STANDARD GRADE BUSINESS MANAGEMENT
THE ULTIMATE SKELETON REVISION NOTES
Tick The Parts You Understand – Research The Parts You Don’t - Learn Everything
BUSINESS ACTIVITY• Needs and Wants, Goods and Services
• Production and Consumption, Creating Wealth [C] • Factors of Production
o Capital (Finance/Equipment), Enterprise (Ideas), Land (Space), Labour (Staff) (CELL)
• Sectors of Industry
o Primary: Extractive e.g. Oil, Coal, Farming
o Secondary: Manufacturing e.g. Car Factories, Shipbuilding o Tertiary: Services e.g. Banks, Tourism, Retail
• Sectors of the Economy Owned By: Controlled By: Financed By:
o Public e.g. NHS O = Taxpayers C = Government F = Tax
o Private e.g. Tesco O = Shareholders C = Board of Directors F = Share Capital o Voluntary e.g. Oxfam O = Patrons C = Board of Trustees F = Donations
• Types of Public Sector Organisations (For The Benefit Of The Public: Communities)
o Central Government (e.g. Holyrood in Scotland/Westminster in UK) = NHS, Defence etc. o Local Government (e.g. Stirling Council) = Schools, Recycling etc.
o Public Corporations (e.g. Royal Mail/BBC) = National services that we pay towards at use
• Types of Private Sector Organisations (For The Benefit Of Private Individuals: Shareholders)
o Sole Trader (One owner, all decisions made by self, keep all profits)
o Partnership (Two to twenty owners, shared skills, shared decisions, shared profits) o Private Limited Company (e.g. Farmfoods Ltd: invited to buy shares)
o Public Limited Company (e.g. Tesco PLC: shares can be bought by anybody on Stock Exch.) o Franchise (e.g. McDonald’s: running a copy of a business, established brand, pay royalties)
• Features of an Entrepreneur
o Risk Taker, Identify Opportunities, Create Prototype (First Working Model of Product)
• Business Objectives
o Profit Maximisation, Sales Maximisation, Growth, Provide a Service etc.
• Stakeholders (People With An Interest and An Influence In A Business)
o Customers, Staff, Managers, Shareholders, Suppliers, Community etc.
o Customers have an interest in a business: to get the lowest prices and best service.
o Customers influence a business by deciding whether or not to return, if experience is good.
• Social and Economic Costs and Benefits [C]
o Social Costs (Negative effect to society e.g. noise pollution, traffic fumes) o Social Benefits (Positive effect to society e.g. more choice in shopping)
o Economic Costs (Negative effects with money e.g. tax rises, inflation, recession) o Economic Benefits (Positive effects with money e.g. pay increases)
BUSINESS GROWTH
• Choosing A Good Location
o
Infrastructure (Roads, Power)o
Space and Natural Resourceso Close To Customers
• Business Plans
o Shows how the business will meet its aims in 8 steps. Shown to banks to gain funding. o General Details About The Business, Staff, Product/Service, Market, Premises/Equipment,
Profit Estimates, Cash Flow, Capital. • Methods of Growth
o Internal Growth (Re-invest profits to help business grow)
o Horizontal Integration (Merge with org. at same stage of production)
o Forwards Vertical Integration (Business takes over a customer: secures sales) o Backwards Vertical Integration (Business takes over a supplier: secures materials) o Diversification (Produce different things to spread risk of overall failure)
• Sources of Assistance [C]
o Local Councils: Local Enterprise Companies, Business Gateway
o National Government: Locate in Scotland, Regional Selective Assistance
• European Union [C]
o Advantages
Unlimited, tax free, trade between member countries.
Free movement of workers and capital between member countries. Larger choice of suppliers, increase in competition (lower prices).
o Disadvantages
Language barriers and cultural differences Distance and trading hours
Currency difficulties (not all members have adopted the Euro)
o Projects
European Social Fund: finances training and job creation
European Regional Development Fund: finances road and telecoms in poor areas
o The Euro
Single currency, no exchange rates between ‘Eurozone’ members. • Globalisation and Multinationals [C]
o Trading across country borders, often using the same brand name in many places. o Advantages of Globalisation
Vast markets, communication quick using Internet, greater choice of resources.
o Disadvantages of Globalisation
Language, cultural, time, technological, legal currency differences/difficulties. • Economies of Scale [C]
o The financial benefits an organisation gains when it grows bigger
o Spread costs across many sales so cheaper to produce each unit of goods. o Internal Economies of Scale
Technical Economies: large business have automation, can make more things quicker. Financial Economies: large businesses gain bigger loans at lower interest rates.
Managerial Economies: large businesses can hire specialist managers (e.g. HRM) Marketing Economies: large businesses can advertise more widely (e.g. endorsements)
o External Economies of Scale
Infrastructure: councils may spend money on roads to attract large businesses.
o Diseconomies of Scale
When a business grows too big, it becomes more expensive to produce goods. Too many staff, too many managers, too many machines, poor communication.
BUSINESS FAILURE
• Limited Resources (i.e. Lack of Factors of Production)
o Lack of Capital (Finance/Equipment) o Lack of Enterprise (Good Ideas) o Lack of Land (Suitable Workplace) o Lack of Labour (Skilled Staff)
• Internal Factors
o Cash Flow Problems (running out of cash for daily bills) o Poor Resource Management (buildings look old and worn out)
o Not Moving With The Times (old products that do not meet customer needs/wants)
• External Factors (PESTEC) [C]
o Political (laws which affect companies, e.g. National Minimum Wage) o Economic (change in value of money)
Recession: Economy slows down until recovery, when activity begins to improve Inflation: General increase in price of goods not linked to increase in production
o Social (change in society’s wants e.g. more older people require products) o Technological (changes in technology e.g. all businesses now need websites) o Environmental (changes in weather e.g. floods can destroy businesses)
o Competitive (changes in competition e.g. a new store may take our customers)
BUSINESS ORGANISATION • Organisation Charts
o Shows authority and responsibility, lines of communication, chain of command etc.
• Types of Organisational Structure
o Tall Many layers of management, slow decisions and communication o Flat Fewer layers of management, faster decisions and communication
• Responsibility and Authority
o Responsibility means all staff are answerable for actions taken
o Authority means managers have power to take certain actions, and to delegate to others
• Organisational Relationships
o Line R’ship Between manager and subordinate below o Lateral R’ship Between two colleagues with same authority
o Functional R’ship Departments working together e.g. HRM, OPS, MKT and FIN
HRM: Controls the staff
OPS: Produces the product to a high quality MKT: Advertises and promotes the product FIN: Finances the whole process
(OPS may wish to launch a new product, HRM would supply the staff) • Span of Control [C]
o Tall structures have a narrow span of control, flat structures have a wide span of control o Wider span of control means more people for one manager to supervise
• Changes in Organisational Structures [C]
o Delayering Removing layers of management, from tall to flat structures
Improves communication, reduces wages, empowers staff
o Downsizing Removing loss making areas of a business to save money
Allows business to be more competitive and efficient
o Outsourcing Sub-contracting services to another company
HUMAN RESOURCE MANAGEMENT: Staff At Work • Reasons For Working
o Money, Security, Satisfaction, Ambition
• Types of Worker
o Skilled, Semi-Skilled, Unskilled
• Job Training
o Induction: At the start of a job, e.g. health and safety talk
o On the Job: In the workplace e.g. shadowing an existing member of staff o Off the Job: Outside the workplace e.g. a college course
o Upgrading: Adding new skills to do an existing job better o Retraining: Learning new skills for a brand new job
o Apprenticeship: Training provided by a college and an employer e.g. plumber
• Working Hours and Patterns
o Full Time: Usually weekdays 9am to 5pm. Can be permanent or temporary o Part Time: Working only part of the week, e.g. mornings
o Permanent: Job lasts as long as the company is in business
o Temporary: Job lasts for a fixed time e.g. 12 months, can be seasonal work o Job Share: Full time job shared between two people, split the hours in two o Flexi Time: Employees choose their own work hours, to fit round family o Casual: Employees work at short notice to cover demands in business
• Recruitment
o Identify Job Vacancy: Find out what actually needs doing o Prepare Job Description Gives details about job e.g. duties, pay o Prepare Person Specification: Essential and desirable skills/qualities needed o Advertise Job Internally or Externally Make people aware e.g. Internet, memo board
• Selection
o Application Forms Received and Studied: Check applicant details against JD and PS o Short List: Disregard unsuitable applications
o Interviews: Face to face discussion with final candidates o Issue Contract of Employment: Legal document within 13 weeks
• Appraisals [C]
o Annual, formal discussion between employer and employee to review progress and set goals o Benefits: Monitors Performance, Motivates Employee, Resolves Conflict, Sets Targets etc. o Costs: Time Consuming, May Demotivate If Poorly Conducted, Bad News Hard To Take etc.
• Industrial Action [C]
o Overtime Ban: Employees refuse to work additional, voluntary hours o Work to Rule: Employees work strictly to their Contract of Employment o Go Slow: Employees work inefficiently, slowing down production o Strike: Employees withdraw their labour for a fixed period of time
• ACAS [C]
o Advisorary, Conciliation and Arbitration Service, independent body which settles disputes
• Employment Legislation [C]
o Equal Pay Act 1970: Can’t pay males or females more for same job o Health and Safety At Work Act 1974 : Safeguard staff wellbeing at work
o Sex Discrimination Act 1975: Unlawful to hire specifically male/female staff o Disability Discrimination Act 1995: Reasonable adaptations in workplaces
• Changing Patterns of Employment [C]
o Move to Tertiary Sector Employment, More Part Time and Temporary Workers,
More Women in Employment, Flexible Working Practices (Homeworking/Teleworking) INFORMATION, DECISION MAKING AND MANAGEMENT
• Key Decisions
o What to Produce, Who to Employ, What to Charge, Where to Locate etc.
• Influences on Decisions Made
o Owner/Business Needs, Customer Needs, Competition, Legal, Social, Economic, Political.
• Qualities of Good Information
o CAT A COCA
o Complete, Accurate, Timely, Appropriate, Concise, Objective, Cost Effective, Available
• Sources of Information
o Primary (First Hand), Secondary (Second Hand), Internal, External
• Types of Information
o Written, Verbal, Pictorial, Graphical, Numerical
• Uses of Information [C]
o Compare Final Accounts, Monitor Worker Performance, Control Production etc.
• Basic Structured Decision Making Model
o Strengths, Weaknesses, Opportunities, Threats
• Complex Structured Decision Making Model [C]
o POGADSCIE
o Problem, Objectives, Gather, Analyse, Devise, Select, Communicate, Implement, Evaluate
• Internal Limitations of Decision Making
o Lack of Knowledge, Lack of Finance, Staff Resistance, Poor Quality Information
• External Limitations of Decision Making
o PESTEC Factors
• Styles of Management
o Autocratic: Strict, restrictive, strong o Democratic: Fair, motivating
o Laissez-Faire: Relaxed, free spirited, creative
• Role of Management [C]
o Plan, Control, Lead, Monitor, Budget, Motivate, Evaluate
ICT AND COMMUNICATION • Value of ICT in Communication
o Strengths: Fast, Global, Contact Many People At Once, Reduces Waste etc.
o Weaknesses: Expensive to Install, Requires Staff Training, Data Loss, Breakdowns etc.
• Types of ICT Software
o Wordprocessor (Word) to create letters and memos
o Database (Access) to create records of customers and staff
o Spreadsheet (Excel) to manage financial accounts and produce charts
• Types of ICT Hardware
o Fax machine to send printed documents via the phone line
o Video conferencing to see and talk with people from another country o Mobile phones to communicate on the move
o Local Area Networks to share files within an organisation (e.g. PrepWork)
• Features of a Good Website
o Provide Contact Details, Opening Times, Products For Sale, Location Map etc.
OPERATIONS: Producing Goods and Services • Input: Gather raw materials
• Process: Combine raw materials with labour/machines • Output: Create a finished product that is sent to customer • Features of Good Suppliers
o Deliver On Time, Affordable Raw Materials, High Quality Raw Materials, Good Reputation
• Methods of Production
o Job: Custom made, items can all be different, requires skilled staff
o Batch: Large quantities made together, can vary some detail, can use some machinery o Flow: Continuous production, all items the same, lots of machinery
• People Vs Machines
o Labour Intensive: Using many people in the workplace (e.g. building dry stone walls) o Capital Intensive: Using lots of technology in the workplace (e.g. car factory)
o Mechanisation: Workers operate machinery (e.g. drive a combine harvester) o Automation: Workers replaced by machinery (e.g. supervise robots in a factory) o Benefits of Machines: Increased Output, Increased Quality, Wider Range of Products Made o Costs of Machines: Installation, Staff Training, Redundancies, Breakdowns
o Impact on Jobs: Fewer Manufacturing Jobs, Skilled Workers In Demand, Multi-Skilling
• Methods of Ensuring Quality [C]
o Quality is important as it improves consumer confidence, and reduces costly wastage. o Ensuring quality can slow production, may be expensive to operate, staff may need training. o Quality Control: Check quality at final stage of production: wasteful if damaged early on o Quality Assurance: Check quality after each stage of production: efficient, saves resources o Quality Circles: Small team discuss quality and how it can be improved
o Quality Management: All staff focus on quality no matter what their job
• Channels of Distribution
o Shows how goods travel from producer to customer.
o Wholesalers (e.g. Booker) buy direct from producers and sell on to smaller retailers (e.g. Spar) o At Credit, must also learn costs and benefits for all 4 types.
o Producer to Customer: e.g. farm shop, market stall o Producer to Retailer to Customer: e.g. large national supermarket o Producer to Wholesaler to Customer: e.g. Booker cash and carry o Producer to Wholesaler to Retailer to Customer: e.g. small local shop/newsagent
• Just-In Time Stock Control [C]
o Modern: stock is ordered ‘just in time’ for production (there is no stock room)
o Advantages: Save money on stockroom and security, easier to adapt to changes in market o Disadvantages:Reliant on suppliers, late deliveries halt production, no spares in case of damage
• Customer Service [C]
o Good customer service encourages customers to stay with a business
o Covers customer transactions, phone calls, queries, complaints, after-sales support o Can be monitored by ‘mystery shoppers’ and customer feedback forms (Field Research) o Can be improved by better training, better communication, responding quickly to errors etc.
MARKETING: Advertising and Promoting Goods and Services
• Marketing aims to increase sales volume (number of items sold) and sales revenue (total money received for the units sold.
• Market Segmentation/Target Markets/Target Customers
o The most likely customer who will buy our product – Age, Gender, Location, Income etc.
• Market Research
o Allows us to find out who is our Target Customer
o Field Research: Gathering first hand information (valuable but expensive)
e.g. Personal Interview, Postal Survey, Hall Test, Focus Group
o Desk Research: Gathering second hand information (cheaper but less reliable)
e.g. Internet Webpage, Book, Government Report
o Remember to learn the advantages and disadvantages of different types of F and D Research
• Marketing Mix: Product
o Name, Contents, Packaging
o Branding [C] Builds Loyalty, Suggests Quality, May Convince Banks To Invest etc. o Product Life Cycle
Development: Product is being tested, no sales
Growth: Sales begin, interest growing, sales growing Maturity: Sales very high, interest high
Saturation: Sales peak, interest dipping Decline: Sales falling, interest dropping
Withdrawal: Sales very poor, no interest, product removed from market
o Product Life Cycle Extension Strategies [C]
Lower Price, Change Name (Rebrand), Add New Features, Special Offers etc. • Marketing Mix: Place
o Decide On Correct Place To Sell: Near Customers, Use Of Technology etc. o Using Correct Channel of Distribution
• Marketing Mix: Price
o What Costs Must Be Covered? What Does Our Competition Charge? Will Customers Pay? o Skimming: First customers in e.g. fashion/technology pay most, before mass production o Penetration: Low initial price to enter established, competitive market (e.g. Newspaper) o Destroyer: Undercut competition to force it out of market, then increase price later. o Cost-Plus: Often used in restaurants, add a percentage to cost price to create selling price o [C] Understand when to use each of the strategies above
• Marketing Mix: Promotion
o Advertising: Raises Awareness, Informs Customer of Product Features etc.
Television, Radio, Cinema, Leaflets, Posters, Internet, Newspaper, Press Release etc.
o Promotion: Informs Market About New Products, Persuades People To Buy etc.
Money-Off Coupons, Competitions, Two For Price Of One, Loyalty Cards etc.
o Deciding on Types of Advertising and Promotion [C]
Cost Vs Gain, Advertise By Self or Advertise Via Agency? Study adv. and disadv.
o Public Relations and Media Releases
FINANCE: Controlling The Money In A Business • What The Finance Department Does
o Calculates and pays employee wages
o Maintains accurate financial records, and pays accounts due and bills received o Analyses financial information and prepare final accounts
o Monitors and controls internal finances and expenses
o Prepares financial information (e.g. budgets) for decision making purposes
• Sources of Finance
o Grant: Provided by Council/Princes’ Trust to start business, not paid back o Bank Loan: Agreed amount to be paid back with interest over many months/years o Overdraft: Going ‘below zero’ in your bank account temporarily
o Share Issue: Increasing the number of shareholders in a PLC, to increase capital o Hire Purchase: Renting equipment affordably, with option to pay final sum to own o Trade Credit: Buying materials from suppliers and paying them back at later date o Venture Capital: Giving away part of the business for finance (e.g. Dragons’ Den)
• Costs
o Fixed Costs always stay the same no matter how much we produce, such as rent and wages o Variable Costs rise and fall depending how much we produce, such as materials and gas
• Break Even Point
o When Sales = Costs then a company breaks even. The minimum that a company aims for
• Cash Budget / Cash Flow Forecast
o Forecasts of the money expected to be received (receipts) paid out (payments) o Highlights a positive (surplus) and a negative (deficit) cash balance
o Allows time to source additional finance, as part of a decision making process
• Trading, Profit and Loss Account
o Shows a summary of the money that has come in (revenue) and gone out (costs) over time o Trading Account (top) shows Gross Profit: based on buying stock and selling goods
o Profit and Loss Account (bottom) shows Net Profit: includes the cost of running the business
• Balance Sheet
o Shows the value of the organisation at a point in time
o Shows what the organisation owns (assets) and what debts it owes (liabilities)
• Cash Flow Management
o Cash is a liquid asset; organisations must have cash if they are to survive day to day o Cash flow difficulties include having too much cash tied up in stock, giving customers
extended credit payment periods and spending too much money on capital items Suggest = Introduce a JIT approach to stock management
Justify = Saves money being tied up in stock. JIT ensures stock only purchased when needed • Ratio Analysis (understand what the ratios do, and how they can be improved)
o Profitability, Liquidity and Efficiency:
o Gross Profit Percentage (P) Profit made from the buying and selling of stock o Net Profit Percentage (P) Profit made after organisation’s expenses
o Return on Capital Employed (P) Return on shareholders’ investments
o Rate of Stock Turnover (P) How many times a set of stock is sold per year o Working Capital (L) Ability to pay short term debts
o You Must Learn, Practice and Be Able To Use Financial Ratios
o Use Revision Cards and Example Sheets
