Buss 4 aqa revision


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Buss 4 aqa revision

  1. 1. BUSINESS UNIT 4 Laura Powell
  2. 2. CORPORATE AIMS AND OBJECTIVES Corporate Aims: The long term intentions of a business. Corporate Objectives: targets that must be achieved in order to meet the stated aims of the business. Corporate Strategy - Medium to long terms plans of a business. Key corporate aims and objectives:- Survival - Profit - Growth - Diversification - Market standing - Meeting the needs of other stakeholders
  3. 3. Mission Statements Mission Statement : a qualitative statement of an organisations aims. It uses language intended to motivate employees and convince customers suppliers and those outside the firm of its sincerity and commitment.Mission statements are designed to: - Provide guidance for the overall direction of the business - State the overall goal - Help inform decision making at all levels - Create a shared focus for all employees, it should therefore be com Mission Statement Corporate Aims Corporate Objectives Corporate Strategies
  4. 4. Low cost versus differentiation (Michael Porter’s Strategy) Analysis of porter’s 5 forces, it’s a basic premise that a firm should be one thing or another and clearly focused on their choice of strategy. Strategic advantage Low producer cost High differentiated Strategic target Mass Market Cost leadership Differentiation Niche Market Focused cost leadership Focused Differentiation
  5. 5. Ansoff’s Matrix
  6. 6. Differing Stakeholder PerspectivesStakeholders - Anyone with an interest in the actions of a business. Stakeholders can be: - Internal (Managers and employees) - External (Consumers, suppliers and the community) Stakeholder perspectives - the views that different stockholders have regarding the objectives and strategies of an organisation. There is often a conflict between interest between different stakeholders, e.g; - Shareholders want higher dividends through profit
  7. 7. Employees - Degree of motivation - a motivated workforce is more effective. - Employee/employer relations - pressure on the business to improve working conditions. Suppliers - Relationships with suppliers - ability to negotiate better payment terms and prices. - Looking after suppliers - paying a fair rate Customers - Meeting customers expectations- ensuring products are a good quality. - Degree of competition to exploit the customer. Shareholders - Maximising returns - short term payments of dividends as well as long term share value. - Ethical investment - priorities and views of individual shareholders. Community - Environmental impact - on both the local and wider community e.g pollution Government - Legislation - meeting demands of existing and new legislation to protect customers, employees and the Stakeholders thoughts…
  8. 8. Impact of economic impact The economic environment consists of the key economic factors that influence the behaviour of businesses and their customers. These include: -The business cycle -interest rates -exchange rates -inflation -Unemployment
  9. 9. The Business Cycle• Boom: high levels of consumer spending, business confidence, profits and investment. Prices and costs also tend to rise faster. Unemployment tends to be low as growth in the economy creates new jobs • Recession: falling levels of consumer spending and confidence mean lower profits for businesses – which start to cut back on investment. Spare capacity increases + rising unemployment as businesses cut back and reduce stocks • Slump / depression: a prolonged period of declining GDP - very weak consumer spending and business investment; many business failures; rapidly rising unemployment; prices may start falling (deflation)• Recovery: things start to get better; consumers begin to increase spending; businesses feel a little more confident and start to invest again and build stocks; but it takes time for unemployment to stop growing
  10. 10. Interest RatesThe price of money - the cost of borrowing or the reward for saving money. They are used by the Monetary Policy Committee to control demand and therefore inflation. The BoE interest rate is currently set at 0.5% How interest rates affect businesses; - Gearing (high gearing businesses are sensitive to IR change) - Supply (If IR are high it is expensive to buy equipment) - Demand (Higher IR means less disposable income ; higher mortgage rates which lowers demand) - Exchange Rates (Higher IR means foreign investors and making £ Interest Rate 0.5%
  11. 11. Exchange RatesThe value of ones country’s currency in terms of another. How do exchange rates affect businesses? - If the country has a strong exchange rate. - Firms that import will be able to buy cheaper raw materials and finished goods. - Firms that export will experience less demand - If the UK has a weak exchange rate. - Greater demand for UK products Currency Rates £1 : $1.67 £1 : €1.21 £1 : ¥10.33 S tronger P ound I mports C heaper E xports D earer
  12. 12. Inflation A general rise in prices or a fall in the value of money. Consumer Price Index January 2014: 1.9% February 2014: 1.7% There are two main types of inflation: Cost Push - an increase in input prices. e/g raw materials and wages. Demand Pull - an increase in demand allowing firms to raise prices. There are two main measurements: Retail price Index (RPI) - a measurement of a ‘basket’ of goods and services representative of what people buy in the UK. Consumer Price Index (CPI) - similar to RPI buy it excludes housing costs. The governments target is 2% for CPI. Retail Price Index January 2014: 2.8% February 2014: 2.7% How does inflation affect businesses: - if the price is inelastic then increased costs can be passed onto the consum - if demand falls firms may reduce supply affecting operations management; c - Difficult to maintain competitiveness if the firm has to raise price. If a firm ex
  13. 13. Unemployment Those people looking for work who cannot find a job. Types of unemployment: - Structural (changes in the economy - whole industries decline) - Cyclical (linked to the business cycle - slump = unemployment) - Frictional (when people are between jobs) - Seasonal (holiday jobs and christmas temps) How unemployment affects businesses: - Skills shortages/surplus - Demand is affected - consumers have less income Unemployment Rate 2.33% December 2013
  14. 14. Economic GrowthA rise in the value of GDP. GDP measures the value of goods and services produced in an economy each year. Growth occurs because of changes in the factors of production and it focuses on an increase in supply rather than demand. How does economic growth affect businesses: - Demand (consumers will have more disposable income) - New business start-ups (greater confidence in the economy) - Inflation (higher demand can lead to skills shortages and demand pull inflation) - Negative economic growth occurs when the value of GDP starts to GDP 4th quarter of 2013 0.7%
  15. 15. Globalisation of Markets Globalisation - The international economies leading to a world market. Impacts on businesses: - opportunities for market development - relocation or outsourcing to low cost countries - increasing competitive nature of the organisational structure Benefits Drawbacks Opportunities to sell in new markets. Greater consumer choice Economies of scale for global businesses Communication and transport problems Global marketing strategies can create a global brand increasing the power in the market for the business. Global localisation to meet local tastes and cultures
  16. 16. Developments in emerging marketsEmerging markets- countries with low to middle average income per person. Include the BRIC (Brazil, Russia, India and China) How can an emerging market benefit UK firms? How can emerging markets cause problems for UK firms? Emerging markets are rising stars Opportunities are created by: - rapidly rising consumer incomes - fast growing markets - exploitable natural resources - exploitable cheap labour Problem children or dogs Threats are created by: - poor infrastructures - accusations of exploitation - cultural and legal differences
  17. 17. Government Intervention Government Regulation - Restrictions to control markets. These occur for a number of reasons: - Monopoly Power (to stop the public being exploited) - Merit and public goods (to provide things that are needed) - De-merit goods - to restrict the goods that harm society. - Protect employers and and consumers - Competition law -providing greater choice and lowering prices. Government subsides: financial assistance given to individual and industries to provide goods/services. Taxation: A financial charge by the government on an individual or a firm. This helps reduce the price to the customer - To provide merit goods -To protect jobs or infant The government can change taxation to try to control the economy (to stimulate or curtail)
  18. 18. Government Policies Economic Policy - Actions taken by the government to stimulation/control economic activity. Monetary policy - Government police to control the demand for money, this is done by interest rates and the supply of money. It is used to control inflation to achieve the target of 2% Fiscal Policy - Government policy on taxation, expenditure and borrowing to control the economy. Contractionary fiscal policy- occurs when the government reduces expenditure and/or increases tax. Expansionary fiscal policy - entails increasing government expenditure and/or reducing tax.
  19. 19. Supply Side Policy - Government policy to help increase the supply of goods and services. The key intention is to allow markets to operate efficiently in order to improve the quality and increase the quantity of output. Types of policies include: - Privatisation or nationalisation - Deregulation - Improving education and training of the workforce - Labour market reforms. Nationalisation- The transfer of private sector organisations into the public sector. Privatisation- The transfer of public sector organisations into the private sector. Government might decide to nationalise key industries such as energy and transport. It may occur Improved efficiency due to profit motive. Increased competition leading to a lower price, greater
  20. 20. Political Decisions Political environment - The key political factors that influence the behaviour of businesses and their customers. These include: - The provision of products by the government - Government intervention e.g. regulation, taxation and subsidies - Monetary, fiscal and supply side policies - Enlargement of the European Union and movement towards free trade. Benefits Drawbacks Free movement of labour(cheap eastern) Increased competition from foreign firms Opportunities to sell into new EU markets Communication and coordination problems Economies of scales as firms expand New languages and cultures European Union- An economic and political union established in 1993.
  21. 21. Freedom of trade - When there are no barriers to trade between nations. The EU is a free trade area where member states don't have to pay tariffs (tax on imports) or meet quotas (a limit on the volume of imports). Comparative advantage is the theory that countries produce what they are good at because they can produce these cheaply and more efficiently then trade with other countries. Arguments for free trade Arguments against free trade Comparative advantage Infant industries find it hard to compete Trade creation from new markets Diversification of an economy so that a country doesn't rely on certain products for income. Economies of scale Competition leading to greater choice
  22. 22. Environment Legal Environment- Legislation that impacts activities of organisations. Individual labour laws Collective labour laws for groups Anti-discrimatory Laws 1970-date to outlaw discrimination on certain grounds like gender, race, disability, pay etc. Employment Act 1980- Secondary picketing outlawed. Trade Union Act 1984 - A secret ballot required before strike action. Working Time Regulations 1998 - employees can not be forced to work more than 48 hours a week. Employment Act 1990 - outlawed closed shops where all workers were in one single union Trade Reform Act 1993- unions must give
  23. 23. Consumer Protection : Laws that protect the consumer from firms with regards the quality of goods or services sold.Why we protect consumers? Impact on the firm In order to maximise profits some firms may unfairly exploit consumers. Safeguard the reputation of UK and EU firms Consumerism places the interest of the consumer as the most important factor in the exchange process. Ensures that firms take into account consumers requirements and can not be taken to court which could increase costs.Environmental Protection : Legislation that helps to ensure that the production of goods and services does not have a negative impact on the environment. Why we have environment laws Impact on the firm protection from the harmful impacts of a firms product, e.g. pollution and litter. New environmentally friendly production processes. To force firms to pay for negative externalities they create but don't have to New products that meet higher environmental standards.
  24. 24. Health and Safety : Legislation that looks after the health and safety of employees in the workplace Why we have H&S laws? Impact on the firm In order to protect employees from exploitation and the consequences of poor H&S There are significant financial costs associated with H&S eg providing the safe equipment. Firms can now even be charged with murder To maintain high standards in the UK workplace. UK and EU firms may be less competitive having to meet with laws.
  25. 25. Changes in the social environmentSocial environment : The key social factors that influence the behaviour of businesses and their customers. Demographic factor : Demography is the statistical study of human populations and demographic factors are those that influence these populations Demographic change Business Impact An increase in the global population size An opportunity for UK firms to move into new markets with new or existing products. An increase in the average age of UK society Firms will modify their product range to satisfy the needs of older people. Falling EU birth rates As EU market size falls but the
  26. 26. that impact on the environment due to the operations of organisations. The main methods of helping the environment include: - Renewable clean energy sources (wind, solar and hydro power) - Waste Management- Recycling and composting rather than landfill - Eco-friendly products - green cleaning such as soap powders - Organic produce - foods produced using natural pest
  27. 27. The ethical environment Ethical environment: this looks at morality in decision making, inferring doing what is right. Corporate Social Responsibility: A firms devision to accept responsibility to its stakeholders for its social , environmental and ethical actions. Benefits of CSR to businesses Costs of CSR to businesses Financial Benefits - ability to attract investment - Avoidance of fines and environmental taxes Mistakes and bad PR are expensive. Not meeting corporate objectives - short term shareholders returns - missed growth opportunities HR Benefits - recruitment and retention of staff- attract a wider pool of talent and skills Financial Costs - looking after employees (training, pay etc) - Ethical suppliers (direct and through supply chain) - Environmentally friendly practices in operations - Appointing a new director to be responsible for CSR. Marketing Benefits - greater customer loyalty -potential for differentiation and a USP - positive rather that negative PR recognition from external bodies such as fair-trade
  28. 28. Benefits of CSR to stakeholders Costs of CSR to stakeholders Employees - inclusion and equal opportunities - health and economic wellbeing - sense of pride and greater job satisfaction Financial Costs -are the costs to the business passed onto the consumer in the form of higher prices or are the business’ profit margins reduced? - taxes imposed by the governmentCustomers - informed decision making -sense of wellbeing e.g ethical behaviour Supplier - fair prices and working conditions Opportunity Costs - restrictions in availability of goods and services e.g. flight times to reduce noise pollution Community - support for local economy e.g. local suppliers - community support or projects Government - achievement of environmental targets - delegation of responsibility to businesses Expectations on stakeholder behaviour - ethical codes of practice for employees - suppliers forced to adopt policies andShareholder
  29. 29. Technological change Technological environment - The key technological factors that influence the behaviour of businesses and their customers. Technological change - The development and sharing of technological advances in products and processes Marketing Opportunities: - New markets (Using the internet) - Databases (loyalty cards, identifying trends) - Charging higher prices (Latest tech updates - product with USP) - New methods of marketing, e.g. social networking
  30. 30. Business Culture Business culture will impact upon how willing and able an organisation is to embrace new technology Traditional culture Find it harder to accept new technology as fear of change may lead to uncertainty and loss of security affecting levels of motivation Power Culture Information will remain with the few people at the top and the effect of technological change will depend on their views. Task Culture New technology is ideal for cooperation between departments. A selective group will be tasked with the introduction of the tech. Entrepreneurial culture Technological development and the spirit of risk taking are closely linked and new technology is technology is likely to be incorporated into the business.
  31. 31. Competitive Environment Competitive environment : This looks at the degree of competition in the market and the buying and selling power of customers and suppliers within that market. The spectrum of competition Zero competition High Competition Monopoly Oligopoly Monopolistic competion Perfect Competion one firm dominates the market a small number of large firms dominate the market many firms compete in the market selling differentiated products many buyers and sellers in the market with no influence on market price
  32. 32. Porters 5 Forces - Apple
  33. 33. Change in organisational size Change occurs when a business alters its structure, size or strategy to respond to internal or external influences. Reasons for change: - meet objectives - gain market share - increase shareholders returns - technological advances - economic, political and legal - consumer demand - employee pressures
  34. 34. Internal - Change in organisational size Organisational size - The classification of how large a business is, normally based on, the number of employees, company turnover and company balance sheet. Organic growth - Internal growth occurs when a business expands in size by opening new stores, branches, functions or plants. Organic growth tends to be slower and less expensive than external growth. Retrenchment - the downsizing of a business; to reduce costs and increase competitiveness. Mergers - two or more firms agree to become integrated to form one firm under one management. Mergers allow firms to exploit economies of scale. Takeovers - when one firm gains control over another and becomes the owner. This can be achieved by obtaining 51% of
  35. 35. Internal - Change in organisational sizeHorizontal integration - The integration of two organisations at the same stage of the production process. - Large organisations can exploit economies of scale - Increase its control of a market (reducing competition) Vertical Integration - the integration of two organisations at different stages in the production process. Conglomerate - A form of business growth characterised by the integration of two or more unrelated firms. - diversification spreads risks across different markets - power is extensively delegated - can cause problems to focus on businesses in different industries.
  36. 36. Internal - New owners/leaders Reasons for change by new owners/leaders: - own vision or mission - change in corporate objectives - overcome cultural differences - personal leadership style - desire to make a difference and introduce fresh ideas - self glorification Possible problems: - clash of cultures or hostility towards new owners/managers - funding of the change - resistance to change by existing employees
  37. 37. Internal - poor business performance When a business is failing to meet its objectives. If poor business performance is experienced then changes will need to be made as shareholders will demand answers and want actions. Possible causes: - failure to keep up to date with the market - new entrants in the market - poor decision making - unsuccessful mergers/takeovers - poor leadership - economic environment/political or Possible solutions: - change in ownership - improvements to the organisational structure - implement new strategy - introduction of more efficient processes.
  38. 38. Purpose of corporate plans Corporate plans - a detailed, medium to long term plan outlining the actions a business will take to achieve its corporate objectives. They include: - corporate aims and objectives - corporate strategies - functional objectives - contingency plans Purposes of corporate plans: - provide a clear sense of direction - allocates specific responsibilities to key personnel - identifies and gives consideration to a range of strategic options - encourages progress to be tracked and reviewed against targets. Contingency plans - the process by which organisations try to prepare for unexpected and potentially disastrous events. Value Limitations -costly and time consuming -needs revising on a regular basis -may never be used -lack of predictability
  39. 39. Internal and External factors on corporate plans Value Limitations - Shows strategic thinking and planning - Common sense of direction - Greater focus and chance to achieve the corporate objectives - Clear targets to monitor progress against - Greater understanding of the business - Informs investors and other - can’t take into account unpredictable changes in the business environment. - internal changes can change the plan - opportunity cost of time and HR - may affect ability to respond to Internal Influences factors within the businesses control External influences outside it’s control - The financial resources available - the HR skills available (quality of workers) - The operating capacity available - The marketing strengths eg the brand - The culture of the organisation - Leadership style and vision - Mission statement - Decision making process -The economic environment - The legal environment - The political environment - The competitive environment - the social environment -ethical consideration - The technological environment
  40. 40. Leadership Leadership - The ability to influence and direct people in order to meet the goals of a group. Leadership style - The approach a leader takes to achieving their objectives. Management - The process which company resources are used and decisions made in order to meet the objectives of the firm. (They can inspire and motivate workers and set objectives) McGregor’s Theory: Theory X - management believe workers are las and avoid work, managers closely supervise the workforce. Theory Y - management believe workers seek job satisfaction and enjoy responsibility, managers delegate more.
  41. 41. Leadership Autocratic/ Authoritarian - A leadership style where all decisions are made at the top without consultation. - associated with a hard HR strategy. - adopted with unskilled workforces - preferred style of leadership during a crisis or rapid change - there may be resistance if change is not clearly communicated Democratic - The leader consults the team but makes the final decision themselves - associated with a soft HR strategy - requires a skilled workforce where workers can make strong contributions - decisions may be more informed - can find implementing change easier as they are more likely to gain acceptance Laissez-faire - A leadership style where the leader allows their team to make decisions and complete their work without supervision. - associated with entrepreneurial culture Paternalistic - The leader acts in a fatherly way towards the workforce. - decisions are based on the needs of the workforce - looks at the welfare of the
  42. 42. Internal and external factors affecting leadership styles Internal factors External factors Expertise and experience of the workforce Changes in the political and legal environment; it may require leaders to implement change without consultation with the workforce as the change isn't negotiable Nature of the work and level of skill required The personal traits of the leader The power given to the leader The economic environment and the impact on the business performanceThe time frame associated with the task to be
  43. 43. Role of leadership John Kotters 8 step change model Role of leadership - what leaders can do Step 1 : create urgency Emphasise the need for change Start honest discussions that give dynamic and convincing reasons, this will get people talking and thinking. Step 2:Form a powerful coalition A project group Bring together a team of influential people who have different amounts of power. Step 3:create a vision for change Determine the central values Develop a short summary (one or two sentences) that captures the future of the organisation. Step 4 : Communicate the vision Talk often about the change vision Openly and honesty address concerns and apply the vision to all aspects of operations Step 5 : Remove obstacles Human or otherwise! Appoint change leaders and identify change resisters Step 6 : Create short term wins Look for short term projects that can be implemented quickly and reward people who meet the targets
  44. 44. Organisational culture Organisational structure - The values and standards shared by people and groups within an organisation. Entrepreneurial culture The ethos of a business where risk taking and innovation are actively encouraged and rewarded, whilst failure not criticised. - workers are given individual responsibility (high degree of delegation - decentralised decision making Power culture The concentration of power amongst a few people central to the organisation. - Decisions can be made very quickly as there is little room for consultation - Assiosicated with centralised decision making and autocratic leadership Task culture A culture based on individual projects that are completed in small teams - The emphasis is on achieving set outcomes through cooperation - This requires support at senior level - associated with matrix structures and delegation
  45. 45. Reasons for changing organisational culture Problems of changing organisational culture - Change in owners/leaders - Change in corporate objectives - Poor business performance - Change in size, mergers etc because of difference in cultures - Responding to market conditions - Resistance to change - Lack of trust - Period of adjustment - Alienation of: - Suppliers - Customers - Other stakeholders Culture is important for the following reasons: - Impact on staff motivation - Effects decision making - Competitiveness of the business - Brand Image
  46. 46. Strategic decisions Strategic decisions - The medium to long term plans made by a business in order to meet its corporate objectives. Information Management - The use of accurate and up to date information to aid decision making.Intuition Decisions made that are based on instinct rather than scientifically Scientific decision making Decisions within an organisation that are made on basis of data - Decisions are supported by research - Outcomes are tested which reduces risk - Decisions made are objective - Use qualitative and quantitative information Including financial accounts, market research, competitor
  47. 47. Influences on corporate decision making Internal Influences External Influences Corporate Objectives All decisions made are to help the business achieve its objectives External environment Businesses may have to make decisions to respond to PESTLE factors. Resources available May require high capital investment and need finance to back the decision External stakeholders Pressure group actions are deliberately designed to try and influence behaviour and hence decision making of firms. Internal stakeholders A powerful owner may be able to override the decision of other board members
  48. 48. Techniques to implement changeChange - The adapting of business procedures in response to internal and external factors. Project Management - The activity of delivering the required change within a predetermined set of resources. eg time Project Champions - The people responsible for driving a project forward and gaining commitment Project groups - A group of specialists from different backgrounds tasked with achieving the desired programme of change
  49. 49. Factors that promote and resist changeFactors that promote change (gaining acceptance from shareholders): Transparency and early involvement - Identify and share the reasons for change with stakeholders - Clearly state and communicate the objectives of change Keeping lines of communication open during the process - Keeping everyone informed on progress - View change from different stakeholders perspectives Resisting change (stakeholders reluctant to change) Reason for resistance Possible solution Parochial self interest (fear that change effects them personally) Reassurance and training (offers reassurance on job security) Misunderstanding and lack of information Communication Low tolerance to change - personal Empathy and respect