1
Q
4 Key concepts in BM
A
Creativity
Change
Ethics
Sustainability
2
Q
Creativity
A
the process of generating new ideas, often stemming from divergent thinking. It is the ability to create design or produce a new idea
3
Q
Ethics
A
The moral principles and values that form the basis of how business activities is conducted
4
Q
Sustainability
A
In a business management context, sustainability is about operating in ways that enable individuals and societies to meet their needs and desires now without compromising or jeopardising the ability of future generations to meet their own needs and wants.
5
Q
Change
A
The modification or transformation in the way business is conducted as a response to internal factors or external influences
6
Q
Entrepreneurship
A
Describes the trait of business leaders who tend to be distinctive in their attitude and outlook and who drive the business.
Entrepreneur: Someone who takes the financial risk (and gets the rewards!) of starting and managing a new venture.
7
Q
Qualities of a good entrepreneur:
A
Creativity
Risk Taker
Strategist
Ruthless
Visionary
8
Q
What is a business
A
A business is a decision-making organisation that uses inputs to produce goods and/or services for customers who want or need them.
9
Q
What does a business do:
A
Businesses produce goods and services to satisfy the needs and wants of their customers, usually in return for a profit
Adding value: Process of producing a particular good or service that is worth more than the cost of the resources used to produce it.
10
Q
Inputs
A
the 4 factors of production
11
Q
Outputs
A
goods and/or services
12
Q
Types of customers
A
B2C (business to consumer) refers to businesses selling to consumers
B2B (business to business) refers to businesses selling to other businesses.
Customers are the people or other businesses that purchase goods and services.
13
Q
HRM
A
Manages the personnel of the organisation.
Personnel issues include:
Workforce planning
Recruitment
Training
Appraisals
Dismissals
Redundancies
Outsourcing HR strategies
13
Q
Nature of business
A
The nature of business require the main business functional areas to work together in order to achieve the organization’s goals
Human Resource Management
Finance and accounts
Marketing
Operations
14
Q
Finance & Accounting
A
Manages the organization’s money.
Accurate recording and reporting of financial documents must take place to:
Comply with legal requirements (e.g., taxation laws)
Inform stakeholders such as shareholders and potential investors
15
Q
Publics sectors objectives
A
Provide an essential service
Provide it cheaply or free of charge, therefore it is available to everybody
They are generally beneficial to society.
16
Q
Public sector
A
Consists of organisations owned and controlled by the state or government.
17
Q
Objectives of private sector
A
To survive in a competitive market
To maximise profit
To make return for shareholders
17
Q
Private sector:
A
Consists of organisations owned and controlled by private individuals and organisations
Objectives:
18
Q
For profit organisations:
A
These are revenue generating businesses with profit objectives at the core of their operations.
18
Q
Partnerships
A
A partnership is a for-profit business owned by two or more people
Up to 20 partners depending on the country of operation
Majority are unincorporated, at least one of the owners must have unlimited liability
Each partner are personally responsible for the debts of the business
19
Q
Reasons for the public sector
A
Everyone has access to necessary services:
Infrastructure (such as communication networks, transportation networks, road and highway networks, waste disposal systems, and flood control systems)
Housing (public and social housing)
Health care services
Education
National defence (national security)
Emergency services (ambulance, fire and police)
Avoid wasteful competition
Protect citizens and businesses through institutions
Reduce unemployment
20
Q
Privatisation
A
the transfer of a business, industry, or service from public to private ownership and control
21
Q
Sole traders
A
A sole trader is for-profit business owned by a single person
The owner is personally liable for debts of the business
The owner is the same
22
Silent partners
Do not take part in the running of the business but have a financial stake. Are eligible for a portion of the organisation profits.
Some partners may have been elected to have limited liability (this is a rare exception)
23
Deed of a partnership
It is a legal contract that includes
Amount of finance contributed by each partner
Roles, obligations and responsibilities
How profits are shared
Conditions for introducing new partners
Procedures for ending the partnership
24
Advantages of partnership:
New skills and ideas
Shared workload
Specialisation
More partners = more money, financial strength
Can raise more finance
Financial privacy
25
Disadvantages of partnership:
Unlimited liability
Longer decision-making
potential disagreements and conflict between partners
Profit shared between owners
Access to finance restricted compared to companies
No continuity if a partner leaves – need to set up a new partner agreement
26
Privately held companies
A company is a for-profit business owned by numerous shareholders who enjoy limited liability (shareholders are not responsible for the company’s debt, they don’t lose personal belongings) The maximum shareholders can lose is the value of their investment.
The shares of privately held companies cannot be sold via a stock exchange.
Shares of most privately held companies (private limited companies) are owned by family, relatives, friends and private investors.
No legal requirement to publish financial accounts for the general public
27
Advantages of privately held companies:
Better control than in a PLC
Greater privacy than PLC
Large amounts of capital can be raised compared to sole traders and partnerships
Limited liability
Continuity
Employ specialists
Independent legal entity
28
Disadvantages of privately held companies:
Can only sell their shares to family, friends, and employees with approval of existing shareholders
Communication problems
Difficult and expensive to create
Can become a target for a takeover by a larger company
29
Social Enterprises
They aim to primarily provide a solution to important social or environmental issues. They exist to create a better world due to the role they play to improve society overall.
Generate revenue like any business organisation, but have community objectives for the wellbeing of society, rather than primarily focusing to earn profit for their owners
30
For profit social enterprises
An organisation that uses commercial business practices to improve communities, the environment, and human well-being, rather than just focusing on profits for external shareholders
31
Benefits of a social enterprise:
Use financial surplus to benefit others
They create employment opportunities
Run in a transparent way
32
Steeple
Social, Technology, Economic, Environmental, Political, Legal, Ethics
33
Vision statement:
A declaration of what the organization would like to achieve or accomplish in the long term or in the distant future.
Vision statements focus on the very long-term.
34
Vision statement purpose
Provides organizations with long-term direction and gives the business inspiration.
is intended to act as a clear guide for key stakeholders when planning and implementing current and future corporate strategies.
includes, or indicates, the organization’s core values.
35
Mission statement
A declaration of the business's core aims (why it exists), identity (who they are), and focus (what they do). Declares the purpose
This is a simple declaration of:
the underlying purpose of an organization’s existence.
its core values.
36
Mission statement purpose
Mission statements focus on the medium to long-term.
A well-written mission statement is clearly defined and realistically achievable.
Normally it remains unchanged over time.
37
Advantages of mission and vision statements:
Give stakeholders of an organisation a sense of purpose and direction.
Can help to motivate employees
A firm’s mission and vision statements serve to guide the organisation’s strategies and strategic objectives.
Communicates its stakeholders the purpose of long term focus of a business.
Could act as an incentive to encourage external sources of finance
38
Limitations of mission and vision statements:
Time consuming to build.
May not be supported by all stakeholders.
Too vague, or rather meaningless and / or difficult to measure.
Based on public relations to make “look good”
Vision statements (and many mission statements) are very long term, so may not ever materialise.
Could be impossible to analyse or disagree with – not taking seriously
39
Growth
Growth refers to an increase in the size of a business and its operations.
Internal (organic) growth and external (inorganic)
Failure to grow may result in declining competitiveness and threaten the firm’s sustainability.
40
Shareholder value
Protecting shareholder value is about safeguarding the interests of the owners of a limited liability company.
Generating long-term value for shareholders, earning a profitable return in a sustainable way.
41
Methods of measuring growth
Sales revenue
Sales volume
Profits
Customers
Number of employees
Market share
42
Ethical advantages:
Improves Corporate Image
Higher sales revenue
Increases Customer loyalty
Helps to improve employee morale, motivation, loyalty, retention and productivity
Help to cut certain costs in the long term (Excess packaging, expenses associated with legal actions)
In the long run, can help the organisation to gain competitive advantages and improve its profitability.
Can be beneficial for the organisation's triple bottom line (people, planet, and profits).
43
Ethical disadvantages:
Compliance Costs
Higher Prices
Lower Profits
Stakeholders conflict
Level of bureaucracy, when following ethical codes of practice and formal company policies can delay decision-making in business organisations.
The internet and social media make it very easy to expose organisations that act unethically.
44
Strategic objectives - strategy:
Strategy refers to medium to long term plans or set of goals for the business as a whole, to achieve the strategic objectives
A strategy is a plan or approach, to reach the long-term organisational aims and corporate-wide objectives.
Strategies are decided by the senior leadership team or board of directors.
45
Tactical objectives - tactics:
Tactics: short-term methods used to achieve the tactical objectives
Tactics are the specific actions or steps that are undertaken to accomplish the organisation's strategy.
They are short-term and frequently generated in order to enact strategies.
They are used by the workforce to work towards achieving the strategic objectives of the organisation
46
Stakeholders:
Any person or organisation with a direct interest in, and is affected by, the performance of a business.
All stakeholder groups are directly affected by the performance of the business.
Different stakeholder groups have different degrees of influence on the organisation.
47
Internal stakeholders:
Are members, part of the organisation
Employees,
Managers (executives)
directors,
shareholders
48
Employees interests
Improved terms and conditions
Better pay and financial benefits
Equal opportunities
Training and Career progression
Job security
49
External stakeholders
Do not form part of the business
have a direct interest or involvement in the organisation
Customers
Suppliers
Government
Competitors
Pressure Groups
Local Community
Unions
Financiers
50
Shareholders:
Individuals or organisations that buy shares in a company, thereby owning a part of the business
Powerful group as they have voting rights
51
Shareholder interests
Maximise dividend payments
Increase value of share price
A say in major decisions, voting rights
Being kept informed
52
Managers interests
Improve efficiency, labour productivity and profits
Improve their own salaries and benefits
Improve customers relation to improve competitiveness
53
Director interests
Similar to managers
Improve their share ownership and bonuses
Improve ROI for shareholders (Return on investment)
Improve competitiveness (market share and market growth
54
Customer interests
Appropriate prices
Quality products
Customer care and after-sales support
Safe products
Value for money
55
Supplier interests
Securing contracts for regular orders
Prompt payment from the business
Reasonable prices for their goods/services they supply
56
Competitor interests
Interested in the organisation’s operations
Fairness of competitive practices
Finance of competitor business, final accounts, remuneration package
Benchmark data, comparisons: sales turnover, market share,
57
Government interests
Jobs created by the business
Product quality
Business pay corporate taxes
Following consumer protection laws and employment legislation
Health and safety standards at work are met
Avoidance of unfair business practices
Environmental protection guidelines
Taxation policies and laws
58
Banks interests
Financial health of the organisation
Expect regular and prompt repayment of the money
Demand a financial return on their funds
59
Unions interests
to protect the interests of its worker members
focuses on the terms and conditions of employment, such as workers’ pay and benefits
60
Stakeholder conflict
As different stakeholder groups have varying interests in a business, it is likely that conflict will arise.
Conflict arises because a business cannot simultaneously meet the needs of all its stakeholders.
61
Resolving stakeholder conflict
Compromise involves stakeholders deliberately making considerations for other stakeholders, despite their differences.
Conciliation is a service that strives to align the incompatible interests of different stakeholder groups.
Arbitration is a service used to resolve stakeholder conflict by considering the perspectives of all parties involved in the dispute.
Worker participation (also called industrial democracy) involves employees having a direct say in how things are done in the workplace.
Share ownership schemes can help to resolve potential conflict between shareholders and employees.
Profit related pay can resolve potential conflict between managers/directors and workers.
Public relations (PR) is used to communicate positive news about the organization with the press (media) and local community.
61
How does economies of scale help a business
Enables a business to benefit from lower average costs (the cost per unit) by increasing the size of its operations.
Helps businesses to gain a competitive cost advantage because lower average costs mean:
lower prices being charged to customers
a higher profit margin earned on each unit sold.
62
Economies of scale
When the average unit cost of production decreases as the level of output increases.
The unit cost refers to the cost of producing a single unit of output.
63
Why do business grow/expand
Economics of scale
Survival
Spread risks
Increase market share
Ultimately to make profit
64
Internal economies of scale
The economies that occur inside the firm.
Within its control
Occur for a particular organisation (rather than the industry in which it operates) as it grows. These cost savings are generated within the business by operating on a larger scale.
65
External economies of scale
Arise from outside the firm due to its favourable location or growth in the industry.
Occur when a firm’s average cost of production falls as the industry grows. This means that all firms in the industry benefit.
Beyond a business’ control
Skilled labour
Shared infrastructure
Improved image
Access to suppliers
65
Internal diseconomies of scale
Occur due to problems within the organisation, which cause productivity to fall and inefficiencies to occur.
Problems of becoming too large:
Lack of control and coordination
Communication problems
Poorer working relationship
Disadvantages of specialisation and division of labour (workers become bored) – lower productivity efficiency.
Bureaucracy (combination of excessive corporate policies, procedures, and paperwork)
66
External diseconomies of scale
Occur when issues outside of the organisation raises average costs of production for all businesses in the industry.
Increase in rent due to many business locating in a certain area
Traffic congestion
Higher cost of labour due to labour shortages in urban areas.
67
Internal growth:
This occurs when a business grows by using its own capabilities and resources to increase the scale of its operations and sales revenue.
68
External growth:
External growth occurs through dealing with outside organisations. Such growth usually comes in the form of alliances or mergers with other firms or through the acquisition of other businesses.
69
Internal organic growth:
Takes place when an organisation expands without the help of an external partner firm. Instead, it uses its own resources to do so, such as using retained profits to invest in production facilities in new locations. The organisation wants to grow to increase the scale of operations and sales revenue.
70
How internal organic growth is financed
retained profits,
using bank loans (banks considered as a third party instead of a partner organisation
issuing new shares.
71
Ways to grow organically:
Changing Price (Market penetration)
Effective promotion (Market penetration)
Increasing the range of product or improve the existing products (Product development)
Opening new places, new distribution centres to sell the products (Market development)
Offer customer preferential credit payment (buy now pay later)
Investing in a production process (investment)
Improved training and development
Providing overall value for money
72
Reasons for internal growth:
To foster brand awareness and brand loyalty
To increase market share
To maintain its corporate culture
To maintain ownership and control of the organisation
To avoid the comparatively high expenses and risks associated with external growth.
73
Benefits of organic growth:
Better control and coordination
Relatively inexpensive
Maintains corporate culture
Less risky
74
Limitations of organic growth:
Dilution of control and ownership
Slower Growth than external growth
Can lead to diseconomies of scale caused by inefficiency and coordination problems of being too large.
Restructuring of the form of ownership may be needed
75
External inorganic growth
Takes place when an organisation needs the support of a partner organisation for growth.
Occurs when a business grows by collaborating with, buying up or merging with another firm
Often involves raising large amounts of money.
76
External growth methods:
1) Mergers and Acquisition (M&A’s)
2) Take overs
3) Joint Ventures (JV’s)
4) Strategic Alliances (SA’s)
5) Franchising
77
Reasons for external growth:
To grow at a faster pace
To diversify their product portfolio
To gain market share
To gain customers in new and existing markets
To reduce competition in the industry.
78
Benefits of external growth:
Quick way to grow -Fast
Quick way to reduce competition
Increase market share
Sharing of ideas
Spread risk (risk-bearing economies of scale)
Quicker than organic growth
Economies of scale
79
Disadvantages of external growth:
Costs!! More expensive than internal growth
Corporate culture may be affected
Is considered risky due to the problems of integrating two different companies
Culture clashes
Refer to disadvantages of M&As, JV’s, SA’s and Franchises
Potential diseconomies of scale
Business
flashcards
Decks in class (23)
# Cards
-
4.1 introduction to marketing9
-
5.1 Operations Management (OM)8
-
5.2 Production methods5
-
5.4 Location14
-
5.5 Break even11
-
Unit 184
-
2.1 Functions of HRM21
-
2.2 Organisation structure30
-
2.3 leadership styles20
-
2.4 Motivation and Demotivation37
-
2.5 Organisational culture10
-
2.6 Communication15
-
2.7 Employee relations25
-
Unit 3 finance62
-
4.225
-
4.3 Sales Forecasting (HL)7
-
4.5 seven p's of marketing60
-
4.4 Market research24
-
4.6 international marketing6
-
5.3 lean production22
-
5.6 supply chain38
-
5.7 contingency and crisis planning6
-
5.9 Management Information Systems22
