Unit 1: Introduction to Business Management Flashcards
(128 cards)
1
Q
What is a business?
A
An organisation which produces goods or services for customers to make a profit.
2
Q
What do businesses do to satisfy a customer’s need?
A
- Extracting resources
- Manufacturing goods
- Providing a service
3
Q
What is adding value?
A
The process of creating a good/service that is worth more than it costs to produce.
4
Q
What are inputs in business?
A
The resources used in the production of goods and delivery of services.
5
Q
What are outputs in business?
A
The goods or services produced by a business.
6
Q
What do goods involve?
A
The transfer of ownership of a product to the customer.
7
Q
What do services involve?
A
The business performing work on behalf of the customer.
8
Q
What are the factors of production?
A
- Capital
- Entrepreneurship
- Land
- Labour
9
Q
What is opportunity cost?
A
The benefit forgone when choosing one option over another.
10
Q
What are the four main sectors of the economy?
A
- Primary
- Secondary
- Tertiary
- Quaternary
11
Q
What is the primary sector?
A
The extraction of raw materials from the earth.
12
Q
What is the secondary sector?
A
The manufacture of finished goods from raw materials.
13
Q
What is the tertiary sector?
A
The provision of services.
14
Q
What is the quaternary sector?
A
The intellectual and knowledge-based economy.
15
Q
What are some challenges when starting a business?
A
- Lack of experience
- Difficulties raising finance
- Difficulties attracting customers
- Limited market share
16
Q
What is the public sector?
A
The part of the economy in which organisations are owned and controlled by the state on behalf of the people.
17
Q
What is the private sector?
A
The part of the economy whereby organisations are owned by private individuals.
18
Q
What is privatisation?
A
When a government decides to sell a public sector organisation or industry to private owners.
19
Q
What are advantages of privatisation?
A
- Improved quality of products/services
- Private investment
- Reduced political interference
- Business accountability
20
Q
What are disadvantages of privatisation?
A
- Often results in redundancies
- May create a monopoly
- Difficulties coordinating operations
21
Q
What is nationalisation?
A
When the government takes ownership of a private sector business or industry.
22
Q
What are advantages of nationalisation?
A
- Decisions made on behalf of the people
- Ensures continued supply of essential goods/services
- Keeps wealth in the country
23
Q
What are disadvantages of nationalisation?
A
- May remove competition
- Lack of profit motive may result in waste
- Potential for political interference
24
Q
What is a sole trader?
A
An unincorporated business organization owned and controlled by a single person.
25
What are advantages of being a sole trader?
* The owner keeps all profits
* Complete control over decision-making
* Very few legal requirements
26
What are disadvantages of being a sole trader?
* Unlimited liability
* Limited ability to raise finance
* No continuity when the owner dies
27
What are partnerships?
Unincorporated business organizations owned and controlled by two or more people.
28
What are advantages of partnerships?
* A wide range of expertise
* Shared risk
* Pooled financial resources
29
What are disadvantages of partnerships?
* Difficulties in decision-making
* Unlimited liability
* Responsible for partner's actions
30
What are privately held companies?
Incorporated business organizations owned and controlled by shareholders, but cannot advertise shares publicly.
31
What are advantages of privately held companies?
* Less risk of a takeover
* Limited liability
* Improved status
32
What are disadvantages of privately held companies?
* Profit must be shared
* Ongoing accounting and reporting requirements
* Cannot advertise shares
33
What are publicly held companies?
Incorporated business organizations owned by shareholders whose shares can be publicly sold.
34
What are advantages of publicly held companies?
* Shares can be sold for finance
* Better access to loan capital
* Economies of scale
35
What are disadvantages of publicly held companies?
* Less able to adapt to market needs
* Takeover threat
* Costly floatation
36
What are for-profit social enterprises?
Businesses that seek to improve the world while primarily having social objectives.
37
What are some focuses of social enterprises?
* The environment
* Sustainability
* Equality
38
What are cooperatives?
Businesses owned by their members and operated for their benefit.
39
What are the main features of NGOs?
* Independent from government
* Nonprofit
* May rely on volunteers
40
What is a vision statement?
An inspirational description of the idealistic future of a business.
41
What is a mission statement?
A short description of the overall purpose of a business.
42
What are SMART objectives?
* Specific
* Measurable
* Achievable
* Relevant
* Time-bound
43
What is growth in a business context?
The increase in size of a business, typically measured by market share, revenue, etc.
44
What is profit?
The difference when a firm’s revenue exceeds its costs.
45
What is shareholder value?
The ability of a business to generate wealth for its shareholders.
46
What is shareholder value?
The ability of a business to generate wealth for its shareholders, including dividends and capital gains.
## Footnote
Capital gains are influenced by investor confidence and various factors related to current and future success.
47
Why is shareholder value important?
* More likely to raise funds from future share issues
* Influences PR and consumer brand
* Poor shareholder value can lead to a decline cycle
* Shareholders have voting rights at the AGM
* Share schemes motivate senior directors and managers.
48
What are ethical objectives?
Targets related to actions or decisions regarded as morally acceptable, including:
* Environmental sustainability
* Greenhouse gas emissions
* Philanthropy
* Biodiversity
* Consumer protection
* Human/animal/employment rights.
49
Why is ethics important in business?
* Customers may prefer to buy from ethical businesses
* Improved employer and consumer brand
* Adds value
* Compliance with strict laws
* Competitive advantage and differentiation.
50
What are strategic objectives?
Long-term targets that shape the direction of the organization, can be corporate or functional.
## Footnote
Example: To increase net profit by 5% annually for the next three financial years.
51
Why are strategic objectives important?
* Encourage future development thinking
* Focus on business development
* Provide a focus for corporate or functional strategy.
52
What are tactical objectives?
Short-term targets that focus on a specific area of the business, often for a branch or department.
## Footnote
Example: Increase subscribers for YouTube Music by 10% in Q4 2024.
53
Why are tactical objectives important?
* Motivate managers/employees
* Encourage immediate action
* Satisfy investors
* Stay updated with current trends
* Respond to competitors for a competitive advantage.
54
What is Corporate Social Responsibility (CSR)?
The integration of social and environmental concerns into business operations and interactions with stakeholders.
55
What are externalities in the context of CSR?
Benefits or costs incurred by a third party as a result of business activity.
56
How can businesses maximize positive externalities?
* Providing better value for money
* Increasing production and consumption
* Picking a good location.
57
How can businesses minimize negative externalities?
* Using sustainable materials
* Increasing taxes on harmful goods.
58
What is CSR reporting?
An official document outlining a business' commitment to stakeholders, society, and the environment.
59
Why would a business engage in CSR reporting?
* Publicity or PR
* Owners' satisfaction
* Set social aims and objectives
* Improved transparency
* Branding and reputation.
60
What is the Triple Bottom Line model?
A model for analyzing the CSR impact of businesses, including:
* People — social impact
* Profit — economic impact
* Planet — environmental impact.
61
What are the advantages of adopting a CSR approach?
* Improved reputation
* Added value
* Increased demand
* Additional costs associated with production.
62
What is a stakeholder?
An individual or group that has an interest in a business.
63
Who are internal stakeholders?
* Employees
* Shareholders
* Managers/directors.
64
Who are external stakeholders?
* Creditors
* Suppliers
* Competitors
* Customers
* Pressure groups
* Local community
* Government.
65
How are shareholders affected by businesses?
* Capital gains/losses
* Personal liability for business debts
* Reputation
* Dividends.
66
How do shareholders affect businesses?
* Involved in decision-making
* Provide finance
* Promotion
* Takeovers.
67
How are employees affected by businesses?
* Receive wages/salaries
* Work/life balance
* Working conditions
* Fringe benefits.
68
How do employees affect businesses?
* Productivity affects costs and profitability
* Quality of products/services
* Reputation and employer brand
* HR costs.
69
How are managers/directors affected by businesses?
* Salary and bonuses
* Media pressure
* Responsibility for financial performance and CSR.
70
How do managers/directors affect businesses?
* Decision-making
* Delegation and coordination
* Recruitment.
71
How are lenders/creditors affected by businesses?
* Risk of liquidity problems if business defaults
* May receive interest payments as revenue.
72
How do lenders/creditors affect businesses?
* Provide essential finance
* May apply pressure over repayments.
73
What is a conflict between shareholders and managers?
Shareholders may favor quick finance, while managers often have long-term, socially-related goals.
74
What is the definition of internal economies of scale?
Reduction in average total cost per unit as output increases.
75
What are technical economies?
A fall in unit cost of production due to advanced machinery.
76
What are purchasing economies?
Reduction in average cost due to bulk buying.
77
What are marketing economies?
Reduction in unit cost achieved by spreading promotional spending over more units.
78
What are managerial economies?
Reduction in average cost due to hiring specialist managers.
79
What are financial economies?
Reduction in average cost due to lower financing costs per unit.
80
What are external economies of scale?
Falling average costs due to the expansion of an industry.
81
What are diseconomies of scale?
Increase in average cost when a business expands beyond an optimal level of output.
82
What causes communication problems in large organizations?
* Information overload
* Bureaucracy
* Long chains of command.
83
What is alienation of the workforce?
Employees feel their contribution is irrelevant in large organizations, leading to poor motivation.
84
How can businesses avoid diseconomies of scale?
* Decentralization
* Reduced diversification
* Delayering
* Delegation and autonomy
* Demerger.
85
What is internal growth?
Natural growth by selling more products using own resources.
86
What are methods of internal growth?
* New customers
* New products
* New markets
* New business model.
87
What are the advantages of internal growth?
* Lower cost
* Lower risk
* Improved customer loyalty
* Greater control.
88
What are the disadvantages of internal growth?
* Slow process
* Limited growth potential
* Difficult to enter new markets.
89
What is external growth?
Bringing together two or more firms to increase combined size.
90
What are methods of external growth?
* Mergers
* Acquisitions or takeovers.
91
What is a merger?
An agreement between two or more companies to form one new company.
92
What are the advantages of mergers?
* Combined resources
* Diversification
* Economies of scale.
* Increased revenue.
93
What are the disadvantages of mergers?
* Diseconomies of scale
* Culture clashes
* Costs of integration.
94
What is a takeover?
An agreement to buy all of another company's shares and assets.
95
What is diversification in business?
Diversification refers to the introduction of new products and markets.
96
What are economies of scale?
Economies of scale are cost advantages that a business obtains due to the scale of its operation.
97
How can a business increase revenue?
By increasing market share.
98
What is a potential disadvantage of increased scale in a business?
Diseconomies of scale — loss of control.
99
What can result from culture clashes during a merger or acquisition?
Disagreement over decision.
100
What is a significant risk associated with mergers and acquisitions?
High risk of failing.
101
What does a takeover or acquisition imply?
An agreement to buy all of another company’s shares and assets.
102
What happens to the acquired company after a takeover?
The acquired company ceases to exist, but its branding, products, or services usually remain.
103
What is the difference between an acquisition and a takeover?
Acquisition implies a more amicable agreement; takeover implies hostility.
104
What is one advantage of a takeover for the acquiring firm?
The acquiring firm retains control.
105
What is one disadvantage of a takeover?
May generate negative PR.
106
What is a joint venture?
A separate business entity created by two or more parties, involving shared ownership, returns, and risks.
107
How does a joint venture differ from a merger?
A new entity is formed, while the original businesses remain.
108
What is a common ownership structure in a joint venture?
Usually a 50:50 share.
109
List one advantage of a joint venture.
* Shared expertise
* Access to new markets
* Shared costs and risks
* Increased market shares
* Access to resources.
110
What is a disadvantage of joint ventures?
May result in disagreements between parties.
111
What is a strategic alliance?
An agreement by two firms to work together on a project without forming a new business entity.
112
What do both firms retain in a strategic alliance?
Independence.
113
List one advantage of a strategic alliance.
* Managerial capabilities combined
* Shared R&D costs
* Both firms gain customers.
114
What is a disadvantage of a strategic alliance?
Potential disagreement over design.
115
What is franchising?
An agreement whereby one business allows another to trade under its name for a series of fees.
116
Who is the franchisor?
The business that sells the rights.
117
What is an advantage of franchising for the franchisor?
The potential for rapid growth due to the finance of the franchisee.
118
What is a disadvantage of franchising for the franchisor?
Poor management of individual franchisee may tarnish the brand.
119
What is one advantage of franchising for the franchisee?
A proven business model.
120
What is a disadvantage of franchising for the franchisee?
Often excessive rules and regulations.
121
List a reason for businesses to stay small.
* To maintain a loyal customer base
* To differentiate from large firms
* To avoid diseconomies of scale.
122
List a reason for businesses to grow.
* Access to new markets
* Increased revenue and profit
* Build brand recognition.
123
What defines a multinational company (MNC)?
A business that operates in more than one country with its headquarters in one country.
124
What is an example of a multinational company?
Huawei, Apple, Microsoft, Amazon.
125
What is a positive impact of MNCs on host countries?
* Job creation
* Transfer of knowledge
* Infrastructure improvements.
126
What is a negative impact of MNCs on host countries?
Pollution — air, water, light, visual, etc.
127
What does the economic multiplier effect refer to?
The phenomenon where an initial injection of spending leads to a greater overall increase in economic activity.
128
What can result from the presence of MNCs in local markets?
Competition for local businesses.
