Business Organization and Environment

Nature of Business

100

What is a business?

Exchange in goods and services to fulfill the demand of the consumer force for a financial benefit.

200

List the 4 business functions.

1. Production/Operation 2. Marketing 3. Finance 4. Human Resources

300

What are the classifications of a business activity?

1. Primary Production (Natural Resources) 2. Secondary Production (Manufacturing) 3. Tertiary Production (Providing Services)

400

Explain what is meant by the basic economic problem.

Business use resources to satisfy consumer needs. However, these resources are scarce and there are not enough to satisfy all consumers' wants. This means businesses, individuals, and the government must make choices when allocating scarce resources between different uses.

500

State 5 external factors that affect a business.

1. The government 2. The economic climate 3. World Events 4. Pressure Groups 5. Consumer and Taste 6. Change in Population 7. Competition 8. Social factors 9. Environmental factors

Types of Organization

100

What is a public company?

A public company is a limited liability company that offers its securities (stock/shares, bonds/loans, etc.) for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets. It can be either unlisted or listed on a stock exchange depending on their size and local legislation.

200

What is a private company?

A company whose ownership is private. As a result, it does not need to meet the strict Securities and Exchange Commission filing requirements of public companies.

300

Describe the characteristics of a sole-trader.

A person who does business for himself is engaged in the operation of a sole proprietorship. Anyone who does business without formally creating a business organization is a sole proprietor. Many small businesses operate as sole proprietorships. Professionals, consultants, and other service businesses that require minimum amounts of capital often operate this way.

400

What is a partnership?

A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.

500

What is a non-profit organization? Give three specific examples.

A business entity that is granted tax-exempt status by the Internal Revenue Service. Donations to a nonprofit organization are often tax deductible to the individuals and businesses making the contributions. Nonprofit organizations must disclose a great deal of financial and operating information to the public, so that donors can ensure their contributions are used effectively. Three examples are charities, pressure groups, and worker co-operatives.

Growth and Evolution

100

What is an economies of scale? Distinguish between internal and external economies of scales.

The increase in efficiency of production as the number of goods being produced increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods. External economies are the cost per unit depends on the size of the industry, not the firm. Internal economies are the cost per unit depends on size of the individual firm.

200

What is a franchise? List some examples of the most popular franchises in the United States.

A form of business organization in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance, in exchange for a fee. Some of the most popular franchises in the United States include Subway, McDonalds, and 7-Eleven.

300

Explain the difference between internal and external growth.

Internal growth is the development of a company by growing its existing business with its own finances, as opposed to acquiring other businesses. External growth is the growth of a firm by buying other companies, rather than by expanding existing sales or products.

400

Analyze the advantages and disadvantages of a franchise for both franchisor and franchisee.

The advantages for a franchisor are: 1. Capitalized Expansion - Expansion requires the investment of capital and resources that for many successful business owners is limited and, sometimes, difficult to raise. 2. Franchising serves as a source for the capitalized expansion of a successful business. Rather than borrowing funds from lenders, franchisees invest their own funds to expand your business. 3. Continuing Revenue Streams - Successful franchisors benefit from continuing royalties that are, typically, based upon a percentage of franchisee gross sales and paid on a monthly basis. 4. Brand Development - The Multi-unit expansion associated with franchising serves to supplement and expand the value of your brand. Franchisee contributions to local and regional advertising further serve to expand brand recognition. 5. Economies of Scale - If managed properly the multi-unit expansion associated with franchising results in increased volume purchases and leverage with business suppliers and vendors. 6. Managerial Talent - Franchisee owners - who have invested their own capital and savings - typically serve as better managers and operators than paid employees whodo not possess a vested interest in the business. The disadvantages are: 1. Legal Regulation - Franchising is a regulated activity and requires compliance with federal and state franchise laws. To successfully establish a franchise, franchisors are required to work with an experienced franchise lawyer to establish a solid blueprint for franchising. 2. Investment - Although franchising serves as a source for the capitalized expansion of your business (i.e., franchisees invest in your expansion), the establishment of a franchise system requires the investment of capital to cover legal fees and the cost of establishing a franchising infrastructure. The advantages for a franchisee are: 1. Established Brand - Compared to establishing a new business, your franchised business - from day one - will possess an established brand recognized by consumers; 2. Established Business Systems - Your franchised business will benefit from established business systems and procedures that have been tested and proven in the marketplace. 3. Training and Support - Your franchise business will benefit from the franchisors continued training and support. This includes initial training and support that should be ongoing and extend to your business operations and the continued development of the products or services that you will be offering.The disadvantages are: 1. Benefits Could Prove Illusory - If you choose the wrong franchisor, the typical "benefits" associated with buying a franchise may prove to be an illusion. That is there are good franchisors and franchise systems and there are bad franchisors and franchise systems. If you choose the wrong franchisor and fail to thoroughly evaluate the franchise agreement, training, ongoing support and brand recoognition may be non-existent; 2. Potential for Reduced Margins - As a franchisee you will be required to pay on-going royalties. These royalties, typically, are based on your gross sales and not your profits. So, royalties will impact your profit margin. So, make sure that the franchise opportunity and the value of the franchise system outweighs your additional cost.

500

Draw an Ansoff Matrix in the board.

http://blog.genequityco.com/Portals/13578/images/ansoff%20matrix.png

Stakeholders

100

Which are the internal stakeholders for a business?

Employees, shareholders, and managers.

200

What are the external stakeholders for a business?

Suppliers, customers, special interest groups, competitors, and the government.

300

List the internal and external stakeholders of McDonalds.

Internal: the owner, directors and senior managers, workers, and shareholders. External: Suppliers, customers, special interest groups, Burger King, Wendy's, Taco Bell, Denny's, KFC and any other fast-food company.

400

Discuss the possible areas of conflict between stakeholders.

It is important for a business to balance the interest of its various stakeholders. Different stakeholder groups have different priorities, for example: Shareholders expect the business to make a profit and that they will receive a return on their investment. Employees require good working conditions if they are to be retained. Investors may want to see evidence of how a company responds to environmental issues before committing money to the business. Stakeholder conflict arises when the needs of some stakeholder groups compromise the expectations of others. A business has to make choices which some stakeholders might not like. For example, the cheapest supplier goods, which can help keep prices down for customers, must not come at the expense of ethical practice by suppliers.

500

The McDonalds meat has been contaminated, how will this affect the stakeholders?

Relevant to McDonalds: It is important for a business to balance the interest of its various stakeholders. Different stakeholder groups have different priorities, for example: Shareholders expect the business to make a profit and that they will receive a return on their investment. Employees require good working conditions if they are to be retained. Investors may want to see evidence of how a company responds to environmental issues before committing money to the business. Stakeholder conflict arises when the needs of some stakeholder groups compromise the expectations of others. A business has to make choices which some stakeholders might not like. For example, the cheapest supplier goods, which can help keep prices down for customers, must not come at the expense of ethical practice by suppliers.

Organizational Objectives

100

What is the importance of organizational objectives?

Allows the businesses to achieve its goals

200

Objectives should be practical outcomes from the operation of a business. One way of summarising this, is to use SMART criteria. This says that the objetives should be:

Specific, Measurable, Agreed, Realistic, Time specific

300

What is the difference between Mission statement and Vision statement?

Mission statement refers to the purpose of the company, organization, or person, its reason for existing. It should also guide the actions of the organization, spell out its overall goal, provide a path, and guide decision-making. Vision statement is an aspirational description of what an organization would like to achieve or accomplish in the mid-term or long-term future.

400

Distinguish between strategy and tactic.

A business strategy is a long term plan of action designed to achieve a particular goal or set of goals or objectives. A business tactic is the immediate short term desired result of a given activity, task or mission, usually entrusted to the lower positioned management in a three-tier organisation's structure of field or front desk, middle and executive management.

500

Examine the reasons why organizations consider setting ethical objectives.

Environmental responsibility, dealing with customers and suppliers in a fair and honest manner, competing fairly and not engaging in practices such as collusion or destroyer pricing, and the workforce and responding fairly to their needs.