Understanding Business
Distinguish between a strategic decision and a tactical decision (2)
Strategic is long term/high risk/made by senior management whereas tactical is medium term/medium risk/made by middle management
Describe what is meant by market share. (1)
Market share is an organisation’s percentage of the overall sales in a particular market.
Describe ways of motivating the workforce (3)
Time-rate
Piece rate
Bonus
Commission
Overtime
Describe the production methods an organisation could use. (2)
Job production — one-off single product is made to a customer’s
specification (1 mark). This method of production requires highly skilled
workers (1 development mark) and the business can charge a premium
price for the product (1 development mark).
Batch production — groups of similar products are made at the same time
and no item in the batch goes to the next stage until the whole batch is
ready.
Flow production — items move continuously from one operation to the
next and each part of the process leads to the completion of the final
product.
Labour-intensive — production is carried out by a high level of labour.
Capital-intensive — production is carried out using mainly machinery,
highly automated production.
Describe the benefits of training staff (2)
Staff can be motivated
Staff can complete work to a higher standard
Describe the impact of 2 internal factors (2)
Finance
Corporate Culture
HR - staff and management
Technology
Compare the use of penetration pricing with skimming pricing. (2)
Penetration pricing is used in a highly competitive market, whereas
skimming pricing is used in a market with little or no competition.
Penetration pricing means that the product will be introduced at a low
price, whereas skimming pricing means that the product is introduced at
a high price.
With penetration pricing the price will be increased once the product has
been established, whereas with skimming pricing the price is decreased
as competition enters the market.
Describe types of training an organisation can use (2)
Induction Training - given to new employees, showing them around the company.
On-the-Job training - takes place in the workplace.
Off-the-Job Training - takes place outside the workplace - college.
Discuss the use of a just-in-time stock control system. (2)
Just-in-time (JIT) stock control system reduces storage costs as stock is
delivered as it is needed (1 mark).
This means that the organisation is more responsive to consumer demand
(1 development mark) and that money is not tied up unnecessarily in
buying large volumes of stock (1 development mark).
This can also result in less wastage of stock as it is only being ordered
when it is needed (1 development mark).
However, it also means that organisations can lose out on bulk-buying
discounts (1 mark).
Having a JIT system relies heavily on suppliers’ co-operation in delivering
stock when it is needed (1 mark).
Using a JIT system could result in high admin and delivery costs as there
are many small deliveries (1 mark).
This could mean that production may be interrupted/halted if there is a
delay with a delivery (1 development mark).
Describe methods a public relations department could use to improve the image of an organisation. (3)
Use of press release to counteract bad publicity
Give donations to charities
Sponsor events locally and nationally
Product endorsements/celebrity endorsements
Publicity literature given out
Give out company merchandise
Use press conferences – invite media to attend
Describe the objectives of the sectors of economy (3)
Private - aim for profit
Public - aim to provide a service
Third - aim to raise awareness or funds
Describe the benefits of maintaining a product portfolio. (3)
Allows organisation to spread risk (1 mark). If one product’s sales
decline, another product’s sales could be growing (1 development mark).
The opportunity for increased sales/profits from selling different
products (1 mark) due to customers having a number of products to buy
from one brand (1 development mark).
Seasonal fluctuations can be evened out (1 mark) — the company may not
struggle as much if they have products that are popular at certain times of year (1 development mark).
They can meet the needs of different market segments.
Newer products at growth stage can replace those at the decline stage of
the product life cycle.
Reference to analysis of Boston Matrix — resources can be allocated from
poorer performing products (‘dogs’) to income-generating products
(‘stars’ or ‘cash cows’).
Explain the benefits of positive employee relations. (3)
•employees will have their chance to discuss changes or grievances so they will feel happier and more secure in the workplace
•employees will become flexible with suggestions from management making it easier to introduce change within the organisation
•disputes will be less likely to arise as employees will have been consulted o employees understand what it is that the employer is trying to achieve
•the workforce will be committed, helping to ensure the business meets its objectives
•the organisation will gain a good image for treating its employees correctly/maintaining good employee relations, attracting new employees easily.
Discuss the advantages and disadvantages of using ratio analysis. (3)
Advantages
Good for comparing current performance with that of previous
years.
Good for comparing with rival businesses.
Highlights differences in performance that will aid future
decision-making/financial planning.
Good for highlighting trends over a period of time.
Disadvantages
Ratios are based on historic financial information which limits
usefulness.
Comparisons only useful if made with like-for-like organisations —
firms in the same industry may differ in size/product
mix/objectives.
The accounting information used to calculate ratios does not take
account of other internal factors, eg quality of managers/staff,
staff motivation, staff turnover, location of business.
Calculations do not show the implications of product developments
or declining products.
The accounting information used to calculate ratios does not
include external factors — PESTEC.
Describe one theory of motivation used by managers (2)
Maslow’s Hierarchy of Needs
Maslow suggested that there were five interdependent levels of
basic human needs (motivators) that must be satisfied in a strict
sequence (1 mark), starting with the lowest level and working up to
the highest (1 development mark).
Physiological needs (to stay alive and reproduce), and security
needs (to feel safe) are the most fundamental and pressing needs
(1 mark).
They are followed by social needs (for love and belonging), selfesteem
needs (to feel worthy/respected) and, lastly, selfactualisation
needs (to realise potential and have status) (1 mark).
You cannot progress to the next level in the hierarchy until the
previous level is satisfied (1 mark).
Describe examples of conflict that may arise between different groups of stakeholders. (2)
•employees are likely to want higher wages than the owners/managers are willing to pay
•managers want to delay payment for goods bought to improve cash flow, but suppliers want their money as soon as possible
Describe into the pipeline promotions that an organisation could use. (2)
These are promotions that a manufacturer gives to the wholesaler or retailer that sells their products (definition).
Dealer loaders are one example of ‘into the pipeline promotion’: this involves the wholesaler/retailer receiving an extra amount free, eg five boxes for the price of four.
The manufacturer may also provide the wholesaler/retailer with staff training.
The manufacturer may provide the wholesaler/retailer with point of-sale displays.
The manufacturer could allow sale-or-return.
Describe the features of Maslow’s motivation theory (3)
•physiological (basic) needs which are, for example, food/shelter - can be satisfied through basic pay
•safety needs which are job security/safe working environment - can be satisfied through permanent contracts
•Social (love and belonging) needs where most people want to belong to a group o can be satisfied by working with colleagues who provide support/teamwork/communication
•esteem needs are about being given recognition for a job well done - a promotion might achieve this
•Self-actualisation is when people realise their potential o may be measured by the extent of success and/or challenge at work.
Describe the reasons a profitable organisation may experience cashflow problems.(2)
Too much money tied up in unsold stock.
Customers being given too long a credit period.
Customers being given too high a credit limit.
Owners taking excessive cash drawings.
Suppliers not allowing a trade credit period.
Sudden increase in an expense, eg heat and light.
High capital expenditure outlay in one month instead of spreading
payments over a period of time.
Explain the benefits of using information technology to deliver staff training.(2)
Visuals from presentation software provide reinforcement to verbal
information from trainer/speaker (1 mark), therefore it holds the
attention of the trainees longer (1 development mark).
Staff in remote locations can be involved in training events using
web conferencing, reducing the need to travel.
Live-link meetings/online tutorials can be set up between trainer
and trainee so support is immediately available.
Staff being trained can access centrally-stored shared files from any
geographical location.
Discuss the methods of growth that can be used by organisations (4)
•Organic/internal growth: - open new outlets • operate in more markets and/or countries • introduce new products • less risky than a takeover • can be financed internally • may be limited by the size of the market
•Backward vertical - when the business takes over its supplier/source of goods and materials • this guarantees the quality and quantity of inputs • it may limit supplies to competitors • cuts out the middleman/adds to profits
•Diversification/conglomeration • where a business moves into an entirely different market • spreads risk • new customers may be attracted to the original product
Explain the benefits to an organisation of developing a strong corporate culture. (3)
Through uniforms staff will form an identity with the organisation which should result in lower staff turnover/absences
Increased staff motivation because they feel part of the organisation/associate strongly with the culture
A single corporate identity is seen by customers which means they will then associate it with that organisation’s brands/ethics/logos etc
Easily be recognised worldwide meaning customers will feel comfortable with products wherever they are
Values/beliefs/perks can attract quality staff which results in a better quality service
Customer satisfaction can improve because the customers begin to associate with the brands/logos/ethics they like
Staff can move between branches/departments more easily as they will all be using the same policies and practices
Describe 3 steps that an organisation may take in its workforce planning. (3)
•Identify how many workers are needed in a capital-intensive process
•Analyse the skills required
•Analyse the current and future staff profile
•Identify gaps and then close them
•Identify current staff training needs to meet required skills
•Train existing staff
•Recruit and select new staff
Describe the impact on an organisation of having poor cash flow. (3)
Inability to pay suppliers - Raw materials may not be supplied
Unable to pay expenses
May need to find a cheaper supplier
May have to offer discounts to encourage customers on credit to pay early
Increased costs due to borrowing funds ie interest and bank charges
Lack of disposable funds to invest eg to purchase new technology
Low employee morale due to pressure to increase sales revenue
Restricted growth as there is no funds to invest in and support growing the businesses operations
Owner may need to reduce their drawings
May need to sell unused assets
May need to reduce prices of goods
Might lead to staff redundancies
Solvency risk/closure/administration
Describe the laissez-faire style of leadership.(3)
Allows employees to make decisions once they have been given a task
Employees are expected to solve problems on their own with very little guidance from the group leader
Leaders only step in if they are needed/asked
Laissez-faire leadership can be effective in situations where employees are highly skilled, motivated, and capable of working on their own
Inexperienced staff will not be given much direction/support - Could result in poor quality of work
Employees may feel more pressure and become stressed