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KNOX ACADEMY
STANDARD GRADE
BUSINESS
MANAGEMENT
SUMMARY NOTES
KEY WORDS
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Contents
Unit 1.1 What do businesses do? ................................................................... 3Unit 1.2 Why do businesses exist? ................................................................. 4Unit 1.3 How are businesses organised? ........................................................ 5Unit 2 Starting up in business/business plans............................................ 6Unit 3 Location of businesses...................................................................... 7
Unit 4 Finance.......................................................................................... 18Unit 5 Marketing ........................................................................................ 9Unit 6 Operations ..................................................................................... 12Unit 7 Human Resources .......................................................................... 15Unit 8 Business Growth............................................................................ 18Unit 9 Business Information and Communications.................................... 22Unit 10 Management and Decision Making ................................................. 25Unit 11 Business Challenges ...................................................................... 26Unit 12 Business Success and Failure ........................................................ 27
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Unit 1.1 What do businesses do?
Key Word Definition
Needs
Wants
Goods
Services
Durable
Non-durable
Size of business
Small
Medium
Large
Sector of Economy
Private
Public
Voluntary
Sector of Industry
Primary Secondary Tertiary
What people must have in order to
survive
Items people would like to have justbecause they are available
Tangible: can be seen/touched
Intangible: cannot be seen/touched
Long-lasting
Used up quite quickly (perishable)
Owned by one or 2 people, local, less
than 50 people
Owned by group of people, national, 50-
250 people
Owned by large number of people, multi-
national, over 250 people
Sole traders, partnerships, private
limited companies (Ltd), public limited
companies (plc)
Nationalised industries, local
authorities, schools and hospitals
Charities, youth clubs, golf clubs
Raw materials eg oil, fishing
Manufactured goods eg cars
Service eg insurance, banking
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Unit 1.2 Why do businesses exist?
Key Word Definition
Types of business organisation
Sole Trader
Partnership
Private Limited Company Public Limited Company
Aims of organisations
Private sector
Public sector
Voluntary sector
Stakeholders
Owned by one person
Financed by capital invested by owner,and bank loans
Owned by 2-20 people
Financed by capital invested by each
partner, and bank loans
Have to be invited to purchase shares
Financed by share capital and loans
Ordinary shares more risky
Preference share less riskyDebentures form of loan
Dividend
Learn advantages and disadvantagesof each type
Maximising profit, growth, survival,
increasing market share, efficiency,
improving quality of products
To provide essential product/service, to
provide a consistent level of service
Charities fund-raising to support
causes, raising awareness, providing
information on how money is spent
People who have an interest in the
business eg employees, management,
shareholders, customers, suppliers
Varies depending on sector learnpossible interests/conflicts
Social costs
Social benefits
Economic costs
Economic benefits
eg noise, traffic, health
eg improved roads, housing, schools
eg increased taxation, money spent on
infrastructure
eg more jobs, increased spending locally,
increased standard of living
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Unit 1.3 How are businesses organised?
Key Word Definition
Organisation charts
Line relationships
Lateral relationships
Tall structure Flat structure
Exist between managers and the staff
below them
Employees on the same level of
authority
Many layers of management
Fewer layers of management
Learn advantages and disadvantagesof each and use diagrams to illustrateanswers
Span of control Number of people you are responsiblefor, can be wide or narrow
Chain of command
Functional areas
Downsizing
Delayering
Outsourcing
How instructions are passed through
the organisation
Marketing, Finance, Operations, Human
Resources
Reducing number of employees
Removing layers of management
Using external companies to provide
certain services eg canteen, cleaning, IT
Responsibility
Authority
Being answerable for actions and
decisions taken
The power to take a certain action andto delegate to others
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Unit 2 Starting up in business/business plans
Key Word Definition
Enterprise
Risk
Factors of Production
Land
Labour
Capital
Enterprise
External advice
Business Plan
Idea for a product/service Develop idea Taking risks No-one buys the product/service Lose all money invested Unable to pay expenses
Natural resources and the things
produced from them
Workers who are paid wages
includes money, buildings and
machinery
The development of ideas and the drive
to put them into action. Brings the allthe Factors of Production together.
Government agencies, development
agencies eg Local Enterprise Company,
business partners, consultants, banks
General details about thebusiness
Human resources Product or service Market Premises and equipment Finance eg cash flow, profit
estimates
Capital
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Unit 3 Location of businesses
Key Word Definition
Possible plus points
Possible negative points
Infrastructure
Sources of finance
Nearness to markets Away from the competition Reasonable costs Near to good infrastructure Car parking Skilled labour Remote areas Very near competition Expensive Far from good infrastructure
Roads, railways, air travel facilities,
schools and colleges, hospitals
Owner/s Loans (inc Mortgage) EU funding Grants from government/local
authority
Bank overdraft Finance companies Shares Debentures Hire Purchase Trade Credit Leasing Factoring
Government assistance
Local government assistance
In areas of high unemployment:
Grants Low rents Lower taxes and reduced
regulations Providing training
Encourage businesses to set up in their
area by:
Advertising Grants Advice on location and funding Reduced Council Rates
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European Union
Advantages
Disadvantages
Globalisation
Global market
Features of globalisation
Globalisation of jobs
Disadvantages of globalisation
a large consumer market, no custom duties no restrictive practices free movement of workers large choice of suppliers language barriers distance problems time zones
When multinational companies have
businesses in several different areas of
the world.
Because of the big improvement in links
between countries, the world is
becoming one vast market.
Improvements include transportation eg
containerisation and e-commerce
using the same brand name in allcountries
using the same advertising in allcountries
using the same procedures andpractices in all countries
This enables manufacturers to produce
their goods in a country offering more
economies of scale eg
word-processors in India textile manufacture in China telephone help-lines in N Ireland
as EU and also
culture, tax-laws currency differences
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Unit 4 Marketing
Key Word Definition
Market Research
Types of Market Research
Desk
Field
The Marketing Mix The 4Ps
Product
In todays competitive market, research
is very important. It gives managers a
better idea of what customers want and
the price they will pay. Will they do itthemselves or employ an outside
agency?
Information has been previously
collected for one purpose and is used by
you for another secondary information
eg Government statistics or Annual
Company Reports
Information is gathered either by
yourself or a market research company
primary information
Product, Price, Promotion, Place
The name, how it is packaged and what
will be the products life-cycle
The product life-cycle(diagram a must!) Measures the stages of a product fromdevelopment to replacement orwithdrawal from sale
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Price Strategies
Low Price; Market Price; HighPrice
Price Tactics
Introductory pricing Loss leader
Penetration pricing
Competitive Pricing Cost plus/mark-up Skimming Destroyer Discriminatory
Promotion
Why should a product be promoted?
Types of advertising
Branding
low price when product first launched
price is lower than cost to attract
customers
initially set low and then raised as
loyalty increases
based on other sellers
adds a percentage for profit
price set high and then lowered
low price aimed at destroying the
competition
charging different prices to different
people eg holidays cost more in the
summer
This includes advertising money off,
discount vouchers, free gifts,competitions and tastings
Reasons include
making customer aware give information about the
product
try to persuade customers to buyit
to tell them why it is better than acompetitors products
A business has to decide whether to do
the advertising themselves or use an
outside agency. The choices also
include TV, radio, cinema, magazines,
newspapers, posters and the internet
Certain brands are very well known and
the logo, colours, packaging design, have
an image, which attracts the customer.
Brand names can cover a wide variety of
products eg Virgin
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Place
Channel of Distribution
The method will depend on the
product, type and size of the
market and the competition
Three considerations are
how to get the product to theright place at the right time
what is the best distributionmethod?
what is the right place?
From retailer to customer To wholesaler to retailer to
customer
Manufacturer to customer Manufacturer to wholesaler to
customer
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Unit 5 Operations
Key Word Definition
Input
Process
Output
Production Processes
Job production
Batch production
Flow production
Mechanisation
Automation
Capital Intensive
Labour Intensive
This includes the raw materials,
equipment, and labour which are
directly put into production of a product
or provision of a service
This involves using the raw materials,
equipment and labour to make the
product or provide the service
This is the final product or service
Involves a one-off project eg film, uniquehouse, designer dress
Is the process of making several
identical products at once eg casks of
whisky, trays of seedlings
This describes forms of production such
as assembly lines; often aided by CAD
and CAM eg car manufacturing
It is more of a non-stop process andinvolves larger numbers than batch
processing
Learn advantages and disadvantagesof each method
This means workers are replaced by
machines
This is a step further than
mechanisation and involves replacing
workers fully by machines, often robots.
When manufacturers rely heavily on
machinery eg when labour supply is
scarce or consistency is required
When manufacturers rely heavily on
their workforce eg when craftsmanship
is required or labour supply is cheap
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Technology in Production
Advantages
Disadvantages
increases output 24hrs 7days workers can retrain for more skilled
work
increases quality may be redundancies initial outlay is expensive cost of retraining workers involved in repetitive tasks
in mechanisation, often become de-
motivated
Stock control
Quality
Quality Assurance
Quality Circles
Benchmarking
Total Quality Management (TQM)
Just-in-time techniques
Customer service
This must be very accurate and closely
monitored:
security & record keeping accounting/cost length of storing period
This includes quality of products and
quality of customer service. Targets
should be set and monitored.
This is where workers are organised in
teams to ensure quality during and after
the production process
Management meet with workers todiscuss how improvements can be made
to the production process
The process by which a company
compares its own performance with
those of other organisations that are
recognised as the best in a particular
category. The product or service that is
determined to be the industry standard
is known as a benchmark.
It is the newest form of Quality Control
and involves customers and workers: all
workers are involved in the process at
every stage of production
This ensures that suppliers always
supply undamaged goods, and that
production at each stage must be
perfect.
How customers are treated when
buying, telephoning or sending a writtencomplaint. It involves after-sales service.
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Unit 6 Human Resources
Key Word Definition
Why work?
Job description
Person specification
Induction training
On-the- job training
Off-the-job training
Learn advantages and disadvantagesof each method
Apprenticeship
Hours worked
Full-time
Part-time
Permanent
Temporary
Flexitime
Home-working/tele-working
Make money Job satisfaction & security
Company friendship Achieve potentialGives details about a job eg hours
worked, pay, holidays, duties involved
List of attributes expected by the person
who will fill the vacancy (essential and
desirable)
Training which is given to every new
employee
Takes place in the workplace
Takes place outside the workplace:
maybe at a local college or training
centre
Can include re-training or upgrading
training
Can be internal or external and is for afixed time, is certificated at the end of
the time
means working every weekday: usually
from 9 am 5 pm
means working for only part of the
week.
where the job lasts as long as thecompany remains in business. If it
ceases, then redundancy money must be
paid
lasts for a limited time and can be full or
part-time
when a person works core hours and
then selects when the remaining hours
will be worked
when a person works part of the time athome/away from the office
Selection and recruitment
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External advertising
Internal advertising
Job advertisement
Applications Shortlists Final candidate is chosen
Contract of Employment
post advertised on Internet websites,
newspapers, trade journals, Job Centre,
Employment Agencies
post advertised in memos, staff
bulletins, notice boards, e-mail and staff
announcements
usually tells applicants what to do to
apply for the job eg send a CV and/or a
letter of application, completion and
return dates etc
are checked and considered
invitations for interviews
successful candidate offered the job;
may/may not be accepted
must be given within 13 weeks of
starting work (must know what it should
include)
Appraisal
Advantages
Disadvantages
Legislation
An evaluation of an employees
performance
Positive feedback increasesmotivation
Encourages employees to upgradetraining
May cause job specification to bealtered and workload increase
Negative feedback could de-motivateand also cause stress and possibly
absenteeism
This affects the relationship betweenemployers and employees
Equal Pay Act 1970 Health & Safety at Work Act 1974 Sex Discrimination Act 1985 Race Relations Act 1976 Disability Discrimination Act 1995 Minimum Wage Act 2006
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Industrial Action
To avoid poor relations
Team working
Quality Circles
Changing Employment Patterns
Why?
If relations between employers and
employees break down, employees may
decide to take part in industrial action.
It can take the form of
go-slow work-to-rule overtime ban strike team working quality circlesEmployees are involved in setting
targets; therefore they are being involved
in the decision-making process
Employees pool their experience and
specialist knowledge to study problems
and suggest solutions.
Many jobs are now on specificcontracts for limited periods
Jobs have moved frommanufacturing to service industries
ICT has enabled more flexible worklocations
Balance between female and maleworkers have changed
New forms of working eg tele-working, hot desking etc
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Unit 7 Finance
Key word Definition
Need to plan
Results of good planning
Covering costs
Fixed Costs
Variable Costs
Break Even Point
Budgeting/Cash flow
Final accounts
Trading Account
Gross Profit
Profit & Loss Account
It is important to know what
product/service is to be supplied and
also
design, price and packaging costs of development method/s of covering costs product well made/service well
provided
competitively priced suit the customers needs/wants avoidance of cash-flow problems
in the long-term
the product/service will be indemand for as long as possible
A new business needs to forecast costs
and income for 6-12 months to help
them decide if they need to cover costs
Expenses that the business has to pay
that do not change according to output
eg rent, council tax, rates
Expenses that the business has to pay
that change according to output eg costof materials, cost of labour, electricity,
gas by extra funding
The point at which total sales revenue
and total costs are equal. At this point
the business is not making a profit or a
loss.
A forecast of income and expenditure
Accounts produced at the end of a
trading period: usually every 6/12
months. The main final accounts are
Trading and Profit and Loss Accounts
and the Balance Sheet
Shows the Gross profit/loss from the
buying and selling of goods/services
Sales Cost of Goods Sold
Overall profit made by the firm during
an accounting period
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Overheads (expenses)
Net Profit
Balance Sheet
Fixed assets
Current assets
Liabilities
Working capital
Capital employed
Ratios
Gross profit-to-sales ratioNet profit-to-sales ratio
Return on capital employed
Working capital ratio
Acid test ratio
Rate of stock turnover ratio
These include wages, rent, rates and
utility charges
Gross Profit Expenses
This is a snapshot of a business
financial position at a certain point in
time
Are owned by the business for longer
than one year
Items owned by the business for a short
term eg cash, stock and debtors
Are amounts owed by a business and
include short term loans and creditors
Current Assets Current Liabilities
This is the total capital invested in the
business once liabilities have been
deducted
These are used to make a mathematical
comparison between two sets of figures
Profitability Liquidity Efficiency
These help a business to know if a
business has improved its profitability
Is a profitability ratio which tells us how
much profit we make for every 100 we
invest in the business
This is a liquidity ratio and tells us if
there is a cash-flow crisis
This is a liquidity ratio and tells us if we
can pay off our debts with existingcurrent assets (ignoring stock)
This is an efficiency ratio and tells us
how much stock we have sold(shifted) in
a given time
See your Leckie and Leckie book forratio formulae
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Unit 8 Business Growth
Key Word Definition
Internal expansion
External expansion
Merger/amalgamation
Takeover
Integration
Horizontal integration
Vertical Integration
Forward vertical integration
Backward vertical integration
Diversification
Innovation
This is when a business grows within
itself
When a business grows as a result of
external influences. eg mergers and
takeovers
When two or more businesses, usually
of the same size, join together to form a
larger business
This is when one business buys another
eg House of Fraser bought Jenners
This involves the creation of one
business out of two or more previously
separate businesses
This integration involves businesses at
the same stage of production, making
similar products/services
These businesses are in the same
industry, but at different stages of
production
This is when the business at the
beginning of the chain, takes over a
business which is later in the
production chain
This is when a business in the later
stages of production, take over a
business in an earlier stage of
production
This is when a business begins to
produce or sell different goods and
services eg in the 1990s garages began
to diversify when they started to sell
newspapers, milk, etc as well as petrol
This involves developing and creating a
new product or service. It may alsoinclude creating new solutions for old
problems.
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Product research
Reasons for growth
Involves experiments with materials, size
and prototypes.
To increase profit Gain market control Control raw materials Gain economies of scale To diversify
Economies of scale
Internal economies
External economies
The benefits gained as a business grows.
They may be external or internal
economies
When the economies come from within
the business eg technical economies
when a large business can afford
automation and computerised
technology. This allows them to produce
a greater quantity of goods in a giventime, therefore reducing unit costs
These come from or affect the world
outside the business eg obtaining
competitive terms from your suppliers
because they will transport in bulk
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Unit 9 Business Information and Communications
Key Word Definition
How is information given?
Importance of good information
Internal communication
External communication
verbally on paper (written)
as text and images throughtechnology eg internet, teletext,
fax, spreadsheets, video-
conferencing etc
To enable a customer to contact a
business by letter, telephone or e-mail
needed to ensure the efficiency of the
business: eg
recruitment verbal and electronic information
to and from management
regular meetings memorandums handbooks
Takes place within the business eg
memorandums, e-mail (intranet),
internal telephone systems, pagers,
loudspeaker systems
Takes place between a business and the
outside world eg email, teletext, letters,
etc
Needed by a business to help with
decision making
Evaluating information The information must be accurate,
relevant, cost effective, complete, on
time and easily understood
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What questions to ask!
Purpose of communication
e-commerce
Hardware
Are procedures followed? Are procedures working? What is working well and can it be
continued?
What needs changing? What constraints are there?It is an important part of management
because clear leadership and direction
cannot be given unless informed
decisions have been made AND these
decisions are communicated effectively
The sale and purchase of goods or
services over the Internet.
The physical parts of the computer
eg monitor, keyboard, mouse etc
Software The programs running on the computer
Most of us use off-the-shelf programs.
However particular businesses will have
a program especially written for them:
this is bespoke software
WP - Word Processors A standard office program, which is
needed to produce letters, reports, books
etc, which were formally, produced
using a mechanical typewriter. It allows
on screen editing by inserting, deleting,
moving words, and checking spelling
before printing.
DTP Desk Top Publishing Prior to their use, businesses had to use
specialist design companies to produce
brochures and advertisements. DTP
allows users to design layout of text and
graphics for letter- headed paper,
menus, catalogues etc
SS Spreadsheets The program is designed to display and
process numbers. It is made up of a grid
of cells, each with its own address. The
program contains mathematical,charting, statistical and financial
operations. The use of formulae are
particularly useful in the Wages section
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Unit 10 Management and Decision Making
Key Word Definition
Management styles
Autocratic
Democratic
Laissez-faire
when managers tell people what to do
and expect their orders to be followed.
Workers may feel frustrated, and unable
to use their initiative
managers consult others before making
decisions. This makes the workers feelpart of the decision making, increasing
motivation.
involves the minimum of direction by
management. It is best in creativeindustries where results would be stifled
by strict control.
Good Management
Decision Making Model
Includes:
Controlling Leading Planning Budgeting Identify the problem Identify the objectives Gather relevant information Analyse the information Develop alternative solutions Select the best solution Communicate the decision Implement the decision Evaluate the results
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Unit 11 Business Challenges
Key word Definition
Competition
Scarce Resources
Skilled labour
Land/premises
Specialist equipment
Money
Internal pressures
External pressures
These may be local, national,
international or e-commerce
Often difficult to find workers with the
appropriate skills which leads to a
demand for higher wages
In areas such as city centres, there is
often a shortage which increases rents
and prices
This is increasingly expensive as
technology progresses. eg hospital
equipment
This is a scarce commodity and small
businesses suffer most.
If the working atmosphere is not
pleasant with fair wages, promotion
prospects and good training schemes,
the results may be:
Industrial action Poor production because of
unmotivated staff
Political issues, when there is achange in government policy eg
legislation or tax
Economic issues eg wheneconomy in recession (business
cycle) or interest rates change
Social pressures from actiongroups eg on behalf of Fair Trade
products Technological innovations which
can make production more
efficient or change the method of
contact with customer
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Unit 12 Business Success and Failure
Key word Definition
Reasons for failure
Competition is too fierce
Economy in recession
Cash Flow problems
Not moving with the times
Measuring success
Competition is too fierce Economy in recession Cash flow problems Poor resource management No growth or innovation External factors eg bad weather,
strikes etc
Competitors have a better and cheaper
product and promote their product in
the right segment of the market
If customers cannot afford to buy theproduct, less is demanded, less is
produced, wages fall and unemployment
rises. The economy slows down.
There must always be ready cash
available to pay day-to-day expenses.
This may because
product is obsolete equipment out-of-date marketing not effective lack of security, therefore pilfering
and theft
records not accurate, thereforeunable to make accurate
forecasts
poor management staff not motivated Achieving good sales figures and
profits
Good relationship withstakeholders
Achieving growth and aims oforganisation
Gain customer loyalty with aquality product and service
Innovate. Grow and have a largemarket share