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