Business - external all to knows

This is not all urgent!!!!

Gross profit

$452.31

Net profit

$361.84

Total costs

$421.79

Why do businesses want to grow

To meet the owners desires
To become a more sustainable organisation
To encourage new investors to provide capital

Problems from growing the business

Having excess capacity (machinery / labour)
Unhappy staff (when existing culture is disrupted)
Poor implementation of expansion (investment gets wasted)

Internal growth

Buying / paying for
More equipment
More staff
Rent more factory space

Why is internal growth not possible sometimes

Money not available inside the business
Loans difficult to secure
Not sufficient skills and expertise inside the exisiting business

3 External growth strategies

Mergers and acquisitions
Joint ventures
Strategic alliances

Horizontal integration

When two companies are of the same industry and produce similar products
e.g. footwear with footwear

Vertical integration

When the two companies produce the same good but at different stages
e.g. footwear and leather tannery

Concentric integration

When the two companies are related to each other in terms of product functions or customer groups
e.g. footwear and handbags

Conglomerate integration

When the two companies operate in completely different industries
e.g. footwear and pharmaceuticals

Merger of equals

A merger between two companies of the same size

Merger of unequal

If a larger company merges with a smaller company

Is a merger voluntary

Yes, it is a voluntary process

Is acquisitions voluntary

It can be either voluntary or a hostile takeover (owning 51% of shares)

Disadvantages of mergers and acquisitions

Employees may face job losses / changes to roles of working conditions
Difficulties in merging workplace culture and expectations
Minority shareholder interests may not be recognised

Joint venture

An entity formed between 2+ parties to undertake a specified activity together. Can be for only one specific project

Strategic alliance

Mutual sharing of resources to approve efficiency. Focus is sharing resources, not changing control

Positive effect of a strategic alliance

Market entry
Sharing of risks and expenses
Gaining knowledge and expertise

Ineffective choice

When the wrong decision has been made about how to grow the business

Ineffective choice examples

A failing company is acquired
Insufficient information is collected
Stakeholders aren’t consulted

Ineffective management

When managers in charge of growth fail to implement strategies correctly / fail to manage growth sustainably

Ineffective management examples

Growth is not supported by employees
Growth occurs too quickly
Insufficient resource to manage growth
Lack of communication with stakeholders

What are internal controls

The policies, procedures, and physical safeguards that help protect a business against error, fraud and theft.

Internal control examples

Keeping cash and other valuables in a safe
Giving employees unique user IDs and passwords
GPS tracking for company vehicles
Having padlocks and high fences

Reasons for internal controls

Safeguard organisational assets
Maintain production efficiency with low waste
Ensures compliance with laws

Preventative controls

Controls to prevent mistakes, fraud and losses from occurring

Preventative control example

Having 2 staff count money from register
Having a firewall for IT
Entering customers email addresses twice for accuracy

Detective controls

Find errors in accounting or operations to be fixed

Detective controls example

Holding a monthly stocktake
Reconciliation of monthly bank statements
Having yearly / quarterly audits

Methods of internal control

Physical control of assets
Segregation of duties
Authorisation of activities
Adequate documentation
Independant performance review

Limitations of internal controls

The effectiveness of any system depends on competence of people using it
If management overrides control activities then weakened
Controls can be overcome by two + people colluding

Fraud and error - what are they in regards to internal controls

Fraud - when an employee is deliberately deceitful to the business for personal gain
Error - when employees make honest mistakes doing their assigned duties

Consumer behaviour

The collective actions taken by individuals who make up the market for a particular product or service

Pre-purchase behaviour

Marketers try to make sure their target market sees the product through advertising, and through understanding the target market more, they will get its message to its target market better

Purchase behaviour examples

Time taken to make a decision
Amount of information required to decide on a purchase
Amount of money they are willing to spend on a product

Purchasing behaviour changes with the product being purchased

Post purchase behaviour

Once consumers have made a purchase, their behaviour can affect their overall satisfaction with the product and have an impact on the company

Causes of changing consumer behaviour

Changing demographics
Changing attitudes and beliefs
Fashion, trends, and preferences

Addressing changes in consumer behaviour

The business can:
Change the features of the product or service offered
Change the promotional and marketing strategy

Factors that contribute to unethical behaviour

Having insufficient internal controls around finances and physical assets
Low staff morale
Having a negative organised culture

Consequences of unethical behaviour

Negative publicity
Low morale
Legal action

How to fix unethical behaviour

Staff training
Code of ethics
Internal controls
Policies and procedures
Positive publicity