantages of being market orientated?
A
-flexible to changes in taste and fashion
-decisions based on effective market research
-new products designed to meet consumer needs
-customer focus means the business will continue to improve and upgrade products/respond to changes
-customers get greater satisfaction which leads to repeat purchases and brand loyalty
-loyal customers buy more frequently and in greater volume
-loyal customers are less susceptible to competition and are more willing to pay higher prices
-long term profitability means that a business will remain viable and successful
-familiarity with the market allows a business to build emotional impact into their advertisements, meaning marketing is more effective.
8
Q
What are the disadvantages of being market orientated
A
-high cost of market research to understand the market
-constant internal change as the needs of the market are met
-unpredictability of the future, especially from the point of view of staff
-abandonment of earlier product investment.
9
Q
What is product orientated?
A
When a business bases its marketing mix on what the business
sees as its internal strengths
10
Q
What are the key features of a product orientated approach?
A
-emphasis on developing a technically sound product, producing it, and selling it
-contact with the consumer, largely at the final stage
-an approach that is more likely to succeed when there is little or no competition
-fashion and tastes are not accounted for in product mix
11
Q
What is an advantage of being product orientated?
A
-increased economies of scale
-focus on product development
-focus on quality
-easier to apply production management methods
12
Q
What are the disadvantages of being product orientated?
A
-changes in market structure will not be responded to
-fashion and taste are not accounted for in the product mix
13
Q
What is asset led marketing?
A
When marketing decisions are based on the needs of the consumer and the strengths of the business
14
Q
Why is increasing brand awareness important?
A
-It creates brand loyalty
-It differentiates the product
-To gain flexibility when making price decisions
-To help brand recognition
-To develop a brand image
15
Q
What are the disadvantages of branding?
A
-The cost of advertising can be very high as brands must constantly be kept in the consumer’s eye.
-The loss of brand value for one product can affect a whole range of similarly branded products.
-Brands invite competition which can often be from copycat manufacturers.
-There is the high cost of research and development in ensuring that the brand continues to develop and lead the market
16
Q
How can products be differentiated?
A
-Methods of promotion
-Packaging
-Form
-Provisions of add ons
-Quality and religion
17
Q
Why is design important? (packaging)
A
Packaging should be eye catching. It should help the consumer distinguish them from other products. Should be consistent with the brand image. Colour may also be important.
18
Q
Why is convenience important? (packaging)
A
Consumers must be able to open the products easily in order to access the contents. Packaging must not be too bulky as this will add to distribution costs and may deter customers.
19
Q
Why is protection important? (packaging)
A
The contents must be well protected and not easily damaged as this will be a problem for both distributors and customers. This will also be costly for a business and may lose customers if the products are poorly protected. Storage must also be considered, and the product may need to maintain freshness during storage
20
Q
Why is information important? (packaging)
A
Customers now need to be fully informed about the ingredients used in their products that they purchase; this is required by law and all legislation must be complied with. The sources of raw materials are increasingly important for ethical customers.
21
Q
Why are environmental factors important? (packaging)
A
More and more consumers are becoming environmentally aware and recyclable materials are used when possible. Manufacturers are increasingly coming under pressure to reduce waste in relation to packaging.
22
Q
Why is cost important? (packaging)
A
The cost of materials to make the packaging must be considered, e.g. comparing cardboard and plastics.
23
Q
What are the stages of the product life cycle?
A
-Introduction
-Growth
-Maturity
-Saturation
-Decline
24
Q
What happens in the introduction stage?
A
The product is new to the market and few potential consumers know of its existence. The price can be high, and sales may be restricted to early adopters (those that must have new technology, gadgets or fashions first). Profits are often low as development costs have to be repaid and advertising expenditure can often be high.
25
What happens in the growth stage?
The product is becoming more widely known and consumed. Advertising tries to establish or strengthen the brand and develop an image for the product. Profits may start to be earned, but advertising expenditure is still high. Prices may fall.
26
What happens in the maturity stage?
The product is becoming more widely known and consumed. Advertising tries to establish or strengthen the brand and develop an image for the product. Profits may start to be earned, but advertising expenditure is still high. Prices may fall.
27
What happens in the saturation stage?
Very few new customers are gained, replacement purchases are the trend. Businesses should try to reduce their costs, so that prices can be more flexible. The battle to survive is beginning and the market for the product is ‘full’. Profits may start to decline.
28
What happens in the decline stage?
Sales can now fall quickly, and the product range may be reduced, with the business concentrating on core products. Advertising costs will be reduced, with attempts made to mop-up what is left of the potential market. Overall profits will fall. Price is likely to fall, but by concentrating on remaining market niches there may be some price stability.
29
What are extension strategies?
Extension strategies are used to extend the life cycle of the product. They may be necessary because a new product has not been developed to replace an ageing product. They may also be used as a product has a declining market share in a large or growing market.
30
What is the Boston Matrix?
It is a technique which allows businesses to analyse their product portfolio with the use of a Matrix. Products are categorised according to market growth and (relative) market share. Products are placed into one of four categories: stars, cash cows, dogs and problem children (also known as question marks)
31
What are stars (Boston matrix)?
-High market growth and high market share
-They are in markets experiencing high growth rates with a high or increasing share of the market
-There is potential for high revenue growth; the market may be somewhat immature, with new customers being attracted to the marketplace and new competitors being tempted by potential profits and market share
-competition is high: businesses are fighting for a share of potentially huge profits
32
What are cash cows?
-Low market growth and relatively high market share
-very profitable products and expenditure on such things as advertising is relatively low
-Customers know and understand the product, and brand value has been established
-It is also likely that development costs have already been recouped, increasing profitability further
33
What are problem children?
-High market growth but relatively low market share
-one of the worst situations for professional marketing people
-They have a product in a fast-growing market but the products are not selling (Being beaten by competition/ failing)
34
What are dogs (Boston Matrix)?
-Low market growth and relatively low market share
-It is not generally worth spending money on redeveloping, redesigning or advertising the products as it is unlikely to be recouped in increased revenue
35
What are some issues addressed when products that are characterised as dogs?
-Are they worth persevering with?
-How much are they costing?
-Could they be revived in some way?
-How much would it cost to continue to support such products?
-How much would it cost to remove from the market?
36
What are the benefits of the Boston matrix?
-very simple to use and explain
-It helps firms to design a strategy
-It has been used successfully by many firms over a long period of time
-relatively easy to construct
-Clear guidance
-It is an important model for allocating resources to the right areas
37
What are the disadvantages of the Boston matrix?
-Too simplistic
-It is only a snapshot of the current position and has no predictive value
-It is based on a series of assumptions
-The definition of the market can be a problem
-Some of the terminology of the four quadrants might be considered misleading
38
What are price takers?
When businesses have to accept the price set by the market
39
What are price makers?
They can use a market orientated strategy where a business will produce what the market wants so they will set a price that the market is willing to meet. They can also use cost based strategy where businesses focus on their internal costs and their pricing strategies are based around the costs of production.
40
What is market/price skimming and the pros/cons?
-Initially charge a high price when a good or service is released then after time, decrease the price
-Pros- Can increase profits via segmentation (Wealthy customers) and recover research and development costs asap
-Cons- This will only work if there are no rivals as they will lower their own price and over time you might have a history of skimming so customers will delay their purchase
41
What is penetration pricing and the pros and the cons?
-Initially charge a low price when the good or service is released then after time increase the price
-Pros-people will try the good or service as it is cheaper this will result in a higher market share and will create brand loyalty
-Cons- Initially the business will make a low profit
Evaluation- The length of time you keep the prices low may depend on your financial situation and if the business is able to handle a loss for a period of time
42
What is loss leader pricing and the pros and cons?
-When a product is sold at a price less than its cost
-Pros- Encourages customers into the outlet where they are likely to buy other goods
-Cons- Some people may bulk buy these products with these pricing strategies
43
What is destroyer/predatory pricing?
-This involves setting a price low enough to drive competitors out of the market
-This type of pricing is not only used by the largest businesses on a national scale, but it can also appear in battles between local businesses
-Cons- Destroyer pricing is often seen as anti-competitive and therefore illegal
44
What is competition based pricing and the pros and cons?
-When a business charges in a similar price range to its competitors and is used when there are lots of rivals or the goods/services sold are similar (homogenous)
-Pros- Protect your market share by having a stable customer base, consistent profits and consistent profits
-Cons- Increased marketing costs and if 100% is focused on competitive pricing then it might not cover total costs
45
What is psychological pricing and the pros and cons?
-Charging a price that consumers may expect to pay based on perceived quality and value for money. Also incudes pricing goods just under a rounded figure e.g. $9.99 as consumers at believe they are getting better value for money
46
What is cost plus pricing and the pros and cons?
-A profit percentage is added to the average cost of producing the good (mark-up)
-Pros- changes in costs can be passed directly on to the buyer and every good sold is sold at a profit
-Cons- Actions of competitors are often totally ignored. This can lead to loss of sales or loss of profits if a higher price could be charged because of little or no competition
-Cons- Also, for exporters, this method makes no allowance for currency changes that will affect the price of goods and order levels
47
What are the advantages of using pricing strategies?
-Selecting the right strategy is likely to increase sales which will in turn increase revenue, resulting in profits rising
-Prices can be applied to specific niche/market segment. This can often mean that a higher price may be charged
-Prices can reflect the market for the product. For example, skimming may work in some markets such as those with high income, whist penetration works in others
-Prices can take into account actions of competitors which can help stop customers switching to rival firms
48
What are the disadvantages of using pricing strategies?
-Competitors may follow the same pricing strategy. If they do so, there is likely to be no effect seen by the business and thus no increase in sales
-Competitors may not follow a pricing strategy, and the customers are not attracted
-There is likely to be a need for expensive advertising to promote pricing strategy. This will increase the business’ costs so that the profits are not as expected
-Some segments may not be happy with pricing strategy, for example those that allow the less well-off to afford expensive products and customers may boycott the product as a result
49
What is promotion?
A promotional strategy attempts, through various forms of media, to draw attention to a product or service, with the intention of gaining new customers and retaining existing customers
50
What are the objectives of promotion?
-To increase sales
-Raise awareness
-Target specific groups
-To try and beat the specific groups
-To develop/improve the image of the company
-To reassure consumers after the products have been purchased
51
What are the phases of commitment to a product?
1- Being unaware of the products existence
2- Awareness of the products existence
3- Understanding of the benefits of the product
4- Establishing a liking for or committing to the product
5-Finally the purchase of the product
52
What is above the line promotion?
Above-the-line promotion is what is generally called advertising. It is used to reach a mass audience. Above-the-line promotion is through independent, mass media which is indirect and allows a business to reach a wide/large audience.
53
What are methods for above the line promotion?
-(regional) television
-(local) newspapers
-(local) radio
-(local) magazines
-billboards
-cinema
-websites / internet
54
What does the choice of media depend on?
-Target market
-Whether the objective is to convey information or another type of message
-cost
-The reach of the media
-The product itself
55
What are the advantages of promoting using televison?
-Can reach millions of people throughout the country
-Use of sound, video, famous people humour etc. can make it appealing
56
What are the disadvantages of promoting using television?
-Very expensive to make the advert and buy airtime.
-Not effective for targeting potential customers if not a mass product.
-Not affordable for smaller businesses
57
What are the advantages of promoting using newspapers (National and local)?
-very popular form of advertising(national)
-Visual impact often in colour is effective(national)
-Can include a lot of information about the service(national)
-Local papers are quite cheap compared to TV and radio and national newspapers
-Can target the local market(local)
-Visual impact, often in colour is effective(local)
-Can include a lot of information about the product/service(local)
58
What are the disadvantages of promoting using newspapers (National and local)?
-Still expensive, especially the main tabloid newspapers (national)
-No use of sound or video to show the product/service(national
-Full page adverts in colour are very expensive and only large business will be able to afford them(national)
-Local papers tend to have smaller readership numbers and only advertise locally; a larger business may have to place adverts in many local papers to cover their target market(local)
-Colour adverts are more expensive(local)
59
What are the advantages of promoting using radio?
-Charging a price that consumers may expect to pay based on perceived quality and value for money. Also incudes pricing goods just under a rounded figure e.g 9.99 as consumers may believe they are getting better value for money
60
What are the disadvantages of promoting using radio?
-Still expensive for smaller businesses and a smaller audience than TV
-No visual image to show what the product looks like
61
What are the advantages of promoting using websites?
-Relatively cheap and a very large coverage as most households now have internet access which they use regularly.
-Good selection of different types of advertising: pop ups, social media sites, direct mail.
-Can use sound and video.
-Can target certain individuals or groups
62
What are the disadvantages of promoting using websites?
-A lot of people ignore internet advertising as there is so much of it.
-It can have a negative impact on the business if it is seen as a nuisance: who actually looks at junk mail
63
What are the advantages of promoting using billboards?
-Very eye catching, high visual impact and can be seen by many people, many times
-Very good for products with short life cycle such as films
64
What are the disadvantages of promoting using billboards?
-Can be very expensive to produce and are vulnerable to the weather and graffiti
-Limited reach: only passing trade will see them
65
What is below the line promotion?
Below-the-line promotion offers a wide range of alternative promotional strategies and these are often used to support above-the-line promotion. Below-the-line promotion targets consumers directly
66
What are methods for below the line promotion?
-personal selling
-packaging
-Sales promotion
-Direct mailing
-Public relations
67
What is personal selling?
-using sales staff within town centres, bars, leisure centres to speak to the public directly
-Although it does not reach a wide coverage, it is a good way to promote the product
68
What is packaging?
When a customer buys a product, advertisements and logos on the product could entice other potential customers to buy it for themselves
69
What is sales promotion?
E.g buy one get one free to encourage customers to buy more of their products
70
What is direct mailing?
-Companies could send offers about their products to their customers, usually in conjunctions with supermarkets so customers know where to go to buy
71
What are public relations?
-media reports and sponsoring events could be a way of building brand image and trust with potential customers through third party organisations
72
What are the benefits of marketing via the internet?
-Widens potential market which could lead to increased sales and profits
-A well-constructed and up to date website can improve the image of the business
-For some businesses it is their core marketing tool, e.g. Amazon
-They can be open 24/7
-Raises awareness of the existence of a business which gives businesses a competitive edge
-More and more people shop on the Internet
73
What are the drawbacks of marketing via the internet?
-Can be expensive to set up: £10,000 plus is a significant investment for a small business, especially in a recession
-May not be cost-effective: has to generate enough profit to justify the initial expenditure
-A poorly constructed or out of date website can project a negative image of the business and sales may be lost to competitors
-Not particularly useful where personal service is the key to sales
-Not everyone has access to the internet
-Technical problems on website can result in loss of reputation and sales
74
What are the benefits to a business selling via the internet?
-can eliminate or reduce the need for expensive high-street premises
-Costs can be lowered by moving to places where rent and wages are considerably lower
-It can reduce the need to employ staff
-It adds flexibility to business operations and businesses can reach their customers 24 hours a day
-Data on customers can be cheaply stored and easily accessed
-They can reach a world-wide audience
75
What are the drawbacks to a business selling via the internet?
-Maintaining quality websites is costly
-
76
What are the benefits of internet shopping on the customer?
-it is often easier to shop from home rather than physically visit the shops
-Home delivery
-Orders can be placed anytime day or night
-Customers do not have to travel or pay parking fees
-Customers can view a huge range of products
-It is possible to buy products from other countries
-It is easy to compare prices and read reviews
77
What are the drawbacks of internet shopping on the customer?
-Delay in delivery: the item ordered may arrive too late
-Fraud/security
-Unable to try before buying
-Lack of access
78
What are the factors impacting on the promotional strategy?
-The marketing budget available
-The stage in the product life cycle
-Cultural sensitivity
-The target market
-Competitor actions
79
What is place?
Place is ‘the marketplace’, where buyers and sellers meet and exchange payment in return for goods and services
80
What are the different distribution channel methods known as?
Intermediaries
81
What is the traditional distribution method using a whole seller?
Producer > Wholesaler > Retailer > Consumer (Small companies use this method as they don't have enough money to bulk buy)
82
What is the modern distribution method using a retailer?
Producer > Retailer > Consumer (Large companies use this method as they can bulk buy straight away)
83
What is the direct mailing/e-commerce distribution method?
Producer > Consumer
84
What is a multi-channel distribution channel?
Multichannel distribution is where a combination of distribution channels are used
-Businesses are maximising as many of the advantages as it can from each distribution channel chosen
85
What are decisions related to the marketing mix?
-What shall the price be?
-What is the best design for the product?
-Where should it be sold?
-How should the product be promoted?
86
What is global marketing and what does it involve?
-Global marketing is the process of placing a product in a worldwide marketplace
Involves:
-market planning
-manufacturing to meet demand
-changing the marketing mix as appropriate
87
How can the marketing mix be applied in different contexts?
-Local markets
-National markets
-Global markets
-Goods or services markets
-Mass markets
-Niche markets
88
What makes overseas market so different?
-Political differences
-Cultural differences
-Legislative differences
-Social differences
-Economic differences
-Differences in business practice
89
what are political differences?
changes in government; financial and market instability
90
what are cultural differences?
-language: inappropriate names, colours
-payments to government officials, bribes, greetings
91
what are legislative differences?
-product labelling
-product safety
-environmental impact
-advertising: cigarette advertisements are banned in Europe
92
what are the social differences that make overseas marketing so different?
-attitude/role of women
-religious attitudes
-habits
93
what are the economic differences that make overseas marketing so different?
-the general level of income local wage rates
-taxation
-import barriers
94
what are the differences in business practice that make overseas marketing so different?
-payment methods
-accounting procedures
-distribution methods
95
What does having to adapt the marketing mix depend on?
-type of product sold (e.g. petrol versus food)
-the differences in customer tastes, cultures, religions and languages of the different geographical regions
-income levels and unemployment rates of the different markets whether the business is selling online or through physical stores
-the level of competition in the new market whether the business is planning to sell the same products or new products in the new market; this will determine how many changes are needed to other elements of the marketing mix
-if the marketing mix is not suitable for the new target market, the business is less likely to gain enough sales to cover costs and could fail
96
How can technology be used for businesses?
-Clicks and bricks
-Digital media
-Social media
-E-tailing
-M-commerce
97
What are the benefits of new technology (online)?
-it is convenient for customers
-it is cheap for new companies to set up as they do not need a high street presence
-online shops can be open 24/7
-social media can be used to target certain market segments very effectively
-it grabs customers attention very effectively by having a presence (‘popping up’) whilst they are using a mobile phone, tablet or laptop for reasons other than shopping
-digital natives (those under 35 years old) are very internet literate and so businesses that predominantly target this segment will find it more useful to use new technology
98
What are the benefits of traditional methods (marketing)?
-it can be used for market segments which prefer to shop on the high street (over 35s)
-it can be used for market segments which do not have access to social media or even the internet
-it is not reliant on good internet access
-many countries across the world do not have the same broadband capabilities or internet access at home compared to the UK
-it is less affected when there are technical problems
it may give them a USP, e.g. direct line is not represented on comparison websites
-if they have a physical shop, there will not be the delivery problems which e-commerce may encounter
99
What are the main functional activities carried out by the finance department?
-Preparing budgets
-Raising finance
-Preparing final accounts (Cash flow/ Profit and loss)
-Business performance
100
What is a budget?
A budget is a financial plan of action that usually covers a certain period of time, such as six months or a year. A budget would outline a business's planned revenues (income), expenditures (costs) and profits.
101
What is the purpose of a budget?
The purpose of budgeting for a business is so that it can exercise financial control within the business – this is known as budgetary control
102
What are variances?
A variance is the difference between budgeted revenues and/or expenditures and the actual revenue and/or expenditures
103
What are favourable variances?
A favourable budget variance indicates that the actual result is better for the business than the amount that was budgeted
104
What are adverse variances?
An adverse variance is where actual income is less than budgeted or actual expenditure is more than budgeted
105
What can budgets be used for?
-control revenues and expenditures to help a business make a profit
-direct and coordinate business aims and objectives so that they can be achieved
-assign responsibilities to budget holders (managers) and allocate resources (mainly money)
-create a list of objectives and numerical goals for the business, which will help to motivate workers and managers
-communicate targets from management to subordinates, which will again help to motivate workers
-improve efficiency as management try to control costs but maintain standards of work - for example, a business may reduce production costs but aim to produce the same quantity of goods
-monitor performance to ensure budgets are met
106
What are the drawbacks of budgeting?
-Budgets can lead to managers making rash short-term decisions in order to stay within the budget rather than making effective long-term decisions that go beyond the budget
-Those who are not involved in the budgeting process may not be committed to the budgets and may become demotivated
-Unrealistic budgets (targets) may be set for the sales team, which may be unachievable which may demotivate workers
-If budgets are rigid (inflexible), changes in the economy or other market conditions cannot be accommodated. This may also lead to budgeted figures not being met and potentially unfavourable variances as well
-A successful budget can only be built on the foundation of high-quality data. To cover their departments, often managers exaggerate (overstate) their budgetary requirements
-Budgeting is a time-consuming process; in large businesses, whole departments can be devoted to budgeting and control
107
What are the impact of budgeting for a manager?
-Budgeting helps managers to improve efficiency
-Budgets can help managers minimise costs and allocate resources more efficiently
-The resources allocated may not be not sufficient for the managers to run the business/department efficiently
-Perhaps the set budget is inflexible and as a result the management may not be able to meet certain objectives, such as sales targets
108
What are the impacts of budgeting for the employees?
-The employees may be rewarded financially because the budgeted figures will act as a motivator
-setting unrealistic figures (targets) may have a negative impact on employee motivation
109
What are the impacts of budgeting for suppliers?
-suppliers are more likely to be paid on time and in full because budgeting helps a business to control its revenue and costs
-A budget is only a prediction and the data may be inaccurate or external factors may cause adverse variances, and this may meant that a business is unable to pay expenditures
110
What are the impacts of budgeting on shareholder/owners?
-Controlling revenue and expenditures will have a positive impact because the business is more likely to achieve its revenue targets and control its costs
-Budgeting can be demotivating and may have a negative impact because worker performance levels may fall
111
What is meant by cash flow?
Cash flow describes the movements of cash in and out of a business
112
What is net cash flow?
Is the difference between cash inflows and outflows over a given time period
113
What is a cash flow forecast?
A cash flow forecast is a financial document that is a prediction of the money coming into and out of a business over a specific period of time of six months to a year. This financial document will therefore show the owners or managers of a business whether the net cash flow is positive or negative
114
What are cash inflows?
All of the money that comes into the business, which can be broken down into various categories such as sales receipts (revenue) and interest on savings and loans
115
What are cash outflows?
Any of the money leaving the business to cover its expenses or payments, such as raw materials and stock, rent, workers’ wages and other overheads
116
What happens when cash flow forecasts are not controlled properly?
-The business may not be able to pay its suppliers in which case the suppliers will stop supplying them and the operations of the business will come to a halt
-The business may not be able to pay its rent (or mortgage), which could result in it being evicted
-The business may not be able to pay the wages of its staff (if it has any). Which could lead to possible stoppages in business operations because workers will not work if they do not get paid
-The business may not be able to pay its rates and/or other taxes, in which case it is likely to be prosecuted, leading to increased costs.
-The business may not be able to afford to advertise. This would result in loss of business or the failure to gain new customers, which in the long term will affect the future of the sales revenue and future of the business
-Banks may be unwilling to lend if there are serious cash flow problems because it is too risky. Therefore the business owners will not be able to carry out planned business activities
-The owner(s) may not be able to pay themselves a reasonable salary. Therefore, they will have no reward for running the business. This may lead to them closing the business
117
What are the benefits of cash flow forecasting?
-It helps with planning
-It supports attempts to raise finance
-It assists in determining the viability or feasibility of a new business venture
118
What are the drawbacks of cash flow forecasting?
-Only a rough estimate, not very accurate
-Only accounts for a small portion of the year
-May not take into account payments that will affect the business in the future
119
What are the causes of cash flow problems?
-Low profit or losses
-Too much stock
-Allowing customers too much credit
-Unexpected changes
-Seasonal demand
120
What are strategies to improve cash flow?
-Increase the selling price of goods and/or services
-Reduce the selling price of goods and/or services
-Increase advertising or sales promotions
-Find an alternative supplier
-Offer discounts to customers to pay upfront
-Arrange trade credit agreement with suppliers
-Arrange an overdraft or renegotiate an existing overdraft
121
What are the main components of a profit and loss account?
-Sales revenue
-Cost of sales
-Gross profit
-Expenses
-Net profit
122
What is gross profit?
The difference between sales revenue and the cost of sales
123
What is net profit?
Difference between gross profit and total expenses
124
What are expenses?
Expenses are the indirect costs incurred by a business in a trading year
125
What are the ways to improve profit?
-Increase sales revenue
-Reduce direct costs
-Reduce indirect costs
126
What is gross profit margin and the formula for it?
-Gross profit margin is the percentage of money left after paying for a business’ costs of sales
-Gross profit/sales revenue x 100
127
What is net profit margin and the formula for it?
-The net profit margin is the proportion of sales revenue that is left once all costs have been paid
-Net profit/sales revenue x 100
128
How do you interpret the ratios?
-The higher the percentage (%) for both profitability ratios the better a business is performing
-It means that the business managing to keep more money from the sales turnover
-If Gross profit margin is high but Net profit margin is low then a business is paying a lot out on expenses
-If Gross profit margin is low then it means the cost of sales for the business is high
129
What is job sharing?
-Job sharing means that two people share the same job, often on a fifty-fifty split
-Job sharing often lets professional workers continue in employment, when otherwise they may have had to take a career break
130
What is multi-skilling?
This is when an employee can complete multiple tasks as they are skilled in them
131
What are zero hour contracts?
This type of contract means that an employee must be available for work but is not guaranteed any work
-This provides employers with total flexibility
132
What is hot desking?
-Hot-desking means that an employee has no fixed workspace within an office environment
-Hot-desking cuts down the need for office space – if a business has a sales team that spends little time in the office, supplying permanent desks for the team is a waste of resources
133
What are the types of technology that businesses can use to enable employees to work flexibly?
-computers
-the internet
-broadband
-communication platforms and apps (including Zoom and Microsoft Teams)
-specialist telephone systems
-bespoke company software
134
What are some factors to consider when evaluating the impact of new technology on working practices?
-how they manage potential isolation of employees
-how the risks of working from home or using technology for working practices are managed
-how employees’ performance will be monitored and managed
135
What are the benefits of flexible working hours for employers?
-Businesses can expand and contract their workforce quickly in response to a rise or fall in the demand for their product or service
-Temporary staff and subcontractors may be cheaper to employ as they are unlikely to get any of the benefits that may be available to permanent staff
-A flexible workforce is likely to make a business more efficient
136
What are the drawbacks of flexible working hours for employers?
-Temporary workers are less likely to have the same commitment to a business compared to permanent workers
-Communicating with a workforce which works largely from home can be an issue and the benefits of teamwork may be lost
137
What are the benefits of flexible working hours for employees?
-Employees can work around their personal commitments and home life
-They can save time, money and stress by not commuting during busy times or at all if working from home
138
What are the drawbacks of flexible working hours for employees?
-Employees may be expected to be more flexible, for example by accepting a zero hours contract where no working hours are guaranteed
-Some employees who are temporary or part time may not see themselves as important to the organisation or as well integrated, as they may not be there that long or may work less hours
139
What is workforce planning?
Workforce planning is about trying to predict the future demand for different types of staff and seeking to match this with supply
140
What are the components of workforce planning?
-Plan how many workers will be needed in the future.
-Estimate the cost of employing the workforce.
-Estimate the balance between part time or full time workers.
-Identify the skills necessary for the vacancies that may be filled.
-Predict when these workers will be needed in order to put recruitment plans in place
-Identify where workers will be needed if more than one location exists
-Identify who may need training to improve skills
-Identify who can be redeployed to fill gaps where certain skills are necessary
141
What is the process of recruitment?
-Job analysis
-Job description
-person specification
-Job advert
-Shortlisting
-Interview
142
Why can job vacancies in a business arise?
-expansion
-retirement of existing workers
-workers leaving for a new job elsewhere
-workers having a promotion
-temporary reasons such as maternity leave
143
What is the recruitment process?
1-Job specification
2-Internal/external adverts
3-Candidates fill out application form
4-Shortlist is created
5-Interview process
6-Job offer
7-Induction training
144
What are the benefits of recruiting internally?
-Cheaper
-More informed process
-Faster process
145
What are the benefits of recruiting externally?
-Larger pool of potential workers
-Fresh ideas
-Don't need to replace worker
146
What is a job analysis?
The process which identifies and determines the duties and requirements of a job and what the position requires in terms of aptitudes, knowledge and skills
147
What is a job description?
This explains the tasks involved in the job, the job title, responsibility attached to the job, place of work, and employment conditions
148
What is a person specification?
This describes the skills , knowledge, educational requirements and experience needed by an individual to complete the job
149
What are examples of on the job training?
-mentoring
-job rotation
-graduate training schemes
150
What is off the job training?
-college and university courses
-online courses
-external training providers
151
Benefits of on the job training?
-Cheaper
-Hands on
-Builds relationships
152
Disadvantages of on the job training?
-Mentors ability (Are they good?)
-Mentors time
-Friction
153
Benefits of off the job training?
-Focused
-New skills
-Expert mentor
154
Disadvantages of off the job training?
-Expensive
-Not at work
-Not bespoke
155
What is appraisal?
An appraisal is a formal assessment or evaluation of the performance of an employee over a particular time period in terms of meeting set objectives or performance targets
156
What are the types of appraisal?
-Superior’s assessment
-Peer assessment
-Self assessment
-360 degree feedback
157
What is superior assessment?
Involves the employee’s direct line manager conducting the appraisal
158
What is peer assessment?
Refers to the process of having employees of a similar level of responsibility critically comment upon the performance of a co-worker and perhaps suggest methods of improvement
159
What is self assessment?
Self-assessment is the process of having the employee critically reflecting upon their own performance, recording their progress, and suggesting targets for the future
160
What is 360 degree feedback?
Having appraised staff members receiving feedback from people whose views are considered helpful and important
161
What are the benefits of appraisal to an employee?
-Motivates
-Improves performance
-Allows the setting of achievable objectives
-Identifies training needs
-Identifies potential
-Bonus earned
-Give a value to the work done
162
What are the drawbacks of appraisal to the business?
-Cause tension in the workplace (allocation of bonuses)
-Puts workers under tremendous pressure to keep improving performance
-Line managers may not be prepared for this kind of responsibility
-Line managers can abuse the power the system gives them
163
What is the formula for absenteeism rates?
(Total number of staff absence days over a year / total number of working days that should have been worked)* 100
164
What is the formula for labour turnover?
(Number of staff leaving / Average number of staff employed) * 100
165
What is the formula for labour productivity?
(Total output per period of time / Average number of employees per period of time)
166
What is organisational design?
Organisational design is the process of aligning the structure of an organisation with its objectives, with the ultimate aim of improving efficiency and effectiveness
167
What is authority?
Authority is defined as the right to give orders, supervise the work of others and make decisions. It is linked with the managerial position to give orders and expect others to follow the orders
168
What is chain of command?
These are the paths along which communication takes place and instructions or orders are passed down
169
What is span of control?
Tells us how many workers are directly responsible to a manager or supervisor
170
What are the factors determining the internal structure?
-Views and philosophy of management
-The need for different communication systems
-The industry within which the business operates
-The traditions of the business
-The skills of the workforce
171
What are the types of business structures?
-Traditional hierarchal structure
-Flatter hierarchal structure
-Matrix structure
172
What are the advantages of a traditional hierarchal structure?
-Control is at the centre, and senior management fully understand exactly who does what, and what their responsibilities are
-Paths of communication and responsibility are clearly defined
-Departments understand their position in relation to other departments within the organisation
-Each worker knows how they fit into the organisational structure
173
What are the disadvantages of a traditional hierarchal structure?
-Senior management are distanced from those who implement decisions. What senior managers perceive as being the case may, in reality, be very different.
-Vertical communication is difficult, with information that is received by management distorted by the layers it must pass through. Very long chains of communication could even mean that instructions are out of date by the time they are received
-Communication between different departments is hampered by the lack of direct contact between departments
174
What are the advantages of a flatter hierarchal structure?
-increased motivation as a result of the delegation of authority;
-decisions are made more quickly by those nearest the ‘ground’;
-communication is quicker and suffers less distortion;
-empowerment of workers
175
What are the disadvantages of a flatter hierarchal structure?
-loss of central control of the workforce;
-different departments may not be working to the same objectives
-Can lead to coordination problems in larger businesses
-Limited promotional opportunities
-Manager overload as they have a wider span of control
-May not suit all leadership styles
176
What are the advantages of a matric structure?
-It allows individuals with specific skills to contribute to a number of different projects.
-It breaks down barriers to communication and ensures that projects can be better coordinated.
-It helps ideas and innovation spread throughout the business.
-There is more efficient use of human resources. The structure can improve flexibility and the motivation of employees.
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What are the disadvantages of a matrix structure?
-Defining what each employee’s main responsibilities are is difficult – being answerable to two bosses may put a lot of strain on individuals. Placing too great a burden on individuals may slow down decision-making
-Project management using a matrix structure can be expensive because extra support systems, such as ICT and office staff, may be required
-Coordinating a team drawn from a number of different departments may be difficult as the culture and methods of operation in each department may be very different.
178
What is Taylors theory of scientific management?
He believed that workers produce more output if they have less responsibility for decision-making and planning and that tasks should be broken down into smaller parts to increase effectiveness. Workers are thought of as machines for completing tasks. (Links to autocratic leadership)
179
What is Mayo's Hawthorne experiment?
-Mayo believed that working conditions has a large effect on the amount of output produced
-He changed the environment such as lighting and humidity and also the arrangement such as breaks, hours and leadership
180
What is Maslow’s hierarchy of needs?
He argued that we all have a hierarchy of needs, which is :
1.Self Actualisation/Reaching goals
2.Self-Esteem/Feeling good
3.Love and belonging/Trust and acceptance
4.Security protection
5.Physiological or basic needs
(Food, warmth and rest)
181
What is shortlisting?
The process of identifying the candidates from your applicant pool who best meet the required and desired criteria for the job and who you want to move onto the next step
182
What is Psychometric testing?
A test that assesses a candidates personality in a measured and structured way so employers can identify candidates with suitable personality traits for the job
183
What is are aptitude tests?
A test that assesses a candidates ability to complete the core tasks of the jobs
184
What is an induction?
A part of the initial training process that introduces a new employee to a workplace
185
What is mentoring?
A form of training where an experienced employee in the workplace who gives advice and help to a junior employee
186
what is job rotation
Job rotation involves the movement of employees through a range of jobs in order to increase interest and motivation
187
What are Herzberg's motivators?
-Management recognition
-Achievement of goals
-Responsibility
-Opportunities to improve skills
-Opportunity for promotion
188
What are Herzberg's hygiene factors?
-Poor working conditions
-Lack of status
-Lack of job security
-Unsatisfactory wages
-Poor workplace relationships
189
What are Vrooms expectancy theories?
Valence- an individual will undertake a task if they believe that they will receive a worthwhile reward as a result
Instrumentality- the individual will be motivated to work hard to achieve a particular target if he or she believes that it will lead to a positively valent result
Expectancy- individual’s belief in the likelihood of them being able to achieve the target that has been set for them
190
What is Porter and Lawler’s expectancy theory?
Porter and Lawler also propose that an individual’s motivation is affected by the reward they expect to receive for completing the task. The individual’s view of the attractiveness of the possible reward will determine their level of motivation
191
What are intrinsic rewards?
Include the positive feelings that the individual experiences from completing the task – e.g. pride, satisfaction
192
What are extrinsic rewards?
Rewards that come from outside the individual, for example material rewards such as pay increases and bonuses
193
What are the financial methods of motivation?
-Piece rates (workers are paid for each item they produce or for each task completed)
-Commission (a payment given to employees based on the sales they make)
-Bonus (one-off payments given at a particular time of year or under specific circumstances)
-Wage and salary
-Profit sharing (links part of an employee’s income to the profits of a company)
-Share ownership (allows employees to acquire shares in their company)
-Performance related pay ( is a way of rewarding staff for hard work in their role)
194
What are the non financial methods of motivation?
-Consultation
-Job design
-Job enlargement
-Job rotation
-Job enrichment
-Empowerment
-Team working
-Flexible working
195
What is job design?
Job design is the process of establishing employees’ roles and responsibilities. Its main purpose is to optimise work processes to create value and maximise performance.
196
What is job enlargement?
Increasing the number of tasks completed by a worker
197
What is job enrichment?
This means giving workers more control over the tasks that they complete, and allowing workers to complete tasks that have a meaning and are complete in themselves
198
What is job rotation?
Changing workers’ tasks which are completed at regular intervals
199
What is empowerment?
This means giving workers the power to control their own jobs, make decisions and implement their own ideas
200
What is flexible working?
Allowing workers to have elements of their schedule which are under their control
201
What are the problems with implementing these non financial methods of motivation?
-(Existence of Theory X managers) These managers will see no value in using expensive methods of motivation when workers have no commitment to the business or quality of the products
-Cost
-External factors
-The structure of the workforce
202
What are the functions of management?
-planning
-organising
-controlling
-leading
-coordinating
-allocating resources
-monitoring
-communicating
203
What are the roles of management?
-Interpersonal roles, which include activities such as hiring, firing, training, motivating and organising
-Information roles, which includes acting as a channel for information to flow between divisions/departments within an organisation
-Decision-making roles – the access to information that managers have enables them to use their formal authority to make decisions
204
What are the roles of a leader?
-creating a vision
-motivating staff
-empowering workers
-anticipating problems
-deciding on structures
205
What are the characteristics needed to be a leader?
-intellectual skills
-interpersonal skills
-realistic aspirations
-vision
-communicative skills
206
What is the MBO process?
1- Review objectives for the whole business (corporate objectives)
2- Set objectives for the management of the different functions of the business
3-Set objectives for individual departments and workers
4-Moniter progress (Managers and workers check to see if the objectives are being reached)
5- Evaluate performance and give reward if the objectives were reached
207
What are the advantages of MBO?
-Improved management control of the organisation
-Improved financial control
-It allows managers to be aware of their responsibilities
-The work of departments and managers is coordinated
-It can motivate the workforce
-It can improve communication systems within the organisation
208
What are the disadvantages of MBO?
-Management time is spent on the process of setting objectives rather than managing the organisation
-The ever-changing business environment or context in which the goals are set may change over time, making the objectives unrealistic
-Demotivation and breakdown of working relationships
-Objectives can be seen as a form of management control
209
What do theory x managers believe?
-Workers must be supervised or quality and quantity of output will fall
-Workers only respect the type of manager who tells them what to do and does so with complete authority
-Money is the only motivator
-Workers do not want to be involved in the decision-making process
-Workers wish to remain faceless and unknown to management
-Workers have little ambition
210
What are the consequences of theory x managers on the business?
-strict control of formal methods of communication
-tasks must be designed so they are broken down into their simplest units
-responsibilities must be clear and unambiguous
-supervisors must maintain quality
-high level of dependence on the decision-making of senior management
211
What do theory y managers believe?
-Workers cannot be motivated by money alone – they seek more than financial satisfaction from their jobs
-Workers are ambitious, willing to train and contribute to improve their chances of promotion
-Workers will be more efficient if they are left to their own devices – trust breeds responsibility
-Workers want to contribute to improving efficiency – they want to be seen, be noticed, rewarded and appreciated when they work well
212
What are the consequences of theory y managers on the business?
-requirement for training
-use of cell working – restructuring of production and service methods
-setting up of formal communication channels, with both vertical and lateral communication
-promotion structures
-flexible working practices
213
What are the different type of leadership styles?
-Autocratic leadership
-Paternalistic leadership
-Democratic or participative leadership
-Laissez-faire leadership
-Bureaucratic leadership
214
What is meant by an autocratic leadership?
-Full control of decision making
-Employees have little or no input
-Good in crisis situations
-Motivation through rewards or punishment
215
What is meant by a paternalistic leadership?
-Leader decides what is best for employees
-Similar to a parent/child relationship
-Still little delegation
-Typical paternalistic leader explains the specific reason as to why he/she has taken certain actions
216
What is meant by a democratic leadership?
-Encourages participation in decision making
-Strong coaching, listening and motivating skills
-Teamwork and communication is important
-Prepared to make final decision when agreement can’t be reached
217
What is meant by a Laissez-faire leadership?
-Gives employees as much freedom as possible
-Managers communicate goals to employees but allow them to choose how to complete objectives, make decisions and resolve problems on their own
218
What is meant by a bureaucratic leadership?
-Everything is done ‘by the book' or by the policy
-They reinforce the rules
-If it isn’t covered by the book, the manager refers to the next level above
219
Why has there been a gradual shift away from autocratic leadership?
-Changes in society’s values
-Better educated/skilled workforce
-Focus on need for soft HR skills
-Changing workplace organisation
-Greater workplace legislation (laws)
-Pressure for greater employee involvement
220
What is Fiedler’s contingency theory and his model?
-Believed that the quality of leadership was the most important factor affecting the success or failure of an organisation
-Fiedler’s model gives organisations a way to identify the best potential leaders for a particular situation, group of workers or task
-Fiedler did not believe that leaders were very good at changing or even adapting their style, making it difficult for them to alter their approach to suit changing circumstances
-Fiedler’s contingency model states that ‘the effectiveness of a group or an organisation depends on two interacting or “contingent” factors
-The first factor is the personality of the leaders which determines their leadership style
-The second factor is the amount of control and influence that the situation provides leaders over their group’s behaviour, the task and the outcome
221
What is the LPC scale?
-This scale was used to identify two types of leadership style
-The high LPC leader sees other people as relatively pleasant, industrious or sincere even if they find it difficult to work with them
-The low LPC person, who sees their co-workers in negative terms, is determined to get the job done and believes that a poor co-worker is bad in almost every possible respect
222
When are task orientated leaders effective in the case of an extremely favourable situation?
-when there is enormous trust, respect and confidence
-when the task is very clear
-when followers accept the leader’s power without question
223
When are task orientated leaders effective in the case of an extremely unfavourable situation?
-when trust and respect do not exist
-when the challenge people face is vague and undefined
-when the atmosphere is anarchic or even rebellious (for example, an emergency or crisis)
224
What is Wright and Taylors leadership theory?
-P. Wright and D. Taylor believed that a lot of leadership theory was theoretically correct, but did not actually show leaders how they could improve the way that they worked
-They believed that it is possible to improve a leader’s performance and that this could be done through education
-Believed that leadership is based around behaviour and not position power
-A good leader is the one that adapts to the needs of the employees and not the one that makes everyone to adapt to him/her
225
What is Wright and Taylor’s checklist for improving work performance?
1.What is the problem in behavioural terms? What precisely is the individual doing or not doing which is adversely influencing his or her performance?
2.Is the problem really serious enough to spend time and effort on?
3.What reasons might there be for the performance problem?
4.What actions might be taken to improve the situation?
5.Do you have sufficient information to select the most appropriate solutions?
6.Select most appropriate solution(s)
7.Is the solution worthwhile in cost benefit terms?
8.Could you have handled the problem better?
226
What are the possible reasons for the performance problem?
-Goal clarity
-Ability
-Task difficulty
-Intrinsic motivation
-Extrinsic motivation
-Feedback
-Resources
-Working conditions
227
What are the possible solutions for workforce performance?
-Goal clarity (Give guidance concerning expected goals and standards. set targets. MBO)
-Ability (Provide formal training. On the job training)
-Task difficulty (Simplify task, reduce workload, reduce time pressures)
-Intrinsic motivation (Redesign job to match job holders needs)
-Extrinsic motivation (Arrange positive consequences for good performance and zero or negative consequences for poor performance)
-Feedback (Provide or arrange feedback)
-Resources (Provide staff equipment, raw materials as appropriate)
-Working conditions (Improve light, heat, layout, remove distractions)
228
What is employee relations?
-The term used to describe the relationship between employers and employees
-Today’s interpretation of employee relations refers to individual as well as collective workplace relationship
229
What is a contract?
A contract is an agreement that sets out an employees employment conditions, rights, responsibilities and duties.
230
What is it illegal to discriminate anyone against?
-age
-being or becoming a transsexual person
-being married or in a civil partnership
-being pregnant or having a child
-disability
-race including colour, nationality, ethnic or national origin
-religion, belief or lack of religion/belief
-sex
-sexual orientation
231
What is direct discrimination?
Treating someone with a protected characteristic less favourably than others
232
What is indirect discrimination?
Putting rules or arrangements in place that apply to everyone, but that put someone with a protected characteristic at an unfair disadvantage
233
What is harassment?
Unwanted behaviour linked to a protected characteristic that violates someone’s dignity or creates an offensive environment for them
234
What is victimisation?
Treating someone unfairly because they have complained about discrimination or harassment
235
In the workplace, what does the law protect people against discrimination in relation to?
-dismissal
-imposition of unfair employment terms and conditions
-pay and benefits
-promotion and transfer opportunities
-opportunities for training
-recruitment
-redundancy
236
What are trade unions?
organisations that represent workers in a particular trade, industry or occupation
237
Why do people join unions?
-Representation
-Negotiation of pay and conditions with employers
-To help ensure high standards of health and safety
-Union members can benefit from a wide range of services which are not directly related to the workplace
-Unions support the development of equal opportunities policies
-Collective bargaining assists employers because it simplifies the process of negotiating with workers
-Trade unions can also help ensure that agreements are complied with by workers and can assist with communication between management and workers
-Trade unions are able to take a longer-term view than individuals and are therefore able to see why difficult decisions have to be made
238
What are the types of industrial action?
-An overtime ban (workers just work basic hours and refuse to do any extra work)
-A work-to-rule (workers stick very closely to every rule in the workplace, especially health and safety rules. This slows down production and reduces output)
-Strikes (a withdrawal of labour)
239
What is ACAS?
-Advisory, Conciliation and Arbitration Service (ACAS) is often used to help find a solution that is acceptable to both sides
-plays an important role in settling disputes but only has a role to play when it is invited by both sides to conciliate (offer and suggest solutions) or arbitrate (when ACAS’s solution will be accepted by both sides)
240
What is the conciliation process?
Involves an invited independent ACAS conciliator discussing disputed workplace issues with both parties in order to help them reach a better understanding of each other’s position and underlying interest. The impartial conciliator tries to encourage the parties in dispute to come to an agreement between themselves and so avoid the disruption and expense of progressing the dispute through industrial action
241
What is the arbitration process?
Involves an impartial ACAS advisor being asked to make a decision on a dispute. The arbitrator makes a firm decision on a case, based on the evidence presented by the parties. Arbitration is voluntary, so both sides must agree to go to arbitration; they should also agree in advance that they will abide by the arbitrator’s decision
242
What are the ways a business can add value?
-Purchasing cheaper raw materials
-Improving the efficiency
-Raising the price of the product
-Achieving brand status
-Offering additional services
-Improving customer access or convenience
243
What is the difference between added value and profit?
Added value is not to be confused with profit. Out of the £80 added value in this example the wages of the carpenter plus any overheads his business may have, such as transport and insurance, must be deducted
244
What are the 3 types of production?
-job production
-batch production
-flow or mass production
245
What is job production?
This method produces unique products and they are made one at a time
246
What is batch production?
This is the method which involves manufacturing a limited number of identical products. At each stage of the production process work will be completed for the whole batch before the next stage is begun
247
What is flow production?
Flow production involves the production of products on production lines. There is a continuous process – the product flows from one stage of production to the next
248
What is an advantage of job production?
-Customer requirements and changes can be handled.
-Associated with higher quality
-Employees can be better motivated, due to varied tasks - More job satisfaction
-A flexible production method.
-Production is easy to organise
249
What are the disadvantages of job production?
-Individual cost of one unit may be high
-Often labour intensive = High labour costs due to skilled workers
-Requires close consultation with the client
-Usually reliant on high skills
-Wide range of specialist tools may be required
-production may be slow- Longer lead times
250
What are the advantages of batch production?
-Workers are likely to specialise in one process
-Unit costs are lower because output is higher
-Production is flexible since different orders can be met
-More use of machinery is made
-Unexpected orders can be handled
251
What are the disadvantages of batch production?
-More complex machinery may be needed
-Careful planning and co-ordination is needed
-Less motivation because workers specialise
-If batches are small, costs will still be high
-Money may be tied up in work-in-progress
252
What are the advantages of flow production?
-Very low unit costs due to economies of scale
-Output can be produced very quickly
-Modern plant and machines can allow some flexibility
-Production speed can vary according to demand
-less need for training
253
What are the factors that dictate what type of production method will be used?
-the product being produced;
-the cost of labour;
-the cost of capital;
-the availability of money for investment;
-technology;
-the skills of labour;
-the size of the market;
-customer requirements.
254
What are the disadvantages of flow production?
-Products may be too standardised
-Huge set-up costs before production can begin
-Worker motivation can be very low- repetitive tasks
-Breaks in production can be very expensive
255
What is productivity?
Productivity is a measurement of the efficiency with which a business turns production inputs into output. Labour productivity (output per worker) is the most common measure of productivity
256
What is the formula for labour productivity?
Output (per period)/Number of employees (per period)
257
What is the formula for capital productivity?
Output/Capital employed
258
What are the advantages of high productivity?
-Increased economies of sale
-Increased competitiveness
-Spreading of fixed costs over higher output
-Lower unit costs
-Performance bonuses to workers - motivation
259
What is full capacity?
Full capacity means that all employed factors of production are being used to their optimum level of efficiency – producing the maximum level of output, given the business’s current investment levels
260
What is the formula for capacity utilisation?
(Actual output, max possible output) x 100
261
What are the problems of spare capacity?
-Increased cost of the business
-Reduced profits
-Lack of return on investment capital
-Failure to adapt to demand shifts
-stakeholders may view spare capacity as a sign of inefficiency or poor management
262
How can businesses resolve the problems of capacity underutilisation?
-subcontracting of production
-rationalisation
-increasing the use of assets
263
What is subcontracting of production and the benefits/drawbacks?
-This means getting someone else to produce the goods for you
- There is a reduction in risk to the business (achieved through a reduction in capital investment required) (+)
-. If the business is not making the goods it does not have to buy the machines to make the goods, lease the factory space or employ and train the workers (+)
- There is a lack of control – especially with regard to quality (-)
- if there are a limited number of potential subcontractors then prices of the goods can become prohibitively high (-)
- There can be delays in delivery, leading to customer dissatisfaction (-)
264
What is rationalisation and the benefits/drawbacks?
-This means concentrating on core products or services and disposing of those products or services that are not seen as profitable or necessary to the business’s long-term success
-There can be costs to rationalisation, such as writing down (reducing) the book value of assets, but it does allow management to concentrate and focus upon the business strengths (+/-)
- Some customers, especially business customers, who bought into the business’s whole package of products, may be less loyal when ‘one-stop shopping’ is not now available (-)
- Rationalisation also implies redundancy costs
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What are the problems at working at full capacity?
-lack of flexibility
-possible fall in quality
-pressure on staff
-more breakdowns and machine failures
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What are the most important technologies used in production today?
-CAD
-CAM
-IT
-robotics
-computer modelling
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What is CAD?
Computer-aided design is an interactive computer system which is capable of generating, storing and using computer graphics. It assists design engineers in solving design problems
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What are the benefits of using CAD and a drawback?
-Speeds up the design process
-Increases efficiency when it comes to altering design
-Can be used as a marketing tool
-Relatively cheap
-Skills are needed to use this tool (-)
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What is CAM?
Computer Aided Manufacturing (CAM) is the use of software and computer-controlled machinery to automate a manufacturing process
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What are the benefits and drawbacks of using CAM?
-Faster production process (+)
-Increases quality/consistency and is precise (+)
-Minimises waste (+)
-High initial costs (-)
-Increased wages for specialist workers (-)
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What is computer modelling?
With the right information input, computers can be used to model anything from wear and tear of a pair of shoes to the electricity generated from a wind turbine in different wind conditions. Use of modelling allows developers to try a huge range of ‘what if’ scenarios
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What are the uses of IT?
-IT is used in a number of ways throughout the process of businesses increasing their productivity
-Most businesses have a web presence
-The internet allows a much wider geographical market to be targeted, cheaper advertising and improved customer convenience
-Information gathered from browsing and purchasing habits allows sophisticated targeted marketing to take place, generating potential sales automatically
-Communications technology allows flexibility in the location of services and customer relations centres
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What are the advantages to a business using technology?
-Improved quality
-Faster innovation
-More effective marketing and sales
-Less dependency on labour
-Technology increases productivity, reduces waste and costs, and improves communications for a business
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What is lean production?
The idea of lean production encompasses theories of modern Japanese industrial management that are all designed to achieve the reduction and removal of waste within a business
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What are some elements of waste within a business?
-raw materials lying around unused
-work in progress which is sitting in parts bins waiting to be used in production
-the finished product sitting in a warehouse waiting to be delivered to customers
-skills and knowledge of workers not being used by management
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What are the most important parts in an effective lean production system?
-Just-in-time
-Kaizen
-Cell production
-Time-based management methods
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What is JIT?
A method of lean production that aims to ensure that inputs into the production process only arrive when they are needed?
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What tools or features are needed for JIT to be successfully incorporated?
-Good supplier relationships
-customer relationships
-Higher employee involvement
-kanban (inventory control system)
-management understanding
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What are the objectives of JIT?
-Elimination of waste in production
-Improved productivity
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What are the benefits of JIT?
-Lower stock holding means a reduction in storage space which saves rent and insurance costs
-As stock is only obtained when it is needed, less working capital is tied up in stock
-Less likelihood of stock perishing, becoming obsolete or out of date
-Less time spent on checking and re-working production as the emphasis is on getting the work right the first time
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What are the drawbacks of JIT?
-There is little room for mistakes as minimal stock is kept for re-working faulty product
-Production is highly reliant on suppliers and if stock is not delivered on time, the whole production schedule could be delayed
-There is no spare finished product available to meet unexpected orders, because all product is made to meet actual orders
-A need for complex, specialist stock systems
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What is kaizen?
Kaizen is a Japanese word meaning continuous improvement
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What are the key elements of kaizen?
-Effective communication systems
-A management with belief in the capabilities of the workforce
-A trained workforce
-Security of jobs
-Management must have a clear understanding of the production processes in order that they can organise, control and plan appropriately
-All employees, from the managing director down to the shop floor workers, should be asking questions such as ‘how can I do what I do better?’ or ‘how can we do what we do better?
-Kaizen does not ignore the need for new technology or large-scale capital investment; however, it does recognise that these are not the only methods of achieving increased competitiveness
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What are the benefits of kaizen?
-improved labour relations
-increased competitiveness
-reduction in waste
-less large-scale investment
-improved motivation
-increased productivity
-improved quality
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What is cell production?
-The production line is subdivided into a number of cells
-These cells are groups of workers involved in related tasks
-The workers are trained so that they can fulfil a number of tasks within the cell, and this allows job rotation
-The skills of the workers mean that they can each play a role in improving quality, and also creating flexibility in the production process
-communication is improved, and the job enrichment and enlargement elements of cell design improve motivation
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What is time based management?
-With time-based management, emphasis is placed on reducing time taken in all aspects of the production process
-It involves concepts such as just-in-time, the use of CAD (computer-aided design) and CAM (computer-aided manufacture), critical path analysis and simultaneous engineering
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What is quality?
-Quality is often defined simply as ‘fitness for purpose’
-The features of a product or service that allows it to satisfy customers’ wants
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What are tangible measures of quality?
-reliability
-Functions and features
-Support levels and standards
-Cost of ownership
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What are intangible measures of quality?
-Brand image
-Exclusiveness
-Market reputation
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What are the benefits of quality?
-increased sales
-reduced costs
-reduced waste
-market orientation
-customer satisfaction
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Which departments work to achieve quality?
-Purchasing
-Operations
-Finance
-Human resources
-Marketing
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What is quality assurance?
A guarantee given by producers to consumers that certain standards have been met throughout the production process. Legal standards have been met and/or codes of practice have been followed.
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What are the number of methods used for quality assurance?
-recognised standards
-bench marking
-product design checking
-production control
-team working
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What does production control involve?
-monitoring of costs through use of budgeting and variance analysis
-control of operations through use of critical path analysis and monitoring of individual processes
-supervision of output (now largely replaced by cell and teamwork)
-feedback methods, involving the monitoring of customer satisfaction, and the feedback of problems to the relevant department
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What is TQM?
-Total quality management is an operations management system that creates structures within an organisation that satisfy internal and external customers and suppliers
-It creates quality through continuous improvement, development of systems and products, and by creating an organisational culture of quality
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What does the T stand for (TQM)?
T stands for total – it is the integration of the staff, suppliers, customers and other stakeholders
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What does the M stand for (TQM)?
M stands for management – the need is for management to improve processes and to monitor them continually in order to identify improvement opportunities
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What does the Q stand for (TQM)?
Q stands for quality – quality can be the speed in which a service is delivered. It can be:
-consistency
-innovation
-reflected in low maintenance or favourable repair history
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What production management and control methods need to be used for TQM to be effective?
-Quality chains
-Empowerment
-Monitoring
-Team work
-Quality circles
-Zero defects
-Benchmarks
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What are the key aspects of stock management?
-Businesses must ensure that stock is available for use within the manufacturing process as and when it is needed
-Part-finished goods (work in progress) do not sit around the factory floor unused and losing value; instead, they are brought to the next stage as soon as possible
-Finished goods are available for timely delivery to customers and are not made until customers are found for them.
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What is the reorder level?
the level of stock at which a new order is placed
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What is the reorder quantity?
The quantity ordered in order to return the stockholding to maximum level – measured by the difference between the maximum and minimum stock holding levels
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What is lead time?
The amount of time that elapses between placing an order and the delivery of that order
304
What is buffer stock?
The amount of stock held between the minimum stock holding and zero stock. Used in case of late deliveries or extra orders
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What is computerised stock control?
Businesses today hold their stock details on computer databases. This improves efficiency and accuracy. When the quantity of stock decreases or increases, the database is updated instantly, which allows for accurate stock checks and the automatic reordering of stock if the level falls below the reorder level
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What are the advantages of effective stock management?
-Reduction in working capital
-Improved relationships with customers
-Freeing of storage space
-Less stock wastage and discounting
-Easier stock rotation
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What are the consequences of not having enough stock?
-Production of that model will have to cease and production schedules reorganised
-Employees may have to be laid off and sent home if alternative work cannot be found
-Orders may be late and the firm's reputation may be damaged
-Orders may be cancelled and profits may fall
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What are the consequences of having too much stock?
High costs – storage, insurance, lighting, refrigeration, handling, security, warehouse staff wages, etc.
-Takes up space that may be more productively used e.g. better factory layout.
-Opportunity cost – money is tied up and could be more effectively used elsewhere in the business. Loss of interest if in bank account
-Could be left with stocks if they cannot be sold due to unexpected change in demand.
-Stock may become obsolete if superseded by newer, better product.
-Theft may occur – employees may feel that theft from large stocks may not be so readily noticed.
-Stocks can be damaged – temperature, vermin, mishandling, etc
-Health and safety issues - danger to staff through accidents etc
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What is research and development?
Research and development (R&D) is essential today for businesses to compete in a dynamic marketplace. It involves identifying new ideas and turning them into products, services and processes. Businesses who invest in R&D are considered to be innovative and always looking to bring new ideas and products to the market
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What is research?
Research is the inquiry into, and discovery of, new ideas
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What is pure research?
Research just to find out how or why, with no product objective. This type of research is often carried out by universities or research institutes
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What is laboratory research?
For example, the testing of new pharmaceutical compounds on animals
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What is brainstorming?
Using discussion groups – thinking outside of the box, novel ideas for solving existing problems, etc
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What is the evaluation of an existing product?
Looking into if there are any problems with this product and how can such problems be resolved?
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What is development?
The process that changes ideas, which result from the research process into commercially viable products or processes
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What is innovation?
The commercial exploitation of an invention
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What is product innovation?
Bringing a new idea to the marketplace
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What is process innovation?
bringing a new idea to the workplace
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What is the process of research and development?
1.Identification of problem
2.Research
3.Development of ideas and solutions to solve the problem
4.Development of prototypes
5.Final design
6.Testing
7.Manufacturing and launch
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What are the benefits of research and development?
-R&D can lead to the development of new products, which may give a business a competitive edge
-Important because it creates new/innovative products that may appeal to consumers – may have positive impact on image
-Improved working environments. New machinery can be developed, which may cut costs and raise productivity
-Improved image
-Can motivate employees – may help to satisfy their higher order needs. May create optimism and give the organisation a positive feel
-Increased sales - consumers benefit from a wider variety of goods and services
-Important because it helps to adapt products to new technology, such as microwaveable food
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What are economies of scale?
The reduction in average costs of production that occur as a business increases its scale of production
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What is meant by the short/long run average costs?
In the short run, costs can be both variable and fixed, but in the long run all costs become variable. For example, rent negotiated over a 12 month contract is a fixed cost in the short run – i.e. it does not alter in relation to changes in demand or output. However, if rent rises after 12 months, then it too is regarded as a variable cost. It is this switch to all costs becoming variable that separates the short run from the long run.
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What are the 5 types of internal economies of scale?
-purchasing
-managerial
-financial
-marketing
-technical
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What is purchasing economies of scale?
As businesses grow, they increase the size of orders for raw materials or components – this may then result in discounts being given and the cost of each individual component purchased will fall
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What is managerial economies of scale?
Able to employ specialist staff, e.g. accountants – likely to work more efficiently and thereby reduce the average costs of producing
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What is financial economies of scale?
Easier to access loans as are able to offer security – negotiate more favourable rates of interest
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What is marketing economies of scale?
As businesses grow, each pound (£) spent on advertising will have greater benefit for the business – the advertising costs are spread over more units
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What is technical economies of scale?
Machinery allows products to be made/jobs to be performed quicker – more use of division of labour/specialisation
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What are the 3 external economies of scale?
-Supplier
-Education
-Financial
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What is supplier economies of scale?
A network of suppliers may be attracted to an area where a particular industry is growing. The setting up locally of supplier businesses, often in competition with one another, reduces buying costs and allows the use of systems such as just-in-time
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What is educational economies of scale?
local colleges will set up training schemes suited to the largest employers’ needs, giving an available pool of skilled labour. This reduces recruitment and training costs for those businesses who make up the industry concerned
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What is financial economies of scale?
Financial services can improve, with banks and other financial institutions providing services that may be particularly geared towards a given industry. For example, for an industry where cash flow may be a particular problem, debt factoring services may be made available at competitive rates
333
What are internal economies?
Highlight the advantages that a business obtains due to the use of modern techniques
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What are external economies?
Advantages that a business obtains because of external factors
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What are diseconomies of scale?
The factors that cause higher costs per unit of output when the scale of an organisation continues to increase – the causes of inefficiency in large organisations
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What are the 3 main internal types of diseconomies of scale?
-Communication
-Commitment/motivation
-Co-ordination
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What is meant by the communication diseconomies of scale?
As an organisation grows and levels of hierarchy increase, the efficiency and effectiveness of communication breaks down. This leads to an increase in misunderstanding and inefficiency as each level of hierarchy grows further and further apart and messages become distorted, resulting in increasing average costs
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What is meant by the commitment/motivation diseconomies of scale?
With larger businesses it is harder to satisfy and motivate workers as many may feel that their views are ignored because of how distanced they are from the organisation’s decision makers. This means that they may not give their best as they are not focused on the organisation’s aims and objectives
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What is meant by the co-ordination diseconomies of scale?
The larger an organisation becomes, the more difficult it is to coordinate. Inevitably, there is a good deal of delegation and this empowerment of more and more managers to make their own decisions can result in different departments heading in different directions. To counter this, numerous management meetings have to be held. The time that managers spend in meetings, in an attempt to ensure better coordination within large organisations, can be viewed as a significant overhead cost
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What are the 2 external diseconomies of scale?
-Overcrowding in industrial areas
-Increased price of resources
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What is the overcrowding in industrial areas diseconomies of scale?
Traffic congestion may occur, resulting in late deliveries and staff arriving late for work. Local residents may resent this and therefore public relations could suffer
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What is the increased price of resources diseconomies of scale?
More businesses in an area means increased demand for labour to work in that industry and the best employees may be harder to recruit and keep. Land, services and materials may all become more expensive as the industry grows and demand for such resources increases
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Why do small firms continue to survive?
-They are able to provide a personal service,something that is very difficult to do in large organisations
-Some entrepreneurs are simply happy to remain as a small business
-They can be a lot more flexible in some circumstances
-Target market size
-Serving the local community
-They are often easy to set up
-Customer loyalty
-Small businesses often serve niche markets
