HIGHER BUSINESS UNDERSTANDING BUSINESS UNIT ASSESSMENT (things I find hard)

What is organic growth?

when a business grows naturally (themselves)

What are examples of organic growth?

hiring more staff/equipment to increase production capacity

opening new outlets or introducing e-commerce

introducing new products/services

What are the advantages of organic growth?

no loss of control to outsiders

hire more staff that bring new ideas

less risky than takeover or merge

opening new branches mean they can increase market share

What are disadvantages of organic growth?

slow method of growth

restricted by amount of finance

limited by size of market

What is HORIZONTAL integration?

when two companies at the same stage of production process merge or take over each other

What are the advantages of horizontal integration?

gains greater market

can achieve economies of scale easily

if you merge or take over with a company at the same stage, you remove a competitor

What are the disadvantages of horizontal integration?

hostility or job losses

changes in business can negatively affect customer loyalty

What is VERTICAL integration?

when a business merges or takes over company at different level of production

What are the advantages of vertical integration?

guaranteed an outlet to sell products

more control over pricing and products

What are the disadvantages of vertical integration?

entering a new market can affect ability

What is FORWARD vertical integration?

when a business takes over company at a later stage of production process

What is an example of forward vertical integration?

Ford motor group merge/takeover Arnold Clark

What is BACKWARD vertical integration?

when a business takes over company at an earlier stage of production process

What is an example of backward vertical integration?

Ford motor group merge/takeover supplier of car parts

What is a conglomerate?

when a business moves into an entirely different market

What is an example of a conglomerate?

a supermarket merging with a bank

What is lateral growth?

when a business moves into a different market but with related industry

What is an example of lateral growth?

hairdresser merging with beauty therapist

What are the advantages of lateral growth?

business gains customers and assets

target new market- increasing customer taste

spreads risk across different markets

What are the disadvantages of lateral growth?

risk to core activities e.g resources being shared

existing staff may not have correct knowledge

What is diversification?

when firms move into new markets different from their core business

What is an example of diversification?

virgin group- virgin media

easy jet- easy gym

How do businesses achieve growth?

MERGER- two business join together (often rename)

ACQUISITION- business buys assets/operations of another company (e.g business is closing down)

TAKE OVER- larger company takes over smaller company (more hostile)

FRANCHISING- individual buys license to operate well known business

INCREASING STAFF- more staff, more productivity, increase in customer satisfaction

What is retained profits?

business keeps profits from each year and reinvests them back into business

What is a deinvestment?

company sells part of business and reinvests profits into business

What is deintegration?

involves selling part of business that was previously integrated

(allows business to refocus on their core activities)

What is asset stripping?

business will purchase another business only for their assets

(after buying company, assets are sold for profit)

What is a demerger?

business that were previously merged become separate

What is a BUY-IN?

external managers purchase business as they believe they can make more money

What is a BUY-OUT?

managers or employees employed by business purchase business from owners

What is outsourcing?

business hires another company to do work for them

(allows business to focus on core business)

What is the economic policy?

behaviour of the government in influencing the economic performance of the country

What is included in the economic policy?

taxation

government spending

interest rates

What is the fiscal policy?

deals with tax rates and level of government spending

What is the monetary policy?

deals with setting interest rates and controlling the supply of money in the economy

What is the competition policy?

main aim is to ensure there is fair competition in the market

leads to increased innovation as companies aim to outdo competitors

What does the competition and markets authority aim to prevent?

monopolies

mergers or takeovers

businesses discussing prices with other businesses

What is a LATERAL relationship?

relationship between manager and worker

What is a LINE relationship?

relationship between two workers on the same level

What is the 'SPAN OF CONTROL'?

number of people a manager is responsible for

What are the advantages of a TALL structure?

more opportunity for promotion- greater staff motivation

staff get more support from line manager

higher degree of supervision as each line manager has specific amount of people they are in charge of

What are the disadvantages of a TALL structure?

many levels of hierarchy

chain of command is long- makes communication slower as instructions take longer to get to everyone

expensive due to wage costs

longer communication makes firm less responsive to change

What are the advantages of a FLAT structure?

fewer levels of hierarchy

line of communication is short- faster decision making, more responsive to change

staff feel more empowered to work solo and take more responsibility

What are the disadvantages of a FLAT structure?

less promotion opportunities- may lose employees to other companies

wide span of control means tasks are delegated- employees feel stressed and managers feel overstretched

What is delayering?

levels of staff/management are removed

(makes employees redundant)

What is downsizing?

business closes down part of business or merges outlets to reduce costs and remain competitive

What is wealth creation?

adding value to a good as it goes through production process

What is a multinational?

companies that operate in more than one country

What are the advantages of a multinational?

increase market share

avoid tax or trade barriers

secure cheaper premises and labour

provides job and income

What are the disadvantages of a multinational?

profits go back to 'parent country'

language barriers

cultural differences

exploiting labour in low wage countries

What is a franchise?

business/individual buys license to operate well known business

What are the advantages of a franchise?

franchisor provides equipment, materials, advice

franchisee benefits from centralised advertising

take over successful, winning formula

What are the disadvantages of a franchise?

franchisee has no freedom

franchisee may not agree with decisions made by franchisor

reputation of 'parent' country may suffer if franchisee doesn't manage business well

What are internal factors?

factors within the business that affects the business