THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE

Ownership and Organisation

Types of business organization
Sole traders: business owned and operated by one person
Advantages-
 Few legal regulations
 Complete control of business
 Freedom to choose own holidays, hours of work, prices, etc
 Close contact with customers
 Doesn’t have to share profits
 Complete secrecy in business matters
Disadvantages-
 No one to discuss business matters with
 unlimited liability
 source of finance is limited
 can’t afford specialists
 business is likely to remain small
 no one to replace owner
*limited liability- owners of a company can’t be held responsible for debts
of their company

Partnerships: group or association of between 2 and 20 people who run and

own a business together
Advantages-
 more capital can be invested
 Responsibilities are shared
 Partners are motivated- own profit made
Disadvantages-
 No limited liability
 No separate legal identity
 Partners can disagree - takes time
 If one partner is inefficient or dishonest, other partner also
suffers
 Limited number of partners- limited capital invested

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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE

Private limited companies: the company exists separately from the owners; it
can make contracts or legal agreements: the company’s accounts are kept
separate from the owners accounts; shareholders own the company; directors
run it.
Advantages-
 Shares can be sold to large number of people- more capital
 All shareholders have limited liability
 starters of company are able to keep control as long as not
too many shares are sold
Disadvantages-
 significant legal matters: Articles of Association,
Memorandum of Association,
 shares can’t be sold without agreement of other
shareholders
 much less secret accounts
 can’t offer shares to general public

Public limited companies: company can sell shares to the public

Most suitable for very large companies; shareholders own, directors and
managers control.
Advantages-
 limited liability
 incorporated business and own separate legal unit
 very large capital sums can be invested
 no restriction of buying, selling or transferring shares
 Usually has high status, easier loans from bank…
Disadvantages-
 Legal formalities are quite complicated and time consuming
 Many regulations and controls, publication of accounts
 Can become difficult to control and manage
 Selling shares to the public is expensive

Co-operatives: groups of people who work together and pool their resources
-All members have one vote, no matter how many shares they own
-all members help in running the business
-profits are equally shared amongst the members

Close corporations: similar to private limited company but easier to set up

- Limited to maximum of 10 people
- A simple founding statement is needed to set up the organization
- The members are also the managers
- Legal separate unit offering limited liability and continuity

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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE

Joint ventures: when 2 or more businesses agree to start a new project

together, sharing capital, risk and profits.

Franchises: a franchise is a business based upon the use of brand names,

promotional logos and trading methods of an existing successful
business. The franchisee buys a license to operate the business from the
franchisor
To the franchisor To the franchisee
advantages -The franchisee buys license -chances of business failure
-Expansion of business is are reduced
much faster -franchisor pays advertising
-management of outlets is -supplies are obtained from
franchisee’s responsibility franchisor
-all products sold are obtained -fewer decisions to make
from franchisor -training for staff and
management is provided by
franchisor
-banks are more willing to
give loans
disadvantage -poor management of one -less independence
s outlet leads to bad reputation -may be unable to make
-franchisee keeps profits from decisions to suit local area
outlet -license fee must be paid and
possibly percentage of
turnover

Public corporations: wholly owned by the state or central government. Usually

they have been nationalized
Government ministries appoint a board of directors to operate business
Objectives:
- To reduce costs, if necessary, by reducing n. of workers
- To increase efficiency and operate more like private business
- To close loss making services
Advantages:
 Important industries owned by government
 monopolies are owned by government
 government can nationalize important businesses that are
failing
Disadvantages:
 no one to insist on high profits and efficiency
 subsides can lead to inefficiency as it is though government will
help
 no close competition, lack of incentive to increase consumer
choice and efficiency
 politicians can use these businesses to get more supporters

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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE

Control and responsibility

Organizational structure: refers to the level of management and division of
responsibilities within an organization.
*A job description outlines the responsibilities and duties to be carried out
by someone employed to do a specific job.
People applying for a job can see if they are suitable for the work
New employees know exactly what they have to do

Delegation: giving a subordinate the authority to perform a task. The

responsibility is not delegated.
 to manager-
 they can’t do everything by themselves so now they have more
time for other jobs
 less likely to make mistakes
 can measure success of staff more easily
 subordinates might fail to do the job well
 risk of subordinates doing better than manager, making him feel
insecure
 to subordinate-
o work becomes interesting and rewarding
o employee feels more important and trusted
o delegation helps train workers and gives career opportunities

Organizational charts: show structure of business

-Hierarchy- different levels in the organization. Each has different degree
of authority
-Departments- each has a particular function
-Chain on command- structure in organization which allows instructions
to be passed down from senior management to lower levels of
management
 show how everyone is linked
 Individuals can see where they are in the organization. They can
see who they have to listen to and who they have authority over.
 shows links and relationships between departments
 everyone is in a place and it gives a sense of belonging

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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE

Span of control: the number of subordinates working directly under a

manager.
The longer the chain of command, the narrower the span of control.
-short chain of command:
 communication is quicker and more accurate
 top managers are less remote
 span of control is wider
 superiors have more people to manage, encouraging
managers to delegate more
 less direct control over each so employees feel trusted
 more people to be directly responsible for- managers lose control
 poorly trained subordinates are more likely to make mistakes

Functional departments: responsible for one important part of the

organization. They use specialized skills to be as efficient as possible.
* Line managers- have direct authority over subordinates in their
department. Able to take decisions in their area
* Staff managers- are specialist advisers who provide support to line
managers and to Board of Directors
*Regional division- responsible for part of the business in another country
 staff managers can provide advice to line managers on particular
items
 helps give line managers time to concentrate on main tasks
 may be conflict and frustration
 line employers may be confused about who to take orders from

Decentralisation: many decisions are not taken at centre of business but are
delegated to a lower level of management.
Centralised structure- most decisions are taken at centre or high
management levels.
 decisions taken by managers who are closer to the action
 managers who are now able to take decisions will deal more
trusted and will have more satisfaction from work
 decisions can be made much more quickly
 forms of decentralization
o functional- specialist departments are delegated authority
o federal- authority divided between product lines of business
o regional- multinational business has bases in different regions
o project team- projects are given to team from all functional areas

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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE

Managing a business
What do managers do?
 Planning- planning for the future involves setting aims or targets. These
will give the organization a sense of direction or purpose.
 Organizing- tasks must be delegated to others and these must have
resources to be able to do these tasks successfully.
 coordinating- managers need to make sure that all departments work
together to achieve the plans originally set by the manager
 Commanding- managers have to make sure that all supervisors and
workers are keeping targets and deadlines. Instructions and guidance
must be provided
 Controlling- managers must try to measure and evaluate the work of
individuals and groups to make sure they are on target.
*managing is important because
-it gives a sense of control and direction
-coordination of control, no effort wasted
-control of employees
-organisation of resources

Good managers: should have some of these qualities-

 intelligence
 initiative
 self-confidence
 assertiveness and determination
 communication skills
 energy and enthusiasm

Decision taking: always involves risk

Types of decisions-
 strategic: very important decisions which can affect the
overall success of the business
 tactical: decisions which are taken more frequently and
which are less important
 operational: day to day decisions which will be taken by
lower level of management

Reducing risk when making decisions: risks can be reduced by the following
1. establish objectives of the organization
2. identify and analyse the problem to be solved
3. collect data on all possible alternatives
4. implementing the decision

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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE

5. review and evaluation of the decision

Responsibilities in departments
Human resources:
 recruit staff
 training programmes
 negotiate with workers
 staff records and control
Marketing:
 market research
 plan new products
 decide on marketing mix
 evaluate sales data
Accounting and finance:
 keep financial records
 prepare accounts
 prepare budgets
 plan and control finance
Production:
 order materials and resources
 develop new products
 location decision
 efficient production
Administration:
 clerical services
 IT system
 cleaning and maintenance

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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE

Communication in business
Communication: transferring of a message from the sender to the receiver
It is needed for effective guiding, instructing, warning and encouraging
Message- the information being passed by the sender to the receiver

Effective communication: involves 4 features

 transmitter- the person who passes on information
 medium- method used to send the message
 receiver- person who receives message
 feedback- the reply from receiver which shows he received and
understood it

One-/two- way communication:

One-way – involves a message which doesn’t call for a response
Two-way – receiver gives a response to message and there is a
discussion
 becomes clear to the sender whether the receiver has
understood the message and acted upon it
 both people are involved and feel part of the process leading to
motivation

Internal and external:

Internal- when messages are sent between people in the same business.
External- messages are sent between one organization and another one
or outside individual. This has to work well as it is important to the image
and efficiency of the business.

Communication media: there are many forms of communication

Verbal- one to one talks, telephone conversations, video conferencing…
 opportunity for direct feedback
 body language can reinforce the message
 in meetings you can’t be sure everyone is listening
 inappropriate in accurate and permanent records
Written- letters, memos, reports, notices, faxes, e-mails
 hard evidence of message which can be referred to later on
 important and complex messages with details are clearer
 direct feedback not always possible
 language might be difficult to understand
Visual- films, videos, PowerPoint’s, posters, charts, diagrams
 present information in appealing and attractive way
 charts and diagrams can help clarify messages
 no feedback

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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE

 charts and graphs are difficult for some people to interpret

Communication nets: the ways in which members of a group communicate
Chain network- used to transmit messages from top levels to lower ones
 Leads to one-way communication and message can become
confused
Wheel network- used to communicate with different departments or regions
 departments have no opportunity to communicate between themselves
Connected network- to create + discuss new ideas as two-way communication
 time consuming, no clear leader/sender of messages

Direction of communication:
Downward - messages sent from managers to subordinates. Used for
instructions and statements. Doesn’t allow feedback
Upward – messages from subordinates to managers. Can be feedback of
a previous message, important for effective communication
Horizontal – people of the same level communicate with each other.
Information and ideas can be exchanged

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Paula Hohne-Tarragona