Business Studies Handbook

IFY Business Studies

Student Handbook

Produced By

Stephen Byrd PhD, MBA, FITOL FICM

IFY Business Studies – Student Handbook

Page 2 of 215

Week Topic Units

Marketing

1 A: The nature of marketing 18

B: Market Analysis 21

81

2 C: Segmentation and positioning 20

D: Market research 19

35

3 E: Marketing Strategy 22

32

4 F: The Marketing Mix

F a: Product

23

24

27

5 F b: Promotion 28

29

6 F c: Place (Distribution) 30

F d: Price 26

Accounting and Finance

7 G: The role and limitations of accounting 37

H a: Finance 44

45

8 I a: Profit and loss accounts 42

I b: Balance Sheets 43

9 I c: Working capital 48

H b: Analysing published accounts:

Ratio analysis

56

57

10

J: Cost and management accounting

Types of cost, Break Even, Contribution 38

40

41

11 Cash Flow Forecasting and Management 46

12 Budgeting and Variance Analysis 41

13 Review

14 Review

15 EXAM WEEK

Notes to Students:

All reading should be completed before the Week number listed.

The weeks may change, but you will be informed well in advance


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Business Studies

Supplies – be prepared

A4 Notebooks

Pencils / Pens

Ring binders, with dividers

Hole punch

Rulers

Calculator

Stapler

Conducting of courses

Lectures / Tutorials

Take notes – always have notebooks

Class participation

– asking questions

– answering questions

Homework – collected and marked

Regular testing

Other rules of class

Be here, be on time!

Handle personal matters before / after class

No talking, unless instructed

Ask teacher about what you don‟t understand

No word finders (ask teacher)

No mobile phones

Assigned seating …

Assessment

2 Assignments each worth 10% = 20%

Term 1 Examination = 10%


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Final Examination = 70%

Total = 100%

Predicted Grades

For university selection and applications

Based on:

Term 1 Assignment

Results of Term 1 regular tests

Term 1 End of Semester Exam results

Homework

Class participation

Method of calculation:

Based on:

Term 1 Assignment 10% 20%

Term 1 EOS Exam 10% 80%

Total 100%


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Marketing: The management process used to identify, anticipate

and satisfy consumer requirements profitably. (Textbook)

Management: the skill of controlling or directing

Process: a series of steps or actions towards an end, a goal

Identify: to recognize or know

Anticipate: to expect or to realize before someone else does

Satisfy: to fulfill a desire, a want or a need

Consumers: people who use products or services

Requirements: a need, want or desire

Product orientation – focused on production process, the product,

and efficiency; sees people as basically similar; practices “mass

marketing” (industrial revolution thru mid-50‟s)

Market orientation – consumers at the center of decision-making;

listening to the customers wants and needs; building long-term

relationships; recognizes differences in people, practices “target

marketing”

It is possible to be successful with either type of orientation, but it is

harder to be successful with product orientation alone.

Features of business marketing behaviors:

Consumers – most important; know your consumers; a “feel”;

trends; react to consumers needs, wants and desires

A Process – no beginning, no end, ongoing; respond to changes

RELATIONSHIP MARKETING: Build relationships with

consumers – know what they want; react to complaints, long-

term

A business philosophy – a way of thinking


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Affects entire business – the goods produced; pricing and

sales

Marketing – not just Selling (usually different departments);

market research (what do consumers want and what‟ll they

pay); design of products, packaging; testing of products on

consumers

Advertising – only a part of Marketing

Asset-based (Asset-led) Marketing – developing and marketing

products based on a company‟s key strengths

REAL DISPOSABLE INCOME – The amount of consumers‟ Income

remaining after deducting taxes and adding back any other

government benefits

A rise in Real Disposable Income causes:

Increase in “Demand”; which causes

Economic Growth; which causes

Changes in tastes and fashions; which causes

New technologies to be created; which causes

Increases in competition


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Markets – classified according to characteristics

Geographical – i.e. by location;

Goods;

Industry;

Size – mass/niche Problems with measuring size

o Market size – can be measured by Value or Volume

Market Share / Penetration – proportion (percentage) of the market

held by a company

Important in judging: size; growth

Market Growth – affected by: Economic changes; Social changes;

Technological changes; Demographic changes; changes in

Legislation

Reasons for / benefits of growth: economies of scale; gain market

share; increase future profits; reduce risk; survival

Economies of scale

Internal (within the company): Technical (efficient use of

facilities); management; financial; purchasing; risk reduction

through diversification

External (growth in industry): labour availability; outside

services; co-operation

Methods of company growth:

Internal: organic (expand sales); innovation (new products)

External: merger; acquisition

Limits to growth – diseconomies of scale – inefficiency


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Still, small firms survive – reasons: Personalized service; flexibility;

efficiency; lower costs; low barriers; owner preference; etc.

Mass Marketing: Marketing products to all consumers in almost the same way. Can

be expensive, and, products will be going “head-to-head” with other mass market

products.

Segmentation: Break a market into sub-groups with similarities.

Examples of Market Segments: Age; gender; ethnic background;

family characteristics; education level; occupation; income level;

social class; religion; political or voting preference; geographic

location; personality; lifestyle; purchasing choices or patterns.

Market research can help identify segments; can also be directed to

specific market segments.

Identifying segments can: reduce market research cost; help

increase sales; reduce product promotion cost by targeting specific

consumers.

Target Marketing: companies choose to concentrate their

marketing efforts on particular groups of consumers

Niche Marketing – aiming products at smaller market segments.

Niche Marketing is less expensive, more cost-effective

Some niches may have been overlooked or ignored by

competitors

Focuses on the specific needs of the members of the niche

Drawbacks and risks in Niche Marketing:

o Success will attract competitors (for the same reasons)

o May not be easy for companies with many products


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o Tastes and preferences of small groups can change more

quickly

MARKET POSITIONING: Consumers tend rank/rate products by

quality, status, value-for-the-money, other characteristics, defining

the Market Position: main products = Market Leaders; others =

Market Followers. As markets and consumers‟ tastes change,

companies try to reposition their products.

Market Mapping: tool to analyze Market Position in eyes of

consumers.


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Market Research: collection, collation and analysis of data relating

to the marketing and consumption of goods and services

Uses for Market Research Information:

Descriptive: what is happening

Predictive: what‟s likely in the future

Explanatory: why are things happening

Exploratory: what new possibilities may be available

Market research:

Helps with decision-making, especially in fast-changing markets

Helps reduce risk

Provides a link to the outside world, about their products and

potential future ventures

Is more important as markets expand in size and scope

Is good for public relations

However, Market research can have failings because:

Human behaviour is unpredictable

Sampling may be biased

Questions or questioners may be biased

QUALITATIVE – Information about attitudes, beliefs and intentions

QUANTITATIVE – Data that can be expressed as numbers

DESK or SECONDARY RESEARCH – information already available

Internal sources


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External sources

PRIMARY or FIELD RESEARCH – collected by the researcher

Advantages for the Company: full control over the kind of

information being gathered; only they can access it

Methods of Field Research: Personal interviews; phone

interviews; focus groups; post-purchase; observation

Types of Questions:

Closed: Offers a limited range of answers

Open: offer the interviewee the chance to openly respond

Clear and unambiguous questions

Leading questions encourage a particular answer

Effects the different questions may have, and how questioning can

be used

Balance between closed and open questions

Closed questions are usually easier to summarize and quantify

Leading questions: for impartial data, they should be avoided;

may be used to influence the results of the survey

Who to ask?? Asking everyone would be impossible

SAMPLING

Random Sampling – population listed, computerized Random No

Gen

Systematic Sampling (Random)

Stratified Random Sampling

Others in book: Quota Sampling (target quantities from different

groups); Cluster Sampling (separating population by area); Multi-

stage Sampling; Snowballing

Haphazard Sampling

Type of information that might be asked:


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What are they currently using? / Would they use this?

What features do they like about it? / What features would they

like?

What should it look like? Size, weight, shape, color?

What type of promotion would be best? / Where they would want

to be able to buy it? / How much would they be willing to pay?

Information about them: Age; Sex; Marital status; General

income levels; Educational background; etc. DEMOGRAPHICS


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Marketing Objectives / Marketing Goals:

Company Growth – to affect profits

Maintaining sales and market share

Product differentiation – from competitors

Product introduction and innovation

Consumer knowledge and satisfaction – build RELATIONSHIP

Marketing Objectives/Goals should be SMART – Specific;

Measurable; Agreed; Realistic; Targeted

Analyzing Constraints (stand in the way of achieving goals):

Internal: Financial; Organizational; Product; Price; Place

External: PEST-G: Political; Economical; Social; Technology;

“Green”

Marketing Strategies: Steps to help a company compete more

effectively

Competitive Strategies: To compete more effectively

Product differentiation – Show the differences from competitors‟

products

Target a particular Market Segment

Price – Try to be the lowest price in a market

Growth Strategies:

Market Penetration or Expansion: Increase sales in the existing

market

Product Development: introduce new products into existing

market

Market Development: Market existing products in new markets or

market segments

Entry into new markets: Developing new products for new

markets


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The Marketing Mix (Combination) – the Four P‟s: To meet their

marketing objectives, companies break down their marketing

activities into 4 areas:

Product: make the product meet consumers needs and company‟s

needs: use; physical presentation (look, feel, smell, etc);

financial, incl. cost; life cycle; uniqueness; market position

Pricing: Market Position; maximize sales (low); maximize profit

(high)

Promotion: choose the most effective for its market

Place: Where sold; how sold; how transported, etc.

Services have 3 more P’s

People providing the service

Process involved in delivering the service

Physical – the environment in which the service is provided

Every business designs its own Marketing Mix for each product it

sells

Ideal Mix = right balance between the 4 P‟s: type of product;

market; level of competition; competitors‟ Marketing Mix; Market

positioning


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The Stages of The Product Life Cycle

Development: design, testing, decision to proceed (money out)

Introduction: 1st Sales (often slow, may be fast); heavy promotion

Growth: accepted; sales begin to grow; if new product,

competition…

Maturity: sales increase rate begins to level off

Saturation: placed well throughout the market

Decline: changes in consumer tastes, new technology, etc

Extension Strategies – ways to extend the Product Life Cycle: new

uses; new markets; wider product range; target markets; change

appearance; encourage more frequent use; change ingredients or

components.

Capacity and Cash Flow

Capacity is the maximum amount a business can produce; the

measure of how fully a company is using its capital.

Cash Flow is the measure of money in and money out

Product Life

Cycle

Capacity Cash Flow

Development No Effect Cash out only

Introduction/

Launch

Sales limited; will have spare

capacity, or, “borrow” from existing capacity

Although Sales begin, still negative

due to prior development, and, promotion costs

Growth Expanding production, use up

spare capacity

Cash Flow moves into the positive

as cash from sales overtakes prior cash expenditures

Maturity May operate at full capacity, may need to expand capacity

Cash Flow at highest, Sales at highest, marketing and advertising

may reduce

Decline Sales & production reducing, capacity may not be fully

utilized

Sales will fall, Cash flow will fall

The longer the life cycle of a product, the longer a company may

expect to operate at full or near-full capacity.


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The Product Life Cycle is a planning tool, useful for:

Showing trends in product revenue

Planning when to launch new products

Planning when to introduce extension strategies

Planning cash flows

Identifying when to stop selling a product

Showing expected profitability at different stages

Planning different marketing strategies

Managing The PRODUCT MIX (combination) or PRODUCT PORTFOLIO

Companies use Product Life Cycle and the Boston Matrix to help plan

when to introduce new products or product lines (groups of closely

related products). Always involved in new product development.

The Boston Matrix: Market Growth

High Low

Market

Share

High STAR

CASH COW

Low PROBLEM CHILD DOG

Star: Large share of a high-growth market

Problem Child: In growth markets (has potential), but sales not

good

Cash Cow: Mature products with stable market share; generate

funds, may support other products

Dog: may be in decline

Brand – a name, design, symbol, etc, lets consumers recognize your

company or products, differentiates your products from your

competitors. BRAND NAME is spoken name; BRAND MARK is a

symbol / LOGO.

Reasons to establish a Brand – a successful Brand can help:

Develop Customer Loyalty

Differentiate your products, especially where products are similar


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Develop recognition

Develop image

Pricing flexibility – more willing to accept higher prices

Brand Equity – Well-known Brand adds value to products and

Companies

Developing a Brand:

Choose the right name or symbol

Protect the Brand – trademark and copyright

Find a Unique Selling Point (USP) – what makes them different

and makes consumers want to have them over other products

Be the first in the market

Positioning – e.g. a “high quality” Brand should be targeted to

people with higher incomes. Product Mix is important:

o Product made from high quality materials

o Price can be a premium price

o Promote in a way that reflects the status of the brand

o Place it where the targeted customers can access it

Types of Brands:

MANUFACTURERS BRAND – the Producer

OWN LABEL BRAND – The seller

Branding Strategies

Individual Branding – single-product Brand

Family Branding – group of similar products, or, Corporate Brand

Combination Branding – mid-way of the above two approaches

Brand Extensions – add Brand name to product outside the

“family”

Problems with Branding

Expensive


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Some markets / products not suited for Branding


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The purpose of Promotion to get and keep customers:

Create / increase customer awareness

Reach a targeted audience (may be geographically spread out)

Remind customers – encourage repeat purchases; gets new

customers

Differentiate your product – encourage buyers to switch

Develop or improve image

Re-assure consumers after purchase – repeat customers

Support existing products

Promotion: Above the Line – independent media

Types of advertising:

Informative – increase customer awareness of, knowledge about

Persuasive – to buy the product

Reassuring – to have current customers continue to buy

Corporate Advertising – Promote the company

o Create an impression as responsible members of

community

o Branding

Types Advertising Media:

Medium Advantages Disadvantages

Television Mass market; Attract

attention; Demonstrate Products

Expensive; message short

lived; Hard to deliver Tech info

Newspapers, Magazines

Mass mkt. or Target segments; Big or small

businesses; Can use national, regional, local

No motion or sound; Black & White (newspapers); ads can

get lost; (magazine) long time to publication

Cinema Strong impact; target

specific consumers

Limited viewers seeing it only

once;

Radio Inexpensive; can target

specific markets;

No visual; may not get

audience attention

Posters, High visual; where Limited info; how effective;


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Billboards customers are; encourage to

buy;

damage

Internet Rel. inexpensive; monitor hits; targeted; easily

changeable

Limited audience; technical problems

Factors in Choosing Advertising Media

Cost – overall cost; cost effectiveness

Reach their Audience – target advertising; reduce “wastage”

Presentation – i.e. TV for visual; print for information

Impact on the viewers – TV or Cinema

Marketing Mix – again targeting consumers

Competitors – what are they doing

Legal restrictions (below)

Controls on Advertising – keep from being misleading

Legislation and regulation: Trades Descriptions Act – avoid false,

misleading info; Office of Communications – regulates TV, radio

ads Competition Commission – investigates anti-competitive

behaviour

Independent Bodies – Advertising Standards Authority:

independent, conform to The CAP Code (British Code of

Advertising, Sales Promotion and Direct Marketing):

o Legal, decent, honest and fair

o Responsible to consumers and society

o In line with principals of fair competition

o Breach of Code, can ask to withdraw ad, or else: a)

publish findings; b) withdraw privileges of membership;

or, c) ask media to refuse to carry future ads

Pressure Groups – community organizations representing their

views

Advertising and Society


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Effects on Society: increases costs; encourages to buy, might

not otherwise; high consumption effects on environment;

encourages things that might damage society

Advertisers’ justification: offers choice; gives consumers

information; respond to, don‟t create, needs in consumers; earn

revenues for the media, reducing costs to consumers; employs

large number of people

Promotion Below the Line – does not depend on Media

Advantages:

Cost usually less

Control the message

Types of Below the Line promotion:

Direct Mailing: Sending information to selected consumers – post

Exhibitions and Trade Fairs: Company sends various staff

(executive, sales, technical), home or abroad; Direct contact with

distributors and consumers: see products, see how they work and

get their reactions

Sales Promotions – special offers to push customers to buy:

coupons; competitions; product endorsements; product

placement (TV & movies); free offers; etc.

Branding

Merchandising – how products are placed in stores: Displays;

point-of-purchase promotion; stores adequately stocked, well-lit,

etc.

Packaging – to be made appealing and convenient: weight &

shape; protect the goods; convenience; design; informative;

environmental


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Personal Selling – company‟s sales people sell by phone, in

meetings, in stores, or door-to-door. Customers given a standard

message and personal attention

Public Relations – communicate with “groups” that publicize info to the customers: “Press conferences” to publicize announcements

and new developments; “Press releases” sent to newspapers, television stations, etc and available on websites


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Distributing the Product – getting it to the right place at the right

time

Channels of Distribution: Direct to consumer; through a retail outlet;

through a wholesaler; using an agent

Physical distribution – how the goods are transported

Retailing: Supermarkets & Hypermarkets; Department Stores;

Multiple shop organizations; Retail co-operatives; Independent

retailers

Direct Marketing – sell directly from company to consumers. Incl:

Retail outlets; Internet; direct mail; personal selling; telephone sales

Choosing the right channel of distribution can depend on:

Type of product: perishables; technically complex goods; tailor

made products; convenience goods; large quantity, low value

goods; data – products not requiring delivery;

Market: Large, disbursed intermediaries; smaller consumers

can buy direct; Segment may dictate; Time periods may

require different action;

Legal restrictions medicines; etc.

Company: larger companies often set up their own distribution

networks

Intermediaries – P. 218, Fig 30.1 shows different combinations

Trends in Retailing and Direct Marketing

New trends and other developments: Shopping Centres; Retail

Parks; Call Centres; Online shopping; Discount chain stores; Variable

hours stores; Diversified products; decline of independents;

reductions in costs; second-hand shops


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What Factors affect pricing decisions?

Objectives: Such as maximize sales, maximize profits

Marketing Mix: Price must fit with the type of product, the way it

is promoted and the places it is being sold

Costs: long-term, cover costs; short-term, some flexibility

Competition …

Consumer expectations – value for money – what‟s it worth

Market Segment

Legal: Taxation; regulation; subsidization

Cost Based pricing: All pricing influenced by costs and profits, but,

with some products / markets, Costs are bigger factor than market

forces

Cost Plus Pricing

Contribution Pricing

Absorption Cost / Full Cost Pricing

Problem of cost based pricing – may not reflect what the market will

bear

Market orientated pricing – based on conditions in the market

Penetration Pricing – pricing low, to “penetrate”, often in mass

markets

Market Skimming – high price for limited time

Consumer Value Pricing – based on the maximum consumers will

pay

Loss Leaders: price at a loss, to bring the consumers in

Psychological Pricing: based on consumers‟ thoughts or feelings

(9.99)


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Price Discrimination: same company, different prices for different

segments – could be time-based – telephone, travel; market

based

Competition based pricing

Going Rate Price – generally in line with Market Leader

Destroyer Pricing – deep price cutting to eliminate competition

Closed bid pricing – larger jobs, bidding

Pricing tactics (plan for attaining a particular goal)

Special Promotion offers

Loss Leaders: Sell a product at a loss to bring in the customers

Discounts on normal prices: timing; regular customers; large

quantities

Introductory offers: Price for first purchase reduced

Pricing strategies (elaborate and systematic plan of action)

New Products

o Lower prices: penetrate existing Markets; launch new

markets

o Skimming or Creaming: High price for limited time

Existing Products

o Price Taking – closely follow leader‟s price increases,

decreases

o Price Leader will be the first to raise, lower

o Destroy competition, capture the market – “aggressive”

pricing

o Price discrimination – different prices to different

consumers

Tutorial


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Case Study Pp 197-198

Accounting: recording, classifying and summarizing business and financial transactions,

and reporting the results to interested parties.

Accounts: reports that give users financial information about a

business

Users-Internal: Management; Owners

Users-External: Legal: Tax Auth, Auditors; Registrar of Companies;

Users-Financial: Bankers; Suppliers; Competitors; Community;

Media; Investors & analysts; Government

Role of Accountants: produce financial accounts; involved with

auditing

2 types of Accounts

Financial Accounts – historical; “true and fair” / financial

accounting standards; independent auditors report on fairness

Management Accounts – future; analyze cost, forecast; budget

Limitations of Accounts:

Don‟t show internal strengths of company (i.e. the quality of staff,

etc)

Don‟t show external factors or economic conditions the company is

facing

Don‟t have information to predict market growth or demand

Sales and other figures may be misleading in times of high inflation

Data can be deliberately changed to give a false impression to users

The balance sheet really only tells about the past not the present

Computerized accounting and financial reporting

Advantages: quick; efficient; capacity; accurate

Disadvantages: cost; technical problems; operator error;

security

Financial Accounts:


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Balance Sheet: funds in the company and how used

Profit and Loss Account: summary of year‟s trading activities

Cash Flow: shows inflows and outflows during trading year

Notes to Accts: detailed analysis; qualitative information

Other: Directors Report; Chairperson‟s statement; Auditor‟s Report


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Companies Need Funds – CAPITAL or REVENUE EXPENDTURES

Remind: Assets = Liabilities + Capital

Capital Structure – how a company is financed (rvw BS)

Choosing the right source of financing: Cost; Use of Funds; Status

and size of company; Financial situation; Gearing: Loans ÷ Equity

Types of Internal Sources: Profits; Working Capital; Sale of Assets

Types of External Sources:

Share Capital: Ownership

o Authorized / Issued – Public (Stock Exchange); Dividends

o Ordinary Shares: riskiest; dividends only when declared

o Preference Shares: not often / Guaranteed dividend,

generally doesn‟t change; in Sale, 1st to get funds back

o Deferred Shares: very seldom / often to starting owners

Loan Capital: Debentures (Bonds; public companies; guaranteed

interest rate; date repaid); Mortgage (smaller companies;

secured)

Short-term sources: Bank Overdraft; Bank Loan; Hire Purchase –

purchase of equipment; Trade Credit; Lease (Finance – with

option to buy; Operating – Rental); Debt Factoring; etc

External sources: Financial Intermediaries (companies that match

Savers and Investors); Stock Market; Banks, etc.

Uses of Funds – Assets: Resources of a company, add value

Asset Structure – the best combination of different assets

Fixed Assets – held over 1 year – considered productive for income

Tangible – can be touched – Land; Plant, Machinery & Equipment

Financial – Investments – generally shares in other companies


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Intangible – Goodwill; Patents, Copyrights, Trademarks; R & D;

Brands

Company Law and the Balance Sheet – P 318

Tutorial:

P 309, Q 3

P 317, Q 2 (a)


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Balance Sheet

Balance Sheet: A snapshot of the company‟s financial position,

shows:

What the owners invested, and that investment‟s current value –

Capital

Everything the company owns – Assets

Everything the company owes – Liabilities

Accounting Equation: Assets = Liabilities + Capital

Fixed Assets – generally held more than 1 year

o Investments

o Tangible Fixed Assets

o Intangible Fixed Assets

Current Assets – Cash or other assets quickly converted to cash

Current Liabilities – amounts owed to be paid in less than 1 year

Net Current Assets / Working Capital

Creditors – amounts due after 1 year

Capital and Reserves – breakdown of value to the owners

o Share Capital – purchase value of shares

o Retained profit – profits not distributed (via Dividends)

Balance Sheets always presented in this form: Standards;

comparability

Sole Trader‟s – no shares; Drawings

Limitations of Balance Sheets:

Lack of details; Intangibles

Current values of Fixed Assets may not be reflected


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Static

Profit & Loss

Profit – what businesses and their stakeholders look for

Remains from Revenue when all business expenses have been paid

What happens to it: pay taxes; distributed to owners; retained

For up to 1 year – Revenue ≥ Costs = Profit; Revenue ≤ Costs =

Loss

Profit and Loss Account:

3 areas: Trading Acct; Profit and Loss Acct; Appropriations Acct

Trading: Sales / Turnover; Cost of Sales; Gross Profit

Sales / Turnover: Ownership, not cash – Realization Concept

(Matching)

Cost of Sales: Standard Calculation – Matches costs to items sold

Gross Profit – amount remaining – GP ÷ Turnover = GP%

Business‟ Profit & Loss: starts with Gross Profit

Less Operating Expenses = Operating Income

Add: Non-operating Income

Add / Subtract: Interest Income / Interest Expense = Net Profit

Appropriations: What happens to the Profit

Dividends may be paid out to owners – leaves the company

Balance remains in the company – adds to owners‟ value in the

company

Public companies: Earnings Per Share = Net Profit after tax ÷ No.

Shares

Calculation: Net Profit Margin = Net Profit ÷ Turnover


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Relation to Balance Sheet:

Sales: Debtors

Cost of Sales: Stocks; Creditors

Other Operating Expenses: Creditors

Retained Profits: Capital


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Working Capital = Current Assets – Current Liabilities

Current assets sometimes called Liquid assets – WC – “Liquidity”

Sometimes called Circulating Capital – important for day-to-day

operations

The Working Capital Lag (Cycle p337)

Sources of Liquidity Problems Solutions

Overtrading Stimulate sales for cash

Invest in too many Fixed Assets Sell off non-vital Fixed Assets

Sale and lease back

Stock-piling Sell off raw materials, even at a

loss

Allowing too much credit Rigorous steps to collect, offer

discounts

Taking too much credit Extend credit with selected suppliers

Overborrowing

Credit Controls

“Late Payment of Commercial Debts Act 1998”

Liquidity Ratios – Measures how quickly a business can pay its

Creditors

Current Ratio or Working Capital Ratio

Current AssetsCurrent Liabilities

Ratio (1.5 : 1)Current Ratio =

Generally, 1.5 : 1 is the minimum preferred

Acid Test Ratio or Quick Ratio


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Current Assets - StocksCurrent Liabilities

Ratio (1 : 1)Acid Test Ratio =

Less than 1 : 1 means a company does not have enough “Quick”

Assets (Cash and Debtors) to cover Current Liabilities

Ratio Analysis – analyze and get meaning from Financial Accounts:

over time; between companies; over time between companies

Can be a Percentage, a Number or a Ratio

4 Types of Ratios: Performance; Liquidity; Gearing; Shareholders

Performance or Profitability Ratios – Focus: Profits

Return on Capital Employed (ROCE) – Earnings on Investment.

How much could the company earn if it used its Capital elsewhere, or

put in the bank? How much extra should it earn for the risk

involved?

Earnings Before Interest and TaxLong Term Capital Used

PercentageROCE = X 100

Long Term Capital = Total Shareholders Funds + Long Term

Liabilities

To increase ROCE: Increase Earnings or Pay down Long Term

Liabilities

Gross Profit Margin – The Profit on Sales

Gross ProfitTurnover or Sales

PercentageGross Profit Margin = X 100

To increase it: Raise Prices or lower Cost of Sales

Net Profit Margin – The Net Profit earned on Sales –

EBITTurnover or Sales

PercentageNet Profit Margin = X 100

To increase it: Have better control of overheads

Activity Ratios – Focus: How well a business uses its resources


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Asset Turnover Ratio – looks at how productive a business‟s

assets are

TurnoverNet Assets

NumberAsset Turnover Ratio =

Net Assets = Fixed Assets + Net Current Assets – Long Term

Liabilities

OR Capital and Reserves

Stock Turnover Ratio – how quickly a business is selling its stock

Cost of SalesClosing Stocks

Closing StocksCost of Sales

# Days

Stock Turnover Ratio =

Stock Turnover Days = X 365

# times

Retailers generally have quicker Stock Turnover than manufacturers

Debt Collection Ratio – Average number of days to collect from

Debtors

DebtorsTurnover

Number of DaysDebt Collection Period = X 365

Increase its Debt collection activities; Tighten or reduce “Terms”

Liquidity Ratios – Focus: how quickly a business can pay its

Creditors

Current Ratio or Working Capital Ratio

Current AssetsCurrent Liabilities

Ratio (1.5 : 1)Current Ratio =

Generally, 1.5 : 1 is the minimum preferred

Acid Test Ratio or Quick Ratio

Current Assets - StocksCurrent Liabilities

Ratio (1 : 1)Acid Test Ratio =

OR


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Less than 1 : 1 means a company does not have enough “Quick”

Assets (Cash and Debtors) to cover Current Liabilities

Gearing Ratios – Looks at how a company has financed itself

Fixed Cost CapitalLong Term Capital

PercentageGearing Ratio = X 100

Fixed Cost Capital = Long Term Liabilities

Long Term Capital = Capital and Reserves + Long Term Liabilities

≤ 50% = Low Geared (more Invested Capital)

≥ 50% = High Geared (more Borrowed Capital)

Interest Cover – Enough earnings to pay Interest Expense

EBITInterest Expense

Number of timesInterest Cover =

An Interest Cover between 1 and 2 is a problem

Shareholder Ratios – Help Investors make decisions

Earnings Per Share (EPS) – a measure (only) of how much is

earned per each Ordinary Share outstanding – has nothing to do

with Dividends

Profit after TaxNumber of Ordinary Shares

AmountEarnings Per Share =

Price Earnings Ratio – used by investors to decide to buy or sell

shares

Share PriceEarnings Per Share

No. of timesPrice/Earnings Ratio =

Share Price rises and falls based on Investors‟ confidence in the

company


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e.g. A P/E Ratio of 12 means Market Price is 12 times higher than

earnings

A rise in P/E Ratio means Investors have greater confidence in

company

Shown on the Profit and Loss Account, at the very bottom

Dividend Per Share – how much Ordinary Shareholders receive per

share

Dividends (Ordinary Shares)Number of Ordinary Shares

AmountDividend Per Share =

To know whether Dividends are really good or not, they must be

compared to the price of the share, to know the “Return on

Investment”

Dividend Yield

Dividend Per ShareShare Price

PercentageDividend Yield = X 100

More difficult to interpret, affected by amount of Dividends paid,

and, changes in the price of the share.

If Dividends increase and Price remains the same, DY goes up

But investors want the share price to go up.

If Share Price goes up and dividends go up by the same percentage, the DY remains

the same.

Which is best???

Return on Equity – Earnings on the Equity (a bit similar to ROCE)

Profit After TaxEquity

PercentageReturn on Equity = X 100

Dividend Cover – based on profits, how many times could a

company‟s


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Profit After TaxDividends (Ordinary Shares)

No. of TimesDividend Cover =

If too high, shareholders: “company should pay more Dividends”

If too low: earnings too low; or, company not retaining enough

profits

Limitations to Ratio Analysis:

Same industries – and size may make a difference

Rising prices – Inflation

Balance Sheet limitations – when significant changes occur

Quantitative analysis only, does not include qualitative info.

Tutorial: P 394, Q 1; P 396, Q 2

P 394, Q 1

£75,400£252,600£154,900£365,900

£32,000£252,600£38,700£365,900

Fish & Chips Gifts & SouvenirGross Profit £75,400 £154,900Net Profit £32,000 £38,700Overheads £43,400 £116,200

29.8%

Gift & Souvenir Gross

Profit Margin =X 100 = 42.3%

Fish and Chips Gross

Profit Margin =X 100 =

Net Profit Margin =Net Profit

X 100

Gift & Souvenir

Net Profit Margin =X 100 = 10.6%

Turnover or SalesFish and Chips Net

Profit Margin =X 100 = 12.7%

P 396, Q 2


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2004 2003 2002 2001Current Assets 10,700 14,700 13,500 12,700Current Liabilities 10,100 16,200 14,500 13,100Current Ratio 1.059 0.907 0.931 0.969Turnover 138,100 141,800 136,200 121,000Debtors 6,400 12,100 11,200 9,800Debt Collection 16.9 31.1 30.0 29.6

P 398, Q 3

GearingFixed Cost Capital 1,500,000 2,000,000Long Term Capital 2,500,000 3,000,000

Interest CoverEBIT 750,000 750,000Interest Expense 90,000 120,000 6.25

60%

8.33

67%

6.00%


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CMA – know how business doing; expanding operations accuracy

essential:

In Business: Accounting Costs – value of resource used up in

operations – an Asset or an Expense (Econ: Opportunity Cost)

Costs in Short Run – at least one FofP is fixed

Long Run:

Fixed Costs – remain the same in the short run

Stepped costs (draw graph)

Variable Costs change as output rises

Semi-variable Costs – not entirely fixed or variable – i.e. Labour;

telephone

Total Costs = Fixed Costs + Variable Costs

Costs in Long Run – all Factors of Production can change

Costs can be classified differently (i.e. Fixed/Variable/etc)

Direct Costs: with the Product or Process

Indirect Costs / Overheads: Running the business as a whole

Average / Marginal Costs – same idea / method as Economics

Prod/Sell/Admin/etc; product/job/contract (however serves

management)

Total Revenue (Quantity sold x Price)

Total Revenue – Total Cost = Profit / (Loss)


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Adjustments in price or costs may impact profits, may be temporary

Quality profits – several/many years

Cost and Profit Centres

Management looks at costs / revenues different ways to make

decisions

Cost Centres: – parts of businesses that incur costs: Product;

Department; Geographical location; employee; etc.

Profit Centres – similar, but where revenues are also recorded

Advantages Disadvantages

Improve accountability

Help in decision making Improve motivation

Trace problems

Internal conflict

Cost allocation Factors outside the

business

Inefficient use of resources Staff Pressure

Contribution

Contribution per Unit = Selling Price – Variable Costs

(Different from Profit, which includes both fixed and variable

costs)

Total Contribution = Contribution per Unit x Quantity Sold

Total Contribution – Fixed Costs = Profit

Contribution is contribution towards fixed costs and profit

A business may use Contribution for:

Decision making (Product A or B, or, accept or reject orders)

Calculating Break Even Point

Pricing

Costing Methods

To provide managers with info for decision making

ABSORPTION Costing (aka FULL, TOTAL) Method for overheads


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Spread or allocate overhead/indirect costs to different cost/profit

centres

Could be allocated based on: Revenue; Direct costs; staff numbers;

floor area; Cost or book value of assets employed; etc. (Problem in

Tutorials)

Standard Costing Method – set up estimates and compare to actual

P 366, Table 52.7 – Simple illustration

Contribution or Marginal Costing – last week

Good for making special order decisions

Relationship between marginal and average costs

Marginal cost cuts AC curve at lowest point

Closing Down Point – where MC = AVC


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Tutorial

P 275, Q 1

P 276, Q 2

P 283, Q 1

P 366, Q2 – Absorption / Full / Total Costing

(a) Suitable basis for apportioning costsRent and electricity - floor spaceAdministrative costs - staff

(b) Apportionment Food Women's Men's Electric Toys Total

Staff 12 8 4 6 6 36

Floor Space 800 600 600 400 200 2600

Direct Costs 400,000 200,000 100,000 200,000 100,000 1,000,000

Allocate CostsRent & Electric 92,308 69,231 69,231 46,154 23,077 300,000

Admin 66,667 46,154 46,154 30,769 15,385 200,000

558,974 315,385 215,385 276,923 138,462 1,500,000

P 368, Q 4

Price £4.00 £3.50Quantity 100,000 20,000

Sales £400,000 £70,000Cost of Sales: Materials & Components £0.70 £70,000 £14,000

Direct Labour £1.60 £160,000 £32,000Other Variable Costs £0.50 £50,000 £10,000

£2.80 £280,000 £56,000(a)(i) Gross Profit / Contribution £120,000 £14,000

Fixed Costs £80,000(a)(ii) Net Profit £40,000

Export Costs £13,000(b) £1,000

(c) (downside) Difficulties and risks of exporting(upside) Potential for developing new business

Q: Are Export Costs fixed costs or variable costs??A: Although not expressed as a cost per unit, the Export Costs are

still variable costs.


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Importance of Cash (discussed in section on Working Capital)

Cash Flow Cycle: Cash Resources Production Sales Cash

Important to Control Cash flow by: records; planning; controls on

credit

Cash Flow Forecast: predicts of what might happen in the future

Pp 322-323 – Sections: Receipts; Payments; Net Cash Flow; Ending

bal‟s

Uses

Identify when there may be cash shortages or surpluses

Supporting applications for credit – banks may request info

Help with planning / starting a new business

Monitor cash flow (at year end)

Reliability depends on accurate, unbiased information

Cash Flow Statement – Table 46.4 (P 326)

It‟s required in published Financial Accounts (with BS and P&L)

Sections: Operating Activities; Returns on Investments and servicing

of finance; Taxation; Investing activities; Financing

Also required: calculation of net cash flows from operations – Table

46.5

Criticism of Cash Flow Statement

Doesn‟t give very much information

Small companies not required to prepare them

Based on historical transactions / future predictions more useful

Differences between cash and profit

Timing of transactions

Purchase of Fixed Assets

Company borrowings


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Owners introduce Capital

Budgets

An agreed plan (different from a Projection); different levels, by

executives, management, supervisors and employees; approved

throughout all levels

Preparation of Budgets

Accurate information: F/S‟s (past); Forecasts (future)

Master / Departments, subsidiaries

Approaches to budgeting

Objectives Budget / Flexible Budget

Capital Budget / Operating Budget

Problems of preparing Budgets

Figures based on prior information, sales levels, etc

Management and coordination of process / Conflict

Time consuming

Sales / Revenue budgets and Production Budgets – explanations,

examples

Zero-based budgeting – budget process that includes justifying with

benefits

(Different from basing on historical costs and forecasts)

Benefits Drawbacks

Helps improve allocation of resources Threat to status quo – motivation

A much more careful approach Difficult – skillful

Creates alternatives Too careful a process – may miss certain opportunities May improve motivation

Budgets – in general Benefits Drawbacks

Helps with control, especially

spending

Competitive emp‟ees –

problems

Sets clear targets, responsibilities Being too inflexible –


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problems

Helps ensure capital is usefully

employed

Too large differences may

hurt effectiveness of budget

process Helps: co-ordination; communication

Variances: differences between budget and actual (also later in course)

Type Favourable (better) Adverse (worse)

Sales / Revenue Higher Lower

Costs / Expenses Lower Higher

Cash Flow Tutorial

P 325, Q 2

Budgets Tutorial

P 326, Q 3

P 333, Q 3


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Break Even Analysis

The point where Total Revenue = Total Costs

Break Even Point = the Quantity of goods needed to sell to break

even

Uses of Break Even Analysis:

How much sales are needed to cover fixed and variable costs

How different levels of output affect profit

How changes in price or costs affect Break Even Point & Profit

Example Data: Price = 100 ; Variable Cost = 40 ; Fixed Costs =

60,000

Calculate BEP using Contribution

Break Even Point = Fixed Costs Contribution

Contribution = 100 – 40 = 60

0 Output

£

TC

TR


Page 48 of 215

Break Even Point = 60,000 60 = 1,000 units

Calculate BEP using Total Revenue and Total Cost

Break Even Point: Total Revenue = Total Costs

Total Revenue = Price x Quantity Sold

Total Cost = Fixed Costs + Variable Costs

Total Revenue = 100 x Q

Total Cost = 60,000 + (40 x Q)

60,000 + (40 x Q) = 100 x Q

1,000 = Q

Margin of Safety – Difference between level of output and Break

Even

Advantage: a good tool for viewing changes (What if‟s): Price; FC;

VC

But it has some limitations (refer to P 289)

Applications of Break-Even Analysis


Page 49 of 215

Example

Facts: Fixed Costs 20,000 p.a.

Variable Costs 75 EachTR = TC

Selling Price 125 Each

First, Calculate Break Even Point

TC = 20,000 + 75Q Now, what if they want to figure price?

TR = 125Q Price = Total cost / Output

20,000 + 75Q = 125Q = (20,0000 + 500x75)) / 500

20,000 = 125Q - 75Q = (20,0000 + 37,500)) / 500

20,000 = 50Q so 400 = Q = 115

Draw Chart (show margin of safety)

Now, assume profit of 15,000 Now, add Profit

FC + Profit Target / Contribution Assume output of 1,000 & profit = 40,000

= 20,000 + 15,000 / 50 Price = (Profit Target + total cost) / Output

= 35,000 / 50 = 700 Quantity = (40,000 + (20,0000 + 1,000x75)) / 1000

= (40,000 + 95,0000) / 1000

= 135

So far:

Calculate BEP using Contribution

Calculate BEP using Total Revenue and Total Cost

Target rate of profit:

(Fixed Costs + Target Profit) ÷ Contribution

Break Even Price:

Total Cost ÷ Output

(Total Cost + Target Profit) ÷ Output

Summary of CMA

Overview of Cost Management Accounting – for Management‟s needs

Financial Accounting mentioned: Cash Flow; Budgets

Funding structure

Ratio Analysis

Different types of costs

Cost and Profit Centres

Contribution Costing; Break even analysis


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Absorption costing; Standard costing; Closing point

Variance Analysis

Budgetary control

Preparing Budget / then comparing Budget to Actual / Variance

Analysis

Adverse / favourable

Profit Variance

Direct Materials Variances: Price (cost) / Usage

Direct Labour Variances: Wage Rate / Labour efficiency

Overheads variances

Sales Margin Variances: Price / Volume

Cash Variance

Tutorial

P 376, Q 1

P 378, Q 3

Tutorial

P 287, Q 2, Q 3


Page 51 of 215

0 Output

£

TC

TR


Page 52 of 215

How a business organization is structured

Formal Organization: Relationships; Control; Authority to make

and carry out decisions; communication

Organization Charts: Positions; Communications; Weaknesses

(draw)

Hierarchy – the order or levels of management

The “Chain of command” – Orders pass down / information passes

up

Span of control – number of “subordinates” under a manager

o (Some say should be between 3 to 6 people – narrow)

o Narrow may be very expensive.

o Wider gives broader control, maybe more satisfaction to

manager.

Responsibility – being required to justify an action

Authority – the ability and or formal permission to carry out a task

o Line authority – manager over subordinates – hierarchy

o Staff authority – manager or department can give advice to

people in other departments

o Functional authority – specialist gives advice to other

departments

Delegation – passing authority and/or responsibility for some

tasks to employees further down the hierarchy:

o Planning; Clear explanation and instructions, explaining

why; Delegated Employee must also have authority and

responsibility; Managers should avoid interfering with

delegated task – provide support and resources; Establish a


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way to oversee at certain points; “Empower” employees

(self-confidence and control)

Centralization and Decentralization – explain, then benefits below

Centralization Decentralization

Sr Mgmt have more control Standardizing – econ of scale

Decisions Pt of view of whole

Sr Mgmt more experienced Crisis – strong leadership

Communication easier / fewer

decision makers

Empowers / motivates workers

Reduce burden on Sr Mgmt

Greater job satisfaction Benefit from “local” knowledge

More flexibility,

responsiveness Prepares subordinates to

move up

Different forms of structure (P 414)

Entrepreneurial Structure

Bureaucratic, pyramid, hierarchical structure

Matrix Structure

Independence Structure

Informal Business Structure – Advice, trust, communications

Factors influencing organizational structure

Size

View of ownership or management

Business objectives

External factors

Changes in technology

The informal business structure

The corporate culture

Recent trend – delayering

Tutorial – Case study, P 417


Page 54 of 215

Financial Rewards: / Methods of Payment

Time Rates: Weekly wages; Monthly salaries; overtime

Annualized hours contracts: compute annual hours, work time

flexible

Piece rates: pay by results, incentive / target

Commissions

Fees – for single (“one-off”) tasks

Fringe Benefits – other things besides wages or salaries.

o Salary may be limited due to contract caps or industry

standards

o Emp‟or may be able to pay less for some Fringe benefits

o Some may avoid National Insurance or Income Tax

Employer Considerations regarding Pay:

Motivate employees

Costs

Prestige

Recruitment and labour turnover

Control

Employee Considerations regarding Pay:

Purchasing power – affording to buy / have what they want

Fairness of pay for work performed

Relativities – pay comparisons between employees

Recognition of their contribution to the company

Composition of compensation package / Salary to fringe benefits

Incentive Schemes


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Individual Output Schemes: Piece Rates; Performance Related Pay

(PRP); Commissions

Collective Output Schemes: Measured daywork – based on overall

daily output; Profit Sharing – for Partners, Managers, etc; Profit

related pay – cash bonuses for employees; Share ownership

Employee Input related schemes: Merit Pay (based on employees‟

behaviour and conduct); Skills-based pay (based on capabilities)

Problems with Incentive Schemes

Operations – poorly run business may interfere with employees

Earnings – schemes may cause costs and earnings to fluctuate

Quality Control – excessive outputs may lead to decreased quality

Changes to keep the system “clean” may cause confusion

High pressure may decrease quality of working time

Worker jealousy

Performance measurement standards

Team incentives / some members work harder

Some question effectiveness of incentives, yet they are still

necessary

Tutorial:

Read and analyze: Case Study, P 434


Page 56 of 215

Management and Leadership

Managers are responsible for getting things done:

Planning;

Organizing;

Commanding;

Co-ordinating; and

Controlling

Leadership – know what direction to take; plan; persuade others to

follow

Qualities of Leadership:

positive self-image;

ability to deeply analyze situations (get to the core) and

recommend solutions;

high level of knowledge;

sense change and respond.

Leaders adopt different styles: Delegating; Participating; Selling;

Telling

Different Leadership styles:

Autocratic – sets goals and delegates tasks – demands obedience. If

members become dissatisfied, don‟t work together well, requiring

much supervision, poor motivation

Paternalistic – similar to Autocratic, except they have a high level of

concern for their subordinates. May decrease dissatisfaction and

supervision, may improve working well together and motivation.


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Democratic – encourage participation in decision-making: The leader

must be persuasive and/or consultative at the same time (to

convince workers to follow his plan). Needs good communication

skills. May be a more effective because: workers can participate in

the process – a sense of freedom; effectively uses collective

knowledge and wisdom of the members; generates greater sense of

commitment and motivation.

Laissez-faire (pronounced Lay say fair) – allows workers to work

freely within broad limits, with few guidelines and directions. Much

more creativity, relaxed atmosphere. Sometimes may result in poor

productivity, lack of motivation.

With the effects of job re-design, delayering, etc, managers are

more team-based leaders. Need to select, coordinate and manage

groups, dealing with all those related issues

Leadership styles are often determined by an individual‟s

personality, and people don‟t often change easily. So companies

should select managers based on the job‟s requirements –

Leadership Matching – either task oriented or relationship oriented

Sometimes different Leadership styles called for in different

situations:

Certain tasks (emergencies);

Skilled / unskilled workforces;

Size;

Personality of the leader;

personalities in the group;

Time constraints

Effective Leading is the most important


Page 58 of 215

Tutorial

P 446, Q 4, a – together

Combination of Democratic and Laissez-faire

Human resources important – effective management – strategic

implications

Soft Side Hard Side

Motivation; Organizational culture; Support for employees;

employee and industrial relations

Assessing needs for staff; predicting future demand and

supply of personnel; predicting

turnover

Factors affecting HRM:

Changes in: goals; consumer market; technology; Legislation;

Finances

Competition for: labour; Customers

Population: Activity; ageing

Corporate culture and structure

Trade Unions

A strategic approach to HRM

integrate into planning & coordinate with other functions

“Corporate Culture” – sees employees as important

Motivation: incentives; involvement

Encourage work flexibility: change jobs, methods, etc

Flexibility in staffing: natural wastage, voluntary redundancy;

early retirement; redeployment

Advantages of strategic approach – long term benefits

More competitive through greater efficiency

May be able to better solve HR problems

Anticipate changes in workforce and needs

Prevent industrial relations problems


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Effects of good Human Resource Management policies:

Reduced Labour turnover: lost productivity; cost of recruiting,

training. HRM should try to identify potential problems

Absenteeism: Lost productivity / output; late order fulfillment;

cost of off-time; low morale.

Labour productivity = output / Number of employees – increased

Turnover per head = sales / Number of employees – reduced

Strong Industrial Relations: less disputes, strikes, grievances

Relations with stakeholders

Profitability – all this will affect profitability

Flexible workforce – many schemes (textbook). May help: increase

worker satisfaction and motivation; allow company to better plan for

changes; decrease overtime and „shift‟ work costs.

Relocation – moving production to different areas or countries

Outsourcing – shifting production to other companies – efficient

Knowledge Management – identifying and using internal knowledge

Unit 63 – HR Dept‟s main function is managing HUMAN RESOURCES

Human Resource Plan: Forecast Emp‟ee demand (w/depts); plan

supply

Analyze: past information, incl. business and management‟s

knowledge; worker productivity; work study (how many staff /

task)

Calculate staff losses

Analyze current employee supply – detailed: age, position, term,

qualifications, performance; determine internal / recruiting

LABOUR TURNOVER INDEX =

NUMBER OF STAFF LEAVING

AVG NO STAFF DURING PERIOD x 100


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Plan internal employee supply: Promotion; Staff development and

training; staff loss and retirement; flexibility (e.g. change work

hours, work teams, multiskilling, etc); legal issues (redundancy /

severance)

Plan external employee supply: availability of workers (incl.

flexible); skills needed available; gov‟t training, subsidies;

workplace competition; population, demographics;

unemployment; housing & public transport; costs; government

legislation


Page 61 of 215

Representation at Work

Types of representation: Trade Unions, Staff associations,

Professional Associations; Employers‟ Organizations

Trade Unions developed over last several hundred years

3 Types: Craft, Industrial, General.

Represent members (workers): salary, benefits, working conditions,

etc.

All Trade unions formally registered; may join Trade Union Congress

Recently, powers decreased, role has changed:

UK passed legislation to reduce their powers; plus: economic,

demographic, memberships, have changed: number of unions,

membership and density.

To retain benefits and power, they: gave up single-union

representation, limited / eliminated strikes, accepted binding

arbitration, etc.

TUC (Trade Union Congress): represents all major unions; more

recently, also has a political and social function

CBI (Confederation of British Industry) – represents businesses:

legislation; legal, financial, economic support and advise

Industrial Democracy, Bargaining, Consultation &

Participation

Business / employee conflicts: pay; conditions; flexible work; etc.

Industrial relations – to resolve these issues without industrial

action.


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Collective Bargaining: Conditions and Terms negotiated by company

and union representatives (for employees).

Employers must allow Employees to join trade unions.

Unions: should be independent of both the company and the state,

and must represent employees in good faith.

All parties must agree to and be bound by negotiated results

Negotiations can be: international, national, local, factory / plant,

individual

Negotiations – a process:

Set Agenda (this is done by both parties; all other steps are taken

by each side separately in preparing for the negotiations)

Gather Information

Set Strategy: objectives; roles; predict response of other side,

planning

Assure Unity

Plan size of group

Plan the stages of negotiation

Plan how decisions will be made

Prepare a statement at the end of negotiations

Rep‟s committing to get their side to accept

Consultations:

Joint Consultation: Management, worker reps; common issues; before negotiations

Pseudo-consultation: management decides, informs employee

reps, no power to influence them (looks negotiated, but really not)

Classical consultation: involve emp‟ee reps; influence mgmt‟s

decisions

Integrative consultation: actually bringing in employees,

discussing matters of common concern, etc


Page 63 of 215

ACAS (Advisory, Conciliation and Arbitration Service): mediates

when consultations & negotiations fail. Other services: Arbitration;

advisory work; Codes of practice; help businesses improve

personnel, mgmt practices

CAC (Central Arbitration Committee): government office; responsible

for union recognition when employees want it, but employers resist

Industrial democracy: Nowadays Employees participate in decisions

in many ways: Work groups; Team-working; own shares of the

company; participate in Employee Work Councils (consult, discuss,

transfer information)

Industrial Democracy depends on: Laws, rules, regulations;

corporate culture; emp‟ee power and/or union representation;

communication, IT; etc.

More employee participation and industrial democracy:

Advantages: increase motivation; new, different or better ideas;

better industrial relations (all sides

take a longer-term view; may make mgmt respond better to

employee needs

Drawbacks: hierarchical businesses may

not adapt well; can increase costs; may

lead to conflict – management may not

want to accept

Industrial Actions (IA)

Industrial Actions can be taken by either side, when conflict not

resolved

Employers: Employees:

Reduce

overtime,

benefits Chg. standards /

piecework rate

Lock-outs; closures of

Unorganized/Unofficial:

Employee responds, often unplanned, the

only way he knows how High turnover; absence; inefficiency or

wasting time; unofficial strikes

Not very effective, but, sometimes can lead to follow up organized / official actions


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factories

Hire other

workers in the situation where

union workers

go on strike

Organized/Official:

“Work to rule” or “Slow go”

Stop working Overtime (ban) Sit-in or work-in

Strike

Industrial action has risk. Factors that may influence success or

failure:

Strength and size of union or business; How well workers and/or

union is organized; Location of workers (very spread out means less

effective); Public support; Actions of management; Laws; Economic

situation

Benefits of IA Problems with IA

Brings grievances out into the open

Management can

better understand employees position

Can help change

rules Management may

adjust company

goals

Employers‟ problems: Lost production / late or lost orders

Lost revenue to pay for idle fixed assets

Future relations – hard feelings Shift mgmt attention away from

planning

Harmful to company‟s reputation

Employees‟ Problems:

Lost earnings

Closure (in the event of a long action) Stress relations w/workforce, motivation

If unsuccessful, may weaken future

positions, lead to losing union members Not w/in law? damages, discipline,

dismissal

Tutorial

P 538, Q 2

P 539, Q 3 – at least 35 minutes (Read the question w/students)


Page 65 of 215

Equal Opportunities – qualified people should have same chance

UK and EU laws protect people from discriminatory hiring practices

Discrimination, often due to stereotypes, can take the following

form:

Group Stereotype

Women Not want to take responsibilities / home; less likely to relocate; women with children / relocation; more

emotional; weak

Minorities Religious holidays; less educated; different (fear)

Disabled Less capable than those without disabilities

Elderly Less adaptable; difficult to learn new technologies

Women at work Ongoing discrimination / statistics Some improvements

Earnings still lower

Industries (construction)

mgmt jobs still dominated by men

Low-paying occupations

generally dominated by w Full-time work% lower for w

Work% lower, w with kids

Flexible work, legislation, chgs in

demographics lead to higher

employment for women Child care (crèche), home work

In general, the „gender gap‟

narrowing in employment and job seeking statistics

Many laws make it illegal to discriminate based on gender, marital status Statistics suggest that Ethnic Minorities are discriminated against – Illegal to discriminate based on colour, race, nationality, ethnic origins

Disabled people – long term problem affects their ability to do day-

to-day activities. Illegal, to treat disabled less favourably unless

justified.

Older people – general protection from discrimination


Page 66 of 215

Businesses that seek employment without discrimination:

Get a better, more qualified and more flexible workforce

Higher motivation if everyone feels they will be considered for

promotion

Protection at work – broad category

Employment Protection: Right to employment contract; freedom

from discrimination; from unfair dismissal for various reasons, with

recourse – Labour Tribunal, detailed procedures.

Health and safety: Clean, sanitary, comfortable working conditions.

Safety equipment, clothing and training. Safe procedures for

dangerous materials. Safety from violence or threats. Legislation:

…written Health & Safety Statement – management required to

follow. Inspections to guarantee. Laws about working time

limitations and time off.

Wages: Wages Act, 1986 – sets rules and conditions for paying

wages and procedures for enforcing those rights.

National Minimum Wage Act, 1998: established curr. minimum

wage rules; reduce poverty, inequality; increase motivation in the

workplace.

Social Chapter (EU): Standardizes work practices throughout the

EU, including: minimum wage, maximum working hours per week,

paid holidays, etc.

Introduced European Works Council (EWC) to negotiate contracts,

set and revise minimum wage.

Contained in the Maastricht Treaty, by EU, signed in 1992. UK joined

in 1997, when current Labour government came to power.

Personnel data: Protect, safeguard and keep confidential / personal

info / electronic and hard data. Company’s Motivation: Increased


Page 67 of 215

emp‟ee motivation; Legislation / consequences; losing employees

can mean costly recruitment, disruption, poor working conditions /

productivity. Some businesses do not adequately protect Pers. Data

– mainly because of cost

Benefits / Advantages Disadvantages

Improve motivation, productivity

Improve industrial relations

Raise costs, restrict flexibility

Reduce EU competitiveness


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Business and Consumer Protection

Undeveloped economy – “caveat emptor” = buyer beware

Now with big businesses, too easy to take advantage of consumers

Consumer Protection Legislation – a series of laws to protect

consumers:

weights and measures

false or misleading descriptions

unsolicited goods

product safety

services

food safety, labeling

Effects of consumer protection laws on business:

costs

quality control

deal with consumer complaints

changes to more market-oriented practices

Monopolies and Mergers – we‟ve looked at the benefits and criticisms

Restrictive Trade Practices can reduce or prevent competition

As a result, the UK has passed various forms of Legislation

Office of Fair Trading – promoting and protecting fair trading

practices

Competition Commission – a promote and protect competition


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The EU – has similar practices

Regulatory bodies – an entire list of offices, commissions, etc to

enforce the fair trading practices in different industries

Private Sector Businesses

Types of business form:

Unincorporated: Sole Trader; Partnerships

Benefits: Lower Costs; Maintain greater control

Incorporated Limited Companies

Private / Public Limited Companies

Benefits: Personal liability protection; Ability to grow; Raise

money

Disadvantage: “Public” – may lose some control

Co-operatives: Consumer; Worker

Building societies, friendly societies (banking/financial services);

Franchises; Charities

Choice of business form based on: control; kind of business; timing /

age of company; financing needs; liability protection

Business Size, Growth and Economies of scale

Defining size: Turnover (Sales); No. of Employees (m≤9; s≤49;

m≤249; ≤l); Capital Invested; Profit; Market Share; Market

Capitalization (share price x stock outstanding)

Reasons to Grow: Survival; Economies of Scale; Future profitability;

Gain market share; Reduce risk

Internal / Organic growth: sell more / do more business


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External Growth: Acquisition; Takeover; Merger

Internal Economies of Scale: Technical efficiency (increased

dimensions; indivisibility; law of multiples – matching (machines,

processes) of different rates to maximize use; Managerial; Financial

(wider range of options); Purchasing and marketing; risk.

External Economies of Scale – savings from industry growth: Labour;

Services; co-operation

Limits to growth: Internal dis-economies of scale; External dis-

economies of scale (Market limitations; funds; geographical)

Still, small firms survive: Personal services; Owners‟ preference;

Flexibility and efficiency; Lower costs; low barriers to entry; can be

monopolists. Unemployment, government schemes, other economic

factors make small firms popular: they: increase flexibility; help

balance (lower) wages, create casual and part-time jobs; etc.

Valuation and manipulation of accounts

Valuations: Sale; takeover; Mergers; Mgmt. buyouts; public

offerings (floatations); loans; etc

Various regulatory standards for preparing accounts

Reasons for manipulating accounts:

Companies increase values: current, future investors; affect stock

price; market position; avoid takeovers.

Companies reduce values: avoid taxes

Methods of manipulation: depreciation; creditors & debtors; stock

valuation; write-offs; profits

Methods of valuation: a guide only; valuation always willing buyer /

seller

Business Stakeholders

Holding a financial interest in the success of the business


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Involvement with the business‟s activity: Owners; Entrepreneurs;

Shareholders (can include Directors, Managers, Employees,

Individuals, Institutions); Managers; Employees; Customers;

Suppliers; Governments; Community. They have an

Interdependence

Conflict can occur when their Objectives are different. Examples are:

Owners and Managers; Owners and Employees; Consumers;

Suppliers; Community

Stakeholder Approach – taking into account the needs, wants,

desires and objectives of all stakeholders.


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The Role of Business Objectives in setting Business Strategy and

Planning

Business Objectives – outcomes, goals, targets that s/b SMART:

Survival (start-up, difficult trading times, takeover threat); Profit;

Growth; Increase Shareholder Value (public companies); Sales

Maximization; Image, Reputation and Social Responsibility –

corporate culture

Managers‟ objectives (budget; department; salary; benefits; status)

The “players” = all the stakeholders

Operations objectives: change focus; product lines, etc

Public sector objectives: change image; improve service levels

Influences on Businesses‟ objectives: Owners; different stakeholders‟

powers; size; status; short- / long-term considerations; internal /

external pressures

Mission statements – Writing out of the aims of the business: focus

all stakeholders; provide a general plan, etc (many feel they are

much the same; may have little effect on the business; more

publicity-oriented)

Strategy and Planning

Identifying Objectives: strategic; tactical; and, operational

Different Business Strategies: functional; business level; corporate;

global

Must suit the Corporate Culture (values) of the organization


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Strategy – a pattern of decisions and actions to achieve objectives

Planning – decide what to do, set objectives, set policies to achieve

them, involves: Analysis; Developing strategies; implementation;

Evaluation

Effective planning and strategy based on: clear Purpose; strategic Vision (creative idea or imagination about the business); strong

Commitment to achieve goals; gearing strategies to customers; achievable timing; enough flexibility to modify details, stay on course; and,

plans must be suitable based on the different department players

Effective Planning, including for Contingencies minimize the effects

of unexpected crisis: legal, financial, production, corporate, image,

etc.

Analysis methods:

SWOT Analysis – Internal: Strengths, Weaknesses; External:

Opportunities, Threats

Pest-G (external factors): Political; Economic; Social; Technological;

Green

5 Forces Model (competitive forces): new competitors; established

firms; buyers; suppliers; substitute products. The stronger the forces

are, the more difficult it is to raise prices and profits.

Industry structure analysis: competitors; suppliers; substitution;

potential entrants.

Competitor analysis: assess rivals to determine strengths,

weaknesses

Also Product Life Cycle and Product Portfolio analyses

Cost and Value analysis (where value added and where value lost)

Developing and implementing strategies, evaluate the results

Strategies to improve Function and Operations (generally one area)


Page 74 of 215

Production: economies of scale, or, streamlining the process

(lean); quality control – Total Quality Management (TQM) groups,

in process

Marketing: research to better meet customers‟ needs; customer

service/ response through better distribution

HR: forecast changes in staffing requirements; motivation;

training

Other: R & D; waste management

Business Level / Generic strategies: Cost Leadership; Differentiation;

Focus (segment, consumer group); New product development;

Market entry and penetration; Market development and domination;

Consolidation (preserve place in market); Diversification (extend

range of products, services); etc.

Corporate strategy: Internal development; Takeovers, mergers &

acquisitions; Collaboration (working with other companies in some

form)

Global: different strategies that can take advantage of the

company‟s unique strengths; can reduce costs.

Implementing strategy: how to organize itself to carry out the

strategy (structure, hierarchy, function, region, product, customers,

etc.); set up control systems to encourage and monitor the activities

(financial, output, leadership, rewards, etc); how to implement the

changes

Evaluating strategy – first set SMART targets, can be Earnings or

Profits; Return on Capital; Volume; or, Costs. Will need comparison

information. May also make use of qualitative information.


Page 75 of 215

Business Ethics

Ethics – motivations based on ideas of what is right and wrong

Business Ethics – how ethics operates in business (i.e. damage

health, environment; product quality; community work, charity;

etc.)

Laws attempt to control – the “letter” / ”spirit” of the law, still room

Impact of Ethical behaviour on the business:

Now, consumers are watching for this more (customers/sales)

HR / Staffing – more able to recruit staff

Employees better respect their company and will work harder

Effects of Ethical behaviour:

Increased costs: expensive supplies; pollution control

Loss of business: may have to turn down jobs

Conflict: shareholders or other stakeholders vs. profits

Business practices may need to change

Relations with suppliers may be tested

Should business act ethically?


Page 76 of 215

Yes: Businesses are part of a society, probably already making

profits, think about effects of their decisions on environment,

community, etc.

No: Free market economists – produce most efficiently; businesses

want profits, naïve to think otherwise.

Not clear whether businesses becoming or looking more ethical.

Major stakeholders often too motivated by profits, greed.

Corporate Responsibility

Companies take into consideration the needs of its stakeholders

Willing to be responsible for and justify its actions.

Ways society encourages companies to be responsible:

Laws enacted and enforced (“letter” / ”spirit”)

o But actions may take place outside boundaries

Business can self-regulate (usually to avoid laws, be more in

control)

Market pressures force responsibility (if public has enough

information to judge; if “activistic” enough to take action; if

willing to pay price)

Pressure groups – activists willing to speak out and take action

Barriers to Corporate Responsibility

Will increase costs, reduce profits

Senior management may have different values and beliefs

Difficult to monitor without information – kept confidential

A company that takes Responsibility may have to change its:

objectives; operating methods; relationships with stakeholders; etc

Social Auditing (different from a financial audit) – looks at

responsibility criteria to see its: ethics; social performance


Page 77 of 215

(measured and checked); salary levels; health and safety standards;

employee motivation; etc.

Benefits of Social Auditing: employees at all levels get better view of

company; identify social strengths, weaknesses; deal with

shareholders, outside parties; pressure groups; etc.

The main weakness in the Corporate Responsibility Approach is that

it may just relate to things on the surface, things that do not relate

to the core business the company operates. In addition, the Social

Audits are performed by the company and look at only those things

the company wants to look at.

Business and the Environment

Costs and Benefits of Business activity

Private Benefits = profits, dividends, etc. Private Costs +

Externalities = Social Costs.

Negative externalities – cost to the rest of society

Environmental costs: Air pollution; water pollution; congestion and

noise; destroying the natural environment; loss of arable land;

desertification; waste disposal

Controlling Environmental costs: Regulation; taxation; Permits;

compensation; government subsidies; road charges; Park and ride

schemes; education; pressure groups; environmental audits.

With environmental awareness growing Businesses may need to:

Change production processes or materials

Change practices, such as how they dispose of waste

Spend more on research and development

Face higher costs

Work more closely with pressure groups

There may be benefits:


Page 78 of 215

Reduced costs: energy efficiency; recycling

Attract customers and others who approve of their practices

Conservation

Business opportunities

Summary:

As environmental awareness grows Businesses may need to: Change

production processes or materials; Change practices, such as how

they dispose of waste; Spend more on research and development;

Face higher costs; Work more closely with pressure groups




Conservation – conserving resources, promoted at all levels

Business opportunities – a competitive environment – entrepreneurs

see opportunities.


Page 79 of 215

Business Ethics

Ethics – motivations based on ideas of what is right and wrong

Business Ethics – how ethics operates in business (i.e. damage

health, environment; product quality; community work, charity;

etc.)

Laws attempt to control – the “letter” / ”spirit” of the law, still room

Impact of Ethical behaviour on the business:

Now, consumers are watching for this more (customers/sales)

HR / Staffing – more able to recruit staff

Employees better respect their company and will work harder

Effects of Ethical behaviour:

Increased costs: expensive supplies; pollution control

Loss of business: may have to turn down jobs

Conflict: shareholders or other stakeholders vs. profits

Business practices may need to change


Page 80 of 215

Relations with suppliers may be tested

Should business act ethically?

Yes: Businesses are part of a society, probably already making

profits, think about effects of their decisions on environment,

community, etc.

No: Free market economists – produce most efficiently; businesses

want profits, naïve to think otherwise.

Not clear whether businesses becoming or looking more ethical.

Major stakeholders often too motivated by profits, greed.

Corporate Responsibility

Companies take into consideration the needs of its stakeholders

Willing to be responsible for and justify its actions.

Ways society encourages companies to be responsible:

Laws enacted and enforced (“letter” / ”spirit”)

o But actions may take place outside boundaries

Business can self-regulate (usually to avoid laws, be more in

control)

Market pressures force responsibility (if public has enough

information to judge; if “activistic” enough to take action; if

willing to pay price)

Pressure groups – activists willing to speak out and take action

Barriers to Corporate Responsibility

Will increase costs, reduce profits

Senior management may have different values and beliefs

Difficult to monitor without information – kept confidential

A company that takes Responsibility may have to change its:

objectives; operating methods; relationships with stakeholders; etc


Page 81 of 215

Social Auditing (different from a financial audit) – looks at

responsibility criteria to see its: ethics; social performance

(measured and checked); salary levels; health and safety standards;

employee motivation; etc.

Benefits of Social Auditing: employees at all levels get better view of

company; identify social strengths, weaknesses; deal with

shareholders, outside parties; pressure groups; etc.

The main weakness in the Corporate Responsibility Approach is that

it may just relate to things on the surface, things that do not relate

to the core business the company operates. In addition, the Social

Audits are performed by the company and look at only those things

the company wants to look at.

Business and the Environment

Costs and Benefits of Business activity

Private Benefits = profits, dividends, etc. Private Costs +

Externalities = Social Costs.

Negative externalities – cost to the rest of society

Environmental costs: Air pollution; water pollution; congestion and

noise; destroying the natural environment; loss of arable land;

desertification; waste disposal

Controlling Environmental costs: Regulation; taxation; Permits;

compensation; government subsidies; road charges; Park and ride

schemes; education; pressure groups; environmental audits.

With environmental awareness growing Businesses may need to:

Change production processes or materials

Change practices, such as how they dispose of waste


Page 82 of 215

Spend more on research and development

Face higher costs

Work more closely with pressure groups




Conservation

Business opportunities

Summary:

As environmental awareness grows Businesses may need to: Change

production processes or materials; Change practices, such as how

they dispose of waste; Spend more on research and development;

Face higher costs; Work more closely with pressure groups




Conservation – conserving resources, promoted at all levels

Business opportunities – a competitive environment – entrepreneurs

see opportunities.


Page 83 of 215

SLIDES

Slide 1

Business Stream

Introduction to Courses

•Business Studies

Slide 2 Supplies

Be prepared!

A4 Notebooks

Pencils / Pens

Ring binders with dividers

Hole punch

Ruler

Calculator

Stapler


Page 84 of 215

Slide 3 Business Vocabulary

Constantly learning new words

Responsible for:

• Spelling

• Pronunciation

• Form

• Definition / explanation

• Usage

Must keep and update a business vocabulary

Slide 4 Sample Business Vocabulary

sole trader noun /soʊl/ /treɪdər/

A business started and run by one person

Bill Gates started his business as a sole trader.

Now it is a multi-national corporation.

Slide 5 Conducting of Courses

Lectures / Tutorials

Take notes – always have notebooks

Class participation

– asking questions

– answering questions

Homework – collected and marked

Regular testing


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Slide 6 Other Rules of Class

Be here, be on time!

Handle personal matters before / after class

No talking, unless instructed

Ask teacher about what you don’t understand

No word finders (ask teacher)

No mobile phones

Assigned seating …

Slide 7 Assessment

Assignments (2) 10% each 20%

Term 1 End of Semester Exams 10%

Final Exam 70%

Total 100%

Slide 8 Predicted Grades

For university selection and applications

Based on:

Term 1 Assignment

Results of Term 1 regular tests

Term 1 End of Semester Exam results

Homework

Class participation


Page 86 of 215

Slide 9 Predicted Grades

Method of calculation:

Term 1 Assignment 10%

Term 1 EOS Exam 10%

Total 100%

Homework

Term 1 regular tests

Class participation

20%

80%

Increase… ?

These next 15 weeks the most important weeks of your life

– your performance will determine your future!

Slide 10

Business Studies

Introduction to course

Slide 11 Start a Small Business

What functions does the owner perform?

• Purchasing

• Production

• Selling

• Promotion

• Hiring workers

• Financial

• Administration


Page 87 of 215

Slide 12 Organized in an informal diagram

Purchasing

Production

Selling

Promotion

Hiring

Financial

Administration

Owner

The owner is responsible for everything!

Slide 13 As the Small Business Grows…

• More tasks performed by employees

• Take direction from owner

• Report to owner

• Communication with other employees:

– provide information

– work together with

• A more formalized diagram more clearly

shows how members of an organization work

together

Slide 14 An Organization Chart

for a Sole Trader

Owner

Purchasing Sales Promotion Hiring Financial Administration

As the business grows and develops, operations and

communications become even more formalized.


Page 88 of 215

Slide 15 Organization Chart

Purchasing Sales Promotion HR FinancialProduction

Advertising

Owner

AdministrationManufacturing Marketing

Slide 16 Topics to be covered

Term 1

• Marketing

• Accounting and Finance

Term 2

• People and Organizations

• Business and the Legal Environment

• Basics of Business Management

Slide 17

Introduction to Marketing


Page 89 of 215

Slide 18

Marketing: The

management process used to

identify, anticipate and satisfy

consumer requirements

profitably.

Slide 19 Marketing: The management

process used to identify,

anticipate and satisfy consumer

requirements profitably.

management: the skill of

controlling or directing





process: a series of steps or

actions towards an end, a goal


Page 90 of 215





identify: to recognize or know





anticipate: to expect or to

realize before someone else does





satisfy: to fulfill a desire, a want

or a need


Page 91 of 215





consumers: people who use

products or services





requirements: a need, want or

desire

Slide 26 Basic Marketing Concepts

Product orientation

Market orientation

Both can be successful, but more difficult with

product orientation alone


Page 92 of 215

Slide 27 Basic Marketing Concepts

Consumers

An ongoing process

“Relationship marketing”

Business philosophy

Affects entire company

Not just selling

Not just advertising

Asset-based / Asset-led marketing

Slide 28 Concept of Real Disposable

IncomeConsumers income – taxes + government

benefits

A rise in real disposable income causes:

• Increase in demand for G & S

• Increase in economic growth

• Changes in tastes and fashions

• New technologies

• Increases in competition

Slide 29 Overview of Marketing Studies

• Introduction

• Market Analysis

• Segmentation and positioning

• Market research

• Marketing objectives and strategies

• The “Marketing Mix”


Page 93 of 215

Slide 30

Market Analysis

Slide 31 Market Classification

Characteristics:

• Geographical

• Goods

• Industry

• Size

Measured by value or volume

Problems with measuring size

– Mass / Niche

Slide 32 Market share / market

penetrationProportion of market held by a company

Important in judging:

– Size

– Growth


Page 94 of 215

Slide 33 Market Growth

Affected by changes in the following:

• Economics

• Social

• Technological

• Demographics

• Legislation

Slide 34 Reasons for Growth

• Economies of scale

• Gain market share

• Increase future profits

• Reduce risk

• Survival

Slide 35 Economies of scale

Internal

• Technical

• Management

• Financial

• Purchasing

• Reduce risk through diversification


Page 95 of 215

Slide 36 Economies of scale

External

• Labour availability

• Outside services

• Cooperation

Slide 37 Methods of company growth

Internal

• Organic

• Innovation

External

• Merger

• Acquisition

Limits to growth – diseconomies of scale

Slide 38 Reasons small firms still survive

• Personalized service

• Flexibility

• Efficiency

• Lower costs

• Easier to start up (low barriers)

• Owners prefer to stay small


Page 96 of 215

Slide 39

Company

(Operating System)

2001 Sales 2001 Sales Sales

GrowthUnits Mkt.

Share

Units Mkt.

Share

Palm (Palm) 5,056 38.6 5,588 50.4 -9.5

Handspring (Palm) 1,648 12.6 1,369 12.4 20.4

Compaq (Microsoft) 1,283 9.8 466 4.2 175.4

Hewlett-Packard (Microsoft) 711 5.4 442 4.0 60.9

Casio (Microsoft) 529 4.0 440 4.0 20.4

Others 3,884 29.6 2,777 25.1 39.9

Total Market 13,111 100.0 11,083 100.0 18.3

Slide 40

Business Studies

2nd Term

Slide 41

Topics to be covered


Page 97 of 215

Slide 42 People and Organizations

• Organizational structure and design

• Motivation

• Leadership and management styles

• Personnel management and HRM

• Labour and management relations

Slide 43 Business & the Legal Environment

• Equal Opportunities

• Protection at work

• The National Minimum Wage

• The Social Chapter

• Consumer Protection

• Contract Law

Slide 44 Fundamentals of Management

• Business Strategies

• Business Objectives


Page 98 of 215

Slide 45

Assessments

Slide 46 Assessments

Completed Business Plan 10%

Final Exam 70%

Slide 47

Marketing

An Overview


Page 99 of 215

Slide 48

Review definition: The management

process used to identify, anticipate and

satisfy consumer requirements

profitably.

Marketing

Slide 49

Topics covered thus far:

•Introduction to Marketing

•Market Analysis

•Market Research

•Segmentation•Market Positioning

•Marketing Objectives and Strategy

Marketing

Slide 50 Marketing

Getting the right product at the right price

to the right place at the right time.


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Slide 51

The Marketing Mix

An Overall Marketing Strategy

Slide 52 The Marketing Mix

Product•Meet Consumers’ Needs

•Meet Company’s Needs

•Use

•Physical Presentation

•Financial

•Revenues & Costs

•Life Cycle

•Uniqueness

•Market Position


Price•Consider Market Position

•Maximize Sales (Low)

•Maximize Profits (High)


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Place•How Transported

•Where Sold

•How Sold


Promotion•Promotion Strategy

•Advertising

•Sales Promotions

•Public Relations


PromotionPlace

ProductPrice

Target

Market


Page 102 of 215

Slide 57


Product•Brand Name

•Function

•Quality

•Style

•Packaging

•Accessories

•Repairs & Service

•Warranty


Price•Pricing Strategy

•Discounts

•Seasonal Prices

•Price Discrimination


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Place•Distribution Channels

•Market Coverage

•Distribution Centers

•Order Processing

•Transportation


Promotion•Promotion Strategy

•Advertising

•Sales Promotions

•Public Relations

Slide 62

Product


Page 104 of 215

Slide 63

The Product Life Cycle

Slide 64 The Product Life Cycle

0

Mo

ne

y

Time

Intr

od

uctio

n

De

ve

lop

me

nt

Gro

wth

Ma

turi

ty &

S

atu

ratio

n

De

clin

e

Slide 65 Development Stage

•Design

•Testing

•Decision to proceed

•Large amount of money spent

•No revenues in (no sales yet)


Page 105 of 215

Slide 66 Introduction Stage

•Begin Selling

•Often slow, but may be fast

•So, a little money in

•Large amount of promotion

•So still large amount of money out

Slide 67 Growth Stage

•Product now accepted by consumers

•Sales grow at a fast rate

•So, money in begins to increase

•If new product, competition may enter market

Slide 68 Maturity & Saturation Stage

•Sales rate begins to level off

•Promotion costs reduced

•Saturation – placed well throughout market


Page 106 of 215

Slide 69 Decline Stage

•Sales begin to decline

•May be due to:

•Change in Customer tastes

•New technology

•Decision may be made to kill the product, or …

Slide 70 Extension Strategies

Ways to extend the product’s life cycle

•New uses

•New markets

•Wider product range

•Target markets

•Change appearance

•Encourage consumer to use more often

•Change ingredients or components


0

Money

Time

Intr

od

uctio

n

De

ve

lop

me

nt

Gro

wth

Ma

turi

ty &

S

atu

ratio

n

De

clin

e


Page 107 of 215


Stage Capacity Cash Flow

Development No Effect Negative – cash out only

Introduction/Launch

May have spare capacity (limited sales), or,

May “borrow” from existing capacity (other products)

Sales begin, so some inflowStill overall negative due to

prior development, and, promotion costs

Growth Production expands, use up spare capacity

Cash Flow moves to positiveCash from sales starts

exceeding prior cash expenditures

Maturity May operate at full capacityMay need to expand

capacity

Cash Flow at highestSales at highest, marketing and

advertising may decline

Decline Sales and production are going down, capacity may not be fully utilized

Sales will fall, Cash flow will fall


Useful for:

•Showing trends in product revenue •Planning when to launch new products•Planning when to introduce extension strategies

•Planning cash flows•Identifying when to stop selling a product

•Showing expected profitability at different stages•Planning different marketing strategies•Managing PRODUCT MIX and PRODUCT

PORTFOLIO

Slide 74 The Boston Matrix

Market Growth

Market

Share

High Low

High

Low

Star

DogProblem

Child

Cash

Cow


Page 108 of 215

Slide 75

Branding

Recognition by consumers

Slide 76 Reasons to establish Brand

• Customer loyalty

• Product differentiation

• Recognition

• Image

• Pricing flexibility

• Brand Equity

Slide 77 Developing a Brand

• Name or symbol (logo)

• Protection (trademark, copyright)

• Unique Selling Point (USP)

• First out

• Market positioning awareness


Page 109 of 215

Slide 78 Types of Brands

• Manufacturer’s Brand

• Own Label Brand

Slide 79 Branding Strategies

• Individual Branding

• Family or Corporate Branding

• Combination Branding

• Brand extensions

Slide 80 Problems with Branding

• Expensive

• Time consuming

• May not be suitable for some products / markets


Page 110 of 215

Slide 81

Promotion

To GET and KEEP customers

Slide 82 Purposes of Promotion

• Create / increase customer awareness

• Reach a target market

• Reminding

• Product differentiation

• Image

• Reassurance

Slide 83 Types of Promotion

• Above the Line

• Below the Line

Uses independent commercial media to

reach consumers


Page 111 of 215

Slide 84 Promotion: Above the Line

Types of advertising

• Informative

• Persuasive

• Reassuring

• Corporate advertising

– Responsible members of society

– Branding

Slide 85 Promotion: Above the Line

Medium Advantages Disadvantages

Television Mass market; Attention; Demonstrate Products

Expensive; short lived; not for technical info

Newspapers, Magazines

Mass or Target markets;

Big or small businesses; National, regional, local

No motion, sound; Black

& White; ads can get lost; long time to publication

Cinema Strong impact; target specif ic consumers

Limited: viewers see it only once

Radio Inexpensive; target specif ic markets

No visuals; may not get attention

Posters, Billboards

Target location; visual;

encourage to buy;

Limited info,

effectiveness; damage environment

Internet Inexpensive; monitor

hits; targeted; easy to change

Limited audience; technical problems

Slide 86

Factors in choosing media:

• Cost: overall; effectiveness

• Target advertising

• Presentation

• Impact

• Marketing Mix

• Competition

• Legal restrictions / controls

Promotion: Above the Line


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Slide 87

Limit misleading advertising

• Legislation and regulation

• Independent bodies

• Pressure groups

Controls on Advertising

Slide 88


Legislation and regulation:

• Trades Descriptions Act – avoid false, misleading

• Office of Communications – regulates TV, radio ads

• Competition Commission – investigates anti-

competitive behaviour


Slide 89


Independent bodies:

• Advertising Standards Authority – independent self-governing body

• The CAP Code (British Code of Advertising, Sales

Promotion and Direct Marketing)



Page 113 of 215

Slide 90

• Legal, decent, honest and fair

• Responsible to consumers and society

• In line with principals of fair competition

The CAP Code

Slide 91

Breach of CAP Code – ask company to withdraw ad

If not, can:

a) Publish findings

b) Withdraw privileges of membership

c) Pressure media to refuse future ads

The CAP Code

Slide 92

Effects on Society:

• Increases Costs

• Encourages spending

• Consumption effects on environment

• Encourages behaviour that may damage

society

Advertising: Social aspect


Page 114 of 215

Slide 93

Advertisers’ Justifications:

• Offers choice

• Gives consumers information

• Respond to, don’t create, consumers’ needs

• Revenues reduce cost of media

• Employs large number of people

Advertising: Social aspect

Slide 94 Promotion: Below the Line

Advantages:

• Lower costs

• Control the message

Slide 95 Below the Line Promotion – Types

• Direct mailing

• Exhibitions and Trade Fairs

• Sales Promotion

• Branding

• In-store Merchandising

• Packaging

• Personal Selling

• Public Relations


Page 115 of 215

Slide 96

Slide 97

Place (Distribution)

The right place at the right time

Slide 98 Place (Distribution)

Channels of Distribution

• Retail

• Direct to customer

• Wholesaler

• Agent

Physical Distribution

• How goods are transported


Page 116 of 215

Slide 99 Retail

• Supermarkets & Hypermarkets

• Department Stores

• Multiple shop organizations

• Retail co-operatives

• Independent retailers

Slide 100 Direct Marketing

• Retail Outlets

• Internet

• Direct mail

• Personal selling

• Telephone sales

Slide 101 Choosing right Distribution

• Type of Product

• Market

• Legal restrictions

• Company


Page 117 of 215

Slide 102 Channels of Distribution

Slide 103

Price

Slide 104 Price

Factors affecting pricing decisions

•Marketing Objectives: maximize sales,

maximize profits, etc.

•Marketing Mix: product, promotion, place

•Costs: long-term, cover costs; short-term,

some flexibility

•Competition

•Consumer expectations

•Market Segment

•Legal


Page 118 of 215

Slide 105 Pricing Methods

•Market Orientated Pricing

•Competition Based Pricing

•Cost Based Pricing

Slide 106 Market Orientated Pricing

Name Based on

•Penetration Pricing

•Market Skimming

•Loss Leader

•Psychological Pricing

•Price Discrimination

Based on Market conditions

Pricing low to penetrate

(mass market)

High price, limited time

(new product)

Losing money (bring

customers in)

Consumer thoughts,

feelings (e.g. £ 9.99) Different segments

Slide 107 Competition Based Pricing

Name Based on

•Going Rate Pricing

•Destroyer Pricing

•Closed Bid Pricing

When selling in a highly competitive market

About the same as

Market Leader

Very low, to eliminate

competition

Very large projects


Page 119 of 215

Slide 108 Cost Based Pricing

Name Based on

•Cost Plus

•Contribution

•Absorption / Full Cost

With some products and services, Costs are a

bigger factor than market forces

Disadvantage:

May not consider the price the Market will accept

Costs plus a specific %

Variable costs plus

some amount

Covering all direct and

indirect costs

Slide 109 How businesses use Price

Pricing Tactics

Short-term actions to achieve

some specific marketing goal

Pricing Strategies

Longer-term actions


Pricing Tactics

Special Promotion Offers

Loss Leaders

Introductory Offers

Discounts


Page 120 of 215


Pricing Strategies

New Products

Existing Products

Skimming / Creaming

Lower pricing

Price Taking

Price Leader

Destroyer Pricing

Price Discriminating

Slide 112

Accounting

Slide 113 Accounting

−Record

−Classify

−Summarize

business and

f inancial

transactions

and report

the results

to interested

users.

“Accounts”

…the name

for f inancial

reports

Users

Internal – management, owners

External – Registrar of Corporations,

auditors, tax authority, legal

Financial – Bankers, suppliers, competitors,

community, media, investors &

analysts, Government


Page 121 of 215

Slide 114

The Role of Accountants

•To produce Accounts

•Involved in Audits

–Audits = reviews of Accounts

Slide 115

Types of Accounts

Management Accounts:

Financial Accounts

For “internal” users to:

•Analyze costs

•Prepare Budgets & Forecasts

•Predict future situations

For “external” users

•Based on historical (past) information

•Prepared according to f inancial

accounting standards

•Auditors review them and report whether

they are “true and fair”

Slide 116 Limitation of Accounts

• Quantitative information only, no qualitative information

• No information about outside f inancial situation

• No information to help predict market situation

• No information about outside economic situation

Additional limitations to be discussed when we

discuss each of the two f inancial accounts


Page 122 of 215

Slide 117 Computers and Accounting

• Most (All) companies

• Advantages:

– Quick and ef f icient

– Can handle large volumes

– Accurate

• Disadvantages:

– Cost

– Technical problems

– Operator error

– Security

Slide 118

Finance

The Need for Funds

Slide 119 Types of Expenditures (Spending)

• Capital Expenditures:

• Revenue Expenditures:

Investments such as land,

buildings, machines, other companies, etc. (appear on the Balance Sheet)

To produce income, such

as advertising campaign, stock for resale, production staffs, etc. (appear on the

Profit and Loss Account)


Page 123 of 215

Slide 120 Financing

How a company finances itself

(gets the money it needs) to:

–begin operations; or,

–grow in size

Slide 121 Sources of funds

• Profits

• Working Capital

• Sale of assets

• Share capital – ownership

• Loan capital

– Long term sources

– Short term sources

Internal:

External:

Slide 122 Capital Structure

The combination of:

–Share capital

–Loan capital


Page 124 of 215

Slide 123 Choosing the right Capital Structure

• Cost

• Use of funds

• Image (status)

• Company size

• Financial situation

• “Gearing” – the combination of

Capital and Loans

Companies consider:

Slide 124 Share Capital

Selling shares of stock

Advantages:

• Money never paid back

• Dividends (payments to shareholders)

optional

Slide 125 Share Capital

Selling shares of stock

Limitations / disadvantages:

• Many more owners

• Only large companies can do

• Very costly

• Rules and restriction


Page 125 of 215

Slide 126 Loan Capital

Borrow the money

Advantages:

• No change in ownership

• Any size company

• Not very costly

• Few rules or procedures

Slide 127 Loan Capital

Borrow the money

Limitations / disadvantages:

• Funds must be repaid

• Interest must be paid

Slide 128 Short Term Loan Capital

• Bank Overdraft

• Bank Loan

• Hire Purchase – equipment

• Trade Credit

• Lease

– Financing – like buying

– Operating – just renting

• Debt Factoring


Page 126 of 215

Slide 129 Long Term Loan Capital

• Debentures (only public companies) *

– Bonds – public invests (like shares)

• Mortgages (all companies) *

– For purchase of a fixed asset

– Secured by that asset

* Fixed interest rate, guaranteed repayment date

Slide 130 Uses of funds – Assets

• Land

• Buildings

• Machinery

• Equipment

“Tangible” (can be touched)


• Investments

(mostly shares

in other

companies

“Financial”


Page 127 of 215


• Patents

• Copyrights

• Trademarks

• Branding

• Research and

development

“Intangible” (cannot be

touched)

Slide 133

Financial Accounts

Slide 134 Financial Accounts

Prof it and Loss Account

Balance Sheet

Summary of yearly trading and operations

Financial position of the company

How company has built itself up

How its funds have been used

Where its funds have come from


Page 128 of 215

Slide 135 Other Reports

• Cash Flow Statement

• Notes to Accounts:

– Details

– Some qualitative information about Accounts

• Directors’ Report

• Chairman’s Statement

• Auditor’s Report

Slide 136 Profit and Loss Account

• Reports a company’s trading (business

operations) activities

• Over a period of time (usually 1 year)

• Shows:

– Sales

– Selling and Operating Costs

– Profits paid out to owners

– Amount kept in the business for growth

Slide 137 Profit and Loss Account

For the year ended 31 Dec 20xx

£millions

Turnover (sales revenue) 500

Less: Cost of sales -200

Gross profit 300

Less: Other costs -100

Trading / operating profit 200

To shareholders (dividends) -75

Retained profit 125

Always presented for some period of time, usually 1 year.Trading – sales of goods

and services over the year.How much spent to produce the goods and services sold.Profit earned from trading activities. Shows efficiency in production or buying.Other costs to run the business. Shows how well the company is managed.Business profit after all costs and expenses.Amount paid out to shareholders each year as their share of profits.Amount retained in the

business to build financial strength and to pay for growth.


Page 129 of 215

Slide 138 Balance Sheet

As of 31 Dec 20xx

£millions

Fixed assets 200Current Assets - stock 40

- debtors 50- cash 20

Total current assets 110Less: current liabilities -40Net current assets 70NET ASSETS 270

Share capital 100Retained prof it 170CAPITAL EMPLOYED 270

Always presented as of

some date, usually the last day of year.Investments held for over 1 year, such as buildings, machines & equipment, other companies, etc.

Assets the company expects to use within the year.

Amounts that must be paid within 1 year.

Assets: Everything the

company owns.

Liabilities: amounts the company owes to others.

Current assets minus Current liabilities, also called Working capital. Shows if a company can

pay its current amounts when they come due.

Assets minus Liabilities.

On the Balance Sheet CAPITAL means the amount belonging to the owners.Original purchase of the

company shares.Profits left in the company for growth.

NET ASSETS and CAPITAL EMPLOYED must always be equal (they must always balance). Thus the name Balance Sheet.

Slide 139

Working Capital

Slide 140 Working Capital

Current Assets

– Current Liabilities

Working Capital

• Current Assets Liquid Assets

• Working Capital Measures Liquidity

• Working Capital Circulating Capital

• WC Important for day-to-day operations


Page 130 of 215

Slide 141 Working Capital

A company cannot be without it.

So, too little is bad!

But, too much is not good!

The company should be putting its valuable

resources to work!!

Slide 142 The Working Capital Cycle

Pay

Suppliers

Goods

Produced

(Labour, etc.)

Goods

Sold

(Debtors)

Customer

Pays

Slide 143 Working Capital Lag

Liquidity Problems Solutions

•Overtrading

•Too many Fixed Assets

•Sale and lease back

•Sell non-vital Fixed Assets

•Sell off raw materials, even

if at a loss

•Stock-piling

•Strong measures to collect,

allow cash discounts

•Allowing too much credit

•Extend credit with some

suppliers

•Taking too much credit

•Encourage cash sales

•Over-borrowing


Page 131 of 215

Slide 144 Other Measures

• Internal credit controls

• “Late Payment of Commercial

Debts Act 1988”

Slide 145 Ratios

• Business has certain expected standards

• Not absolutes, not rules, just measures

• Used to analyze businesses

• More specific details soon

Liquidity Ratios

Measure how well businesses can pay creditors

Slide 146 Current Ratio

or

Working Capital Ratio

Current Assets

Current Liabilities

1.5 : 1 = Generally the minimum preferred

2 : 1 = Strong.

Any more, and a company should consider if

their resources could be put to better use.


Page 132 of 215

Slide 147 Acid Test Ratio

or

Quick Ratio

Current Assets – Stock

Current Liabilities

Less than 1 : 1 = the company doesn’t have

enough “Quick” assets (Cash and Debtors) to cover Current Liabilities

Slide 148 Liquidity Ratios

Current Assets - stock 8,490- debtors 10,222- cash 4,409

Total current assets 23,121Less: current liabilities -7,783Net current assets 15,338

Sample calculations

and analysis:

This company seems to have very strong liquidity

Current Ratio =23,121

7,783= 2.97 : 1

Quick Ratio =14,631

7,783= 1.88 : 1

Slide 149

Cost & Management

Accounting (CMA)


Page 133 of 215

Slide 150 Cost & Management Accounting

• Know how a business is doing

• Decision making

• Need accurate accounting information

Slide 151 Costs

• Accounting Costs

– Value of resources used up in operations

– For Assets or Expenses

• Economic Costs

– Includes Opportunity Cost

– Opportunity Cost not considered in Accounting

Slide 152 Cost Classification

• Behaviour

• Function

• Other


Page 134 of 215

Slide 153 Cost Classification – Behaviour

• Fixed Costs

– Do not change as output rises

– Examples: rent; power; management

• Step Costs

– Fixed Costs that change

• Variable Costs

– Change (vary) directly with changes in output

– Examples: materials; production supplies; labour

• Semi-variable

– Variable costs that have fixed elements

Slide 154 Cost Classification – Function

• Direct Costs

– Costs directly involved with the production or

process

– Examples: material; labour; production supplies; supervisors

• Indirect Costs / Overhead Costs

– Costs of running the business, not directly involved with the production or process

– Examples: management; administration

Slide 155 Cost Classification – Other

• Average Cost

– Cost per unit (Total Cost divide by Units)

• Marginal Cost

– Additional cost of producing the next unit


Page 135 of 215

Slide 156 Cost Classification – Other

• Production

• Selling

• Administration

Slide 157 “Quality” Profits

• Add to business vocabulary

• Profits over a long period – several years

Slide 158 Management Accounting

• Accounting for Management Purpose

• Used to assist in decision making

• Analyzes costs and revenues in many

different ways


Page 136 of 215

Slide 159 Costing Centres

• A way of collecting or accumulating costs

• A method of:

– Managing Cost

– Assigning responsibility

– Evaluating performance

• Different departments or areas of a business:

– Cost Centres

– Profit Centres

Slide 160

Slide 161 Cost Centres

• Costs are collected based on:

– Different Departments

– Different geographical locations

– Employees

– Etc.

• Information can be used for budgets,

controlling costs, etc.


Page 137 of 215

Slide 162 Profit Centres

• Very similar to Cost Centres

• Each Centre also has sales

• In the end, profit or loss can be measured

in each Centre

Slide 163 Cost & Profit Centre

Analysis

Advantages:

• Helps in decision-making

• Improves motivation

• Makes departments act more responsibly

• Helps in finding problems

Slide 164 Cost & Profit Centre

Analysis

Disadvantages:

• Company-wide costs may be allocated

unfairly

• May create internal conflicts

• May increase pressure / stress among

employees

• Inefficient use of resources


Page 138 of 215

Slide 165

Costing Methods

Different ways of looking at costs

Provides managers with

information for decision-making

Slide 166 Costing Methods

• Product Costing – by the product

– Useful for manufacturing

• Job Costing – by the job

– Useful for services

• Contract Costing – by the contract

– Useful for construction

Slide 167 Contribution Costing

Also called Marginal Costing

Shows if a Product or Order contributes

toward Fixed Costs and Profits, and if

so, how much


Page 139 of 215


Uses:

• Calculating Prices

• Calculating Break Even Point

• Decision-making

– Should company produce Product A, B or C

– Accept or reject orders


Calculations available:

• Contribution per unit

CPU = P – VC

Different from profit

• Total Contribution

- CPU x Q (Quantity Sold)

• Total Profit

– Total Contribution – FC

Slide 170 Standard Costing

An estimated Cost per Unit

Very detailed analysis of production costs


Page 140 of 215

Slide 171 Absorption Costing Method

Also called Full Costing or Total Costing

Begins with Standard Cost

Adds in non-production Overheads

Non-production Overheads then re-

allocated to production departments

based on different assumptions

Slide 172

Break Even

Total Revenue = Total Cost

TR = TC

Slide 173 Break Even Analysis

Helps Users to know:

• How much sales needed to cover our costs

• How different output levels affect profit

• How changes in price or costs affect:

– Break Even Point

– Profit

Break Even Point (BEP): the quantity of goods

sold needed to break even


Page 141 of 215


Key Break Even calculations (already reviewed)

• Calculate BEP using Contribution Costing

BEP = FC CPU

• Calculate BEP using TR and TC

P x Q = FC + (VC x Q) OR

P x BEP = FC + (VC x BEP)


Key Break Even calculations:

• Calculate the Output needed to meet a Target Profit

Target Output = (FC + Target Profit) CPU

• Calculate Price using Break Even

Break Even Price = TC Output

BE Price + Target Profit = (TC + Target Profit) Output

Slide 176 Break Even Diagram

0 Output

£

TC

TRBreak Even Point


Page 142 of 215

Slide 177 Break Even Diagram

0 Output

£

TC

TRBreak Even Point

OutputLevel

Margin of

Safety

Slide 178

Cash Flow & Budgets

Slide 179 Cash Flow

• Cash Flow Statement

• Cash Flow Forecast


Page 143 of 215

Slide 180 Cash Flow

Different from Profit

• Timing of transactions

• Fixed Assets

• Company borrowings

• Owners’ Capital

Slide 181 Cash Flow Statement

Uses

• Identify cash shortages or surpluses

• Support applications for credit

• Monitor cash flow (at year end)

Required with Financial Accounts


Sections

• Operating activities

• Returns on Investments and servicing of

finance

• Taxation

• Investing activities

• Financing


Page 144 of 215


Also required:

• Statement calculating net cash flows from

operations


Criticisms

• Doesn’t give very much information

• Not required for small companies

• Based on historical transactions

• Future predictions would be more useful

Slide 185 Cash Flow Forecast

Uses

• Help with planning or starting a new

business

• Identify cash shortages or surpluses

• Support applications for credit

• Monitor cash flow


Page 145 of 215

Slide 186

Budgets

Slide 187 Budgets

• An agreed plan for spending

• Throughout all levels of company

• Need accurate information

– Financial Accounts (past)

– Forecasts (future)

• Master Departments Subsidiaries

Slide 188 Budgeting – in general

• Helps with control, especially spending

• Sets clear targets & responsibilities

• Helps make sure capital is usefully

employed

• Helps with coordination and

communication

Benefits:


Page 146 of 215

Slide 189 Budgeting – in general

• Can create problems, especially among

competitive employees

• May be too inflexible

• If differences between budget and actual

are too large, may hurt effectiveness of

budget process

Drawbacks:

Slide 190 Approaches to Budgeting

• Sales / Revenue budget

• Operations budget – operating activities

• Production budget

• Flexible budget – different levels of

production

• Objectives budget – meet some goal

• Capital budget – planning large items,

such as purchasing fixed assets, etc.

Slide 191 Difficulties in preparing Budgets

• Based on prior sales levels, etc

• Management and coordination of budget

process

• Conflict

• Time consuming


Page 147 of 215

Slide 192 Zero-based budgeting

• Helps allocate resources

• A more careful approach

• Creates alternatives

• Can improve motivation

Benefits Drawbacks

• Threat to “the way it

is” – motivation

• Difficult

• May miss some

opportunities

Justify expenditures with benefits

Slide 193

Break Even

Total Revenue = Total Cost

TR = TC


Helps Users to know:

• How much sales needed to cover our costs

• How different output levels affect profit

• How changes in price or costs affect:

– Break Even Point

– Profit


Page 148 of 215

Slide 195

0 Output

£

TCTR

Break Even Point

Break even points

Quantityof goods sold needed to break even

Slide 196

0 Output

£

TCTR

Margin of Safety

If a company is

producing at

any output A…

A

How much can

output drop

before they

begin losing

money?


Key Break Even calculations:

• Calculate BEP using Contribution Costing

• Calculate BEP using TR and TC

• Calculate a Target Profit

• Calculate a Break Even Price

Example Calculations – Data:

Price per Unit = 100

Variable Cost per Unit = 40

Fixed Costs = 60,000


Page 149 of 215

Slide 198 Calculate BEP using Contribution

Break Even Point = Fixed Costs Contribution per unit

Contribution per unit = 100 – 40

= 60

Break Even Point = 60,000 60

= 1,000 units

Company needs to produce 1,000 units to break even

Slide 199 Calculate BEP using TR and TC

Break Even Point: TR = TC

Total Revenue = Price x Quantity Sold (Q)

= 100 x Q

Total Cost = Fixed Costs + Variable Costs

= 60,000 + (40 x Q)

So, 100 x Q = 60,000 + (40 x Q)

Q = 1,000 units

Company needs to produce 1,000 units to break even

Slide 200

Variance Analysis

Using the Budget to Control Costs


Page 150 of 215

Slide 201 Variance Analysis

• Begins with the Budget – the Plan

• At period end, Actual compared to Budget

• Differences are called Variances

• Favourable:

– Income higher

– Expense lower

• Adverse / Unfavourable:

– Income lower

– Expense higher

Slide 202 Variance Analysis

Using all the different types of Variances

together, a company can really pinpoint

exactly where they are experience cost

problems, and can help identify how to

solve those problems.

Slide 203 Types of Variances

• Sales Margin Variance

• Profit Variance

• Materials Variance

– Price (cost)

– Usage

• Labour Variance

– Wage Rate

– Labour Efficiency

• Overheads Variance

• Cash Variance


Page 151 of 215

Slide 204

Organizational Structure and

Design

Slide 205 Organizational Structure and Design

• An organization’s design and structure

affects every aspect of the business, internal

and external

• A Formal Organization establishes:

– Relationships

– Authority to make and carry out decisions

– Communications

Slide 206 Factors Influencing Organizational

Structure

• Size

• Views of owners or management

• Business objectives

• External factors

• Changes in technology

• The “informal” business structure

• The “corporate culture”


Page 152 of 215

Slide 207 Organization Charts

• Positions within the organization

• Lines of communication

• Analyze for weaknesses

• “Hierarchy”: order & levels of management

Slide 208 Organization Chart – Example

Slide 209 Organizational Design

• “Chain of Command” – the way in which:

– Orders pass down

– Information passes up

• “Span of Control”:

– Number of “subordinates” under a

manager


Page 153 of 215

Slide 210 “Chain of Command”

• “Tall” organization – many layers

– For companies needing strong control

– Orders and information travel more slowly

– May reduce motivation

– May be inefficient

• “Short” organization – few layers

– May increase motivation

– May be more efficient

Slide 211 “Span of Control”

• “Wide” span – many “subordinates”

– More “cost effective”

– Less effective management / motivation

– May increase managers feeling of power

• “Narrow” span – fewer “subordinates”– More effective management / motivation

– More expensive

• 3–6 subordinates may be most effective

Slide 212


Page 154 of 215

Slide 213 Responsibility & Authority

Responsibility:

• Being required to justify actions

Authority:

• The power or right to order, control or judge

others

• Line authority: manager over subordinates

• Staff authority: advice to other departments

• Functional authority: specialists give advice

Slide 214 Delegation

• Effective planning

• Clear explanations and instructions – why

• Employees having authority & responsibility

• Managers supporting, avoiding interference

• Oversight and control

Passing authority and/or responsibility for some

tasks to employees further down the hierarchy

Requires:

Slide 215 Management Structures

• Centralized Management

– All decisions made by central management

• Decentralized Management

– Decisions made by branches


Page 155 of 215

Slide 216 Centralized – Benefits

• Senior management greater control

• Senior management more experienced

• Standardization – economies of scale

• Decisions – point of view of whole company

• Crisis – strong leadership

• Communications easier

• Fewer decision makers

Slide 217 Decentralized – Benefits

• Reduces burdens on senior management

• Empowers and motivates workers

• Greater job satisfaction

• “Local” knowledge

• More flexibility, responsiveness

• Prepares subordinates to move up

Slide 218 Different forms of Business

Structure

• Entrepreneurial

• Bureaucratic, pyramid or hierarchical

• Matrix (project)

• Independence


Page 156 of 215

Slide 219 “Informal” Business Structure

• Spontaneous / unplanned

• Employees have their own circles of

communication

• Seek advice from colleagues

• Often involve higher levels of trust

Slide 220 “Delayering”

• Recent trend – cut out layers of middle

management, making organizations flatter

• Hierarchy structured in projects or teams

• Better communication

• Better decision-making

• Greater management & financial flexibility

• Empowers employees:

– self-monitoring

– take responsibility

Slide 221 Examples

P. 411, Figure 58.2


Page 157 of 215

Slide 222

Motivation Theory

Slide 223 Motivation at Work

• Why is it important at work?

• Gives purpose and direction to behaviour

• People’s needs – varied and limitless

Slide 224 Motivation Theories

• Generally divided into two groups

– “Scientific Management”

– “Human Relations”


Page 158 of 215


• Scientific Management – Taylor

• Hierarchy of Needs – Maslow Human

• Human Relations Management

• Theory X and Theory Y – McGregor

• Others…

Slide 226 Scientific Management – Taylor

• Studied workers performance

– Timed speed

– Observed methods

• Divide & perform tasks – efficiency

• Assumed a single motivator – money

• “Piece rate” method

• “Fair day’s pay” for “fair day’s work”

Slide 227 Scientific Management – Taylor

Motivation:

• Work faster – earn more

• Work slower – lose earnings

Problems:

• People are different

• What’s fair for different people

• Viewed people as machines, not humans


Page 159 of 215

Slide 228 Hierarchy of Needs – Maslow

• Divide needs into different classifications

• Begin with basic needs

• As those needs satisfied …

• People consider other needs…


SELF-ACTUALIZATION

SELF-ESTEEM

LOVE & BELONGING

SAFETY & SECURITY

PHYSIOLOGICAL


• Levels satisfied one by one

• Some people do not need some levels

• Difficult to tell when a level satisfied


Page 160 of 215

Slide 231 Human Relations Methods

• Increased communications

• Increased workers cooperating with each

other and with company

• Increased efficiency and productivity

Slide 232

Possible problems:

• When workers have different goals, difficult

to reach “consensus”

• Too much information may create problems

• Workers may feel tricked by management

Human Relations Methods

Slide 233

Theory X Theory Y• Motivated by money

• Lazy, dislike work

• Selfish, don’t care about company, avoid responsibility, lack ambition

• Need management’s control and direction

• Motivated by many

different things

• Can enjoy work

• Can organize work, take

responsibility – if properly managed

• Can show creativity, and apply their knowledge to

the job

Theory X and Theory Y – McGregor

Theory: people are one way or the other


Page 161 of 215

Slide 234 Theory X and Theory Y – McGregor

• Know and understand which people are

X’s and Y’s

• Which types of people are appropriate for

different types of jobs

• Which types are appropriate for

management

Slide 235 Herzberg’s Two-Factor Theory

• Hygiene Factors – lead to dissatisfaction

• Motivators – lead to job satisfaction


Knowing them can help management:

• Understand and know employees

• Select and hire employees

• Design different jobs and positions

• Increase worker satisfaction

• Increase productivity

• Solve problems


Page 162 of 215


Difficulties with Motivation Theories:

• Is one is right, the other wrong?

• Difficult to generalize about employees

Slide 238

Motivation in Practice

Achieving a balance between

productivity and job satisfaction

Slide 239 Motivation in Practice

• Two general methods:

– Financial Rewards

– Non-financial


Page 163 of 215

Slide 240 Financial Rewards

• Time rates

• Annualized hours contracts

• Piece rates

• Commissions

• Fees

• Fringe Benefits

Slide 241

Employer Considerations:

• Employee motivation

• Cost

• Prestige

• Recruitment / Labour turnover

• Control

Financial Rewards

Slide 242

Employee Considerations:

• Purchasing power

• Fairness

• Relative to other employees / companies

• Recognition of contribution

• Composition of compensation package

Financial Rewards


Page 164 of 215

Slide 243

Incentive schemes

Incentive: something that encourages or tends

to encourage action or greater effort

Financial Rewards

Slide 244

Incentive schemes

• Individual output schemes

• Collective output schemes

• Employee input related schemes

Financial Rewards

Slide 245

Problems with Incentive schemes

• Operational

• Earnings forecasting

• Quality control

• Changes to scheme

Financial Rewards


Page 165 of 215

Slide 246

Problems with Incentive schemes

• Pressure / quality of working time

• Worker jealousy

• Performance standards

• Team incentives

Financial Rewards


Non-financial Rewards

Non-monetary motivation

Slide 248 Non-financial Rewards

Job design or Job redesign

• Carry out series of tasks – closure

• Workers / teams responsible for quality

• Increase range of tasks (rotation)

• Employees control speed, method and

sequence

• Allows interaction and cooperation


Page 166 of 215


Job design or Job redesign Schemes

• Job enlargement – broad range of tasks

• Job rotation

• Team working

• Job enrichment

• Multi-skilling

• Quality control circles

• Empowerment


Problems with Job redesign

• Resist change

• Costly with little effect on productivity

• New technologies – more difficult

• Need evaluation for effectiveness

• Quality control circles

• Empowerment


Management By Objectives (MBO)

• Setting goals and achieving them

• Creates job satisfaction


Page 167 of 215


Organization Behaviour Modifaction

(OBMod)

• Positive reinforcement

• Negative reinforcement

• Punishment


Employee assistance programmes

• Mental health assistance

• Child care


Achieving a balance between

productivity and job satisfaction


Page 168 of 215

Slide 255

Leadership

Slide 256 Management & Leadership

Manager: responsible for getting things done.

• Job involves

– Planning

– Organizing

– Commanding

– Coordinating

– Controlling


Leadership:

– Know what direction to take

– Plan

– Persuade others to follow


Page 169 of 215


Leaders adopt different styles:

– Delegating

– Participating

– Selling

– Telling

Slide 259 Leadership Styles

• Autocratic

• Paternalistic

• Democratic

• Laissez faire

Slide 260 Autocratic Leadership

Style:

– Leader sets all goals

– Delegates tasks

– Demands obedience

Analysis:

– If dissatisfied, won’t work well together

– Supervision

– Poor motivation


Page 170 of 215

Slide 261 Paternalistic Leadership

Style:

– Same style as Autocratic, except

– Concern about subordinates welfare

Analysis:

– Decrease dissatisfaction, supervision

– May improve working together and

motivation

Slide 262 Democratic Leadership

Style:

– Encourage participation in decision-making

– Persuasive / consultative to follow his plan

– Strong communication skills

Analysis:

– Workers participate, a sense of freedom

– Uses knowledge, wisdom of workers

– Greater commitment and motivation

Slide 263 Laissez Faire Leadership

Style:

– Workers work freely within broad limits

– Few guidelines and directions

Analysis:

– Allows for much more creativity

– Relaxed atmosphere

– Sometimes may result in poor productivity,

lack of motivation


Page 171 of 215

Slide 264 Leadership in General

Due to job redesign, delayering,

managers must be more team-based

Need to select, coordinate and manage groups

Deal with related issues


Leadership style often determined by

personality

People don’t change easily

Selected based on job requirements

Leadership Matching

Task oriented

Relationship oriented


Leadership style based on situation:

• Certain tasks / emergencies

• Skilled / unskilled workforce

• Size

• Leader’s personality

• Personalities in the group

• Time constraints


Page 172 of 215

Slide 267 Leadership

Effective Leading is the most important

Slide 268

Human Resource

Management

Slide 269 Human Resource Management

• Managing a company’s HUMAN resources

• Requires effective management

• Has strategic implications


Page 173 of 215

Slide 270 Human Resource Management

“Soft” Side:

• Motivation

• Organizational structure

• Support for employees

• Employee relations

• Industrial relations

“Hard” Side:

• Staffing needs

• Future staffing

– Demands

– Supply

• Predicting turnover

Slide 271 Factors affecting HRM

• Changes …

• Competition …

• Population

• Corporate culture and structure

• Trade unions

Slide 272 Strategic approach to HRM

• HRM as part of company’s overall strategy

• Plan, coordinate with other departments

• Corporate culture

• Motivation

• Encourage work flexibility

• Flexibility in staffing


Page 174 of 215

Slide 273 Strategic approach: Advantages

• Competitive / efficiency

• Better able to solve HR problems

• Reduces Labour turnover

• Reduces Absenteeism

• Helps anticipate workforce needs

• Stakeholder relations

• Labour Union relations

Slide 274

• personnel management (training,

developing and appraising staff;

measuring and monitoring staff

performance).

Slide 275

Labour Turnover Index =

Number of staff leaving

Average number of staff during period

Labour Productivity =

Output

Number of employees

Turnover (Sales) Per Head =

Sales

Number of employees

Human Resource Data

x 100


Page 175 of 215

Slide 276 Human Resource Planning

Forecast Employee Demand; Plan Supply

Analyze:

• Past information

– Business information

– Management’s knowledge

• Worker productivity

• Work study

– How many staff for the tasks



Calculate staff losses:

• Labour Turnover Index



Analyze (detailed) current employee supply:

• Age

• Position

• Term

• Qualifications

• Performance

• Internal recruiting


Page 176 of 215



Plan internal employee supply:

• Promotion

• Staff development and training

• Staff loss and retirement

• Flexibility

• Legal issues



Plan external employee supply:

• Availability of workers

• Skills needed / availability

• Government training / subsidies

• Workplace competition

• Population / Demographics

….



Plan external employee supply:

• Unemployment

• Housing & Public transit

• Costs

• Government legislation


Page 177 of 215

Slide 282 Flexible Work policies

Study different schemes in the textbook

Benefits:

• Worker satisfaction and motivation

• Better to plan for changes

• Decreases overtime costs

Slide 283 Evaluating all options

Relocation

Move production to different area or country

Outsourcing

Shift production to other companies

Knowledge Management

Identify and use internal knowledge

Slide 284

Labour Management

Relations


Page 178 of 215

Slide 285 Representation at Work

• Trade Unions

• Staff Associations

• Professional Associations

• Employers’ Organizations

Slide 286 Trade Unions

3 Types

• General

• Industrial

• Craft

Represent members / workers in areas of:

• Salary

• Benefits

• Working conditions

Slide 287 Trade Unions – Background

• Were very powerful

• By 1980’s laws began limiting power

• Must be formally registered

• May join Trade Union Congress (TUC)

– Represents all major unions

• Confederation of British Industry

– Represents businesses


Page 179 of 215

Slide 288 Labour Unions – Conditions

• Employers must allow employees to join Labour Unions

• Unions should be independent

– Of the company

– Of the government

• Represent employees in good faith

• All parties must agree to, and be bound by, negotiated results

Slide 289

Industrial Democracy,

Bargaining, Consultation &

Participation

How Industrial Relations works –

the process

Slide 290 Industrial Relations

Business and employee conflicts:

• Pay / Compensation

• Benefits

• Working conditions

• Flexible work

Industrial Relations – to try to resolve these

issues without problems


Page 180 of 215

Slide 291 Collective Bargaining

• Negotiations between:

– Company

– Union Representatives (for employees)

• Negotiate Contracts

– Terms

– Conditions

Slide 292 Negotiation Process

• Set Agenda

• Collect information

• Set strategies

• Be united

• Plan size of group

• Plan stages of negotiation

• Plan how decisions made

• Prepare statements at the end

• Commit to getting their sides to accept

– both sides together

– each side individually

Slide 293 Joint Consultations

• Management & worker representatives

meet to discuss, see if there are

common issues they can all agree on


Page 181 of 215


• Pseudo-consultation

(/su doʊ/ not actual but looks like)

– Management makes decisions

– Informs employee representatives

– No power to influence those decisions

• Looks negotiated, but really isn’t


• Classical consultation

– Involves employee representatives

– Can influence Management’s decisions


• Integrative consultation

(integrate: to bring together)

– Actually bringing in employees

– Discuss matters of common concern


Page 182 of 215

Slide 297 Other Organizations

ACAS – Advisory, Conciliation and

Arbitration Service

• Mediates when consultations and

negotiations fail

• Other services:

– Arbitration

– Advisory

– Codes of Practice

– Help businesses improve personnel & management practices

Slide 298 Other Organizations

CAC – Central Arbitration Committee

• Government office

• Responsible for union recognition

• Helps when employees want union

recognition but employers resist

Slide 299 Industrial Democracy

• Work groups

• Team working

• Employee shareholders

• Employee Work Councils

– Consult

– Discuss

– Transfer information

• Depends on laws; corporate culture; union

representation; employee power, etc.


Page 183 of 215


Advantages

• Increases motivation

• Creates new, different and better ideas

• Better industrial relations

• May make management respond better to

employee needs


Disadvantages

• Hierarchical businesses may not adapt well

• Can increase costs

• May lead to conflict

Slide 302

Industrial Actions (IA)

May be taken by either side when

conflicts not resolved


Page 184 of 215

Slide 303 Industrial Actions

Employers

• Reduce overtime, benefits

• Change standards for piecework workers

• Lock outs

• Hire new employees when union workers

go on strike


Employees – Unorganized / Unofficial

• Employees take action the only way they

may know how (usually unplanned)

• High turnover, absence, inefficiency,

wasting time, unofficial strikes

• Usually not very effective, but can lead to

follow up organized / official actions


Employees – Organized / Official

• “Work to rule” or “Slow go”

• Stop working overtime

• “Sit-in” or “work-in”

• Strike


Page 185 of 215


Risk – Factors influencing success or failure

• Strength / size of union / company

• Workers / union well organized

• Location(s)

• Public / other union support

• Actions of management

• Laws

• Economic situation


Benefits

• Brings grievances out into the open

• Management better understand employees

• Help change rules

• Management may adjust company goals


Problems – Employers

• Lost production / late or lost orders

• Lost revenue – idle fixed assets

• Future relations – bad feelings

• Shift management’s attention away from

future planning

• May harm company’s reputation


Page 186 of 215


Problems – Employees

• Lost earnings

• Close factory (long action)

• Stress relations among workforce

• Bad effect on motivation

• If unsuccessful, weakens future position,

lead to losing union members

• If against law, may lead to damages,

discipline, dismissal

Slide 310

Organisational Functions 1

BTEC Business

Slide 311

What are an Organisation’s

Functions?• As we have seen, businesses exist

to provide products or services that people want to consume

• They do this by organising the firm’s resources to meet customers’ needs

• Many organisations arrange these resources

into different business functions


Page 187 of 215

Slide 312


Functions?Whatever the business, all organisations have

to manage the following functions:

• Sales and marketing

• Accounts or finance

• Human resources or staff

• Administration

Slide 313


Functions?Many businesses will also have the following

activities that need managing:

• Production

• Purchasing or buying

• Research and development

Whether they do or not depends

on their industry or sector

Slide 314 Finding out more

The following is a good source of information about organisational functions:

• Biz/ed’s Virtual Factory

• Find our more about production, marketing, accounts, stock control and design in a real world business at:

http://www.bized.ac.uk/virtual/cb/factory/reception/intro1.htm


Page 188 of 215

Slide 315 Applying your Knowledge

• Now go to the following Biz/ed resource for more

on a range of real world business organisations:

http://www.bized.ac.uk/compfact/business_profil

es.htm

• Select two businesses and analyse their key functional areas. Be prepared to feed this back

to the whole group.

Slide 316

Equal Opportunities

&

Protection at Work

Slide 317

Equal Opportunities

Qualified people should have the

same chance to get a job.


Page 189 of 215

Slide 318 Discrimination / Stereotypes

A simplified vision of someone, with special

(usually negative) meaning

• Women:

– Doesn’t want to take responsibilities

– Doesn’t want (or shouldn’t) leave the home

– Wouldn’t want to relocate

– More “emotional”

– Weak




• Minorities:

– Religious holidays might interfere

– Less educated

– Different / “strange”

– Dirty




• Disabled:

– Less capable


Page 190 of 215




• Elderly:

– Less adaptable

– Difficult for them to learn new things, new

technologies

Slide 322 Women at work

Ongoing discrimination Statistics

• Lower earnings

• Management jobs still dominated by men

• Low paying jobs dominated by women

• Full-time work percentage lower for women

• Work percent lower for women with children

Slide 323

Equal Opportunities

UK & EU laws protect people from

job discrimination due to: gender,

marital status, colour, race,

nationality, ethnic origin, religion,

age, disabilities, etc.


Page 191 of 215

Slide 324 Women at work

Improvements in situation

• Flexible work

• Legislation

• Changes in demographics

• Child Care (creche)

Result: higher employment for women

The “gender gap” narrowing

Slide 325 Employment without

Discrimination

• Better workforce

• More qualified workforce

• More flexible workforce

• Higher motivation

• Everyone feels they will be considered

• Easier in finding new employees

Slide 326

Protection at Work

A broad category


Page 192 of 215

Slide 327 Employment Protection

• A right to an Employment Contract

• Freedom from all forms of discrimination

• Freedom from unfair dismissal

• Recourse: Labour Tribunal

Slide 328 Health & Safety Protection

• Clean, sanitary, comfortable working conditions

• Safety equipment, clothing and training

• Safe procedures for dangerous materials

• Safety from violence and threats

• Laws now require:

– Written Health & Safety Statement

– Management required to follow

– Inspections to guarantee

Slide 329 Wages Protection

Wages Act, 1986

• Rules and conditions for paying wages

• Procedures for enforcing those rights


Page 193 of 215


National Minimum Wage Act, 1998

• Established current minimum wage rules

• To reduce poverty and inequality

• To increase motivation in the workplace



• Established current minimum wage rules

• To reduce poverty and inequality

• To increase motivation in the workplace

Slide 332 Social Chapter


• Standardize work practices throughout EU

– Minimum Wages

– Maximum working hours per week

– Paid holidays

• Introduced European Works Council (EWC)

– To negotiate contracts

– Set and revise minimum wages


Page 194 of 215

Slide 333 Personnel Data

Protect, safeguard and keep confidential

personal information on employees

– Electronic data

– Hard data

• Company’s motivation:

– Increase employee motivation

– Consequences to not following laws

– Losing employees can cost the company

• Some businesses don’t follow – costs

Slide 334 Equal Opportunity Practices

Benefits / Advantages:

– Improve motivation

– Improve productivity

– Improve industrial relations

Disadvantages:

– Raise costs

– Restrict flexibility

– Reduce EU competitiveness

Slide 335

Consumer Protection


Page 195 of 215

Slide 336 Business & Consumer

Protection

Undeveloped economy

– “Caveat emptor” = buyer beware

Developed economy – big businesses

– Too easy to take advantage of consumers

Slide 337 Consumer Protection Legislation

Effects of laws on businesses:

– Costs

– Quality control

– Deal with consumer complaints

– Adopt more market-oriented practices

Slide 338 Monopolies & Mergers

Examined benefits and criticisms in Economics

Restrictive practices can reduce competition

UK has passed various types of legislation:

– Office of Fair Trading

– Competition Commission

EU has similar practices

Regulatory bodies to enforce fair trading

practices in industry


Page 196 of 215

Slide 339

Business Form

Slide 340 Private Sector Businesses

Types of Business Forms

Unincorporated businesses

– Sole Trader

– Partnership

Benefits:

• Costs

• Control



Incorporated / Limited Companies (Corporations)

– Private Limited Company

– Public Limited Company

Benefits:

• Protection from personal Liability

• Ability to grow

• Ability to raise money

Disadvantage:

may lose some control


Page 197 of 215



Cooperatives

– Consumer cooperatives

– Worker cooperatives

Other:

• Building Societies

• Friendly Societies (banks, financial services)

• Franchises

• Charities



Choice of Business Form based on:

– Control

– Kind of business

– Timing / age

– Financial needs

– Liability protection



Students should know the different

business forms, be able to discuss,

compare and contrast them…

And, should be able to analyze when,

how and why a business would

change from one form to another


Page 198 of 215



• Incorporated Limited Companies

(Corporations)

– Private Limited Company

– Public Limited Company

Slide 346

Business Size

Slide 347 Business Size

Can be defined by:

– Turnover / Sales

– Number of Employees

– Capital Invested

– Profit

– Market Share

– Market Capitalization


Page 199 of 215


Reasons to grow:

– Survival

– Economies of Scale

– Future profitability

– Gain market share

– Reduce risk


Methods of growth:

• Internal / organic growth:

– Selling more

• External growth:

– Acquisition

– Takeover

– Merger

Slide 350 Benefits of growth:

Internal economies of scale:

– Technical efficiencies

– Indivisibilities / Law of multiples

– Managerial

– Financial

– Purchasing & Marketing

– Risk


Page 200 of 215

Slide 351 Benefits of growth:

External economies of scale –

• Savings from industry’s growth

– Labour

– Services

– Co-operation

Slide 352 Limits to growth:

Internal diseconomies of scale

– Managerial

– Funds

• External diseconomies of scale

– Market limitations

– Geographical

Slide 353 How and why

Small firms still survive

• Provide personal services

• Owners choose to stay small

• Flexibility & Efficiency

• Lower costs

• Low barriers to entry

• Monopolists


Page 201 of 215

Slide 354 How and why

Small firms still survive

• Unemployment

• Other government schemes

• Ways small firms benefit the market

– Increase market flexibility

– Help balance market wages

– Create casual and part-time jobs


Valuation of companies:

• Sale

• Takeovers

• Mergers

• Management buyouts

• Public offerings (floatations)

• Loans


Various methods of valuing

companies:

• Only a guide

• Value of something is always between:

–A willing buyer

–And a willing seller


Page 202 of 215


Standards for preparing accounts

To avoid manipulation of accounts

Manipulation – different aspects:

• Increase values

• Reduce values


Reasons for Account manipulation:

• Increase values

– Current or future investors

– Stock prices

– Market position

– Avoid takeovers


Reasons for Account manipulation:

• Reduce values

– Avoid taxes


Page 203 of 215


Methods of Account manipulation:

• Change depreciation

• Revalue creditors & Debtors

• Revalue stock

• Write-offs

• Profits

Slide 361

Business Stakeholders

Taking a “Stakeholders Approach”

Slide 362 Business Stakeholders

• Hold a financial interest in the success

of the business

• Have some involvement with the business’s activity


Page 204 of 215

Slide 363 Business Stakeholders

• Owners

• Entrepreneurs

• Shareholders

• Managers

• Employees

• Customers• Suppliers

• Governments

• Community

Objectives of stakeholder groups may differ

A “stakeholder approach”

Slide 364

Strategy & Objectives

Role of Business Objectives

in Setting Business Strategy

and Planning

Slide 365 Strategy & Objectives

Business Objectives:

Outcomes, goals, targets (SMART) include:

• Survival

• Profit

• Growth

• Increase shareholder value

• Maximize Sales

• Image, Reputation & Social Responsibility


Page 205 of 215



Managers’ Objectives could include:

• Budgetary

• Departmental

• Salary

• Benefits

• Status

The “players” are all stakeholders



Operational Objectives:

• Change focus

• Product lines

• Etc.



Public Sector Objectives:

• Change image

• Improve service levels

• Etc.


Page 206 of 215



Factors influencing a business’s Objectives:

• Owners

• Different stakeholders’ powers

• Size, Status

• Short-term or long-term considerations

• Internal or external pressures

Slide 370

Mission Statement

A written statement that sets

out the aims of a business

Slide 371 Mission Statements

Should focus on:

• All stakeholders

• Providing a general idea or plan

“At Microsoft, our mission and values are to

help people and businesses throughout the

world realize their full potential.”

“Our mission is to be the consumer's first

choice for food, delivering products of

outstanding quality and great service at a

competitive cost through working faster,

simpler and together." Sainsbury’s

For example:


Page 207 of 215

Slide 372

Strategy and Planning

Slide 373 Strategy and Planning

Identify Objectives:

• Strategic

• Tactical

• Operational


Strategy:

A pattern of decisions and actions

to achieve objectives


Page 208 of 215


Planning:

• Decide what to do

• Set objectives

• Set policies to achieve them

• Involves: Analysis

Developing strategies

Implementation

Evaluation


Types of Business Strategies:

• Functional

• Business Level

• Corporate

• Global

Must suit the corporate culture (the values)

of the organization


Effective Planning & Strategy based on:

• Clear Purpose

• Strategic Vision

• Strong Commitment to achieve goals

• Focusing strategies on customers

• Achievable timing

• Flexibility to modify details, stay on course

• Suitable to different departmental players


Page 209 of 215


Effective Planning (include Contingencies)

can minimize effects of unexpected crises:

• Legal

• Financial

• Production

• Corporate

• Image


Analysis Methods:

SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

Internal

External


Analysis Methods:

For analyzing External factors

PEST

Political

Economic

Social

Technological

- G

Green


Page 210 of 215


Analysis Methods:

5 Forces Model

New competitors

Established firms

Buyers

Suppliers

Substitute products

– Competitive Forces

– The stronger the Forces are,the more difficult to raise prices & profits


Analysis Methods:

Industry Structure Analysis

Competitors

Suppliers

Substitution

Potential entrants


Analysis Methods:

Industry Structure Analysis

Competitors

Suppliers

Substitution

Potential entrants

Competitor Analysis

To determine strengths & weaknesses


Page 211 of 215


Analysis Methods:

Competitor Analysis

To determine strengths


Other Analysis:

Product Life Cycle Analysis

Product Portfolio Analysis

Cost and Value Analysis

Slide 386 Different Strategies

To improve Function & Operations:

Production:

– Economies of scale

– Streamline the process (lean)

– Quality control – TQM groups


Page 212 of 215



Marketing:

– Research to better meet customers’ needs

– Customer service / response through

better distribution



Human Resource Management:

– Forecast changes in staffing requirements

– Motivation

– Training



Other:

– Research & development

– Waste management


Page 213 of 215


Business Level / Generic Strategies:

• Cost Leadership

• Differentiation

• Focus (segment, customer group)

• New product development

• Market entry and penetration

• Market development and domination

• Consolidation (preserve place in market)

• Diversification (extend range of products, services)



Corporate strategies:

• Internal development

• Takeovers, mergers & acquisitions

• Collaboration



Global strategies:

• Capitalize on company’s unique strengths

• Reduce costs


Page 214 of 215

Slide 393 Implementing Strategies

• Organizing itself to carry out the strategy

• Setting up control systems to encourage

and monitor activities

• Implementing changes

Slide 394 Evaluating Strategies

• Setting SMART targets

– Earnings or profits

– Return on capital

– Sales volume

– Costs

• Need comparison information

• Also use qualitative information


Page 215 of 215

Documents

Business Studies Handbook