understanding business Flashcards
1
Q
sectors of industry
A
- primary - extracts raw materials or natural resources from the land
- secondary sector - manufactures goods, using raw materials and converts them into new products
- tertiary sector of industry is made up of services
- quaternary sector consists of those industries providing information services, such as computing, ICT (information and communication technologies), consultancy (offering advice to businesses) and R&D (research, particularly in scientific fields).
2
Q
sectors of economy
A
- private sector organisations are owned and controlled by private individuals. Their primary aims are to survive and make a profit.
- public sector organisations are owned and controlled by the government. They aim to provide a service to the public and are funded by taxes.
- third sector organisations are set up to help a cause or provide a service to members. They aim to raise money and increase awareness for good causes.
3
Q
multinations
advantages
A
- access to a wider market > producing overseas expands the market the company’s product and leads to increased sales revenue, market share and increased profitability.
- producing overseas increases brand awareness beyond the home country.
- cheaper production costs > the cost of land and labour is cheaper in developing countries, eg lower wage rates.
4
Q
multinational
disadvantages
A
- much overseas production work is deskilled jobs that may be low-paid, repetitive assembly line work. This does not benefit the host country in the long term.
- profits are not retained in the host country, for example, profits made by Apple from production to Vietnam would still go back to HQ in California.
- relaxed legislation may lead to cutting corners, for example health and safety laws.
5
Q
franchisee
advantages
A
- faster growth > for small business owners, franchising is a way to expand more quickly and cost-effectively than opening further company outlets.
- lower risk > opening a franchise is usually less risky than setting up as an independent retailer. The franchisee is adopting a proven business model and selling a well-known product in a new local branch.
- lower capital outlay > once the model is established, expansion comes mainly through the investment of franchisees, meaning it costs much less to grow.
6
Q
franchisee
disadvantages
A
- the more franchises opened, the less control the franchisor has over the quality and consistency of the brand. Most franchisors put legal safeguards in place to maintain brand control, consistency and protection.
- poor performance by some franchisees could give the brand a bad reputation.
- costs may be higher for the franchisee. As well as the initial costs of buying the franchise, they have to pay continuing management service fees to the franchisor.
7
Q
benefits of growth
A
- bigger businesses benefit from economies of scale which gives then competitive advantage over smaller businesses
- economies of scale means lower unit costs of production
- lower unit costs enables the business to charge lower prices and increase sales and market share
8
Q
what is organic growth
A
organic growth means the business grows naturally by expanding its sales or its operations
9
Q
how can a business grow organically / internally
A
- hiring more staff and equipment to increase its output.
- opening new outlets or selling in a different location.
- developing or introducing new product
10
Q
organic growth
advantages
A
- no loss of control.
- new staff can bring new ideas and experience.
- introducing new products can reach different markets.
- less risky than a takeover.
11
Q
organic growth
disadvantages
A
- can be a slow method of growth.
- may be limited by the size of the market.
- finance to grow organically may be limited.
12
Q
what is horizontal intergration
A
horizontal integration is where two or more businesses agree to join together to become one larger firm
13
Q
horizontal integration
advnatges
A
- reduces competition if the acquired business is a rival in the market.
- can result in economies of scale, which reduces unit costs.
- increases market share which means the business can charge higher prices.
14
Q
horizontal integration
disadvantages
A
- dis economies of scale may occur if the business becomes too large, which leads to higher unit costs.
- clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration.
- may need to make some workers redundant, especially at management levels – this may have an adverse effect on motivation.
15
Q
what is vertical integration
A
Vertical integration occurs when a business takes over another business buy buying its assets or operations (usually called Acquisition).
16
Q
what is forward vertical integration
A
forward vertical integration is when a business takes over a company at a later stage in the production process
17
Q
forward vertical integration
advantages
A
- guarantees a market to sell a product
- guarantees the quality of inputs and supply of stock
- cuts out the middle man leading to higher profits.
18
Q
forward vertical integration
disadvantages
A
- integration can take time and resources away from core activities.
- dis economies of scale may occur if the business becomes too large, which leads to higher unit costs.
- clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration.
19
Q
what is backward vertical integration
A
backward vertical integration is when the business takes over a company at an earlier stage in the production process
20
Q
what is diversification
A
diversification happens when firms move into new markets that are different from their core business. there are two types of diversification.
21
Q
diversification
advantages
A
- spreads risk across different markets
- new markets can increase the customer bases
- business gains customers and assets from the business taken over
- acquisitions can result in new knowledge, skills and experience
22
Q
diversification
disadvantages
A
- integration can take time and resources away from core activities.
- dis economies of scale may occur if the business becomes too large, which leads to higher unit costs.
- acquisitions can result in job losses, harming motivation and morale.
23
Q
what is conglomerate integration
A
conglomerate integration is when a business moves into an entirely different market
24
Q
what is lateral integration
A
lateral integration is when a business moves into a different market but within a related industry
25
methods of funding growth
retained profit
- retained profit is when a business can decide not to distribute profit to its shareholders and use it to reinvest into the business.
26
methods of funding growth
divestment
divestment is where a business sells off an asset to raise finances to grow.
27
methods of funding growth
asset stripping
asset stripping is when a business is purchased for the value of its assets which are then sold for profit.
28
methods of funding growth
buy in
buy in is when managers not employed by the firm purchase the business as they believe they can run it more profitably.
29
methods of funding growth
buy out
buy out is when managers or employees who are currently employed by the business purchase the business from the owners.
30
ways of establishing corporate culture
- staff uniforms
- the corporate logo and colour scheme
- the organisation’s mission statement and values
- company policies
Incentives and rewards for staff
31
benefits of corporate culture
- happier, more contented staff who identify with the organisation
- lower staff turnover/absences
- values/beliefs/perks can attract quality staff which results in a better quality service
- use of relaxed and informal language means staff feel comfortable working there and perform well
32
entrepreneurial organisational structure
small businesses use this structure.
decisions made by a few people, normally the owner.
33
entrepreneurial organisational structure
advantages
- decisions made quickly.
- staff know who they are accountable to.
- decision-maker does not need to consult staff.
34
entrepreneurial organisational structure
disadvantages
- can cause stress and inefficiency
- can create a heavy workload for
decision-makers.
- can stifle other staff’s initiatives.
35
tall structure
- many levels of management.
- managers have narrow span of control.
- long chain of command.
- time consuming for
instructions to be passed.
36
tall structure
advantages
- more promotion opportunities
- employees will know immediate boss
- clear lines of responsibility and
communication
37
tall structure
disadvantages
- many layers of communication
- slow decision-making
- high labour costs due to many levels
of management.
38
flat structure
- few levels of management
- shorter chain of command
- managers have wider
spans of control
- quicker decision-making
39
flat structure
advantages
- employees have more authority and
responsibility
- decision-making is quicker
- communication channels less
complicated.
40
flat structure
disadvantages
- employees have greater workload
- fewer promotion opportunities
- if span of control is too wide people
may feel isolated or ignored.
41
delayering
this involves the cutting out of levels of management within the organisation. this flattens the structure.
42
delayering
advantages
- money is saved on paying salaries of management
- quicker decision-making and communication
- more responsive to changes in the market
- wider span of control
43
delayering
disadvantages
- fewer promotion opportunities for staff
- redundancy payments will cost a significant amount of money
- organisation could lose key members of staff in the reorganisation
44
matrix structure
a project team created to carry out a specific task. team members come
from different functional areas, have a specific skill set. everyone has the same level of responsibility
45
matrix structure
advantages
- increased experience.
- good motivation and job satisfaction.
- good for tackling complex problems.
46
matrix structure
disadvantages
- expensive to have many teams
- co-ordination problems.
- confusion as to who reports to whom.
47
centralised structures
control and decision-making lie
with top management in
head office (HQ)
48
centralised structures
advantages
- decisions can be made for whole
organisation.
- easier to promote corporate image.
- can benefit from economies of scale
49
centralised structures
disadvantages
- slower decision-making.
- slower communication.
- less room for staff initiative.
50
decentralised structures
decision making is quicker and business is more responsive to change. control and decision-making are delegated to departments. relieves senior management from routine, day-to-day tasks.
51
decentralised structures
advantages
- motivates staff & empowers staff.
- decisions can match local needs.
- business can react quickly to changing external factors
52
decentralised structures
disadvantages
- decisions may differ from other
branches.
- transfer of staff may lead to confusion due to different practices.
- less supervision.
53
functional groupings
departments where staff have similar skills and expertise, and do similar jobs. functional grouping usually consists of marketing, finance, human resources and operations.
54
functional groupings
advantages
- allow specialisation.
- clear organisational structure.
- staff are aware of formal
relationships.
55
functional groupings
disadvantages
- organisation may become too large and uncontrollable.
- may be unresponsive to change.
- departments may compete against each other.
56
product / service groupings
divisions/departments where each deals with a different product or product range.
57
product / service groupings
advantages
- each division self-contained.
- more responsive to customer changes in tastes/fashions.
- easier to identify low sales in products.
58
product / service groupings
disadvantages
- duplication of effort.
- divisions may be competing with
each other.
59
customer groupings
customer groups are divisions dealing with different types of customers. may have different divisions based on distribution, eg retail, online and international.
60
customer groupings
advantages
- each division has varying customer
needs.
- customer loyalty can build due to personal touch.
- can respond quickly to customer needs or changes in taste.
61
customer groupings
disadvantages
- expensive due to higher staff costs.
- duplication of effort.
- when key staff leave, personal relationship is lost.
62
location / geographical groupings
staff divided into divisions, each dealing with a geographic area, eg South, West, North, Scotland.
63
location / geographical groupings
advantages
- can cater for different local, regional, national tastes.
- more responsive to customer needs.
64
location / geographical groupings
disadvantages
- duplication of efforts
65
downsizing
this involves the removal of certain areas of the organisation’s activities that are not directly linked to the core activities. this could be the closure of a branch, a factory or a division to respond to external factors.
66
downsizing advantages
- costs are cut eg wages and rent
-he business is leaner
(more efficient) and can
become more competitive
67
downsizing disadvantages
Valuable skills and
knowledge are lost when
redundancies are made
Remaining staff feel
vulnerable and are
demotivated
68
strategic decisions
- long-term decisions which set the aims of the business and will affect it far into the future
- they don’t go into detail about how these aims will be achieved
- carry a large financial risk
- made by senior management
69
tactical decisions
- medium term decisions taken to achieve the strategic aims
- they go into detail about what resources will be needed and how these will be used
- still likely to have long term consequences
- some degree of financial risk
- made by senior or middle management
70
operational decisions
- day-to-day decisions which are often made automatically without a great deal of thought.
- made in response to minor problems
- low financial risk
- made by junior management/supervisors or even
individual workers
71
roles of a manager
- plan > looking ahead and anticipating opportunities or
threats and devising solutions
- organise > ensuring all the resources an organisation
needs are there when required
- command > telling staff what to do and motivating, leading them
Communicate - ensuring all staff are informed of
decisions and the reasons for them
Coordinate - making sure everyone is pulling together
towards the same goals and people are not doing the
same work
