business, leadership, decision making✅

What is the purpose of a PESTLE analysis

Examines the external macro-environment that a business operates in:

• Political

• Economic

• Social

• Technological

• Legal

• Environmental

What are the main strategic positioning options for a business

• Cost leadership - competing on the basis of low prices

• Differentiation - offering unique products/services

• Focus - targeting a specific market segment

6 key business objectives

1. Profit

2. Growth

3. Cash flow

4. Survival

5. Ethical

6. Social

What acronym describes how business objectives should be

SMART

What does SMART stand for

• Specific

• Measurable

• Achievable

• Relevant/Realistic

• Timely

5 reasons why businesses set objectives

1. Provide a clear focus for decision making

2. Motivates employees

3. Reduces uncertainty

4. Provides a target

5. Provides a criteria for evaluating performance

Hierarchy of objectives

1. Mission statement

2. Corporate objectives

3. Departmental/functional objectives

Total revenue =

Price x Quantity sold

Profit =

Total Revenue - Total Costs

Total costs =

Total Fixed Costs + Total Variable costs

Total Variable costs =

Variable cost per unit x Quantity sold

What is profit

Reward business owners achieve from taking risks and making investments

What is revenue

Achieved from the trading activities of a business, also known as turnover or sales

What are costs

Amounts that a business incurs in order to make goods or produce services

What are variable costs and some examples

Costs that change in relation to output:

• Raw materials

• Wages

• Marketing costs

What are fixed costs and some examples

Costs that do not change in relation to output:

• Rent

• Rates

• Salaries

• Advertising

What do unincorporated businesses have

Unlimited liability

Which 2 types of businesses are unincorporated

1. Sole trader/Sole proprietor

2. Partnerships

Which 2 types of businesses are incorporated

1. Private limited companies (Ltds)

2. Public limited companies (PLCs)

What is unlimited liability

When owners are personally responsible for the debts and liability of the business

Who owns Ltd’s

Shareholders, shares are not traded publicly or on a stock exchange

What is a PLC

A type of limited company where shares may be on a public stock market

What is a public sector company

A company owned and controlled by the government

What is a public sector organisation

Organisation funded by government which provides goods and services operated by public bodies

What is a a non-profit organisation

Business that trade in order to benefit the community

What is a social entreprise

Organisations with the purpose of aiding society or the environment

4 key issues with different business forms

1. Unlimited and limited liability

2. Ordinary share capital

3. Market capitalisation

4. Dividends

What is ordinary share capital

Money raised by a business through the sale of new shares

What is market capitalisation

The total market value of the issued share capital of a company

What are dividends

Payments made by a company to its shareholders taken from profit made by the company

2 reasons why shareholders invest

1. Dividends

2. Increase in share price

How is a share price determined

Through the interaction of supply and demand

4 internal influences on share price

1. Financial performance

2. Dividend policy

3. Relationship with key investors

4. Management reputation

4 external influences on share price

1. State of the economy

2. General market sentiment

3. Whether the company is a takeover target

4. Alternative investments in the company’s sector

What are sole traders objectives most likely to be focused on

Survival, since a large proportion of start ups fail in the first few years

What are Ltd’s objectives likely to focus on

• Market share

• Customer satisfaction

• Revenue growth

What are PLC’s objectives likely to focus on

• Shareholders want higher dividends and rising share prices to maximise ROI

• Objectives are related to profit maximisation

What does the external environment affect

Cost and demand

What is leadership

A relationship through which one person influences the behaviour or actions of others

4 types of management styles

1. Autocratic

2. Paternalistic

3. Democratic

4. Laissez-faire

3 influences on management styles

• Personal value systems

• Confidence in subordinates

• Pressure

• Managers experience

• Type of organisation

What does the TannenBaum and Schmidt continuum show

A range of actions related to the:

1. Degree of authority used by managers

2. Area of freedom available to non managers

What are the 4 features of the TannenBaum and Schmidt continuum

1. Tell

2. Sell

3. Consults

4. Joins

Two approaches to decision making

1. Intuition

2. Scientific

4 considerations in decision making

1. Risk

2. Reward

3. Uncertainty

4. Opportunity cost

Decision tree

Used to map out potential choices

How to calculate expected value from a decision tree

Estimated financial effect x Probability

How to calculate net gain from a decision tree

Total expected value - Cost associated with decision

5 influences on decision making

1. Mission

2. Objectives

3. Ethics

4. External environment

5. Resource constraints

Quote from Jack Welch who supported intuitive and gut decision making

“Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion

What is Daniel Kahneman’s 3 criteria for trusting your intuition

1. The situation is regular

2. You have had lots of practice

3. Immediate feedback

What is a stakeholder

Any individual who has a vested interest in the activities and decision making of a business

Examples of stakeholders

1. Shareholders

2. Business Owners

3. Managers

4. Employees

5. Customers

6. Suppliers

7. Banks

8. Local Community

9. Government

Stakeholder mapping

What is important for managing the relationship between different stakeholders

Communication and consultation

4 departments of a business

1. Finance

2. Marketing

3. Human Resources

4. Operations