Business A Level 3

Mission Statements

Functional Objectives

Corporate Objectives

Mission statements: Overall aim of the company (‘Earth’s most customer centric company’)

Functional Objectives: Objectives of each department (Marketing department wants more sales)

Corporate Objectives: Specific goals of the company/strategy (Profit maximisation)

Importance of Profit

3 Reasons

1. Finances expansion

2. Pays dividends to shareholders

3. Rewards risks taken by entreprenuer

Profit Calculation

Fixed Costs, example

Revenue, def

Variable Costs, example

Fixed Costs: Rent, does not increase or decrease with output

Revenue: Total from sales of business

Variable Costs: Increases/decreases with output, raw material costs

Flotation/Going Public

2 Pros

2 Cons

Pros:

• Raise large amounts of finance

• Gain greater presitge

Cons:

• Risk of takeover

• Expensive as you must pay investment banks to work out how many shares will be sold and to insure the flotation

Market Cap/Market Capitalisation

What is the formula?

• Number of ISSUED shares X CURRENT price of a share

Dividens

• 2 downsides

• Money could have been spent elsewhere

  • On employee welfare for example

• Causes to focus on only one shareholders

  • Employee welfare/local community happiness could be over-shadowed

PESTLE Analysis, Example for Each

Political Influence

• Economic Influence

• Social Influence

• Technoligical Influence

• Legislatation Influence

• Environmental Influence

• Political: Government invervention in monopoly markets using ‘Price REGULATION’

• Economic: Consumer disposal income affects demand for premium products

• Social: Rising immigration causes demand for global products

• Technoligical: AirBnb impacting traditional hospitality industry

• Environmental: Using Fairtrade increasing demand from woke

Interest Rate Changes

• Increase on interest rates effects on consumers + business

• Same as above for decrease

• Overall statement of whether an increase/decrease is better for the economy

• Increase on Interest Rates:

  • Consumers: Get MORE for saving, so consumers wil SAVE more

  • Businesses: Have to spend MORE for loans, less likely to take them on and so innovation/expansion is stifled

• Decrease on Interest Rates:

  • Consumers: Get LESS for saving, so consumers will SPEND more

  • Businesses: Can take on loans easily, as ‘renting money’ is cheaper

• A decrease on interest rates is BETTER for the economy

Price Elasticity of Demand

• If I chuck my price up how much will demand be effected?

• Describe price elastic

• Describe price inelastic

Elastic: If the price drops/increases the demand drops/increases by a GREATER amount (%)

Luxury hotels

-1 Elasticity → -3

Inelastic: If the price drops/increases the demand drops/increases by a LESSER amount (%)

University

0 Elasticity → 3

MCGregor’s Theory of Motivation

Theory X Wokrers (Majority of workers):

• Lazy

• Do not have interests of business at heart

• Just work for a wage

• Authoritarian managment styles are effective as they do not want to make decisions

Theory Y Workers (Minority of workers):

• Motivated by work

• Motivated by contributing to business

• Democractic/Laissez Faire styles are effective

• Only ever underperform if they are ‘bored’ of simple tasks

Tannebaum & Schmidht Continuum

Tells you just how autocratic a manager is by assigning them a digit on the scale, from 1-7

• 1 = Tells

  • Authoritarian Manager, employees have no say in decisions

  • ++Effective for unskilled labourers

  • —Can lead to absenteeism for experienced workers

• 2 = Sells

  • Authoritarian Manager, employees have no say in decisions but manager sells decision to them

• 3 = Suggests

  • Manager makes decision but answers questions on it too

  • ++Oppurtunity for experienced workers to ask questions

• 4 = Consutls

  • Manager makes a decision but it is tweaked by employees

• 5 = Joins

  • Manager explains issue, get advice from employees and makes a final decision

  • ++Effective if you need input from marketing or accounting manager

  • —Slows decision process

• 6 = Delegates

  • Manager explains problem and tells employees how much resources are avaiable (finances, staff)

• 7 = Abdicates

  • Employees recognise problem and solve it

  • —Managment are still acountable if something goes wrong

Scientific/Intuitive Decision Making

• Scientific decision making + two benefit + two downsides

• Intuitive Decision making + one benefit + one downside

• How to decide which one to use in a case study (two questions)

Scientific Decision Making:

• Uses a 5 step process to determine best decision

  + Easier to sell to key people as backed by SCIENCE

  + Minimizes risk as based on data

  - Data may be out of date and so still cause error

  - Decisions take longer to make

Intuitive Decision Making:

• Based on gut feeling of manager

  + Faster to make decision, effective in crisis

  - Difficult to sell, unless made by very experienced manager

How to decide which one to use in a case study?

• How reliable is the data?

• How quickly does a decision need to be made?

Influences on Decision Making

M-O-R-E

Mission: Decision will be affected with mission statement

‘To be the most popular short-form content platform’

Objective: Decision will be affected with department’s objectives + business strategy

‘Profit maximisation and increase marketing revenue by 10%’

Resources: Decision will be affected by staff/finances available

External Environment: Decision will be affected by PESTLE

Political, Economic, SOcial, Tech, Legislation, Environmental

Stakeholder Conflicts

• Each decision may benefit one stakeholder but negatively affect another

• Board of Directors, Increase dividends

• Introduce automation to increase productivity

• Increase prices

• Switch to ethical suppliers

Decision 1

+ Shareholders

- Employees, do not get profit

Decision 2

+ Customers get products more cheaply

- Employees get laid off

Decision 3

+ Customers have to pay more

- Shareholders get more dividens

Decision 4

+ Ethically aware custmoers are happier

- Price-concious customers pay more

Soft and Hard HRM

• Soft = Employees are the MOST important asset

Soft

• Benefits

  • Motivated employees

• Downsides

  • Focus on training, so increased costs

Hard

• Benefits

  • Easy to fire underperforming staff

• Downsides

  • Demotivated staff

Blake Mouton Grid

• There are 5 styles of management

Impoverished

• Low concern for production and low concern for team

Produce or Perish

• High concern for production and low concern for team

• SHORT term productivity increases

Middle of the road

• Bit o both

Country Club

• Low concern for production and high concern for team

Team Leader

• High concern for production and team

Main Types of Marketing Objectives

What are the 5 main types?

1. Sales Volume

2. Sales Value

3. Sales Growth

4. Market Share

5. Brand Loyalty

Percentage Changes

• What is the formula?

^{New number - Old number} / _{Old NUMBER}

_{x 100%}

Market Segmentation

• Which are the four possible segmentations?

• What are the pro?

• What are the downside?

Segments:

1. Lifestyle
2. Gender
3. Income
4. Age

Pros:
- Increased sales & customer loyalty

Cons:
- Increased marketing costs

Mass Marketing

What are the 3 Pros

What are the 3 downsdies

Pros:

1. High voolumes of sales

2. Economies of scale

3. Less need for market research

Cons:

1. Greater competition

2. Mass marketing is expensive

3. Lower prices as product meet the customers’ need LESS

Product Life Cycle

• Features for each stage (2 each points)

Intro:

• Low sales

• High marketing costs

Growth:

• Positive cash flow

• Marketing costs / brand building

Maturity:

• Positive cash flow

• Sales have hit peak

Decline:

• Decreasing sales

• Greater spend on extension strategies

Extension Strategies

S-P-A-M acronym are the potential extension strategies

Segments

• Sell to a different segment, like old people

Price

• Decrease price —- increase demand due to the laws of supply and demand

Advertising

• Remind customers of your brand with a targeted marketing campaing

Markets

• Globalise your brand with e-commerce and expand. However, may not be beneficial if exchange rates aren’t faovurable

Boston BOX

• Name the different categories

• Answer the q — should you stop production of dog product?

  • 3 points for and 3 against

high → low market share

high [STARS] [Question mark]

¦

low [Cash cow] [Dogs]

market

growth

Dogs:

• low market share and low market growth

YES — stop production:

1. Technological advancements may have rendered the product obsolete

2. Business goals may have changed

3. ALL OTHER extension strategies may have been tried to no avail — so there is no point

No — keep production:

1. Demand may return (Vinyl records)

2. Can be used as a Loss Leader to introduce people into the brand (who then bring PROFIT)

3. Requires no further marketing investment, so LOW costs

Price Skimming

1. what is it?

2. what are 2 pros?

3. what are 2 limitations?

4. How to use it successfully?

1. Setting a high price then gradually lowering it

1. Maximise profits to pay off R&D costs. Create exclusivity (increase demand).

2. Risk of losing price sensitive customers. Risk of rivals charging a lower price.

3. Guage the elasticity of demand (are they willing to pay?!).

Price Penetration

1. what it is?

2. 2 pros of it?

3. 2 cons of it?

4. How to use it successfully?

1. Start with a very low price and increase it

2. Increases demand. Gets buyers who wouldn’t have paid such high prices previously to stay with you

3. May cause price war if rivals react in the same way. May cause negative perceival from market, as the CHEAPER option

4. Market research to gauge demand. Effectively market the product to the right type of segment

Competitive Pricing

1. what it is?

2. 2 pros of it?

3. 2 cons of it?

4. How to use it successfully?

1. When pricing is set competitively

2. Positions business as a value for money business. More customers (laws of supply and demand)

3. Need HIGH volume of sales as low profit per conversion. May lead to price wars

4. Understand rivals pricing strategies

Dynamic Pricing

1. what it is?

2. 2 pros of it?

3. 2 cons of it?

4. How to use it successfully?

1. Prices change on demand/supply/seasonality

2. Encourages utilisation during off-peak hours (Gym example). Maximise revenue (prices increase when in demand)

3. Price gouging. High cost of tech needed to run the strategy

4. Invest in tech to mine customer data

Operational Objectives

• Some examples (3)

Examples:

1. Decrase unit costs

   • If the price HAS to be competitve (due to big rivals) then profit margins can increase this way by negotiating better deals on the premesis or with suppliers

2. Decrease product quality

   • This would lower the income elasticity of demand bringing it higher (from -3 or 0 to 1)

3. Increase speed of response of business

   • Decreasing time spent n phone to customer service would increase customer satisfaction and loyalty

Average Unit COSTS

• What is the formula?

• ^{Total Costs}/_{Quanitity sold}

Efficiency

• Benefits of efficiency

• How to increase it?

• Downsides of increase efficiency?

BENEFITS:

• Decrease unit costs

  • More profit per unit sold

• Maintain price during inflation economy

  • Increase customer loyalty and retention

HOW TO:

• Train staff — increase knowledge and so boost productivity

• Invest in machinery —- greater proudction capacity

DOWNSIDES:

• Training staff brings increased costs & staff may demand higher wages as they are now more productive

• Machinery is expensive and shareholder may not be willing to take it on

Adding Value

VALUE EQUATION

• Ways to add value via

  • Production

  • Distribution

  • Marketing

• Pros

WAYS TO ADD VALUE:

→ Production: Improve FEATURES

→ Distribtuion: Get it to them FASTER

→ Marketing: EASY to use website

PROS:

• Product stands out from rivals

• You can charge higher prices

• Increase market share in competitive market

Tech to increase operational efficiency

• When can tech be used to increase operational efficiency and how for each stage?

• In 4 phases:

  • Design

  • Capacity for production

  • Capacity for fufilment

In design:

• Using CAD to quickly make changes to design, increase efficiency

In stock managment:

• Using automated re-ordering which allows for JIT to be used successfully

In capacity for production:

• Using autimation to produce, decrease amount of defected products which increases efficneicy

In capacity for fuflment:

• Using autimation to pack items, increase speed of delivery

Lean Production

• REUDCE WASTE → INCREASE EFFICINEECY

Types of waste (3)?

Types of Lean (3)?

Types of waste:

1. Too much stock held → Waste if perishable/luxury good

2. Too big of a storage/warehouse area → Increase rental costs

3. High defects → Simply waste

Types of Lean:

1. Lean Design → Does the company have the tech to develop products quickly

2. Kaizen → Are employees willing to put effort in to imporve each day

3. Just in Time → High trust in supplier needed

Buffer Stocks/ JUST IN CASE

• PROS

• CONS

• Important question to think aobut when evaluating in exam

Pros of Buffer Stocks:

1. Less uncertainty → abillity to still have SALES if supplier dies

2. Greater order volume → more important to suppliers so negotiate better deals

Cons of Buffer Stocks:

1. Increase waste → If perishable or luxury good then it can LOSE value

2. Increase storage space → higher unit costs, less PROFIT

Important question:

• What TYPE of good is being sold?!

BAR GATE STOCK GRAPHS

Y axis measures stock level → how much stock is there?

x axis measures time

Optimal Production Mix

• Capital vs labour pros and cons of each

• 2 questions for evaluatiing whether to use it or not!

Pros for Capital Intensive:

• No need to deal with employees striking, sick, taking holiday → can produce 24.7

Cons for capital intensive:

• Expensive to invest in machinery

• Machinery is hard to adapt to new design, process

Pros for labour intenvisve:

• Cheaper

• Can ethically be seen as better

Cons for labour intensive:

• Employees lazy and can slack off

• Training costs for staff can be SIGNFICANT

When to use it?

• Are labour costs high or low?

• Business finance avaible is it high or low?

Impact of NOT maintaining quality

• 3 TOP reasons

1. Increased refunds

2. Reduced reputation

3. Cease TRADING

Supply Chains

• How to choose suppliers? The 4 factors

Price:

• The lower the price the cheaper the unit cost

• However, with lower price comes lower quality

Quality:

• The greater the quality the higher the price that can be charged when selling

• However, then the unit cost will be greater

Speed:

• The faster the delivery, the more efficient the production is

• However, faster supplier charge more

Predicatability:

• If delivery is not there, there is no product so it is key

Methods to managing supply, MORE demand

• 3 short term methods WITH a benefit and an issue for each

1. Hire temporary staff

   1. Efficient

   2. Ethical issues

2. Manufacture to order

   1. Bespoke → charge higher prices

   2. Hard to meet extreme incerase in demand

3. Outsourcing

   1. Cheaper

   2. Ethical issues

Mass Customisation

• Using CAM to produce inidvually tailored producs on a large scale

• THINK: Macbook has different colurrs, RAM, stoarge

• 2 pros

• 2 cons

PROS:

1. Higher employee welfare

   1. More varied tasks that they can perofm

2. Less waste

   1. Demand for different products needed is met

CONS:

1. Less economies of scale as many different parts needed

   1. Less bargaining power

2. Requires CAM

   1. Cam is expensvie and also need staff training on it

Types of Mass Customisation

• There are 4 types

Transparent Customisation:

• Prodcut is customised but the customer ISN’T aware

• Google display ads seen by scrolleers

Cosrmetic Customisation:

• Product can be customised BEFORE purhcase

• 2 pint milk or 1 pint milk

Collaborative Customisaiton:

• The customer tells the business how he wants the product and then it is made

• A tailored suit

Adaptive Customisation:

• Product can be customised AFTER purchase

• Phillips hue lgihts

Operations Formulas

• Labour productibity

• Unit cossts

• Capacity utlisiation

Labour Productivity:

• ^{Total Output}/_{Amount of employees}

Unit costs:

• ^{Total costs}/_{Number of units made}

Capacity utlisation:

• ^{Acutal output}/_{Maximum output}

Amazon Efficiency

• What does amazon use achieve it’s mission statemnet?

• It uses autmoation in one step of its 6 step process

• It aquired Kiva Robots for 775Million in 2012

• It raised enough finance to do so by having large cash flow but keeping profits low (to have enough cash flow)

• Next it will invest in soft robotics to completeply automate its whole process which would lead to faster delivery = more profits

Budgeting

• 2 Pos

• 3 cons

PROS:

1. Encourages spending discipline throughout the CORP

2. Increases chance that an investor will give funding

CONS:

1. Budget could be overly-ambitious as set by a manager who doesn’t have knowledge on ‘marketing’ for example

2. Budget may not be review regularly leading to innacurate estimates, and so WASTE

Financila Statement

• Iconome Statement/ProfitNLoss

• Statment of Financial Position/Balance Sheet

• Cashflow Statment

Income Statment:

• Shows net profit

• Shows profit margins

Statemtne of Financial Position@

• Shows networth of business

• Shows assets of business

• Shows liabillities

Cashflow Statement:

• Shows how much sources of finance available

Debt vs Equity

• 2 cons of Debt

• 2 cons of Equity

• How to decide, 2 qs to evualtre

Debt:

• interest rates fluctuate

• must pay interest payment

Equity:

• takes longer to arrange

• retained profits decrease

Which 2 choose:

• What are the interest rates currently?

• How much time is there until expansion?

Assets and Liabilities (Statement of Financial Position)

• Current Assets

• Current Liabilitiy

• Non-Current/Fixed Asset

• Non-Current/Fixed Lability

• EXAMPLES FOR EACH

Current Assets:

• Cash

• Stock

Current Lability:

• Creditors (Trade credit)

Non-Current/Fixed Asset:

• Cars

• Property

Non-Current/Fixed Lability:

• Loans

Why Cash Flow Forecasts Are Useful!

• 1 pros

1. Anticipate issues and take overdraft/loan

Cash Flow

• Why poor cash flow happens? 4 reasons

• Why poor cash flow is an issue? 3 reasons

• 3 solutions to overcome cash flow problems?

Why it happens:

1. Not enough sales

2. Seasonal decrease in demand

3. Paying businesses earlier than YOU get paid

4. Buying too much stock (JUST IN CASE)

Why its issue:

1. Businesses may want you to pay sooner (less trade credit)

2. CANNOT pay workers

3. Cannot cover daily expenses

Solution:

1. Take an overdraft

2. Reduce cash outflows (buy less stock)

3. Run a marketing campaign ot increase cash inflow

Break-Even Analysis

• 2 Pros

• 2 Cons

• Evaluate whether you sohuld reccomend a Break Even Analysis Question

PROS:

1. Can be used in a Business Plan to get investment

2. Allows you to determine affect of new Sales Price

CONS:

1. Based on an estimate

2. Doesn’t consider PRICING STRATEGIES (price skimming would mean that the price starts higher than decreases) nor does it consider if multiple products are being sold

EVALUATE:

(Petrol) How likely is the business to change its price or for its variable costs to fluctuate (if it uses petrol for example it would be likely)

Debt Fatoring

• When firm buys up your outstanding Trade credit owed to you, paying 90perent on it and then chases up the debtors to pay the factoring company instead

• 1 pro and 1 cons

PROS:

• Business gets MONEY IN TODAY

CONS:

• May put off long-term customers as they are chased up forcefully

Overdraft

Sources Of Finance

• 2 pros

• 2 cons

PROS:

1. Quick and simple to set-up

2. No control of business given up

CONS:

1. Worsens credit score so decreases chances that you will get a loan in the future

2. Bank COULD cancel overdraft at any time

Retained Profits

Sources Of Finance

WHEN a business uses profits from previous years to INVEST

• 2 pros

• 2 cons

PROS:

1. Maintin 100% control on investment

2. Don’t pay interest

CONS:

1. Shareholder disatisfaction as their dividens decrease

2. May not be sufficient in amount to grow business with SPEED

New Share Issues

Sources Of Finance

COMPANY issues shares in exchange for a payment (finance). This is just a normal share/stock

• 2 pros

• 2 cons

PROS:

1. Rasie LARGE amounts of finance

2. A good exit strategy for the founders who want to leave

CONS:

1. Must pay to float and also pay yearly to the stock exchange

2. Lose MAJORITY control of business

Selling Fixed Assets

Sources Of Finance

Selling extra/left-iver fixed assets

• 2 pros

• 2 cons

pros of selling fixed assets

1. no equity of business given up

2. can generate money easily

cons of selling fixed assets

1. may take a long time to finds a buyer

2. fixd asssets lose value over time

Bank LOANS

Sources Of Finance

• 2 pros

• 2 cons

PROS:

1. No control given up on business

2. Regular payment can increase credit score

CONS:

1. Fialure to pay causes the bank to take your assets

2. Un-flexible and must pay on given date

VENTURE Capital VC Finance

Sources Of Finance

VC Fund makes a High Rish, High Reward investment in exchange for a shre of the busienss

• 2 pros

• 2 cons

PROS:

1. VCs have expertise and can also help to grow busienss with that expertise

2. Makes expansion possible, as Bank would reject to fund

CONS:

1. Give up share of business

2. VCs are ultimately looking to sell the business and they want PROFIT

Trade Credit

Sources Of Finance

Buy raw materials today but pay LATER

• 2 pros

• 2 cons

PROS:

1. No control of business given up

2. CHEAP form of finance

CONS:

1. Potentially lose supplier if terms are not met

2. Qualify for large fine if not paid

Crowd Funding

Sources Of Finance

• 2 pros

• 2 cons

PROS:

1. Allows business to get funding when bank wouldn’t provide it

2. Free marketing as people on the platofrm will see it and talk about it

CONS:

1. Other people may STEAL your idea as the crowdfunding post is public

2. If funding goal not met then no money is given

Labour Productivity

• Amount of output producedw per unit of Labour input

• 3 methods on how to increase it

• 3 barriers to increasing it

Increasing it:

1. Introduce new capital (updated)

2. Introduce theory of motivation like Maslow or Taylor

3. Move from Demcratic Managment style to Authoriarian

Barriers:

1. Resistance from employee

2. Trraining costs

3. Impact on quality of products

Human Resource Flow

• HR Lifecylce of emeployees from recruitment to leaving

• What are the stages?

Stage 1:

• Recruitment

• Setting the job descriptions and interviewing candidates for the right fit

Stage 2:

• Training

• Off or on the job ensuring the employee has the rgiht skills for the job

Stage 3:

• Re-deployment

• Improving workforce efficiency by retaining employee taltent and move them to another department/role

Stage 4:

• Redundancy

• Reducing the workforce size by tertminanity an employees contract

Functional Organisational Structures

Pros of organising corporation into 4 functions (Marketing Operation HR and Finance)

2 cons

1. Easier to supervise

2. Easier skill development

1. Danger of no communicaiton between them

2. Org becomes slower to adapt to change

Product Based Organisational Structures

• Teams areound one specific product

• 2 pros

• 2 cons

• When its useful

PROS:

1. Efficient as specialised knowledge of product

2. Easier to manage as can see which product is underperforming

CONS:

1. Diseconomies of scale as many of the same job role working on different areas

2. Can lead to ‘silos’ between each product

When its useful:

• When the products that a busienss has are vastly different

Regional Organisational Structures

• When organisation is splt up into different regions in the world/country

• PROS 3

• CONS 3

PROS:

1. Adapt to cultural norms of the area

2. Quicker decisions as managment is present in the area

3. More flexible and adaptable to change as split up in eacvh area of operation

CONS:

1. Decrease standardisation in the business

2. Create regional silos

3. Cost inefficiences as there are multiple departments doing the same thing in different regions

Matrix Organisational Structures

• When organisation’s employees report to both PROJECT manager and FUNCTIONAL manager

• PROS 1

• CONS 2

PROS:

1. Increase collaboration between the departments

CONS:

1. Inefficiency as there are too many stakeholders involved in each project

2. Power struggles as each manager tries to dominate one employee

Centralised Organisational Structures

• When decision making is made by the HIGHEST layers of managment

• PROS 2

• CONS 2

• 1 Q to decide whether to use this organisational structure

PROS:

1. Quicker decision making as the top manaagment calls all the shots, they have very few staff and are highly experienced

2. Motivated staff as they have a clear job role and know that they will be told what to do by the brass

CONS:

1. Slower decision making as the top managment has to approve everything so all employees have to go through them first

2. Less motivated staff as they cannot innovate or take advantage of oppurtunities

DECIDE TO USE?

1. If the organisation wants COMPLIANCE than this is right for them

Taylor’s Scientific Managment

• Monitor and observe your workers then come up with the best way to complete the job for best OUTPUT

• Describe it

• If employees do less than desired KPI production target then they need MORE TRAINING

• If employees do MORE than desired KPI production target then they GET MORE MONEY

• ALL EMPLOYEES get paid on a ‘piece-rate’

Delegation

PROS 2

CONS 2

Should you use it 1 questions to consider

PROS:

1. Employees get on-the-job managerial tasks training that helps them be ready to become the managers of the future

2. Managers are free to be able to focus on more complex tasks

CONS:

1. If a manager mis-estimates an employees skill level as HIGHER than it is actually then the task could fail miserably

2. Employees could feel overworked and so be less motivated, actually DECREASING output

SHOULD USE?

1. If you are a large ENTREPRISE with lots of employees

Financial and Non-Financial Methods of Motivation

• 2 financial methods with pro and cons for each

• 2 non-financial methods with pro and cons for each

FINANCIAL METHODS:

1. Piece-rate pay

   1. PRO: Output directly linked to Inpit

   2. CON: May cause short-cut taking

2. Commission basis

   1. PRO: Output linked to input

   2. CON: May cause in-fighting as employees battle over one sale

NON-FINANCIAL METHODS:

1. Job Enrichment

   1. P: Increases motivation by making the job more interesting for employees

   2. C: Increased costs for providing this

2. Job Rotation

   1. p: Trains employee on new task and therefore prepareas them to be mangers of the futrue

   2. C: Increases supervision costs to ensure job is done correctly

TRADE Unions & WORK Councils

Trade Unions:

• Represents members that are paying fees, cross-organisation

• PROs: Powerful collective bargaining power

• Cons: Cause strike or ‘go-slow’ if unsatisfied

Work COuncils:

• Represnts all members of organisation excpet top managment

Employee Representation/Involvement

• How to make this occur

• What it depends on:

How to do it:

1. Work councils

2. Suggestions box

3. Democratic leadership style

What it depends on:

1. Size of business (smaller is easier)

2. Leadership style (democratic is best for it!)

Is being highly geared (large amount of debt) always a concern for a business?

• Yes 3 points

• No 3 points

YES:

1. High gearing ratio leads to high servicing COST

2. High servicing cost means reduced abillity to invest into innovation

3. Investors may see it as a sign of weakess and not want to invest

NO:

1. High gearin ration could be due to investment into a PROFITABLE market

2. High gearing ratio could be due to nature of industry (airlines have to invest into COSTLY aircraft)

3. Interest rates may be low so loans are CHEAP

Elkington’s Triple Bottom Line

• Business strategy should be more than just PROFIT!

• List the three and give an example for each

Profit

1. Net incom

Planet

1. Carbon footprint

People:

• Living Wage Employer

Is Economic growth always good for a bussines?

• measured by gdp

GOOD:

• If YED is above +1, then it could be very profitable for a biz

• Economic growth funds expansion

• Highger GDP means greater consumer abillity to spend

BAD:

• if YED is very low (-5) then it would HALVE sales

• if a business mainly exports overseas it would make much of a difference

• if consumer spending increases then producers raise their prices, causing inflation so employees MAY demand higher eages

Exchange Rates

• what does weaker/stronge rpound cause?

Weaker pound/depreaciting

• exports are cheaper

• imports more expensive

Stronger pound/appreaciting

• imports are cheaper

Impacts of interest rate changes

• impact of decrease and increase on consumers

• on producers too

• 2 each

Interest rates increase 🔼 effect on consumers:

• Consumers save more

• Paying back loans costs more

Interest rates decrease 🔽 effect on consumers:

• Consumers spend more

• Luxury goods boom as consumers can pay them back more easily

Interest rates increase 📈 effect on business:

• Businesses struggle to innovate as loans cost more

• Sales decrease as consumers are saving more

Interest rates decrease 📉 effect on consumers:

• Businesses take on CHEAP loans and fund expansion

• Biz’s sales increase

Increased Inflation

Impacts on the 4 functional areas of a functional organisation depts.

FINANCE:

• Real value of debt lowers ❌

MARKETING:

• If price elasticity of demand is INELASTIC then the business will see an INCREASE in revenue ✅

• If price elasticity of demand is elastic then biz will see a loss in rev ❌

OPERATIONS:

• Suppliers may increase prices❌

• Biz may also increase prices in response ❌

HR:

• Workers may demand higher wages ❌

Open Trade vs Protectionism

• Protectionism 3 Methods to Achieve it

• Open Trade Advantages (2)

• Will a business be impacted? 2 points

Open Trade Advantages (2)

• Increases innovation as a domestic business must compete with foreign businesses

• Expands domestic businesses as they have access to cheap foreign goods

Protectionism 3 Methods to Achieve it

• Embargo

• Tariff

• Quota

Will a business be impacted? 2 points

• If they only trade domestically then no

• If they compete on a stand-out feature then customers may just go with them anyway as they are better

Globalisation

3 pros

3 cons

PROS

• Cheaper raw materials

• Cheaper labour

• Easily expand using e-com

CONS

• increase competition from abroad

• risk of becomining unethical

• when pound is strong, exports are in less demand

CSR

REASONS FOR 3

REASONS AGAINST 2

FOR

• improved brand image

• retention of great employee/talent

• access to ESG funds

AGAINST

• customers may actually buy less as they see it all as a marketing play

• increased costs leads to less profits

Carrolls CSR Pyramid

• what are the 4 sections

• Economic responsbility

  • being profitable

• Legal responsbility

  • obeying all laws and legislation

• Ethical responsbility

  • advoid price gouging or overusing 0hr contracts

• Philanthropic responsbility

  • Investing in the local community

PROs and Cons of ESG Funds

PROS 3

Cons 3

PROs:

• Can be used by investors to determine whether a brand is eco-friendly enough for them to invest in

• Can attract employees that want to work for a high ESG brand

• Cna improve brand rep

CONs:

• ESG is hard to stack up against other brands, so not always a good tool to compare

• no clear evidence of having ESG and increase financial preformance

• can be seen as an elaborate marketing play of only having some good (ESG) and then lots of bad

Formulas

Labour cost per unit

• How to reduce it?! 3 points

• Formula

How to reduce it:

• Outsouricng ✖ Loss of control

• Change to 0hr labour ✖ unethical percieval

• Reduce wages ✖ unethetical percieval

Formula:

• Labour costs/units of output

Formulas

Labour turnover

• Conserquences of high labour turnover?! 3 points

• How to reduce labour turnover?! 3 points

• Formula

Consequences:

• De-motivated staff

• worse customer service

• high training costs

how to reduce:

• exit interviews to find cause

• decrease capacity utlisation

• improve hygiene factos

formula:

• staff leaving/number of staff x 100

Formula

Current/Liquidity Ration

• everything is found on the balance sheet/statement of financial position. 2:1 is the ‘GOLDEN RATIO’

• formula

• examples of current assets and liaiblites

• reasons for 3 too high of a current ratio (10)

• problem with too low of a current ratio (0.5)

Formula:

Current Assets/Current Liabilities

Current Assets:

Debt OWED
Stock
Cash

Current Labilities:
Overdraft

Reason 3 for high number evaluation:
Not putting cash to good use
Should follow up with people who owe debt
Not selling enough!

Problem with for low number evaluation:
Unable to cover cash flow issues

Formula

Gearing Ratio

To:do

1. Formula

2. What different stages of percentage of Gearing mean?

3. Definition

4. When is gearing appropirate

5. When is gearing NOT appropriate

6. How to reduce gearing?

1. Formula

   1. non-current liabilities/total equity + non-current liabilities

2. What different stages of percentage of Gearing mean?

   1. 25% and under means the business is lowly geared

   2. 25-50% means the business is acceptably geared

   3. 50% and over means the business is highly geared

3. Definition

   1. How much do loans & bonds account for the money invested in a business currently

4. When is gearing appropirate

   1. When interest rates are low so renting money is cheap

   2. When the business is expanding

5. When is gearing NOT appropriate

   1. When interest rates are high

6. How to reduce gearing?

   1. Increase share capital used

Formula

Payable days

To:do

1. Formula

2. Definition

3. When too high payables are bad

Formula

1. Payables/ Cost of sales x 365

Definition

1. The amount of days you pay back suppliers in

When too high payables are bad

1. Supplier may be a key strategic supplier (needed for JIT e.g) and so shouldn’t be exploited

Formula

Recievables Days

To:do

1. Formula

2. Definition

3. Key caveat to offering high receivable tdays to clients/trade credit

Formula

Receivables/Revenue x 365

Definition

How many days pass until you get paid for a sale

Key caveat to offering high receivable days to clients/trade credit

If you offer too long of a trade credit then you may need ‘Debt Facotring’ biz to come in

Formula

ARR - Average Rate of Return

To:do

1. Formula

2. pros

3. cons

formula

• Total profit during project / number of years of project / inital investment x 100

pros

easy to compare to other projects ✅

shareholder friendly format ✅

cons

doesn’t adjust to the value of money changing over time ❌

Formula

Payback

• how long it takes the company to back its initial investment

To: do

1. Formula

2. pros

3. cons

formula

number of full years before ROI + payback of year before ROI / MONEY IN of year of ROI

pros

easy to understand —- wen money?

cons

does not adjust for money value changing ovet tgime

Formula

Inventory Turnover (uniqlo)

1. formula

2. what it does

formula

cost of sales / average inventories held

what it does

measure how many times in a year the inventory is replaced by selling

formula

npv / net present value — the higher the better 📈

-formula

-pro

-con

formula

find expected return number x discount factor of that year for all years and add together

pros

• take s into account the time value of money

cons

• interest rates can easily vary 🕴

Ansoff’s Matrix

• what does each of the 4 quadrants mean

Market penetration

• same product, same market —- just increase adversiting for more SALESS

Product development

• new product, same market — need strong brand image to make it WORK

Market development

• same product, new market — usually OVERSEAS as domestic economy is in a reccession

Diversification

• new rpoduct, new market —- can be immsenly great for GROWTH like AWS of amz will soon be bigger than their normal e-com store

porters generic strategies

• increase profits above industry average

Cost Leadership broad

• CHEAPEST product so high volume of sales so economies of scale or due to patented technology

Differentiation broad

• better meet customer needs and tehrefore gain the confdience tax so charging more as the product is more likely to help the buyer

Cost focus/segment of market

Differentiation focus/segment of market

• meet customer needs BETTER

Compettitive Advantage

• 3 benefits of competitive advantage

• 3 difficulties

• compettiive advantage = one of porters generic strategies.

• you either have a cost advantage (better margins) or differentiation advantage (incrased sales)

Benefits of competitive advantage

1. Operations can develop a specififc stand out feature that meets the customer needs better

2. Marketing may develop a unique strategy to increase sales

3. HR can train employees to improve their efificiency/labour productivity

difficulties of competitive advantage

1. will need to be pateneted if not compeittion will copy the feature

2. competition will eventually catch-up and a new strategy will be needed

3. Skills may become eventually outdated

Is rentenchment essential for a biz that is FAILING?!

• retrenchment is the cutting back of workfoce/resources

YES:

1. Reduces labour cost

2. Improves effciency, removes diseconomies of scale

3. Improves share price, as it signals company is making a positive change

NO:

1. The root cause of the biz’s failure may be that they haven’t created new products fast enough, so cutting your operations department wouldn’t make sense

2. May cause restriction of proudct range so less able to meet customer needs

3. May reduce staff morale as their friends have been fired

Economies of scale

technical economies of scale

def

outcome

Def:

• As the biz grows they have more to spend on capital machinery

Outcome:

• With new machinery they will be able to produce and sell products FASTER

Economies of scale

Managerial economies of scale

def

outcome

Def:

• Specialist managers are hired which apply their expertise to logitics, marketing, finance to decrease the averag eunit cost of a business

Outcome:

• Expertise improves XYZ TO lower average unit cost

Diseconomies of Scale

• 3 reasons for it

3 reasons for diseconomies of scale:

• TOO MANY EMPLOYEES

  • Communicating becomes too expensive

  • Employees feel les signficant and so become demotivated

  • Employees work in crowded environments and so become demotivated

Economies of Scope

• Def

• Example

• Links with new products and new markets of ANSOFF’S Matrix

Def:

• When the business expands its offering to MULTIPLE products, bringing down its average cost per unit as it can spread fixed costs like marketing or operations over a range of products

• This is why firms do horizontal inegration

Ex:

• Amazon — amz basics, AWS, AMZ PPC