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Flashcards in Understanding Business Deck (50):
1

Stakeholders

-People with a key interest in the business
-Stakeholders affect businesses by exerting influence over decisions.
-Their influence depends on the degree of involvement or relative interest
-Can be internal or external

2

Stakeholder objectives and aims

OWNERS want high profits, high dividends, successful decisions to be made
MANAGERS want promotion, bonuses, job security, meet targets/deadlines
EMPLOYEES want better wages, better working conditions, job security
SUPPLIERS want regular orders, prompt payments
CUSTOMERS want low prices, high quality
BANKS want loans repaid on time

3

Stakeholders influence

OWNERS put capital in, vote at AGM, change board of directors
MANAGERS hire/ fire employees, create policy and rules, make decisions
EMPLOYEES go on strike, increase/decrease productivity, provide good/bad customer service.
SUPPLIERS raise/lower prices, change delivery tunes, change credit terms
CUSTOMERS can choose whether to buy products, affect word of mouth, repuatation
BANKS grant or deny loans. change interest rates. change repayment details

4

4 main methods of growth

-Merger
-Takeover
-De-merger
-Divestment

5

Advantages and disadvantages of horizontal integration

Advantages
-Eliminates competitors
-Increases market share
-Can achieve greater economies of scale as a result of being able to buy inputs in larger quantity
-Acquires assets of other firm
-Become more powerful and therefore more secure from hostile takeover bids

Disadvantages
-Can become very large and dominate the market
-Eliminates competitors therefore able to exploit customers and raise prices
-Can undercut competitors and push smaller businesses out the market

6

Advantages of vertical integration

-Eliminates the middleman and his profit
-Greater economies of scale
-Link processes more easily
-Secures a source of supplies
-Source outlets to sell products

7

What does PESTEC stand for?

Political factors
Economic factors
Social factors
Technological factors
Environmental factors
Competitive factors

8

Political Factors

-Tax (VAT)
-Government Legislation (minimum wage)
-Environmental legislation (Kyoto agreement)
-Trade restrictions
-Political stability

9

Economic Factors

-Economic growth
-Interest rates
-Exchange rate
-Inflation (high and crippling or stable)
-Unemployment

10

Social Factors

-Demographics (nature of the population)
-Lifestyles (hobbies, health)
-Structure of labour market (more women in high jobs)
-Trends and fashion
-Attitudes
-Education levels
-Ethnic markets

11

Technological factors

-ICT
-Research and development (innovation)
-Automation (machines reducing staff)
-E-commerce

12

Environmental factors

-Global warming
-Pollution and industrial waste
-Recycling
-Organic foods

13

Competitive factors

-Product differentiation (usp)
-Price wars
-Profit margins
-Imitators

14

Types of Decisions

-Strategic
-Tactical
-Operational

15

Strategic decisons

-Long term
-Made by senior management
-Long lasting impact

E.g - What products to make? Which segment to target?

16

Tactical decisons

-Medium term
-Made by middle managers
-Based on goals and aims
-Detailed and specific
-changes due to PESTEC

E.g - Hire / Fire, In-store promotions, float share issue, re-branding

17

Operational decisons

-Day to day decisions, routine
-Mainly made by low - level managers
-Responds to regular problems

E.g - Staff rotas, raw materials from suppliers, pay-roll, customer enquires and complaints

18

What are the factors of production?

Capital
Enterprise
Land
Labour

19

What are the sectors of business?

-Private sector
-Public sector
-Third sector / social enterprises

20

Examples of private sector businesses

-Sole Trader
-Partnership
-Public Limited Company (plc)
-Private Limited Company (ltd)
-Multinationals
-Franchise

21

Advantages and Disadvantages of Sole traders

Advantages
-Easy to set up
-Quick decisions
-No shared profit
-Affairs are private

Disadvantages
-Limited capital
-unlimited liability
-Commitment
-New ideas limited

22

Sole trader objectives and finance

Finance available from owners savings, businesses, retained profit, bank loan, bank overdraft, government grant
Possible objectives - to survive, to maximise profits, to improve owners personal status, good reputation.

23

Partnership advantages and disadvantages

ADVANTAGES
-More capital than sole traders
-Excessive hours cut down
-More ideas generated
-Specialisation

DISADVANTAGES
-Actions of one binds all
-More discussion and consultation
-Limitation of number of partners
-Unlimited liabilty
-Partnership ends if partner dies

24

Partnership objectives and finance

Finance available from - partners savings, bank loan, overdraft, previous profit

Objectives - to survive, to maximise profit, improve status, good reputation.

25

Private Limited Company (Ltd) advantages and disadvantages

ADVANTAGES
-More capital than partnerships
-Limited liability
-Owner can retain control
-Company doesn't die if owner does

DISADVANTAGES
-More complicated to set up, must be registered
-Profit shared amongst shareholders
-Difficult to raise large amounts as shares can't be sold on stock exchange

26

Private Limited Company finance and objectives

Finance available from company profits, bank loans, trade credit

Objectives - maximise profits, to expand, strong status, high sales revenue

27

Public Limited Companies (plc) advantages and disadvantages

ADVANTAGES
-More capital
-Large organisation, less risky, easier to get loan
-Shareholders have limited liability
-Specialists are employed to ensure it is ran effectivly

DISADVANTAGES
-Can be taken over
-Must abide by the Companies Act
-Must publish annual accounts
-No control other purchaser of shares
-Have to share profits

28

PLC Finance and objectives

Finance - selling shares, bank loans
Objectives - maximise profits, expand output, dominate their market

29

Franchise advantages and disadvantages

ADVANTAGES
-Franchiser provides lots of support
-Take over successful winning formula

DISADVANTAGES
-Little freedom for franchiee
-May not agree with franchiser desicions
-royalties go to franchisor

30

Examples of Public Sector Organisations

-Central Government
-Local Government
-Public Corporations (eg BBC)

31

Corporate Social Responsibility advantages and disadvantages

ADVANTAGES
-Good reputation / good publicity
-Encourages brand loyalty
-Attracts and maintains a happy workforce
-Differntiate from competitors

DISADVANTAGES
-Expensive
-May lead to high prices

32

6 types of Organisational Grouping

-Functional
-Customer
-Product / Service
-Place / Territory
-Technology
-Line / Staff

33

Advantages and Disadvantages of functional grouping

-Efficient use of resources
-Staff specialisation
-Career progression
-Centralised decisions
-Good communication
-Team working improves

DISADVANTAGES
-Department rivalry
-Staff loyalty to department not company
-poor communication
-Slow response to external factors
-Slow decision making

34

Advantages and disadvantages of organisation by product / service

-Each decision can focus on one market segment
-Each divisions performance easily measured
-Healthy competition
-Allows flexibility

-Duplication of functions
-Competition may demotivate
-loss of control by central

35

Advantages and disadvantages of organisation by Customer

-Can cater for specific customer needs
-Customer loyalty built up
-The market can be segmented

-Inefficient if a division is too small
-Loss of control from senior management

36

Advantages and disadvantages of organisation by Location

-Meets personal needs of customers

-Ca be costly
-Duplication of resources

37

Advantages and disadvantages of organisation by Technology

-Staff are highly specialised
-Cheap and easy training
-Easy to identified where problems arise

-Work can become repetitive making staff demotivated
-Industries that use technological grouping tend to be capital insensitive which is expensive

38

Advantages and disadvantages of organisation by Staff

-Staff become specialised and competent
-Money saved as equipment is not required everywhere

-Communication issues
-Coordination can be lacking
-Line managers may focus on departmental aims rather than the overall aims

39

Tall Structure

Many levels of management
Managers have narrow span of control
Management posts usually specialised
Clearly defined roles

40

Advantages and disadvantages of tall structure

-Easier supervision
-Promotion opportunities
-Employees know their immediate boss
-Clear lines of responsibility and communication

-many layers of decision making
-slow decision making
-high labour costs
-little freedom for workers

41

Flat Structure

Few levels of management
Managers have wider spans of control
Faster communications
Quick decision-making

42

Advantages and disadvantages of Flat Structure

-More authority for employees
-Better communication
-Quick Decision making
-Better team spirit

-Greater workload
-Employees need more training
-Fewer promotion opportunities
-Easy for employees to feel isolated or ignored

43

Matrix Structure

A project team created to carry out a specific task
Team members come from different functional areas and report to their manager

44

Advantages and disadvantages of Matrix Structure

-Increased experience
-Good motivation and job satisfaction
-Good for tackling complex problems

-Expensive
-Staff confusion
-Coordination problems

45

Entrepreneurial Structure

Typically used by smaller businesses, with only a few decision makers, usually just the owner

46

Advantages and disadvantages of Entrepreneurial Structure

-Decisions made quickly
-Staff know who they are accountable to
-No consultation

-Difficult to use in large business
-Can create heavy workload
-Staff can't show innovation leading to demotivisation
-If the owner is busy or unavailable, key decisions cant be made

47

Advantages and Disadvantages of centralised management

-Easier to promote corporate image
-Low risk of information leak
-Standardisation and consistency

-Slow decision making
-Slow communication

48

Advantages and Disadvantages of decentralised management

-Empowers and motivates staff
-Fast decision making
-Decisions can match local needs

-Less standardisation
-Confusion between branches
-Loss of corporate image
-potential competiton

49

Factors affecting organisation structure

-Size of organisation
-Technology used
-Market the firm operates in
-Staff skills within organisation
-Products / Services provided

50

Fayols the role of the manager

POCCCDM
Planning
Organising
Commanding
Coordinating
Controlling
Delegation
Motivation