Business organisation and environment

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1.1

What are the business inputs?

They are the resources used by the business including:

Physical resources: the right quality and quantity of materials, machinery and land space needed to make a product or service.

Human resources: the right quality and quantity of people needed to make the product or provide the service, includes managers and employees.

Financial resources: the right quality and quantity of money needed to make the product or service.

Enterprise: set by entrepreneurs, who take risks to establish businesses and drive them forward.

What are the business outputs?

Goods: physical, tangible

Services: not physical, intangible (has value)

What is B2C vs B2B?

Business to consumer (B2C): businesses selling to consumers

Business to business (B2B): businesses selling to other businesses

What are the definitions of the two production processes: capital intensive and labor intensive?

Capital intensive: processes use a large proportion of land or machinery relative to other inputs, especially labor

Labor intensive: processes use a large proportion of labor relative to other inputs, especially land or machinery.

What are the 4 different business functions and their definitions?

Human resources: ensuring that appropriate people are employed to make the product or service and that they are suitably rewarded.

Finance and accounts: ensuring that appropriate funds are made available to make the product or service.

Marketing: ensuring that the business offers a product or service that is desired by a sufficient number of people or businesses for profitable operations.

Operations management or production: ensuring that appropriate processes are used in order to make the product or service of desired quality.

What are the 4 economic sectors?

Primary (goods): all raw materials are acquired by extracting or producing them.

Secondary (goods): raw materials are processed by manufacturing into products.

Tertiary (services): refers to any business that sells a service, sometimes using products.

Quaternary (services): subgroup of tertiary, especially focused on knowledge (IT/media).

What is a sectoral change?

A shift in the relative share of national output and employment.

What is an entrepreneurship vs entrepreneurship?

Both are essential to business activity as they are the driving force for innovative products and new business opportunities.

Intrapreneurs: are employed by large organizations and develop new products or services for the benefit of their employees.

Entrepreneurs: an individual who demonstrates enterprise and initiative in order to make a profit.

What are three reasons to start up a business?

Growth, earnings, transference and inheritance, challenge, autonomy, security, hobby.

What are the steps in starting a business?

Refine the idea

Prepare a business plan

Decide on the legal structure

Take care of administrative tasks

Find a location

Hire employees

Seek financing

What are 3 problems that a business might face?

Lack of funds, competitors, recruiting qualified employees, lack of management skills.

What are the 4 elements of a business plan?

Marketing, production, finance, human resources.

1.2

What is public sector vs private sector?

Public sector: includes all organizations that are owned and operated by central governments or local governments. Dedicated to providing services to public rather than earning profit.

Private sector: includes all organizations owned by groups/individuals.

What are the 3 types of profit-based organizations and name two advantages and disadvantages for each?

Sole traders: owns and runs the business

Pros:

Few legal formalities

Receives all profit

Own boss

Personalized services

Privacy

Cons:

Unlimited liability

Limited sources of finance

Higher costs of production

Lack of continuity

Partnership: formed by 2-20 people

Pros:

More financial strength

Division of labor (specialization)

Privacy

More chance of continuity than sole traders

Cons:

Unlimited liability

Sharing profit

More difficult decision making

Lack of continuity

Limited sources of finance

Companies/corporations

Pros:

Limited liability

Independent legal identity

Raise large amount of funds by selling shares

Cons:

Administrative difficulty and expensive

Conflict of interest between shareholders

What are the 2 types of non-profit organizations and name two advantages and disadvantages for each?

Charity: prevention and relief or advancements of something

Non-governmental organizations (NGO): operates independently of any government, whose purpose is to address a social or political issue.

What are some other types of organizations and partnerships?

Cooperatives: organizations that are owned by their members (common interest)

Agricultural cooperatives: involve farming

Retail cooperatives: involve individual shopkeepers who form cooperatives

Consumer cooperatives: set up by consumers in order to benefit lower prices

Workers’ cooperatives: involve groups of workers who own the business where they work

Microfinance: provide financial services to individuals with limited income

Public-private partnerships: arrangements where the public sector enlists the help of a private sector to meet objectives efficiently

Social enterprise: organization that applies commercial strategies to maximize improvements in financial, social and environmental well-being.

1.3

What is a vision statement?

Written expression of an organization’s long-term ambitions.

-What would we like to become?

-What would we like to accomplish?

What is a mission statement?

Written expression of an organization’s purpose

-Who are we?

-What do we do?

What is a business aim?

Broad and general goals that an organization wants to accomplish.

What is a business objective?

Measurable and time specific goals.

What is a business strategy?

Plan to achieve a strategic objective in order to work towards the aims of the business.

What is a business tactic?

Plan to achieve a tactical objective to work towards the strategies of the business, thus reaching the aims.

Make a comparison of strategies and tactics.

Strategies

Tactics

Decided by senior management

Involve medium to long-term

May be risky

A large investment may be required

Not easily reversible

Decided by middle and line management

Involve the short to medium-term

Risk is comparatively low

Likely to require fewer resources

Easier to change or modify

What are the two different needs for organizations to change objectives?

Internal environment: refers to changes in the conditions within the business

External environment: refers to anything outside the business

What are the different objectives at certain stages?

In the beginning, survival; remaining in business. This can show the importance of financial objectives such as increasing revenue. Later on, growth and profitability; attention to revenues, market share and brand awareness.

What is ethics and ethical objectives?

Ethics: refers to moral principles, values and beliefs that shape decision-making

Ethical objectives: applying ethical values to their goals

What is corporate social responsibility (CSR)?

Environmental and social concerns are taken into consideration by the business.

Labor relations: worker safety, working conditions, working hours

Environment: reducing waste/water use, carbon footprint, sustainability

Community: supporting local charities, clubs and events financially

Supplier relations: may refuse to work with suppliers who don’t treat workers fairly

What are 3 reasons to set ethical objectives?

Improving marketing, meeting expectations of society, preparing for the future

What is shared value?

Solve issues profitably by leveraging the resources and innovation of the private sector to create new solutions of society’s issues.

Draw a SWOT analysis diagram and explain what each of the sections mean.

Strengths

Human resources: highly trained, skilled and educated staff, loyal employees who work well as a team.

Finance: strong finances, adequate capital for running and expanding the business, good relations with banks, strong growth of sales and profits.

Marketing: strong brands, loyal customers, unique products or services.

Operations: modern facilities, efficient, low-cost production, high quality output.

Weaknesses

Human resources: poor management, unskilled, unqualified, unmotivated employees, tension between employees.

Finance: inadequate financing, declining revenues and profitability.

Marketing: low brand awareness and brand loyalty, undifferentiated products.

Operations: outdated facilities, inefficient, high-cost production, poor quality products and services

Opportunities

Growing market

Increasing customer spending

New technologies

Availability of skilled labor

Low-cost financing

Threats

Economic stagnation or recession that reduces spending by consumers

Higher costs of inputs

Existing or potential competitors

Unfavorable government regulations or taxation

Draw the Ansoff matrix and explain what each of the sections mean.

Market penetration: selling more of the same products and services to the same type of customers

Considered least risky growth strategy as it does not involve making large investments

Examples: extending hours, changing pricing strategies, using loyalty cards in an attempt to increase sales.

Product development: selling new products to the organization’s existing market, often to existing customers.

Usually involves some risk because it requires investment in time and resources. They will have to experiment which offering is the most popular. These efforts may distract from the primary purpose of the business and efforts to commercialize new products may fail if managers do not meet customer’s desires and expectations.

Market development: involves selling existing products to new customers.

More risky as the organization may not understand the needs of the new customers and its offers might not be adapted to the new market.

Moving to a new location

Selling to a new target market

Diversification: selling new products in a new market

Most risky growth strategy as it involves selling new products in a new market, thus getting involved in an activity of little knowledge.

Related diversification: if the new activity has some similarities with the existing business.

Unrelated diversification: engaging in diversification that is unrelated to the original business, most risky.

1.4

What are stakeholders?

Any individual or group that affects and organization or is affected by it.

What are internal stakeholders vs external stakeholders?

Internal stakeholders: inside the organization

External stakeholders: outside the organization

What are the types of internal stakeholders?

Managers: individuals who run the business, responsible for setting the aims and objectives and meeting them together with the employees.

Employees: individuals who work for the company but are not responsible for other employees.

Shareholders: owners of the company, invest in a business to receive a return on their investments, are primarily concerned with the profitability.

What are the types of external stakeholders?

They mostly have less influence on the organization than internal stakeholders.

Customers: purchase output from the organization

Suppliers: sell goods and services to other organizations

Governments: regulate organizations to protect public interest

Unions: protect employees’ rights

Banks: lend organizations funds so they can invest and carry out operations

Society: is affected by corporate behavior

Competitors: impacted by the organizations’ practices.

1.5

What is a STEEPLE analysis used for?

It is used to better recognize and understand the opportunities and threats facing a business. It is used when evaluating the external environment. It is used to determine whether or not to enter a new market.

What does STEEPLE analysis stand for and what do each of the elements determine?

Social:

Lifestyles

Social mobility

Demographics

Education

Fashions or tastes

Technological:

Technological improvements

New technology transfer

Infrastructure

ICT

Research and development costs

Economic:

The economic or business cycle

The rate of economic growth

The rate of inflation

The rate of unemployment

The exchange rates

Interest rates

Ethical:

Corruption

Transparency

Codes of business behavior

Fair trade

Political:

Political stability

Trade policies

Regional policies

Lobbying or electioneering

Legal:

Regulations

Employment laws

Health and safety legislation

Competition laws

Ecological:

Depletion of renewable resources

Global warming

Organic farming

Carbon footprints

What is GDP?

Gross domestic product: calculated as the total monetary value of all final goods and services produced in an economy in a given period of time. Annual GDP is often used to estimate the overall size of an economy. Changes in GDP indicate whether an economy is growing or retracting (recession).

What is GDP per capita?

Calculated by dividing the total GDP by the population of a country. It is used to measure the relative wealth or poverty of a nation.

What is recession?

Refers to the case where GDP decreases for two or more quarters. A quarter refers to a 3-month period.

What is depression?

Used to describe a severe or long recession.

What is inflation?

Refers to an increase in prices.

What is deflation?

Refers to a decrease in prices (less common).

What is interest rate?

Cost of borrowing money. When interest rates are low, it is positive for businesses because borrowing at a lower cost increases the success of investment in new projects and thus improves the growth.

What is unemployment rate?

Calculated as the percentage of the labor force that is out of work but actively seeking employment at a given time.

What are imports?

Goods brought into a country.

What are exports?

Goods manufactured in a country and sold abroad.

What are exchange rates?

Refer to the cost of one country’s currency in terms of another country’s currency.

1.6

What are economies of scale?

Refers to the case where the average unit cost of production decreases as the level of output increases (average cost goes down).

What are diseconomies of scale?

When the average unit cost of production increases as the level of output increases (average cost goes up).

Businesses that are able to produce goods and services at a lower cost than their competitors have an advantage in the marketplace.

The size (big or small) of an operation can impact a business’s cost structure (more output).

Businesses producing a higher level of output will be able to produce at lower costs.

What is the scale of operations?

Refers to the size of output, when a business increases its scale of operations it produces more.

The business achieves economies of scale when it increases its scale of operations and in the process becomes more efficient.

What is efficiency?

Measured in terms of costs of production per unit.

What are costs of production (formula)?

Total costs=fixed costs/variable costs

What are fixed costs?

Costs that do not change as production changes.

What are variable costs?

Costs that vary as production changes.

What is the formula for average costs?

Average costs= total costs/quantity produced

What is optimum production?

Producing at the lowest average costs.

What are the factors of internal economies of scale?

Technical: bigger units of production can reduce costs because as output increases, the cost of equipment can be spread over a higher volume of production. The use of equipment allows production to become more efficient resulting in a decline in unit costs (price of producing one ‘unit’ of a product).

Managerial: bigger businesses can afford to have managers specializing in one job, improving efficiency and decreasing costs.

Financial: large corporations can negotiate lower interest rates with their banks due to their large borrowing needs and their lower risks because they have an option to ask their own bonds (contract between two companies for borrowing money).

Marketing: bigger businesses can direct more effective marketing campaigns since their marketing campaign costs can be spread over a larger volume of sales which decreases the unit costs.

Purchasing: when larger amounts are purchased, it is often at a lower cost.

Risk bearing big businesses can afford to produce a bigger product range which spreads the risk of one product failing.

What are the factors of internal diseconomies of scale?

Managerial issues: a lack of coordination and cooperation between employees in a big business can create inefficiencies and increase costs.

Increase in size of workforce: As the number of workers in a company increases, some jobs may become too specialized that decision making becomes more complex and can increase the costs associated with salaries and wages.

Communication: when there are too many people in a company, the communication becomes more difficult and thus less efficient as the task instructions may be unclear.

What are the advantages of a small organization?

Economies of scale: limited potential for economies of scale

Marketing: may be close to customers, allowing a better understanding of their needs and wants.

Management and employees: managers may personally know employees, leading to greater motivation and loyalty.

Regulations: may find it difficult to agree with complicated regulations, although they may be excluded from some due to their small size.

Financing: may have difficulty accessing financing, especially at low cost.

Competitors: may be able to respond more quickly to localized market opportunities.

What are the advantages of a large organization?

Economies of scale: potential for economies of scale but also diseconomies of scale.

Marketing: may have more resources for expensive, sophisticated marketing campaigns.

Management and employees: more chance of hiring skilled employees as there may be more career opportunities available for them.

Regulations: are more able to hire specialists and make investments required to agree with due to regulations.

Financing: may be able to borrow more easily and at a lower cost.

Competitors: may have the resources to drive competitors out of the market.

What is profit satisficing?

Describes the behavior whereby owners do not seek to grow their companies at all costs.

What is internal growth? Name one advantage and one disadvantage.

Includes everything an organization undertakes on its own to expand and develop.

Advantage: the enterprise maintains control of its own development.

Disadvantage: the internal growth can take more time to realize.

What is external growth? Name one advantage and one disadvantage.

It is the development that involves the participation of another organization, the company works with another company in order to expand.

Advantage: the ability to expand quickly, enable a company to gain needed expertise from another organization.

Disadvantage: may be possible to protect owned information and know how to when working with a partner.

What are the 4 external growth methods?

Mergers, acquisitions and takeovers:

Merger: usually results in two firms combining to form a third firm. This company then replaces the two that existed before the merger.

Acquisition: implies that one firm purchases another firm.

Takeover: term used to describe the process that results in either merger or an acquisition. It involves one firm offering to buy the shares from the shareholders of another firm, usually at a price that exceeds their value in the stock market.

They result in a fundamental change in structure to the companies involved. They can’t be reversed easily if something goes wrong, more risky.

Joint ventures:

Involve the creation of a separate entity by two or more ‘parent’ companies. It is formed in order to carry out an aim or objective that might be difficult for each of the ‘parent’ companies to achieve on its own. It can be dissolved at the end of any project.

Strategic alliances:

Involve two or sometimes more organizations working together to realize a set of common objectives. The relationship between the companies may be spelled out in a contractual agreement, however no new entity is created so the original organizations remain intact.

Franchising:

Legal arrangement where a franchise buys the rights to use the name and business model of a franchisor. The franchisee pays for the franchise and the franchisor supports the franchisee with marketing.

What is the impact of globalization?

Increased competition

Greater brand awareness

Skills transfer

Closer collaboration

What is a multinational company (MNC’s) and how does it grow?

Multinational companies: corporations that operate in at least two countries, one of which is outside the corporation’s home country.

Improved communications: not only ICT but also transport and distribution networks.

Dismantling of trade barriers: allowing for easier movement of raw materials, components and finished products.

Deregulation of the world’s financial markets: allowing for easier transfer of funds and tax avoidance.

Increasing economic and political power of the multinational companies, can be of big benefit, especially in middle- and low-income countries.

1.7

What are the 4 different decision-making tools?

Fishbone diagram

Decision trees

Force field analysis

Gantt chart

What is their purpose?

Fishbone diagram: cause-and-effect diagram

Force field analysis: It looks at forces that are either driving movement toward a goal (helping forces) or blocking movement toward a goal (hindering forces)).

Gantt chart: illustrates a project schedule

Decision tree: A decision tree has decisions and options

It is a decision support tool that uses a tree-like model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility.

used to determine a course of action or show a statistical probability.

Draw a fishbone model.

What are the benefits and limitations of a fishbone model?

Benefits:

Motivating as it brings people together to discuss problems

It is flexible, it can easily be adjusted

Can highlight many factors and points out most significant factors

Limitations:

May show causes but not solutions

It is very subjective, can lead to arguments

Requires knowledge and honesty

Draw a force field analysis.

What are the benefits and limitations of a force field analysis?

Benefits:

Gives a clear answer

Flexible and can be applied to many situations

Limitations:

Involves interpretations in determining which factors to include

Mostly qualitative data only

What does a Gantt chart look like?

It is usually on excel

Time and tasks (planning)

Time can overlap

What are the benefits and limitations of a Gantt chart?

Benefits:

Gives clear picture of overall tasks

Allows managers to plan resources to complete most efficiently

Limitations:

It is based on estimating timings of each task

Can’t separate interdependent tasks

Causes stress on meeting deadlines

What are the benefits and limitations of a decision tree?

Benefits:

Gives a clear answer to a complex decision

Limitations:

Based on estimates about the future

Quantitative data mostly

Can be difficult to draw with highly complex decisions