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Flashcards in Understanding business Deck (95):

what are the 4 factors of production



what are the 4 sectors of industry

primary sector
secondary sector
tertiary sector
quaternary sector


what are the 3 types of business organisations

private sector (private individuals and investors)
public-sector (government ie: moray council)
third sector (charities)


3 advantages of a private limited company

shareholders have limited liability

control of company not lost to outsiders

more finance can be raised from shareholders and lenders


3 disadvantages of a private limited company

profits must be shared amongst more people(shareholders dividends issued)

A legal process is required to set up a private limited company(LTD)

(raising finance can be difficult as) shares cannot be sold to the public


What are the 3 sectors of economy

1:Private sector (profit making businesses)

2: public sector (government)

3:third sector (charities)


3 advantages of public limited companies

1: shareholders have limited liability

2: large amounts of finance can be raised due to use of public sales through shares

3: easy to borrow finance due to PLCs size and reputation


3 disadvantages of a public limited company

1: dividends are shared with many shareholders

2: setting up a PLC is costly and complicated

3: control of the business can be lost as anyone can buy shares on the stock market


What is 4 statements describing a public limited company

PLCs owned by shareholders

Who have limited liability

Controlled by a board of directors

Can sell shares publicly unlike LTDs


What is 4 statements that describe a private limited company

Have limited liability

Owners of the company are shareholders

Shares are not available to the general public

They share ownership of business with others


What is 3 statements that describe a franchise

Business model allows businesses to use their brand name

Franchiser=original business owner

Franchisee=owner of each individual branches


2 advantages of a franchiser

Low risk form of growth as franchisee invests majority of capital

Receives a percentage of all franchisees profits yearly(royalties)


2 disadvantages of a franchiser

Reputation of whole franchise can be lost due to one bad franchisee

Only a share of profits are received yearly not all profits


3 advantages of a franchisee

Well known business with an existing customer base

Industry knowledge and training is provided by franchiser

Franchisee benefits from national advertising from franchiser


3 disadvantages of a franchisee

Very little autonomy over decisions as franchiser decides

Royalties have to be paid yearly

High initial start up fees


3 statements describing a multi national company

A business that operates in more than one country

Most multinationals are limited company’s

Head offices usually based in home country


3 advantages of multi national companies

Wages and raw materials cost less in host countries

Business can avoid legislation in home country

Grants can be issued by governments to locate in their county


3 disadvantages of multi national companies

Language barriers can slow down communication

Cultural differences can affect production (siestas in Spain)

Exchange rates can affect purchasing and paying expenses in different countries


3 statements that describe public sector businesses

Uk government providing national services (NHS, police)

Gain finance through tax payments

Aim to provide a quality service


3 statements that describe third sector

Set up to raise money to benefit others

Raise finance through donations fundraising

No individual owner set up as a trust


3 advantages of a charity

Charities are exempt from paying some taxes such as VAT

Low wage costs due to volunteers working for free

Private companies more willing to donate and sponsor charities due to good PR


2 disadvantages of a charity

Can be difficult to compete with large marketing budgets of organisations within private sector

Charities rely heavily on volunteers who may leave for paid work


What is 2 statements that describe voluntary organisations

Aim to provide service for local community

Raise finance through membership subscriptions


2 statements that describe social enterprises

Organisations that aim to make a profit to benefit a specific group or cause

Operate as a private sector business in that they can be owned by one person partnership or shareholders


2 advantages of a social enterprise

Employees that believe in the social mission are attracted to organisation

Likely to receive grants due to their positive impact on society


What are 4 objectives

Maximising profits


Provide a quality service

Increase market share


3 advantages of growth

Reduces risk of failure

Increases profits

Avoids being taken over


5 methods of internal growth

Launching new products

Opening new branches/ expansion

Introducing e-commerce

Hiring more staff

Increased product capacity


What is integration

Integration is two businesses becoming one there are two ways in which this can happen

Takeover( one buys another business)

Merger ( two businesses join forces becoming one)


3 advantages of integration

Risk of failure is spread

Competition is reduced increasing sales

Buying business gains market share and resources of taken over business


3 disadvantages of integration

can lead to job loss due to buying business wants its own management/employees

Change of name can put off loyal customers of the taken over business

Can be expensive to acquire another business


3 advantages of merger

Market share and resources are shared which can spread risk and increase profits

Jobs are more likely to be spared unlike takeovers

Each business can bring different expertise to merger


3 disadvantages of merger

Customers may dislike the changes merger may bring (new logo)

Marketing campaigns to inform customers of change can be expensive

Can be bad for customers as less completion means higher prices


What is horizontal integration

It occurs when two businesses from same sector of industry become one


3 advantages of horizontal integration

Competition will be reduced due to the joining of businesses

New business can benefit from economies of sale (buying in bulk to reduce sales)

Due to reduced competition new larger businesses prices can be raised increasing profits


3 disadvantages of horizontal integration

Merger/ takeover may breach EU rules

Quality may suffer due to lack of competition

Customers may have to pay higher prices for the same goods


What is forward vertical integration

When two businesses from different sectors become one business

One of the businesses being in a later sector (ie htc taking over carphone warehouse)

Normally a secondary business would sell goods to a tertiary business (mobile phone manufacturer sells to phone retailer)


What is backward vertical integration

Business takeover/ merge with a business in an earlier sector of industry (takeover their supplier)

(Starbucks taking over coffee bean plant)


2 advantages of forward vertical integration

The business can control supply of their products and choose to not supply to competitors

Can increase profits by (cutting out the middle man)


3 advantages of backward vertical integration

Guaranteed and timely supply of stock

No need to pay supplier their marked up prices so supply’s is cheaper

Quality of supplies can be strictly controlled


3 disadvantages of backward vertical and forward vertical integration

Company may be incapable to f managing new activities effectively meaning higher costs

Focusing on new activities can adversely affect core activities

Monopolising markets may have legal repercussions


What is conglomerate integration

It occurs when businesses in different markets join together

This is done primarily to spread risk of failure


3 advantages of conglomerate integration

The business is larger therefore more financially secure

The buyer acquires the assets of the other company

Can overcome seasonal fluctuations in their markets and have more consistent year round sales


3 disadvantages of conglomerate integration

One business may take on another in a market they know nothing about may cause failure

Business May become too large and inefficient to manage

Having to many products can cause the company to lose focus on core activities impacting on other products


What is outsourcing

A method of growth

when an organisation arranges for another organisation to carry out activities for them

(It work, accountancy)


3 advantages of outsourcing

Outsourcing allows business to concentrate on doing what they are good at

Less labour and equipment required for outsourced activities

Should be high quality work from the outsourced business as it should have greater expertise and specialist equipment


3 disadvantages of outsourcing

Business will have less control over outsourced work so quality may fall

Communication between the business needs to be very clear to make sure exact specifications are met

Business may have to share sensitive information with the outsourced business that could get into the hands of competitors


2 statements that describe a de-merger

Occurs when a single business splits into 2 or more separate components

Still owned by same organisation but managed independently of each other


3 advantages of de-merger

Each new component can concentrate on its own core activities and grow as a result

Each new component has the best chance to operate efficiently

De-merged components can be divested which can meet competition regulations set by EU


2 statements that describe asset stripping

Taking over another company with intent to sell off its assets

Individual assets like factories may be more valuable than the organisation as a whole


What 5 levels consist in the tall structure top to bottom

Board of directors/ owners

Senior management

Middle management




3 advantages of a tall structure

Each staff member knows their role and who to report to

Many levels means many promotion opportunities which can motivate staff

Narrow span of control meaning managers have more time for planning supervision and decision making


3 disadvantages of a tall structure

Communications take time to flow down through levels which slows down decision making

Organisation can be slow to react to changes in the market

Narrow span of control meaning
•managers supervise work closer which can put staff under pressure

•Managers have fewer staff to share ideas with


2 statements that describe a flat structure

Fewer levels than tall structure

Shorter chain of command than a tall structure


What 3 levels consist in a flat structure top to bottom

Board of directors/owners




3 advantages of a flat structure

Info can be communicated quickly between levels

Organisation can respond quickly to external factors such as competition

There is a wide span of control meaning
•managers have to delegate tasks to staff which can raise morale as staff feel trusted
•staff make their own decisions


3 disadvantages of a flat structure

Fewer levels means fewer promotion opportunities so quality staff may leave to gain promotion in larger organisation

Less management levels means staff may be delegated more tasks which could put them under pressure

Wide span of control means
•less time for planning
•subordinates May have no one to seek help


Describe delayering

Removing one or more levels of management from a tall structure to make it flatter


3 advantages of delayering

Money is saved on paying the salaries of the management level that is removed

Wider span of control

Quicker decisions made due to shorter chain of demand


3 disadvantages of delayering

There are fewer promotion opportunities for staff

Redundancy payments will cost the organisation a significant amount of money

The organisation will lose key members of staff in the restructure


Describe centralised management

Decision making and control is kept at the very top level of a centralised organisation

In organisations with many branches this means important decision making being retained within head office


3 advantages of centralised management

High degree of corporate identity and strategy exists as decisions are made for the whole organisation

Procedures are standardised which ensures consistency

Low risk of important info leaking from branches or departments


3 disadvantages of centralised management

Less responsibility given to subordinates which means demotivated staff

Decisions will not reflect the needs of the local markets

Organisations will react slowly to external factors such as the competition improving product range


What is decentralised management

Decision making and control is delegated to individual branches or departments in decentralised organisations

Best used in retail chains that need to respond to the local markets (supermarkets)

While overall strategy like Tesco will still be centralised but there decisions will be decentralised such as buying/ selling local products


3 advantages of decentralised management

Business reacts quickly to changing external factors

Decisions are made quickly as local managers don’t need to consult senior managers before making a decision

Senior management at the head office are relieved of the burden of constant decision making


Describe the matrix structure

Involves an organisation being arranged into temporary project teams

To carry out specific tasks like developing a new product

Teams made up of employees from different functional areas (marketing,operations etc)

Each staff member will have two managers one functional(finance) and one project manager


3 advantages of matrix structure

Each team has specialised staff from all functional areas

Complex problems can be solved

Staff use their expertise and as such have job satisfaction and motivation


3 disadvantages of matrix structure

Many managers across all project teams will mean high wage costs

Duplication of resources such as staff equipment and administration

Staff confused as to who to report to


What 4 statements describe an entrepreneurial structure

Used primarily by small organisations

One main decision maker

One owner makes final decisions

Other staff rarely consulted


2 advantages of an entrepreneurial structure

Decisions made quickly as little consultations

Staff know who they need to report to


2 disadvantages of an entrepreneurial structure

If owner is busy or not available key decisions can not be made

This structure can create heavy work load for the main decision maker


What 3 statements describe functional groupings

Involves grouping organisations into departments called functional areas based on skills and expertise

Main groups are marketing finance operations and Human Resources

Small organisations cannot group staff in this way


2 advantages of functional grouping

Staff with similar skills are together meaning each department becomes excellent at what they do

Staff know who to report to and can get guidance from more experienced staff in their area of expertise


2 disadvantages of functional grouping

Organisation can become to large to manage of functional departments grow rapidly

Functional departments can be more interested in their own objectives rather than organisations objectives as a whole


3 statements describing location grouping

Organisation in geographical divisions

Each division will operate to serve customers in a particular location

(May have many different locations)


2 advantages of locational grouping

Each division can meet the needs of its local Market (different trends)

The business can react quickly to changing external factors


2 disadvantages of locational grouping

Duplication of resources such as admin staff or IT equipment across each group is inefficient

Divisions may compete against each other and forget the overall objectives of the organisation as a whole


2 statements that describe product service grouping

Grouping organisations into different divisions that deal with a different product/ service

Suitable for large organisations like virgin(virgin money, virgin media)


2 advantages of product/service grouping

The business react quickly to changing external factors that affect each particular groups market

It is easy for management to identify struggling product/ services


2 disadvantages of product/service grouping

Duplication of resources can occur

New group needs to be set up every time a new product is launched(more staff costs,equipment, premises)


2 statements describing customer grouping

Grouping organisations resources into divisions that deal with different type of customer

Ie business might have divisions for customer retail, online customers


2 advantages of customer grouping

Each group can tailor its product or service to its own type of customer

Customer loyalty can build up due to the high level of personal service that can be achieved


2 disadvantages of customer grouping

Duplication of resources can occur

This is only suitable for large businesses with many customers types/segments that are of sufficient size


What is downsizing

Closing an unprofitable division or merging two divisions


2 advantages of downsizing

This cut the costs of wages and rent

The business is leaner(more efficient) and can become more competitive


2 disadvantages of downsizing

Valuable skills and knowledge are lost when redundancies are made

Remaining staff feel vulnerable and are demotivated


What are the 4 internal factors

Human Resources
Corporate culture(beliefs)


What are the six external factors

Political(decisions made actions taken by government)
Economic (economy, product consumption,exchange rates)
Social(changes in society fashion)
Technological(quickly evolving advancements, faster broadband connection)
Environmental( natural environment ie recycling)


What is a stakeholder

An individual or group of people who have an interest in the success of an organisation


Page 41 interest influence of stakeholders

Conflicting stakeholders

No question


Page 42

Interdependent of stakeholders


What are the 3 different type of decisions that can be made (page 43 table to use)

Strategic long term

Tactical middle term

Operational short term


What does a swot analysis contain






What 3 factors affect the quality of decisions (PAGE 46)

Human Resources(managers experience, staff resistance)

Availability of finance(can impact decisions being made)

Technology( availability of technology to help make decisions


What are the 5 roles of a manager

Plan(planning ahead,setting targets)

Organise( tasks set for employees)

Command(issuing instructions to employees)

Co-ordinate(resources brought in to achieve objectives set)

Control(manager looks at what’s being done and checks this against what was expected)