Business Management – Introduction, Organization Types, Stakeholders & Growth

91 question-and-answer flashcards covering key concepts from the lecture notes: business definition, factors of production, functions, sectors, challenges, business entities, stakeholders, growth strategies, economies of scale, CSR, STEEPLE, SWOT, Ansoff matrix, and more.

What is the definition of a business?

A decision-making organization established to produce goods and/or provide services.

How do goods differ from services?

Goods are tangible physical products (e.g., cars, food); services are intangible actions (e.g., banking, tourism).

Name the four factors of production.

Land, Labour, Capital, Entrepreneurship.

What resource does the factor ‘Land’ represent?

Natural resources used to produce goods and services (e.g., water, minerals).

Which factor of production refers to human effort?

Labour.

Give two examples of ‘Capital’ in production.

Machinery and motor vehicles (any man-made productive asset).

What is entrepreneurship?

The ability and willingness to take risks and manage the production process profitably.

List the four main functional departments of a business.

Human Resources, Finance & Accounts, Marketing, Operations Management.

What is the core role of Human Resource Management?

Recruiting, developing, motivating and compensating employees to meet organisational goals.

Which function monitors cash flow and prepares financial statements?

Finance & Accounts.

What marketing mix phrase summarises marketing’s task?

'Getting the right product at the right price in the right place with the right promotion.'

Operations management is primarily concerned with what?

Designing, supervising and controlling the production process to deliver goods or services.

In which sector is farming classified?

Primary sector.

Why does the primary sector’s share usually fall as economies develop?

Because value added is low and economies shift toward higher-value secondary and tertiary activities.

Define ‘value added’.

The difference between the value of outputs and the value of inputs.

What activity characterises the secondary sector?

Manufacturing or construction of finished products from raw materials.

Provide two examples of tertiary sector services.

Banking and tourism (any service provision to customers).

What is the quaternary sector focused on?

Knowledge-based activities such as ICT, R&D, consultancy and scientific research.

Explain ‘sectoral change’.

A shift in the relative size or importance of economic sectors as a country develops.

What links the four business sectors?

The chain of production, showing interdependence from raw material to end consumer.

State three common challenges when starting a new business.

Lack of finance, unestablished customer base, cash-flow problems (others include marketing, people management, legalities, etc.).

Give two opportunities that motivate entrepreneurship.

Potential for growth and autonomy (others: earnings, inheritance, challenge, hobbies, security).

Differentiate the public and private sectors.

Public sector is controlled by government to provide essential services; private sector is owned by individuals aiming for profit.

Who owns and runs a sole trader business?

One individual who has total control and responsibility.

What does ‘unlimited liability’ mean for a sole trader?

The owner is personally responsible for all business debts and may lose personal assets.

State one advantage and one disadvantage of sole proprietorship.

Advantage: keeps all profits; Disadvantage: difficult to raise finance (others possible).

How many partners can an ordinary partnership legally have?

Between 2 and 20 partners (varies by jurisdiction).

Why might a deed of partnership be created?

To outline partners’ rights, responsibilities and profit-sharing arrangements.

What ownership feature do companies provide that partnerships do not?

Limited liability for shareholders.

How is a public limited company different from a private limited company regarding shares?

Public company shares can be sold on a stock exchange to the general public; private company shares cannot.

Define a cooperative.

A social enterprise owned and run by its members to create value in a socially responsible way.

What is microfinance?

Providing small loans to individuals who lack access to traditional banking services.

Distinguish NGOs from charities.

Both are non-profit social enterprises; charities focus on relief for those in need, while NGOs pursue broader socially desirable causes and are independent of government.

Who are internal stakeholders?

Individuals within the organization, such as employees, managers and directors.

Name three external stakeholder groups.

Customers, suppliers, government (others: local community, pressure groups, competitors).

What does the Johnson & Scholes Power-Interest Matrix help managers do?

Identify which stakeholder groups to prioritize based on their power and interest levels.

What is the key idea of Lewin’s Force Field Analysis?

Change occurs when driving forces outweigh restraining forces maintaining the status quo.

Why do businesses pursue growth?

To exploit economies of scale, increase market share, survive competition and spread risk.

Define ‘economies of scale’.

Cost advantages obtained due to larger scale of operation, leading to lower average costs.

Give two examples of internal economies of scale.

Technical (use of advanced machinery) and managerial (specialised management leading to efficiency).

What is an external economy of scale example?

Improved industry-wide transportation networks lowering logistics costs for all firms.

What causes managerial diseconomies of scale?

Loss of control and longer communication channels as an organization becomes too large.

List two quantitative measures of business size.

Sales turnover and number of employees (others: market share, capital employed, profit).

Differentiate organic and inorganic growth.

Organic growth expands from within by increasing sales or product lines; inorganic growth occurs via mergers and acquisitions.

What is horizontal integration?

Combining firms in the same industry at the same stage of production to increase market share.

Explain backward vertical integration.

A firm acquires a supplier operating earlier in the supply chain to secure inputs.

What is a conglomerate merger?

Amalgamation of businesses in completely unrelated industries to diversify risk.

Define ‘synergy’ in M&A.

The combined entity’s value and performance exceed the sum of the separate firms.

State one advantage and one disadvantage of M&A activity.

Advantage: economies of scale; Disadvantage: culture clash (others include redundancies, regulatory issues).

How does a joint venture differ from a strategic alliance?

JV creates a new jointly-owned entity; strategic alliance is a contractual collaboration without forming a new company.

Give two benefits of franchising for the franchisor.

Rapid expansion with lower capital risk and receipt of royalty payments.

What major limitation does a franchisee face?

Must follow strict franchisor guidelines, limiting entrepreneurial freedom.

Define globalisation in business.

The growing integration and interdependence of the world’s economies and markets.

List two advantages MNCs may bring to a host country.

Job creation and technology transfer (others: economic growth, competition).

Mention one criticism often levelled at MNCs in host nations.

Repatriation of profits to the home country, reducing local economic benefit.

What does STEEPLE stand for?

Social, Technological, Economic, Environmental, Political, Legal, Ethical factors.

Which STEEPLE factor considers inflation and unemployment rates?

Economic.

Give an example of an ethical factor affecting business.

Pressure to adopt fair-trade sourcing to treat suppliers ethically.

Contrast vision and mission statements.

Vision states long-term aspiration (‘what we want to become’); mission sets current purpose and core values (‘what we do’).

Define a strategic objective.

Medium- to long-term goal set by senior management to guide overall direction.

What does SMART stand for in objective setting?

Specific, Measurable, Achievable, Relevant, Time-bound.

Provide an example of an operational objective.

"Greet every customer within 2 minutes of entering the store."

Why might objectives change over time?

Internal factors (e.g., ownership change) or external factors (e.g., economic recession) require adaptation.

What are ethical objectives?

Goals based on moral codes that provide social or environmental benefits alongside profit.

Give two potential downsides of pursuing ethical objectives.

Higher compliance costs and possible lower short-term profits.

Describe corporate social responsibility (CSR).

A firm’s commitment to act ethically and contribute positively to society and the environment.

In SWOT analysis, which elements are internal?

Strengths and weaknesses.

Why is converting weaknesses into strengths important?

It improves competitive position and reduces vulnerabilities.

What growth strategy is ‘market penetration’ in the Ansoff matrix?

Increasing sales of existing products in existing markets.

Which Ansoff strategy has the highest risk?

Diversification – new products in new markets.

Explain market development according to Ansoff.

Selling existing products in new markets, such as entering overseas regions.

What is product development in Ansoff’s terms?

Launching new or improved products to the firm’s existing customer base.

How can sectoral change impact HR planning?

Shifts from primary to tertiary sectors require new skill sets and retraining of labour.

What is ‘unlimited liability’ for partners?

Each partner is personally responsible for all business debts, jointly and severally.

Identify one advantage of a worker cooperative.

Decision-making power and social benefits for member-workers.

What role do pressure groups play for businesses?

They influence firms to change practices or objectives through public campaigns.

In the Power-Interest Grid, how should ‘Group D’ stakeholders be managed?

Treat as key players; their influence and interest are high, so actively engage and satisfy them.

Give a real-life example of forward vertical integration.

A coffee roaster opening its own chain of retail cafés.

Why might a firm form a strategic alliance instead of a merger?

To access complementary resources while retaining independence and reducing risk.

What is meant by ‘hostile takeover’?

Acquisition attempt opposed by the target company’s management.

List two common external diseconomies of scale.

Higher rents due to overcrowding and traffic congestion causing delivery delays.

Explain ‘purchasing economies of scale’.

Cost savings from buying inputs in bulk at discounted prices.

Why are franchises considered a ‘middle-speed’ growth strategy?

They expand faster than organic growth but slower than mergers & acquisitions.

What is a ‘sleeping partner’?

A partner who invests capital but does not take part in day-to-day management.

Define ‘stakeholder conflict’.

When different stakeholder groups have competing objectives that cannot all be satisfied simultaneously.

Give an example of a legal factor in STEEPLE impacting business.

New consumer protection legislation requiring clearer product labelling.

How does diversification spread risk?

By operating in different markets or product lines, a downturn in one area may be offset by success in another.

Why is culture clash a danger in M&A?

Different corporate cultures may lead to employee conflict, reduced morale, and productivity loss.

What benefit does ‘regional specialisation’ offer firms?

Access to a concentrated pool of skilled labour and suppliers in a particular geographic area.

What is the primary objective of microfinanciers?

To extend small-scale credit to individuals without traditional collateral, promoting entrepreneurship.

Name one method companies use to measure market share.

Firm’s sales revenue divided by total industry revenue, expressed as a percentage.

Why might a recession force businesses to lower objectives?

Reduced consumer spending and tougher conditions make ambitious targets unrealistic.

What is ‘preferential trade credit’ as an organic growth method?

Negotiating longer payment periods with suppliers, freeing cash to fund expansion.

State one reason firms create strategic alliances in foreign markets.

To leverage local partner’s market knowledge and distribution networks.

Define ‘repatriation of profits’.

When an MNC sends earnings from the host country back to its home country.

Identify a social trend that could present an opportunity in STEEPLE analysis.

Ageing population increasing demand for healthcare services.

What are the four stages of forming a strategic alliance?

Feasibility study, partner assessment, contract negotiation, implementation.

Why do companies conduct PEST or STEEPLE analysis before expansion?

To understand external opportunities and threats and plan strategies accordingly.