Professional Documents
Culture Documents
A2 Business Studies R
A2 Business Studies R
2
Business
Structure
Trading
links
International
trade
has
grown
rapidly
in
the
recent
years
More
countries
trading
together
means
can
be
beneficial:
Improve
their
political
&
social
aspects
and
resolve
differences
between
them
Wider
choices
for
consumers
may
lead
to
better
standards
of
living
Countries
may
obtain
any
raw
materials
that
are
not
available
in
their
own
countries
Imports
may
create
competition
for
domestic
firms
and
encourage
them
to
be
more
efficient
Countries
can
specialise
in
the
products
they
are
best
at
making
and
benefit
from
the
economies
of
scale
However,
these
are
the
drawbacks:
Loss
of
output
&
jobs
from
domestic
firms
(cannot
compete
with
imported
goods)
Strategic
industries
(foodstuffs,
electricity,
coal,
etc.)
should
not
be
dependent
on
other
countries
because
if
there
were
a
conflict
between
countries
or
another
factor
leading
to
loss
of
imports
then
the
country
would
lose
the
supply
of
important
goods
New/small
businesses
(infant
industries)
may
not
compete
with
imported
goods
Importers
may
dump
goods
(price
lower
than
cost),
which
is
unfair
Too
much
imports
could
lead
to
a
current
account
deficit
&
depreciation
in
currency
Multinationals
Multinational
business
business
organisation
that
has
its
headquarters
in
one
country,
but
with
operating
branches,
factories
and
assembly
plants
in
other
countries
Whats
good
about
becoming
a
multinational?
Closer
to
main
markets
(lower
transport
costs,
better
information
of
market)
Lower
costs
or
production
(lower
local
wages,
cheaper
rent
and
site
costs,
better
government
grants
and
taxes)
1
Avoid
import
restrictions
Access
to
local
natural
resources
Problems
that
multinationals
might
face:
Communication
problems
(language
barriers)
Culture
&
legal
difference
(so
need
to
adapt)
Biggest
type
of
organisation
so
need
to
ensure
that
the
objectives
are
coordinated
between
all
plants
of
the
business
Benefits
to
host
countries:
Create
employment
&
training
opportunity
(improved
labour
skills)
Local
firms
may
benefit
from
supplying
materials
to
the
multinationals
May
improve
infrastructure
for
the
country
Encourage
local
firms
to
improve
standards
to
compete
with
bigger
businesses
Increased
government
tax
revenue
from
the
profits
made
GDP
may
increase
and
this
causes
economic
growth
Possible
limitations
to
host
countries:
Exploitation
of
workers
with
low
wages,
unfair
working
conditions,
long
working
hours,
etc.
Pollution
and
depletion
of
natural
resources
of
host
countries
Local
firms
may
go
out
of
business
Profits
may
be
sent
back
to
home
country,
rather
than
kept
for
reinvestment
in
the
host
nation
Privatisation
Privatisation
selling
state-owned
and
controlled
business
organisations
to
investors
in
the
private
sector
Arguments
for
privatisation:
The
profit
motive
of
private-sector
businesses
will
lead
to
greater
efficiency
Decision
making
in
state
bodies
can
be
slow
&
bureaucratic
Market
forces
will
be
allowed
to
operate,
failing
businesses
would
go
out
and
successful
ones
would
expand
(no
limits
on
growth)
Sale
of
nationalised
industries
can
raise
finance
for
government
Private
businesses
will
have
access
to
private
capital
markets
(leads
to
increased
investment
in
the
economy)
Arguments
against
privatisation:
The
state
should
take
decisions
about
essential
industries
which
are
based
on
societys
needs
not
just
interest
of
shareholders
(some
unprofitable
companies
may
be
kept
open)
It
is
more
difficult
to
achieve
coordinated
policy
to
benefit
the
whole
country
with
many
privately
run
businesses
Many
strategic
industries
could
operate
as
private
monopolies
if
privatised
and
they
could
exploit
consumers
with
high
prices
Nationalisation
Nationalisation
selling
privately
owned
and
controlled
business
organisations
to
the
state
or
public
sector
Arguments
for
nationalisation:
Weaknesses
of
free
market
(free
market
price
too
uncertain
or
volatile)
Public
ownership
meets
social
&
economic
needs
Loss-making
services
might
still
be
opened
if
the
social
benefit
is
great
enough
Arguments
against
nationalisation:
Lack
of
profit
motives
may
lead
to
inefficiency
Only
produce
what
they
think
people
need
(may
not
always
be
correct)
Government
may
make
business
decisions
for
political
reasons
(e.g.
opening
a
new
branch
in
a
certain
area
to
gain
popularity)
Merger
an
agreement
by
shareholders
and
managers
of
two
businesses
to
bring
both
firm
together
under
a
common
board
of
directors
with
shareholders
in
both
businesses
owning
shares
in
the
newly
merged
business
Takeover
when
a
company
buys
over
50%
of
the
shares
of
another
company
and
becomes
the
controlling
owner
of
it.
Also
called
acquisition
4
Advantages of merging/integrating: Two firms may be able to share research facilities & ideas that will benefit both businesses (only if firms use the same kind of technologies) Larger firms may benefit from economies of scale The new business can save on marketing & distribution costs using the same outlets and sales teams Disadvantages of merging/integrating: The firm may become too big and faces diseconomies of scale There may be little mutual benefit from shared facilities or marketing systems if the firms have products in different markets The business & management culture of the firms may be different and conflicts could occur (e.g. environmental issues, CSR and etc.)
Market
failure
when
markets
fail
to
achieve
the
most
efficient
allocation
of
resources
and
there
is
under-
or
overproduction
of
certain
goods
or
services
(you
should
already
know
the
solutions
for
all
of
them!)
1. Low
unemployment
workers
in
the
working
population
are
willing
&
able
to
work
but
are
unable
to
find
a
job
Costs
of
unemployment:
The
economy
could
produce
more
goods
&
services,
which
would
then
be
available
for
consumption
Government
has
to
pay
unemployment
benefits
from
the
tax
revenue
while
the
money
could
be
used
in
better
ways
to
improve
the
country
Serious
unemployment
could
lead
to
social
problems
such
as
crime
Unemployment
reduces
demand
for
goods
&
services
and
this
will
reduce
the
incomes
for
those
working
Loss
of
income
leads
to
lower
standards
of
living
Unemployment
causes
the
skills
to
become
obsolete
Cyclical
unemployment
resulting
from
low
demand
for
goods
and
services
in
the
economy
during
a
period
of
slow
economic
growth
or
a
recession
(AD
falls,
firms
produce
less,
less
workers
needed)
Government
needs
to
avoid
substantial
swings
in
the
business
cycle
(stabilise
inflation
&
exchange
rate
so
that
domestic
and
international
demands
do
not
fluctuate
much)
Structural
unemployment
caused
by
the
decline
in
important
industries,
leading
to
significant
job
losses
in
one
sector
of
industry
(changes
in
consumer
tastes
e.g.
switching
from
high-street
banking
to
online
banking,
change
in
the
structure
of
industry,
improvement
in
technology
e.g.
employers
are
looking
for
multi- skilled
workers)
Government
needs
to
provide
training
and
education
for
the
unskilled
workers
NOT
to
prevent
changes
in
the
economy
Frictional
unemployment
resulting
from
workers
losing
or
leaving
jobs
and
taking
a
substantial
period
of
time
to
find
alternative
employment
Government
can
improve
the
labour
market
by
providing
more
information
about
job
opportunities
(more
employment
agencies
and
reduce
unemployment
benefits
for
people
who
are
slow
to
find
a
new
job)
2. Low
inflation
an
increase
in
the
average
price
level
of
goods
&services
which
results
in
a
fall
in
the
value
of
money
Causes
of
cost-push
inflation
(rise
in
cost
of
production):
Lower
exchange
rate
prices
of
imports
rise
Labour
cost
rises
(higher
wage
demands)
Transportation
costs
rise
(oil
prices
rise)
Demand-pull
inflation:
Economic
boom
Demand
rises
and
the
economy
has
no
spare
capacity
to
meet
the
increased
needs
Impacts
on
business
activity
Benefits
of
low
inflation
(approx.
2%):
Inflation
means
a
fall
of
real
money
value.
The
value
of
business
liabilities
or
debts
would
fall
The
value
of
fixed
assets
(building
and
land)
could
rise,
this
increases
the
value
of
the
business
on
the
balance
sheet
&
make
the
firm
more
financially
secure
6
Since
stocks
are
bought
in
advance
and
then
sold
later,
there
is
an
increase
in
profit
due
to
inflation
Drawbacks
of
high
inflation
(5-6%):
Higher
wage
demands
from
workers
(adds
to
costs)
Consumers
demand
may
fall
Government
needs
to
raise
interest
rates
to
reduce
AD
and
try
to
control
the
rising
inflation,
this
would
increase
the
size
of
debt
a
business
has
to
pay
Cash-flow
problems
may
occur
because
businesses
have
higher
costs
Inflation
adds
uncertainty
about
the
future
If
inflation
is
higher
than
other
countries,
then
the
country
will
loss
international
competitiveness
(exchange
rate
falls
because
nobody
wants
to
buy
the
products
and
thus
the
currency)
Businesses
may
not
offer
extended
credit
periods
because
money
is
losing
value
Cutting back on investment spending Cutting profit margins to stay as competitive as possible Reducing borrowing Reducing time period for debtors to pay Reducing labour costs
Deflation
is
not
good
either!
Demand
would
fall
because
consumers
would
think
that
prices
will
continue
to
fall
and
delay
making
purchases
Businesses
would
not
want
to
borrow
because
they
are
repaying
debts
with
the
money
with
higher
value,
therefore
investment
may
fall
Businesses
would
refuse
to
hold
lots
of
stocks
because
they
lose
values
as
time
passes,
they
would
reduce
orders
and
this
leads
to
a
loss
of
national
output
Improve
by:
Increase
staff
motivation
More
efficient
&
reliable
capital
equipment
Better
staff
training
Increase
worker
involvement
in
problem
solving
to
speed
up
production
Improve
internal
efficiency
(e.g.
no
waiting
for
supplies
of
materials
to
arrive)
Absenteeism
rates
measures
the
rate
of
workforce
absence
as
a
proportion
of
the
employee
total
Number
of
staff
absent
X
100
Total
number
of
staff
May
be
caused
by
poor
working
conditions
(lead
to
illness,
stress,
loss
of
motivation)
Staff
absenteeism
may
lead
to
poor
customer
services.
It
is
expensive
to
employ
extra
staff
just
to
cover
for
the
staff
away
from
work
or
to
ask
others
to
work
overtime.
Firms
need
well-focused
and
motivated
staff
to
avoid
these
extra
costs
Labour turnover measures the rate at which employees are leaving an organisation good indicator of staff discontent Number of staff leaving in 1 year X 100 Average number of staff employed
Other
measures
of
workforce
performance
Wastage
levels
(wasted
or
damaged
products
as
a
proportion
to
total
output)
Reject
rates
or
consumer
complaints
over
total
customers
served
Days
lost
due
to
strikes
within
the
business
2. Collective
bargaining
between
trade
unions
and
employers
when
unions
and
national
employers
negotiate
wage
levels
and
working
conditions
for
the
whole
industry.
Unions
are
powerful
because
they
may
call
for
strike
actions,
which
bring
the
entire
industry
to
a
halt.
DISADVANTAGES:
National
agreements
may
not
be
affordable/suitable
for
small
businesses
Industrial
actions
(strikes)
cause
disruption
and
lost
output
&
sales
Powerful
unions
may
resist
to
changes,
this
leads
to
lack
of
investment
and
development
of
key
industries
(adversely
affects
union
members)
Less
negotiation
&
confrontation
leads
to
increase
competitiveness
3. Cooperation
between
labour
and
management
Involving
workers
in
important
decisions
and
issues
Less
confrontation,
fewer
strikes
and
more
cooperation
Based
on
mutual
respect,
understand
and
common
aims
Leads
to
a
competitive,
efficient
and
productive
business
May
cost
more
or
be
time-consuming
but
good
for
long-term
success
Trade
unions
An
organisation
of
working
people
with
the
objective
of
improving
the
pay
and
working
conditions
of
their
members
and
providing
them
with
support
and
legal
services
Reasons
for
joining
a
trade
union:
1. Stronger
position
for
workers
in
collective
bargaining
and
negotiations
than
they
are
if
they
negotiated
individually
because
trade
unions
represent
all
their
members
in
a
business
2. Individual
industrial
action
(one
worker
going
on
strike)
is
not
very
effective
3. Provide
legal
support
to
employees
who
claim
unfair
dismissal
or
poor
conditions
of
work
4. Unions
ensure
that
all
legal
requirements
are
met
(health
&
safety
rules,
etc.)
Negotiation
1. National
bargaining
trade
union
leaders
discuss
over
pay
and
working
conditions
at
a
national
level
with
employers
associations.
Agreements
would
then
be
applied
in
all
businesses
in
the
association.
However,
these
agreements
may
not
reflect
the
need
of
all
businesses
because
of
their
different
cost
structures
and
profit
margins
10
2. Business
bargaining
When
a
firm
negotiates
with
union
officials
to
establish
pay
and
conditions
for
all
the
branches
of
the
business
in
that
country.
Deals
may
not
reflect
the
problem
one
factory
has
in
recruiting
staff
3. Plant
bargaining
each
factory
agrees
a
deal
between
union
officials
and
local
management.
This
is
more
customised
for
each
factory
and
avoids
all
the
problems
above
Single-union
agreement
An
employer
recognises
just
one
union
for
purposes
of
collective
bargaining
When
workforce
in
a
business
are
members
of
different
unions:
Collective
bargaining
more
difficult
and
time-consuming
Inter-union
disputes
over
which
grades
of
workers
should
get
the
highest
pay
rise
Also
reduces
flexibility
of
a
workforce
if
members
of
one
union
are
prevented
from
doing
the
work
of
other
workers
belonging
to
another
union
and
reduces
productivity
Problems
solved
when
employers
sign
recognition
deals
with
just
one
union
Conciliation
The
use
of
a
third
party
in
industrial
disputes
to
encourage
both
employer
and
union
to
discuss
an
acceptable
compromise
solution
(a
third
party
will
listen
to
both
sides
and
help
them
to
come
to
a
compromise
agreement)
Arbitration
Resolving
an
industrial
dispute
by
using
an
independent
third
party
to
judge
and
recommend
an
appropriate
solution
(make
decision
for
them)
See who has authority over them, and to whom they are accountable for
Hierarchical
structure
The
order
of
management
in
an
organisation
lowest
to
highest
showing
chain
of
command
and
the
way
authority
is
organised/distributed
levels
of
accountability
Advantages:
Roles
and
relationships
made
clear
Accountabilities
and
controls
are
established
Information
and
communication
channels
are
established
Authority
and
responsibility
levels
established
Line
management
authority
made
clear
Very
appropriate
for
some
organisations
(e.g.
Army)
with
many
levels
and
narrow
spans
of
control
Supportive
of
bureaucratic
organisations
requiring
detailed
control
Disadvantages: One-way communication (not efficient) Few links between departments (may lead to lack or coordination) Inflexible (change resistance) because all managers are trying to defend their own position in the hierarchy and the importance of their own department
Matrix
structure
An
organizational
structure
that
creates
project
teams
that
cut
across
traditional
functional
departments
-
an
emphasis
away
from
functions
towards
projects
or
tasks;
reduce
layers
in
hierarchy;
combine
line
departments
with
project
task
teams
Advantages:
Encourages
team
approach
Staff
are
assigned
by
ability
and
skill,
not
rank
or
position
Allows
total
communication
between
all
members
of
the
team
and
traditional
departmental
barriers
broken
down
More
varied
work
Greater
motivation
for
staffing
multi-disciplinary
teams
Reduces
bureaucracy
and
control
Staff
focus
on
what
is
good
for
the
business
as
a
whole
not
just
only
for
their
department
Allow
people
to
share
ideas
and
find
the
best
solution
12
Disadvantages:
Less
direct
control
from
the
senior
managers
Senior
managers
may
not
want
to
work
with
more
junior
staff
Can
cause
conflicts
within
teams
Level
of
hierarchy
a
stage
of
the
organisational
structure
at
which
the
personnel
on
it
have
equal
status
and
authority
Chain
of
command
the
route
through
which
authority
and
power,
and
information
are
passed
down
a
business
the
flow
of
authority,
power,
and
information
Span
of
control
The
number
of
staff
that
a
manager
has
authority
over
or
the
number
of
people
directly
under
the
control
of
a
manager.
Wide
Span
of
control:
Greater
delegation
required
so
more
responsibility
for
subordinates
and
less
central
control
There
are
less
layers
of
management
to
pass
a
message
through,
so
the
message
reaches
more
employees
faster
It
costs
less
money
to
run
a
wider
span
of
control
because
a
business
does
not
need
to
employ
as
many
managers
Communication
+
coordination
problems
(more
people
under
control
so
more
complex)
Limited
opportunity
of
close
consultation
with
staff
(can
cause
demotivation)
Increased
stress
+
workload
for
managers/supervisors
Narrow
Span
of
Control
A
narrow
span
of
control
allows
a
manager
to
communicate
quickly
with
the
employees
under
them
and
control
them
more
easily
Feedback
of
ideas
from
the
workers
will
be
more
effective
It
requires
a
higher
level
of
management
skill
to
control
a
greater
number
of
employees,
so
there
is
less
management
skill
required
Delegation
passing
on
authority
down
the
organisational
hierarchy
Advantages:
Senior
managers
can
focus
more
on
more
important
roles
Shows
trust
in
subordinates
and
increase
motivation
level
Develops
and
trains
staff
for
more
senior
positions
Helps
staff
to
achieve
fulfilment
through
their
work
(self-actualisation)
13
Disadvantages: Delegation would be unsuccessful if task is not well defined or if inadequate training is given Delegation would be unsuccessful if insufficient authority is given to subordinate Staff will be demotivated if managers only delegate boring tasks to them Centralisation keeping all of the important decision-making powers within the head office or the centre of the organisation Advantages: Rapid decision-making (no discussion) Same policies throughout the business reduce conflict & confusion Senior managers take decisions in the interest of the whole business not just one division of it Central buying allows greater economies of scale Decentralisation decision-making powers are passed down the organisation to empower subordinates and regional/product managers Advantages: More local decisions can be made that reflect different conditions More junior managers can develop and prepare for more challenging roles Delegation & empowerment can lead to motivation Decision making in response to changes should be quicker as head office will not have to be involved every time
14
Staff
managers
managers
who,
as
specialists,
provide
support,
information
and
assistance
to
line
managers
(specialists
employed
to
give
advice
to
senior
line
managers)
can
be
economists,
scientific
experts
or
market
researchers.
They
perform
supporting
roles
but
do
not
take
decisions
Some
line
managers
might
resent
experts
coming
into
the
organisation
and,
as
they
see
it,
telling
them
how
to
do
their
jobs
Methods
of
communication
Electronic
media
the
process
of
sending
information
from
sender
to
receiver
through
the
internet
(plus
feedback)
Strengths:
Accuracy
of
orders
e.g.
automatic
ordering
systems
via
computer
links
Reduced
stock
levels
JIT
based
IT
systems
Quicker
e.g.
than
arranging
meetings
Less
time-consuming
than
face
to
face
contact
Encourages
response
Weaknesses:
Capital
cost
on
hardware
Staff
training
required
Risk
of
communication
overload
e.g.
too
many
e-mails
Requires
suppliers/customers
to
have
compatible
systems
Diminishes
personal
contact
Oral
communication
can
be
one-to-one
conversations,
interviews,
group
meetings
or
team
briefings
Strengths:
Direct
and
allows
feedback
15
Can
be
varied
to
suit
needs
of
receiver
Easy
to
understand
Can
be
questioned
quickly
Weaknesses:
Need
to
listen
carefully
Affected
by
noise
No
permanent
accurate
record
Can
be
quickly
forgotten
Written
communication
letters,
memos,
notices
on
boards,
reports
Strengths:
Permanent
record
available
More
structured
Easy
to
distribute
Cannot
be
varied
Can
be
referred
to
again
Weaknesses:
Message
identical
to
each
receiver
No
body
language
shown
Feedback
is
slower
No
immediate
response
Can
be
misinterpreted
Time-consuming
Barriers to communication reasons why communication fails 1. Inappropriate media used 2. Receiver forgot
16
3. 4. 5. 6.
Misleading or incomplete message Jargons & language that can be hard to understand Information overload Channel of communication is too long (the route through which a message is sent from sender to receiver) 7. Sender is not trusted 8. Unmotivated workers = poor receivers 9. Poor sender (not ensure the clarity of the message or understanding) 10.Noise in the factories
Informal
communication
Unofficial
channels
of
communication
that
exist
between
informal
groups
within
an
organisation
17
Promotion:
how
the
product
will
be
promoted?
Advertising,
sales
promotion,
PR
and
personal
selling.
The
scale
and
type
are
dependent
on
the
image
being
created,
price
being
charged,
budget
available
Place
or
distribution:
getting
the
product
to
consumers.
Covers
the
details
of
channel
to
be
used,
outlets
or
retailers
Marketing
budget
Finance
available
for
promotional
expenditure
planning
on
expected
expenditure
&
revenue
(how
to
spend
effectively?)
Summary
and
timescale
gives
a
short
summary
of
the
plan
and
the
timescale
over
which
it
will
be
introduced
Reviewing
the
plan
How
successful
was
it?
Results
need
to
be
regularly
checked
against
objectives
during
the
process.
If
strategies
are
not
working,
then
changes
to
overall
plan
could
be
made.
Final
results
can
be
used
to
aid
future
plan
Evaluation
Benefits:
Potential
entrepreneurs
need
to
convince
financial
investors
that
the
proposal
is
potentially
profitable
more
chances
of
receiving
financial
support
Reduce
risks
of
failure
helps
establish
strategies
and
marketing
mix
Provides
direction
and
purpose
for
the
business,
progress
can
be
monitored
More
accurate
budget
could
be
allocated
Limitations:
Complex
Costly
and
time-consuming
Required
skills
Plans
could
go
out
of
date
and
be
useless
(external
environment
changes)
Promotional
campaigns
AIDA
a
model
that
explains
the
successive
stages
a
customer
passes
through
in
buying
a
product:
Attention
Interest
Desire
Action
DAGMAR
a
process
of
establishing
goals
for
a
promotion
campaign
so
that
it
is
possible
to
determine
whether
it
has
been
successful
or
not:
Defining
Advertising
Goals
for
Measured
Advertising
Results
(pass
customers
through
the
stages:
Unaware
Aware
Comprehension
Conviction
(belief)
Action)
18
Product
development
New
product
development
(NPD)
the
design,
creation
and
marketing
of
new
goods
and
services
The
process:
1. Generating
new
ideas
Can
come
from
companys
own
R&D
department
Adaptation
of
competitors
ideas
need
to
be
careful
not
to
violate
copyright/patent
laws
Market
research,
such
as
focus
groups
discussion
about
new
products
that
consumers
would
like
to
see
on
the
market
Employees
workers
know
a
lot
about
existing
products
Salespeople
they
have
close
contact
with
the
final
consumers,
they
may
suggest
improvements
or
new
products
Brainstorming
in
groups
generate
new
ideas
beyond
the
level
that
would
be
achieved
by
individuals
working
separately
2. Idea
screening
Ideas
with
the
least
chance
of
success
are
eliminated
Questions
that
need
to
be
considered:
How
will
consumers
benefit
from
this
product?
Is
it
technically
possible
to
manufacture
this
product?
Will
the
product
be
profitable
enough
at
the
selling
price?
3. Concept
development
and
testing
Who
are
the
most
likely
consumers?
What
features
should
the
product
have?
How
will
consumers
react
to
it?
(Can
be
tested
by
surveys
&
market
research)
What
are
the
most
cost-effective
methods
of
manufacture?
What
will
it
cost
to
produce?
19
4. Business
analysis
What
are
the
likely
impact
on
sales,
costs
and
profits?
Is
finance
available
to
develop
the
product?
Will
it
fit
with
the
existing
product
mix?
5. Product
testing
Developing
a
model
of
the
product
Testing
the
product
in
typical
use
conditions
Using
focus
groups
to
gather
opinions
about
the
product
Adapting
the
product
as
required
after
testing
or
focus
group
feedback
6. Test
marketing
the
launch
of
the
product
on
a
small-scale
market
to
test
consumers
reactions
to
it
Actual
consumer
behaviour
can
be
observed
and
measured
Feedback
from
customers
will
help
decision
whether
the
firm
should
invest
in
a
full-scale
launch
or
not
Risks
of
product
failing
are
reduced
Any
weaknesses
in
the
product
identified
by
consumer
feedback
could
be
used
to
adjust
and
improve
the
final
version
of
the
product
Test
marketing
can
be
expensive
Competitors
can
observe
a
firms
intention
and
react
before
a
full-scale
launch
is
put
into
effect
7. Commercialisation
A
full-scale
launch
of
the
product
(introduction
phase
of
the
product
life
cycle)
Promotional
strategy
&
advertisements
to
inform
the
market
of
the
arrival
will
be
put
into
place
Distribution
channel
will
be
filled
up
with
stocks
to
ensure
the
availability
of
the
product
20
R&D
spending
plans
of
competitors
it
may
be
essential
to
spend
as
much
as
or
more
than
competitors
to
maintain
market
share
and
technical
leadership
Business
expectations
if
the
firm
is
optimistic
about
future
demands
and
economic
growth,
then
it
is
more
able
to
agree
to
substantial
budgets
for
R&D
Culture
of
the
business
some
business
view
short-term
profit
as
a
very
crucial
issue.
This
would
prevent
large
spending
on
R&D
Government
policy
grants
and
tax
reduction
to
businesses
would
encourage
more
investment
into
R&D
R&D
do
not
guarantee
success,
new
ideas
can
fail
to
reach
the
market
because:
Defects
in
designs
or
manufacture
Competitors
products
rising
ahead
Inadequate
market
research
and
inappropriate
pricing
Changes
in
technology
leaving
the
product
outdated
Regardless
of
these
risks,
many
firms
still
continue
to
invest
in
R&D.
They
believe
that
they
would
benefit
from
the
long-term
success
and
profitability
that
R&D
would
lead
them
to
Sales
forecasting
Predicting
future
sales
levels
and
sales
trends
Helps
reduce
risks
of
business
operations
The
firm
would
know
how
many
materials
to
order
(aids
stock
control)
Marketing
department
knows
how
many
products
to
distribute
More
accurate
workforce
plan
(correct
level
of
staffing)
Cash
flows
and
other
forecasts
would
also
be
more
accurate
(finance
department
could
plan
more
accurately)
21
Example
Description:
Four-quarter
moving
total:
4
sales
revenues
added
together
Eight-quarter
moving
total:
two
4
four-quarter
moving
totals
added
together
Moving
average:
eight-quarter
moving
total
divided
by
8
Seasonal
variation:
actual
sale
revenue
moving
average
Average
seasonal
variation:
seasonal
variations
for
each
quarter
added
together
and
divide
by
number
of
results
Forecasting
sales
1. Plot
the
moving
averages
on
a
time-series
graph
2. Extrapolate
into
the
future
3. Read
off
the
forecast
trend
result
from
graph
4. Adjust
by
the
average
seasonal
variation
for
that
particular
time
period
Evaluation Advantages: Useful for applying seasonal variation to predictions Can be accurate for short-term
22
Identifies
average
seasonal
variations
for
each
time
period
(aids
future
accuracy)
Useful
for
operations
management
&
marketing
decisions
(if
sales
are
forecasted
to
be
falling,
price
could
be
lowered)
Disadvantages:
Complex
calculation
Only
useful
if
external
environment
do
not
change
(in
reality
things
change)
Forecasting
into
longer
term
requires
qualitative
methods
that
are
less
dependent
on
past
results
as
well
(e.g.
market
research)
23
International
marketing
International
marketing
selling
products
in
markets
other
than
the
original
domestic
market
Why
international?
Saturated
home
markets
too
much
competition
with
large
firms
Profits
sales
growth
and
lower
costs
of
operation
Spreading
risks
sales
and
profits
or
the
business
are
less
dependent
on
economic
&
legal
constraints
in
home
country
Legal
differences
other
countries
may
have
fewer
restrictions
(e.g.
advertising)
Differences:
Political
changes
in
government
can
cause
instability
in
some
countries,
this
may
lead
to
risks
of
terrorism
e.g.
Thailand
protests.
May
lead
to
destruction
of
companys
assets
Economic
&
social
age
structure,
role
of
women,
tax
and
interest
rates
(so
business
needs
to
sell
the
right
products
&
use
the
right
strategies)
Legal
banned
goods
in
some
country,
advertising
restrictions,
safety
Cultural
peoples
behaviour,
language,
perception
Different
business
practices
formalities
of
setting
up
a
business
can
vary
from
country
to
country
Methods
of
entry
Exporting
can
be
selling
directly
to
a
foreign
customer
(online
website),
or
through
export
intermediary
(agent
or
trading
company
based
in
the
country)
International
franchising
can
be
one
company
in
charged
of
all
branches
in
the
country
or
individual
franchisees
operate
each
outlet
Joint
ventures
Licensing
allowing
another
firm
to
produced
its
branded
goods
or
patented
products
under
licence.
Goods
do
not
have
to
be
exported,
saves
time
&
transport
cost.
But
quality
must
be
ensured,
any
unethical
practice
by
the
licensee
may
create
negative
impact
on
the
parent
firm
Direct
investment
in
subsidiaries
setting
up
factories
in
foreign
country.
Can
be
decentralised
(local
managers
in
charged),
or
centralised
(control
from
the
head
office
in
the
home
country)
24
Pan-global
marketing
Adopting
a
standardised
product
across
the
globe
as
if
the
entire
world
were
a
single
market
selling
the
same
goods
in
the
same
way
everywhere
Advantages:
Relatively
low
cost
(EOS)
use
one
marketing
strategy
&
mix
A
common
identity
for
the
product
can
be
established.
This
aids
consumer
recognition
Disadvantages: Sometimes firms need to adapt to suit various culture & religion (or else people wont buy it)
25
Legal
restrictions
can
vary
advertising
strategy
may
need
to
be
different
or
the
same
product
may
be
legal
in
one
country
and
illegal
in
another
Setting
the
same
price
in
all
countries
will
not
reflect
the
different
average
income
levels
in
different
countries
There
may
be
local
opposition
to
multinational
business
activity
Global
localisation
Adapting
the
marketing
mix,
including
differentiated
products,
to
meet
national
and
regional
tastes
and
cultures
Advantages:
Local
needs,
tastes
and
cultures
are
reflected
in
the
marketing
mix
of
the
business
this
could
lead
to
higher
sales
There
is
no
attempt
to
impose
foreign
brands
or
products
advertisements
on
regional
markets
The
products
are
more
likely
to
meet
local
national
legal
requirements
than
if
they
are
standardised
products
There
will
be
less
local
opposition
to
multinational
business
activity
Disadvantages:
The
scope
for
EOS
is
reduced
The
brand
could
lose
its
power
&
identity
if
differentiate
products
to
adapt
Additional
costs
of
adapting
(e.g.
adverts,
store
layouts)
to
specific
local
needs
26
Benefits
of
ERP
software
Supply
only
according
to
demand
lean
production
(avoid
waste)
Just-in-time
ordering
of
stocks
Reduces
costs
at
all
stages
of
supply
chain
materials
&
products
are
electronically
tracked
Improved
delivery
times
and
better
customer
service
(computerised
system
works
faster
than
labour
force
does)
All
departments
are
linked
better
coordination
and
less
wastage
Data
from
all
departments
and
all
stages
of
production
will
be
available
to
management
via
the
computer
system
may
help
future
decision
making
Limitations
of
ERP
software
High
costs
of
installation
(advanced
technology
is
expensive)
Different
departments
now
need
to
work
in
one
common
system
may
not
be
suitable
for
some
managers/workers
Implementation
of
ERP
can
take
many
years,
chosen
software
can
become
obsolete
by
the
time
installed
or
competitors
could
come
up
with
a
better
and
more
advanced
system
already
27
28
Drawbacks: Little time for maintenance/repairs This may lead to breakdown of machinery Worsens health and safety record Puts pressure on staff/managers (stress & work overload) Not able to meet increased orders e.g. from established customers
Outsourcing
Using
another
business
to
undertake
a
part
of
the
production
process
rather
than
doing
it
within
the
business
using
the
firms
own
employees
Advantages:
Reduction
of
operating
costs
specialist
firms
are
cheaper
because
they
benefit
from
economies
of
scale)
Increased
flexibility
contracts
can
be
ended
when
demand
fall
Improved
company
focus
the
business
can
concentrate
on
its
main
aims
&
tasks
and
outsource
other
functions
Access
to
quality
service
or
resources
that
are
not
available
internally
Freed-up
internal
resources
for
use
in
other
areas
Disadvantages: Loss of jobs within the business reduce staff motivation & job security
29
Quality
issues
difficult
to
monitor
on
quality
Customer
resistance
creates
doubts
and
consumers
may
question
the
quality
&
reliability
Security
risks
of
important
data
of
the
business
being
lost
when
outside
businesses
involve
Evaluation
Outsourcing
may
help
to
improve
efficiency
and
this
may
lead
to
increased
opportunity
for
businesses.
However,
there
are
risks
involved.
The
company
should
weigh
up
the
costs
and
benefits
before
the
decision.
It
is
less
risky
to
outsource
the
minor
sections
of
the
business
and
focus
on
the
core
activity
itself
30
Just-in-time
A
part
of
lean
production,
involves
fewer
resources
being
tied
up
in
buffer
stocks
(notes
in
AS
revision)
Quality
control
Inspection
of
completed
product
1. When
raw
materials
are
received
before
production
2. Whilst
products
are
going
through
production
process
3. When
the
products
are
finished
Includes
inspection,
testing
the
products,
and
random
sampling.
It
is
more
like
identifying
the
defects
rather
than
preventing
in
the
first
place
Weaknesses
of
quality
control
Looking
for
problems
is
a
negative
process.
Workers
may
feel
that
they
are
not
trusted
and
the
working
relationship
in
the
business
will
not
be
good
The
job
of
inspection
can
be
tedious,
inspectors
can
become
demotivated
and
may
not
carry
out
their
tasks
efficiently
Checking
can
be
done
too
late
in
the
production
process;
faulty
products
may
pass
through
several
stages
before
being
noticed.
A
lot
of
time
needs
to
be
spent
finding
the
source
of
the
fault
Workers
will
not
see
quality
as
their
responsibility
because
they
know
that
there
will
be
inspectors
checking
on
the
quality
anyway.
This
lack
of
responsibility
can
lead
to
demotivation
and
lower-quality
output
32
Quality
assurance
A
system
of
agreeing
and
meeting
quality
standards
at
each
stage
of
production
to
ensure
consumer
satisfaction.
Quality
assurance:
Focuses
on
prevention
of
poor
quality
by
designing
the
appropriate
production
process,
rather
than
inspecting
for
poor
quality
products
at
the
end
Emphasises
on
the
need
for
workers
to
get
it
right
the
first
time
to
avoid
expensive
reworking
of
faulty
goods
Establishes
quality
standards
and
targets
for
each
stage
of
the
production
process
Checks
components,
materials
and
products
at
every
stage
of
the
production
process,
not
only
at
the
end
when
much
time
and
resources
could
have
been
wasted
already
by
that
time
Advantages
over
quality
control
1. Everyone
is
responsible
for
quality
leads
to
job
enrichment
2. Making
efforts
to
improve
quality
increase
motivation
3. Easier
to
trace
back
quality
problems
to
the
stage
of
production
process
where
a
problem
might
have
been
occurring
4. Reduces
the
need
for
expensive
final
inspection
and
correction
of
faulty
products
Importance
of
quality
assurance
Involves
all
staff
&
promote
teamwork
=
increased
motivation
All
materials
are
checked
against
set
targets
before
it
is
too
late
and
the
whole
product
has
been
completed
Reduces
costs
of
final
inspection
(already
checked
at
each
stage)
Improved
quality
=
reduced
costs
of
wastage
&
faulty
products
Gain
accreditation
for
quality
award
and
good
public
image
of
the
company
33
Benchmarking
It
involves
management
identifying
the
best
firms
in
the
industry
and
then
comparing
the
performance
standards
including
quality
of
these
businesses
with
those
of
their
own
business.
Process:
1. Identify
the
aspects
of
the
business
to
be
benchmarked
(what
is
thought
to
be
the
most
important
factors,
e.g.
speed
of
delivery)
2. Measure
performance
in
these
areas
(e.g.
delivery
records
&
customer
complaints)
3. Identify
the
firms
in
the
industry
that
are
considered
to
be
the
best
4. Use
comparative
data
from
the
best
firms
to
establish
the
main
weaknesses
in
the
business
(may
be
obtained
by
published
accounts,
contact
with
suppliers/customers)
5. Set
standards
for
improvement
6. Change
processes
to
achieve
the
standards
set
7. Re-measurement
it
is
a
continuous
process
to
achieve
the
long-term
improvements
in
productivity
&
quality
Benefits:
Faster
&
cheaper
way
of
solving
problems
when
have
comparisons
Most
important
areas
to
customers
can
be
identified
and
improved
Helps
increase
firms
international
competitiveness
Limitations:
The
relevant
and
updated
data
from
other
firms
can
be
difficult
to
obtain
34
Copying
the
ideas
and
practices
of
other
firms
may
discourage
initiative
&
original
ideas
The
costs
of
the
comparison
exercise
may
not
be
recovered
by
the
improvements
obtained
from
benchmarking
Project
a
specific
and
temporary
activity
with
a
starting
and
ending
date,
clear
goals,
defined
responsibilities
and
a
budget
(e.g.
installing
machinery,
building
a
factory,
setting
up
a
new
IT
system)
Project
management
using
modern
management
techniques
to
carry
out
and
complete
a
project
from
start
to
finish
in
order
to
achieve
pre-set
targets
of
quality,
time
and
cost
Setting clear objectives Dividing the project up into manageable tasks Monitoring the time of the project at every stage Giving each staff a clear role Providing controls over quality issues Customers were not involved in the planning process No or not enough resources vital for its completion Senior management did not give interest in giving assistance to the project Details & instructions keep changing during the course of the project Planning was poor Projects scope became outdated due to change in business environment The project team was technically incompetent
Results
of
failure
Bad
publicity
in
the
industry
Penalty
payments
having
to
be
paid
Loss
of
future
contracts
35
CPA
process
1. 2. 3. 4. 5.
Identify the objective of the project Put the tasks in order and draw a network diagram Add the durations of each activities Identify the critical path Use network as a tool during the project
Network
diagram
the
diagram
used
in
CPA
that
shows
logical
sequence
of
activities
and
the
logical
dependencies
between
them
and
the
critical
path
can
be
identified
Critical
path
the
sequence
of
activities
that
must
be
completed
on
time
for
the
whole
project
to
be
completed
on
time
(nodes
that
EST
and
LFT
are
equal)
Arrow
indicates
each
activity
Node
a
circle
that
indicates
the
start
&
end
of
each
activity
EST
earliest
start
time
next
activity
cannot
start
until
the
one
before
finishes
LFT
latest
finish
time
calculate
from
right
to
left
of
the
diagram,
subtract
the
time
of
the
activity
before
(if
there
are
two
answers,
use
the
lowest
number)
Total
float
amount
of
time
an
activity
can
be
delayed
without
delaying
the
whole
project
duration
(LFT
duration
EST)
Free
float
length
of
time
an
activity
can
be
delayed
without
delaying
the
start
of
the
following
activity:
EST
(next
activity)
duration
EST
(this
activity)
Dummy
activity
not
an
activity
at
all,
only
used
to
show
logical
dependency.
The
arrow
shows
the
direction
of
dependency
Advantages:
Puts
tasks
in
order;
helps
with
identifying
simultaneous
activities
Helps
managers
to
plan
the
ordering
of
equipments
and
materials
Allows
business
to
give
accurate
delivery
dates
Float
times
can
be
used
to
allocate
resources
more
efficiently
(resources
could
be
taken
from
activities
that
have
spare
time
first
to
aid
other
activities)
Delays
can
lead
to
managers
using
network
to
identify
which
activities
need
to
be
speeded
up
36
Disadvantages:
Only
a
planning
tool
needs
good
&
skilled
management
to
see
the
project
through
to
successful
completion
Outside
events
could
result
in
unforeseen
delays
e.g.
planning
permission
problems
Depends
greatly
on
reliability
of
the
duration
estimates
Evaluation
CPA
can
be
a
useful
tool
to
managers,
but
skills
are
required.
Staff
will
be
more
motivated
if
they
involved
in
the
planning
process.
Using
CPA
for
new
projects
would
be
harder
because
the
business
has
no
previous
experience
about
the
durations
of
the
activities.
The
time
and
expense
of
using
CPA
must
be
justified
by
the
following
cost
&
efficiency
savings
of
applying
the
technique
5AL.4
Costs
Cost
centre
a
section
of
a
business,
such
as
a
department
to
which
costs
can
be
allocated
or
charged
Profit
centre
a
section
of
a
business
to
which
both
costs
and
revenues
can
be
allocated
so
that
profit
can
be
calculated
Full/absorption
costing
A
method
of
costing
in
which
all
fixed
and
variable
costs
are
allocated
to
products
or
services
(fixed
costs
can
be
shared
on
a
basis
of
space
taken
up
by
each
product,
percentage
of
direct
labour
costs
for
that
product
and
etc.)
Evaluation
Relatively
easy
to
calculate
&
understand
All
costs
are
allocated
compared
with
contribution
costing
method
Relevant
to
single-product
firms
Good
basis
of
pricing
decision
(full
unit
cost
is
calculated)
But
overhead
cost
is
not
allocated
base
on
the
actual
expenditure
used
by
that
centre
(e.g.
a
product
may
take
up
a
lot
of
factory
space,
but
use
low-cost
machinery
which
adds
up
only
a
little
amount
to
the
overhead
cost)
So
final
costing
figure
can
be
misleading
or
inaccurate
Same
basis
needs
to
be
used
overtime
for
comparisons
to
be
made
37
5AL.6
Budgets
Budget
a
detailed
financial
plan
for
the
future
that
a
business
aims
to
fulfil
Benefits: Planning: the budgetary process makes managers consider future plans carefully so that realistic targets can be set Effective allocation of resources: so that the business does not spend more on resources than it can finance Setting targets to be achieved: this sets aims for each staff and motivates them to work hard towards the objectives Co-ordination: all departments need to discuss over the allocation of resources and work effectively together to achieve to main goal Monitoring & controlling: the business process and be monitored and checked against the plan to see if anything can be done to improve
38
Assessing
performance:
once
the
budgeted
period
has
ended,
variance
analysis
will
be
used
to
compare
the
actual
performance
with
the
original
budgets
Drawbacks:
Lack
of
flexibility:
external
factors
are
constantly
changing,
the
plan
could
be
unrealistic
if
not
set
flexible
enough
to
adapt
Focused
on
the
short-term:
managers
may
make
decisions
according
to
the
short- term
budget
plan,
but
this
may
not
be
beneficial
for
the
long-term
success
of
the
firm
(e.g.
reduce
labour
to
stay
within
budget
but
may
limit
the
firms
ability
to
increase
output)
May
lead
to
unnecessary
spending:
managers
may
think
that
they
under-spent
their
budgets
and
therefore
spend
on
unnecessary
things
just
to
prevent
having
a
surplus
and
to
maintain
the
same
level
of
budget
for
next
year
Training
required:
setting
financial
plans
and
objectives
are
not
simple
tasks,
staff
training
is
required
for
an
effective
plan
Producing
budgets
1. Organisational
objectives
are
established
based
on
the
previous
performance
of
the
business,
external
changes
likely
to
affect
the
business
and
the
sale
forecasts
based
on
research
and
past
data
2. The
budget
for
the
key
factor
affecting
the
success
of
the
business
needs
to
be
set
first
(sales
for
most
businesses).
Inaccuracy
of
the
key-factor
budget
would
distort
all
other
budget
as
well
(e.g.
if
sales
budget
is
inaccurate
then
cash,
production,
labour
budgets
would
be
inaccurate
as
well)
3. The
key-factor
budget
is
prepared
after
discussion
with
all
branches
&
division
of
the
business
4. The
other
budgets
(cash,
labour-cost,
material-cost,
selling
and
distribution
budgets)
are
prepared
based
on
the
key-factor
budget
5. The
coordination
of
budgets
needs
to
be
ensured.
Budgets
can
not
conflict
with
each
other
and
the
spending
level
planned
can
not
exceed
to
resources
of
the
business
6. A
master
budget
is
prepared
(main
details
of
all
the
budgets
&
concludes
with
a
budgeted
profit
and
loss
account
and
balance
sheet)
7. The
master
budget
is
then
presented
to
the
board
awaiting
for
approval
39
Flexible
budgeting
Cost
budgets
for
each
expense
are
allowed
to
vary
if
sales
or
production
vary
from
budgeted
levels.
New
budgets
are
set
depending
on
the
actual
output
level
achieved
(e.g.
if
output
level
rises
20%,
then
other
budgets
are
set
20%
higher
as
well)
This
is
more
accurate
&
efficient
and
more
motivating
for
managers
because
they
will
not
be
criticised
for
adverse
variances
that
occur
just
because
output
was
slower
than
budgeted
Zero
budgeting
Setting
budgets
to
zero
each
year
and
budget
holders
have
to
argue
their
case
to
receive
any
finance.
This
can
be
very
time-consuming,
as
managers
need
to
provide
a
review
of
their
work
and
the
importance
of
each
one
in
order
to
justify
the
finance
needed.
But
it
could
provide
incentive
for
managers
to
defend
the
work
of
their
own
section
and
it
can
prevent
managers
from
spending
on
unnecessary
items
Variances
A variance is the difference between budgeted and actual figures It assists in analysing the causes of deviations from budget (e.g. if profit is lower than budgeted, was this due to lower sales or higher costs?) The causes identified may help the business to set more accurate future budgets
40
Inventory
valuation
Can
be
in
forms
of
raw
materials,
work
in
progress
and
finished
goods
Net
realisable
value
the
amount
for
which
an
asset
(inventory)
can
be
sold
for
minus
the
cost
of
selling
it
(the
cost
of
damage
or
fixing
the
asset
needs
to
be
reduced
from
the
original
value)
Depreciation
The
decline
in
the
estimated
value
of
a
fixed
asset
over
time
Profits
would
be
more
accurate
because
the
cost
of
asset
bought
is
spread
over
its
useful
life
(not
lower
than
actual
in
the
first
year
and
higher
in
later
years)
It
will
reflect
the
true
retain
value
of
the
asset
on
the
balance
sheet
each
year
until
fully
depreciated
or
sold
off
Original
cost
of
asset
expected
residual
value
Expected
useful
life
of
asset
(years)
Evaluation
Straight-line
method
is
easy
to
calculate
&
understand
But
it
requires
estimates,
mistakes
will
lead
to
inaccuracies
Assets
tend
to
depreciate
more
quickly
in
the
first
few
years
than
in
later
years,
straight-line
method
does
not
reflect
this
Repair
&
maintenance
costs
of
an
asset
usually
increase
with
age
and
this
will
reduce
the
profitability
of
the
asset
(not
shown
in
this
method)
41
1. Profitability
ratio
Return
on
capital
employed
(RoCE)
Net
or
operating
profit
X
100
Capital
employed
Capital
employed:
the
total
value
of
all
long-term
finance
invested
in
the
business
Total
asset
current
liabilities
Non-current
liabilities
+
shareholders
equity
Compares
profit
with
capital
invested
in
the
business
(how
much
profit
can
a
$1
investment
generate)
The
higher,
the
greater
return
on
capital
invested
in
the
business
Comparisons
with
previous
years
or
other
firms
can
be
made
(allows
trend
to
be
identified)
Can
be
compared
with
the
return
from
interest
accounts
(does
investing
in
banks
get
more
return?)
RoCE
is
not
related
to
risks
involved
in
the
business.
High
RoCE
may
result
from
a
high-risk
operation
not
a
true
business
efficiency
42
Number
of
times
stock
bought
in
and
resold
(turnover)
in
a
period
of
time
(how
fast
can
the
firm
sell
stocks)
The
higher
the
ratio,
the
lower
the
investment
in
inventories
efficient
stock
management
(small
stocks
but
high
value
of
sales)
Depends
on
industry
(perishable
products
=
less
stocks)
Not
related
to
service
firms
(they
are
not
selling
products
held
in
stock)
Days
sales
in
receivable
ratio
(debtor
days)
Accounts
receivable
X
365
Sales
turnover
Tells
how
long
it
takes
for
customers
to
pay
debts
The
shorter,
the
better
control
of
working
capital
More
days
means
business
gives
long
credit
to
customers
management
strategy
to
gain
customers.
But
too
high
means
poor
control
of
debtors
&
repayment
periods
Depends
on
the
industry
(selling
for
cash
=
low
results)
Can
be
reduced
by
giving
shorter
credit
terms
or
improving
credit
control
4. Gearing
ratio
Long-term
loans
X
100
Capital
employed
Non-current
liabilities
X
100
Shareholders
equity
+
non-current
liabilities
Long-term
debt
X
100
Shareholders
equity
Shows
the
extent
to
which
the
firms
assets
are
financed
from
external
long-term
borrowing
Highly
geared
=
more
risks
(have
to
pay
interest
rates,
less
profits
&
dividends)
could
cause
working
capital
problems
Too
low
=
safe
but
maybe
not
borrowing
and
investing
enough
Can
be
reduced
by
using
non-loan
sources
of
finance
to
increase
capital
employed
(issuing
shares
or
retained
profits)
5. Investor
ratios
Dividend
yield
ratio
Dividend
per
share
X
100
Current
share
price
43
Measures
the
rate
of
return
a
shareholder
gets
at
the
current
share
price
(how
much
you
get
for
investing
$1)
Rate
of
return
can
be
compared
with
other
investments
More
effective
when
compared
with
previous
years
or
same
industry
Potential
investors
will
be
attracted
when
yield
is
high
and
price
is
not
expected
to
fall
soon
A
high
dividend
yield
may
not
indicate
a
successful
investment
yield
could
be
high
because
price
is
falling
(not
necessarily
a
good
sign!)
Yield
could
also
be
high
only
because
directors
want
to
keep
shareholders
happy
(profit
stays
the
same
but
pay
from
reserves)
Directors
may
reduce
dividend
to
reinvest
in
the
business,
but
would
shareholders
be
happy?
Dividend
cover
ratio
Profit
after
tax
and
interest
Annual
dividends
Compares
dividend
with
profit
(how
much
profit
the
firm
has
to
pay
out
dividends)
High
=
firm
is
able
to
pay
the
dividends
and
still
have
a
considerable
amount
of
profit
left
to
reinvest
back
Low
=
pays
dividends
out
of
low
amount
of
profit
(low
retained
profits)
Price/earnings
ratio
Current
share
price
Earnings
per
share
(profit
earned
per
share)
Shows
how
much
investors
are
willing
to
pay
for
each
$1
of
earnings
Industries
with
high
growth
prospects
would
have
high
P/E
More
useful
to
compare
firms
within
the
same
industry
because
of
different
growth
prospects
and
investors
expectations
4. Some
ratios
are
calculated
using
different
formulae,
comparisons
would
be
misleading
(same
formulae
have
to
be
used
to
allow
accurate
comparison)
5. Different
depreciation
methods
will
lead
to
different
ratio
results.
Also
window
dressing
can
make
results
look
more
favourable
in
the
short
term.
Therefore,
results
would
not
reflect
the
true
performance
of
the
business
6. Qualitative
factors
regarding
business
performance
are
crucial
as
well
7. Ratios
only
highlight
issues
that
need
to
be
tackled;
they
do
not
solve
business
problems
or
indicate
the
causes
of
the
problems.
Managers
still
have
to
come
up
with
strategies
to
overcome
them
Basic
methods
Payback
method
Payback
period
is
the
length
of
time
it
takes
for
the
net
cash
inflows
to
pay
back
the
original
capital
cost
of
the
investment.
Formula
to
find
out
the
exact
month:
Additional
net
cash
inflow
needed
X
12
months
Annual
cash
flow
in
that
next
year
Advantages: Quick & easy to calculate Results are easy to understand & analyse
45
The
focus
on
the
speed
of
return
of
cash
flows
means
more
concentration
on
short-term
forecast
of
the
projects
profitability
Results
can
be
used
to
eliminate
projects
that
take
too
long
to
give
returns
Useful
for
businesses
where
liquidity
is
more
important
than
overall
profitability
Disadvantages:
Does
not
measure
overall
profitability
of
a
project
&
ignores
cash
flows
after
payback
period
(possible
that
a
project
gives
rapid
return
but
then
offer
no
more
cash
inflows)
The
business
may
reject
very
profitable
investments
just
because
they
take
some
time
to
repay
the
capital
It
does
not
consider
the
timing
of
the
cash
flows
during
the
payback
period
Average
rate
of
return
(ARR)
measures
the
annual
profitability
of
an
investment
as
a
percentage
of
the
initial
investment
Annual
profit
(net
cash
flow)
X
100
Initial
capital
cost
Advantages:
It
uses
all
the
cash
flows
(unlike
the
payback
method)
It
focuses
on
profitability
(may
be
the
firms
objective)
Results
are
easy
to
comprehend
&
compare
with
other
projects
Disadvantages:
It
ignores
the
timing
of
the
cash
flows
(some
projects
may
have
the
same
ARR
but
one
could
pay
back
much
more
quickly
than
the
other)
Predicted
or
expected
cash
flows
in
the
future
may
not
be
accurate
The
time
value
of
money
is
ignored
as
the
cash
flows
have
not
been
discounted
Discounted
payback
uses
the
discounted
cash
flows
to
calculate
the
payback
period
of
the
projects
(same
dis/advantages
as
payback
period
except
that
it
takes
into
account
the
time
value
of
money)
46
Net
present
value
(NPV)
todays
value
of
the
estimated
cash
flows
resulting
from
an
investment
1. Multiply
the
given
discount
factors
by
the
net
cash
flows
2. Add
all
the
discounted
cash
flows
together
3. Subtract
the
capital
cost
to
give
the
NPV
Advantages:
It
considers
both
timing
of
cash
flows
&
size
of
them
in
arriving
at
an
appraisal
The
rate
of
discount
can
be
varied
to
allow
for
different
economic
circumstances
It
takes
into
account
the
time
value
of
money
&
the
opportunity
cost
of
money
Disadvantages:
Complex
to
calculate
&
explain
for
some
managers
Results
depend
greatly
on
the
rate
of
discount
used,
and
that
could
be
inaccurate
NPV
can
only
be
used
to
compare
projects
with
same
initial
costs
because
it
does
not
provide
a
percentage
rate
of
return
on
the
investment
Internal
rate
of
return
The
rate
of
discount
that
yields
a
net
present
value
of
zero
the
higher
the
IRR,
the
more
profitable
the
investment
project
is
(because
as
the
rate
of
discount
increases,
the
net
present
value
declines)
Can
be
compared
with
IRR
of
other
projects
highest
=
more
profitable
Can
be
compared
with
criterion
rate
(minimum
levels
set
by
management
for
investment-appraisal
results
for
a
project
to
be
accepted)
preset
by
the
business
Qualitative
factors
Non-numerical
factors
including
impact
on
environment
&
local
community,
publicity
&
image
of
the
business
The
aims
and
objectives
of
the
business
some
projects
may
seem
profitable
but
reduce
the
customer
service
which
is
the
main
priority
of
the
firm
Managers
attitude
towards
risk
Firms
view
of
the
importance
of
ethical
issues
47
If
different
methods
of
investment
appraisal
suggest
different
projects
to
be
profitable,
then
the
decision
will
depend
on
the
businesss
main
aims
and
the
managers
attitude
to
risk
These
are
2
main
factors
that
can
lead
to
a
major
competitive
advantage
Strategies
to
increase
competitive
advantage:
Automation
advanced
&
flexible
production
process
help
to
reduce
costs
of
manufacture
and
also
create
differentiated
products
Rationalisation
cut
any
unnecessary
costs
(e.g.
make
workers
redundant)
Research
and
development
allows
diversification
away
from
original
activities
and
create
product
differentiation
Strategic
analysis
the
process
of
conducting
research
into
the
business
environment
within
which
an
organisation
operates,
and
into
the
organisation
itself,
to
help
form
future
strategies
(where
is
the
business
now?
what
is
happening
or
likely
to
happen?
how
can
the
business
respond
to
the
changes?)
SWOT
analysis
A
form
of
strategic
analysis
that
identifies
and
analyses
the
main
internal
strengths
&
weaknesses
and
external
opportunities
&
threats
that
will
influence
the
future
direction
&
success
of
a
business
Only
carrying
out
the
SWOT
analysis
is
not
sufficient,
managers
need
to
decide
how
to
overcome
the
threats
&
weaknesses
and
how
to
take
full
advantages
of
the
strengths
&
opportunities.
The
business
also
needs
to
carry
out
further
analysis
before
strategic
choices
can
be
made.
One
weakness
of
the
SWOT
analysis
is
the
subjectivity,
one
manager
could
see
one
thing
as
strength
and
another
could
see
it
as
a
weakness
PEST
analysis
The
strategic
analysis
of
a
firms
macro-environment,
including
political,
economic,
social
and
technological
factors
49
PEST is complementary to SWOT, not an alternative. PEST analysis should be constantly reviewed and updated because businesses are operating in a dynamic environment
Vision/mission
statement
Vision
a
statement
of
what
the
organisation
would
like
to
achieve
or
accomplish
in
the
long
term
(outlines
the
preferred
future
of
the
firm)
Mission
a
statement
of
the
businesss
core
purpose
and
focus,
phrased
in
a
way
to
motivate
employees
and
to
stimulate
interest
by
outside
groups
The
vision
&
mission
statement
are
not
set
to
impress
anyone,
they
should
be
clearly
understood
by
all
employees.
They
both
give
the
sense
of
purpose
to
an
organisation,
and
prevent
business
from
drifting
away
from
its
main
aims.
Therefore
strategies
should
be
set
according
to
those
main
focuses
of
the
organisation
50
Boston
Matrix
A
way
of
analysing
the
products
of
a
firm
in
the
different
markets
they
are
in.
The
matrix
compares
market
share
and
market
growth
and
firms
try
to
categorise
each
of
the
products
so
that
they
can
analyse
what
to
do
with
them.
This
analysis
works
for
a
multi-product
firm
and
the
important
conclusions
are
based
around
the
future
tactics
not
the
labelling
of
the
diagram
Star
A
successful
product
in
an
expanding
market
Needs
to
try
and
maintain
market
position
But
fast-changing
market
so
promotion
is
needed
to
differentiate
product
&
reinforce
brand
image
High
marketing
costs
but
generates
high
amounts
of
income
for
firm
Cash
cow
Well-established
in
a
mature
market
Sales
are
high
and
promotional
costs
are
low
(high
consumer
awareness)
The
firm
needs
to
maintain
this
for
as
long
as
possible
The
cash
can
then
be
injected
into
other
products
Problem
child
Has
potential
to
succeed
because
the
market
is
growing
fast
Consumes
resources
but
generates
little
return.
Needs
heavy
promotion
costs
to
compete
with
competitors
in
the
expanding
&
evolving
market
If
sales
do
not
improve,
the
firm
could
revise
the
design,
relaunch
or
even
withdraw
from
the
market
Dog
Offers
little
to
the
business
and
has
low
potential
of
success
The
market
is
not
growing,
the
firm
could
try
to
gain
high
market
share
or
stop
producing
this
product
and
focus
on
other
product
in
the
range
The
analysis
helps
to
establish
the
firms
current
product
positions
but
do
not
predict
future
success
of
the
business.
It
does
not
tell
managers
what
to
do
with
the
products.
Further
market
research
is
required
and
other
external
factors
need
to
be
considered
when
making
decisions.
It
also
assumes
that
higher
market
shares
mean
higher
profits,
but
this
may
not
always
be
true
if
sales
are
gained
by
reducing
prices
and
profit
margins
51
Benefits:
By
analysing
new
markets,
the
firm
may
decide
whether
to
enter
or
not
By
analysing
existing
markets,
the
firm
may
decide
whether
to
stay
in
or
not
and
whether
if
it
has
potential
to
become
profitable
The
analysis
aids
business
to
decide
whether
to
differentiate
its
product,
buy
out
some
competitors,
enter
different
market
segments
(less
competitive)
52
Drawbacks:
Only
works
at
a
specific
point
in
time
(but
the
business
environment
is
constantly
changing)
Can
become
very
complex
when
analysing
modern
industries
Core
competencies
Core
competence
an
important
business
ability
that
gives
a
firm
competitive
advantage
(ability
that
makes
the
business
different
from
other
firms
in
the
industry).
A
core
competence
should:
Provide
recognisable
benefits
to
consumers
Not
be
easy
for
other
firms
to
copy
(e.g.
patented
design)
Provide
access
to
a
wide
range
of
markets
Once
a
core
competence
is
established,
the
business
has
the
opportunities
to
develop
core
products
and
then
new
end
products
&
markets
Core
product
product
based
on
a
businesss
core
competences,
but
not
necessarily
for
final
consumer
of
end
user
(can
be
a
product
that
has
many
uses
or
are
used
to
produce
many
other
products)
53
Evaluation
Managers
can
analyse
the
degree
of
risk
associated
with
each
opportunity
However,
it
only
considers
2
factors
in
the
strategic
analysis
of
a
businesss
option.
Other
analysis
are
needed
as
well
to
give
a
more
complete
picture
The
matrix
does
not
suggest
actual
detailed
marketing
options
(which
market
to
enter?
Or
which
product
to
produce?)
Managers
still
need
to
make
decisions
based
on
experience
too
Force-field
analysis
Technique
for
identifying
and
analysing
the
positive
factors
that
support
a
decision
and
negative
factors
that
constrain
it
1. Analyse
current
and
the
desired
situation
2. List
all
the
driving
factors
3. List
all
the
constraining
factors
4. Give
a
numerical
score,
scale
of
1-10
(1
=
weakest
&
10
=
strongest)
5. List
all
forces
on
the
diagram
6. Total
the
scores
and
decide
whether
the
change
is
reasonable
7. Consider
ways
which
can
strengthen
the
driving
forces
&
reduce
the
restraining
forces
Limitation
Inexperienced
managers
could
fail
to
identify
all
relevant
forces
involved
The
allocation
of
numerical
values
is
subjective,
2
managers
may
come
up
with
different
values
for
the
forces
Therefore,
propose
very
different
decisions
based
on
their
assessments
Decision
trees
A
diagram
that
sets
out
the
options
connected
with
a
decision
and
the
outcomes
and
monetary
returns
that
may
result
Expected
value
the
likely
financial
result
of
an
outcome
obtained
by
multiplying
the
probability
of
an
event
occurring
by
the
forecast
economic
return
if
it
does
occur
and
subtract
cost
of
operating
Decision tree measures the risk in relation to possible level of reward Drawn to visually aid the decision-making process Forces managers to consider ALL options available Simple to follow
54
By
using
probabilities,
there
is
an
attempt
to
calculate
the
level
of
risk
HOWEVER:
In
reality
it
is
not
easy
to
calculate
probabilities,
the
model
can
be
inaccurate
Estimate
returns
can
be
difficult
to
predict
for
new
projects
Decision
trees
may
aid
decision
making,
but
other
qualitative
factors
need
to
be
considered
as
well
(e.g.
environment,
workforce
attitude)
It
does
not
eliminate
the
risks
involved
Businesses need to provide plan in order to obtain start-up finance Plan gives sense of purpose and direction and aids resource allocation Helps motivate staff to work towards targets Progress can be reviewed against objectives
Corporate
culture
The
values,
attitudes
and
beliefs
of
the
people
working
in
an
organisation
that
control
the
way
they
interact
with
each
other
and
with
external
stakeholder
groups
the
way
we
do
things
around
here.
Corporate
culture
will
affect
any
decisions
of
individuals
in
the
business,
it
defines
what
is
considered
normal
an
organisation.
It
will
be
influenced
by
the
values
and
expectations
of
managers
and
employees,
the
firms
objectives
and
the
type
of
market
it
operates
in.
Different
departments
have
different
corporate
culture
Power
culture
concentrating
power
among
just
a
few
people
similar
to
autocratic
leadership.
Few
people
are
involved
in
decision
making
55
Role
culture
each
member
of
staff
has
a
clearly
defined
job
title
and
role
similar
to
bureaucratic
organisations.
Well-defined
structure,
clear
roles
&
responsibilities.
People
work
within
strict
rules
and
show
little
creativity
Task
culture
based
on
co-operation
and
teamwork
communication
similar
to
matrix
structure.
Groups
are
empowered
to
take
decisions
and
are
encouraged
to
be
creative
Person
culture
when
individuals
are
given
the
freedom
to
express
themselves
fully
and
make
decisions
for
themselves
the
most
creative
culture
but
may
cause
conflict
between
individual
goals
and
those
of
the
whole
organisation
Entrepreneurial
culture
encourages
management
and
workers
to
take
risks,
to
come
up
with
new
ideas
and
test
out
new
business
ventures.
Success
can
be
rewarding
when
some
degree
of
risk
is
taken
56
Fear
of
failure
changes
may
require
new
skills
that
may
be
beyond
a
workers
capabilities
Lack
of
trust
workers
may
not
believe
in
the
reasons
given
to
them
Final evaluation: Cost of CP needs to be balanced against the potential costs of not doing it How much time is spent on preparing and testing contingency plans? In this case it seems to have been effective but it might be more important to focus on quality issues themselves, rather than trying to respond to a problem once it has arisen
57