Understanding business

Question 1

what are the 4 factors of production

Answer 1

capital
enterprise
land
labour

Question 2

what are the 4 sectors of industry

Answer 2

primary sector
secondary sector
tertiary sector
quaternary sector

Question 3

what are the 3 types of business organisations

Answer 3

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

Question 4

3 advantages of a private limited company

Answer 4

shareholders have limited liability

control of company not lost to outsiders

more finance can be raised from shareholders and lenders

Question 5

3 disadvantages of a private limited company

Answer 5

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

Question 6

What are the 3 sectors of economy

Answer 6

1: Private sector (profit making businesses)
2: public sector (government)
3: third sector (charities)

Question 6

3 advantages of public limited companies

Answer 6

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

Question 6

3 disadvantages of a public limited company

Answer 6

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

Question 7

What is 4 statements describing a public limited company

Answer 7

PLCs owned by shareholders

Who have limited liability

Controlled by a board of directors

Can sell shares publicly unlike LTDs

Question 8

What is 4 statements that describe a private limited company

Answer 8

Have limited liability

Owners of the company are shareholders

Shares are not available to the general public

They share ownership of business with others

Question 9

What is 3 statements that describe a franchise

Answer 9

Business model allows businesses to use their brand name

Franchiser=original business owner

Franchisee=owner of each individual branches

Question 10

2 advantages of a franchiser

Answer 10

Low risk form of growth as franchisee invests majority of capital

Receives a percentage of all franchisees profits yearly(royalties)

Question 11

2 disadvantages of a franchiser

Answer 11

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

Only a share of profits are received yearly not all profits

Question 12

3 advantages of a franchisee

Answer 12

Well known business with an existing customer base

Industry knowledge and training is provided by franchiser

Franchisee benefits from national advertising from franchiser

Question 13

3 disadvantages of a franchisee

Answer 13

Very little autonomy over decisions as franchiser decides

Royalties have to be paid yearly

High initial start up fees

Question 14

3 statements describing a multi national company

Answer 14

A business that operates in more than one country

Most multinationals are limited company’s

Head offices usually based in home country

Question 15

3 advantages of multi national companies

Answer 15

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

Question 16

3 disadvantages of multi national companies

Answer 16

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

Question 17

3 statements that describe public sector businesses

Answer 17

Uk government providing national services (NHS, police)

Gain finance through tax payments

Aim to provide a quality service

Question 18

3 statements that describe third sector

Answer 18

Set up to raise money to benefit others

Raise finance through donations fundraising

No individual owner set up as a trust

Question 19

3 advantages of a charity

Answer 19

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

Question 20

2 disadvantages of a charity

Answer 20

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

Question 21

What is 2 statements that describe voluntary organisations

Answer 21

Aim to provide service for local community

Raise finance through membership subscriptions

Question 22

2 statements that describe social enterprises

Answer 22

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

Question 23

2 advantages of a social enterprise

Answer 23

Employees that believe in the social mission are attracted to organisation Likely to receive grants due to their positive impact on society

Question 24

What are 4 objectives

Answer 24

Maximising profits Survival Provide a quality service Increase market share

Question 25

3 advantages of growth

Answer 25

Reduces risk of failure Increases profits Avoids being taken over

Question 26

5 methods of internal growth

Answer 26

Launching new products Opening new branches/ expansion Introducing e-commerce Hiring more staff Increased product capacity

Question 27

What is integration

Answer 27

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)

Question 28

3 advantages of integration

Answer 28

Risk of failure is spread Competition is reduced increasing sales Buying business gains market share and resources of taken over business

Question 29

3 disadvantages of integration

Answer 29

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

Question 30

3 advantages of merger

Answer 30

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

Question 31

3 disadvantages of merger

Answer 31

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

Question 32

What is horizontal integration

Answer 32

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

Question 33

3 advantages of horizontal integration

Answer 33

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

Question 34

3 disadvantages of horizontal integration

Answer 34

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

Question 35

What is forward vertical integration

Answer 35

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)

Question 36

What is backward vertical integration

Answer 36

Business takeover/ merge with a business in an earlier sector of industry (takeover their supplier) (Starbucks taking over coffee bean plant)

Question 37

2 advantages of forward vertical integration

Answer 37

The business can control supply of their products and choose to not supply to competitors Can increase profits by (cutting out the middle man)

Question 38

3 advantages of backward vertical integration

Answer 38

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

Question 39

3 disadvantages of backward vertical and forward vertical integration

Answer 39

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

Question 40

What is conglomerate integration

Answer 40

It occurs when businesses in different markets join together This is done primarily to spread risk of failure

Question 41

3 advantages of conglomerate integration

Answer 41

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

Question 42

3 disadvantages of conglomerate integration

Answer 42

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

Question 43

What is outsourcing

Answer 43

A method of growth when an organisation arranges for another organisation to carry out activities for them (It work, accountancy)

Question 44

3 advantages of outsourcing

Answer 44

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

Question 45

3 disadvantages of outsourcing

Answer 45

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

Question 46

2 statements that describe a de-merger

Answer 46

Occurs when a single business splits into 2 or more separate components Still owned by same organisation but managed independently of each other

Question 47

3 advantages of de-merger

Answer 47

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

Question 48

2 statements that describe asset stripping

Answer 48

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

Question 49

What 5 levels consist in the tall structure top to bottom

Answer 49

Board of directors/ owners Senior management Middle management Supervisors Employees

Question 50

3 advantages of a tall structure

Answer 50

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

Question 51

3 disadvantages of a tall structure

Answer 51

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

Question 52

2 statements that describe a flat structure

Answer 52

Fewer levels than tall structure Shorter chain of command than a tall structure

Question 53

What 3 levels consist in a flat structure top to bottom

Answer 53

Board of directors/owners Management Employees

Question 54

3 advantages of a flat structure

Answer 54

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

Question 55

3 disadvantages of a flat structure

Answer 55

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

Question 56

Describe delayering

Answer 56

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

Question 57

3 advantages of delayering

Answer 57

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

Question 58

3 disadvantages of delayering

Answer 58

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

Question 59

Describe centralised management

Answer 59

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

Question 60

3 advantages of centralised management

Answer 60

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

Question 61

3 disadvantages of centralised management

Answer 61

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

Question 62

What is decentralised management

Answer 62

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

Question 63

3 advantages of decentralised management

Answer 63

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

Question 64

Describe the matrix structure

Answer 64

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

Question 65

3 advantages of matrix structure

Answer 65

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

Question 66

3 disadvantages of matrix structure

Answer 66

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

Question 67

What 4 statements describe an entrepreneurial structure

Answer 67

Used primarily by small organisations One main decision maker One owner makes final decisions Other staff rarely consulted

Question 68

2 advantages of an entrepreneurial structure

Answer 68

Decisions made quickly as little consultations Staff know who they need to report to

Question 69

2 disadvantages of an entrepreneurial structure

Answer 69

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

Question 70

What 3 statements describe functional groupings

Answer 70

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

Question 71

2 advantages of functional grouping

Answer 71

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

Question 72

2 disadvantages of functional grouping

Answer 72

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

Question 73

3 statements describing location grouping

Answer 73

Organisation in geographical divisions Each division will operate to serve customers in a particular location (May have many different locations)

Question 74

2 advantages of locational grouping

Answer 74

Each division can meet the needs of its local Market (different trends) The business can react quickly to changing external factors

Question 75

2 disadvantages of locational grouping

Answer 75

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

Question 76

2 statements that describe product service grouping

Answer 76

Grouping organisations into different divisions that deal with a different product/ service Suitable for large organisations like virgin(virgin money, virgin media)

Question 77

2 advantages of product/service grouping

Answer 77

The business react quickly to changing external factors that affect each particular groups market It is easy for management to identify struggling product/ services

Question 78

2 disadvantages of product/service grouping

Answer 78

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

Question 79

2 statements describing customer grouping

Answer 79

Grouping organisations resources into divisions that deal with different type of customer Ie business might have divisions for customer retail, online customers

Question 80

2 advantages of customer grouping

Answer 80

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

Question 81

2 disadvantages of customer grouping

Answer 81

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

Question 82

What is downsizing

Answer 82

Closing an unprofitable division or merging two divisions

Question 83

2 advantages of downsizing

Answer 83

This cut the costs of wages and rent The business is leaner(more efficient) and can become more competitive

Question 84

2 disadvantages of downsizing

Answer 84

Valuable skills and knowledge are lost when redundancies are made Remaining staff feel vulnerable and are demotivated

Question 85

What are the 4 internal factors

Answer 85

Finance Technology Human Resources Corporate culture(beliefs)

Question 86

What are the six external factors

Answer 86

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) Competitive(competitors)

Question 87

What is a stakeholder

Answer 87

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

Question 88

Page 41 interest influence of stakeholders Conflicting stakeholders

Answer 88

No question

Question 89

Page 42

Answer 89

Interdependent of stakeholders

Question 90

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

Answer 90

Strategic long term Tactical middle term Operational short term

Question 91

What does a swot analysis contain

Answer 91

Strengths Weaknesses Opportunities Threats

Question 92

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

Answer 92

Human Resources(managers experience, staff resistance) Availability of finance(can impact decisions being made) Technology( availability of technology to help make decisions

Question 93

What are the 5 roles of a manager

Answer 93

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)