Understanding Business

Question 1

What is a private limited company

Answer 1

•has a limited liability
•controlled by board of directors
•owned by shareholders
•are invited to buy stocks

Question 2

What is a public limited company?

Answer 2

•owned by shareholders
•shares are sold on stock exchange
•limited liability
•minimum 1 director
•£50,000 min start up cost

Question 3

What is a multi national company?

Answer 3

A multi national company (MNC) is a business which owns or controls production or service facilities in more than one country

Question 4

Advantages of home country of a multi national company?

Answer 4

•cheaper labour
•cheaper raw materials
•tax relief
•retain core workforce
•economies of scale
•avoid differing legal requirements
•reduced transport time

Question 5

Disadvantages of home country of multi national company?

Answer 5

•create language barrier
•differing finical requirements
•exchange rates
•time difference
•legislation differences
•cultural differences

Question 6

Advantages of a franchisee?

Answer 6

•less risk as brand is already established
•provided with training and support
•start up costs are known in advance

Question 7

Disadvantages of a franchisee?

Answer 7

•royalty payment and annual profit share given to franchiser
•strict rules have to be followed so no room for creativity
•legal contract may not be renewable

Question 8

Advantages of a franchiser?

Answer 8

•provides growth for brand without heavy investment
•receive a percentage of franchisee profits
•quick method to reach more geographical areas

Question 9

Disadvantages of a franchiser?

Answer 9

•some control of brand image is lost
•reputation will depend on all outlets including the franchisee’s
•franchisee’s need to be provided with training and support

Question 10

What are the objectives of a private sector organisation?

Answer 10

•maximise profits
•growth
•sales
•satisfaction
•managerial objectives
Corporate social responsibility

Question 11

What are the 8 methods of growth?

Answer 11

•forward vertical integration
•backward vertical integration
•horizontal integration
•internal/organic growth
•lateral integration
•conglomerate integration
•merger
•takeover

Question 12

What is backwards and forwards vertical integration?

Answer 12

•Backwards vertical integration is when you buy your supplier.

•Forwards vertical integration is when you buy the business that sells your product

Question 13

What is horizontal integration and internal/organic growth?

Answer 13

•Horizontal integration is the combining of two firms who operate at the same stage of production

•Internal/Organic growth is when a business grows expanding sales or operations which is financed through internal growth

Question 14

What is a Merger or a Takeover?

Answer 14

•A merger is when two or more firms join together after they agree

•A takeover is when one business buys the majority of the others shareholding

Question 15

What is conglomerate and Lateral integration?

Answer 15

•Conglomerate integration is the combining of firms in completely different markets

•Lateral integration is the combining of a business that have similar or related products

Question 16

What are advantages of outsourcing?

Answer 16

•May be cheaper due to economies of scale
•less equipment as company will provide their own
•organisation only pays for when activity is required
•allows organisations to concentrate on its core activities
•reduces costs as no staff need to be employed for specific aspects
•work should be a high quality as you can use specialist firms

Question 17

Disadvantages of outsourcing?

Answer 17

•organisation can lose some control over the business
•sensitive information may be passed to the organisation
•may be more expensive as the organisation also need to make a profit
•job completed might not be to the highest standard
•firms might take a long time to complete their tasks
•mistakes may arise due to lack of communication

Question 18

Why do businesses have conflict?

Answer 18

•Mangers want to increase influence when shareholders want to keep control of the business

•Mangers want employees to work overtime whereas employees want good working conditions

•Mangers want high profits and bonuses whereas employees want a fair pay

•Mangers want to focus on personal objectives whereas shareholders want high profits

•shareholders want high dividends whereas costumers want a good price for the product their purchasing

•shareholders want high dividends whereas employees want a fair wage

Question 19

What interdependence does a business have?

Answer 19

•Shareholders need employees to produce high quality products whereas employees need them to pay their wage

•Shareholders need managers to improve profitability whereas managers need job security

•Shareholders need costumers to buy products whereas costumers need high quality products

•Shareholders needs the supplier to have high quality raw materials whereas supplier needs regular orders

Question 20

What does PESTEC stand for?

Answer 20

•Political
•Economic
•social
•Technological
•Environmental
•Competitive

Question 21

What is the Monetary policy?

Answer 21

Deals with settling interest rates and controlling the supply of money in the economy

Question 22

What is the Fiscal policy?

Answer 22

Deals with government actions regarding taxation+ government spending

Question 23

What is delayering?

Answer 23

Delayering is removing levels of management from a tall structure to create a flatter structure

Question 24

Advantages of delayering?

Answer 24

•Finance saving on salaries as less staff
•quicker decision making
•more responsive to change and are able to pass on information quicker

Question 25

Disadvantages of delayering?

Answer 25

•fewer promotional opportunities •redundant costs are initially high •may lose key sales or members of staff

Question 26

What is a tall structure?

Answer 26

A tall structure is when managers have a narrow span of control and they’re are lots of empty +clear roles in the business +good for idea generation -high managerial cost as lots of staff -commutation can be misunderstood

Question 27

What is a flat structure?

Answer 27

A flat structure is when managers have control of lots of employees at once +quicker and clearer communication +clear roles in business +lower wage costs -not as many mangers to make big decisions in company -less ideas can be generated

Question 28

What is a entrepreneurial structure?

Answer 28

A entrepreneurial structure is when all decisions are made by one or two owners +clear roles in business +cheaper wage costs as not as many managers -not many ideas can be generated

Question 29

What is the matrix structure?

Answer 29

A matrix structure is when employees work closely together and individuals tell supervisors or leaders +flexibility between departments +open clear communication -managerial roles may not be clear - to much work can cause overload

Question 30

What is a centralised structure?

Answer 30

A centralised structure is when all decisions are made at the top of the structure or head office +consistency across the business +business has clear direction +clear roles -can demotivate employees -may lower production

Question 31

What is a decentralised structure?

Answer 31

A decentralised structure is when middle or low managers make most of the decisions +decisions made quickly +upper managers can focus on long term goals +employees feel empowered -waste of resources -emergency decisions cant be made -lack of qualified managers

Question 32

What is a strategical decision?

Answer 32

•long term decision •set the overall aim and direction of the business •they are set by senior managers •they are to increase market share •high risk

Question 33

What is a tactical decision?

Answer 33

•medium term decision •taken to help achieve the strategic decisions •are set by middle managers •open a new brand •medium risk

Question 34

What is a operational decision?

Answer 34

•short term decision •made to deal with changing circumstances •set by supervisors or employees •to deal with staff absence •low risk