4IB Lecture Guide

QCF Unit Title: Introduction to Business

Learning outcome: 1. Understand the objectives of a business, what resources they need and to whom they are accountable.

Please note that the content of this Lecture Guide is listed in its recommended teaching order, rather than in numerical order. Indicative Content: 1.1.1 Define and show an understanding of the terms ‘corporate aims’, ‘corporate objectives’ and ‘’corporate strategy’.

Distinguish between aims (long term intentions often expressed in qualitative terms, e.g. to become the world’s largest airline); objectives (medium to long term goals expressed in quantitative, terms e.g. increase sales in Asia by 10% in the next four years) and strategy (the plan for achieving the objectives including the resources required).

1.1.2 Explain how objectives and aims might change through the life of a business: survival, break-even, growth, profit maximisation, market share, and diversification.

Describe how business objectives change as a business grows from its initial launch struggling to survive by reaching the break-even level of output to becoming a profitable expanding concern.

Once established, businesses might look to grow by expanding in their current market (both at home and abroad) or by diversifying into other markets.

1.2.1 Describe the inputs required by a business: labour, suppliers, finance, land, management skills.

Basic understanding of the ‘input’ requirements to start a business: land, labour (skilled and unskilled), raw materials, start-up finance, working capital, management skills etc.

1.2.2 Explain the relationship between organisational objectives and human resources.

Human Resource Management (HRM) recognises employees as resources which should be treated like any other resource of the business.

Employees need to respond to changes in the strategy of the business, to cope with peaks and troughs in demand and production, and to adapt quickly and effectively to change.

Examiner’s tips:

In order to understand the difference between aims and objectives it is useful to look at a number of company reports particularly those of firms that have a global presence e.g. Coca-Cola, Ford Motor Company, McDonalds, British Airways, Exxon etc. A useful exercise at the start of the course is for students to get into teams of 4 or 5 people tasked with planning the launch of a new restaurant. They must list all the inputs required, along with approximate costs, and draw up a business plan to present to a bank manager. Each team then presents their plan to the class who will

decide on the relative merits of each proposal. This means the topic will build on students’ prior knowledge and understanding.

QCF

Unit Title: Introduction to Business Learning outcome: 1. Understand the objectives of a business, what resources they need and to whom they are accountable.

Indicative Content: 1.3.1/2 Identify the needs of different stakeholders in a business and explain their accountability and responsibilities: owners/shareholders, customers, employees, management, suppliers, creditors and government.

Define the term ‘stakeholder’.

Understand the difference between ‘shareholder view’ and ‘stakeholder view’.

1.3.3 Describe and assess the different objectives of the various stakeholders, including government, and how they might conflict.

Describe, in general, the objectives of the different stakeholders particularly shareholders, employees, customers, management, suppliers, creditors, government and pressure groups.

Understand that these objectives might conflict, e.g. employees demanding higher wages while shareholders want higher dividends; management wanting to increase prices while customers want more value for money; government encouraging expansion to create employment while pressure groups highlight damage to the environment caused by the expansion.

1.3.4 Demonstrate how stakeholder objectives might affect the behaviour and decisions of a business.

Understand the term ‘satisficing’ as a business strategy that attempts to recognise the needs of all stakeholders..

Recognise the power of public opinion and pressure groups to influence company policy through adverse publicity, demonstrations, petitions, lobbying of government etc.

Examiner’s tips:

Not all stakeholders have equal ability to influence the decision making process. It is important to identify the ‘strong’ stakeholders, as they are the ones who will dominate policy making. This will vary from firm to firm (see www.thebodyshop.com for material on human rights and environmental issues, or the BP website for the recent oil spill in the Gulf of Mexico).


Learning outcome:

2. Understand the structure and classification of business.

Indicative Content: 2.1.1 Classify an economy by sector: primary, secondary, tertiary.

Define the terms primary, secondary and tertiary and provide examples of each, e.g. the primary sector is that part of the economy that produces raw materials such as agriculture, mining, oil extraction, fishing and forestry.

2.1.2 Explain the difference between the private sector and the public sector in terms of ownership and objectives.

Define the terms private sector, public sector, public corporations, private good, public good, merit good and demerit good and provide examples e.g. merit goods include health care and education.

Understand the main motives behind the ‘private’ sector (profit maximisation) and the ‘public’ sector (provision of basic services).

Provide relevant examples of each sector, e.g. the UK public sector is made up of public corporations (nationalised industries), public services (The National Health Service) and municipal services (local leisure centre, local library etc.).

2.2.1 Describe advantages and disadvantages of different forms of legal structure: sole trader, partnership, franchise, private limited company, public limited company.

Define each type of legal structure

Provide example of each type either from the UK or your own local economy

Explain the advantages and disadvantages of each type, especially with regard to the ability to raise capital.

Compare and contrast one type of structure with another, e.g. the advantages of a franchise compared with those of a sole trader

Examiner’s tips:

It is important that you can distinguish between different types of legal structure for a business and different sectors of the economy. A common mistake is to confuse the private sector with a private limited company and the public sector with a public limited company. A popular examination question is to compare the advantages and disadvantages (for a business) of adopting a new legal structure, e.g. a sole trader becoming a partnership or a private limited company becoming a public limited company. A good revision exercise would be to examine different scenarios for each type of legal structure changing to another.

QCF

Unit Title: Introduction to Business Learning Outcome: 3. Understand how the external environment creates opportunities and threats for a business.

Indicative Content: 3.1.1 Describe the effect on businesses of changes in external economic factors: interest rates, exchange rates, inflation, unemployment, the business cycle, government legislation, technology.

As the external environment changes, a business can adopt several strategies including doing nothing. However, doing nothing might allow competitors to capture market share.

For each of the external changes understand the impact of the change: Interest rate changes – impact on a firm’s costs of borrowing and the

impact on consumer spending Exchange rate changes – impact on import prices (raw materials, foreign

competitor goods etc.); impact on export prices (competitiveness in foreign markets).

Inflation – impact on raw material prices, wage demands, rent etc. Unemployment – impact on wages, consumer demand etc. Business cycle – impact on demand for goods, future investment,

recruitment of labour etc. Government legislation – impact on costs, new market opportunities etc. Technology – impact on current production techniques, current materials,

future possibilities etc.

3.1.2 Describe other non-economic influences on business activity: environmental, cultural, moral and ethical.

Define the term pressure groups and provide examples, e.g. Greenpeace

Explain the positive and negative effects of publicity

Understand the needs of different markets based on cultural, religious or moral backgrounds, e.g. the attitude to alcohol in different countries.

3.2.1 Explain how firms can use PESTEL (political, economic, social, technological, environmental, legislative influences) analysis as part of a business strategy.

Define the term PESTEL analysis

A framework for analysing the impact of a change in external constraints

Provide examples of change that can have either a beneficial effect (lower interest rates, increased government spending, new technology) or a detrimental effect (increased taxes, rising unemployment, falling demand).

Examiner’s tips:

Examination questions often test your ability to recognise the options available to a business following a change in external constraints, e.g. a rise in interest rates or the emergence of new competitors. Think first about how it will affect the consumer’s ability to buy goods, then the impact on the firm’s costs and the firm’s sales and revenue. Excellent answers will recognise the time factor of any change e.g. is a fall in demand for the firm’s goods short term or long term – the reaction of the firm will

be different in each case. A good revision exercise is to think of different scenarios (changes in external constraints) for a particular industry (clothing, leisure, food etc.) and create a range of responses for firms in that industry (cost cutting, downsizing, increased investment etc.).


Learning outcome: 4. Understand the factors that influence the scale of production, the location of production and the choice between different types of production process.

Indicative Content:

4.1.1 Explain, and give examples of, economies and diseconomies of scale.

Define the terms economies of scale and diseconomies of scale

Describe the main economies of scale (technical, managerial, financial, marketing, purchasing and risk-bearing) and diseconomies of scale (slower communication, longer chain of command, market response time, employee motivation, bureaucracy etc).

Explain how each economy of scale can lead to a change in business costs e.g. bulk buying can lead to significant discounts which in turn will reduce the unit cost of raw materials; the use of better machinery could lead to improvement in productivity thus reducing unit production costs etc.

Contrast the savings to be made from expansion against the increasing difficulty of managing a larger business e.g. longer chain of command that results in slower communication.

4.2.1 Describe the factors that influence the location of a business.

Describe the various factors that influence the location decision: availability of land, availability of suitably skilled labour, closeness to market, transport routes and costs, government grants, planning permission and environmental factors.

Understand that the mix of factors will be different for each type and size of business e.g. a large supermarket will be more concerned about land cost whereas a service business such as a hairdresser will be more concerned about close proximity to customers.

Be able to apply the factors in a relevant manner to different types of business e.g. factors that would be important to the location of a nuclear power station compared to the location of an airport.

Examiner’s tips: Good answers to scale of production questions are those that strike a balance between the advantages associated with growth and the disadvantages. Identifying the most important factors is an example of evaluation, which will be well rewarded. A good exercise to understand location is to analyse the businesses in your own area. Try to discover why they located there and which factors are most important (each student could be given one or two businesses to investigate and then report back to the whole class). Remember that some business locations might be wholly accidental – the founder liked the area or he/she was born there etc.


Learning outcome: 4. Understand the factors that influence the scale of production, the location of production and the choice between different types of production process.

Indicative Content:

4.3.1 Describe the production process and its associated advantages and disadvantages: job, batch, flow, lean and cell.

Define the terms job, batch, flow, lean and cell production

Describe each type of production process including any advantages or disadvantages associated with the process.

Define and explain the following terms associated with mass production techniques: Computer aided design (CAD) Computer aided manufacture (CAM)

Describe ‘lean’ production as a series of techniques to eliminate waste including: Kaizen Just in time Benchmarking

Describe ‘cell’ production as a series of interdependent teams or ‘cells’, each responsible for a unit of work within the production process. Teams are given devolved responsibility and control over the unit of work.

N.B. Link this with motivation and productivity.

Examiner’s tips:

This is a popular topic in examinations. To gain top marks you must be able to relate production process to their matching market. Job production is suitable for ‘one-off’ or unique orders (e.g. a made to measure wedding dress or suit) whereas flow production is suitable for goods that have a mass market (pencils, paper etc.). Batch production is the production process that proves most difficult to describe. You must use terms other than ‘batch’ to describe it e.g. a set of identical items or a number of identical items. ‘Cell’ and ‘lean’ production are two ways that mass production has been altered in order to improve productivity and to reduce the boredom associated with flow production.


Learning outcome: 5. Understand the marketing process including marketing strategy, marketing planning and market research.

Indicative Content: 5.1.1 Define and explain the importance of the marketing process.

Define marketing.

Understand the importance of the marketing process in identifying consumer wants and preferences and creating competitor advantage by producing an item or service that satisfies the consumer.

5.2.1 Explain marketing strategy in terms of company objectives, available resources and market possibilities.

Define marketing strategy in terms of a marketing plan of action to achieve company objectives.

Marketing strategy is about the future – looking at what will be required next not what is required now e.g. the Ford Motor Company recognised that permanently higher oil prices would reduce demand for its current large engine car range. It started to design and produce smaller cars which have become its most profitable sector.

5.3.1 Describe alternative methods of market research: primary and secondary.

Marketing strategy relies on statistical analysis. Information is required about the current market (where we are now) and about future trends (where we want to go).

Define marketing terms: market research, primary research, secondary research, SWOT analysis, niche market, mass market, USP (Unique Selling Point), repositioning.

Understand the advantages and disadvantages of primary and secondary market research and their relative costs.

Describe briefly how market data can be collected e.g. questionnaires, observation, focus groups, sales data including EPOS and bar codes.

5.1.3 Illustrate with a diagram and describe the Product Life Cycle.

Define Product Life Cycle.

Be able to draw and describe the product life cycle diagram including the correct labelling of the different stages and the axes.

Examiner’s tips: Effective market research reduces uncertainty. Good answers will balance the cost of obtaining more information against its usefulness in gaining a better understanding of the market. The PLC diagram must be drawn and labelled accurately. Good candidates understand that products have different life spans and that firms must continually update or replace their products.


Learning outcome: 5. Understand the marketing process including marketing strategy, marketing planning and market research.

Indicative Content: 5.1.2 Explain how a market for a product can be segmented, e.g. clothes, vehicles, holidays.

Define market segmentation.

Apply segmentation to a particular market e.g. segmenting the shoe market in terms of age, size, gender, fashion, use, cost, social class.

Understand the advantages of segmenting the market – identifying key characteristics of sub-markets, targeting growth areas within a market, satisfying market niches etc.

5.1.4 Discuss the role of the marketing mix (4Ps) as part of a marketing plan.

Define marketing mix.

Describe the four components of the marketing mix: Product, Price, Promotion and Place.

Understand that the mix is different for each market situation and that the four components are not equally important.

5.1.5 Describe and explain how the marketing mix might change at different points of the product life cycle.

This is the application of knowledge about the marketing mix to real marketing conditions. As stated above the four components are seldom of equal status throughout the life of a product. At the start of a product’s life ‘price’ might be set at a premium, yet it might be heavily discounted as it enters its decline phase.

Understand the concept of ‘extension strategies’ and provide examples e.g. special offers, re-positioning the product, new uses, new packaging.

5.1.6 Define other principle marketing terms: niche market, mass market, USP (Unique Selling Point).

Examiner’s tips:

The marketing mix is a popular examination question. The best marks are obtained by those who can apply the mix to specified parts of the cycle e.g. the mix that might be used when a product is in maturity or decline. Simple repetition of knowledge is not enough. Relevant application of marketing theory will be well rewarded. A good revision exercise is to analyse a particular sector such as mobile phones using the 4Ps. What has happened to the product over the years? What has happened to the price of mobile phones? How are they promoted? Where can they be bought? Applying theory to the market will help your understanding of the topic.


Learning outcome: 6. Understand the main accounting concepts and sources of finance for business.

Indicative Content: 6.1.1 Define basic accounting terms: fixed costs, variable costs, revenue, profit, break-even, working capital. Candidates will be expected to produce numeric calculations to demonstrate their understanding of the above terms.

Definitions must be accurate and are best accompanied with relevant examples such as ‘fixed costs are expenses that do not alter in relation to changes in output and must be paid whether the business trades or not, e.g. rent, insurance, depreciation’.

Accepted formulae include:

o Total Cost = Fixed Cost + Variable Cost o Total Revenue = (Average) Selling Price * Quantity Sold o Profit = Total Revenue – Total Cost o Contribution Per Unit = Selling Price – Variable Cost o Break Even Point = Fixed Costs/Contribution Per Unit o Working Capital = Current Assets – Current Liabilities

6.1.2 Define and describe the purpose of budgets and cash flow forecasts and their advantages and disadvantages.

Define the term budget.

Advantages of budgets: Understand the importance of having a financial plan for the future. Budgets can act as a ‘roadmap’ to ensure the business remains on track to achieve its objectives.

Budgets act as a control mechanism by comparing, usually on a monthly basis, ‘actual’ costs and revenue with ‘budgeted’ costs and revenue. The resulting difference or ‘variance’ illustrates if the business is ‘on track’ with its plan.

Describe how budgets can act as motivators for line managers.

Define the term cash flow forecast.

Cash flow forecasts as a ‘planning tool’ – projecting forward the inflow and outflow of cash to determine periods when the business will be ‘cash rich’ (a surplus of cash) or ‘cash starved’ (in need of an injection of cash). This will allow future planning for borrowing sufficient funds (overdrafts, loans etc.).

Examiner’s tips:

Finance is an area that candidates find difficult. However, we are all doing ‘finance’ in our everyday lives. To understand budgeting and cash flow draw up a budget and cash flow statement for yourself for the next three months. Estimate your budgeted income and budgeted costs for each of the 12 weeks – these will be your ‘budgeted’ figures. As the weeks progress, complete the actual figures and calculate the difference or ‘variance’. What does this tell you about the usefulness of budgets and the difficulty of accurately forecasting the figures? Do the same for a cash flow forecast.


Learning outcome: 6. Understand the main accounting concepts and sources of finance for business.

Indicative Content: 6.2.1 Describe short term, medium term and long term sources of finance.

Short term – overdraft, trade credit, debt factoring.

Medium term – bank loans, leasing, hire purchase.

Long term – share issues, debentures, mortgage, venture capital. 6.2.2 Determine the appropriate source of finance to match a business need, e.g. overdraft for temporary expansion of stock levels.

Sources of finance should match the need for finance, with particular reference to the time scale required.

Business problems that are short term (stock expansion to meet a busy period such as Christmas, collection of credit etc.) should be financed by a short term source of finance (an overdraft or debt factoring).

Similarly medium and long term problems require medium and long term sources of finance.

6.2.3 Explain the relative benefits and disadvantages of each type of finance.

Identify and describe the advantages and disadvantages of each type of finance in terms of cost, availability, ease of establishment etc.

Compare one type of finance with another as an answer to a particular problem, e.g. the finance best suited for securing new machinery. This might be outright purchase through a loan, hire purchase, or leasing depending on the financial position of the business.

Examiner’s tips:

Finance depends on the circumstances of the business. Cash rich businesses have more choice whereas cash starved firms must rely on external sources. The secret to good answers is to match the need to an appropriate source of finance in terms of time span. Remember that large firms (private limited companies and PLCs) have access to more sources of finance and at cheaper rates than small firms. A PLC has the ability to sell shares to the public which is denied to all other types of business.


Learning outcome: 7. Understand the need for human resource planning, and the importance of motivation in theory and in practice.

Indicative Content: 7.1.1 Describe workforce planning in action and evaluate different approaches to recruitment, selection, induction and training.

Define workforce planning in terms of anticipated HRM requirements by number and skill level.

Explain the features of a successful workforce planning policy in terms of recruitment, selection, induction and training (the right people in the right job with the right skills at the right time).

Advantages and disadvantages of training existing personnel as against external recruitment.

Distinguish between on the job training and off the job training in terms of cost, effectiveness and motivation.

7.1.2 Define and give equation for labour turnover.

Understand the reasons for high labour turnover.

Define and give equation for labour turnover.

Understand reasons for labour absenteeism.

Describe means of reducing labour turnover – training, delegation, team working, improved working conditions etc.

Describe impact of high labour turnover on costs (recruitment, advertising, interviewing, induction, training etc.), employee morale and company reputation.

Examiner’s tips: In many firms wages account for more than 75% of total costs, therefore it is essential that the HRM department and line managers ensure that labour is used effectively and efficiently. Labour has high upfront costs in terms of recruitment and induction. It is essential therefore that labour turnover is kept to a minimum and that employees are retained for several years. Investment in labour is as important as investment in new machinery or new products. Labour skills must be constantly upgraded in order to drive productivity upwards and cost down. Rising labour turnover is an indicator of employee unrest and should be investigated thoroughly. Remember that training is not only a means of improving employee skill levels but also a means of motivating and rewarding staff.


Learning outcome: 7. Understand the need for human resource planning, and the importance of motivation in theory and in practice.

Indicative Content: 7.2.1 Explain the principal theories: Taylor, Mayo, Maslow and Herzberg.

F.W. Taylor – scientific approach to management – advantages and disadvantages of his ideas.

Elton Mayo – human relations approach to management – recognition of workers’ social needs.

Maslow’s hierarchy of needs.

Herzberg’s ‘two factor’ theory.

Understand the relevance of the theories as a means for managers to motivate their employees.

7.2.2 Describe and give the benefits of motivation in practice.

Job rotation

Job enrichment

Job enlargement

Empowerment

Team working

For each of the above highlight how the practice motivates employees, e.g. job rotation reduces the boredom associated with doing one task repetitively and also gives the employee a range of skills.

7.2.3 Comment upon the benefits and disadvantages of different means of remuneration: piecework, time-based wage, salary, commission, profit sharing, share ownership, fringe benefits.

Define each term with an appropriate example.

Understand the link between the type of work undertaken and an appropriate means of remuneration, e.g. it would be unwise to reward a bus driver for the number of journeys driven per period as this would encourage speeding, but it would be appropriate to reward a sales representative with commission based on the value of his/her sales.

Appreciate the motivational factors associated with encouraging share ownership and profit sharing.

Examiner’s tips: Motivation is a highly complex issue and might vary from employee to employee. It is important for managers to find out the needs of the employees and ways of satisfying them. A motivated workforce is essential if a business is to achieve its objectives. When recommending ways of improving motivation you should describe both the action taken (such as job enlargement) and how it will boost morale and motivation of the worker (increase in variety of tasks thus making the job less repetitive). When discussing the work of motivational theorists it is important that you relate their ideas to how a manager could motivate the workforce. For example the work of Elton Mayo highlighted the need for the business and management to take an interest in the individual people and to listen to their suggestions.

Documents

4IB Lecture Guide