Unit 2 - Spotting a Business Opportunity

What is internal (organic) growth + its methods

when a business expands by growing its own activities -new products (innovation, research and development) -new markets (through changing the marketing mix or taking advantage of technology and/or expanding overseas)

advantages and disadvantages of organic growth

• less risky as the business grows by doing what it is already good at so retains its culture, economies of scale, higher market share and sales

• growth is slower

what does external (inorganic) growth usually involve?

merger takeover

advantages and disadvantages of external growth

• economies of scale. increased revenue and market share

• clash of cultures, diseconomies of scale (communication problems), lack of trust

type of business ownership for growing businesses + advs & disadvs

public limited company

• lots of finance raised, expand and diversify, limited liability

• disagreements between shareholders, someone could take over the company, accounts must be made public

internal sources of finance for established businesses

retained profit selling assets

external sources of finance for established businesses

loan capital share capital, including stock market flotation

why do business aims and objectives change as a business evolves?

in response to: market conditions technology performance legislation internal reasons

how do business aims and objectives change as a business evolves?

-focus on survival or growth -entering or exiting markets -growing or reducing the workforce -increasing or decreasing the product range

impact of globalization on business

-imports: competition from overseas, buying from overseas -exports: selling to overseas markets -changing business locations -multinationals: businesses that operate in more than one country

barriers to international trade

tariffs trade blocs

how do businesses compete internationally?

-using e-commerce and the internet -changing the marketing mix to fit that country's culture

examples of ethical issues for businesses

exploiting workers, Fair Trade, comfortable working environment, animal testing ...

advs and disadvs of acting ethically

• customer satisfaction, staff is more motivated

• costly (higher labour costs and ethically sourced materials), may lead to higher prices and so lower sales. Trade-off between ethics and profit

examples of environmental issues for businesses

packaging, recycling, renewable energy resources, sustainability...

advs and disadvs of being environmentally friendly

• competitive advantage, attract customers

• expensive, trade-off between being sustainable and making a profit

potential impact of pressure group activity on the marketing mix

e.g change products by using ethically sources raw materials or promotional campaigns to repair negative publicity pressure group has caused

design mix

function, aesthetics, cost

product life cycle

extension strategies

Methods used to prolong the life of a product: -adding more or different features -using new packaging -targeting new markets -changing advertisements -lowering price

importance of differentiating a product/service

competitive advantage

pricing strategies

• price penetration: low to high -loss leader pricing: price is set below cost so no profit is made but customer will buy other products as well -price skimming: high to low -competitive pricing: charge similar prices to competitors -cost-plus pricing: add a certain amount to costs depending on how much profit they want to make

influences on pricing startegies

technology competition market segments product life cycle

promotion strategies

advertising sponsorship product trials special offers branding

use of technology in promotion

targeted advertising online viral advertising via social media e-newletters

methods of distribution

retailers e-tailers

purpose of business operations

produce goods provide services

Job Production

Producing a one-off item specially designed for the customer

• unique, high quality products, customer satisfaction, added value

• requires skilled labour, low productivity as it is slow

Batch Production

certain quantities of identical products are made

• flexible, machinery lowers costs, economies of scale

• time needed to change between batches lowers productivity

Flow Production

producing items in a continually moving process

• fast, economies of scale

• capital-intensive, needs lots of space for product storage

advantages of using technology

-quick and accurate e.g CAD Design -increases productivity -more consistent quality -continuous 24/7 -cheaper is the long term

disadvantages of using technology

-expensive: regular maintenance and staff training -staff may be worried they will lose jobs, demotivates them -inflexible as machines are suited to one task

Bar Gate Stock Graph

Just In Time stock control

A system where stock is delivered only when it is needed

• no warehouse for stock means lower rent, stock less likely to go out of date

• requires lots of coordination between firm and suppliers, could run out if there is a mistake in delivery/order, losing out on economies of scale

Procurement

finding and buying things that a business needs from suppliers outside the business

Logistics

getting goods and services from one part of the supply chain to another

To choose a supplier, a business must consider

quality trust availability cost delivery (cost, speed, reliability)

impact of logistics and supply decisions

reduce overall costs if business gets supplies at best possible price and doesn't waste time being inefficient ensures products amp high-quality, a reasonable price and delivered onetime, which improves customer satisfaction and brand reputation

importance of quality

controls costs by wasting less competitive advantage add value

quality control

The checking for quality at the end of the production process

quality assurance

Checking that quality is being maintained through each process involved in making the product

The sales process

product knowledge speed and efficiency of service customer engagement responses to customer feedback post-sales service

importance of good customer service

customer satisfaction customer loyalty, repeat purchased customers persuaded to spend more with the business good brand image market share and sales

gross profit equation

sales revenue - cost of sales

net profit equation

Gross Profit - other operating expenses & interest

gross profit margin equation

Gross profit/sales revenue x 100

net profit margin equation

net profit/sales revenue x 100

average rate of return equation

average annual profit (total profit/no of years)/ cost of investment x 100

types of data that can be used by businesses to make decisions

financial data marketing data market data

limitations of financial information to make decisions

may not be possible to compare two different sources of data can be hard to tell causes of changes in data as variables such as economic climate have an impact no qualitative data

hierarchal structure

long chain of command with more layers of management communication between top and bottom is difficult and slow as more people need to pass on message each manager has a narrow span of control, which is more effective as employees can be closely monitored

flat structure

short chain of command wide span of control

Centralised organisation

an organisation where all the important decision-making power is held at Head Office, or the centre

decentralized organization

authority to make most decisions is shared out

insufficient communication

inefficiency slow demotivation

excessive communication

confusion feeling overwhelmed slow

barriers to effective communication

noise, distance, personalities jargon

ways of working

part-time full-time flexible hours

types of employment contracts

permanent temporary freelance

impact of technology on ways of working

efficient communication remote working

key job roles

directors: strategy senior managers: organize carrying out of strategy supervisore/team leaders: look after specific projects operational and support staff: specific tasks within projects

Job description

formal title, propose, main duties, who job holder will report to and whether they will be responsible for any other staff

Person Specification

lists qualifications, experience, skills and attitudes needed for job

Application form

A form to use when applying for a job gives firm info they need so are quick to process and more relevant than open-ended letters

Curriculum Vitae (CV)

A brief list of the main details about a person, including name, address, qualifications and experience.

internal recruitment

seeks job applicants from inside the organization

• cheaper, quicker, they already know about the firm

• no new ideas, leaves a vacancy to fill

external recruitment

the process of seeking new employees from outside the firm

• advert seen by more people so it is likely they will find someone really suited

• expensive

types of training

formal: expensive but higher quality informal: cost-effective but bad habits can be passed on self-learning: using internet

importance of ongoing training

learning new processes, how to use new technology and help emlployees develop

use of target setting and performance reviews

people who meet target can be rewarded with a bonus people who don't can be given training or support

why businesses train and develop employees

more productive more motivated up to date with new technology increases staff retention

importance of motivation in the workplace

attracting employees retaining employees productivity

financial methods of motivation

remuneration: payment for work done bonus: lump sum added to pay once a year commission: extra pay to sales staff for every item they sell promotion: put in a job role that pays more fringe benefits: a reward that is not part of main income e.g company car or gym membership

non-financial methods of motivation

job rotation: occasionally moving workers from one job to another, less boredom job enrichment: when a worker is given greater responsibility, new challenges autonomy: giving workers freedom to make their own decisions, makes them feel trusted and valued

adv and disadv of part time employees

Advantages of part-time employees: flexibility, reduced labor costs, increased productivity, and access to a wider pool of talent.

Disadvantages of part-time employees: less commitment, reduced benefits, less training, and scheduling challenges.

adv and disadv of full time employees

Advantages: Full-time employees receive benefits such as health insurance, paid time off, and retirement plans. They also have job security and a steady income.

Disadvantages: Full-time employees can be expensive for companies due to salaries, benefits, and taxes. They may also be less flexible than part-time or contract workers, making it harder for companies to adapt to changing needs.

adv and disadv of flexible working

Advantages of flexible working: Improved work-life balance, increased job satisfaction, reduced stress, and better health. Disadvantages of flexible working: Difficulty in managing and monitoring remote workers, potential communication issues, and the need for a reliable internet connection.

adv and disadv of permanent employees

Advantages: Permanent employees receive job security, benefits and opportunities for career growth within the company. They also have a better understanding of the company culture and can contribute to its success.

Disadvantages: Permanent employees are more expensive than temporary or contract employees. They may also become complacent and resistant to change, which can hinder the company's ability to adapt to new challenges. Additionally, layoffs or downsizing can be more difficult and costly with permanent employees.

adv and disadv of temporary employees

Advantages: Cost-effective, flexible workforce, easy to hire and fire, specialized skills, can fill sudden vacancies.

Disadvantages: Lack of loyalty, inconsistent quality, limited benefits, training costs, potential legal issues.

advntages and disadvantages of freelance contracts

• Advantages: Flexibility, autonomy, higher income potential, diverse work opportunities, and ability to work remotely.

  Disadvantages: Inconsistent income, lack of job security, no employee benefits, self-employment taxes, and difficulty in finding clients.