Chapter 1: Business Environments Grade 12 IEB Business Studies

Flashcards covering Micro, Market, and Macro business environments, SWOT, Porter's Six Forces, P2E2STLE, the eight business functions, financial ratios, and factors of production.

What is the level of control and position of the micro environment?

The micro environment is internal to the business, and management has full or majority control over it.

What is the level of control and position of the market environment?

The market environment is external (immediately outside the business); management has no control over it, but can influence some elements through strategic planning and decisions.

What is the level of control and position of the macro environment?

The macro environment is broader external; management has no control and cannot influence it, but the business is still affected.

Which analytical tools are used to analyze the micro environment?

Environmental scan, SWOT (Strengths and Weaknesses only), resource-based analysis, and value-chain analysis.

Which analytical tools are used to analyze the market environment?

Environmental scan, SWOT (Opportunities and Threats only), and Porter's Six Forces.

Which analytical tools are used to analyze the macro environment?

Environmental scan, SWOT (Opportunities and Threats only), and P2E2STLE / PESTLE.

What is the definition of environmental scanning?

Environmental scanning is the process of obtaining information about possible current and future events that may impact on the success of the business.

What is the primary purpose of environmental scanning?

To identify factors (challenges and opportunities) that may impact the business and adjust existing plans or develop new flexible strategies and contingency plans to deal with them quickly.

In which business environments can environmental scanning be performed?

Environmental scanning is not limited to external environments; it can be done in all three business environments (micro, market, and macro).

In a SWOT analysis, what are Strengths?

Internal factors under management control that make the business better than competitors and represent things it does well.

In a SWOT analysis, what are Weaknesses?

Internal factors under management control stopping the business from being better than competitors, representing things it lacks.

In a SWOT analysis, what are Opportunities?

External chances outside business control to outperform competitors.

In a SWOT analysis, what are Threats?

External issues outside business control that could hamper success and must be steered around using contingency plans.

According to exam tips, are competitors classified as a weakness or a threat in SWOT analysis?

Competitors are classified as an external threat, not an internal weakness.

According to exam tips, how is expanding into other countries classified in SWOT analysis?

Expanding into other countries is classified as an external opportunity, not an internal strength.

What is the definition of the micro environment?

The micro environment refers to the internal and closely connected factors that directly impact a business's day-to-day operations and its ability to serve its customers.

What are the key components of the micro environment?

Vision and mission, organisational culture, organisational structure (organogram), management and leadership, shareholders, employees, organisational resources, and the 8 business functions.

How do a business's vision and mission statements differ?

A vision describes a road map to the future outlining long-term goals, whereas a mission specifies why the business exists, its values, and its medium- and short-term objectives.

What is the definition of resource-based analysis?

A strategic management tool that looks at tangible and intangible resources owned by a business, identifies the value each creates, and determines which resources create a sustainable competitive advantage.

What are examples of tangible resources in resource-based analysis?

Scarce raw materials, financial resources, land and buildings (good location), machinery, equipment, and inventory.

What are examples of intangible resources in resource-based analysis?

Patents, trademarks, copyrights, an established brand, goodwill, skills, a workforce with good morale, a reputation for superior customer service, and designers' talent.

What four characteristics must a strategic resource possess to create a sustainable competitive advantage?

It must be valuable, rare, difficult to imitate (unique), and non-substitutable (as well as durable).

What are the five practical framework steps of resource-based analysis?

1. Identify the strategic value of the resource. 2. Determine if it is possible to utilise the resource better. 3. Determine how the resource creates a sustainable advantage/ROI. 4. Formulate a strategy to ensure optimal use. 5. Identify the resource gap and obtain these resources.

What is the definition of value-chain analysis?

A tool that looks at the different ways a business creates value for its customers by breaking the business into its activities and analysing how each activity contributes to overall value creation.

What are the steps in value-chain analysis?

1. Each activity in the chain is analysed. 2. Determine where value is added (or insufficient value is added) in the process. 3. Retain activities that create value; eliminate or outsource activities that do not.

What are the eight business functions?

Purchasing, Production, Financial, Human Resources, Marketing, Public Relations, Administration, and General Management.

What is the definition of the purchasing function?

The process of acquiring goods and services for a business at the best possible price and quality, involving sourcing suppliers, negotiating contracts, managing vendor relationships, and managing inventory.

What six criteria define a suitable supplier in the purchasing function?

A suitable supplier delivers the right product, at the right time, in the right quality, in the right quantities, at the right place, and at the best price.

What three types of goods are purchased by a clothing retailer?

Fixed assets (mannequins, hangers, tills, computers), goods for resale (clothing, accessories, shoes), and raw materials for processing (fabric, hides).

What is Supply Chain Management (SCM)?

All activities performed to deliver the right product/service to the right customer, at the right time, place and price, overseeing the flow of materials and information from supplier to customer.

What is the definition of the production function?

Production involves the conversion (transformation) of raw materials into finished goods or services that satisfy consumer needs.

What are the advantages of automation in production?

Lower labour costs, machines do not take leave and wear/tear is minimised with maintenance, faster mass production, and higher quality with fewer mistakes.

What are the disadvantages of automation in production?

High capital investment required, job losses when workers are replaced by machines, monotonous jobs causing worker dissatisfaction, and additional costs to re-train workers.

What is the difference between sampling and inspection in quality control?

Sampling tests a few products per batch to approve the batch, whereas inspection tests each individual product against quality standards and is used for high-value goods.

What is the definition of the financial function?

Managing the financial resources of a business, including acquiring and allocating funds through budgeting, financial planning, investment decisions, cash flow management, and securing external funding.

What are the four main objectives of the financial function?

(1) Maximise profits, (2) Increase profitability, (3) Ensure liquidity, and (4) Remain solvent.

What is the formula and norm for Return on Owner's Equity (ROE)?

Formula: $\text{ROE} = \frac{\text{Net profit}}{\text{Owner's equity}} \times 100$; Norm: Compare with alternative investments.

What is the formula and norm for the Current ratio?

Formula: $\text{Current ratio} = \text{Current assets} : \text{Current liabilities}$; Norm: $2 : 1$.

What is the formula and norm for the Acid-test ratio?

Formula: $\text{Acid-test ratio} = (\text{Current assets} - \text{Inventory}) : \text{Current liabilities}$; Norm: $1 : 1$.

What is the formula and norm for the Solvency ratio?

Formula: $\text{Solvency ratio} = \text{Total assets} : \text{Total liabilities}$; Norm: $2 : 1$ (a ratio below $1.5 : 1$ indicates difficulty).

In the Lime & Lemon Ltd worked example, what was the calculated Return on Owner's Equity (ROE)?

$27.72\text{\%}$ ($7115000 \times 100 \frac{1}{25664000}$).

In the Lime & Lemon Ltd worked example, what was the calculated Current ratio?

$12.3 : 1$ ($2842000 : 231000$).

In the Lime & Lemon Ltd worked example, what was the calculated Acid-test ratio?

$7.19 : 1$ ($(2842000 - 1180000) : 231000$).

In the Lime & Lemon Ltd worked example, what was the calculated Solvency ratio?

$98.58 : 1$ ($25927000 : 263000$).

What are the advantages of credit sales for a business?

Turnover and profits increase as more goods are sold, customers return to buy on credit (building loyalty), and it stimulates the economy by creating more jobs.

What are the disadvantages of credit sales for a business?

Capital is tied up in debtors, bad debts must be written off, and additional administration costs are incurred (sending statements, calling non-payers).

What is the definition of the Human Capital / Human Resources function?

HR is responsible for managing the organisation's workforce—recruitment, hiring, training, performance management, compensation and benefits, employee relations, and legal compliance.

What is the definition of the marketing function?

Marketing involves identifying and understanding customer needs and preferences, providing products and services that meet those needs, and promoting them effectively to target markets.

What are the 4 Ps of the controllable marketing mix?

Product, Price, Place, and Promotion.

What are the 3 extra Ps added to the marketing mix for services?

People (employees serving customers), Physical evidence (store presentation, staff appearance, branding materials), and Process (operating procedures making service experience pleasant).

What elements make up the promotion mix / marketing communication mix?

Advertising, sales promotion, personal selling, and publicity.

What is the definition of the Public Relations (PR) function?

PR focuses on managing communication and relationships between an organisation and its stakeholders to maintain a favourable public perception and build trust and credibility.

What is the definition of the administration function?

Administration involves day-to-day management and coordination of administrative tasks—collecting data, processing it into information, storing it, and making it available to management when needed.

What is the definition of the general management function?

General management involves overall coordination and supervision of all activities—developing strategic plans, formulating business policies, making decisions, and overseeing operations.

What are the three levels of management and their decision types?

Top management makes Strategic (long-term) decisions; Middle management makes Tactical (medium-term) decisions; Lower management makes Operational (short-term) decisions.

What are the four core management tasks (POLC)?

Planning, Organising, Leading, and Controlling.

What is the definition of the market environment?

The market environment is external and situated immediately outside the business, focusing on factors directly impacting the specific industry or market in which the business operates.

What are the key components of the market environment?

Suppliers, Customers, Competitors, Strategic alliances, and Intermediaries.

What is the difference between a strategic alliance and a joint venture?

A strategic alliance is an arrangement between two businesses to undertake a mutually beneficial project while retaining independence; a joint venture involves pooling resources to create a separate business.

What are the forces in Porter's Six Forces model?

1. Level of rivalry, 2. Threat of new entrants, 3. Availability of substitutes, 4. Power of suppliers, 5. Power of buyers, and 6. Power of complementary products.

What characteristics define an attractive market (high profits) according to Porter's model?

High barriers to entry, low competition, few substitutes, weak supplier bargaining power, and weak buyer bargaining power.

What is the definition of the macro environment?

The macro environment is external and encompasses broader external factors which management cannot control or influence, but which significantly impact overall business performance.

What do the letters in the P2E2STLE (PESTLE) analysis framework stand for?

Political, Economic, Social, Technological, Legal / Legislation, Physical environment / Environmental, and Ethical.

What exam tip is given for formulating PESTLE answers in an exam?

Create a problem and a matching solution for each element, ensuring the problem and solution directly link together.

What are the four factors of production and their definitions?

1. Human resources (labour): physical and mental efforts of people. 2. Capital: money, machines, tools, and buildings used to create other goods. 3. Raw materials (natural resources): all natural resources used in production. 4. Entrepreneurship: combines the other three factors, taking risks to make a profit.