IB DIPLOMA BUSINESS SUMMARY (SL-HL)

1.1 INTRODUCTION TO BUSINESS AND MANAGEMENT

A business: organization that uses resources to meet the customers needs by providing
service which people demand

Add in value: special features or improvements added to a product or service to increase its
desirability and monetary value to consumers.

Input: Things needed to create the company

example →in a coffee shop : coffee, machines, glasses, cups, employers

Land: renewable and no- renovable resources of nature

Labor: manual and skilled labor

Capital: the finance need to set up the business

Process: How the company improves and work

Output: When the company is working good

Market Niche: A niche market is a small part of a larger market that has its own specific
needs, which are different from the larger market in some way
Gig economy: when people are unemployed and they start working on themselves as sole
traders

FInances: own savings, bank, family and friends, investors

Business angel : people that are interested in stand up

Start up: empresas que empiezan

window dressing: maquillar cuentas

GDP: gross domestic product

developing countries: países en vías de desarrollo

developed countries: países desarrollados

ECONOMIC SECTORS

definition: economic sectors are the 4 stages involved in turning natural resources into the
finished product and service demanded by consumers.

Primary: the primary sector is the one based on agricultural industries which extracts natural
resources (Fishing, oil, natural resources)

Second: industry (computer, brewing, cloth)

Tertiary: provide service (tourism, trade, transport)

Quarterly: investigation (information technology)

Marketing 4 P
● product: what they sell
● price : we sell
● promotion: to know the product
● place: where
HR= Hiring people (to hire) → contratar

Recruiting: the process to be hire

company that recruit people for other companies

Business functions:
1- finances and account
2-human resources
3-marketing
4-production
5-operations management

Operation management: not all companies have operation management because some
are too small.

Ensure Resources: what is need to and you have to be sure to create the company
example: (to make milk they have to be sure that they have cows)

Quality: is important for the brand image

Productivity: when in a limit of time the company does more work than others

Cost of production: when another company-country is more productive than others the one
who is less productive it is called cost of production

Launching a product: sacar a la venta un producto (lanzarlo)

Market research: the research to know if people would like the product and the price

Research and development: when they have an idea for a future product

startup: a new business

Crowdfunding: new source of finance

Feature: características

Founding: money

Entrepreneurs features:

Risk takers--- brave to left a job and start a new business (not afraid to go out of
their comfort zone)
Responsable
accept possible failure
invested some of their own savings and capital
 Innovative
commitment and self-motivation
multi-skilled
leadership skill
belief in oneself
Entrepreneur: someone who takes the financial risk of starting and managing a new
venture and have to create an idea from the first step

Intrapreneur: someone within a large corporation who takes direct responsibility for turning
an idea into a profitable finished product through using “entrepreneurial talents”.
-innovator
-independent
-responsable
-risk-taker
-self motivation

steps to start a business

● Have an idea
● Business plan
● Market research
● Finance
● People who buy the product

Problems faced by start-ups:

● Competition
● lack of record-keeping
● poor management skills
● changes in the business environment

real estate: La expresión “Real Estate” es una terminología que utilizamos para referirnos a
todo lo que engloba el mercado inmobiliario, bienes raíces y bienes inmuebles

business plan: a written document that describes a business, its objectives and its
strategies, the market it is in and its financial forecasts.

● have different scenarios

● People (skills and network)
● Product (to who, to where, to how much)
● weakness
● financial forecasts (predictions)

1.2 TYPES OF ORGANISATIONS

public corporations: their capital belong to the government

public limited company: private capital

private limited company: not too big and usually are familiar companies

shareholders: A shareholder is a party that legally owns shares of a company's stock.

A shareholder can be an individual person, a company or another kind of institution.

public sector: controlled by the local government

advantages:
-social objectives
-if social benefits are great enough loss- service can still function
-finances raised by government

disadvantages:
-subsidies from government can encourage inefficiencies
-government interfere in business decisions

private sector: owned and controlled by individuals

command economy (controlled by the state)

-Venezuela
-korea
-cuba

free-market economy (owned by the private sector with very little state intervention)
-USA

mixed economy (controlled by private and public sectors)

(keynes)
-Iceland
-Sweden
-France
-United Kingdom

401 (K) ---- private pension plan

privatization: the sale of public sector organizations to the private sector

different types of organizations

-Soletrader (autônomo)
advantages
Business in which one person is independence
Able to keep all the profits
His own boss
They can have employees
Flexibility
easy to set up
disadvantages
All the risk for one person
unlimited liability ( responsible for all aspects)
lower social security cover

Partnership: an enterprise formed by 2 or more people to carry on a business together

(share ideas,profits, cost, work together)

advantages
Share
If they lose the lose together
more ideas
less expensive

disadvantages:
unlimited liability
if someone left the other has all the responsibility to pay the loan
they have to agree all

Private limited company:(SL)

-small-medium size
-family
-shareholders

advantages:
-shareholders have limited liability
-separate legal personality
-continuity and the death of a shareholder

disadvantages:
-legal formalities involved
-cannot sell shares to general public
-accounts send to companies house

Public limited company: (PLL)

-large business

advantages
-limited liability
-selling shares
-recognize in the market
-expand

disadvantages:
-legal formalities in formation
-information to public
-shares prices are subject to the state economy

*USP:is a feature that distinguish a company form the others

move from private to public company advantages

● more investor
● bigger company
● move to other countries
● sell shares in the public
● management and control split
● status

Fan profit:
● sole trader
● partnership
● LTD
● PLC---- gap between manager and owners

social Cooperatives --- a group of people acting together to meet the common needs and
aspirations of its members, sharing ownership and making decisions democratically. →
-voting
-takes into account employees opinions
-slow decision making

cooperatives advantages:
-democratic ways to make decisions
-all workers have the same goals
-growth
-cooperatives can be more robust

cooperatives disadvantages:
-harder to make decisions
- if something goes wrong everyone is affected

NGO= A non-governmental organization is a not-for-profit group, independent from

government, which is organized on a local, national or international level to tackle issues that
support the public good.

-non profit organisation

-social goal

charities: an organisation that is exclusively not for profit, and engages in activities that are
legally considered to be of 'public benefit', such as alleviating poverty, or promoting arts,
culture and heritage.

microfinance institutions: loans with a lower price

grant: subvención del gobierno

 1.3 ORGANIZATIONAL OBJECTIVES:

objectives:
-profits
-control of the company
-brand image
-expansion ------- internal

external------- merges----- 50% - 50%

acquisitions

mission: overall the purpose of the organization (short term)

vision: picture of the future (long term)

strategy --- long term plan of action for the organization to achieve a goal
tactics --- short term decision aimed at resolving a particular problem

business aim: SMART

-Specific
-Measurable
-Achievable
-Realistic and relevant
-Time specific

ethical objective:
● based on a moral code of the business
● ethical code--- gather all the private information and client information
● if someone do not follow the ethic code can be fire

SWOT: tool to assess how the company is doing

Corporate Aims: all the embarrassing and designated to provide guidance to the whole
organization,not just a part of it.

corporate social responsibility: responsabilidad social corporativa

-every company should have

Social Audit: An independent report on the impact a business has on society

Ansoff matrix: tool use for growth strategies

Allocate resources:divide all the resources for the plan to undertake the project in order to be
efficient
-human resources
-marketing resources

GDP: gross domestic product = PIB

Rentabilidad = return

1.4 STAKEHOLDERS:

shareholders: accionistas

stakeholders: group of interest divided into external and internal

*stakeholders is a much broader term that covers many groups, including shareholders.
sindicato: asociaciones de trabajadores son entidades de carácter público o semipúblico
cuya razón de ser es la defensa de los intereses de los trabajadores.

unions negotiate fighting for the rights of the patrons

interés: precio de la plata

interés fijo : interés fijo o tasa de interés fijo, en economía y finanzas es la tasa de interés
fija acordada en el contrato que establece la rentabilidad de los ahorros o el costo de un
crédito o hipoteca.

interés variable: Interés variable o tasa de interés variable, en economía y finanzas es la

tasa de interés que es variable a lo largo del tiempo y que establece la rentabilidad de los
ahorros o el costo de un crédito o hipoteca.

CONFLICTS BETWEEN

managers and employees:

● good working conditions
● salaries or wages
● managers want to reduce costs

managers and shareholders:

● managers with long term objectives
● shareholders short term return

suppliers and managers:

● managers want to be sure that the quality is good
● days of payment
● long-term of payment

government and managers:

● the government want taxes
● legal treatments
● pollution
 3.2 COST AND REVENUES

Profit: SR - TC
SR: sales revenue
TC: fix cost + V cost

SR
-TC
--------------
net profit
-interés
-------------
net profit often into before taxes
-taxes %
-----------------
net profit often and taxes
-dividendos

stock cost: when they have products stock and do not sell them

had halved: reducirse a la mitad

BEP: punto desde el que ya tiene beneficios

budgets: presupuestos

Mayor uses of cost data:

-keep record of cost is mandatory to make profitable decisions
-Marketing managers use cost data to help inform their pricing decision
-Past cost data are useful to set budgets to the future
-Cost covariances:

COST: the price that when we buy something to sell it later

PRICE: the price you put to the product to sell it to the public

Direct cost: can be allocated with each unit of production and can be allocated to a cost
center.
ej: in a hamburger the (bread,meat,...)

Indirect or overheads cost: Cost which cannot be identified with a unit of production or
allocated accurately to a cost center.
ej: salary
Cost center: Cost centers are typical business units that incur costs but only indirectly
contribute to revenue generation. For example, consider a company's legal department,
accounting department, research and development, advertising, marketing, and customer
service a cost center.

*Do not confuse the definition of direct cost and indirect cost!*

COST AFFECTED BY THE LEVEL OF PRODUCTION

1. Variable cost: these vary as output changes

2. fixed cost: cost that do not vary with the level of production

3. semi-variable cost: include both. Eg electricity.

example: una tarifa de móvil por tanto tiempo, cuando te pasas te empiezan a cobrar

sales revenue: The income received from the sale of a product

Total revenue: quantity . price

revenue stream: the income that an organization gets from a particular activity.
Revenue streams refers to the different sources of sales revenues that a firm may have.The
firms attempt to diversify revenue as a way to find self revenue.
ej: inditex las diferentes tiendas, apple los diferentes productos
--
advantage:
-risk is lower

disadvantages:
-harder to manage

example of revenue stream→ inditex

Retail: venta al público (tiendas de consumidor final)

 3.3 BREAK EVEN POINT

advantage:
-simple tool
-easy to use
-easy to construct
-useful guidelines

disadvantages:
-not all cost can be conveniently classified into fixed and variable cost
-no allowance made for stock levels on the break-even chart
-Lines are not straight in reality
-we are assuming that in the break even point that we sell everything we produce

P: price per unit

Q: quantity
FC: fixed cost
VC: variable cost
TC: total cost

Sales revenue: P * Q

break even point:

TC: FC + (VC * Q)=

=P*Q-(VC*Q) = FC
=Q(P-VC)=FC

FC
Q = ----------
 (P-VC)

P*Q= FC (VC*Q)

P*Q - (VC * Q) = FC

calcular profit = (p * q) - (tc)

SR = TC = profit= 0
Profit= SR - (FC + VC * Q)

contribution per unit: selling price of a product - variable cost per unit

total contribution: unit contribution * output

safety margin (SM): the amount by which the output level exceeds (BEP) the break-even
point

example:
BEP: 50 units
SELLING: 100
SM: 100 - 50 = 50

insurance: seguros

leasing: rental

rate= %

1.6 GROWTH AND EVOLUTION

-Scale of operation: the maximum output that can be achieved using the available
inputs(resources)- this scale can only be increased in the long term by employing more of all
inputs.

-Economic scales: reduction in a firm's unit (average cost) of production that results from
an increase in the scale of operations.

Main reasons so the cost benefits arise (economies of scale):

1-purchasing economies: bulk buying economies (discount because of large orders)

2-Technical economies: Production line: producing a high capacity level, production in lines
having lower cost of production. Investment in IT for large companies reduces the average
fixed cost. (as more technological the company is it is more efficient, lower cost of
production)

3-Financial economies: Banks are more willing to lend funds to large companies with a
proven trade and a diversified range of products. The cost of “going public” is more
affordable in large companies.

4-Marketing economies: marketing cost is rising with the size of a business but not at the
same rate.

5-Marginal economies: As a firm expands it should be able to attract specialist functional

managers.

Diseconomies of scale: factors that cause average cost of production to rise when the
scale of operation is increased
1-Communications problems
2-Alienation of workforce (if the company is so big and the workforce is doing always the
same)
3-Poor coordination and low decision-making

What is an appropriate scale of operation?

1-Owners objectives: they may wish to keep the business small and easy to manage
2-Capital available-- if it is limited, growth is less likely
3-Size of the market the firm operates in--- very small markets do not need large-scale
production
4-Number of competitors--the market share of each firms may be small if there are many
rivals
5-Scope for economies of scale--if these are substantial, as in water supply, each
business is likely to operate on a large scale

Business growth:
-increased profits
-increased market share
-increased economies of scale
-increased power and status of the owners and directions
-reduce risk of being a takeover target

Internal and external growth

internal or organic growth: expansion of business by means of opening new branches,

shops of factories or increasing existing production capacity.

external growth: business expansion achieved by means of merging with or taking over
another business, from either the same or a different industry.

ADVANTAGES OF EXTERNAL
-Faster speed of access to new products or markets area
-increase market share
-Access internal economies of scale
-secure better distribution channel of supplies
-Acquire intangible assets (brand, trademark)

Merger: 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.

take over: when a company buys over 50% of the shares of another company and becomes
the controlling owner → acquisition

Offset: contrarrestar

Another way of growing

-strategic alliances: agreement between firms in which each agrees to commit resources to
achieve an agreed set of objectives

-Franchise: A business that uses the name, logo and trading system of an existing
successful business
(Franchisor): owner, growing through franchises → cannon → win to win

Joint venture: two or more business agree to work closely together on a particular project
and create a separate business division to do so

Globalization: The growing integration of countries through increased freedom of global

movement of goods, capital and people

free trade: no restrictions or trade barriers exist that might prevent or limit trade between
countries

Protectionism: Using barriers to free trade, such as tariffs and quotas, to protect a country's
own domestic industries
Multinational: business organization that has its headquarters in one country, but with
operating branches, factories and assembly plants in other countries.

Globalization and sustainability

● Trends–culture
● GDP: cuánto mide lo que se produce en ese país / medidor de riqueza

IPC: índice del precio al consumo

auction: subasta

1.7 ORGANIZATIONAL PLANNING TOOLS (HL)

Organisational planning:process of identifying an organisation's immediate and long-term
objectives, and formulating and monitoring specific strategies to achieve them; it also
involves employee and resource allocation to allow for the effective completion of projects

project: a specific and temporary activity with a start and end date, clear goals, defined
responsibilities and a budget

project management: using modern management techniques to plan, carry out and
complete a project from start to finish in order to achieve preset targets of quality, time and
cost

decision tree: a diagram that sets out the options connected with a decision and the
outcomes and economic returns that may result

expected value: the likely financial result of an outcome obtained by multiplying the
probability of an event occurring by the forecast economic return if it does occur

3.1 FINANCE AND ACCOUNTS

working capital cycle: necesidades del dia a dia para la empresa
-Materiales
-Working progress
-Suppliers (creditors) → creditors refer to the suppliers in which a company has purchased
goods and services from, but have not yet paid for them yet. Creditors are classified as a
current asset on the balanceship

current assets-current liabilities= Working capital

Setting up a business start up:

-Working capital needs
-Business expansion
-Expansion by taking another business
-Economic recession (Covid)
-Investment in new products
-Marketing strategies

Internal source evaluation: raised from the business own assets or from profits left in the
business

Personal funds:
Advantages:
→Lack of interest payment
→control of the owner over the business
Disadvantages
→loss of all you personal founds
→risk
→amount limited

-Sales of assets: selling assets that are not longer to be used of lease some fixed assets

advantages
→ sold to raise cash
→do not need to own

Disadvantages:
→ Additional fixed cost in the leasing and rental payment

-Retained profits: the profit left after all deductions including dividends, have been made,
this is plowed back into the company as a source of finance.

Advantage:
→ Does not need to be repaid

Disadvantage:
→For profits to build up to use in this way can take too long and good business opportunities
missed

-Reductions in working capital:

Advantages:
→no direct cost
→ does not increased liabilities for debts
→No risk of losing control

Disadvantages:
→Not available for all companies

----------------------------------------------------------------------------------------------------------------------
asset: activo comercial = A business asset is an item of value owned by a company.
Business assets span many categories. They can be physical, tangible goods, such as
vehicles, real

equity: Business equity is the value of your assets after deducting your business’s liabilities.
Equity finance: Private and public limited.
● Owners of a private limited company can also decide to go public and obtain the
necessary authority to sell additional permanent finance.
● Alternative investment market to smaller companies

Other sources of finances

-venture capital: Risk capital invested in business start-ups or expanding small businesses,
which have a good profit potential.

-Business Angels: Individual investors who put in their own money a variety of businesses
and are seeking a better return.
Advantages:
-easily make an investment decision without difficulty assessment
-They have personal experiences

Disadvantages
-Want to share ownership and will require a certain part of the profit
-Still need to gain investors trust

-Grants: A subsidy is the delivery of money or goods and services carried out by a public
administration to an individual, natural or legal person, without the obligation to reimburse it.
→ To make production of a producer viable that otherwise be unprofitable

External finance: raised from sources outside the business

Short term finances (less than a year) (external): There are 3 main sources
● Bank overdrafts : agreement between the bank and the company for a short period of
time that the company might use some funds.
Advantages: The most flexible source of finance, overdraw
Disadvantages: can be call in (cancelada en cualquier momento) , high interest
charges
→ When the amount of finances needed varies on a regular basis

trade credit: pagar a crédito → When the sales are on credit and cash will not be
received quickly

● debt factoring: selling of claims over debtors to a debt factor in exchange for
immediate liquidity (advantage), only a proportion of the value of the debts will be
received as cash. Factor = risk. High interest (disadvantage)
when a company sells its invoices to a factor and the factor su the one who assumes the risk
It is very expensive : disadvantage
→When short term liquidity needs such as financing increase in sales on credit
Medium term (external)
● Hire purchase: An asset is sold to a company which agrees to make fixed
repayments
● Leasing: Obtaining the use of equipment and paying a rental over a fixed period.
The repair and maintenance is responsibility of the lessor → Vehicles, Computers,
Equipment

Long term finances

Debt finances
● Long term loans: companies borrowing from banks will often have to provide
securities collateral → For fiance expansion that is expected to lead to higher
revenue to allow for the loan to be repaid in the time limit agreed with the bank (new
factory)
● Debentures or term bonds: Bonds issued by companies to raise debt finances, often
with a fixed interest rate.

Advantages:
-Fixed interest paid

Disadvantages:
-Must be repaid at the ends

● Sale of shares: Purchase essential assets, not changing the control or ownership of
the company as long as all shareholders buy shares in the same proportion to those
already owned
Advantages:
-Permanent capital
-No interest charges

Disadvantages:
-Loss of control by original owners
-Dividends expected by shareholders

----------------------------------------------------------------------------------------------------------------

issuing (emisor) bones: Issuing bonds is one way for companies to raise money.

bone maturity: time of ending

share capital: number of shares * face value

right issue: existing shareholders are given the right to buy additional shares at a
discounted price

leverage: endeudamiento
 3.4 FINAL ACCOUNTS

Stakeholders and accounting information:

-Business managers:
Measure the performance of the business to compare against targets, previous time
periods and competitors.
• Provide information for taking decisions such as new investments, closing branches
and launching new products.
• Control and monitor the operation of each department and division of the business.
• Set targets or budgets for the future and review these against actual performance.

-Workforce:
Assess whether the business is secure enough to pay wages and salaries.
• Determine whether the business is likely to expand or be reduced in size.
• Determine whether jobs are secure.
• Find out whether, if profits are rising, a wage increase can be afforded.
• Find out how the average wage in the business compares with the salaries of direcion

-Banks:
Decide whether to lend money to the business.
• Assess whether to allow an increase in overdraft facilities.
• Decide whether to continue an overdraft facility or a loan.

-Creditors such as suppliers:

Assess whether the business is secure and liquid enough to pay off its debts.
• Assess whether the business is a good credit risk.
• Decide whether to press for early repayment of outstanding debts.

-Customers:
. Assess whether the business is secure.
. Determine whether they will be assured of future supplies of the goods they
are purchasing.
. Establish whether there will be security of spare parts and service facilities.

-Government and tax authorities:

Calculate how much tax is due from the business.
• Determine whether the business is likely to expand and create more jobs.
• Assess whether the business is in danger of closing down, creating economic problems
. Confirm that the business is staying within the law in terms of accounting regulations.

-Investors and potential investors in a business:

Assess the value of the business and their investment in it.
• Establish whether the business is becoming more or less profitable.
• Determine what share of the profits investors are receiving.
• Decide whether the business has potential for growth.
• As potential investors, compare these details with those from other businesses before
making a decision to buy shares in a company.
• As actual investors, decide whether to consider selling all or part of their holding.

-Local community:
See if the business is profitable and likely to expand, which could be good for the local
economy.
• Determine whether the business is making losses and whether this could lead
to closure.

Limitations of accounting information to stakeholders:

1-One set of accounts is of limited use – Compare to other business

2-Accounts do not measure items which cannot be expressed in monetary terms
3-The accounts of one business do not allow comparisons – Managers would not be
impressed with their accountants if they were published – Not all the truth
4-Business accounts will only publish the minimum information required by law
5-Accounts are historic – What has happened not was going to happen
6-Window dressing – Illegal – a strategy used by mutual fund and other portfolio managers
to improve the appearance of a fund's performance before presenting it to clients or
shareholders.

The principles and ethics of accounting practice:

1. Integrity
2. Objectivity
3. Professional competence and due care
4. Confidentiality
5. Professional behavior
PROFIT AND LOSS ACCOUNT
Profit and loss accounts: records revenue, cost and profit (or loss) of a business over a
given period of time

Liabilities: a financial obligation of a business that it is required to pay in the future

cost of sales (or cost of goods sold):this is the direct cost of purchasing the goods that
were sold during the financial year

operating profit (net profit or profit before interest and taxation): gross profit minus
overhead expenses

profit after tax: operating profit minus interest costs and corporation tax

dividends: the share of the profits paid to shareholders as a return for investing in the
company

retained profit: the profit left after all deductions, including dividends, have been made; this
is 'ploughed back' into the company as a source of finance

gross profit: equal to sales revenue less cost of sales sales revenue (or sales turnover); the
total value of sales made during the trading period = selling price × quantity sold

balance sheet: an accounting statement that records the values of a business's assets,
liabilities and shareholders' equity at one point in time.

shareholders' equity: total value of assets less total value of liabilities

share capital: the total value of capital raised from shareholders by the issue of shares

debtors: customers who have bought products on credit and will pay cash at an agreed date
in the future

current liabilities: debts of the business that will usually have to be paid within one year

intellectual property: an intangible asset that has been developed from human ideas and
knowledge

market value: the estimated total value of a company if it were taken over

straight-line depreciation = straight line method: a constant amount of depreciation is

subtracted from the value of the asset each year

= cost of assets - expected residual value

--------------------------------------------------------
years
reducing balance method: calculates depreciation by subtracting a fixed percentage from
the previous year's net book value
 Asset: Items of monetary value that are owned by a business = liabilities + equity

Depreciation

Accumulated depresión= balance with the fixed assets - (restando) el valor del activo fijo

Profit and loss → depreciation: gasto que imputa cada año por lo que se deprecia
sacas de tu beneficio para ir ahorrando

Salaries: cuenta de gastos / final de año → cuenta de gastos

*Obsolescence → depreciation

lineal method

price of the asset - Residual value

--------------------------------------------- =
Number of years of the useful life

limitations:
-Forecast
- No recognition of the very rapid pace at which advances in modern technology tend to
make existing assets redundant
-it is not shown that there are assets that tend to depreciate

advantages:
-Easy to calculate and understand

exercise p(273)
3000 each
9000 → 3000 each computer
useful life → 4 years

9000 - 600
----------------- = 2100 annual depreciation
4

Year Annual depreciation Accumulated Net book value= valor de libros →

(sale de mi P&L) depreciation contabilidad (valor real del activo
(sumando) en el balance)

0 0 - 9000

1 2100 2100 9000-2100= 6900 → cost -

accumulated dep
2 2100 4200 4800

3 2100 6300 2700

4 2100 8400 = 600

lifespan = useful life

another exercise:
Price: 16000$
RV: 4000$
useful life: 4y
Reducing balance method Porcentaje: 30%
Year Depreciation Net book value

0 0 16000

1 0.30 * 16000=4800 16000-4800=11200

2 0.30 * 11200= 3360 11200-3360=7840

3 0.30 * 7840= 2352 7840- 2352= 5488

4 0.30*5488= 1646 5488 - 1646= 3482

invoice → factura

3.5 PROFITABILITY AND LIQUIDITY RATIO ANALYSIS

Liquidity: the ability of a firm to pay its short-term debts

Gross profit margin: How managers perform the control of direct cost
Net profit 2014 Gross profit Revenue Gross profit margin
(000$)

Nairobi Press 50 125 250 125

Ltd ------ * 100 = 50%
250

Port Louis 500 800 3200 800

Press Ltd ----- * 100 = 25%
3200

Net profit margin: How managers perform the control of overheads

Net profit Revenue Net profit margin

 Nairobi 50 250 50
---- * 100 = 20%
250

Port Louis 500 3200 50

----- * 100= 15.6 %
3200

profitability

Gross profit margin: Gross profit

----------------- x 100
sales revenue

Net profit margin: Net profit

----------------- x 100
sales revenue

raise the percentage strategy:

- raising prices
- increase sellings
- direct cost

ROCE or ROE = net profit

--------------
capital employed → EQUITY + LONG TERM LOAN

Working capital= current assets - current liabilities

Liquidity ratio: The ability of the firm to pay its short-term debts. They are not concerned
with profits but with the working capital of the business.

current ratio: current asset cash+stock+debtors

----------------------- = --------------------------------------------------
Current liability short term loans + overdrafts + creditors

ratio entre 1 y 2
si tiene current ratio de 1 → misma cantidad a current assets and liability
mucho mayor que 2 → demasiado dinero a corto plazo → invertir(open a new (opportunity
cost)
0.75 → company struggling with liquidity problems as that could not pay the
need source of finance

acid test ratio: liquid asset cash + debtors

----------------------- = --------------------------------------------------
Current liability short term loans + overdrafts + creditors
Alrededor del 1
no se cuneta el stock
*el stock no es igual en todas las empresas

*cuanto menos stock mejor

Liquid assets = current assets - inventories

Strategy for improving liquidity ratios

3.6 EFFICIENCY RATIO ANALYSIS

Gearing ratio → mide el leverage (endeudamiento)

long term loans

= ----------------------- * 100 = Non current liabilities
capital employed ------------------------------------------------------ * 100 → mayor que
50%
Shareholders equity + non current liabilities

Limitations of ratio analysis:

(295)

Capital employed= share equity + long term liabilities = total capital invested in the
business

uptrend: raising

inventory stock turnover = cost of goods sold

----------------------------
inventory level

3.7 CASH FLOW

Working capital: it's the lifeblood of the company Without sufficient working capital a
business will lack liquidity

Working Capital Cycle: It’s the lifeblood of the company.

Cash Inflow: payments in cash received by a business such as

those from customers (debtors) or from the bank

Cash Outflow: payments in cash made by a business such as those to suppliers and
workers

liquidation: when a firm ceases trading and its assets are sold for cash

Insolvent: when a business cannot meet its short term debts

Net cash flow: the sum of cash payments to a business (inflows) less the sum of cash
payments made by it (outflows)
Cash and profit: There are some profitable businesses which run out of cash, on the other
there are loss-making businesses which have high cash inflows in the short term. → The key
difference between cash flow and profit is while profit indicates the amount of money left
over after all expenses have been paid, cash flow indicates the net flow of cash into and out
of a business.

Forecasting cash-flows: is estimating future cash inflows and cash-outflows, usually on a

month-by-month basis. Cash flow forecasts do not solve cash flow problems by themselves,
but they are an essential part of financial planning and can help prevent cash flow problems
from developing.

cash inflows month month month

cash que entra

cash que entra

cash que entra

Total cash in suma de los cash suma de los cash suma de los cash
que entra que entra que entra

cash outflow

cash que sale

cash que sale

total cash out suma de los cash suma de los cash suma de los cash
que sale que sale que sale

opening balance te lo da resultado del closing resultado del closing

balance anterior balance anterior

net cash flow Total cash in - Total Total cash in - Total Total cash in - Total
cash out cash out cash out

closing balance opening balance + =opening balance - =opening balance -

net cash flow net cash flow (de net cash flow (de
arriba) arriba)

Benefits of cash flow:

- By showing periods of negative cash flow, plans can be put in place to provide
additional finance

- If negative cash flow appear to be too great, then plans can be made for reducing
these

Limitations of cash flow:

- Mistakes can be made in preparing the revenue and cost forecasts or they may be
drawn up by inexperienced entrepreneurs or staff.
 - Unexpected cost increases can lead to major inaccuracies in forecasts. For example,
fluctuations in oil prices can cause the cash flow forecasts of even major airlines to
be misleading.
- lack of planning
- Poor credit control.
- Unexpected events.

Importance of cash flow:

- If a business does not plan carefully the timing of its payments to suppliers,workers
and the receipts It may run out of cash even though it is operating profitably.
- If it isn’t able to pay suppliers and creditors on time, it will be into liquidation of its
assets if it appears to be insolvent.

5.4 LOCATION
Optimal location: a business location that gives the best combination of quantitative and
quantitative factors

Quantitative factors: these are measurable in financial terms and will have a direct impact
on either the costs of a site or the revenues from it and its profitability

Factors that influence location decisions: (Quantitative)

1. High fixed site costs
2. High variable costs, eg: labor
3. Low employment rate
4. High unemployment rate
5. Poor transport infrastructure
6. Transport cost
7. Labour cost
8. Market potential
9. Capital costs
10. Government grants

Qualitative factors: non-measurable factors in financial terms that may influence business
decisions

Factors that influence location decisions: (Qualitative)

1. Safety
2. Room for further expansion
3. Managers preferences
4. Labour supply
5. Ethical considerations
6. Environmental concerns
7. Infrastructure

Outsourcing: using another business to undertake a part of the production process rather
than doing it within the business using the firm's own employees

- Reduction and control of operating costs

- Increased flexibility
- Improved company focus
- Access to quality service or resources
 - Freed-up internal resources
- Loss of jobs within the business
- Quality issues
- Customer resistance
- Security

Avantages:
- Cost savings and efficiency gains a greater competitive advantage.
- Variable capacity.
- Increased focus on strategy/core competencies.
- Access to skills or resources.
Disadvantages:
- You Lose Some Control.
- There are Hidden Costs.
- There are Security Risks.
- You Reduce Quality Control.
- You Share Financial Burdens.

Subcontracting: The practice of assigning to another business (the subcontractor) part of

the contract- for example, a specialist activity that makes us part of a construction contract.

Offshoring: the relocation of a business process done in one country to the same or another
company in a another country

1. low cost countries offer substantial benefits

2. The potential for higher profits will benefit the finance department despite the high
setup costs of overseas operations or the transport and communication costs of wing
subcontractors in overseas locations.

3. With labor wage rates in India, Malaysia, China and Eastern Europe being a fraction
of those in Western Europe and the USA, it is not surprising that multinationals that
wish to remain competitive have to seriously consider offshoring to low-wage
economies.

4. In developing countries, because of the shortage of jobs, the subcontracting

businesses will find it easy to recruit unskilled or semi-skilled workers.

Multinational: a business with operations or production bases i more than one county

Limitations of offshoring:

1. Language and other communication barriers

2. cultural differences
3. Level of service concerns
4. Supply-chain concerns
5. Ethical considerations

Insourcing: the reserves of outsourcing as it is undertaking a business function or process

within the business rather than contracting it to another business.

inshoring: ending offshoring contracts with overseas suppliers and returning functions or
processes to business operations in the home country.
 3.8 INVESTMENT APPRAISAL

investment appraisal: evaluating the profitability or desirability of an investment project.

Annual forecasted net cash flow: forecasted cash inflow minus forecasted cash outflow

Forecast Methods

- Payback method → length of time it takes for the net cash inflows to pay back the
original capital cost of the investment (tiempo en recuperar la inversión)
- it doesn't take into account value of money
- average rate of return → measures the annual profitability of an investment as a
percentage of the initial investment (comparar inversiones)

Year Net cash flow

0 (5 million)

1 2 million

2 2 million

3 2 million

4 3 million (including residual value)

1. add up all positive cash flows = 9 million

2. subtract cost of investment = 9 million - 5 million = 4 million
3. Divided by lifespan = 4 million
-------------- = 1 million (annual profit)
4
4. Calculate the annual profit as a percentage of the initial cost, this is teh ARR
= 1 million dividio 5 million * 100 = 20 %
Advantages
- compare different rates
- rate of return

Limitations
- forecast
- do not take in account the time value of money
- Not considering the cash flow after investment is payed off
Net present value using discounted cash flow

installment → cuotas

exercise 3.8.2

year Project X Projecto Y

0 (50.000) (80.000)
 1 25000 45.000

2 20000 35.000

3 20000 17.000

4 15000 15.000

5 10000 -

Project X

90.000 - 50.000 8.0000

----------------- = 8.000 → —-------------- = 16% (better option)
5 50.000

Project Y

112000 - 80.000 8.0000

-------------------- = 8.000 →------------- = 10 %
4 80.000

NPV (net present value): time of value of money

Advantages:
- it consider both the timing of cash flows and their size in arriving at an appraisal
- The rate of discount can be varied to allow for different economic circumstances
- It considers the time value of money and takes the opportunity cost of money into
account

Disadvantages:
- Reasonably complex to calculate and explain
- The final result depends greatly on the rate of discount used and expectations about
interest rates may be inaccurate

2. HUMAN RESOURCES MANAGEMENT

(HRM) the strategic approach to the effective management of an organization's workers so

that they help the business achieve its objectives and gain competitive advantage.

Human resource of workforce planning: analyzing and forecasting the number of workers
and the skills of those workers that will be required by the organization to achieve its
objective

Workforce audit: a check on the skills and qualifications of all existing employees

Labor turnover: measures the rate at which employees are leaving an organization.

number of employees leaving in 1 year

—--------------------------------------------------- * 100
average number of people employed
 Internal and external factor that influence human resource planning

Demographic opportunities constraints

change

Net migration - Easier to recruit effective - Reduce

employees from other
countries ar lower pay rates
- Qualified employees might
be recruited from other
countries
competitiveness
(Qualified employees
might be recruited
from other countries)
- Immigrants might
need more training

Ageing population - Often claimed that older - Older employees are

employees are more loyal less flexible
- Older employees have more (introduce new
experiences (skills) technologies)

Recruitment: the process of identifying the need for a new employee, defining the job to be
filled and the type of person needed to fill it

Job description: a detailed list of the key points about the job to be filled, starting all the key
tasks and responsibilities of it

Person specification: a detailed list of the qualities, skills and qualifications that a
successful applicant will need to have

Requirement (contratar) → the process of identifying the need for a new employee,
defining the job to be filled and the type of person needed to fill it, attracting suitable
candidates for the job and selecting the best one
- very often the process of recruitment is outsourced
1. Establish the exact nature of the job vacancy and draw up a job description
2. Draw a person specification
3. Prepare a job advertisement reflecting the requirements of the job and the personal
qualities looked for
4. Draw up a shortlist of applications
5. Conduct interviews

Type of training:

1- On-the-job training
instruction at the place of work on how a job should be carried
→ induction training (new)

2-Off-the-job training
All training undertake away form de business; work related college courses

3-Cognitive training
focus on helping to improve the “core” abilities and self-control necessary before an
employee can function successfully; exercises designed to improve a person's ability to
understand and learn info
4-Behavioral skills training
ability to communicate effectively with others and to interact with them in a constructive way.

Appraisal of the employees: (evaluar)

→The process of assessing the effectiveness of an employee judged against present

objectives.

Formative: Not only monitor an employees progress but also support and provide guidance
for improvement.

Summative: Measures the level of an employee's success or proficiency in meeting

predetermination benchmarks

360 degree: Not usually use a supervisor as the sole means but to use many people who
came into contact. As subordinates, internal or external customers

Self-appraisal: Asking the employee to self evaluate

Dismissal
Being removed or sacked from a job due to incompetence or breach of discipline

Unfair dismissal → ending a workers employment contract for a reason that a law regards as
being unfair

Before dismissal the company has to support and train the employee, not leave itself oper to
allegations of unfair dismissal

Redundancy
When a job is no longer required, the employee doing this job becomes redundant through
no fault of his or her own.

Employment patterns and practices

Teleworking: staff working from home but keeping contact with the office by means of
modern IT communications

Portfolio working: The working pattern of following several simultaneous employments at any
one time

Outsourcing: Using another business (third party) to undertake part of the production
process rather than doing it with the business firm

Payroll= wages

HR outsourcing: when

Hr outsourcing (136)

Benefits Limitations
 - Even further cost savings can be
made if HR functions can be
undertaken by outsourced
businesses that employ workers in
low-wage countries.
- Distance and different language
create potential communication
problems
- Not safe laws, practices and
cultures of the country

Ethical considerations

- Lack of cultural awareness

- Bribery
- Pay
- Hard HRM cutting cost → cutting costs
- Soft HRM social → social (NGO)

2.2 ORGANISATIONAL STRUCTURE

Span of control: Number of subordinates reporting to a manager

Chain of command: The route through which authority is passed down, from the chief
executive and the board of directors.

Delegation: passing authority down the organisational hierarchy

Advantages Disadvantages

- Motivating the employees - Inadequate training → delegation

- Center on boss activities → won't succeed
important role - insufficient authority (not enough
- Trust on subordinates power)
- Help staff to achieve their goals→ - delegate boring jobs
senior position

Accountability: The obligation of an individual to account for his or her activities and to
disclose the results in a transparent way

Hierarchical structure
Flat herechical
→ few levels of hierarchy but wider spans of control
→ encourage managers to delegate, it will also have a short chain of command and
eventually better communication between the top levels and the lob levels
→ Saving overheads

Advantages of hierarchical structure

- Jobs very well defined
- Authority and responsibility and clearly defined
- effective use of specialist managers

Disadvantages of hierarchical structures

- Decision making lower
- salaries → no equity
- Communication problems
- departments can make decision that only benefits them

Delayering
- Business aim for a flatter organizational structure to reduce the cost managers
salaries
- VOC delayering: Removal of one or more of the levels of hierarchy form an
organizational structure. It leads to wider spans of control and increases delegations
to subordinates

The matrix structure

An organisatopmañ stricture that creates project teams that cut across traditional functional
department

Advantages:
- Allow total communication between members
- Less chance of people focusing on just is good for their department
- The crossover ideas between people with specialist knowledge in different areas
tends to create more successful solutions

Disadvantages:
- Less direct control form the “top”
- The benefit of faster reaction to new situations is, therefore as the expense of
reduced bureaucratic control
- conflict of interest between leaders in the business

Handys shamrock organisation

This structure is the result of the changes being introduced in many businesses as a result of
higher cost and greater flexibility.
 ● Core managerial and technical staff → strategist, knowledge and core process
● Outsourced functions → IT or MIS information system → marketing, payroll, training
● Flexible workers

Communication in an organization

Effective communication: the exchange of information between people or groups, with

feedback

Benefits → 1. Employee motivation

2. Ideas quality and speed decisions
3. Speed pd response to market changes
4. Reduce risk of errors

Challenges for multinationals → Cultural differences

Intranet: internal computer networks built on internet technologies

Information overload: So much information and so many message are received that the
most important ones cannot be easily identified and quickly acted on

2.3 LEADERSHIP AND MANAGEMENT

Manager: responsible for setting objectives, organizing resources and motivating staff so
that the organizations aims are met

Mintzberg's management role

Carry out the functions:

Setting objketivies and planning
Organising respuruces to meet the objectives
directing and motivating staff
coordinating activities
controlling and measuring performance against targets

Mintzberg functional roles:

1. Interpersonal
- Figurehead
- Leader
- Liaison
2. Informational
- Monitor
- Disseminator
- Spokesperson
3. Decisional
- Entrepreneur
- Distrubance Handler
- Resource Allocation
- Negotiator
Leadership: The art of motivating a group of people towards achieving a common objective

leadership styles:

Autocratic → keeps all decision-making at the center of the organization.

- takes all decisions
- little information to staff
- only one way of communication
- demotivated staff who want to contribute
- take all risk

Paternalistic → used by dominant males where their power is used to control and protect
subordinate employees who are expected to be loyal and obedient.
- dependency
- string “father-like”
- some feedback but employees do not participate in decision making

Democratic → Promotes the active participation of workers in taking decisions.

- Patriicoation
- communication
- time-consuming
- some issues might be sensitive → confidencial

Laissez-faire →leaves much of the business decision making to the workforce.

- lack of feedback
- brad criteria
- loss of security

Situational → Effective leadership varies with the task in hand and situational leaders adapt
their leadership style to each situation.
- might be difficult for some workers
- High skilled leaders

2.4 MOTIVATION

motivation: the intrinsic and extrinsic factors that stimulate people to take actions that lead
to achieving a goal.

THEORIES:

1. Taylor and scientific management

Economic man
Select the right people for each job
Observe and record the performance of staff
Establish the best method of doing a job
Price-rate payment system → maximize output through motivating workers to produce more

2. Maslow's hierarchy of humans needs

 3. Hezberg and the two-factor theory
- Motivating factors → aspects of a workers job that can lead to a positive job
satisfaction, such as achievement, recognition, meaningful and interesting work and
advancement at work
- Hygiene factors → Aspects of a worker's job that have the potential to cause
dissatisfaction, such as pay, working conditions, status and over-supervision by
managers.
- Factors which motivate: (achievement, recognition, job itself, responsibility and
advancement)
- Factors that desmotivate: administration

4. Adams and equity theory

- Built on the belief that employees become unmotivated towards their jobs and
employer if they feel that their inputs are greater then their outputs.
- Inputs include, effort, loyalty, commitment and skill
- Output include, financial rewards, recognition and sense of achievement

5. Daniel Pink
- Autonomy
- Mastery
- Purpose

Salary: annual income that is usually paid on a monthly basis

Hourly wage rate: Payment to a worker made for each hour worked

Piece rate: A payment to a worker for each unit produced

Commision: A payment to a sales person for each sale made

Performance-related pay: a bonus scheme to reward staff above-average work

performance

Profit-related pay: a bonus for staff based on the profits of the business- usually paid as a
portion of basic salary

Employee share-ownership schemes

Fringe benefits (perks) → expatriado (cars, school, house)

Non financial methods of motivation
- job enlargement → Attempting to increase the scope of a job by broadening or
depending the task undertaken
- job enrichment → attempting to motivate employees by giving them opportunities to
use the full range of their abilities
- job rotation→ the practice of moving employees between different tasks to promote
experiences and variety
- team working → production it organized so that the groups of workers undertake
emplete units of work

EVALUATION OF FINANCIAL AND NON-FINANCIAL MOTIVATION METHOD

- Cultural differences and reward system
- Performance orientation
- Future orientation
- Institutional collectivism
- Fringe benefits and cultural differences
- Programme should have local feel
- Local distribution of rewards
- Cultural differences - non financial rewards

2.5 ORGANIZATIONAL CULTURE

Organizational culture: the shared values, attitudes and beliefs of the people working in an
organization that control the way they interact with each other and with external stakeholders
Advantages
- Brand image
- staff behavior
- The way they treat each other
- strategic decisions
- long term success

Elements of organizational culture

1. Mission and vision statements
2. the record of senior staff → ethical issues
3. Ethical code of conduct (social and environmental values)
4. Stakeholders treatment

Types of organizational culture (CHARLES HANDY)

1. Power culture: concentrating power among a few people
2. Role culture: each member or staff has a clearly defined job title and roel
3. Task culture: based on cooperation and teamwork
4. Person culture: when individuals are given the freedom to express themselves and
make decisions
5. Entrepreneurial culture: encourages management and workers to take risk, to come
up with new ideas and test out business ventures

Cultural clashes
*business cultures can become inappropriate and clash with new objectives needed to
achieve growth, development and success

- Conflict between the established employees and the new managers → family
business with external managers
- business merges
 - New leader = new style, values and beliefs

Key elements for cultural change

- concentrate on positive aspects of the business and how it operates → change
negative aspects
- Obtain full commitment of people at the top of the business and all key personnel
- Establish new objectives and a mission statement that reflect the new values and
attitudes to adopt them
- Train staff in new procedures and new ways of working to reflect the change value
system of the business
- Change the staff reward

Culture and it influence on individuals

Behavioral control
Encourage stability
Source of identity

2.6 INDUSTRIAL/EMPLOYEE RELATIONS

Trade union: organization of working people with the objective of improving the pay and
working conditions of its members and providing them with support and legal service.

Industrial action: measures taken by the workforce or trade union to put pressure on
management to settle an industrial dispute in favor of employees.

Trade union recognition: when an employer formally agrees to conduct negotiations on

pay and working conditions with a trade union rather than bargaining individually with each
worker.

collective bargaining: negotiation between employees representatives and employers and

they representatives on issues of common interest such as pay and conditions of work

Actions taken by employees and employers

Unions
- Negotiations
- Go slow
- Work to rule → refuse to do any work outside
- Overtime bans → refuse to work more than the contracted number of hours each
week
- Strike action → employees totally withdraw their labor for a period of time

Employers
- Negotiations
- Public relations
- Threats of redundancies
- Changes of contract
- Clouser
- Lock-outs

POWERFUL?
Union/employee employer (empresa)

- most workers belong - Unemployment is high

- all workers agree - employer take action
- public support - there is some pubc support
 - don't want to disappoint them - threat of relocation to low cost
- labor cost are low portion of total countries are taken seriously
cost

Conflict between employees and employer

1. Business change → lose job, competitive and profitable, demand flexibility
2. Rtionalagistaion and organizational change → cut overheads, cutting costs lead on
employed ex:reduce job security motivate employees
3. Pay levels and working conditions →

APPROACHES TO CONFLICT RESOLUTION

- Single union agreement → an employer recognises just one union for purpose of
collective bargaining
- non-stricke agreement → unions sign an agreement with employees not to strike in
exchange for greater involvement decisions that affect the workforce

Employee participation and industrial democracy (commonly agreed objectives)

- Industrial democracy, in its purest form, implies workers' control over industry,
perhaps linked to workers' ownership of the business, e.g. produce cooperative ses.
- Employee or trade union directors on the company's board of directors represent the
workers' approach to major company issues at the highest decision-making level.
- Works councils, e.g. European Works Councils, discuss issues such as the
employment situation, major investment projects planned by the business,
majorganizationalnal changes and health and safety.
- Autonomous work groups and quality circles lead to employee participation in
decision-making and help to avoid the 'us and the environment tent. By involving
workers in everyday decisions that impact on their working lives, such as work
schedules, improvements in work practices and how to plan team working, the threat
of industrial disputes is reduced.

employee resistance to change:

- Interpretation of circumstances - fear of the unknown Change means uncertainty

and this is uncomfortable for some people. Not knowing what happened to one's job
or the future of the business leads to increased anxiety this result in resistance
- Fear of failure -The changes may require new skills and abilities that, despite
training, may be beyond a worker's capabilities. People know how the current system
works - but will they be able to cope with the new one?
- Self-interest - losing something of value Workers could lose status or job security as
a result of change and they want to know precisely how the change will affect them.
- Misinformation - false beliefs about the need for change To put themselves at ease
and to avoid the risks of change, some people fool themselves into believing that the
existing system will 'work out someday without the need for radical change.
- Low tolerance - lack of trust Perhaps because of past experiences there may be a
lack of trust between workers and managers who are introducing change. Workers
may not believe the reasons given to them for change or the reassurances from
managers about its impact.
- Inertia Many people suffer from inertia or reluctance to change and try to maintain the
state of quo. Change often requires considerable effort, so the fear of having to work
 harder to introduce it may cau resistance.

change management: planning, implementing, controlling and reviewing the movement of

an organization form it current state to a new one

4.1 THE ROLE OF MARKETING

Marketing: The management task that links the business to the customers by identifying
and meeting the needs of customers profitability, it does this by getting the right product at
the right price to the right place at the right time.

- Process of planning and undertaking the conception, pricing, promotion and

distribution of goods and services to create and maintain relationships that will satisfy
individual and organizational objectives.

Marketing and its relationship with other business

- Finances: The finance department provides a budget and an amount of money that
will allow the sales department to function effectively, whilst also monitoring the sales
made and the revenue achieved. Finance will also closely monitor any costs that the
business has, and ensure the sales department are selling enough products for the
business to achieve a profit.
- HR: analyze to be outsourced or inhouse and also skilled employees
- Operations: Vital relationship; determinate the preferences of the customers for the
future product mix, resources (sale) - goods and services

Market size: Total level of sales of the producers within a market (The volume or value)
Market growth: The percentage change in the total size of a market over a period of time (Is
it saturated or not)
Competitors and ease of entry: The lack of barriers for the establishment of new
competitors in a market (differentiation)
Differentiated or homogeneous product: physically or viewed as identical

Segmentation: target market and massive market → dividing a market into distinct groups of
customers who share common taste requirements / common needs

Target Market: focusing activity on particular segment market

Mass market: selling to the whole market using a standardized product and the same
marketing activities

Mass marketing: Selling the same products to the whole market with no attempt to target
groups within it.

Perceived value: what the consumer perceive from consuming a service or buying a good

Consumer good: tangible physical product marketed to end users

Consumer services: intangible provision of and activity to end users

Niche market: A small an specific part of a large market, that has not been identified and
filled by competitors

Niche marketing: Identify and exploiting a small segment of a large market by developing
product to suit it

Market orientation
- Outward looking approach basing profit decisions on consumer demand, as
established by market research
- The consumer is put first, the business attempts to produce what consumers want

Advantages
1. the chances of falling are reduce
2. Survive longer and high profits
3. Constant feedback

Product orientated
- Businesses develop products in the belief that they will find customers to find
customers to purchase them. → There will always be a market for the product

Social marketing
- Consider not only the demands of consumer but also the effect on all members of
society involve (reciclable, breast cancer, etc)
→ give the business a significant competitive advantage
→Could lead the firm being able to charge higher prices for its products as a benefiting
society becomes a unique selling point

Market share (%)

- The percentage of sales in the total market sold by one business

Sales revenue
= --------------------- * 100
Total market sale

Market leadership
- When a business has the highest market share of all firms that operates in this
market
Benefits
1. Sales are higher than those of any competing business in the same market = higher
profits
2. Retailers will be keen to stock and promote the best-selling brands
3. Consumers usually keen to buy the most popular brand

Marketing objectives
Profit orgs
- Number of items purchased per customer visit
- Frequency that a loyal customer shops
- Customer satisfaction
- Brand identity

Non-Profit orgs
- Maximising revenue from trading activities
- Increase recognition of the organization by society
- Promote the work and aims of the org to a wide audience

Marketing strategies within innovation and ethical considerations

Innovation= guerrilla marketing and internet marketing → social media rather than
newspaper and TV advertising
Ethical considerations= based on a moral code of the business

4.2 MARKETING PLANNING

Marketing planning
- The process of formulating appropriate strategies and preparing marketing activities
to meet marketing objectives
-Specific
-Measurable
-Achievable
-Realistic and relevant
-Time specific
ROLE OF MARKETING PLANNING

Roles Limitations

-Provide focus to the work of the marketing -Plans that are not revised to meet
-Marketing strategies linked to (SMART) changing internal or external conditions
objectives will increase the likelihood of the -Plans are insufficient on their own
marketing campaign success -Based on an up-to-date assessment
-Helps achieve integration of all business
functions
Ensure the marketing mix appropriate

Marketing mix
- The key decisions that must be taken in the effective marketing of a product

4P`S (3 extra for services)

1. Product
2. Price
3. Promotion
4. Place
5. People
6. Process
7. Physical evidence

Market segment: a sub-group of a market made up of customers with similar characteristic,

taste and preferences

Identify different consumer groups

1. Geographic differences
2. Demographic differences
3. Psychographic factors
TARGET MARKET
Adevenatges Limitations

-Increase sales → define precisely the -Research and development and production
target market cost might be higher
-Identify gaps in the market -Promotion must be need for different
-Avoids wasting money segments
-Spécialisé -Stock-holding cost higher –< more than 1
product
 -Problems if the segment change their
purchasing habits significantly

NICHE MARKETING AND MASS MARKETING

Advantages for niche and disadvantages for Disadvantages for niche and advantages
mass for mass

-Small firms may be able to survive and
thrive in markets that are dominated by
larger firms
-If the market is currently unexplored by
competitors can offer the chance to sell at
high prices until competitors react by
entering too
-Niche market products can also be used by
large firms to create status and image
-Small market oches do not allow
economies of scale to be able achieved
-Mass market strategies run fewer risks that
niche strategies
-Niche market obtaining relatively small
numbers of consumers

Product positioning: A graph that analyzes consumer perceptions of each of a group of

competing products in respect of two product characteristics

USP (unique selling point) → feature that distinguish a product from its competitors based on
the 4Ps
Example: Dominos pizza: Its arrives in 30 min or its free

DIFFERENTIATION BETWEEN ORGANISATIONS

Benefits Limitations

Low prices -Attract consumers -If the price do not integrate

to the marketing mix
-Quality

Trust -Safe decision customers -Can damage the company

want to trust and believe on image
companies -Difficult to re-established
trust

Ethical stance Some consumers will pay -In some markets low
the difference for companies process are more important
who share their values than ethics stance
-Window dressing
 Convenience -Convenient ways to shop -Convenunt shopping
methods are now
widespread which means it
is difficult to gain true

Product features -Research and development -R&D is too expensive

-Constant development is
needed

4.5 THE FOUR PS

*Counterfeit: copia

Product: The end result of the production process sold on the market to satisfy a customer
need

Consumer durables: manufactured products that can be reused are expected to have a
reasonably long life (Cars)
PRODUCT LIFE CYCLE

Extension strategies: Marketing plans that extend the maturity stage of the product before
a brand new one is needed
Benefits Limitations
 Adding features to the
original product
Usually developed and
marketed more quickly
The basic original product is
still aging and
maturity/decline so
consumers may not buy a
slightly revised product

Repackage a product Cheap and quick method Consumer may quickly

release the product is the
same

Discount the price Lower income consumers Impact on long-term image

can now afford the product

Rebrand Opens up new market Expensive

segments

Sell into new markets Increase sales Product and promotion may
need to be redesigned

Boston consulting group matrix: a method of analyzing the product portfolio of a business
in terms of market share ad market growth

cash cow → estable, beneficios (maturity) milking → insuflar dinero a otros productos del
portfolio
Dog → market share decline
Star → introduction and growth
Question mark → producto que no funciona en el mercado y no se sabe porque

Strategies analysis
Building: Supporting Question mark products with additional advertising of further distribution
outlets
Holding:Continuing support for star products so that they can maintain their market position
Milking: Taking the positive cash flow dorm established products and investing in other
products in the portfolio
Divesting: get rid of the product
BRANDING
Brand: and identifying symbol, name, image of trademark that distinguish a product from the
competitors

Brand awareness: the extent to which people know about the company and its
products/services.

Brand loyalty:the tendency of some consumers to continue buying the same brand of
goods rather than competing brands ould for a non-Branded generic product

Importance of branding:
1- Helps to differentiate the company form rivals
2- Aids in employees motivation
3- Generate referrals for customers
4- Emotional attachment
5- Increase business value

Types of branding:
- Family branding: Marketing strategy that involves selling several related products
under one brand name
- Product branding: Each individual product in a portfolio is given its own unique
identity and brand image
- Corporate of company branding: The company name is applied all products
- Own label branding: retailers create their own brand name and identity
- Mnaufaces brands: producers establish the brand image of a product or a family
product often under the company's name

The importance of packaging:

1. Protection
2. Attracting customers
3. Promotion and information
4. Differentiation and brand support

PRICE

Factors that are considered when choosing the right price

1. Cost of production
2. Competitive conditions in the market
3. Competitors proce
4. Marketing objectives
5. Price elasticity of demand
6. Whether it is a new or an existing product

Cost plus pricing: Adding a fixed mark-up for portfolio to the unit price of a product
Penetration pricing: setting a relatively low price often supported by strong promotion in
order to achieve a high volume of sales
Market skimming: setting a high price for a new product when a firm has a unique of highly
differentiated product with low price elasticity of demand
Psychological pricing: setting prices that take account of customers perception of vale of
the product
Loss leader: product sold at a very low price to encourage consumers to buy other products
Price disicrimiation: occurs when a business sells the same product to different consumers
at different prices
Promotional pricing: special low prices to gain market share or sell of excess stock “buy
one get one free”
Price leadership: exists when a business seats a price for its products and other firms in
the market set the same or similar prices
Predatory pricing: Deliberately undercutting competitors porches in order to try to force
then out of the market
*Tabla de ventajas y desventajas

PROMOTION
Promotion: The use of advertising, sales promotion, personal selling, direct mail, trade fairs,
sponsoring and public relations to inform consumers and persuade them to buy.
Demonstrate the qualities to those competitors

Above the line promotion: a form of promotion that is undertaken by a business by paying
for communication with consumers (advertising)
1. Informative advertising
2. Persuasive advertising

Advertising decisions:
1. cost
2. Target audience
3. Type of product
4. Marketing mix aspects
5. The law and other constraints

Below the line promotion: promotion that it is not directly paid-for means of communication
but based on short-term incentives to purchase
- Money of coupons
- Customer loyalty schemes
- Money refunds
- Bogof →buy one get one free
- Point of sale display
- Public relations
- Sponsorship

Sales promotion: incentives such as special offers or special deals directed at consumers
of retailers to achieve short-term sales increases and repeat purchases by consumers (418)
- Price promotions
- Money off coupons
- Customer loyalty schemes
- Money refunds
- Buy one get one free
- Point of sale displays
- Public relations
- Sponsorship

Promotion mix: The combination of promotional techniques that a firm uses to

communicate the benefits of its products to customers.
1. Decide the image of the product
2. Develop a profile of the target market
3. Decide on the message to communicate
4. St an appropriate budget
5. Decide how the message should be communicated
6. Establish how success of the promotional mix is to be assessed
7. Undertake the promotional plan and the miz elements of it
8. Measure it success

Technology and promotion: E-Commerce

 Advenatges Disadvantages

Improved audience reach Lack of skill

Targeted marketing Time investment
Interactivity Negative feedback public
Performance metrics Performance metrics
Speed of transmission Security issues

Viral marketing: the use of social media sites or text messages to increase brand
awareness or sell products

Guerilla marketing: an unconventional way of performing marketing activities on bey low

budget

Channel of distribution: the chain of intermediaries a product passes through from

producer to final consumer

PLACE

channel of distribution: the chain of intermediaries a product passes through from

producer to final consumer

• Consumers may need easy access to a frm’s products to allow them to see and try
them before they buy, to make purchasing easy and to allow, if necessary, for the return
of goods.

• Manufacturers need outlets for their products that give as wide a market coverage as
possible, but with the desired image of the product appropriately promoted.

• Retailers – frms that sell goods to the fnal consumer – will sell producers’ goods
but will demand a mark-up to cover their costs and make a proft, so, if price is very
important, using few or no intermediaries would be an advantage.
 4.6 THE EXTENDED MARKETING MIX OF 7 P`S
1. People
- Refers to the employees and managers of a business and how they relate to
customers and communicate with them
- The people employed by a business – especially service businesses where
customers cannot judge a company by the attributes of physical products – can
either give it a competitive advantage or can lead to poor customer reaction and
disloyal consumers
- Well-trained, confident and well-motivated employees who deal with customers in an
efficient, speedy manner also help to create customer loyalty

2. Physical evidence
- physical evidence: the ways in which the business and its products are presented to
customers
- includes where the service is being delivered from, such as the location, and the
appearance and state of repair/decoration of retail shops.

3. Process
- process: procedures and policies that are put in place to provide the service or the
product to the consumer
- example → delivery
 4.7 INTERNATIONAL MARKETING

international marketing: selling products in markets other than the original domestic
market

globalization: the growing trend towards worldwide markets in products, capital and labour,
unrestricted by national barriers

Advantages of internationalitation
- Wider costumer base
- Economies of scakle → saving cost and reducing proces
- Brand regognition
- Spread risk

Disadvantages of internationalization:
- Cultural issues
- Legal issues
- Political issues
- Economic issues

Methods of entry into international markets

1. Exporting
Exporting can be undertaken either by selling the product directly to a foreign customer
perhaps the order has been placed via the company website or indirectly through an
export intermediary, such as an agent or trading company based in the country.

2. International franchising
International franchising means that foreign franchisees are used to operate a frm’s
activities abroad. This can take the form of either one foreign company being used as
a franchisee for all the branches in their own country or individual franchisees being
appointed to operate each outlet.

3. Joint ventures
These are agreements between at least two companies to own and operate a new business
venture.
 4. Licensing
Licensing involves the business allowing another frm in the country being entered
to produce its branded goods or patented products under licence, which will involve
strictly controlled terms over quality

5. Direct investment in subsidiaries

Studies have shown that setting up company-owned subsidiaries in foreign countries can
achieve higher success rates than taking over or merging with locally based companies.

Advantages and disadvanatages

Pag: 440

Pag:442

Strategic and operational implications of international marketing

pan-global marketing: adopting a standardised product across the globe as if the whole
world were a single market – selling the same goods in the same way everywhere

global localisation: adapting the marketing mix, including differentiated products, to meet
national and regional tastes and cultures
 4.4 MARKET RESEARCH

market research: process of collecting, recording and analysing data about customers,
competitors and the market

primary research: the collection of first-hand data that are directly related to a firm’s needs

secondary research: collection of data from

Why do organisations carry out market research?

1. To reduce the risks associated with new product launches

2. To predict future demand changes
3. To explain patterns in sales of existing products and market trends
4. To assess the most favoured designs, flavours, styles, promotions and packages for a
product

qualitative research: research into the in-depth motivations behind consumer buying
behavior or opinions

quantitative research: research that leads to numerical results that can be presented and
analysed

survey: detailed study of a market or geographical area to gather data on attitudes,

impressions, opinions and satisfaction levels of products or businesses, by asking a section
of the population

open questions: those that invite a wide-ranging or imaginative response

closed questions: questions to which a limited number of preset answers is offered

focus groups: a group of people who are asked about their attitude towards a product,
service, advertisement or new style of packaging

observational technique: a qualitative method of collecting and analysing information

obtained through directly or indirectly watching and observing others in business
environments’ e.g. watching consumers walk round a supermarket

test marketing: marketing a new product in a geographical region before a full-scale launch

sample: group of people taking part in a market research survey selected to be

representative of the target market overall

sampling error: errors in research caused by using a sample for data collection rather than
the whole target population
quota sampling: gathering data from a group chosen out of a specific sub-group,
e.g. a researcher might ask 100 individuals between the ages of 20 and 30 years

random sampling: every member of the target population has an equal chance of being
selected

stratified sampling: this draws a sample from a specified sub-group or segment of the
population and uses random sampling to select an appropriate number from each stratum

cluster sampling: using one or a number of specific groups to draw samples from and not
selecting from the whole population, e.g. using one town or region

snowball sampling: using existing members of a sample study group to recruit further
participants through their acquaintances

convenience sampling: drawing representative selection of people because of the ease of

their volunteering or selecting people because of their availability or easy access

3.9 BUDGETING

budget: a detailed financial plan for the future

budget holder: individual responsible for the initial setting and achievement of a budget

delegated budgets: control over budgets is given to less senior management

Budgets are set for both sales revenue and costs and it is usual for each cost and profit
centre to have budgets set for the next 12 months, broken down on a month-by-month basis.
Setting budgets and establishing financial plans for the future have seven main purposes:

1. Planning
2. Effective allocation of resources
3. Setting targets to be achieved
4. Coordination
5. Monitoring and controlling
6. Modifying
7. Assessing performance

Stages in setting budgets

Stage 1: The most important organisational objectives for the coming year are established –
these will be based on:
• the previous performance of the business
• external changes likely to affect the organisation
• sales forecasts based on research and past sales data.

stage 2: The key or limiting factor that is most likely to influence the growth or success of the
organisation must be identified – usually sales.

Stage 3: The sales budget is prepared after discussion with sales managers in all branches
and divisions of the business.

Stage 4: Subsidiary budgets are prepared, which will now be based on the plans contained
in the sales budget. These will include cash budget, administration budget, labour cost
budget, materials cost budget, and selling and distribution budget.

Stage 5: These budgets are coordinated to ensure consistency. This may be undertaken by
a budgetary committee

Stage 6: A master budget is prepared that contains the main details of all other budgets and
concludes with a budgeted profit and loss account and balance sheet.

Stage 7: The master budget is then presented to the board of directors for its approval. Once
approved, the budgets will become the basis of the operational plans of each department
and cost center within the organisation.

Setting budget levels

incremental budgeting: uses last year’s budget as a basis and an adjustment is made for
the coming year

zero budgeting: setting budgets to zero each year and budget holders have to argue their
case to receive any finance
 Potential limitations of budget

There are various drawbacks and problems associated with budgets including the following
limitations:

1. They lack flexibility.

2. They are focused on the short term
3. They result in unnecessary spending
4. Training needs must be met
5. Revised budgets may need to be set for new projects

Cost and profit centers

cost center: a section of a business, such as a department, to which costs can be allocated
or charged

Examples:
• in a manufacturing business – products, departments, factories, particular processes or
stages in the production, such as assembly
• in a hotel – the restaurant, reception, bar, room letting and conference sections.

profit center: a section of a business to which both costs and revenues can be allocated

Examples:
• each branch of a chain of shops
• each department of a department store
• in a multi-product form, each product in the overall portfolio of the business.

Why do businesses divide operations into cost and profit centres?

• Managers and staff will have targets to work towards – if these are reasonable and
achievable, this should have a positive impact on motivation.
• These targets can be used to compare with actual performance and help identify those
areas performing well and those 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.

However, the following problems might arise when using these centres:

• Managers and workers may consider their part of the business to be more important than
the whole organisation. 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 the good or bad performance of one particular profit centre may be due to
external factors not under its control.
Budgetary control – variance analysis

variance analysis: the process of investigating any differences between budgeted figures
and actual figures

favourable variance: exists when the difference between the budgeted and actual figures
leads to a higher than expected profit

adverse variance: exists when the difference between the budgeted and actual figures leads
to a lower than expected profit

5.1 OPERATIONS MANAGEMENT

Operation management is the business function where ‘Inputs’ are converted or transformed
into ‘outputs’ and this is sometimes called the ‘transformation’ process.

Operations’ or ‘operations management’ is concerned with the use of resources called

inputs – land, labour and capital – to provide outputs in the form of goods and services.
In doing this, operations managers must be concerned with:

1. Efficiency of production
2. Quality
3. Flexibility and innovation

*operations managers are aiming to produce goods and services of the required
quality, in the required quantity, at the time needed, in the most cost-efective way.

Relationship between operations management and other business functions

• Operations managers need to ensure that the appropriate quantity of the good or service is
made available so that the marketing department may successfully sell it profitably.

• Operations managers need to work closely with the human resources department so that
appropriate numbers of suitably qualified workers are employed.

• Operations decisions, such as expanding capacity, often require funding – frequent liaison
with the finance department is essential.

*Hacer productos sostenibles es más caro y los de HR puede que no estén preparados

Operations management: the production process

The design of the product or the nature of the service. Does this allow for economic
manufacture, whilst appearing to have quality features that will enable a high price to be
charged? Some customers are prepared to pay higher prices for products that offer better
quality than cheaper substitutes.

The efficiency with which the input resources are combined and managed.
For example, by reducing waste, the operations management department will increase
the value added by the production process. Increasing productivity will reduce costs
per unit and this will increase added value if the customer prices remain unchanged.
So efficient operations processes and operations decisions are closely linked to
value added.

*added value: the difference between the cost of purchasing raw materials and the price the
finished goods are sold for

Being able to convince consumers to pay more for the good or service than the cost
of the inputs. A good example is the market for luxury ice creams, where the marketing
campaigns increase the willingness of consumers to pay far in excess of input costs for the
product

The operations process can involve many stages before physically selling the good or
services:
• converting a consumer need into a product that can be produced efficiently
• organising operations so that production is carried out efficiently
• setting quality standards and checking they are maintained

Ecological, social and economic sustainability

ecological sustainability: a capacity of ecosystems to maintain their essential functions

and processes, and retain their biodiversity in full measure over the long term.

social sustainability: the ability of a community to develop processes and structures which
not only meet the needs of its current members but also support the ability of future
generations to maintain a healthy community.

economic sustainability: within a business context, economic sustainability involves using

the assets of the company efficiently to allow it to continue functioning profitability over time.
 5.2 PRODUCTION METHODS
There are several different ways in which goods and services can be produced. They are
usually classified into:
• job/customised production
• batch production
• mass/flow/process production
• cell (cellular) manufacturing

1. job production/customised production: producing a one-off item specially

designed for each customer
- High skill → high motivation
- Unique
- Cost production
- Labour intense (hand made)

2. batch production: producing a limited number of identical products – each item in

the batch passes through one stage of production before passing on to the next
stage
- Cost of production lower → Cheaper because of economy of scale
- + quantity
- Saving time
- Capital intense (machinerie)
- homogeneous production

3. flow production: producing items in a continually moving production line – also

known as line production. This can be a continuous 24-hours-a day method
- Capital intense
- high initial investment
- Low motivation

4. mass production: producing large quantities of a standardised product

5. process production: producing standardised goods, typically in bulk quantities, by

using a continuous input of materials and other resources

6. mass customisation: the use of flexible computer aided production systems to

produce items to meet individual customers’ requirements at mass production cost
levels

7. cell manufacturing/ production: a lean method of producing similar products using

cells, or groups of team members, to facilitate operations by eliminating setup time
between operations
- high skill
- multiple tasks
- related to herzberg theory → job rotation
Production methods – making the choice

1. Size of the market If the market is very small, such as for designer clothes, then job
production is likely to be used. Flow production is most efficiently adopted when the market
for similar or identical products is very large and consistent throughout the year.

2. The amount of capital available A purpose-built for production line is difficult and
expensive to construct. Small farms are unlikely to be able to afford this type of investment
and are more likely to use job or batch production.

3. Availability of other resources Large-scale flow production often requires a supply of

relatively unskilled workers and a large, fat land area. Job production needs skilled
craftspeople. If any of these resources are unavailable, or very limited in supply, then the
production method may have to be adapted to suit available resources, given the market
constraint referred to above.

4. Market demand exists for products adapted to specific customer requirements If

firms want the cost advantages of high volumes combined with the ability to make slightly
different products for different markets, then mass customisation or a form of flexible cell
manufacturing might be most appropriate.

5.3 LEAN PRODUCTION AND QUALITY MANAGEMENT (HL ONLY)

lean production: producing goods and services efficiently with the minimum of waste
resources while maintaining high quality.

Less waste
The seven main sources of waste in industry have been identified as:
1. excessive transportation of components and products
2. excessive stock-holding
3. too much movement by working people, e.g. to get supplies of components
4. waiting time – delays in the production process
5. overproduction – producing ahead of demand
6. over-processing – making goods that are too complex as they could have been designed
more simply
7. defects – products that do not come up to quality standards and have to be rejected or
corrected.

productivity: the ratio of outputs to inputs during production, e.g. output per worker per time
period

Efficiency and productivity can be increased by:

• improving employees’ skill levels
• improving workers’ motivation
• purchasing more technologically advanced equipment
• more effective management of labor and other resources
Methods of lean production

The advantage of simultaneous engineering is that new products can be in the marketplace
months or even years earlier than would have been the case with sequential methods.

This flexible approach leads to quicker responses to consumer demand changes, wider
ranges of products offered to customers, reduced stock-holdings as goods can be made to
order, and higher productivity.

kaizen: Japanese term meaning ‘continuous improvement → The philosophy behind kaizen
is that all workers have something to contribute to improve the way their business operates
and the way the product is made

Disadvantage: Slow process (little by little)

Continuous improvement (kaizen) – an evaluation

Although now a widely used practice, there are some limitations to the kaizen approach:

1. Some changes cannot be introduced gradually and may need a radical and expensive
solution, e.g. the need for Kodak to invest heavily in the manufacture of digital cameras
rather than ‘paper-film’-based cameras when the new technology was introduced.
2. There may be very real resistance from senior managers to such a programme due to
their existing culture. Kaizen will only work effectively if there is genuine empowerment of the
groups involved – authoritarian managers would find this impossible to accept.
3. At least in the short term there may be tangible costs to the business of such a scheme,
such as staff training to organize meetings and lost output as a result of meeting time.

just-in-time (JIT): this stock-control method aims to avoid holding stocks by requiring
supplies to arrive just as they are needed in production and completed products are
produced to order

For JIT to work effectively these conditions must be met:

1. Relationships with suppliers have to be excellent.
2. Production staff must be multi-skilled and prepared to change jobs at short notice.
3. Equipment and machinery must be flexible
4. Accurate demand forecasts will make JIT a much more successful policy
5. The latest IT equipment will allow JIT to be more successful.
6. Excellent employer–employee relationships are essential for JIT to operate smoothly.
7. Quality must be everyone’s priority
kanban: Japanese manufacturing system in which the supply of components is regulated
through the use of an instruction card sent along the production line

andon: a manufacturing term referring to a system to notify management, maintenance, and

other workers of a quality or process problem

Benefits of andon systems

1. Immediate attention to manufacturing problems is raised.
2. The system provides a simple and consistent mechanism for communicating information
in the factory.
3. Andons can lead to immediate reaction to quality, down time and safety problems.
4. Andon systems increase employees’ accountability and empower them to take action
when problems occur.
5. Andons improve the ability of supervisors to quickly identify and resolve manufacturing
issues.

cradle to cradle (C2C): a manufacturing principle that seeks to create production

techniques that are not just efficient but are essentially waste-free and truly sustainable.
→ CSR and Sustainability

5.5 PRODUCTION PLANNING (HL ONLY)

supply chain: every business that comes into contact with a particular product – for
example, the supply chain for most products will be all the businesses manufacturing parts
for the product, assembling it, delivering it and selling it.

stock (inventory): materials and goods required to allow for the production and supply of
products to the customer
JIT – just-in-time stock control: this stock-control method aims to avoid holding stocks by
requiring supplies to arrive just as they are needed in production and completed products
are produced to order

JIC – just-in-case stock control: the stock management strategy that businesses use
when they hold a high level of stocks because there is a risk of ‘stock-out’

Stock (inventory) control – the difference between JIT and JIC

1. Raw materials and components.

2. Work in progress.
3. Finished goods.

Stock-holding costs
1. Opportunity cost.
2. Storage costs
3. Risk of wastage and obsolescence

Optimum order size

Stock control charts

buffer stocks: the minimum stocks that should be held to ensure that production could still
take place should a delay in delivery occur or production rates increase
re-order quantity: the number of units ordered each time
lead time: the normal time taken between ordering new stocks and their delivery
re-order stock level: the level of stocks that will trigger a new order to be sent to the
supplier
Capacity utilisation

capacity utilisation: the proportion of maximum output capacity currently being achieved
full capacity: when a business produces at maximum output

excess capacity: exists when the current levels of demand are less than the full capacity
output of a business – also known as spare capacity

Productivity

productivity: the ratio of outputs to inputs during production, e.g. output per worker per time
period
level of production: the number of units produced during a time period

Raising productivity levels:

1. Improve the training of employees to raise skill levels

2. Improve worker motivation
3. Purchase more technologically advanced equipment
4. More efficient management

5.6 RESEARCH AND DEVELOPMENT (HL ONLY)

innovation: the practical application of new inventions into marketable products

research and development (R&D): the scientific research and technical development of
new products and processes

invention: the formulation or discovery of new ideas for products or processes

The importance of research and development to business

• competitive advantage
• it can create intellectual property rights
• customer loyalty
• high, premium prices
• publicity
• lower costs

Research and development – limitations

- Does not always lead to an invention or discovery
- Is expensive and has an opportunity cost
- Do not always lead to successful innovative products
- Competitors’ R&D spending
- Ethical issues

Intellectual property rights

intellectual property: refers to creations of the mind such as inventions, literary and artistic
works and symbols, names, images and designs used in business

intellectual property rights: legal property rights over the possession and use of
intellectual property

copyright: legal right to protect and be the sole beneficiary from artistic and literary works

trademark: a distinctive name, symbol, motto or design that identifies a business or its
products – can be legally registered and cannot be copied

Types of innovation
1. Product innovation
2. Process innovation
3. Positioning innovation
4. Paradigm innovation

Factors affecting R&D practices and strategies in an organisation

patent: legal right to be the sole producer and seller of an invention for a certain period of
time

Several factors may infuence the R&D strategy and the level of R&D spending of a business:
• The nature of the industry
• The R&D and innovation spending plans of competitors
• Business expectations
• The risk profile or culture of the business
• Finance is needed for effective R&D
• Ethical considerations
 5.7 CRISIS MANAGEMENT AND CONTINGENCY PLANNING (HL ONLY)

crisis management: steps taken by an organisation to limit the damage from a significant,
damaging event by handling, containing and resolving it.

contingency planning: preparing the immediate steps to be taken by an organisation in the

event of a crisis or emergency.

Effective crisis management

1. Transparency
2. Communication
3. Speed
4. Control

Key steps in contingency planning

1. Identify the potential disasters

2. Assess the likelihood of these occurring
3. Minimise the potential impact of crises.
4. Plan for continued operations of the business

advantages and disadvantages of contingency planning

Community manager / Spoke manager: el que habla con la prensa