Business A2 Notes

UNIT 1: BUSINESS STRUCTURE
International Trade: The exchange of capital, goods and services across international
borders or territories.
International Trade
Advantages Disadvantages
By buying products from other nations There may be loss of output and jobs
(importing), consumers are offered a from those domestic firms that cannot
much wider choice of goods and compete effectively with imported goods
services.
The same principle applies to raw There may be a decline, due to imports,
materials- the UK industry depends in domestic industries that produce very
entirely on imports of foreign iron ore. important strategic goods. For example
coal, or foodstuffs; this could put the
country at risk if there was a conflict
between countries or another factor
leading to a loss of imports
Importing products created additional The switch from making goods that
competition for domestic industries and cannot compete with imports to those in
this should encourage them to keep which the country has a comparative
costs and prices down and make their advantage may take a long time
goods as well as designed and of as high
quality as possible.
Countries can begin to specialise in Newly established businesses may find it

those products they are best at making if impossible to survive against competition
they import those that they are less from existing importers. This will prevent
efficient at as compared to other ‘infant industries’ from growing
countries. domestically.
Specialisation can lead to economies of Some imports may ‘dump’ goods at

scale below cost price in order to eliminate
competition from domestic firms
Globalisation: the increasing freedom of movement of goods, capital and people

around the world.
Free Trade: No restrictions or trade barriers exist that might prevent or limit trade
between countries.
Protectionism: Using barriers to free trade to protect a country’s own domestic
industries.
The most common trade bares are:

- Tariffs: taxes imposed on imported goods to make them more expensive than
they would otherwise be.
- Quotas: limits on the physical quantity or value of certain goods that may be
imported.
- Voluntary export limits: an exporting country agrees to limit the quantity of
certain goods sold to one country (possibly to discourage the setting of
tariffs/quotas).
Multinational business: business organization that has its headquarters in one

country, but with operating branches, factories and assembly plants in other countries.
Multinational business
Closer to main markets: Communication links with the

- lower transport costs headquarter may be poor
- better market information about
consumer tastes
-It may be viewed as a local company
and gain customer loyalty
Lower costs of production: Language, legal and cultural

-lower labour rates differences with local workers and
-cheaper rent and sit costs government officials could lead to
-government grants and tax incentives misunderstandings
designed to encourage the
industrialization of such countries
Avoid import restrictions- by producing Skill levels of the local employees will
in the local country there will be no import be low and this could require substantial
duties to pay or import restrictions investment in training programmes
Access to local natural resources
Impact of ‘host’ countries of multinational operations

Positive impacts Negative impacts
Bring in foreign currency, output from the Exploitation of the local workforce, e.g.
plant can be exported poor health and safety laws
Employment and training opportunities Pollution from multinationals may be

allowed at higher levels, government
afraid to drive them away
Creates jobs for local firms. E.g. supply Local firms may not be able to compete
for raw materials with low prices- inferior equipment
Local firms forced to bring productivity May impose western culture on other
and quality up to international standards societies
Tax revenue increase by profit made from Profit may be sent back to the original
multinationals country
Management expertise will gradually Exploitation of natural resources

increase in the host country
Output from exports increases GDP Often employ ‘home national’ managers
so the locals aren’t given high waged
jobs
Public sector: organizations accountable or controlled by the central or local

government
Private sector: is owned and controlled by individuals or groups of individuals
Privatisation: selling state-owned and controlled business organisations to investors in

the private sector
Privatisation
Finance for government Import for public services will be cut back
if not profitable
Can now operate business with political Job loss is inevitable, private companies
control will try to be more efficient
Business relies on profit so it will run Some industries are too important to be
more efficiently run by the private sector
Affected by market forces: will have to May create a monopoly
produce what the customers want
Increased competition as other

businesses enter the industry
Internal Growth:
Happens when a business expands its own operations. Can be achieved in the
following ways:
- Increasing existing carrying capacities
- Development and launch of new products
- Finding new markets. E.g. exporting
- Marketing to achieve growth
External growth: business expansion achieved by means or merging with or taking

over another business, from either the same of a different industry
Mergers: an agreement by shareholders and managers of two businesses to bring both

firms together under a common board of directors with shareholders in both businesses
owning shares in the newly merged business
Takeover: when a company buys more than 50% of the shares of another company
and becomes the controlling owner of it- often referred to as a ‘acquisition’.
Synergy: literally means that ‘the whole is greater than the sum of parts’, so in
integration it is often assumed that the new, larger business will be more successful
than the two formerly separate, businesses were.
Joint ventures: two businesses agree to work closely together on a particular project
and create a seperate business division to do so
- Firms want to benefit from collaborative work in reaching a mutually agreed
strategic target
- May joint venture seek to share the fixed costs of major business
reach/infrastructure projects
Strategic Alliance: agreement for cooperation among two or more independent form to
work together towards common objectives
- Unlike in a joint venture, firms in a strategic alliance do not form a new entity to
further their aims, but collaborate while remaining apart and distinct
- For example: Spotify and Uber as uber users can sync their spotify accounts
when hailing an uber, select a playlist and have the music already playing when
they open the car door
Rapid growth
Potential problem How this affects the business Solution
Financial - Very expensive - Used retained profits,

- Cash flow problems saved issue shares
- Greater financial risks- - Offer to buy shares rather
bigger businesses lead to than take over
larger financial loss
Managarial - Managers unprepared and - Strategic alliance with

unskilled university
- Unsatisfied workers- longer - More flexible working
working hours times
- Lack of coordination, may - Decentralize the
not be aware of aims and business
objectives - Have regular meetings
- Decision making is more - Send on management on
complex training courses
Marketing - Original marketing may not - Adopt focused marketing

be suitable: due to different strategies for each
products/services specific product or each
- Growth from national to country in it
international markets may
not succeed if marketing
strategies are not suitably
adapted
Loss of control by - Most likely to occur if a - Almost an inevitable

original owners sole trader takes on consequence of
partners or if a private changing legal structure
limited company converts to gain additional capital
to a public one
Technologies affect on businesses

● E-Commerce:
-The buying and selling of goods using the internet
● Social Media:
-A method of communicating with customers by responding reviews, viewing feedback,
and advertising.
● Digital Communication:
-This means that businesses can contact customers 24/7 allowing things such as order
updates.
-Also means people can work from home using skype, google docs/
● Payment Systems
-Customers can purchase products using systems such as Paypal which are quick,
convenient and cost efficient.
Information Technology: The use of electronic technology to gather, store, process

and communicate information.
Computer Aided Designs: Using computers and IT when designing products
Computer Aided Manufacturing: The use of computers and computer controlled

machinery to speed up the production process and make it more flexible
Technology
Faster Communications: Email Costs:

Capital costs
Labour Training
Redundancy costs may be an issue
Updating software
More awareness: Social Media Labour Relations: If it is not presented

to workers in a positive way, motivation
levels may fall
Less human error Reliability:

Breakdowns may occur
More efficient Data Protection: Business must keep up

to date with legal constraints on its use of
IT
Management: Managing the

technological change process requires a
great deal of management
Information technology system Business application Advantages
Spreadsheet programs ● Financial and ● Flexibility and speed -

management accounting changes to accounting
records can be updated records can be made
and amended quickly
● Cash-flow forecasts and ● “What if” scenarios in
budgets can be updated budgeting and sales
in the light of new forecasting can be
information demonstrated.
● Changes in expected
performance can be input
to the spreadsheet and
changes in total figures
are made automatically
● Income statements and
statements can be drawn
up frequently
Databases ● Used in all departments ● Replaces vast quantities

where the storing, filing of paper records
and retrieving of large ● Fast retrieval of
quantities of data are information - saves time
necessary ● Linking to sets of data
● Human resources e.g. customers and
department for keeping of preferred products -
personnel records allows focused
● Marketing department for promotional campaigns
storing details of all
customers, addresses,
numbers of products
purchased, most
frequently purchased
product
Internet ● Marketing department - ● Cost savings from cheap

for promoting to a large internal and external
market and taking orders communications
online (e-commerce) ● Access to a much larger
● Operations management - potential market
business to business ● Webpages project a
communication via the worldwide image of the
internet is used to search business
the market for the ● Use of social media and
cheapest suppliers mobile marketing allows
● Human resources uses access to consumer
these programs for groups not reached by
communicating within the traditional promotional
organisation methods
●
External influences on Business Activity
The impact of the government and law on the business
PESTEC (political, economic, social, technological, environmental, competition):

Factors that affect a business that have no control over it but must react to it.
Categories of law imposed by the government:

1. Employment laws
2. Consumer laws
3. Competition laws
4. Location & Environmental laws
Employment laws:
1. Minimum wage level
2. Health and safety at work
3. Employment conditions e.g. holidays and pension
4. Anti-discrimination in employment and recruitment
5. Trade union right
Impacts of employment laws
Benefits to the business Cost to the business
Workers will feel more secure and more Supervisory costs regarding a firm’s
highly valued if they are offered a clear recruitment, selection and promotion
and fair employment contract. This will procedures.
lead to more satisfied and motivated
workers. These workers will be much
more likely to work hard to help a
business achieve its goal.
A safe working environment will reduce Higher wage costs if less than the
risks of accidents and time off work for ill minimum wage was being paid this law
health or injury. was introduced
Failing to meet minimum standards may Higher costs from giving paid holidays,
lead to expensive court cases and heavy pension contributions and paid leave for
fines sickness, maternity and paternity leave
Businesses that make a policy of Employment of more staff to avoid

providing employment conditions and a overlong hours for existing workers
healthy environment beyond legal
requirements can adopt a high-profile
campaign to attract the best employees.
This will also receive good publicity that
might have marketing benefits for the
business.
The culture of the business will be looked Protective clothing and equipment to
upon as one that treats workers as meet health and safety law
partners in the business, equal in status
and importance to managers and
shareholders. This will again reflect well
on the firm and make it easier to attract
and keep the most effective staff.
Workers will be keen to ensure quality
output as they feel a part of the business.
Consumer Laws
Consumer are weak against large companies with large marketing and promotional
budgets. The following is needed:
- Product safety
- Consumer rights for refund or replacement
- Weights and measures
- Advertising accurately
Consumer Laws
Prevents them from being sued- court Increase cost- to ensure product safety
case
Good reputation- ethical, CSR Time consuming
Changing strategies- cause conflict
Main Consumer Protection laws

1. Sales of good act 1982
2. Trade description act 1968
3. Consumer protection act 1987
Competition Laws: To prevent engaging in monopolistic and anticompetitive practices.
Monopoly: a situation where there is only one supplier, this is very rare
How do monopolies develop?
- Invention of a new product
- Merging or taking over
- Legal protection
- Barriers to trade: Economies of scale, limit pricing, owning a resource, brand
loyalty, set up costs
Uncompetitive practices:
- Firms often act collude together to limit free markets and to limit choice to
customers using the following tactics:
1. Refusal to supply a retailer if they do not agree to charge the prices the
manufactures insists
2. Full line forcing
3. Price fixing agreements
4. Predatory pricing
Location & Environmental Laws

- Restrictions on location of industry in town/cities or areas of natural beauty
- Control business developments that damage the environment
GDP: the total value of goods and services (measured in monetary terms) produced in
a country in one year- real GDP has adjusted for inflation
- Measured annually from one year to the other
How can economic growth be achieved?

● Technology and expansion of industrial capacity
● Higher labour productivity (better skilled, more training)
● More economic resources: land,labour,capital,enterprise
● Business investment: on capital equipment, new technology, research and
development
Effects of economic growth
Economic growth:
- This is an increase in a country’s productive potential (physical output of goods
and services) measured by an increase in it’s real GDP.
Increase in real GDP:

- Measured by an increase in the physical output of goods and services in an
economy taking inflation into account.
Other effects:
- Increased employment
- More resources can be devoted to the public sector e.g health
- Greater income from taxes for the government
Inflation and Deflation
Inflation: this is an increase in the average price level of goods and services and this
results in the fall in the value of money.
Consumer price index

- Is used by the government to measure annual inflation
- A basket of household goods is created and the prices of goods and services is
recorded on the second or third tuesday of every month
- Each item is weighed to reflect its importance in the shopping basket as we use
some items more than others
- Measures price changes not price level!
Two main reasons for inflation:

1. Cost-push causes of inflation: when a business is faced with higher costs of
production it will raise the selling price of goods in an attempt to maintain profit
margins:
High production costs:
Higher demand for wages due to inflation
Raw materials may be running out
A lower exchange rate will push up the price of imported goods
Impact of cost push inflation:
Government/central bank: higher exchange rate policy and higher interest rates. Effect
of this are: exports will be expensive so businesses will focus on the
domestic/local markets also high interest rates will discourage businesses from
borrowing and this will put a stop to investment furthermore consumer credit will
be reduced therefore reducing the demand for expensive goods.
2. Demand pull causes of inflation: when consumer demand is rising (usually
during a boom) producers and retailers will realise that existing stock can be
sold at higher price
Impact of demand pull inflation
Government/central bank: higher tax rates and lower government spending. Effects of
this are: higher tax rate will decrease consumer demand also luxury goods will be
effected in a negative way as they are not seen as a necessity furthermore less
government spending will hit industries like manufacturing, they may then leave
and enter foreign markets.
Positive effects of low inflation:

1. Costs increases easily passed on to the consumer
2. Real debt owed by companies will fall (As the value of money is falling, the
debts is repaid with money or less value than the original load)
3. Value of fixed assets will be more
4. Increased profit margin- inventories are bought in advance and sold later
Drawbacks of inflation
1. Employees will become more concerned about the real value of money. They
will look for wages.
2. Consumers will be more price sensitive and look for bargains rather than big
brand names.
3. Rapid inflation will lead to higher interest rates
4. Cash flow problems may occur for businesses as they struggle to find more
money
Unemployment: this exists when a member if the working population are willing and
able to work, but can not find a job.
Working population: those in the population working age

Types of unemployment:
● Cyclical unemployment
● Structural unemployment
● Frictional unemployment
Cyclical unemployment
This is caused by low demand for
products / services during a
recession stage of the business
cycle.
● Less people are buying the
goods and services due to
a shortage of money
hence less workers are
needed.
Structural unemployment
This is caused by a decline in important industries due to structural changes (changes
in society) in the economy.
Frictional unemployment
This is caused when working losing/leaving jobs are taking a long time to find new jobs
Fiscal Policy: Decisions about government spending, taxes and government borrowing
to affect aggregate demand, output and jobs.
- It is reflected in the national budget
Government expenditure:
- Social security
- Law and order
- Emergency services
- Health
- Education
- Defence
- Foreign
Budget Deficit: means planned spending is greater than government revenue (mainly
from taxation)
Budget Surplus: means planned spending is less than government revenue
Two types of taxes:

1. Direct tax: are taxes on earnings and profits. For example:income tax, national
insurance, corporation tax, capital gains tax.
2. Indirect tax: are taxes on expenditure. For example:VAT and specific duties
such as excise duties on tobacco and alcohol.
Two types of fiscal policy:

1. Expansionary fiscal policy: (recession)- government spending will increase.
Tax would decrease. Will lead to an increase in aggregate demand because
goods are cheaper and business incomes are higher. This results in an increase
in output and employment. This will lead to a government deficit.
2. Contractionary fiscal policy (boom): Used to combat demand pull inflation.

Tax would increase. Government spending will decrease. Will lead to a
decrease in aggregate demand. This results are a decrease in output and
employment. The effects of this is that increased taxes so consumers will have
less money to spend and less government spending lower economic growth and
inflation.
Exchange rates
Balance of payments:
- This account records the value of trade in goods and services between one
country and the rest of the world
- A deficit means the value of goods and services imported exceeds the value of
goods and services exported.
What is an exchange rate?

An exchange rate is the price of one currency expressed in terms of another currency.
The exchange rate determines how much of one currency has to be given up in order to
buy a specific amount of another currency.
Fluctuations are based on demand and supply.

Factors that determine the demand and supply
Demand for a currency Supply for a currency
Foreign buyers of domestic goods and Domestic businesses buying foreign

services imports
Foreign tourists spending money in the Domestic population travelling around

country
Foreign investors Domestic investors abroad
Exchange rate fluctuations:

● Appreciation: a rise in the external value of a currency as measured by its
exchange rate against other currencies.
● $1 rises from 1.5 euro to 1.8 euro. The value of the dollar has appreciated. One
unit of this currency ($) will buy more units of the other currency (euro).
This occurs when demand for a currency exceeds supply.
Impacts of currency appreciation:

1. Importers of foreign materials get them for cheaper
2. Makes them more competitive as they do not have to sell them at a cheaper
price.
3. Exporters of goods and services to foreign markets will be affected in a negative
way because of the higher costs of products.
4. Domestic firms that have foreign competitors will suffer as their goods are more
expensive in comparison.
- Depreciation: an all in the external value of a currency as measured by its
exchange rate against other currencies
- $1 falls from 2 euros to 1.50 euros. The value of the dollar has depreciated.
Impacts of depreciation:
1. Home-based exports, can now reduce prices, this will increase the value of their
exports and allow for expansion
2. Manufacturers who depend heavily on imports will experience an increase in
costs and reduce competitiveness.
Appreciation:
- Exports are more expensive
- Increase prices
- Reduce demand
- Reduce sales
- Less profit
- Imports are cheaper

- Raw materials cheaper
- Lower production costs
- Decrease prices
- Higher sales
- Higher revenue
Depreciation:
- Exports are cheaper
- Lower prices
- Higher demand
- Increase sales
- More profit
- Imports are more expensive

- More expensive raw materials
- Higher production costs
- Increase prices
- Lower customer satisfaction
- Lower demand
- Less sales
- Less revenue
Business cycle
Business cycle: regular swings in economic activity measured by real GDP, that
occurs in most economies varying from boom conditions to recession.
- It is measured by GDP (the total value of goods and services produced in a
country in one year).
Boom:
- Period of very fast
economic growth
- Consumption and
investment will be at high levels
- Pay rises are likely to be
largely
- People are working,
people send money and
businesses makes profits.
Negatives of boom:
- Inflation rises due to very high demand
- Shortage of skilled workers means that wages have to be increased
- This increases costs for companies an and their confidence falls
- Government increases interest rates to reduce inflationary pressure this leads to
a downfall.
Recession:
It is a period of 6 months or more of declining real GDP
- Effects of falling demand and higher interest rates hits
- There is low investment, and rising unemployment (falling business and
consumer confidence)
- People have no money to spend, businesses shut down
Slip/trough:
- Prolonged downturn
- GDP falls substantially
- Generally occurs if the Government fails to take corrective action
recovery/expansion:
- Government takes actions
- Income, output and employment start to rise
- Consumption and investment gradually increase and
- Economy starts to expand
How are producers of these goods affected?
Definitions and example Economic growth Recession
Luxury goods - Increase the range - May not reduce

of goods and prices for fear of
services damaging
- Raise price to long-term image
increase profit - Credit term to
margins improve
- Promote exclusivity affordability
and style - Offer promotions
- Increase output - Widen product
range with
low-priced models
Normal goods - Add extra value to - Lower prices

product- better - Promotions
ingredients/improv - Do nothings- sales
ed packaging not much affected
- Brand image may anyway
attract exclusive
tag
- Do nothing- sales
not much affected
anyway
Inferior goods - Attempt to more - Promote good

product upmarket value and low
- Add extra value to prices
product- e.g. - Free consume
higher quality tests
- Extend the product - Increase range of
range to include distribution
more exclusive or
better designed
products
Government instruments:
- These are the tools that the government has at its disposal to influence the
economy.
Type of policy Measures to slow down Likely impact of business
economic growth and
reduce inflation
Fiscal policy: Raise direct tax rates As consumers disposable

Decisions about incomes fall. The precise
government spending, Raise indirect tax rates impact will depend on income
taxes and borrowing. elasticities. If corporation tax
Reduce government rates are increased, then
spending business retained earnings will
decline. This will reduce funds
The combined effect of available for business
these measures will reduce investment.
government borrowing
The retail prices of goods
affected will increase. The
impact on demand will depend
of price elasticities.
Businesses providing goods

and services directly to the
government will risk
experiencing a reduction in
demand. Defence suppliers
and construction companies
could be hit, for example,
Monetary policy: The most likely policy The impacts of higher rates will
Decisions about measure will be an be:
interest rates and the increase in interest rates - Highly geared business
supply of money will experience
increase in interest
payments that the
endanger their cash
flows
- Business will be less
likely to borrow to
finance further
investment as the cost
loans may exceed
expected returns.
Consumer will be affected in

two ways:
- They will be likely to
buy goods on credit as
the interest charges will
be higher. This will hit
demand for expensive
consumer goods such
as cars and household
durable goods
- The demand for houses
will fall as mortgages
are the biggest loan
most consumers take it.
The interest on existing
consumer debts, such
as mortgages, will take
discretionary incomes
and will impact on
consumer demand. The
precise effect will
depend on income
elasticities.
- Higher domestic
interest rates may
encourage overseas
capital to flow into the
country. This will be
likely to lead to an
appreciation of the
currency exchange
rate. This will have
implications for the
competitiveness of
business.
Interest rates and exchange rates:

- If the interest rates are higher in the domestic country then foreign companies
will want to be invest money in bank here
- They will convert the deposits into the domestic currency increasing the demand
and appreciating the currency.
Income elasticity of demand:

- Measures the responsiveness of demand for a product after a change in
consumer incomes
% change in demand for a product
____________________________
% change in consumer incomes

Discuss the likely impact of MFI of the changes to the external legal and economic
environment in country X (14 marks)
- Income is rising. GDP is 2% higher. More income. Price elasticity
- Consumer protection due to the food poison scandal- government threatening to

tighten consumer protection- labeling the food better- increase costs- long run
less chance of consumers being mislead.
- Increase in competition laws. Large market share. More careful. Exploit

customers. Government can fine them. Government helping small businesses
which increases competition.
- Interest rates: rising. He needs it now so he needs to borrow. More expensive.
- Currency: appreciating.
Mistakes from exam:

Exchange rate index:
Country A:B. whenever u see the exchange rate index in a ratio it means that it is giving
u the figures of country A in comparison to country B. So it is the opposite. So if it is,
appreciating in the table, it is actually depreciating.
External influences on business activity: Social and demographic influences
Changes in demographics:
● Ageing population therefore firms have changed the type of products they sell to
reflect this eg. increase in care providers
● Increase in the number of people from other countries has seen firms change
their product range to include imported products
● An increase in the number of students working means there is a need for
part-time hours
Changes in lifestyle:
● People now work more flexible work practices e.g. shift work therefore firms
have changed to longer opening times so that people can still get their
shopping.
● More women working has seen an increase in different products e.g. childcare,
ready meals
● Consumer tastes change all the time and it might mean a firm is left with
products that they cannot sell.
Changes in attitude:
● More concern about the environment, forcing firms to use recycled products or
to be more environmentally friendly.
● More vegan friendly products
UNIT 2: PEOPLE IN ORGANISATIONS
Definition of human resource management:

- The strategic approach to the effective management of an organisation’s
workers so the business can gain a competitive advantage.
1. Flex-time contract: employment contract that allows staff to be called in at
times most convenient to employers and employees, e.g. at busy times of day
2. Temporary contract: employment contract that lasts for a fixed time period, e.g.
six months
3. Part time employment contract: employment contract that is for less than the
normal full working week of, say, 40 hours, e.g. eight per week
4. Teleworking: staff working from home but keeping contact with the office by
means of modern IT communications
5. Zero-hours contract: no minimum hours of work are offered and workers are
only called in- and paid- when work is available
6. Outsourcing: not employing staff directly, but using an outside agency or
organisation to carry out some business functions
Handy’s shamrock organisation:
- Core workers- permanent
- Flexible workers- temporary, part-time, flexitime,
zero hours
- Outsourced workers
Flexible part time contract
Reduce overhead costs as employees More employees to manage

are only required to work at busy times
during the day
More staff to choose from if needed Effective communication is difficult
Can assess employees performance Poor motivation levels

before offering them a position
Zero hours contract workers may not be

available to come
Measuring employee performance
1. Labour productivity
2. Absenteeism
3. Wastage levels: levels of waste produced
by firm is a clear indication of its
efficiency.
4. Consumer complaints
Labour productivity :
- Output per worker increases overtime, therefore
labour productivity/efficiency is increasing.
- Total output in time period e.g. 1 year
_____________________________
Total workers employed
Ways to increase labour productivity:

● Increased salary
● Job rotation
● Delegation
● Correct leadership style
● Improved technology
● Training
Solution:
- Lower unit costs: lower prices for consumers, encouraging higher demand, more
output and an increase in employment.
- Improved competitiveness and trade performance
- Higher profits: efficiency gains are a source of large profits for companies which
might be re-invested to support the long term growth of the business.
- Higher wages: Businesses can afford higher wages when their workers are
more efficient.
What causes absenteeism?

● Poor working conditions
● No respect
● No teamwork
● Over supervision
● Inappropriate tasks
● Low pay
How to reduce absenteeism?

● Flexitime-relieves pressure of childcare or transport
● Job enrichment- a satisfying challenging job that will make workers want to
come to work
● Improved working conditions
● Improved human relations- make workers feel valued
Labour turnover:
- This measure of the rate of change of a firm’s workforce:
Labour turnover = number of staff leaving per year
____________________________ X 100
Average number of staff
Evaluation of performance:
- The figures on their own say a little
Comparisons are necessary
- Over time (this year vs last)
- With other similar firms (benchmarking)
- With targets (e.g. 20% improvement on last year)
Once problems identified, can then find solutions.
Management by objective:
This is when an organisation’s overall aim is divided into specific targets for each
division, department and individual.
- The idea behind this is to improve motivation through specific targets.
Management by objective
Feature of job enrichment Can be time consuming
Everyone knows what to do Objectives can be outdated quickly
Everyone is working towards the same Targets do not guarantee success

targets
Managers are able to monitor

success/failure
Exam question:
Evaluate the benefits to KA of having a mixture of employment contracts (16marks)

- Knowledge : 3 marks
- Application: 3 marks
- Analysis : 5 marks
- Evaluation : 5 marks
Role of trade unions in HRM

Trade unions: organisation of working people with the objective of improving the pay
and working conditions of their members and providing them with support and legal
advice.
Trade union recognition: When an employer formally agrees to conduct negotiations

on pay and working conditions with a trade union rather than bargain individually with
each worker.
Single union agreement:

- Employer recognises just one union for the purpose of collective bargaining.
- It is possible for workers to be members of several different Trade Unions.
Labor legislation:
- Laws passed to control working conditions and the relationship between
employee and employer.
- Industrial relations: the relationship between management and workers in
industry
Examples:
- Minimum wage
- Pay equality
- Discrimination
- Industrial relations (protection from unfair dismissal)
- Health and safety
Bahrain Laws and Legislation:

- Minimum wage 250 BD
- You need to be 18- minimum age
- You can only open a business here if you have a bahraini partner or if you lived
her for 15 years
- Businesses have to be more favorable to opening women than men- less
restriction
- Retirement age 60- If you want to
Advantages:
● Ensures employees are treated fairly so won’t leave for being treated unfairly
● Prevents conflict and stops them from getting a bad reputation/in trouble with
law
● Guidelines for how you should treat employees
● Ethical
● Motivates employees
● Less likelihood of industrial unrest (strikes)
Disadvantages:
● Have to pay employees even when they are not working (maternity leave)
● Some businesses may ignore the law and be taken to court
● Increases cost
● Takes time and effort to monitor
Possible conflict between management and workforce:

1. A manufacturing business decides to introduce new efficient technology
May replace employees- disputes occur- demand redundancy
2. Merging of the business with another company in a different industry
Dealing with conflict

Three approaches that management can adopt to deal with conflict:
- Hard (autocratic) management style

Some managers have a ‘take it or leave it’ attitude to the workforce. Workers might be
employed on very short-term contracts, even on a daily basis, offering no security at all.
If a worker objects to the conditions of work, then the attitude of management is often to
‘sack’ the worker and replace them with another person, who might be so desperate for
work that they will not raise any objections. This approach to labour-management
relations is still quite common in certain countries with weak labour-protection
legislation, weak or non-existent trade unions and high unemployment.
Evaluation: it might lead to very low labour costs, but consider the drawbacks to such
an approach:
- No labour security and very low levels of motivation
- Staff will not have the opportunity to be trained due to frequent job changes
- No common objectives established between labour and management
- Non-existent job enrichment and no staff involvement or participation- so no
contribution from workers to important decisions that can lead to better jobs
- Less time consuming
- Easy decision- making
- Collective bargaining between trade unions and major employers

Collective bargaining is when representatives of unions and national employers
negotiate wage levels and working conditions for the whole industry or for large
sections of it. These collective negotiations made trade union leaders very powerful as
they were able to threaten and actually call for strike action from all their members and
this could bring the entire industry to a halt
Evaluation:
- National agreements were not always suitable, or affordable, for smaller
businesses
- Strikes and other industrial action caused disruption and lost output sales
- Powerful unions resisted any changes that might adversely affect their members
and this led to a lack of investment in, and development of, key industries.
- Cooperation between labor and management ( a bit ‘softer’)

This approach is based on the recognition that successful competitive businesses will
benefit all parties. Recent management thinking has been not to seek to oppose
workers’ suggestion and those of their union leaders, but to actively involve them in
important decision-making and operation issues. In much of modern industry, therefore,
there is much less confrontation, far fewer strikes and a great deal more harmony and
working towards common goal then there was in the 1960s and 1970s.
Workforce planning: this is a process that involves analysing and forecasting the
number of workers and the skills of those workers that will be required by the
organisation to achieve its objectives.
Workforce audit: A check on all the skills qualification of all existing

workers/managers.
Factors that may affect the number of employees

● Forecast demand for a product/service
● Productivity levels of staff
● The objectives of the business: Expansion??
● Changes in laws regarding workers rights
● Labour turnover
● Absenteeism
Advantages:
- Prevents labour shortages- which will hold back production
- Avoids employees becoming overworked
- Prevents excess labour might being employed
- Helps to meet objectives of the business, e.g. expansion
What do these structures tell us?
- Who has overall responsibility
for decision-making
- The forma relationships
between people and
departments
- The chain of demand
- The span of control
- Formal channels of
communication
- Identity of the supervisor or
manager to who each worker
is answerable and should
report to
-
- Learn the advantages and disadvantages of long or short and wide or narrow
Delegation: this is the passing down of authority to perform tasks and take decisions
from higher to lower levels in the organisation
- The wider span of control the greater the degree of delegation- manager still
retain ultimate responsibility
Evaluate the benefits to KA of having a

mixture of employment contracts [16
marks]
- She identified a gap in the coffee industry market

- Coffee shop market is highly competitive- reputation for quality and customer
service
- Anne’s vision to change the way people think about coffee
- Ethical supplier
- Provides intensive training for their employees
- Employees are encouraged to get to know their individual customer’s
preferences for coffee.
- Revenue decreased from 115 m to 112.5 m from 2015- 2016
- Anne remains committed to increasing the market share of the business. She
has been working on two possible strategic options for expansion.
- as the business has grown workforce planning has become more important.
Staffing levels are essential to maintain a high level of customer service. KA
uses a mixture of employment contracts. Most baristas are on permanent
full-time contracts. Many of the other employees are given flexible, zero hours
contracts. Temporary part-time contracts are also used for busy times of the
year. Trade union representation has been discouraged by the Director of
Human Resources. Labour turnover is high.
- Corporate Social Responsibility (CSR).
Explanation of a range of employment contracts – in case are permanent full

time, flexible zero hour contracts and temp part time contracts.
Benefits of mixture of contracts:

• Aids workforce planning as provides flexibility to KA to meet variations in
demand
• In peak periods of demand employees can be brought in to cover work
schedules.
• In off-peak periods KA can reduce hours of employees and thus reduce costs
• Can use employees to cover for absences
• Reduces need to hire labour on temporary contracts to cover peak periods
• Key customer service staff (baristas) on permanent contracts tries to ensure
stability of workforce (knowing customers) and keeps skills in KA
• As this is a competitive market KA needs to keep control of its costs
• With the economic downturn in 2016 KA may be able to avoid making
employees redundant as demand falls. Then as the economy picks up in 2017
KA will not have to recruit new employees to deal with rising demand.
Explaining some disadvantages – e.g. some staff not motivated as not getting
regular work, possibility of divisions in labour force due to differences in security,
costs of administering the HMR/payroll system, possibility of not having enough
staff at key times, difficulty in recruiting quality staff Evaluation •
Evaluation may be shown by contrasting benefits with disadvantages and

providing some weighting
• Ranking of benefits
• Short term versus long term implications of having mixture of contracts
• Contrasting benefits of having a mixture of contracts with uniform contracts
There are many advantages to to KA of having a mixture of employment contracts.

Some have more benefits than others. Full-time contracts is employment in which a
person works a minimum number of hours defined as such by their employer. Flex-time
contract is an employment contract that allows staff to be called in at times most
convenient to employers and employees, e.g. at busy times of day. Temporary contract
is an employment contract that lasts for a fixed time period. Part time employment
contract is employment contract that is for less than the normal full working week and
finally zero-hours contract is no minimum hours of work are offered and workers are
only called in and paid-when work is available. Each one of these have a variety of
advantages. (This is far too long for an introduction- only necessary to explain the term
employment contracts and give examples of contracts from the case study e.g. zero
hour contracts)
Having a variety of employment contracts actually helps KA with workforce planning,

this is because it provides KA with flexibility to meet their objectives. KA has an
objective of increasing the market share of the business, she does this through
expansion. (I’m not sure how this is related to a variety of employment contracts?)The
mixture of employment contracts will aid her in achieving this goal much easier as it
portrays the productivity levels of staff (How does it portray the productivity of workers?
This does not make sense?) therefore a business can motivate staff to increase their
productivity. As a result of this, the business would work hard and been encouraged to
get to know their individual customer’s preferences for coffee like KA wanted them to.
As a result of this, customer satisfaction would increase. This would then increase
customer frequency. Which would then increase the retained earnings of the business.
The business can then re-invest into the business into the two possible strategic
options for expansion.(This paragraph does not make sense)
Another advantage is that it cuts down many costs for the business. (K) For example,
during peak periods off periods (?) , KA can reduce the hours of employees and reduce
costs whereas in peak periods it could reduce the need to hire labour on temporary
contracts. (K) This is beneficial because it means that the business can meet
break-even easily due to the reduction of recruitment and training costs as KA provides
intensive training for their employees. (AN) Due to this, KA would increase their
operating profit that has fallen from 9.2 (m) to 6.2 (m) and their revenue that also fell
from 115 (m) to 112.5 (m) and use this money to pay off their current and acid test ratio
that both fell (Acid test ratio 0.90 -0.86) and (Current ratio 1.00 -0.97) so they can pay
their debts,(AN) if the business fails to do this, they may seriously have to consider
changing their objectives such as removing CSR as they cannot afford to have this
objective and actually focus on survival. (AN)
Furthemore, having a mixture of employment contracts KA can assess employees

performance before offering them a position or by firing them.(K) With the economic
downturn that occured in 2015, some employees with low productivity and that have a
poor performance may be redundant to the business. When the economy picks itself up
in 2017, 7 KA will not have to recruit new employees to deal with rising demand.(AP)
This would give KA a competitive advantage which would largely impact them positively
as the coffee shop market is highly competitive and there excellent performance would
increase their reputation for quality and customer service which is important in
distinguishing KA from their competitors like the independent shops and the large
chains. (AN) (AP)
To conclude, KA does benefit from this but mixed employment contracts also have
disadvantages such as the possibility of not having enough staff at key times or the
difficulty in recruiting quality staff. (E) In the short term this may be beneficial because it
cut downs costs but in the long term it may damage KA’s reputation due to the
unmotivation of staff and the high labor turnover may even increase. (E) Furthermore, if
the business had uniform contracts, the staff may all have the same approach towards
their job and feel stability because they are all getting paid fairly and equally. However,
since KA is in the coffee industry which is very competitive having mixed contract may
give it more advantages than disadvantages therefore it depends on the industry of the
business. (E) Personally, I would recommend them to continue using mixed
employment contracts due to the fluctuation of the performance of the economy and so
that they can reach their objectives such as an increase in market share and focus on
other objectives such as profit maximisation. (E)
K 3/3 Ap 3/3 An 5/5 E 5/5
Shaikha do 3 knowledge points so write 3 paragraphs
Accountability
● The obligation of an individual or organisation to accept responsibility for
their actions, and to disclose the results in a transparent manner.
● Who is accountable for all Y11 Business students doing poorly in their
exams.
Delegation
● This is the passing down of authority to perform tasks and take decisions from
higher to lower levels in organisation
● The wider span of control the greater the degree of delegation- manager still
retain ultimate responsibility
Delegation
Motivation Manager retains responsibility
More time for managers to do other tasks Need for monitoring and control
Can achieve self-fulfillment Can be time consuming
Staff development Depends on trust
Clear definition of task needed

Matrix structure: An organisational structure that creates project teams that cut across
traditional functional departments
How a matrix structure functions: This method is task- or project- oriented. Instead of
highlight the role or status of individuals it gathers a team of specialists with the
objective of completing a task or project successfully. Emphasis is placed on an
individual's ability to contribute to the team rather than their position in the hierarchy.
Advantages of matrix organisations:

● Flexible
● Ideal for innovative/creative ideas
● Responds to change
● Easier communication
● Teamwork focused
● Project rather than departments for focused
Disadvantages of matrix organisations:

● Less control from the ‘top’
● Less obvious career progression
● Less clear authority roles
● Possible conflicts of interest
Hierarchical (bureautic) organisation
● A hierarchical (bureaucratic) organisational structure means there are fewer

fewer people on each higher level.
● A relatively flat (less hierarchical) organisational structure has few levels of
hierarchy and a wider span of control where managers will be responsible for
many subordinates and many management functions will be delegated.
Advantages and Disadvantages of a Hierarchy structure
Reflects decision making Implies one way communication
clear chain of command Few horizontal links between

departments
Shows levels of hierarchy inflexible , resistant to change
Clear career structure May encourage narrow department views
Reflects roles
Flexible choice of divisions
Factors that influence organisation structure:

1. Size
2. Nature of task
3. Style of management: Theory X (Small span of control) Theory Y (Matrix
Structure)
4. Corporate objectives
5. Technological changes
6. Balance between span of control and hierarchy
7. Corporate culture
Delayering: removal of one or more of the levels of hierarchy from an organisational

structure
Advantages and Disadvantages of delayering
Reduces business costs Could be “one-off” costs of making

managers redundant, for example
redundancy payments
Shortens the chain of command and Increased workloads for managers who
should improve communication through remain - this could lead to overwork and
the organisation stress
Why is effective communication important?

● Motivation
● Ideas
● Speed of decision making
● Response to market changes
● Reduce risk of errors
● Coordination between department
Vertical communication: people from different levels of hierarchy communicate with

each other (formal hierarchies).
Horizontal communication: occurs between people who have approximately the

same status but different areas of responsibility.
Types of communication
● Oral
● Written
● IT
● Visual
● Consider cost, speed, quantity of data, importance of having a written record
Barriers to communication
- Failure at one stage: medium may be inappropriate, receiver forgot part of the
message given orally, incomplete message, excessive use of technical
language/jargon, too much information channel of communication too long.
- Poor attitude of sender/ receiver: sender is not trusted, unmotivated or

alienated workers, intermediaries perception.
- Physical reasons: Noisy factory, geographical location particularly

interpersonal communication.
Barriers to communication:
● Message is unclear
● Poor communication skills
● Using the wrong medium
● Jargon
● Long chain of command
● Different countries, language and cultures
One-way versus two-way communication
One-way versus two-way communication: Does not encourage feedback from the
receiver of the message and there is no assurance that the message was received,
understood and acted upon e.g. messaged pinned on notice boards (Autocratic
leadership Paternalistic)
Two-way communication: encourages feedback and participation e.g. team briefings,

telephone (Mayo & Herzberg)
Different ways to communicate
Chain network
This type of network is typically used in a hierarchical structure e.g. police,
army, civil service.The person at the top starts the communication message
and passes it on to their subordinate. This network is suited for an autocratic
style of leadership.
Advantages:
● Gives the leader control and allows overview of the organisation
Disadvantages:
● Long chain of command negative
● Individuals at the bottom of the chain may feel isolated and neglected
Circle network
In this type of network, each person or department can only communicate
with two others. This is a decentralised network with no obvious leader.
Advantages:
● Motivated employees as they all partake in decision making - all
employees are the same level as there is no leader
Disadvantages:
● Difficult to agree on a new strategy due to the slow rate of
communication
● No assurance that the message has been received or acted upon
Wheel network
In this network, the leader is at the center. Two way communication is
possible between the leader and other employees but horizontal
communication is very poor. The leader has full control and can limit the
communication between others. An example of this is a regional manager
communicating with the other branch managers. An advantage to this
network is solutions can be discovered quickly. A disadvantage to this
network is the departments have no direct communication amongst
themselves.
Integrated network
This type of network allows full two way communication between any group
members. It is very common in this structure to have team meetings or
brainstorming sessions. An advantages of this structure is it assists in
solving complex problems. A disadvantage to this structure is it may be
confusing for the workers to identify who the leader is.
Vertical network
In this network, the boss - typically the owner - has four
employees below him. Communication between them is
direct but individual. There is no group network.
Advantage:
● Short chain of command thus message is clear
Disadvantage:
● Employees below e.g B,C,D,E - may feel bored and isolated as there is no
communication
UNIT 3: MARKETING
Marketing plan: a detailed, fully researched written report on marketing objectives and
the strategies to be used to achieve them.
Key stages of a marketing plan

1. Purpose of the plan/mission of the business
2. Situational analysis
3. Marketing objectives and strategies to achieve them
4. Marketing mix
5. Budget
6. Executive summary and a time frame for implementation
Situational analysis:
The current situation of the business in terms of
● Product analysis
● Target market
● Competitors
● Economic and political environment- PEST
● SWOT- of the business itself
Marketing objectives:
- These are the specific goals of the marketing department in order to help
achieve the overall objectives of the business
- Included in a marketing plan and help to formulate appropriate marketing
strategies
Your marketing objectives are for the future situation of

the business (SMART)
➔ Improved product/ brand awareness
➔ Developing new products
➔ Enhance brand perception (customers, existing or
potential, have a positive impression of your business)
Marketing Strategy:
- Long term plan on how the company intends to achieve
it marketing to achieve it marketing objectives. Includes
market research, objectives, budget and marketing mix.
Budget:
● Marketing budget needed- should fit in with marketing objective and the size of
the potential market.
Constraints on marketing strategy:

● Market conditions
● Business and marketing objectives
● Financial resources
● Non-financial resources
● Competitors actions
Structure:
Intro: define marketing strategy and identify a marketing objective for that company
Main body: (3 of the 4P’s) (apply to own country)
- What is the current strategy for that P?
- What change should they make?
- Consequences of this change?
- Evaluation: --------> always comment on the budget
Product- Ansoff Matrix
Price:
- Cost based pricing
- Mark up pricing
- Full cost pricing
- Penetration pricing
- Market skimming
Promotion
- Above the line
- Below the line
- Internet
- Packaging
Income elasticity of demand

Measures the responsiveness of demand for a product following a change in consumer
incomes.
Formula: % change in demand for the product
% change in consumer incomes
Normal goods
● Any good for which demand increases when income increases e.g. with a
positive income elasticity of demand.
● Necessities and luxury goods
Necessities
● Income elasticity of demand of between 0 and +1
● If income increases by 10% and the demand for fresh fruit by 4% then the
income elasticity is +0.4
● Demand is rising less than proportionately to income
Luxury goods
● Income elasticity of demand greater than +1 i.e. demand rises more than
proportionate to a change in income.
● An example of this is an 8% increase in income might lead to a 10% rise in the
demand for new kitchens.
● The income elasticity of demand in this example is +1.25
Inferior goods
● Negative income elasticity of demand (less than 0) meaning that demand falls
as income rises
● When income decreases, demand increases
● Typically inferior goods or services exist where superior goods are available
● Demand for cigarettes, low-priced own label foods in supermarkets and the
demand for council-owned properties
Elastic and inelastic
● Inelastic demand: When people by the same quantity of a product regardless of
the fact that their income has increased / decreased.
● Elastic demand: When the quantity demanded changes more than the price /
income does.
● Unit elastic demand: When the quantity demanded changes the same as the
price / incomes.
Promotional elasticity of demand

- Measures the responsiveness of demand for a product following a change in the
amount spent on promoting
% change in demand for the product

_______________________________
% change in promotional spending

Evaluative point:
A promotional campaign one year does not guarantee success the next year if the style
of advert and media used have changed
Cross elasticity of demand:

Measures the responsiveness of demand for a product following a change in the price
of another:
% change in demand for product A

_____________________________
% change in price of good B
Substitutes: Goods that rival each other, an increase in the price of one good will lead
to an increase in demand of the other.
Complementary goods: where changes in demand for one good mirrors the change in
demand for another.
Market Planning
What is NPD?
- New product development. This is the design of new goods and services
★ Especially important in fast changing markets e.g. pharmaceuticals industry.

★ New products can fall into these categories
➔ Completely novel products
➔ New for the company products
➔ New for the market
NPD
How to generate ideas
1. Company
research and
development
2. Adaptation of
competitors
3. Market research,
such as focus group
4. Employees
5. Sales people
6. Brainstorming in
groups
Idea screening
- Eliminate ideas
with the least chance of
being commercially
successful
- Keep products
with a reasonable chance
of success
Concept development
and testing:
- Company
considers features the
products should have e.g. cost of good, target audience.
- Testing may be done through market research e.g. questionnaires, surveys,
releasing samples.
Business analysis
- Considers impact of new product on company sales, costs and profit.
- Data about price can be based on customer feedback
- Data on revenues, costs and break even needs to be estimated
Product testing
● Assess the technical performance of the product and ensure that it will satisfy
customers’ expectations
● Develop a working model, test the product in use conditions, focus groups to
gather opinions, adapting the product after testing.
Test marketing
- The launch of a product to a small scale market to test the product to identify
consumer behaviour, risks and weaknesses associated with the product.
- The limitations of this is that it can be expensive, and competitors can copy the
product before it’s completely released to the public.
Commercialisation
● Full scale launch corresponds to the intro stage of the product life cycle
● There will be a promotional strategy applied and the product will be stocked up
● Crucial few weeks
What is research and development

- The scientific research and technical development of new products and
processes to gain a competitive advantage.
R&D Strategies
● ‘No R&D’/ follow the leader: Business gets permission to license other
companies new ideas or adapt that company’s existing products (Legal
conflicts).
● Offensive R&D: Lead the industry with innovative products in order to gain
market share e.g.Apple.
● Defensive R&D: The business will attempt to learn from the initial innovators
mistakes and ideas. They will improve the original products to appeal to other
market segments.
The level of R&D expenditure
What will affect this?

- The nature of the industry- pharmaceutical industry, vehicles will need to spend
more than hotels and hairdressing.
- R&D spending of competitors: As much or more will be required if market share
is to be maintained.
- Business expectations: If demand, economic growth and consumer spending
are optimistic than spend more.
- Government policy: will the government provide grants, tax reduction.
Research and Development
- Reputation for innovation and - Even if research is successful not

brand loyalty all inventions become innovative
products.
- Higher profit margin - Defects in design or manufacture
- Competitors can leap ahead

- Premium prices
- Poor marketing
- Product can become dated
- Inadequate market research
MOCKS
Use your results to 4(a) and any other relevant information. Discuss the
importance of marketing planning to the success of DA’s entry into the market for
walking boots. (12 marks)
Introduction: explaining marketing planning
Paragraph 1: promotional elasticity. Elastic or inelastic? Current sharing? How should

they change it?
Paragraph 2: Price elasticity- same as above
Paragraph 3: One other advantage of marketing planning
Evaluation:
- Completely new marketing plan needed- most important factor could be
identified and explained.
- Essential to have fully integrated and supportive marketing mix aimed at this
marketing mix aimed at this market
- Competitive rivalry will be an important factor
- Original objective needs to be realistic (market share) and used as a form of
assessment of this strategy.
Assume DA decides to go ahead with strategy 1. Discuss the extent to which the
data in Appendix 5 and other external factors could influence DA’s success in
country B. (16 marks)
- Gdp needs to be linked to income

- High rates of inflation can create economic instability and cause the government
to increase interest rates; this could impact sales of camping equipment
particularly if it is expensive
- High inflation will increase the price of domestically produced goods- this could
also help to make DA’s products more competitive
Globalisation and International Marketing
- This the growing trend towards worldwide markets in production, capital and
labour, unrestricted by barriers.
Can you explain the following key terms:

- Tariffs
- Quotas
- Voluntary export limits
What drives globalisation

● Less protectionism
● Expansion of multinational corporations
● Fewer restrictions on movement of capital and workers
● Internet and technological developments
Advantages:
- More culturally aware e.g. new ideas
- Wider choices of goods
- Lower costs
- Less rules and regulations
- Increased employment
- Local firms increase efficiency
Disadvantages:
- Loss of culture
- High unemployment in local country
- Local firms difficulty competing
- Increased transport costs
- Pollution
Greater opportunity to sell goods in other Domestic market can suffer due to
countries leading to higher sales increased competition
Increased competition encourages Multinational companies are not always

companies to be more competitive culturally sensitive
More location choices- generally cheaper Increased global warming and pressure
and multinationals have direct access to on natural resources
home markets
Greater freedom for mergers and Government has less influence

takeovers with foreign companies
International Marketing
- Selling products in markets other than the original domestic market.
Why bother having one?

★ Saturated home markets
★ Increased profits- if the foreign country has low labour and property costs
★ Spreading risks
★ Poor trading conditions in home market
★ Legal differences- less laws and regulations
Differences
➔ Political e.g. government
➔ Economic e.g. living standards
➔ Social e.g. role of women
➔ Cultural e.g. use of color, languages
➔ Legal differences e.g. safety laws
Methods of entry:
- Exporting - selling a product directly to a foreign customer (website) or indirectly
through an export such as a local agent
- International franchising
- Joint ventures- an arrangement between two or more businesses in which they
agree to pool their resources to achieve a specific task. An example of this is the
phone company Sony Ericsson. (Sony Japanese company)
- Licensing- allowing another firm in the foreign country to produce its branded
goods ‘under license. This saves the cost of physically exporting the product.
- Direct investment in subsidiaries- company owned subsidiary in a foreign
country e.g. Toyota factory in the EU. The subsidiary may be almost completely
decentralised.
Global localisation
Adapting the marketing mix including differentiated products, to meet national and
regional tastes.
Companies that do this include:
- Kfc
- Pizza hut
Advantages
● Local needs and tastes are reflected in the marketing mix leading to higher
sales and profits.
● No attempt to impose foreign products on local people
● More likely to meet local and national legal requirements
● Less local opposition
Disadvantages
● Scope for economies of scale is reduced
● International brand could lose it’s power if locally adopted products become
more popular
● Additional costs involved in adapting products
Pan-global marketing
Adopting a standardised product across the globe as if the entire world were a single
market.
- Selling the same product in the same way everywhere
Pan global marketing
Refer to Appendix B and other information. Discuss the changes that XM might
need to make to its current marketing strategy when entering the market in
country Z.
Definition: Marketing strategy – the plan of how the marketing objectives are going to be
achieved
Answers could include: Identification of the existing marketing strategy: low prices; sold
direct to customers; well specified product; low marketing costs with little advertising
and use of social media to promote products.
Pricing:
- A number of factors point to the importance of a low pricing strategy.
- As median household income is 20% lower in country Z this would suggest that
a low price strategy may be required as used in Country Y.
- The market is dominated by the leading brand.
- Strong brand loyalty may exist and therefore XM will need to offer low prices to
attract customers.
- With ambitious target sales of 2m units in 2017 penetration pricing might be
appropriate.
- This represents no change in the current pricing approach.
Promotion:
- Success in country Y has been achieved with a low marketing budget.
- How feasible is this approach in country Z?
- Internet access is significantly lower and thus use of social media may be less
widespread.
- There is a higher proportion of the population aged 20-34.
- This age group may be early adopters of new technologies so the market may
change rapidly in the future.
- This could favour their existing strategy.
- Will it be necessary to use other forms of promotion such as advertising in
magazines or on television? This will have a much greater cost to XM.
Product:
- Smartphone ownership is much lower in country Z.
- Should XM release simpler phones for this market or will the low prices that XM
charge enable the company to offer smartphones at prices competitive with
more basic models?
Place:
- XM has sold mainly online. However, due to low internet access is this the best
strategy in country Z? Use of retailers is the dominant method of selling in
country Z. It may be necessary for XM to use different channels of distribution to
enter the market.
Evaluation:
• Changes may depend on the response from the established brand: aggressive
marketing tactics or promotions by them could harm the impact of XM’s entry at low
price.
• How much budget will be available? It is likely that promotion will need to be more
traditional given less internet access and media such as print or TV will be costly. Plus
choice of media to reach 20–34 year olds will affect this.
• What margin will retailers/distributors ask? This could affect XM’s ability to offer low
prices or impact on their own margins – especially since the cost of distribution will
already have added to cost of sales.
• Country Z has growing GDP and strengthening currency – the inevitable rise in
demand for new technology is a strong motivation to enter the market no matter what.
• Overall – balance of changes to price and promotion will be most significant.
Evaluate the usefulness of a marketing

plan for successful expansion through
option B. [16]
Answers could include:

• Marketing plan sets out audit, objectives, tactics, monitoring and fits into overall
business plan
• Advantages are integrated marketing approach, increased efficiency, increased
employee commitment as purpose identified
• Audit of current position includes competitive market, falling profits and sales, good
brand name
• Objectives to renew sales revenue growth
• The above analysis enables KKS to consider ways of achieving objectives in context
of their market situation
• Application by reference to Option B
• Plan can be monitored and adjusted with feedback from sales figures and customers
• Preparing the plan involves cost of managers time and possible conflict if organisation
objectives are unclear and/or not reflected in other functional area plans
Evaluation might consider that without the plan marketing activities might be random
and not based on or reflect the new strengths of the service and sales not increase for
this reason.
Advantage:
- Marketing/ pricing decision
- It helps them achieve their objectives.. Help them come up with strategies to
achieve it
There are a variety of reasons that make market planning successful
Sales Forecasting
- Quantitative management technique used to forecast a firm's sales over a given

time period.
- They help to identify problems and opportunities in advance
Why bother?
- Production department would know how many units to produce and what
quantity of materials to order and would hold the correct level of stocks.
- Marketing department would be aware of how many products to distribute and
whether changes to the existing marketing mix were needed to increase sales.
- Human resources workforce plan would be more accurate, leading to the
appropriate level of staffing.
- Finance could plan cash flows with much greater accuracy.
Moving averages
- Use a similar technique to mean, but smooth out variations caused by seasonal,
cyclical and random variations.
- It extrapolates the trend and allows for short term sales to be forecast.
Seasonal variations- Regular and repeated variations that occur in sales data within a
period of 12 months
Cyclical variations- Variations in sales that occur over periods of time much more than
a year due to the business cycle.
Random fluctuations- Occur at anytime and cause unusual and unpredictable sales
figures e.g.weather
3-point moving average

- Basically, the mean of 3 months expected sales activity
Sales Data
Month 1 2 3 4 5 6
Sales 12 000 15 000 14 000 18 000 20 000 11 000

Revenue
Month 1 2 3 4 5 6
Sales 12 000 15 000 14 000 17 000 20 000 11 000

Revenue
3 Point 13, 15, 17, 333 16, 333

Moving 666.6667 333.333
Average 3
(Trend)
Variation +1333 -1667 +667 +367

(actual-trend)
1. Add all the figures together for the first 3 months

2. Then you divide the answer of that by 3
3. Then your answer goes in the middle
4. Then you do it again for the next month
UNIT 4:OPERATIONS
AND PROJECT
MANAGEMENT
Capacity utilisation: measures what percentages of a firm's possible output is being
achieved.
- Capacity utilisation = current output level x 100
_______________________ = x %
Maximum output level
Usefulness:
- The higher the better
- Too high then no scope for
flexibility
- Compare with previous year
and industry
Calculate this:
- A firm is capable of producing
600 units, but is only producing
250
- A firm is producing 475 of a
possible 600 units.
- A firm has maximum capacity of 950 units. They currently produced 900 units
250 x 100
________ = 41.7%
600
475 x 100
_________ = 79.2%
600
900 x 100
_________ = 94.7%
900
High Utilisation
Benefits Costs
Average costs drop Staff feel pressured
Sign of a successful business No flexibility for new orders
Employees feel secure in their jobs Insufficient time to maintain machinery
Excess capacity:
Excess capacity exists when demand levels are less than the maximum capacity of a
business.
Reasons for excess capacity:

- Demand is seasonal such as school textbooks, or winter clothes
- Demand may have fallen for your product
- Efficiency may have increased due to improved technology or increased skill
among workforce
Solutions for excess capacity:
Short-term (seasonal)
- Introduce flexibility such as part-time working or flexible equipment
- Marketing solutions to increase demand
- Maintain capacity to increase inventory if demand increased (depends on
product)
Long-term (recession, technological changes)

- Cut capacity by moving to smaller factory or reducing no. of workers
- Research and development of new products
- Marketing solutions to increase demand
Some of these methods will affect workforce directly, such as the loss of jobs or
decreased hours. Other methods will decrease motivation as staff fear for their jobs.
When suggesting a solution:

Consider:
- The nature of the product (not sensible to suggest continuing production in
product will become outdated)
- The timescale of the issue. A business wouldn’t relocate to a smaller factory due
to seasonal change
- The cause of the problem. If demand has fallen due to a reputation hit, the
developing new products will still be tarnished with the same brand.
Improving maximum capacity
1. Acquiring more production resources

- Capital investment in factories/equipment
Acquiring more production resources
Long-term capacity increases High capital costs, could be difficult to

finance
Firm maintains control of quality and Increases capacity, but demand could fall
delivery
New factories able to use latest methods Takes time to build and equip facility and
customers may go elsewhere
Other economies of scale should be

possible
2. Outsourcing
- Employing another business to build components, supplies or the full
product
Outsourcing for this

No major capital investment Less control over quality
Quick to arrange Additional admin and transport costs
More flexibility as subcontracts can be Delivery could be unreliable

ended if demand falls
Business can contribute to focus on ‘core Unit costs are likely to be higher than if
competencies’ you made products yourself
3. Continue working at full capacity

- Continuing to operate at full
capacity is the cheapest option
which causes the least
distribution
However:
- Impractical due to machines and labour
being constantly under pressure
- New orders cannot be accepted
Lean production and quality management
Lean production is producing goods and

services with the minimum of wasted resource
while maintaining higher quality.
Objectives of lean production:

★ Reduce waste
★ Increase efficiency
ON THE RIGHT ARE TYPES OF WASTE:

Criteria for lean production
● No buffer stocks are held (JIT)
- products are ordered by the business
when requested by the customer
● Quality must be assured with every
unit
- it wastes time and resources, it also interrupts the process of adding value
● Employees must be highly skilled
- they must jump between job roles
● Increases maximum capacity
- improves the efficiency of the business
Methods of achieving lean production

● Simultaneous engineering
➔ Product development is organised so that different stages are done at
the same time instead of in sequences
● Cell production
➔ Splitting flow production into self-contained groups that are responsible
for whole work units
● JIT inventory control
➔ Ordering materials when they are needed, not holding buffer stock
● Kaizen
➔ Making small and continuous improvements to the production process.
Cell production
Splits flow production into self-contained groups which are responsible for whole work
units.
Team working improves productivity Machinery not used as intensively as

flow
Job rotation as workers can perform Culture has to encourage trust and
multiple jobs, meaning sick leave can participation
be covered
Sense of ownership improves quality Recruitment and training must

support quality culture
Kaizen:
● Kai (change) zen (better)
● The idea of small and continuous improvements
● Small employee groups formed to develop ideas for improving quality - this
helps change resistance (quality circles)
● Helps to motivate employees
Lean production
Advantages:
● Waste of time / resources is massively reduced
● Units costs are reduced
● Work area is less crowded and easier to operate in
● Less risk of damage to stock / equipment
● Increased flexibility means new products are launched more quickly
Disadvantages:
● Purchase of new, flexible equipment is costly
● Retraining of staff to be multi-skilled
● Increasing efficiency can mean losing staff and damaging reputation
Is lean production suitable?

● Cay you forecast demand?
● Are there good supplier relationship?
● Is the business financially stable? It will not be successful if it used as a way to
cut costs by reducing employees.
● Is customer service is a key selling point?
● Can they cover costs of training, machinery? (gearing, money in bank)- liquidity
ratio
Quality
Quality relates to a product meeting the expectation of the customer. These
expectations differ based on the price of the customer is asked to pay for an item.
Quality can be measured by:
● Physical appearance
● Image of manufacturer
● Reliability and durability
● Fit for purpose
● Safety
● Customer service
The importance of quality assurance

Quality assurance is a system of agreeing and meeting quality standards at each stage
of production to ensure customer satisfaction.
● Involves all staff which improves teamwork therefore, motivation
● Leads to reduced wastage costs
● Gain accreditation from quality bodies, which gives the business a good
reputation
● Improve customer satisfaction as they will always receive a quality product
Quality control
Products are tested and inspected at the end of the production process to make sure
they meet the quality standards of the business. This involves testing a random sample
up to a predetermined percentage.
Quality and training

Skilled staff are more likely to produce quality products and notice those that do not
meet standards. Additionally, staff that are trained are more likely to feel valued by the
business. This means they will be more motivated to carry out their job effectively.
Total quality management (TQM)

An approach that aims to involve all employees in quality improvement.
It aims to:
● Achieve ‘zero defects’
● Make all workers at all levels realise the quality of their work is important
It is only effective if:

● Everyone is motivated to ensure quality in their work
● Require management to give employees authority and empowerment
Benchmarking
Involves management identifying the best firms in the industry and then comparing
performance standards - including quality - of these businesses with those of their own
business.
Advantages:
● The areas of greatest significance for customers are identified and action can be
directed to improving these
● It is a process that can assist the firm to increase international competitiveness
● Comparisons between firms in different industries e.g. customer service
departments in a retailer compared with a bank, can encourage a useful
crossover of ideas
Disadvantages:
● The costs of the comparison excessive may not be recovered by the
improvements obtained from benchmarking
● Merely copying the ideas and practices of other firms may discourage initiative
and original ideas
● The process depends on obtaining relevant and up-to-date information from
other firms in the industry; if this is difficult to obtain, then the benchmarking
exercise will be limited
Quality circles
- When employees get together and discuss how to improve things. All
employees are expected to be part of it.
Evaluate whether the introduction of lean production techniques would be

enough to improve ADP’s operational efficiency. [16 marks]
One way lean production could improve ADP’s operational efficiency, is by reducing
wastage. In 2016, the number of units produced was 110,000 and the number of units
that were wasted was 2000. Whereas, in 2017, was 96,000 and the number of units
wasted were 3000. This shows that ADP have been experiencing a wastage problem.
This could be solved by introducing Total Quality Management (TQM),
3. Discuss how PV might change the way it organises production to achieve its
objectives. (16)
Production uses quality control - checks for quality are only done after this stage
just before the shoes are packed in boxes.
Reduce the percentage of finished shows failing to meet quality standards to 5%.
Reduce inventory levels
The business PV currently uses batch production this is a technique used in

manufacturing, in which the object in question is created stage by stage over a series of
workstations, and different batches of products are made. one of their objectives are to
reduce the percentage of finished shoes failing to meet quality standards to 5%.
Another objective is to reduce inventory levels. PV is able to change the way it
organises production to achieve its objectives.
One way PV can achieve their objectives is by changing to Total Quality Management
(TQM) which is an approach that aims to involve all employees in quality improvement
and to achieve “zero defects”. As one of PV’s objectives is to “reduce the percentage of
finished shoes to meeting quality standards to 5%”, by introducing TQM it can reduce
this percentage as a result, there would be an increase of customer satisfaction which
would then increase customer frequency. It would also reduce unit costs which can
improve their profit margin. This would then make it easier for the business to
break-even and increase their revenue. As a result, the business can re-invest into the
business and focus on this objective.
Another way PV can achieve their objectives is through picking a method of lean
production. The most suitable for PV would be by using the JIT approach. This means
that the business would reduce inventory levels which is exactly what one of their
objectives is. Another objective is to reduce inventory levels. This is beneficial because
the opportunity cost of of inventory and storage is reduced in addition means that
multi-skilled staff could be motivated. As a result, the business would have an increase
in their productivity but would make the business have a good reputation due to a low
labor turnover and absenteeism. However, it requires a change in business culture
where employees/processes are held accountable for their own performance, they
should still do this by using sources of finance such a bank loan. Also the cost of
implementing JIT is unlikely to outweigh savings in a small business and they should
/would need to balance the cost of holding buffers to potential cost savings. Despite
this, I would recommend them to do this as it would still have positive impacts because
If inflation is rising, holding large quantities of stock could be beneficial.
Project management
Project:
- A specific activity with a start and end date. Should have clear goals and a
budget
Project management:
- Using modern techniques to complete a project and meet targets. Targets are
based on quality, cost and time.
Projects as a response to change
● Environmental pressure
➔ A business may need to develop new methods or products which are
more eco-friendly.
● Costs
➔ A business may need to relocate due to the costs rising in a country
● Expansion
➔ They may be looking to expand in other countries and need to market
their product, or build a new factory to increase capacity
● Efficiency
➔ They may wish to buy new machinery or train workers to increase
business efficiency (lean production)
Impact of project failure
● Bad publicity
➔ Reputation may be damaged as project collapses
● Loss of future contracts
➔ Losing trust of potential customers who take business elsewhere
● Penalty payments
➔ Made to the customers who demand compensation for failure to meet
contract
Critical path analysis

- A planning technique which shows all tasks in a project and puts them in the
correct sequence. This allows identification of the critical path.
- Critical path is the sequence of activities which must be completed on time for
the whole project to be completed of time.
- Network diagram is the drawing used in CPA which shows the logical sequence
and how activities depend upon one another. This helps identify the CP
EST and LFT

● Earliest start time (est) is the earliest time an activity can start based on
preceding activities.
➔ Found by working left-to-right, and choosing highest number. Top of
node + duration
● Latest finish time (LFT) is the latest an activity can finish without delaying the
whole project.
➔ Found by working right to left and choosing the lowest numbers. Bottom
of node- duration.
UNIT 5 :FINANCE AND

ACCOUNTING
32: COSTS
Cost Centre: A section of a business, such as a department, to which costs can be
allocated or charged.
Examples of cost centres are:
- In a manufacturing business: products, departments, factories, particularly
processes or stages in the production, such as assembly
- In a hotel: the restaurant, reception, bar, room letting and conference section
- In a school: different subject departments
Profit Centre: a section of business to which both costs and revenues can be
allocated- so profit can be calculated
Examples of profit centre:
- Each branch of a chain of shops
- Each department of a department stores
- In a multi-product firm, each product in the overall portfolio of the business
Why divide operations into cost and profit centres?

- Managers and staff will have targets to work towards
- These targets could be used to compare with actual performance and help
identify those areas performing well and not so well
- The individual performances of divisions and their managers can be assessed
and compared
- Work can be monitored and decisions made about the future. Eg. should a profit
centre be kept open or should the price of a product be increased?
Disadvantages of using these centres:

- Managers and workers may consider their part of the business to be more
important than the whole organisation itself. There could be damaging
competition between profit centres to gain new orders.
- Some costs- indirect costs- can be impossible to allocate to cost and profit
centres accurately and this can result in arbitrary and inaccurate overhead-cost
allocations.
- Reasons for good or bad performance of one particular profit centre may be due
to external factors not under its control
Overheads:
1. Production overheads: These include factory rent and rates, depreciation of
equipment and power.
2. Selling and distribution overheads: These include warehouse, packing and
distribution costs and salaries of sales staff.
3. Administration overheads: These include office rent and rates, clerical and
executive salaries.
4. Finance overheads: These include the interest on loans
Unit Costs:
This is the average cost of producing each unit of output:
Unit Cost = total cost of producing this product

____________________________
Numbers of units produced
Full Costing: a method of costing in which all fixed and variable costs are allocated to
products, services or divisions of a business.
- This essentially calculates the operating profit of each department
Full Costing
Relatively easy to calculate and There is no attempt to allocate each

understand- unless each overhead cost overhead cost to cost/profit centres on
is absorbed by using a different basis, the basis of actual expenditure incurred.
which makes the process more complex
Full costing is particularly relevant for Arbitrary methods of overhead allocation

single-product businesses as there is no can lead to inconsistencies between
uncertainty about what share of departments and products
overheads should be allocated to which
product
All costs are allocated (compared with It is sometimes dangerous to use this
contribution costing) so not costs are cost method for making decisions,
‘ignored’ because the cost figures arrived at can
be misleading
Full costing is a good basis for pricing If full costing is used, it is essential to
decisions in single-product firms- if the allocate on the same basis over time;
full unit cost is calculated, this could then otherwise sensible year- on year
be used for mark-up pricing. comparisons cannot be made
Marginal Costs: the cost of producing an extra unit

This extra costs will clearly be a variable direct cost. For example, if the total cost of
producing 100 units is $40,000 and the total cost of producing 101 units is $400,050 the
marginal or extra is $50
Contribution: selling price - variable costs

The contribution of a product is the revenue gained from selling a product less its
marginal (variable direct) costs. This is not the same as profit, which can only be
calculated after overheads have also been deducted. For example, if that 101st unit
with a marginal cost of $50 is sold for $70, it has made a contribution towards fixed
costs of $20. The unit contribution is found as the difference between the sale price
($70) and the marginal cost ($50), i.e. $20
Contribution of marginal costing: costing method that allocates only direct costs to
cost/profit centres, not overhead costs
33: BUDGETS
Why do we need budgets?
● Plan
● Targets
● Monitor
● Assessing
● Collaborate
● Allocate resources
● Improve
Budget: A detailed plan for the future

- A budget holder is responsible for setting and achieving a budget
- A delegated budget is giving control over setting/achieving budgets to others
(Herzberg motivational theory-motivators)
Budget V Forecast
A budget is where a business wants to go, a forecast is where it is headed.
Budgets are often based on forecasts (sales)
Stages in preparing budgets

1. Determine objectives- How? (previous performance, external factors,
forecasts)
2. Limiting/key factor (usually sales)- what is the restriction on budgets?
3. Sales budget prepared after discussions with managers/departments
4. Subsidiary budgets prepared- (cash, admin, materials, selling/distribution)
5. Budgets are co-ordinated for consistency
6. Master budget used to prepare IS and SoFP
7. Budget shown to board of directors for approval
Budget Holder: individual responsible for the initial setting and achievement of a
budget
Variance analysis: calculating differences between budgets and actual performance,
and analysing reasons for such differences
Delegated budgets: giving some delegated authority over the setting and achievement
of budgets to junior managers.
Incremental budgeting: Using last year's budget as a basis for next year and
adjustments are made.
Zero budgeting: Setting budgets to zero and budget holders have to argue their case
Flexible budgets: This means that once budgets are set, expenses are allowed to vary
based on sales/production.
BUDGETING
Planning - the budgetary process makes Lack of flexibility - if budgets are set
managers consider future plans carefully with no flexibility built into them, then
so that realistic targets can be set sudden and unexpected
Effective allocation of resources - Focused on short term - budgets tend

budgets can be an effective way of to be set for the relatively short term, for
making sure that the business does not e.g. the next 12 months. The short term
spend more resources that it has access decisions may not be in the best
to. long-term interest for the business.
Setting target to be achieved - May lead to unnecessary spending -

research shows that most people work when the end of the budgeting period
better if they have a realisable target at approaches and managers realise that
which to aim. As a worker you are they have under spent their budgets,
striving to meet that target unnecessary spendings might be made
so that the same level of budget can be
justified for the next year
Coordination - discussion over the Training needs must be met - setting

allocation of resources to different and keeping budgets is not easy /
departments and divisions requires managers with delegated responsibility
coordination between these departments for budgets will need extensive training in
this role (in case of zero budgeting)
Monitoring and controlling - plans

cannot be ignored once in place. There is
a need to check regularly that the
financial objective is still within reach
Modifying - if there is evidence to

suggest that the objective cannot be
reached and that the budget is
unrealistic, then either the plan or the
way of working towards it must be
changed
Variance Analysis
Variance analysis measures the difference between actual figures and budgeted
figures. Analysis of these variances is essential as it:
Analysis of these variances is essential as it:
- Helps us find the reasons for changes (lower sales, higher costs etc.)
- This information can be used to make more accurate budgets in the future
- Measures differences between planned and actual variances by month and year
Adverse vacancies are decreases in profit. Favourable variances are increase in profit.
Favourable variances are increase in profit
Causes:
Adverse:
- Sales below budget (less units sold or lowered selling price)
- Raw materials costs higher (more expensive materials or higher output)
- Labour above budget (wage rates had to raised or production took longer)
- Overheads are higher than budgeted (increased rent or power costs)
Favorable:
- Sales above budget (economic growth or failing competitors)
- Raw materials lower than budget (unit cost decreased or less output)
- Labour costs drop (wage rates drop or work completed quickly)
- Overheads are reduced (insurance premiums decreased or loan paid off so no
interest)
Market Value: the estimated total value of a company if it were taken over
Intellectual property: the amount by which the market value of a firm exceeds its
tangible assets less liabilities- an intangible asset
Capital expenditure: any item bought by a business and retained for more than one
year, that is the purchase of fixed or non-current assets.
Revenue expenditure:any expenditure on costs other than non-current asset

expenditure
Area affected Increase / Area affected Increase /

Decrease Decrease
Sale of Current Assets Increase Current Assets Decrease

inventories (Cash) (Inventories)
for cash
Debtors are Current Assets Increase Current Decrease

asked to pay (Cash) Liabilities
early
Additional Share Capital Increase Current Assets Increase

shares are (Cash)
sold
Additional Non-current Increase Share capital Increase

shares are Assets
sold and used
to buy
premises
The business Non-current Increase Current assets Increase

takes out a Liabilities (Cash)
bank loan
Intangible assets:
1. Intellectual property: the amount by which the market value of a firm exceeds its
tangible assets less liabilities
2. Market value: the estimated total value of a firm if it were taken over
3. Branding
4. Patent/copyright
5. Research and development
Goodwill:
- When a business is sold for more than the SoFP value of its assets
- For example, if the business were purchased for 150, but the net value of its
assets were 124, then 26 would be known as the goodwill
- Only well-established businesses that have good branding and customer links
will have this
Depreciation:
- The decline in the estimated value of a non-current asset over time
- Assets decline because of: wear and tear and technological advances
Straight line method:
Cost of asset - Residual Value

_________________________ = yearly depreciation
Expected life of asset
- Remember, depreciation doesn’t affect cash flow

- If there is no residual value given, assume the asset will have no value after it’s
lifetime
● Original cost 10,000

● Useful life 4 years
● Residual value 2,000
answer= 2,000
Netbook value: the cost of the asset minus the accumulated depreciation
- Asset cost= 20,000
- Residual value= 5,00
- Useful life= 5 years
Answer of depreciation= 3,000
Year 1= 3,000 20,000= 17,000
Year 2= 3,000 17,000= 14,000
Year 3= 3,000 14,000= 11,000
Year 4= 3,000 11,000= 8,000
Year 5= 3,000 8,000= 5,000
Activity 34.4
1 a - ($20,000 - $12,000) / 6 years = $3,000 depreciation charge
1b-
Value of machine
1 year $17,000
2 years $14,000
3 years $11,000
4 years $8,000
5 years $5,000
1 c - The firm has made a profit of $2,000.

2 a - Value of asset - $12,000 Depreciation - $2,500 Life - 4 years
$2,500 x 4 = $10,000 $12,000 - $10,000 = $2,000
2 b - (12,000 - 2,000) / 3 years = $3,333
2 c - The operating profit will decrease because depreciation is an expense.
Analysis of published accounts
- Gross profit margin

- Net profit margin
- Current ratio
- Acid-test ratio
Types of ratio:
- Profitability: shows overall performance
- Liquidity: how easily a business can meet short-term debts
- Financial efficiency:how well resources are being used
- Shareholder ratios: used by shareholders to assess investment decisions
- Gearing: seeing how risky the business is financed
Return on capital employed:
Operating profit
______________ X 100
Capital employed
Capital employed= non-current liabilities + share capital + retained earnings

- It shows how much profit has been made compared with the capital that has
been invested
- Should be compared with interest rate of borrowing finance from banks
Inventory turnover ratio
Cost of goods sold

________________ X times
Value of inventories
- Measured in the amount of times stock turns over during the year e.g. 4 times
- Depends on the industry
- fresh produce would hopefully be turned over quickly
- cars would take longer
- irrelevant if selling a service
- Shows a need to manage inventories more efficiently
Day sales in trade receivables ratio
Accounts receivable
_________________ X days
Revenue
- Measures how long it takes debtors to pay the business

- Varies by business
- Too high suggests accounts are not being well-managed
- Too low suggests you could offer better credit terms and possibly increase sales
Gearing ratio:
Non-current liabilities x 100

_______________________
Capital employed
- The more a business relies on loans and the more highly geared the business is
- Depends on how the owner feels about risk
- Higher ratio = higher risk to investors
- Lower ratio= safe and unambitious
- >50% is highly geared
Shareholder Ratios
- These are for potential investors
- There are two kinds of potential financial return
- rise in share price & dividends
Dividend per share x 100

____________________ x %
Current share price
Dividend per share = total annual dividends

___________________
Total annual shares
- Measures rate of return at current share price

- Ignoring increase in share price, this is the return you get on investment
Dividend Cover Ratio:
Profit after interest and tax

_____________________ = x times
Annual dividends
- Number of times the dividends could be paid out of profits

- The higher the ratio the more likely the firm will have profits to retain for
investments
price/earnings ratio
Current share price

_______________
Earning per share
Earning per share= profit

___________
No of shares
- Reflects whether or not investors believe in the future of the business

- A high ratio suggest expected high earnings growth
Ratio analysis
Dividend yield:
Dividend per share x 100
_____________________ = x %
Current share price
Dividend per share= 25/100= 0.25
25 x 100 = 25
25/15= 1.6 %
Price earning ratio:

Current price share
_________________
Earning per share
Earning per share= 220/100=2.2
15/2.2= 6.81
Dividend yield 2014= 2%

Price earning ratio 2014= 6.7
The extent of happiness the shareholders of XM in terms of the company’s financial

performance in 2015 should be based on the dividend yield, price earning ratio and the
cash shortage of the business. Shareholder ratio is the financial calculation used by
shareholder to assess the business performance. (K)
The shareholders of the business should not be pleased with the company’s financial
performance in 2015 in terms of the dividend yield (k) . This is because it decreased by
0.3% during the time period of a year. (ap) This means that the shareholders will get
less dividends to what they are investing. (an) This would encourage the shareholders
to vote against decision making. (an) This is essential as the business are already
planning on expansion by opening a new market in country Z. (ap) As a result, conflict
could be created between the manager and the shareholders. (an) The de-motivated
managers would rub off on the employees. (an) This could lead to lower productivity for
the staff which is ineffective because the business already has loyalty between their
employees within the human resource management (an) As a result, it would reduce
maximum capacity. (an) This would then lead to less customer satisfaction. (an) As a
result their would be lower customer demand leading to a lower sales revenue. (an)
This would result in less market share which would mean that there’s less profit for the
business and less market power decreasing their chances of being market leader.
The price earning ratio of XM should please the shareholders of the business in behalf
of their company’s financial performance in 2015. This is due to the fact that the price
earning ratio increased by 0.11 from 6.7 until 6.81. This is beneficial because it shows
that they can expect to receive higher dividends in comparison to the price of the share.
This also means that in the future they’re going to receive high dividends. Therefore,
this will encourage them to keep the shares. Furthermore, it also makes the business
look stable which then increases value. As a result of this, it can encourage future
invesment and bank loans. This can be used to fund their research and development as
they were criticised as being copies to the leading brand. This means that they can
create a USP and identify gaps in the market in behalf of their products. This would
increase the retained earnings in the business meaning the can invest in creating
scarcity as XM is still a relatively small business comparing to the market leader,
increasing their market share.
The fact that XM has cash shortages would displease the shareholders in terms of their
financial performance. Having a cash shortage could be due to the fact that both the
acid test and current ratio has decreased. The acid test ratio wasn’t even in the ideal
range of 1-1.5 in 2014 and dropped from 0.87 to 0.82. Similarly, the current ratio also
wasn’t in the ideal range of 1.5-2.0 in 2014 and dropped from 1.03 o 0.95! This portrays
that XM is going to struggle to pay their short term debts. As a result they wouldn’t be
able to pay suppliers in time or in bulk. As a result, the suppliers would remove their
discounts leading to an increase to their cost of sales. This would mean that they would
have less profit. This would mean that they would then have less money to pay
dividends to the shareholders.
In conclusion, the shareholders should not be pleased with the financial performance
XM. This is due to the negative consequences of the cash shortages and the decreased
dividend yield despite of their price earning ratios increasing. This is because the
negative impacts outweigh the positive impacts of the dividend yield. In the short term,
they could be unhappy cause dividend yield is dropping however in the long term the
price earning ratio is stable suggesting they can see a good return in investment in the
future. The business would have to take consideration of the aims and objectives as
they shouldn’t really focus of growth and profit maximisation however should aim to
focus on survival and profit satisficing instead. The industry of the business also should
be taken into consideration that they are in the smartphone industry which is very
competitive meaning they can’t afford to have a fluctuating business performance.
- See the doc separately
13/16. You missed marks on evaluation. Focus on one of them and explain the aims
and objectives.
Year Annual Net cash Cumulative Cash
flows
0 -300,000 -300,000
1 220,000 80,000
2 50,000 -30,000
3 50,000 20,000
4 35,000 55,000
(including res.value)
- The initial investment will be paid back in 2 years and 7.2 months.
What is investment appraisal?

● Used to evaluate whether an investment will be profitable / worthwhile
● An investment project is spending money now with a hope return in the future
➔ Machinery
➔ Factories
➔ Big marketing campaigns
● Both quantitive and qualitive factors apply
Information needed:
● Initial capital cost
● Life expectancy
● Residual (resale) value
● Forecasted net returns (net inflows - outflows)
Payback period:
● The time it takes for net returns (inflows - outflows) to cover initial capital
investment
● If a project costs 5 million and is expected to pay back 1 million per year - they
payback period is 5 years
Payback formula: (Additional inflow needed / Cash flow in payback year) x 12 months
Example 1:
Year Annual net cash flows Cumulative cash flows
0 (300,000) (300,000)
1 220,000 (80,000)
2 50,000 (30,000)
3 50,000 20,000
4 35,000 (including resale 55,000

value)
(30,000 / 50,000) x 12 = 7.2 months

This initial investment will be paid back in 2 years and 7.2 months.
Exercise 36.3
Time value of money:

- Cash you receive in the future is worth ;less than cash today
- By how much depends on interest rates
- If there is a 10% interest rate, then if you receive $100 today it can be saved
and will be worth $110 in a years time
- This means that to receive equal “value” to $100 in 1 year time you’d have to
receive $110 (at a 10% interest rate)
- This is known as the present value of money
Present value:
- Present value is how much would money in the future be worth if you received it
today
Depends on:
- The higher the interest rate, the less present value future cash inflows have
- The further into the future it is received, the less present value future cash
inflows have
A table is used to calculate this and will be given in the exam
Discounted payback period:

- The method is the same as calculating the payback period
- The only change is that cash must be altered to their present value
Year 8% discount Project X Project X Cumulative

rate (discounted) Cash Flow
0 - (50,000) (50,000) (50,000)
1 0.93 25,000 23,250 (26,750)
2 0.86 20,000 17,200 (9,550)
3 0.79 20,000 15,800 6,250
4 0.74 15,000 10,200 16,450
5 0.68 10,000 6,300 22,750
Payback Period= 9550/15800 x 12 = 2 year 7.25 months

- Shaikha remember it's the year where it is the last negative number but you
make it positive
- Then you divide it by project discounted of the next year after it
- Then ur answer will be in months
- But don’t forget about the years it was still a negative in
- So it will be x year with x months
Net present value:
- Today’s value of the estimated cash flows resulting from an investment
How to calculate:
1. Calculate present value of cash flows
2. Add the discounted cash flows
3. Subtract negative cash flows
Year 12% discount Machine X Net present value
0 - (20,000) (20,000)
1 0.89 8,000 7,120
2 0.79 9,000 7,110
3 0.71 7,000 4,970
4 0.64 6,000 3,840
Net present value= 7,120 + 7,110 + 4,970 + 3,840 - 20,000= 3,040

- Shaikha remember to make the negative a positive, AGAIN…
- So (20,000) becomes 20,000
Year 0 1 2 3 4 5 6
Forecast 12 m 4 4 4 5 5 5
annual net (capital
cash flow cost of
equipment)
Discount - 0.91 0.83 0.75 0.68 0.62 0.56

factor
After - 3.64 3.32 3 3.4 3.1 2.8

discount
Cumulati (12) (8.36) (5.04) (2.04) 1.36 4.46 7.26

ve cash
flow
Discounted payback value= 2.04/3.4 x 12= 7.2. 3 years 7.2 months
Net present value= 3.64 + 3.32 + 3 + 3.4 + 3.1 + 2.8= 19.26 -12 = 7.26
9609/31/O/N/16
Calculate the actual contribution of the five shops to KA (4 marks)

Actual contribution: Selling Price - Variable Cost
1.9 - (0.4+0.8) = 0.7
Advise the Finance Director whether to make the proposed adjustments to the
way CJE reports accounting results. [12 marks]
The business wants to reduce their working capital cycle by offering other business’ a
10% discount for early shipment. This is advantageous to the business as they’ll have
more cash. As a result of that, the business will be able to pay their debts quicker. This
will then improve the relationship between the business and the supplier - the supplier
may decide to give the business a discount for paying early. This will decrease the
overall fixed costs for the business. As a result of that, the overall profit will increase.
This will increase the dividends which will impress shareholders.
Test feedback and checking!!!
Talking points
- Contribution will never be negative in a question. This suggests selling price is
lower than the cost of making the product. This will not be a decision a business
even considers.
- Productivity does not increase sales. It increases productivity capacity, meaning
the business can produce more units with the same inputs. This can increase
dales, but only if there is accompanying increase in demand. Productivity tends
to lower unit costs, which increase profit margins.
- Increased profits and increased profit margins are not interchangeable. Profit
margin will only increase if costs are decreased or selling price is increased.
- Profits can increase through increased profit margins if the level of sales
remains the same.
NPV evaluation
Training costs
Interest and inflation rates will change
UNIT 6 :STRATEGY
What is strategic management?

- Strategy deals with the long-term direction of the business, and involves
cross-functional decisions.
- How we get from where we are to where we want to be
Corporate strategy
➔ A long-term plan of action for the whole organisation which is designed to
achieve a particular goal
Tactic
➔ Short-term policy for resolving a specific problem or meeting a part of the
strategy
Strategic management
➔ The role of management when setting long-term goals and implement
cross-functional (HR, finance, marketing, operations) decisions
Alfred Chandler- “Structure follows strategy”
- Alfred Chandler suggested that organisational structure was chosen and
developed dependent upon the strategy of the business.
Strategy 3- cutting costs and increasing flexibility
Strategy and organisational structure
Strategy Impact on Org. Str.

Rationalisation (cost-cutting for Remove layers (middle managers) to cut
competitive advantage) overheads
Market Development (expanding to other Decentralising decisions as locally made

countries) decisions can be more effective. Gives
more power to certain layers
Diversification (expanding into different Divisional structure where each product

product areas) range has its own divisional head
If Org.Str. Does not follow strategy then this can lead to:
- Higher overheads
- No separate/accountable profit centres
- Central decisions when localised would be better
Strategy and competitive advantage
● Competitive advantage
➔ A superiority gained by a business when it can provide the same value
good/service as a competitor at a lower price (*1), or can charge higher
prices by providing greater value through differentiation
Strategies for obtaining a competitive advantage:

Automation : Using machinery to produce products. This helps reduce costs of
manufacture, it it allows a flexible production system that can make all types of
production in the same production line. Therefore lower costs and differentiated
products are achieved.
Rationalization : When two businesses merge together in order to cut costs and
increase competitiveness. It is achieved through a combination of redundancies (
especially when job titles were unnecessary duplicated after the merger ) and bulk
purchasing.
R&D : Product differentiation by the means of R&D will allow the business to gain a
competitive advantage as it allows innovation and creation of new products.
Strategic analysis:
- Strategic analysis is researching the business and the environment that the
business operates in to help from future strategies.
Strategies analysis looks to answers 3 questions:

- Where is the business?
- How will the business be affected by current or future events?
- How could the business respond to these likely changes?
Methods of strategic analysis

● SWOT
● PEST
● Boston (BCG) matrix
● Vision/Mission statements
● Porter's five forces
● Core competency
Swot analysis
- Identifies and analyses the
main Strengths (S) and
Weaknesses (W) and
Opportunities (O) and Threats
(T) that will influence the future
direction and success of a
business.
- S + W are internal whereas O
+ T are external
Subway:
Strengths
1. Great degree of subs customization. Customers always like to choose and the
more choices they can make about their purchase the more satisfied they are
with it. Subway is better than any other large fast food chain in providing the
choice of meal customization.
2. Largest fast food restaurant chain in the world by the number of outlets.
Currently the company operates 38,181 restaurants in 99 countries, more than
McDonald’s or any other fast food chain operator.
3. Marketing and promotional strategies. Subway employs superior marketing
techniques and promotional strategies to attract and grow their customer base.
The most successful Subway’s promotional offer was to offer footlongs for only
$5, which became a new pricing standard of a sub.
4. Choice of healthier meals. Subway offers a range of low calorie, fresh and
nutritious food, which you can’t find in other fast food stores, at least not to such
an extent. This Subway strength meets current trend of eating healthier food.
5. Partnerships with Britain and American Heart Association's. Subway has
received certificates from both organizations that it serves health meal options,
which is a great reward and differentiates the business from other fast food
restaurants.
6. All restaurants are owned by franchisees. Subway doesn’t own any restaurants
itself so it experiences less risk and can focus its efforts on marketing and
growing the franchise.
7. Low startup costs. One of the reasons behind such a high growth rate of
Subway stores is the low startup costs. Subway stores are smaller and require
less money for leasehold improvements and equipment.
Weaknesses
1. Interior design of the outlets often looks cheap. Subway restaurants lack the
interior design and quality that would welcome everyone to stay and feel more
comfortable than in the competitor’s restaurants.
2. High employee turnover. Subway Sandwich Artists job is a low paid and a low
skilled job. It results in low performance and high employee turnover, which
increases training costs and add to overall costs of Subway.
3. Services are not consistent from store to store. The business struggles to
ensure consistent services’ quality throughout it stores and so a service in one
store may please a customer when another may fail to do that.
4. Too much control over franchisees. Despite the fact that Subway fails to ensure
consistent quality throughout the stores it exerts too much control over its
franchisees. This is done through the contracts that are more favourable to the
franchisor. An example of such high control is seizing of franchisee restaurants
if the later one is struggling to keep them open.
Opportunities
1. Increasing demand for healthier food. It’s an opportunity upon which Subway
already grows itself and could further introduce low fat, low salt and more
nutritious subs.
2. Home meal delivery. Subway could exploit an opportunity of delivering food to
home and increase its reach to customers.
3. Changing customer habits and new customer groups. Changing customer
habits represent new needs that must be met by businesses. So far, Subway has
only one variation of restaurants, different to its close competitor McDonald’s,
which tries to satisfy and reach previously untapped customer groups by
introducing McCafé, McExpress and McStop.
4. Introduction of drive-thru. McDonald’s already offer only drive-thru restaurants,
which is a great opportunity for Subway to jump.
Threats
1. Saturated fast food markets in the developed economies. The fast food market
in the developed countries is already overcrowded by so many fast food
restaurant chains and this already proves to be a threat to Subway as it finds it
hard to grow in the developed economies.
2. Trend towards healthy eating. Only part of Subway’s menu offers healthier
choices of meals, while the rest menu is rich in salt, contains many calories and
is accompanied by soft drinks. Customers who care about their food and
well-being may opt out for something else rather than Subway.
3. Local fast food restaurant chains. Local fast food restaurants can offer
healthier food and menu that exactly represents local tastes.
4. Currency fluctuations. Subway receives much of its income from foreign
operations. That income has to be converted into dollars and may affect the
company’s profits, especially when the dollar is appreciating against other
currencies.
5. Lawsuits against Subway. Subway has been involved and lost a few lawsuits in
the past because of the poor company policies regarding franchisees
management. Lawsuits are expensive, time consuming and damages the firm’s
brand.
SWOT
Benefits Limitations
- Helps to match resources and - Oversimplified and can lead to list

strengths to opportunities with no priorities or quantitative
available and identifies major risk measures
factor
- Promotes discussion and - More detailed analysis of each

cooperation between senior SWOT factor needed to make
managers major strategic decision
- Inexpensive as done by senior - Subjective- different managers

managers rather than external could have different SWOT
specialists analysis
PEST
- Provides understanding of wider - A list of points needs further

business environment analysis
- Encourages analysis of external - May need regularly updated given

environment in future business pace of change
strategies/ objectives
- Helps identify future problems - Some info could be based on

and take action inaccurate forecasts
- PEST in different countries will - Only considers external

highlight differences environment
- Judgements still must be made

about importance of each factor
to business
Vision Statements and Mission Statement
Vision Statement: What the organisation would like to achieve long term
Mission Statement: The core purpose and focus of the business which is
communicated to stakeholders, such as employees for motivation.
Advantages:
- Helps provide decision makes with focus. “Will it help us achieve our
vision/mission?”
- Sense of purpose to decision makers- ‘we may need new strategies to achieve
our vision/mission’
Disadvantages:
- General and ill-defined so of limited use
- Needs to be constantly reviewed to meet changing circumstances
SWOT analysis
Starbucks
Strengths: Weaknesses:
- Extensive global supply chain - High prices
- https://www.supplychain247.co - https://www.fastfoodmenuprice
m/article/behind_the_scenes_ s.com/starbucks-prices/
at_starbucks_supply_chain_op - Not as much unique products as they
erations can be found in other coffee shops
- Have a strong brand image - https://www.starbucks.com/me
- https://www.huffingtonpost.co nu/drinks
m/2013/03/07/starbucks-brand
-loyalty_n_2830372.html
Opportunities: Threats:
- More global expansion to other - Competition of other businesses with
countries such as Belarus lower prices such as Mcdonalds
- https://en.wikipedia.org/wiki/St - https://www.mcdonalds.com/us/
arbucks#/media/File:Starbucks en-us/full-menu/mccafe.html
_(Updated_as_of_2018).png - Threats of other markets such as boba
- Co-branding with other businesses tea which will make there be less
- https://www.usatoday.com/stor demand for coffee
y/money/food/2018/02/01/star - https://www.laweekly.com/resta
bucks-launches-co-branded-vi urants/starbucks-should-add-b
sa-credit-card/1076849001/ oba-drinks-to-its-menu-811938
7
Strategy Hierarchy:
Global Expansion
Move to Belarus
Marketing:
Research Belarusian culture
Finance:
Find the costs in belarus such as rent
HR:
Recruit workers and train them
Operations:
Open factory in Belarus
PEST analysis:
Starbucks
Political Factors: Economic Factors:

- Sourcing natural resources - Rise in wage rates
- https://sites.google.com/a/ema - https://www.businessinsider.co
il.vccs.edu/bus280motta/home m/starbucks-raises-wages-add
/natural-resourcesenvironment s-benefits-for-in-store-workers-
al-sustainability 2018-1
- Laws and regulation - Local currency exchange rate
- https://livingourvalues.starbuck - https://www.reuters.com/article/
s.com/legal-compliance starbucks-foreignexchange/star
bucks-sees-bigger-hit-from-fore
ign-exchange-this-year-idUSL1
N0XK3KH20150423
Social Factors: Technological Factor:

- Ethical consumers - Emerging mobile wave
- https://www.starbucks.com/ab - https://readwrite.com/2014/10/1
out-us/company-information/b 6/starbucks-apple-pay-launch/
usiness-ethics-and-compliance - Having WiFi
- Change in lifestyle - https://www.starbucks.co.uk/cof
- https://www.marketingweek.co feehouse/wireless-internet
m/2017/04/28/starbucks-chang
ing-consumer-behaviour/
Strategic Choice
- Strategic choice is essential because:

➔ Decisions are costly and a business has limited resources
➔ It will effect all functional departments and results are difficult to reverse
➔ Even if there is only one strategy available, the choice exist to not pursue
it
Ansoff’s Matrix
● A model used to show the degree of risk associated with the four growth growth
strategies:
- Market penetration: achieving higher market share in existing market with
existing products
- Product development: the improvement of existing products in existing markets
- Market development: selling existing products in new markets
- Diversification: selling different, unrelated goods/services in new markets
Evaluation:
Pros:
- Helps to map strategic options
- Managers can analyse degree of risk
- Managers can apply decision making techniques to assess costs/gains/risks
Cons:
- Only consider two main factors, so requires PEST and SWOT to back up with
hard evidence, and depth
- Management judgements, especially regarding preference for risk, just as
important as analytical tool
- Doesn’t suggest detailed marketing options
➔ Which market? And which product?
Force-field analysis
★ Identifies and analyses the positive factors (driving forces) that support a
decision and negative factors that constrain it (restraining forces)
★ If restraints are more significant than driving forces then it would be better not to
take this strategic decision
★ If driving forces can be increased, or restriction can be decreased then the
decisions might be worthwhile
Evaluation
Benefits:
- Allows a business to strengthen driving forces
- Allows a business to reduce restraining forces
Limitations:
- Inexperience management may not identify all restraints/drivers
- Numerical values subjective, but suggest great accuracy can lead to poor
decision-making
Decision Tree
- A diagram that sets out the options connected with a decision and the
outcomes, probabilities and economic returns that may result.
Expected Value
- The likely financial result of an outcome
- Probability x forecasted return
Page 563 Activity 39.5
Business/ Corporate Plans

- A business/corporate plan is a detailed report on a company’s future long-term
aims/objectives and strategies it will follow to achieve them.
Will contain:
- Executive Summary
➔ An overview of the business and its strategies
- Business Opportunity
➔ Details of entrepreneur, what is sold and to who
- Marketing Strategy
➔ Why will customers buy it, and how will you reach them
- Personnel
➔ Experience/skills of managers and who they intend to recruit
- operations
➔ Premises, Production facilities, IT systems
- Financial forecasts
➔ Predicted sales/profits/cash flow
Evaluating business/corporate plans
Advantages:
● Gives clear direction the business, with all departments provided with focus
● Motivates stage as they have a sense of purpose
● Acts as a method of control and review as progress can be measured against
plans
● Helps ensure effective use of resources as all departments planning leads
towards same goals
● Helps to secure finance from shareholders/banks, and manage financial
expenses
Disadvantages:
● Must be flexible to adapt to changing internal/external circumstances
● Info may not be reliable depending on research/data spending and ability of
those who created plan.
● The impact of a plan depends largely on how well it communicated to all
employees
● Time consuming and expensive
Corporate culture
- The values, attitudes and beliefs of the people working in an organisation that
control the way decisions are taken and how the business interacts with
stakeholders.
Power culture: concentrating power among just a few people
Role culture: each member of staff has a clearly defined job title and role
Task culture: based on cooperation and teamwork
Person culture: when individuals are given the freedom to express themselves fully
and make decisions for themselves
Entrepreneurial culture: this encourages management and workers to take risks, to

come up with new ideas and test out new business ventures.
The importance of corporate culture in strategic implementation

- The values of the business establish how staff behave
- Culture influences the way in which managers and employees treat one another
- Distinctive cultures can support brand image
- Culture influences the type of decision that are taken (entrepreneurial is more
risk taking > diversification)
- Culture has been clearly linked to long-term success, mainly due to the
dedication to continuous improvement
Change management
- Planning, implementing, controlling, and reviewing the movement from its
current state to a new one.
A culture of change means encouraging and facilitating strategic change in organisation

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UNIT 1: BUSINESS STRUCTURE

Countries can begin to specialise in Newly established businesses may find it

Specialisation can lead to economies of Some imports may ‘dump’ goods at

Globalisation: the increasing freedom of movement of goods, capital and people

The most common trade bares are:

Multinational business: business organization that has its headquarters in one

Closer to main markets: Communication links with the

Lower costs of production: Language, legal and cultural

Access to local natural resources

Impact of ‘host’ countries of multinational operations

Employment and training opportunities Pollution from multinationals may be

Management expertise will gradually Exploitation of natural resources

Public sector: organizations accountable or controlled by the central or local

Private sector: is owned and controlled by individuals or groups of individuals

Privatisation: selling state-owned and controlled business organisations to investors in

Increased competition as other

External growth: business expansion achieved by means or merging with or taking

Mergers: an agreement by shareholders and managers of two businesses to bring both

Financial - Very expensive - Used retained profits,

Managarial - Managers unprepared and - Strategic alliance with

Marketing - Original marketing may not - Adopt focused marketing

Loss of control by - Most likely to occur if a - Almost an inevitable

Technologies affect on businesses

Information Technology: The use of electronic technology to gather, store, process

Computer Aided Designs: Using computers and IT when designing products

Computer Aided Manufacturing: The use of computers and computer controlled

Faster Communications: Email Costs:

More awareness: Social Media Labour Relations: If it is not presented

Less human error Reliability:

More efficient Data Protection: Business must keep up

Management: Managing the

Information technology system Business application Advantages

Spreadsheet programs ● Financial and ● Flexibility and speed -

Databases ● Used in all departments ● Replaces vast quantities

Internet ● Marketing department - ● Cost savings from cheap

PESTEC (political, economic, social, technological, environmental, competition):

Categories of law imposed by the government:

Impacts of employment laws

Benefits to the business Cost to the business

Businesses that make a policy of Employment of more staff to avoid

Good reputation- ethical, CSR Time consuming

Changing strategies- cause conflict

Main Consumer Protection laws

Competition Laws: To prevent engaging in monopolistic and anticompetitive practices.

Location & Environmental Laws

How can economic growth be achieved?

Increase in real GDP:

Consumer price index

Two main reasons for inflation:

Positive effects of low inflation:

Working population: those in the population working age

Budget Surplus: means planned spending is less than government revenue

Two types of taxes:

Two types of fiscal policy:

2. Contractionary fiscal policy (boom): Used to combat demand pull inflation.

What is an exchange rate?

Fluctuations are based on demand and supply.

Demand for a currency Supply for a currency

Foreign buyers of domestic goods and Domestic businesses buying foreign

Foreign tourists spending money in the Domestic population travelling around

Foreign investors Domestic investors abroad

Exchange rate fluctuations:

Impacts of currency appreciation: