AS BUSINESS | Unit 2 exam revision

EXAM HINT: What is a line manager?

The person to whom you are directly responsible in an organisation

EXAM HINT: What is meant by unit of command?

An employee should only have one line manager to whom they are responsible to

EXAM HINT: What is 'chain of command'?

The paths or channels a communication passes through from the top of the organisation to the bottom

EXAM HINT: What is delegation?

When a manager gives up the right to make decisions to someone below him

EXAM HINT: What is a span of control?

The number of people who report to one manager in a hierarchy

EXAM HINT: What defines a wide span of control?

Over 5 people reporting

EXAM HINT: What defines a narrow span of control?

Less than 5 people reporting

EXAM HINT: What are the advantages of having a narrow span of control?

Tighter control & closer supervision of subordinates
Quicker and more effective communication (feedback from workers)
Less management skill required

EXAM HINT: What are the disadvantages of having a narrow span of control?

May need a larger workforce which can present communication problems & costs more

EXAM HINT: What are the advantages of having a wide span of control?

Less layers of management to pass through so reaches employees faster
Greater decision making authority for subordinates, increasing job satisfaction
Costs less due to fewer managers

EXAM HINT: What are the disadvantages of having a wide span of control?

The burden of management increases (without delegation) so managers have less time for important strategic matters
Delegation means less manager control of the business's activities so wrong decisions may be made

EXAM HINT: What is a centralised hierarchy?

Those at the top make decisions

EXAM HINT: What is a decentralised hierarchy?

Those at the bottom make decisions

EXAM HINT: What is delayering?

When a business removes layers from the organisation hierarchy

What is Operations Management?

It's about the process by which inputs are transformed into final products.

What are operations managers responsible for?

Production planning, purchasing stock/maintaining supplier relationships, stock control, meeting quality standards, R&D

What is added value?

The difference between the price of the finished product and the costs involved in making it

How is added value calculated?

Selling price - (direct) cost of production

How can value be added?

Production (e.g. wood-to-table), having a USP, convenience and speed (e.g. food delivery), a good design (physical appeal), brand name, customer service

What are the benefits of added value to a business?

Being able to charge premium prices -> greater revenue -> greater profits
Can make a product stand out from its rivals -> competitive advantage -> increasing market share
Save advertising costs in the long run due to high quality creating brand loyalty

What are the drawbacks of added value to a business?

The process involved in adding value may be highly costly.
There is a risk of overestimating customer willingness to pay with premium pricing, which could decrease sales

EXAM HINT: What are the advantages of delayering?

Offers opportunities for delegation & empowerment -> can motivate workers
Can improve organisation communication as messages pass through fewer levels
Reduces costs by requiring few employees

EXAM HINT: What are the disadvantages of delayering?

Loss of central control of the workforce (through delegation)
Can lower motivation due to job loss
Managers aquire a wider span of control which can damage business communication if too large
Loss of potentially beneficial knowledge and experience from redundant workers

EXAM HINT: What are the qualities of a tall structure?

Long chain of command
Narrow span of control

EXAM HINT: What are the advantages of a tall structure?

Each worker knows how they fit into the organisational structure
Clear progress and promotion ladder
There is a clear management structure with control at the centre

EXAM HINT: What are the disadvantages of a tall structure?

Communication has to take place through many management layers, delaying decision making
Information can be distorted in the layers it passes through so the decisions implemented by managers may not be what was perceived/requested
High management costs as managers are paid more than subordinates

EXAM HINT: What are the qualities of a flat structure?

Short chain of command
Wide span of control

EXAM HINT: What are the advantages of a flat structure?

Less costly due to fewer managers
Quick decisions and action due to fewer levels
Fast and clear communucation due to few levels
Subordinates are free from close supervision
May stimulate innovation and boost morale

EXAM HINT: What are the disadvantages of a flat structure?

Lack of control because there are many subordinates under one manager
Discipline in the organisation may suffer
May create co-ordination and cooperation problems between subordinates
Efficient and experienced managers are forced to manage a large number of subordinates
May not be suitable for complex activities

EXAM HINT: What is an entrepreneurial structure (wheel)?

Occurs in small businesses (e.g. sole trader) - manager controls all business decisions at the centre

EXAM HINT: What are the advantages of an entrepreneurial structure?

Effective for controlling the business and ensuring all decisions are in its best interests

EXAM HINT: What are the disadvantages of an entrepreneurial structure?

It places a lot of pressure on the central manger so if the business passes a certain size it becomes impossible to maintain

EXAM HINT: What is a matrix structure?

Common in businesses which undertake projects
It emphasises getting people with particular skills together into project teams

EXAM HINT: What are the advantages of a matrix structure?

Each individual in the team has their own responsibility within the project and skills are effectively utilised

EXAM HINT: What are the disadvantages of a matrix structure?

Each member of a project team has two bosses and this can be problematic

EXAM HINT: What is an independent structure?

This structure emphasises the individual and is almost a 'non-organisation'

EXAM HINT: What are the advantages of an independent structure?

It is attractive to independent people who are confident in their ability to be successful (e.g. doctors' clinic)

EXAM HINT: What are the disadvantages of an independent structure?

This form of organisation tends to be unsuitable for most business types as there is a lack of control and co-ordination (individuals make their own decisions)

What impact does added value have on consumers?

(+) Access to better quality products
( - ) Must be willing to pay a premium

What impact does added value have on business owners?

(+) increased dividends and share price with success
( - ) Requires significant investment and time - which requires large sums of finance

What impact does added value have on employees?

(+) May be motivated by working for a company that produces high quality products
( - ) May lead to increased expectations and demands on employees

What impact does added value have on suppliers?

(+) adding value requires close collaboration so suppliers become integral partners
( - ) May suffer if the business looks to reduce raw material prices to increase added value

What is production?

The process of using the resources of a business to convert 'inputs' into 'outputs'

What is job production?

Where one item is completed at a time, typically used for specialised (one-off) products with high profit margins

What are the advantages of job production?

Exact customer requirements are met so a premium price can be charged
Provides variety for workers so it could lead to high motivation levels

What are the disadvantages of job production?

Not suitable for high volume production so can take little advantage of economies of scale
Can require highly skilled workers so can be costly
It's time-consuming as it requires close consultation with customers

What is batch production?

The production of products in sets where each group can be slightly different from the last

What are the advantages of batch production?

Lower cost per unit than job production
Different batches can be altered to meet customer needs, allowing for flexibility

What are the disadvantages of batch production?

Takes time to switch from one batch to another (downtime)
There is less individual variety offered so less likely to have premium prices

What is flow production?

Continuous production on production lines, allowing a large quantity of identical products to be made

What are the advantages of flow production?

Can produce large volumes so can take advantage of economies of scale (bulk buying)
Easy recruitment as workers have fewer tasks to learn
Should be able to maintain consistent quality

What are the disadvantages of flow production?

Very high start-up costs because technology for a production line is expensive
Workers may get bored of repetitive tasks -> leave -> high labour turnover -> high training costs

What is productivity?

A measurement of the efficiency with which a business turns inputs into output

What is the productivity formula?

output/input

How can a firm improve its productivity?

training, technology (capital investment), increasing wages (incentive), recruitment, reducing waste, teamwork, using better quality raw materials, empowerment

What are the advantages of high productivity?

Competitive advantage
Lower average cost -> transfer as lower prices to consumers -> increase demand etc
Higher profit due to higher efficiency

What are the disadvantages of high productivity?

Overworked staff -> higher accident rates
increased use of technology -> job losses
Greater investment needed by owners to purchase up to date technology

What is efficiency?

Making the best possible use of resources (efficient firms can maximise output from inputs so minimise costs)

What impact does high productivity have on business owners?

(+) increased dividends from increased profits
( - ) increased costs due to increased investment and training

What impact does high productivity have on employees?

(+) Higher wages if high productivity cuts costs
( - ) Staff may become overworked

What impact does high productivity have on suppliers?

(+) May benefit from increased output as businesses require more materials
( - ) This only applies if demand increases

What impact does high productivity have on customers?

(+) Access to cheaper products
( - ) Businesses may only lower prices (pass on gains) after paying for the initial investment (in the long run)

What is capacity utilisation?

How much of the maximum possible output of the business is being used

What is the capacity utilisation formula?

current output/maximum possible output x100

What is maximum capacity?

Achieved when the firm is making full use of buildings, machinery and workers available (working at 100% capacity utilisation)

What are the advantages of working at full capacity?

Lower fixed costs per unit
Improves the image of the business
Increases job security for workers

What are the disadvantages of working at full capacity?

You will have to turn customers away if demand rises further -> competitors benefit
Increased pressure on staff -> increased absenteeism and labour turnover -> training costs
Increased pressure on machinery -> increased chances of production breakdowns -> customer orders delayed
Overcrowded factory -> decreased efficiency due to unsafe working conditions

What impact does high capacity utilisation have on employees?

(+) High capacity utilisation means the business is busy so increased job security
( - ) High levels of pressure on staff which demotivates them and could increase absenteeism/poor customer service

What impact does high capacity utilisation have on owners?

(+) increased dividends if profits increase
( - ) Difficult to produce a consistent quality where high production is labour intensive

What impact does high capacity utilisation have on suppliers?

(+) Benefit if a business increases output and requires more supplies
( - ) May face challenges in increasing their own supply to meet demand surges -> financial strain -> reduced expansion

What impact does high capacity utilisation have on customers?

(+) Lower prices due to cheaper production
( - ) Firm may not be able to respond to demand increases so customers may have to go elsewhere

What impact does high capacity utilisation have on the government/local communities?

(+) High utilisation ->high output -> more jobs -> benefits economy
( - ) High manufacturing levels -> strain on infrastructure -> may require additional investment and resources

What is CAD?

Computer-aided design (Computers are used to help design products using computer generated models and 3D drawings)

What are the advantages of using CAD?

Enables product creation on-screen -> speeds up design process -> less need for complicated drawings by hand -> can be easily and cheaply altered for clients -> reduces lead time
Reduces the need to build expensive prototypes
Can identify problems in early stages reducing reworking expenses

What are the disadvantages of using CAD?

Software is expensive so high start-up costs
Redundancy payments to unskilled workers -> negative impact on business reputation

What is CAM?

Computer-aided manufacturing (the use of computers in production)

What are the advantages of CAM?

Allows for standardised quality -> rise in accuracy -> greater customer satisfaction -> fewer returns
lower labour costs
flexibility of production (reprogramming is easier than retraining)

What are the disadvantages of CAM?

High initial costs as software and training are expensive
If used for low volume production unit costs can be high

What are robotics?

The use of programmable machines to design and construct complex products

What are the advantages of robotics to firms?

Higher productivity as robots can operate round-the-clock and work faster with less rejects to maximise output
Improved quality as robots can complete repetitive tasks accurately -> premium prices
Work can be done in conditions that are potentially a health hazard
Reduced waste and expenses (e.g. employee compensation - injuries, sick pay)

What are the disadvantages of robotics to firms?

High initial investment
Often only relevant to very large businesses with simple, repetitive tasks & high sales volume
May not benefit manufacturers where handmade skills are a part of their USP

What are the advantages to firms using IT?

Streamlines business processes, automates routine tasks, enhances efficiency overall -> saved time and increased productivity

What are the disadvantages to firms using IT?

Initial implementation of new tech can be expensive (investment)

How does new technology impact employees?

(+) Improved working environments (less staff involved in dangerous or heavy processes)
(+) Makes homeworking possible (flexible working)
(-) Workers can be replaced/made redundant by technology
(-) Workers may have to be retrained to operate new tech

How does new technology impact shareholders?

(+) May benefit from increased dividends if profits increase due to increased sales due to tech advances
(-) Increase in short term costs (high initial investment)

How does new technology impact the local community/environment?

(+) May reduce waste so may reduce pollution levels
(-) Job loss due to new tech

How does new technology impact customers?

(+) Can produce products which can meet the changing needs and wants of consumers
(+) Can produce cheaper and easier-to-use products
(-) Often involves customer data collection and analysis which can raise privacy concerns -> if mishandled can damage company rep and lose customer trust

What is lean production?

an approach that removes waste from the production process

What are the advantages of lean production?

Waste is substantially reduced so costs are reduced
Workers are encouraged to work in teams and look for improvements -> increased empowerment -> increased motivation -> increased productivity
The work area is cleaner, less cluttered and easier to operate in -> improves health and safety
Designed to reduce the number of defects -> improves product quality and reliability -> improves business reputation

What are the drawbacks of lean production?

Can be expensive to implement
Workers may not be willing to take on responsibility
The advantages of stock holding are lost

What is JIT stock control?

Where stocks are delivered only when they are needed

What are the advantages of JIT stock control?

The costs of holding stock are reduced
Reduced chance of stock perishing/going out of date
Space can be freed up for more productive use e.g. supermarket shelves

What are the disadvantages of JIT stock control?

Greater risk of running out of stock -> lower customer satisfaction -> they switch to competitors
Requires reliable suppliers -> could cause disruptions
Increased ordering and delivery costs as they're placed more often -> less economies of scale

What is Kaizen production?

Introducing small changes in a business in order to improve efficiency

What are the advantages of Kaizen production?

Encourages workers to take work ownership -> reinforces teamwork -> improves motivation -> reduces labour turnover -> increases productivity
Eliminates waste -> cuts costs

What are the disadvantages of Kaizen production?

Staff may not wish to be involved so it becomes unwelcome pressure
Some firms conduct quality improvement in the workers' own time -> can lead to resentment unless given appropriate recognition and reward for suggestions

What is cell production?

A form of team working where each 'cell' is responsible for one stage in the production process

What are the benefits of cell production?

Improves communication
Greater worker motivation
Workers become multi-skilled and adaptable to the future needs of a business

What are the drawbacks of cell production?

May not allow a firm to use its machinery as intensively as in flow production -> may not be suitable for processes requiring a large volume of repetitive tasks
Requires a management system that encourages employee empowerment

What is time-based management?

An approach seeking to reduce the level of wasted time in a production process

What does time-based management involve?

JIT, CAM, CAD
Making sure different departments tackle different parts of the development process at the same time (simultaneous engineering) -> speeds up development
Having a multi-skilled, flexible workforce

What are the benefits of time-based management?

Quicker response times to meet changing markets
Faster new product development -> first = premium prices -> large profit margin

What are the drawbacks of time-based management?

Likely to require large investment into staff training as they need to be multi-skilled
Complex to manage and requires all departments working together (excellent communication)

What impact does lean production have on employees?

(+) Kaizen and cell production involve working in teams -> increased motivation
(-) Some workers will resist change if increasing efficiency means redundancies

What impact does lean production have on suppliers?

(+) Suppliers have to operate differently and adopt new procedures (JIT) -> charge more for their services
(-) Have to hold more stock -> costly
(-) Have to be ready to meet customers' needs/supply more

What impact does lean production have on the local community?

(+) An aim is zero waste -> less waste -> less pollution
(-) JIT deliveries can increase disruption and congestion

What impact does lean production have on shareholders?

(+) Aims to minimise production costs (zero defects) -> higher profit per item -> increased dividends
(-) May create problems if suppliers and employees are resistant and distrusting

What impact does lean production have on customers?

(+) If businesses are more efficient they reduce prices
(-) Depends on whether the business decides to pass on these savings to consumers

What is R&D?

The identification of new ideas and turning them into products, services and processes

What is innovation?

The process of turning a creative idea into reality which is sold to a market

What must be considered during the R&D of new products?

Function, appearance, cost

What steps are there in the R&D process?

1. Identification of problem
2. Development of ideas and process to solve the problem
3. Development of prototypes
4. Final design
5. Testing
6. Manufacturing and launch

What are the advantages of R&D?

The business can gain a USP -> competitive advantage -> premium pricing
Consumer benefits (variety, quality)
Workers are motivated (stimulates creativity and invention)

What are the drawbacks of R&D?

Can be very expensive for firms
Time -> can take many years and even then success is not guaranteed
Other companies may steal the ideas unless the firm has patent protection
Consumers may have to pay higher prices for higher-tech products

What is the purchasing department typically responsible for?

Buying required goods at competitive prices whilst maintaining quality
Maintaining good relationships with suppliers

What key factors must be considered when looking for a supplier?

Flexibility, reliability, competitive prices

What is stock?

Items held by a business for use or sale

What is stock control?

The management of stock in a business (raw materials, work-in-progress, finished goods). It ensures the availability of goods to meet consumer demand

What are the three main types of stock?

Raw materials, work-in-progress, finished goods

What are the risks of having too much stock?

Increased storage costs
Unsold stock becomes obsolete
Takes up space which could be used more productively
Theft may occur
Opportunity cost

What are the risks of having too little stock?

Disappointed customers if orders are not fulfilled on time -> loss of reputation > customers move to rivals
Workers and machines standing idle -> workers may be laid off
Production will have to cease and schedules reorganised

What is JIC stock control?

When a business stores a large amount of inventory because it is likely to run out of stock

What is computerised stock control?

Involves checking stocks using a computer system and will reorder items that have been identified as required e.g. bar code

What are the benefits of effective stock management?

Frees up storage space
Less stock wastage
Frees up finance for investment

What is lead time on a stock control diagram?

The amount of time taken between placing an order and the delivery of that order

What is the re-order level on a stock control diagram?

The level of stock at which the business orders new stock

What is the re-order quantity on a stock control diagram?

The number of product units a business requests from a supplier

What is buffer stock on a stock control diagram?

The amount of stock held between the minimum stock holding and zero stock

What defines quality goods/services?

A 'quality' good or service is one that does what it is supposed to do (is 'fit for purpose')

What are the benefits to a firm of improving quality?

Can charge premium prices
Customer satisfaction increases
The business gets fewer returns
Brand reputation is strengthened

How are quality standards set?

By the industry or government and can be awarded to organisations whose products meet certain criteria or standards, e.g. BSI Kitemark

What is quality control?

The inspection of products to ensure they meet quality standards, done at the end of production

What are the advantages of quality control?

A good short term system to prevent faulty products from reaching customers
Applies a consistent standard to quality

What are the disadvantages of quality control?

Individuals are not encouraged to take responsibility for their own work as inspectors sort out problems
It's costly as rejects incur more costs and employing inspectors is expensive
Mistakes can be made by inspectors and different inspectors have different standards

What is quality assurance?

A system where all workers are responsible for quality (self-checking throughout production)

What are the advantages of quality assurance?

Costs are reduced as there is less wastage
Improves worker motivation as they have more ownership and recognition for their work

What are the disadvantages of quality assurance?

Potential high costs at the start to train staff
Time consuming to train staff

What is total quality management (TQM)?

An approach to quality in which all employees aim to achieve zero defects (no mistakes are made)

What are the benefits of TQM?

Focuses on doing things right the first time (meeting customer expectations) -> increased customer satisfaction -> increased brand loyalty -> customers are less sensitive to price increases
Cost savings from reduced waste -> more profitable, competitive business
Workers are empowered to take ownership of their work -> can boost motivation as they see results

What are the disadvantages of TQM?

Expensive to introduce (training, investing in new tech)
Requires all employees to be involved and some may be resistant to change/burdened by additional responsibility

How can a business achieve TQM?

Top management commitment
Zero defects
'Quality chains'
Empowerment
Teamworking
Benchmarking
Quality circles

What are quality chains?

Trying to get every department to think of those they work for as customers e.g. other employees

What is empowerment?

Giving employees authority so that they can exercise control over their work

EXAM HINT: What is benchmarking?

Where a business sets a target in terms of its standard of quality based on/against competitors

What are quality circles?

A group of workers who meet regularly to identify, analyse and solve work-related problems

What are the impacts of high quality on business owners?

(+) Enhances reputation -> increased sales -> increased profits -> increased dividends
(-) Increased costs due to different suppliers, increased R&D etc

What are the impacts of high quality on customers?

(+) Needs and wants can be better met by businesses
(-) May be charged premium prices as firms pass costs onto consumers

What are the impacts of high quality on employees?

(+) Working environments may improve
(+) Empowerment may motivate workers
(-) May be expected to work harder (increased pressure)

What are the impacts of high quality on suppliers?

(+) Can charge higher prices for higher quality supplies
(-) Some suppliers may lose out whereas others face increased pressures

What are internal economies of scale?

Falling costs per unit associated with an increase in output for an individual business

What are the main kinds of internal economies of scale?

Risk-bearing
Financial
Managerial
Technical
Marketing
Purchasing

What are purchasing economies of scale?

As output increases in large businesses, cost per unit falls (bulk buying)

What are managerial economies of scale?

Large firms can employ specialist managers who know how to get the best value for each pound spent in the business (specialisation of staff)

What are financial economies of scale?

Large businesses have access to a wider range of finance at cheaper rates (they're reliable so banks charge lower interest on loans)

What are marketing economies of scale?

Large businesses see greater benefit from each pound spent on marketing - lower unit cost of promotion

What are technological economies of scale?

For large businesses it may be cost-effective to invest in expensive and specialist capital machinery

What are risk-bearing economies of scale?

Large businesses can be safer from the risk of failure if they have a diversified product range

What are external economies of scale?

This occurs outside of a business and benefits the whole industry resulting in lower average unit costs

How can an industry benefit from external economies of scale?

Infrastructure (e.g. new roads, broadband)
Education (local pool of skilled labour)
Proximity to suppliers
Government support (e.g. subsidies depending on location)
R&D facilities (e.g. those in local universities)

EXAM HINT: What are diseconomies of scale?

Factors causing higher costs per unit as output increases

EXAM HINT: What causes diseconomies of scale?

Poor co-ordination
Poor internal communication
Lack of motivation
Overtrading (growing too fast)

How can small firms succeed against large businesses benefitting from economies of scale?

Specialising services to niche markets
Personalised customer service
Can be quick to innovate with new ideas more rapidly than larger companies

How do (dis)economies of scale impact customers?

(+) If benefits of economies of scale are passed on it could lead to lower prices
(-) Diseconomies of scale could make prices rise
(-) Diseconomies of scale could mean poor service due to unmotivated workers

How do (dis)economies of scale impact shareholders?

(+) Economies of scale mean lower costs per unit -> higher profits -> higher dividend payments
(-) Diseconomies of scale could mean a fall in share price and dividend payments (opposite)

How do (dis)economies of scale impact employees?

(+) Working environments may improve if the benefits of economies of scale are passed on
(+) pay may improve if the benefits of economies of scale are passed on
(-) If diseconomies of scale occur workers may be demotivated

How do (dis)economies of scale impact competitors?

(-) Will suffer if competitors benefit from economies of scale and drive down prices (they cannot compete)

How do (dis)economies of scale impact suppliers?

(-) May be forced to accept low prices for their materials due to companies being able to exert pressure on them (economies of scale)

How do (dis)economies of scale impact local communities/the govt?

(+) growing firms create jobs in the surrounding community
(+) growing firms pay increased tax -> govt revenue -> investment/infrastructure projects are funded

What is human resource planning?

Ensuring that the business has the right number of staff with the right skills to meet the needs and objectives of the organisation now and in the future

What are the challenges with human resource/workforce planning?

Businesses may have to deal with seasonal variations -> demand for labour will fluctuate (may lay off workers when it is low and struggle to find workers with the right skills when it is high)
Difficulty finding labour that matches required skillset (e.g. engineering firms)
May not have the resources to employ more people
Changing market conditions e.g. recession

What are the advantages/disadvantages to an employee of being on a full time contract?

(+) steady income
(+) fixed working patterns
(+) paid time off
(-) tough to maintain work-life balance
(-) more prone to work-related stress

What are the advantages/disadvantages to an employee of being on a part time contract?

(+) better work life balance
(+) reduced stress
(-) lower wages when compared to full time

EXAM HINT: What are the advantages/disadvantages to an employee of being on a zero hour contract?

(+) scheduling flexibility
(+) extra income/experience
(+) ability to explore other interests and jobs
(-) job insecurity
(-) unpredictable hours and income

What are the advantages/disadvantages to an employee of being on a fixed term contract?

(+) offers valuable experience
(+) may earn more
(+) can avoid long-term commitment
(-) no long term security
(-) promotions unlikely

What are the advantages/disadvantages to an employee of being on a job sharing contract?

(+) more time off
(+) can fill in for each other when one is sick (partnership)
(+) reduced childcare costs
(-) communication issues
(-) conflicts
(-) shared pay

What are the advantages/disadvantages to an employee of being on a temporary/seasonal contract?

(+) earn additional income during busy seasons
(+) experience
(+) building connections within a new company
(-) limited training
(-) less pay
(-) lack of stability
(-) no employment guaranteed after contract ends

What are the advantages/disadvantages to an employee of being on a home working contract?

(+) more flexibility
(+) minimised travel time
(+) family commitment
(-) difficulty seperating home and work life
(-) domestic distractions
(-) isolation

What are the advantages/disadvantages to an employee of being on a hot desking contract?

(+) healthy work-life balance
(+) increased employee engagement
(+) encourages collaboration
(-) may be incompatible with some environments
(-) can lead to distraction or conflict
(-) less efficient communication

What are the stages of the recruitment process?

1. Job analysis (defining organisation requirements)
2. Job description
3. Person specification
4. Preparing a job advertisement
5. Advertising the post
6. Shortlisting
7. Interviewing/selection testing

What are the advantages of internal recruitment?

Cuts costs and saves money
Quicker process
Applicants' records known
Improves motivation

What are the disadvantages of internal recruitment?

Leaves a gap
Limited pool of applicants
Lack of new ideas
Resentment

What are the advantages of external recruitment?

Fresh ideas
Larger pool of candidates
Better qualified and experienced

What are the disadvantages of external recruitment?

Riskier
Expensive
Longer process

What are the types of selection testing?

Interview
Aptitude and ability tests
Psychometric tests
Work trials

What is the importance of recruitment to a firm?

Reduces turnover
Provides a reliable employee who is capable and productive
Helps provide quality goods and services -> improves brand image

What is on the job training?

Takes place when employees are trained while they are carrying out an activity

What are types of on the job training?

Induction
Sitting with Nellie
Coaching/mentoring
Management fast-track training

What are the advantages/disadvantages of induction?

(+) Can help to familiarise and reassure the new person
(-) Cost and time for staff involved in developing the induction

What are the advantages/disadvantages of sitting with nellie?

(+) The trainee can benefit from the experience of the trainer
(+) One to one practical training
(-) Training quality depends on the ability, willingness and time to tutor
(-) The trainer is not being productive so could mean a loss of output hence profit for the business

What are the advantages/disadvantages of mentoring?

(+) take advantage of a person's experience and skills in doing the job
(+) Can help solve problems experienced by the trainee
(-) Training quality depends on the ability, willingness and time to tutor
(-) The trainer is not being productive so could mean a loss of output hence profit for the business
(-) Added cost if the coach/mentor has to come from outside the business (as specialist knowledge is required)

What are the advantages/disadvantages of management fast-tracking?

(+) Trainee develops a good knowledge of the business and is fast tracked into the business faster
(-) Training quality depends on the ability, willingness and time to tutor
(-) The trainer is not being productive so could mean a loss of output hence profit for the business

What is off the job training?

Takes place away from the job at a different location

What are types of off the job training?

In-house courses
Distance learning
College/day release

What are the advantages/disadvantages of in-house courses?

(+) cheaper compared to external training courses
(+) may be tailored to the requirements of the business
(-) existing staff may need to conduct training -> takes them away from their usual jobs

What are the advantages/disadvantages of distance learning?

(+) Trainee can do this outside their job and in their spare time with no impact on their normal job
(-) Don't get immediate feedback
(-) May not be acknowledged by all employers

What are the advantages/disadvantages of college/day release?

(+) May allow the trainee access to training which are not available within the business
(-) May not relate directly to employee's job

What are the benefits of training?

Well-trained workers should be more productive -> reduced costs -> increased profitability
Well-trained workers should be more flexible/adaptable -> can take on new tasks
Well-trained workers should be more motivated (as a result of increased job satisfaction)
May improve working environment (e.g. health and safety training will reduce accidents)
May improve business reputation (Firm will attract people if it offers training opportunities to improve skills)
May give firm a competitive advantage (Staff will provide better service and customer care)

What are the drawbacks of training?

Costs time and money (unproductive)
You're only as good as the trainer
Might not be effective
Doesn't always apply to the job

What is appraisal?

The process businesses use to measure the performance of their staff

What are the types of appraisal?

Management appraisals
Self-appraisal
Peer appraisal
360 degrees appraisal

What are the benefits of appraisal to the firm/employer?

May highlight particular employee skills and allow the manager to use them to improve performance
May increase employee motivation if appraisal is positive
Employees who have potential for a promotion may be identified and make more significant contributions to the firm in the future
Identifies training needs which will help improve productivity
Identifies staff with weaknesses that need to be addressed
Improves overall communication within the business
May help assess the effectiveness of the recruitment process
Allows management to set objectives (areas to improve and targets to reach)

What are the benefits of appraisal to the employee?

Can improve motivation
They can voice their opinion
Helps improve career prospects
Can identify training needs -> new skills can be acquired
May result in higher pay/other rewards
Give value to work done
Give feedback based on performance

How is workforce performance measured?

Labour productivity
Absenteeism
Staff turnover

What is the labour productivity formula?

Output/Input (number of workers)

What is the labour costs per unit formula?

Total labour costs/units of output

How can we improve productivity?

Measure performance and set targets
Improve the capital equipment used by the workforce
Change working practices (e.g. assembly line to cell production)
Invest in training to improve worker skills
Change the reward system -> increases motivation -> improves productivity

Why is absenteeism bad for a firm?

Staff who are absent often claim to be ill and firms have to pay sick pay
If temporary staff have to be brought in it leads to extra costs
Productivity may fall if cover staff are used
The higher the rate of absenteeism the more likely it is that remaining workers will report ill
Absenteeism can be demotivating to staff left to cope with the problems
Prolonged absences can lead to major disruption if the worker is key
If production is delayed/there are quality problems, customers can be lost

What are the main reasons why people take time off work?

- SICKNESS
- FAMILY EMERGENCY
events, being arrested, appointments, bad pay

What is the absenteeism formula?

Number of days in the absent period/total number of working days in the period x100

How can absenteeism be reduced?

More democratic leadership
Understanding the causes
Clear sickness and absence policy (w/ reward system)
Well-thought-out health and safety policies
Flexible working
Policies that make bullying and harassment at work a major disciplinary offence
Consider motivation e.g. empowerment

What is the labour turnover formula?

Number of staff leaving over a period/average number of staff in the post at the time x100

What factors cause labour turnover to be high?

Poor pay
Relocation
Job opportunities
Low job satisfaction
Serious illness
Children
Workplace conflict
Retirement
Poor working conditions
Seasonal factors

Why is high labour turnover a problem for firms?

Recruiting and training new staff can be costly and time consuming
It takes time for new staff to become familiar with their roles -> increased pressure on remaining staff -> low productivity -> low output
Harder to maintain standards of quality or customer service

Why can labour turnover be beneficial to firms?

New staff can bring fresh ideas and experience from old careers
Some workers may be ineffective and need to be encouraged to leave
If a business shrinks and reduces its workforce then labour turnover will be higher
Where a business pays low wages or has bad working conditions it may be more profitable to have a high staff turnover than raise these

How can labour turnover be reduced?

Permanent/fixed contracts
Move staff around
Better working conditions
Give benefits
Give promotions (or a sense of responsibility)
Give better pay

EXAM HINT: What is a trade union?

An organisation of workers who come together to collectively bargain/negotiate for improved pay and conditions

What are the functions of trade unions?

Obtaining satisfactory rates of pay
Securing adequate working conditions
Gaining job security for members
To participate in decision-making
To represent workers in case of unfair dismissal/redundancy
To represent workers who are victims of bullying/harassment/discrimination
To campaign for changes in the law relating to employment e.g. minimum wage
To provide info regarding employment to the govt/media

What are the common reasons for employer/employee conflicts?

Rates of pay
Work conditions
Flexible working
The introduction of new machinery

How can unions perform industrial action?

Work to rule and do the bare minimum of work
Impose an overtime ban and refuse extra work
Strike and refuse to work altogether
Mount a picket line outside their place of work and attempt to stop other workers from entering

What is the ACAS used for?

To help find a solution which is acceptable to both sides

What services are provided by ACAS?

Advisory - advice to employees, employers and trade unions on law relating to employment matters
Conciliation - resolve industrial disputes between employees and employers
Arbitration - Impartial ACAS advisor is asked to make a decision on a dispute following the assessment of both cases. Both parties agree in advance that this is binding.

What is motivation?

A person's desire to behave in a certain way

What are the benefits of a motivated workforce?

Better productivity
Improved quality
Lower levels of labour turnover
Lower levels of absenteeism
Improved communication and industrial relations
Improved customer service
Good business reputation -> easier to recruit

Who was F. W. Taylor?

The father of scientific management

What is scientific management?

Making business decisions based on data that is researched and tested quantitatively, done in order to improve the efficiency of the organisation

What did Taylor believe?

Workers should be given one repetitive task so they can learn to master it
Managers should give orders and closely control workers
Workers are motivated by money so should be paid per item produced

What are the advantages of Taylor's theory?

Improved productivity resulting from better organisation
Money can be used to increase productivity (motivate workers)

What are the disadvantages of Taylor's theory?

Often led to poor relationships between workers and management (increased industrial action)
Repetitive work -> high labour turnover
It's too simplistic to say money is the ONLY motivator

What is the role of the finance department in a firm?

Preparing financial documents
Payments (to staff & suppliers)
Budgeting/controlling costs
Seek sources of finance to be used for business strategies
Predicting future inflows and outflows of money

What is a budget?

A financial plan for the future which gives details of planned expenditures and revenues for a business

What should happen in an effective budget system?

Clear responsibilities given to managers in order to stick to their budget
Regular review of actual performance against budget
Must get approval from senior management to go over budget

What's an example of a favourable budget variance?

If budgeted revenue is £100 but actual revenue is £200
If budgeted expenditures are £200 but actual expenditures are £100

What's an example of an adverse budget variance?

Budgeted revenue is £200 but actual revenue is £100
Budgeted expenses are £100 but actual expenses are £200

What are the types of budgets?

Capital budgets
Operating budgets
Sales budgets
Marketing budgets

What are the main purposes of budgets?

To ensure no department spends more than the business expects
To make the best use of available resources and help the business meet its objectives

What are the advantages of budgets?

Budgets provide business owners and managers with a means of controlling expenditure
Budgets provide clear targets
Communication is improved because budgeting helps co-ordinate activities between departments

What are the disadvantages of budgeting?

Preparing a budget is a time-consuming process and uses up resources
Can be difficult to estimate figures
If staff are not involved in putting budgets together then they can become demotivated (especially if unrealistic)
If budgets are inflexible, changes in the economy may lead to figures not being met (e.g. new competitor)
May result in short-term decisions to remain within budget rather than the right ones for the long term

What impact does budgeting have on owners?

(+) more likely to achieve revenue targets and control costs -> more profit -> more return on investment
(-) worker performance may fall due to demotivation -> revenue targets not met -> unfavourable variances (negative impact for profits)

What impact does budgeting have on employees?

(+) employees may be rewarded financially for meeting targets -> increased job satisfaction -> added benefit for the business as workers are more motivated to perform
(-) Unrealistic figures may demotivate -> underperforming workers -> business unable to achieve figures -> adverse variances

What impact does budgeting have on suppliers?

(+) More likely to be paid on time and in full as businesses control their revenue and costs -> businesses better manage cash flow -> are able to pay expenditures
(-) External factors can cause adverse variances -> business unable to pay expenditures -> suppliers not paid in full -> budgets cannot be fully reliable in ensuring they're paid

What is a firm's net cash flow?

Total cash in - total cash out

How is closing balance calculated?

Net cash flow + opening balance (money available at the start of the day)

What is cash flow?

The movement of money coming in and out of a business

What are the main causes of cash flow problems?

Sales revenue being lower than expected (e.g. due to new competition)
Expenses higher than expected (e.g. increased raw material prices by suppliers)
Seasonal demand
Holding too much stock (increased risk that it becomes obsolete)
Customers are given too long to pay (trade credit)
Overtrading (expanding too quickly)
Poor internal financial management

What are the possible solutions to cash flow problems?

Extra funding e.g. overdraft (but comes with high interest and banks can withdraw it at short notice)
Look for cheaper suppliers (but quality may suffer and therefore satisfaction and demand)
Delay payment (but can be bad for long-term cash flow and damage supplier relationships)
Reduce the time that you give customers to pay (but customers who become unable to pay may be drawn to rival firms)
Sell assets (but you may regret this in the future)
Increase prices (but if demand is elastic consumers will stop buying and find alternatives)
Look for cheaper premises (but may need to reduce output due to reduced land quality - footfall may also suffer)
Reduce the number of workers (Puts pressure on other workers and reduces productivity)

What is cash flow forecasting?

A document that predicts the future flows of cash into and out of the firm's bank account

What are the benefits and drawbacks of cash flow forecasting?

(+) To help plan ahead as it identifies problems/solutions
(+) To show the bank (can support attempts to raise finance)
(-) Takes time that could be used otherwise to draw up
(-) Forcast needs to be accurate to have value

What are receipts?

the cash coming into the business e.g. sales, loan

What are payments?

The cash coming out of the business e.g. wages

What is net cash flow?

The money coming in - the money coming out (receipts - payments)

What is the opening balance?

The amount of money the business has at the start of the month (always the same as the previous month's closing balance)

What is the closing balance?

The money the business has at the end of the month

What is an income statement?

A formal document that gives a summary of sales revenue, expenses and how much profit is made

What is revenue?

the money or income a business receives from selling its products or services

What is cost of sales?

the costs direct;y involved in producing or selling products and services e.g. wages, stock

What is gross profit?

The sales turnover minus the cost of sales

What are expenses?

The costs not directly linked to the production or selling of products and services e.g. transport, marketing

What is net profit?

Gross profit minus expenses

What are the benefits of the income statement (profit-loss account) to stakeholders?

Owners - indicates the profitability of the business and how risky investing will be
Employees - to see if their job is safe and the firm has a future, or to see if they can negotiate wage increases
Suppliers - see if the firm is likely to continue being a customer and if trade credit is to be given
Competitors - They can benefit from 'benchmarking'
Government - can use it to calculate how much tax a firm should pay, and revenue can be used towards infrastructure spending

How can profit be improved?

By increasing revenue or by cutting costs

How can revenue be increased?

improved marketing e.g. promotion such as advertising - (attracts customers so more people know about it but it's expensive to do so raises costs)
increased prices e.g. small regular rises - (more revenue is received from each sale but customers may be deferred to competitors)
reduced prices e.g. have a sale - (customers should be attracted by this and hopefully buy more but profit may be lower if not enough units are sold and the brand may be damaged if products are too cheap)

How can costs be lowered?

reduce fixed costs e.g. replace tech, redundancies - (amount spent on wages/salaries will be reduced but customer service may suffer due to increased pressure on existing staff)
reducing the number of suppliers e.g. negotiating discounts for buying in bulk - (reduces cost per unit but there's less variety for customers)
using cheaper raw materials e.g. switching to a different supplier - (less spent on raw materials but quality may suffer which negatively impacts demand)

What is the gross profit margin formula?

gross profit/revenue x100

what is the net profit margin formula?

net profit/revenue x100

How can the gross profit ratio be improved?

decreasing costs or increasing revenue
e.g. cheaper suppliers, higher prices

How can the net profit ratio be improved?

reducing anything that doesn't go into making the product
e.g. cheaper rent, decreasing wages

What is marketing?

The management process involved in identifying, anticipating and satisfying customer needs profitably

What are the three marketing approaches?

Market orientation
Product orientation
Asset-led marketing

What is market orientation?

When a business bases its marketing mix on its perception of what the market wants

What is product orientation?

When a business bases its marketing mix on what it sees as its internal strengths

What is asset-led marketing?

When marketing decisions are based on the needs of the consumer and the strengths of the business

What are the advantages of market orientation?

Flexible to changes in taste and fashion
New products designed to meet customer needs
Decisions based on effective market research

What are the disadvantages of market led orientation?

High cost of market research to understand the market -> money can be used elsewhere e.g. faster production -> longer production means fewer sales -> less revenue and profit
- Constant internal change to meet market needs
- Unpredictability of the future (especially for staff)
- Abandonment of earlier product investment

What are the advantages of product orientation?

Increased economies of scale
Focus on product development
Focus on quality
Easier to apply production management methods

What are the disadvantages of product orientation?

Fashions and tastes are not accounted for
Wastage if the product is a flop when released to the market (finance, resources)

What are the advantages of asset-led marketing?

Quality of output
Strengths linked to market needs
Progressive change
Maximising return from assets

What are the disadvantages of asset-led marketing?

Missed opportunities
Lack of flexibility
Less customer research
The importance of reputation increases

What are the components of a marketing mix?

Product
Price
Place
Promotion

What is a product?

Any good or service offered for sale to customers

What is a product portfolio?

A mix of products the business produces and sells

What are the advantages of a product portfolio?

Spreads fixed costs
Allows for greater economies of scale
Allows the targeting of wider markets
Reduces risk
Smoothes out overall sales
Creates opportunities for growth

What are product breadth and depth?

Breadth is the number of product lines a business produces
Depth is the number of product varieties within each product line

What are the advantages of branding?

Increased customer loyalty -> increased repeat sales -> increased revenue/profits
Can separate the product from the herd -> increased brand awareness -> increased sales -> increased profits
Increases price inelasticity of demand -> can raise prices -> increased revenue/profits
Increased business value -> increased dividends/share price
Eased customer choice -> less competition -> increased sales -> increased profit

What are the disadvantages of branding?

High advertising costs (must be constantly kept in the consumer's eye)
Loss of brand value for one product can affect a whole range of similarly branded ones
brands invite competition from copycat manufacturers
High cost of R&D to ensure the brand continues to develop and lead the market

What is a USP?

something 'different' to that offered by competing products, that makes yours stand out from the crowd

What are examples of USPs?

Best quality and reliability
Best service
Lowest price
Packaging
Most advanced technology

What are the four stages of a product life cycle?

Introduction
Growth
Maturity
Decline

What marketing strategies are common during the introduction stage?

High advertising costs e.g. social media, TV, sponsorships
Discounts for customers that attract other customers

What marketing strategies are common during the growth stage?

More focus on product development/improvement to outshine competitors
Fewer marketing/advertising costs

What marketing strategies are common during the maturity stage?

Even less advertising/marketing as it's less necessary
More important to focus on new product features to encourage spending

What marketing strategies are common during the decline stage?

Advertise a lot by spending a lot of money on the product or just let it die

Why might product extension be necessary?

Because a new product has not been developed to replace an ageing product
If a product has a declining market share in a large or growing market

What techniques can be used to extend the product lifecycle?

Advertising (gain a new audience or remind the current one)
Price reduction (more attractive to customers)
Product development (add new features)
Explore new markets (try selling abroad)
New packaging (brightening up old packaging)

What are the advantages of monitoring the product life cycle?

Helps forecast the future behaviour of sales
Can assist in formulating marketing strategies
Can assist firms in product portfolio planning

What are the disadvantages of monitoring the product life cycle?

The shape and duration of a product life cycle varies per product
It is difficult to know exactly where a product is in its lifecycle
Analysis of the product life cycle can be a self-fulfilling prophecy (if a firm acts as though a product is in decline it probably will be)

What are the categories on a boston matrix?

Star -> high market share, popular product, immature market, large competition due to the promise of large profits, potential for huge revenue/growth but has high costs needed to survive
Cash cow -> very profitable products with low advertising expenditure, established brand value, positive cash flow and likely in maturity phase, increased profitability as development costs are likely to already be covered
Question mark -> big risk big reward, "problem child", fast growing market but not selling product, a failing product worth doing something about as it has potential for the future
Dog -> low market share, not worth spending money, may still make money but not improving, no long term future, no point marketing

What are the strengths of a boston matrix?

very simple and easy to explain, can be used to examine a firm's product portfolio mix, businesses should look for balance in their portfolio, can be used to manage individual products in terms of designing a strategy, can be used to point out the importance of using successful profitable products

What are the limitations of the boston matrix?

The assumption that higher rates of market share are directly related to high rates of profit.
The framework assumes each product is independent (e.g. dogs could be helping other products gain a competitive advantage)
Breadth of the definition (e.g. product may dominate niche market but have overall low market share)
Rapid changes in the marketplace can devalue its usefulness

What influences pricing policies?

Costs
Competitors
Customer expectations
Business objectives related to price
Laws & regulations
Market segment

What are market-orientated pricing strategies?

The business sets prices at a level the market is willing to accept

What are cost-based pricing strategies?

The business will set a price related to the cost of producing or supplying the product

What pricing strategies are market-orientated?

Penetration pricing
Skimming
Predatory pricing
Psychological pricing
Going rate pricing
Loss leaders

What is penetration pricing?

When a product is launched at a low price which is gradually increased as it moves through its product life cycle

What are the advantages of penetration pricing?

Retailers and consumers are encouraged to buy
Can help establish brand loyalty
May lead to larger sales volumes and therefore lower costs per unit
Can help capture market share

What are the disadvantages of penetration pricing?

Competing suppliers may follow suit by reducing their prices (which nullifies the reduced price advantage)
Low prices may negatively impact the image of the product
It may mean that it takes a while to recover R&D costs
Short term losses

What is skimming?

Involves charging a relatively high price for a short time where a new, innovative product is launched onto a market (has a USP). Prices are lowered later and sold to the wider market.

What are the advantages of skimming?

Consumers will be desperate/eager to purchase it so will be willing to pay a higher price
Maximises sales revenue

What are the disadvantages of skimming?

Monopoly profits attract competing suppliers so they must reduce their prices
May alienate customers (must be convinced that the product is worth the price)
Best used for unique products
Businesses must work hard to protect their brand image for skimming to continue

What is predatory pricing?

Has the overall objective of eliminating competition and involves setting very low prices in the short term.

What are the advantages of predatory pricing?

Prices can be raised to profitable levels once competition has been eliminated.
Can force firms out of the market.

What are the disadvantages of predatory pricing?

Short term losses
Illegal and may attract interest from the Competition Authorities

What is psychological pricing?

A price beyond which customers will not go

What are the advantages of psychological pricing?

May attract customers who are looking for "value".
May influence how customers view a particular product without actually changing it

What is going rate pricing?

Setting of prices based on what rivals are charging, and not straying too far from this

What are the advantages of going rate pricing?

Prices should be in line with those of rivals so create no competitive disadvantage

What are the disadvantages of going rate pricing?

Business needs non-price methods to attract customers

What is loss leaders pricing?

Involves the selling of products at a loss with the expectation that this will generate further sales of some form, elsewhere in the business

What are the advantages of loss leaders pricing?

The additional sales that occur will hopefully recoup the initial loss and subsequently make a profit for the business

What are the disadvantages of loss leaders pricing?

Customers aren't normally loyal

What are price takers?

Firms which follow the prices at which big companies price products

What are price makers?

Firms which adjust their prices on their own

What pricing strategies are cost-based?

Cost plus pricing
Full cost pricing
Contribution pricing

What is cost plus pricing?

Average cost + Mark up per unit cost

What are advantages of cost plus pricing?

Easy to calculate
Price increases can be justified when costs rise
Every good sold is sold at a profit

What are the disadvantages of cost plus pricing?

Less incentive to cut or control costs (If costs increase, prices increase)
Does not take into account the level of competition and its prices or of consumer needs
Ignores PED

What is full cost pricing?

All costs are taken into consideration (like cost plus but including overheads)

What are the advantages of full-cost pricing?

Easy to calculate
Price increases can be justified when costs rise
Every good is sold at a profit

What are the disadvantages of full cost pricing?

Complexity of apportioning overhead costs
Less incentive to cut or control costs (If costs increase, prices increase)
Does not take into account the level of competition and its prices or of consumer needs
Ignores PED

What is contribution pricing?

Direct costs + a contribution towards profits and overheads

What are the advantages of contribution pricing?

Allows businesses more flexibility than the cost-plus approach (new & unsuccessful products can both be priced more competitively)

What are the disadvantages of contribution pricing?

What is promotion?

The attempt to draw attention to a product or business in order to gain new customers or to retain existing ones

What are the objectives of promotion?

To provide potential customers with readily available information about the product
To increase sales or market share
To give the products an image or to establish a brand identity
To establish a corporate image
To enable long-term business planning to take place
To persuade that the brand is superior to competitors
Reassurance that they've made the right choice
USP (this is the focus)

What is above the line promotion?

Generally this is advertising used to reach a mass audience e.g. TV, magazines, the internet

What does the choice of media for above the line promotion depend on?

The target market (who the firm is trying to sell to)
Whether the objective is to convey information or another type of message
The cost
The reach of the media (who reads magazines or watches ads)
The product itself (is it suited to such promotion?)

What is below the line promotion?

Offers a wide range of alternative promotional strategies often used to support above the line promotion. Targets consumers directly.

What are some examples of below the line promotion?

Personal selling
Packaging
Sales promotions
Direct mailing
Exhibitions and trade fairs
Public relations

What are the elements of the promotional mix?

Personal selling
Sales promotion
Public relations (PR)
Direct mail
Trade fairs and exhibitions
Advertising
Sponsorship

Which factors impact the choice of promotion strategy?

Product differentiation
The marketing budget available
The stage in the product life cycle
Cultural sensitivity
The target market
Competitor actions

What is the traditional method of distribution?

Producer -> Wholesale -> Retailer -> Consumer

What is the modern method of distribution?

Producer -> Retailer -> Consumer

Which distribution method would be the cheapest for consumers?

Producer -> Consumer (DIRECT)

What do wholesalers do?

Break bulk down into smaller packages for resale by retailers
Provide storage facilities and offer a local service
Marketing responsibilities but not many customer service costs

What do agents do?

Negotiate sales on behalf of a seller in return for commission

What do retailers do?

Merchandise products and services
Offer credit to customers
Give the final selling price of products

Why is distribution important?

Customers require their purchases to be delivered quickly and do not wish to wait long periods to use them
As the number of customers increases they do not want to be in an out-of-stock situation (customers are tough to tempt back once let down)
Will help companies stay in the position of market leader and thereby achieve their objectives

Why is price important?

Customers today have very good knowledge in relation to price comparison so they must be able to beat competitors

Why is the product important?

Success can depend on the wide range of products for sale

Why is promotion important?

Experts are used to promote products to other customers by writing reviews

What are the advantages of the Internet to businesses?

An up-to-date website can improve the image of the business.
Consumers increasingly have access to the internet
Reasonably cheap to establish a web presence
Reaches a global market (vast number of potential customers)
Expensive high street premises are no longer required (lower costs)
Allows for 24/7 trading
Security problems are being effectively tackled, overcoming consumer resistance
May help maintain competitive advantage (used for distribution)
Core marketing tool

What are the disadvantages of the Internet to businesses?

Some goods may not be appropriate for sale on the Internet e.g. fitted clothes
The "live shopping experience" is still a popular social event
Not useful where customer service is part of the appeal (exclusivity)
May not be cost effective
Difficult to guarantee the follow-up service that the customer requires
Can be expensive to set up
There are still concerns over the privacy/security of the internet
Poorly constructed or outdated websites can project a negative image of the business and sales may be lost to competitors
Not all have the internet
If speedy and efficient delivery is impossible then e-tailers may lose out to conventional retailers

What are the advantages of the Internet to customers?

Allows them to buy 24/7
They save time by shopping online
Access to shops has become more difficult/expensive (parking, travel fees)
Greater choice
Can pay for goods/services online using those such as PayPal to pay in relative safety

What are the disadvantages of the Internet to customers?

Can be time-consuming and frustrating to choose from huge numbers of rival firms
Consumers without credit/debit cards and/or internet technologies are excluded from such consumption
Delays in delivery/unavailability of goods can be frustrating for consumers
Fraud/security issues are also important to some consumers
Customers may prefer to see/try on products

What is e-commerce?

E-commerce is concerned with the buying and selling of products using electronic systems

How is e-commerce used in marketing?

Clicks and bricks
Social media
M-commerce
Pricing and the internet
E-tailing

What is clicks and bricks?

A marketing term meaning that a business must have a web presence (clicks) and a physical presence on the high street (bricks) to increase sales and customer loyalty

How is social media used in e-commerce?

To market products, connect with customers, viral advertising -> funny or stylish ads being sent from person to person

What is M-commerce?

The buying and selling of goods and services through wireless handheld devices such as mobile phones ("having your retail outlet in your consumers' pocket", 24 hours a day)

How are pricing and the Internet used in e-commerce?

A comparison of prices has become easier for consumers. They can use sites such as Money Supermarket to find the best deals across a huge range of products/retailers, and this access has significantly impacted lowering prices which firms charge

What is E-tailing?

Online shopping - allows consumers to directly buy goods or services from sellers over the internet. This is continuing to grow and has made accessing customers a lot easier.

What impact has e-commerce had on the marketing mix?

Pricing -> must be priced competitively in relation to e-commerce rivals as consumers make comparisons to find the best deals
Product -> important to distinguish products due to intense competitor competition (USP), and niche products can be reached more easily so no wasteful junk mail, magazine ads or need for yellow pages listing
Place -> Businesses engaged in e-commerce often have greater freedom of choice over where they locate if they only sell on the internet
Promotion -> focused more on the internet and complement more conventional advertising (promotional tools e.g. email alerts, social media, pop ups, meta tags, search engine advertising, mobile apps, electronic billboards, podcasts depend on an organisation's budget and objectives)

What are the elements of the marketing mix?

Place, Price, Product, Promotion

What are the potential benefits of marketing internationally?

Higher sales and profits
Spreading of risks
Larger potential market/avoid saturation of the home market
Cashing in on the brand
Benefits of economies of scale
Prolonging the product life cycle
May enhance the business' reputation

What are the problems in dealing with external markets (international marketing)?

People worldwide have different needs, priorities and tastes
Many local values/cultural differences between countries
Firms must do market research again when entering foreign markets (lack of market research)
Language differences
Problems with distribution networks
Problems with different laws and regulations e.g. British Kite Mark
Government stance and policies
Exchange rate fluctuations

What impacts do trade unions have on employers?

(+) increased employee motivation through job security
(+) another channel of communication & can help ensure that agreements are complied with (by workers)
(+) simplified negotiation with employees
(+) trade unions can take a longer-term view than individuals
(-) Challenges managerial rights
(-) Excessive wage demands increase costs and reduce competitiveness
(-) Restrictive practice reduces firm efficiency
(-) Industrial action damages business rep

What impact do trade unions have on employees?

(+) Increased motivation through job security
(+) Participation in decision-making
(+) Protection from unfair dismissal
(+) Improved pay and conditions
(-) union subscriptions
(-) reputation for excessive wage demands cripples a business
(-) they support restrictive practices which reduce firm efficiency
(-) employees may believe they have more power than they do

What does the Equality Act (2010) protect workers from?

Discrimination for:
age
sex
race
religion
disability
sexual orientation
becoming transsexual
being married or in a civil partnership
being pregnant or having a child

What are the four types of workplace discrimination?

Direct discrimination - treating someone with a protected characteristic less favourably than others
Indirect discrimination - putting rules in place that apply to everyone but put someone with a protected characteristic at an unfair disadvantage
Harassment - unwanted behaviour linked to protected characteristics that violates someone's dignity or provides an offensive environment (bullying)
Victimisation - treating someone unfairly because they have complained about discrimination or harassment

How can individuals be discriminated against in the workplace?

Dismissal
Imposition of unfair T&Cs
Pay and benefits
Promotion and transfer opportunities
Recruitment
Redundancy

What is the order of Maslow's hierarchy of needs?

Self-actualisation
Self-esteem
Belonging
Safety
Physiological

What is Maslow's theory?

hierarchy of needs

What are the positives of Maslow's theory?

Can encourage a business to create an environment for workers that satisfies different needs. By figuring out which level employees are on and providing suitable rewards they can increase motivation and productivity.

Workers will be able to fulfil their potential if businesses recognise these needs and put in place strategies to achieve this

What are the negatives of Maslow's theory?

Some levels may not exist for certain individuals and some rewards will appear at different levels, e.g. money and basic needs or status (self-esteem)

It would be expensive for the firm to satisfy the needs of all employees

What was Mayo's theory?

The Human Relations School

What did Mayo suggest workers were motivated by?

Having their ideas be listened to and become a reality/be acted upon

What are the positives of Mayo's theory?

Encourages positive workplace relationships between manager and employee
Many businesses today subscribe to Mayo's theory - e.g. team working, work social events

What are the drawbacks of Mayo's theory?

Improving workplace communication is easier said than done - there are barriers caused by hierarchical structures and poor management styles
Critics say that the number of participants selected for Mayo's experiment was too small

What is Herzberg's theory?

Two factor theory

What are the two factors in Herzberg's theory?

Hygiene - factors that can demotivate if not present but don't actively motivate workers to increase productivity
Motivators - factors that directly encourage workers to work harder

What are the hygiene factors?

Bureaucracy
Relationships
Status
Work conditions
Salary
Job security

What are the 'motivators'?

Achievement
Growth
Recognition
The work itself
Responsibility
Advancement

What did Herzberg believe in?

Empowerment - giving people more power and authority to make decisions
Job enrichment - Where workers are given more complex tasks and given the opportunity to use their abilities

What are the positives of Herzberg's theory?

Firms realise that effective job means allowing for job enrichment, achievement/decision making opportunities. The structure must allow for promotion/advancement

What are the negatives of Herzberg's theory?

His research was done with a limited sample (200 accountants)

Critics say his theory applies more to professional and non-manual workers, for which financial rewards may be more suitable

What was Victor Vroom's theory?

Expectancy

What did Victor Vroom believe motivated workers?

Valence - Individuals will work if they believe the reward is worthwhile
Instrumentality - Induviduals need to believe a particular action will lead to a particular result
Expectancy - Individuals need to believe they're able to achieve the target that has been set

What was Vroom's equation for motivation?

M=E x I x V

What was Porter and Lawler's theory?

Expectancy

What did Porter and Lawler think motivation was effected by?

How the individual viewed the reward

What were the two types of rewards according to Porter and Lawler?

Intrinsic rewards and Extrinsic

What are intrinsic rewards?

The positive feelings workers get from completing the task

What are extrinsic rewards?

Rewards that come from outside the individual e.g. material rewards such as pay increases

When did Porter and Lawler think motivation would drop?

If the reward received did not match the reward expected

What was the issue with Porter and Lawler's theory?

Time consuming - you need to know every member of staff well

What are financial motivators?

Piece rates
Salaries
Bonuses
Profit sharing
Time rates
Commission
Share ownership
Performance related pay

What are non-financial motivators?

Job enlargement
Job enrichment
Team working
Empowerment
Fringe benefits
Job rotation

Why is motivation important to firms?

Productivity is increased

What is the difference between commission and piece rate pay?

Piece rate is from producing
Commission is from sales

What are the five key functions of management?

Planning
Organisation
Staffing
Coordination
Control
(Managers also have interpersonal roles e.g. being a figurehead for the firm & having a liason role with other managers)

What is management by objectives?

A system of agreed targets between managers and employees which is intended to ensure that everyone in the firm is working towards its goals

What is the management by objectives process as suggested by Peter Drucker?

review objectives for the whole business
set objectives for the management of the firm's different functions
set objectives for individual deparments and workers
monitor progress

What are the benefits of management by objectives?

workers are more involved in goal setting -> increased motivation -> higher standard of work
improved communication due to conversation between workers and manager
if targets are SMART, performance is measurable

What are the potential drawbacks of MBO?

time consuming (especially for large teams)
business environments can change e.g. recession -> objectives may quickly become outdated and unrealistic

What was McGregor's theory?

There are two types of managers - theory Y and theory X

What do theory X managers think of workers?

only motivated by money
lazy
don't want to take responsibility
lack ambition
need to be controlled

What do theory Y managers think of workers?

they want to be involved
are independent decision makers
find work rewarding
are driven and ambitious
seek challenge and growth

What is typical of autocratic leadership?

person at the top makes all of the decisions
gives orders without consulting others
high level of supervision of workers
communication is mainly downward
likely to be theory x
likely to share fw taylor's views

When is autocratic leadership appropriate?

When workers are unskilled/unmotivated
When decisions have to be made quickly e.g. fire alarm, military, covid

When would autocratic leadership not be appropriate?

When workers are very able to make decisions and the business is highly dependent on effective teams
When the leader lacks the experience to make certain decisions

What is typical of democratic leadership styles?

Decisions arise from group discussion
There is a team atmosphere
Fits in with theory Y managers

When might democratic leadership be appropriate?

When group numbers are skilled and eager to share their knowledge
When a leader has very good communication skills
When they have plenty of time to let people contribute

When might democratic leadership not be appropriate?

Where there is limited time available
If the leader does not possess good communication skills

What are the features of paternalistic leadership?

The leader is in a better position to know what's best for the business than the employees
The leader is interested in the wellbeing of workers and acts as a parental figure
Less aggressive than autocratic

When might paternalistic leadership be appropriate?

When the business wants to generate strong loyalty from staff (reduce labour turnover)
When workers want to have their social needs met at work (fits with Maslow & Mayo's theories)

When might paternalistic leadership not be appropriate?

When workers want more control and to use their own initiative to grow

What is involved in laissez-faire leadership?

Leader has minimal input
Staff take the majority of the decisions without consultation

When may laissez-faire leadership be appropriate?

When workers are more creative and appreciate being left to their own thing
When staff are self-motivated and don't need to be watched constantly or reminded to get going

When would laissez-faire not be appropriate?

If workers lack focus
If staff are newly qualified and lack confidence

What does bureaucratic leadership entail?

Leaders work "by the book"
They follow routines rigorously and ensure people follow procedures accordingly

When may bureaucratic leadership be appropriate?

Can be a useful style for work involving serious safety risks
When staff need to know precisely what their duties are and therefore many tasks will be performed more efficiently

When may bureaucratic leadership not be appropriate?

If the business is in a creative industry it could mean a lack of freedom for workers
If there is a lot of change e.g. fashion industry

What is F. Fiedler's theory?

Contingency theory

What did Fiedler believe?

It makes sense to find a manager that has an appropriate leadership style for a certain job

What types of leaders are there, according to Fiedler?

Relationship orientated
Task orientated

What are the characteristics of a relationship-orientated leader?

Good interpersonal skills
Enjoys group work
Good at managing conflict
Suitable for jobs such as an event planner, so that events run smoothly

What are the characteristics of a task-orientated leader?

Goal-focused
Determined to get the job done
Highly organised and detail-orientated
Suitable for military jobs

What was Wright and Taylor's theory?

It is possible to improve a leaders' performance through education

What did Wright and Taylor believe?

With better education, leaders would be more able to adapt to any given situation, so their work performance would improve - and people are more willing to work for leaders with good interpersonal skills

What impact does leadership have on employees?

(+) The right leader may inspire creativity
(+) May help raise productivity
(+) May provide an ethical framework for workers to follow
(-) Effectiveness depends on how experienced workers are -> experienced workers may resent a manager who tries to tell them what to do

What impact does leadership have on owners?

(+) Helps ensure the firm is running smoothly
(+) The right leader may be good at carrying the business through change
(+) Good leadership means higher profits -> higher dividends -> shareholders see increased share price
(-) Depends on the type of business -> PLCs are underpressure to increase dividends in the SHORT TERM, but long-term impacts such as those from leadership may benefit small family businesses more

What impact does leadership have on customers?

(+) Leadership sets the tone for the business -> impacts those in direct contact with customers -> better customer experience -> increased brand loyalty
(-) Depends on the firm's capacity utilisation -> customer service reps working at full capacity, for example, may lead to staff demotivation and negative customer experiences

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