Flashcards in Unit 1: Business organization and environment Deck (101)
An organization that provides a good (tangible) or service (intangible) to a market
Something you can physically touch (good)
Something you can’t physically touch (service)
Main business functional areas / departments:
And 4 roles for each:
• Operations management
Designing the manufacturing process
Identifying the resources needed for production
Planning the time scale
Research and development
Product – ensuring goods and services are meeting customers’ needs
Place – distributing goods and services to the appropriate market
Promotion –communicating with customers and sales promotions
Price –using pricing strategies to maximize profit
Monitoring the flow of cash
• Human resources
Recruitment (correct number + skill)
Employee compensation + benefits
Health and safety
Employee treatment follows laws
The Business sectors
involves extracting raw material from the earth. It includes activities such as agriculture, fishing, forestry, and mining for minerals, metals, and oil.
involves transforming raw materials into finished or semi-finished products. It includes construction, processing and manufacturing.
involves the delivery of services such as education, health care, travel and tourism, entertainment and home and car repair services.
includes services related to the development and use of data and information. It is a new term and is usually considered as a subset of the tertiary sector.
Moving from the primary to secondary sector
Chain of production / value chain
The steps involved in producing finished goods are together
Companies whose activities span two or more sectors
Is the process of setting up a new business.
A person who sets up a business or businesses, taking on financial risks in the hope of profit.
Characteristics of Entrepreneurs
- Risk takers
- Self motivated
Is the activity of entrepreneurship when it takes place within an established organisation.
Are encouraged by their employers to take risks to develop new products, processes, and services while retaining their status as employees.
6 Concepts of business
Refers to the common beliefs, social norms and specific characteristics of a group of people. It can also refer to the set of shared attitudes, values and practices that dominate within an organization.
The two types of culture
1_ Organizational Culture –
These are the individual values and behaviors that contribute to the social and psychological environment of a business.
Example- Google having a calm work environment where employees wear what they want and get many perks. Whereas Law firms they dress more professionally in a suit and tie and have to act in a more professional manner.
2_ National Culture-
This is how a business develops its management and practices to fit with the national culture they are operating in. This includes the behaviors, beliefs and customs that exist within the population the business operates in.
MacDonald’s adapts their menu from the American menu to other countries.
Is the process of creating something new such as a new idea, a new product, or an improvement of an existing idea, product or process.
Is when something becomes different or undergoes a certain transformation from its initial state or condition
The 2 types of change
1. Organisational change-
Process of changing a business strategies processes, producers and culture
1. External change-
Outside factors that influence a business’s ability to achieve its goal and objectives.
External change that affects a company –
The government can raise or lower corporation tax
If there is economic growth, then more jobs will be created and more tax will be paid
Affect the habits and spending of customers
Ways new practices and equipment can affect a business
Climate change or weather
-Legislation / law
The laws that changes could affect the business
Refers to the moral values which determine the behavior of an individual or a group.
Ethics are moral principles that guide the way a business behaves. The same principles that determine an individual’s actions also apply to business.
Good… - (Toms)
For every pair of shoes, a pair is donated
Bad… - (Volkswagen)
The biggest recent scandal in the car industry was the VW emissions recall test. They lied about the carbon dioxide output further damaging the environment.
Characteristics of an ethical business:
• Strong, ethical leadership
• Core value statements
• Integrity and fairness
• Loyalty relationships with employees and customers
• Concern for the environment
Is the process of increased integration of national economies through free trade and the free flow of capital and labor. It results in the emergence of a global market with shared characteristics.
Advantages and disadvantages of Globalization
⎫ A main advantage is cheaper labour and production costs, due to citizens of these countries having lower living standards and are willing to work for less money.
⎫ Another advantage is access to more customers and a new market.
⎫ It also provides FDI for these poorer countries.
o Exploiting labour
o Depletion of natural resources
o Exploitation of undeveloped laws.
Is a business's long-term plan to achieve its objectives
What is the role of a business
To create value
Resources used by businesses (inputs)
1) Physical resources
include the raw materials and semi-finished goods that a business may purchase in order to begin production.
-Raw materials - agricultural products, lumber, minerals, metals, and crude oil.
-Semi finished goods/intermediate - goods have already been produced or processed in
2) Financial resources
are the funds needed to set up and invest in a business and keep it running on a daily basis.
3) Human resources
are the people needed to run the business.
OR 'land, labour, capital, and enterprise'
Are physical products that are 'tangible', meaning they can be touched. Goods include items like computers, TVs, clothing, furniture, vehicles and industrial equipment.
Are intangible products that cannot be touched. When you purchase a service you usually go home better off but empty-handed. Services include a wide array of things like hairdressing, tutoring, accounting and car repair.
Reasons for starting a business:
1) Earning a living
2) Prospect for financial reward
4) Work-life balance
5) New technology or business ideas
6) Unfilled market niche
Steps in starting up a business:
- Refine an idea
- Prepare a business plan
- Decide on a legal status
- Find a location
- Hire employees
- Find financing
Problems a new business may face:
1) Existing strong competitors - market may be loyal to them
2) Recruiting qualified personnel – employees prefer larger more established businesses who provide higher salaries.
3) Lack of management skills
A business plan
Who would want to see a business plan?
Is usually a written document that describes all the aspects of a new enterprise in terms of the product or the business idea, marketing, finance, operations, and human
ϖ A bank
ϖ Shareholders / investors
What would be included in a business plan?
• Introduction about the business
• Aims and objectives
• Legal status
• Raising finance
• The product
• The market
• Financial forecast
• Corporate social responsibility
includes all those organizations that are owned and operated by either the central/local government or state or their agencies, such as the National Health Service in the United Kingdom. Institutions in the public sector are usually dedicated to providing services to the public rather than earning a profit.
o Fire service
o Hospitals (National Health Service)
o Law enforcement
o Postal services
o Waste management
includes all those organisations that are owned by individuals or groups of individuals. Organisations in the private sector are usually constrained by the necessity of earning profits in order to compensate their owners for the investment they have made in the organisation.
Free market economy
A free market system is an economy that allows the market to decide the prices of goods and services by way supply and demand, thereby reflecting individual preferences using direct resources. - government has no control
Controlled by the government and they decide what happens in the market.
An economic system combining private and state enterprise.
The owner is responsible for all the debts of the business so if it goes bankrupted the owners has to sell his own items to cover debt.
Example- Sole traders =unlimited liability
The owner can only lose their initial investment in the business.
Example- Limited companies =limited liability
Types of organizations
- Sole trader (unlimited liability)
- Partnerships (unlimited liability)
- Private limited companies (PLD) (limited liability) - can't sell on the stock exchange
- Public limited companies (PLC) (limited liability) - can sell on the stock exchange
A sole trader
is a for-profit business owned by a single individual. There is little legal distinction between the business and its owner and the owner is personally responsible for the debts of the business
• Full control of business
• Takes all profits
• Things happen faster
• A lot of flexibility
• Unlimited liability
• Less ideas
• Might lack experience
• Long working hours
• Limited potential for growth
• Lack of support.
is a for-profit business owned by two or more individuals who are each personally responsible for the debts of the business.
• More ideas
• More capital
• Workload is shared
• Less control
• Arguments /disputes
• Profit is shared
• Things take longer to happen
• Unlimited liability
Private limited companies (PLD)
• More control of the company
• Prevents takeovers
• Limited liability
• Easier to raise capital privately
• Shared profit
• Loss of control to shareholders
More difficult to set up.
Public limited companies (PLC)
• More capital that can be raised on the stock exchange
• Limited liability
• Less control
• Shared profits
• Hard to set up finances are made public.
Nongovernmental organisations (NGOs)
Are non-profit organisations that usually state their purpose or mission as benefiting society or the environment.
Are nonprofit organisations that exist to benefit the public. Charities enjoy tax advantages under UK law.
“Water 4 Ethiopia”
Bottles are sold for 50p and 25p goes to supplying clean water to the people in Ethiopia for a whole year.
is an organisation that is owned by its members who come together to work towards a common interest. Cooperatives are run democratically, with members having a say in important decisions.
-Agriculture cooperatives = some exist to negotiate lower prices on inputs or to negotiate higher prices for products produced.
-Retail cooperatives =Negotiate with the suppliers of the products sold in their stores.
-Consumer cooperatives = set up by consumers to benefit from lower prices, better services or both.
-Workers cooperatives = preserves worker’s jobs
providers make financial services available to individuals whose needs would otherwise not be met by traditional financial institutions like banks.
microfinance tend to help the poorest segment of the population and grant the smallest loans.
Lending very small amounts
Public-private partnerships (PPPs )
Are arrangements whereby the public sector enlists the help of a private sector organisation in order to meet its objectives more efficiently. PPPs often involve large infrastructure projects.
Are organisations that engage in business activity but that have also set themselves important goals in terms of improving society or protecting the environment. Social enterprises may be organised as for-profit businesses, non-profit organisations, or cooperatives.
a group that tries to influence public policy in the interest of a particular cause.
the transfer of a business, industry, or service from public to private ownership and control.
• Improved efficiency
• Lack of political interface
• Increased competitors = improved quality
• Tax reduction
• Higher costs
• Greater opportunity for fraud and corruption
• Inflexibility due to long term contracts
Profit is primary concern rather than consumer needs.
A mission statement
is a written expression of an organisation’s purpose and reason for being. The mission may be seen as a means of accomplishing the organisation’s vision.
A vision statement
is a written expression of an organisation’s long-term ambitions that it hopes to realise in the future. It is often an optimistic view of what the organisation hopes to accomplish.
are goals an organisation would like to accomplish. They may be somewhat broad, optimistic and imprecise.
are concrete targets an organisation sets for itself. They may be formulated in order to accomplish wider aims, and can be developed using the acronym SMART
A strategy is a plan, approach, or scheme for achieving an aim or objective. Strategies are generally considered to involve important decisions that may be risky and are taken by senior management.
A tactic is an approach or scheme for achieving an aim or objective. Compared to strategies, tactics usually involve fewer resources and may be less risky. They may therefore not involve senior management because they can be more easily reversed or modified compared to strategies.
Corporate social responsibility (CSR)
is a self-regulating business model that helps a company be socially accountable and shows its obligations to society and the environment.
CSR policies often involve areas such as those described below:
ϖ Labor relations - Treating all workers fairly, regardless of their age, sex, sexual orientation, ethnicity or religion is another goal of public policy in most countries. employees’ rights are protected by laws and regulations that set minimum standards for such things as worker safety, working conditions, remuneration and working hours.
ϖ Environment - Common objectives include reducing the production of waste and the consumption of water, lowering the carbon footprint, and sourcing ingredients and materials produced, using 'sustainable' practices that reduce harm to the environment.
ϖ Community - Many corporations support the communities where they operate by financially sponsoring local charities, clubs and events. They may also make in-kind donations, like contributing goods to local food banks.
ϖ Supplier relations - They may, for example, refuse to work with suppliers who do not treat their workers fairly or who do not respect the environment.
a person with an interest or concern in a certain business. The businesses actions affect them.
Socially responsible organizations behave morally and ethically towards their stakeholders:
Draw a SWOT analysis with three points in each
SWOT analysis – assesses the Strengths, Weaknesses, Opportunities and Threats a business has to make decisions.
Opportunities and Threats are external, cannot be controlled by a business
• Unique selling point
• Customer loyalty
• Skilled employees
• Market share
• Good management
• Modern facilities
• Strong finances
• Demotivated staff
• High price compared to companies
• High costs
• Poor reputation
• Seasonal products
• Reliant on one customer
• Poor management
• Outdated facilities
• Inadequate finances
• Boom in trade cycle
• Increasing consumer spending
• New/growing markets
• Mergers or acquisitions
• Technological developments
• Government subsidies
• Low cost financing
• availability of skilled labour
• Pressure groups
• Natural disasters/weather changes
• Government instability
• High costs of inputs
• Lack of availability of skilled labour
• Changing consumer tastes
STEEPLE is used to evaluate the firm’s external environment – opportunities and threats.
Gross domestic product (GDP)
is calculated as the total monetary value of all final goods and services produced in an economy in a given period of time.
refers to the case where GDP decreases for two or more quarters. A quarter refers to a three-month period; there are therefore four quarters in a calendar year.
is used to describe a prolonged or particularly severe recession.
refers to an increase in prices, usually calculated as an annual rate of increase.
refers to a decrease in prices.
The interest rate
is the cost of borrowing money. Interest rates vary over time, as a function of the overall economic climate. the outlook for growth. Low interest rates can also encourage consumers to buy goods on credit, thereby increasing demand.
refer to the cost of one country’s currency in terms of another country’s currency
The unemployment rate
is calculated as the percentage of the labour force that is out of work but actively seeking employment at a given time.
an owner of shares in a company.
- The legal right to trade under the name of a registered business
A franchisor sells a franchise to a franchisee …
When setting up a franchise a franchisee will have to pay an initial fee to use the brands name and logo and they will also have to pay royalties which is an ongoing fee, its a fixed fee where % of the sales revenue or profit go back to the franchiser.
Draw the Ansoff Matrix
A management tool used to make decisions on growth strategies. It shows various strategies businesses can take to access new markets or release new products.
strategy involves selling more of the same products and services to pretty much the same customers
involves selling new products in the organisation’s existing market, often to existing customers.
involves selling existing products to new customers.
is considered the riskiest growth strategy, as it involves selling new products in a new market.
a combination of two things, especially companies, into one.
A takeover or acquisition is the purchase of one company by another.
A strategic alliance
A strategic alliance (also see strategic partnership) is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations.
A joint venture
is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task
is any individual or group that affects an organisation or is affected by it. Stakeholders are often classified as internal (CEO, different level managers, employees and shareholders/owners) or external (customers, suppliers, unions, competitors, the government and society as a whole).
Internal (organic) growth
Businesses use their own resources to expand.
ϖ Retained profit
ϖ Selling shares
External (inorganic) growth
businesses work with other organizations to expand usually through:
3. Strategic alliances
Fixed costs (FC)
Variable costs (FC)
Fixed costs (FC) –costs which do not change according to output
Variable costs (FC) – Costs which vary as output changes
Total costs (TC)
Average costs (AC)
Total costs (TC) – Fixed costs + variable costs
Average costs (AC) - total costs/ output
Economies of scale
Diseconomies of scale
Economies of scale – As output increases the average costs per unit decrease
Diseconomies of scale – As output increases, average costs per unit increases
is a key process by which the world’s economies are becoming more closely integrated / refers to the increasing interconnectedness of countries across the world in terms of communication, culture, trade, and the movement of people.
Multinational corporation (MNC’s)
A company which operates in two or more
countries. Also known as transactional corporations (TNC’s)
Trade barriers are regulatory obstacles that limit trade between countries. Trade barriers include tariffs and quotas.
Tariffs are taxes that are placed on goods imported into a country.
Quotas are limits placed on the number or volume of goods that can be imported into a country.
Trading blocs include a variety of agreements entered into by countries in order to reduce barriers to trade between members. Examples include the European Union, the Association of Southeast Asian Nations, the Southern African Development Community (SADC), and the Mercosur in South America.
Causes of globalization:
Causes of globalization:
1) Trade liberalisation
6) Increased cultural awareness
The removal of trade barriers to encourage international trade
A decision making framework based on identifying the root causes of a problem.
Force field diagrams
Force field diagrams are intended to study change and resistance to change. They should not be used to create a simple list of advantages and disadvantages of a project. If you do prepare a force field diagram, make sure to use the terms driving and restraining forces.
Gantt charts are another visual tool. Gantt charts are often used to facilitate project management. The steps required to complete a project are shown, along with their timing and duration.