Important topics covering book 1

Definition of some concepts: Business, Swot and Steep:

Business definition: It has 3 factors in common: People, Objectives and

structures. It is the interaction of people to achieve objectives that forms the
basis of a business and some form of structure is needed within which people’s
interaction and efforts are focused. The direction and control of interaction form
the role of the management. Business enables objectives to be achieved that
could not be achieved by the efforts of individual on their own.

Business has formal characteristics: contains number of people, people who

belong to them will share some views and values about the purpose of the
business. They will have income and costs; they will need different types of
resources to produce different types of goods and services. They need to
coordinate a number of different activities undertaken by individuals and they
are identifiable as different from other groups of people.

Ex of business could be: branch of national bank, a electricity supply company,

a school parent teacher association, local media center, a local village post office,
a local car sales firm, UN and hairdresser’s.

Types of business: Businesses are differentiated in terms of the sector of

economy in which they belong. Private sector is businesses that are not
controlled by the state. Public sector is any nation’s economy that is controlled
and operated by the state. In this spectrum we can further divide businesses into
for profit or non-for profit organizations. This differentiates business
according to whether they’re primary motive is profit, that is the enhancement
of their owners and stakeholder’s wealth. In not for profit organizations the
primary motive is expressed in terms other than financial profitability.
Check table 1.1 page 9 book.1

Other optional definition for not for profit org: not for profit organizations
are those that does not pursue profit as an objective they have characteristics
that distinguish them from “for profit” organizations such as: they do not have
external shareholders providing risk capital for the business, they do not
distribute dividends so any profits generated by the business is retained as a
source of capital and their objectives include some social, welfare or
environmental dimension.

STEEP model definition: it is used as a tool to define and analyze the

organizations’ external environment as a mean to monitor, anticipate and deal
with any changes that occur within the organization’s macro environment.
STEEP is an acronym that refers to Sociological, Technological, Economic,
Environmental and Political.
 1. Sociological factors: the factors that are likely to affect businesses
include demographic changes in the ages and structure of population,
patterns of work, gender roles, pattern of consumption and the ways
in which the culture of a population or country changes and develop.
2. Technological factors: Information and communication technology has
changed the structure and nature of work and our relationships with
business it also influence the scale and rate of change that business face.
ICT also places new challenges on the ability of business to meet
customers’ demands.
 ICT is lowering the barriers of time and place, while it opens up
new opportunity for business, they can no longer expect the protection they
used to receive in the past. The global marketplace became a reality and
whatever the business sector, they will be increased competition from
businesses that weren’t unable to enter the market and compete.
 ICT create new industries not just in the areas of hardware,
software and telecommunication, but include startups and new business that
the new technology makes it possible such as e-commerce allowing banking
and insurance companies to build their operation solely on the basis of
electronic information and communications.
 Individual jobs and internal services functions now based solely
on ICT systems such as production planners, credit controllers and sales
people. This had a major impact on the structure of the business and the
organization of work. It has also led to massive shift in the skills needed for
most jobs. Some levels of computer literacy is now essential in many jobs.
3. Economic factors: Economic factors that are likely to affect businesses
are:
 The rate of economic growth
 Interest rate: used by the government to achieve short-term
adjustments in the level of demands and investments and spending.
 Inflation
 Energy price
 Exchange rate: this is the price of a particular currency and is based
on the supply and demand for that currency. Varying exchange rate
cause problems for business. If the domestic currency strengthens,
exporting becomes more difficult because the price of good exported
is higher and foreign products are more competitive in the home
market. If the currency weakens, exports are easier and
opportunities for new market may opens up while imports become
more expensive.
 Level of employment
These factors are likely to affect the level of goods and services,
availability and cost of raw materials, buildings and lands and labour.
 Businesses and individual behave according to their expectation of
economic trends, if they expect growth to be high, businesses are likely
to invest and expands and individuals to spend more. The same
happens in reverse, business invests less and individuals spend less.

4. Environmental factors: Is of extreme importance as people became

more concerned about the impact of the business on the natural
environment.
A. Legislation: Environmental legislation is increasing, the main
emphasis is on pollution control and waste disposal, but regulation is
also affecting packaging, transport and distribution and source
material.

B. Information: many businesses are now reporting regularly on their

environmental performance. Larger business may carry out regular
environmental audit and publish them in their annual report.

C. Employees: they are concerned about the environment credentials

of their employers. Businesses may wish to maintain good
communication with their employees, listening to their opinions and
reporting back on a regular basis.

D. Shareholders: most shareholders of larger business are financial

institutions whose interests are driven by financial performance.
However categories of green investors are emerging and businesses may
wish to consider whether they should present themselves as eligible for
such investments.

E. Pressure groups: although many of them were established to tackle

single issues, they broadened their membership basis to become a
permanent part of the political scene. Ex. Greenpeace and Stonewall are
examples of pressure groups that have grown significantly in terms of
members.

F.Customers: there are opportunities for businesses operating to high

environmental standards to gain market advantage. Some Customers
are willing to favor green organizations, which may increase the
market share of the business and enable higher prices to be charged for
their goods and services.
 5. Political factors: there are political influences on businesses in terms of
rules and regulations imposed by government as well as influences of
such organizations as chambers of commerce, trade unions and
cooperatives.
A. Legislation affects many aspects of business life such as health and
safety at work, equal opportunities and employee protection.

B. Trading relationship are strongly influenced by political factors. The

world trade organization and the European union are example of this.

C. Government is a major party to many transactions. In all countries,

the government is one the larger employers and the largest purchaser of
goods and services. In some cases, such as defense, medicines and some
social services, the government is the only customer

D. The level and nature of public services EX. Health services,

education and the police forces. Are determined on a political ground.

E. Government determines level of taxation on the individual, on

businesses, on property and on goods and services.

a) Explain how a SWOT analysis may be useful for a business in

understanding both its internal and external environments (8 Marks).
Support your answer with examples (2 Marks)

SWOT analysis and definition: An analytical tool used to give the business an
overview of its position in relation to its external environment. SWOT stands
for strength, weaknesses, opportunities and threat. The Strength and
Weaknesses of a business arise from its internal environment, that is its
structure, resources and it uses, its culture and business functions. Which
strength a business decided to build upon and which it seeks to minimize
depends on the impact of opportunities and threat (which arise from the
business external environment). Once the external environment has been
identified, they can be judged as either opportunities or threats.

The meaning of stakeholders, their characteristics, types of stakeholders and

their primary and secondary expectations:

Definition of stakeholders: They are a people or a group, who have a

legitimate interest in the activities of the business and other organizations in
their society. Employees, customers and shareholders are all example of
stakeholders. Other includes managers, suppliers and local communities and the
state. Stakeholders in the voluntary sector may be funders, sponsors and
donors. In the public sector they include the general public in their capacity as
citizens, taxpayers and beneficiaries.
Explain the following and support your answers with relevant examples:
a. Stakeholders and their primary and secondary expectations. (13 marks)

Stakeholders and their expectations are divided into primary and secondary
expectation. Check book1 page.23

The concept of stakeholders is important for two reasons; it emphasizes that

stakeholders groups have different interests, and it illustrates the relationship
between businesses and their external environment.
Characteristics of stakeholders:
1. There are internal stakeholders: shareholders, employees, managers,
directors, and trustees. There are stakeholders external to
organizations but strongly linked and affected by it; customers/clients,
suppliers, funds and competitors. There are stakeholders external to the
organization but indirectly affected by the business; members of the
community or the general public.
2.Different stakeholders have different interests and these interests may
be in conflict. Example of conflicts may be that between the interest of
employees who want security of employment and increased earnings
and those of shareholders who seek short-term cost reduction. A similar
conflict could exist between taxpayers and those who receive public
services.
3.The culture, structure and control system within a business will
determine how these conflicts and trade-offs are resolved and in
practice the interest of one stakeholders group may have a dominant
position. Commercial businesses are shareholder-led although the
reality is that directors and senior managers may have dominant
interests. Service industries are customer-led. Some public and
voluntary are staff-led. Co-operatives tend to be member led.
4.Law but not all protect some stakeholder’s interests. Owners and
shareholders are protected by property and company law other
stakeholders interests are protected only by regulation or
management discretion. Measures have been taken in recent years to
adjust this imbalance: employment legislation provides increasing
protection for employees and environmental legislation and
regulation limits shareholders’ profits to the benefit of local
communities and the environment in general.
Check book1 page 25: balancing the interest of different
stakeholders.

Conflict between stakeholders:

 1. Shareholders and customers: Customers want high quality and low
prices, while shareholders are interested in minimizing costs and
maximizing profits
2. Managers and shareholders: attitude towards salary, perks and
business risks are likely to be different but ultimately the interests of
shareholders are dominant. They employ directors and managers as
agents to run business on their behalf.
3. Funding agencies and services users: in public services, there is a
greater demand for services than available funds can support and choices
have to be made to ration the services provided or compromise the
quality

Business structure, its advantage, the problem of running a structure-less

organization and the difference between formal and informal structures of
business.

Explain the meaning of business structure. Bring out the advantages of having a
good structure. Also, outline briefly the problems of structure less organizations.
(25 marks)
Identify the Six problems of the structureless business (10 Marks).

Business structure definition: A structure gives a business an identity and

provides continuity. It also provides a framework for the allocation of roles
and responsibility. All businesses have some sort of structures, depending on
the product and service they provide and also influenced by the history, size
and culture of the business.

Organizational chart will provide clues about the structure of the business. It
will show the formal relationship between different individuals and department
and provides an outline of the official decision-making structure.

The shape of the structure provides an overview of how businesses work. EX.
Those higher in the chart have more power and authority than those lower
down. Narrow and tall charts suggests many level of authority while Wider
Flatter suggests a business with fewer level of authority and the distance
between higher levels and lower levels are less important to how business
operates.

Structures also include the arrangements by which various activities are

divided between the members of the business and the way in which their efforts
are coordinated.
Types of structures: a business may be structured in various way; by function,
by product, by services or by geography.
 Functional structures: work best for departments that need regular
communication with each other. A disadvantage is that people and
functions that work in them may become insular.
 By product/service structure: can help to achieve better
responsiveness to customer needs. A disadvantage is that professional
and functional expertise may become fragmented.
 Geographic structure: has an advantage for large business because
there is likely to be difference between the markets it serves. There is
also a language and cultural difference. A disadvantage is that might be
problems in terms of communication and information flow and support
functions such as finance and IT may be duplicated.

The problem of running a structure-less business

 It would not be clear who was and who was not part of the business
 There would be no way of getting objective agreed and hence measuring
success
 There would be no agreed way of making decisions
 All decisions could be open for reconsideration whenever anyone was
unhappy with them
 It would not be clear who should do what work
 Individuals and other bodies in the external environment would not
know whom to contact.

The advantage of having a clear structure:

1. Enabling participation: the structure of any business will determine
how all-relevant sections and parties join in its activities and influence
its decisions.
2. Providing a framework: for the allocation of responsibilities and
authorities. Structure is at the heart of differentiation and integration of
work. The more appropriate the structure, the more effective the
working relationships between individuals and department
3. Establishing an identity: for the business. Any business will need to
allocate responsibilities for external contacts. Ex. suppliers and
customers need to be able to identify whom to contact within the
business. The structure of the business and the way people work within
it convey a message to the outside world about the values and characters
of the business.
4. Continuity and change: much business deals with uncertainty and
change. Structure can provide continuity. Without a structure, there is a
tendency for people to constantly set up new systems and procedures to
reinvent the wheel in response to new situation.
 The disadvantage of well-established structure is that it could be difficult to
change. This underlines the importance of seeing structure as dynamic and not
static.
Compare and contrast:
1. Formal and informal business structures (5 Marks)

Formal and informal Structures: Formal structure provides a pictorial and

formal (agreed and written down) explanation of the different part of the
business and different jobs within them. It will show the distribution of and
relationship between the roles in the business rather than say anything about
the individual who fill them
Informal structures are more about the relationship between individuals. This
can be complicated because it involves the human elements such as respect,
compatibility, motivation and commitment.

Organizational culture and Hofstede’s five dimensions of national culture:

Hofstede claimed that the cultural values in any country can be reflected in
the way businesses within that country are operated and organized.
Explain Hofstede’s FIVE dimensions (15 Marks)

Hofstede’s research focuses on ways of measuring national culture and how

these measures might work differently in different context. The cultural values
that are important in a national culture could be reflected in the way business
within that country are operated and organized.
The five dimensions are as follows:
1. Power distance: this concerns the extent to which less powerful
members of organizations within a country expect and accept that power
is distributed unequally. Lower power distance is one in which there is
a concern to minimize inequalities. This is represented by a tendency
for the centralization of power and the subordinate of those with less
power within business.
2. Individualism/Collectivism: In individualistic society, people are
expected to look after themselves and their families. In the case of
business this is reflected in employment contract based on hiring and
firing. In collective societies people are more concerned for others and
the culture is based around more cohesive groups such as the family,
which offer protection in exchange of loyalty. This is reflected in business
as well as elsewhere in the society.
3. Masculinity/Femininity: This refers to which gender roles are distinct
and adhered to within a society. In high femininity societies, social
gender role overlap with both men and women value feminine qualities
such as modesty, intuition and quality of life above the more
traditionally masculine qualities of aggression and competition.
 4. Uncertainty avoidance: this concerns the extent to which member of the
society feel threatened by uncertain and unknown situation. Low
uncertainty avoidance means less precision and punctuality which
result in more innovation and people are motivated by being esteemed by
or belonging to other above other things. High uncertainty avoidance
means that there is fear or ambiguous situations and a preference for
being busy, precise and punctual.

5. Confucian/Dynamism: This refers to which long termism and short

termism appears to be dominant approach. Long termism stresses
perseverance and being sparing with resources. Short termism involves
greater emphasis on quick results.

Organizational culture: is a pattern of belief and expectations shared by the

organizational members. These beliefs and expectation produce norms that
powerfully shape the behavior of individuals and groups within the
organizations.
A central idea of organizational culture is that it has to be learnt by newcomers
and that it takes time to understand. The term Socialization is used to describe
how new employees learn the less obvious rules about what is acceptable and
what is not.

Trice and Beyer have suggested that there being Symbols within a business used
to diagnose hidden aspects of businesses:
 High level symbols: the more obvious one such as company buildings
and logos
 Low-level symbols are further categorized in four levels these are:
1. Practices: these are rites, rituals and ceremonies of the business.
These can take many forms, and would include the annual office party,
employee awards and inter-site competition.
2. Communication: stories, myths and slogans that are circulated in the
business. Stories about notable events in the past tend to become part
of the business culture and can influence behavior. Ex. how the
business started.
3. Physical forms: such as location, open plan, or individual offices,
types of eating areas, business suits or causal attire.
4. A common language: Jargons is common in many businesses, it is a
convenient shorthand form of communication. But it also affects
behavior.

Factors influencing organizational culture: Check book1 p47 or slides.

Definition, motives and benefits of starting up a small business and
Entrepreneurship:

Define Small Business. Discuss benefits of small businesses (SMEs) to a nation.

Support your answer with relevant examples
(25 marks)

Definition for SME: small and medium sized enterprises are non-subsidiary,
independent firms, which employ fewer than a given number of employees. This
number varies across countries. The most frequent upper limit designating an
SME is 250 employees as in the EU. Some countries set the limit at 200
employees. While the united states considers SME to include firms with fewer
than 500 employees.

Small firms are generally those with fewer than 50 employees, while micro-
enterprises have at most 10 or in some cases 5 employees.

The turnover of medium-sized enterprises (50-249 employees) should not

exceed EUR 50 million; that of small enterprises (10-49 employees) should not
exceed EUR 10 million while that of micro firms (less than 10 employees) should
not exceed EUR 2 million. Alternatively, balance sheets for medium, small and
micro enterprises should not exceed EUR 43 million, EUR 10 million and EUR 2
million, respectively.
Motives for starting SME:
1. An individual who came up with an Idea a product or services for which
he/she believes there is a market. This might involves a completely new
product or taking an established product/services and doing it better or
differently.
2. Push factor, which refer in this case to someone, made redundant from
his or her job and decide to use such opportunity to try self-employment.
(Someone is pushed by circumstances into something new). Pull factor,
the personality of the individual makes it difficult for them to work for
someone else, the bureaucratic hierarchy of big businesses cannot
contain their need for independence. (They are pulled along by their
drive and personality).
3. Management by-out starting on a small scale, leading to the creation of a
new small business. This might arise because the owner decided to sell a
part of an existing business. It also includes an individual moving into
small business ownership through the purchase of a franchise (buying a
local outlet of an existing and often proven idea for a product or a
service).
 4. Influencing factors on the creation of a small business are likely to be;
the perceive opportunities and availability of assistance and the
perceived attributes and resources of the individual concerned.
5. Other motives for starting a small business could include
 An individual prior experience: strong interest or hobbies or work
experience
 Being a member of a minority ethnic group: a small business can be a
way of entering mainstream society on one’s own term and breaking
through barriers to employment
 Level of education: it is a way for those who left formal education or
for very well educated people with particular skills and knowledge
 Exposure to role models: in many cases entrepreneurs came from a
family where entrepreneurial activities are present. EX. Founder of Body
Shop outlet Anita Roddick’s parents ran their own business.

The risk Involved: Check book1 P69 and slides.

The benefit of small business lies in creating employment and new jobs
ultimately impact on business activity through increasing spending power. Other
benefit to the wider economic and social life of a society include:
1. Specialized services: that are offered by SME to customers cannot be
provided by larger business as it seen as not cost effective. Small business
often work as Subcontractor on big projects being managed by larger
companies
2. Specialized knowledge: possessed by SME about the local business
environment allow them to tailor their product and services
appropriately.
3. Contribution to local infrastructure: SME assist in regional and local
growth and rejuvenation
4. Small business may be able to innovate in ways that larger ones would
find difficult. They tend to be less bureaucratic and more flexible in
their response to customer demands.

Entrepreneurship is the activity of entrepreneurs, people who create new

products, processes, services and markets. Entrepreneurs often develop new
ways of working and doing business. Motivational aspects for would-be
entrepreneurs includes:
1. More freedom
2. Make money 7. More of a challenge
3. Be my own boss 8. Lead and motivate others
4. Gain more respect 9. Family tradition
5. Dissatisfied with job 10. Being at the forefront of
6. Need a job technology
11. Being made redundant
12. Implement an idea or
innovation
Certain characteristics underpin entrepreneurial behaviors and that these often
arise from a combination of psychological and socio-economic factors.
McClelland suggest than entrepreneurial individual has:
1. High need for achievement, a drive to excel: reflected in strong
commitment to a work ethic, where the individual is prepared to work
the long hours often necessary in starting and running a business in its
early days and is able to persevere when the going gets tough
2. The tendency to be a risk taker: it doesn’t mean they will rush into
something but rather will show the ability to calculate the degree of risk
3. The ability to cope with and tolerate ambiguous situations: where
decisions have to be made but the information may not be complete
4. The need for personal autonomy: they want to be in charge of the
business, they do not fit well within rigid hierarchal structures
5. A high internal locus of control: they have a high belief in themselves,
believing that they control they’re own destiny
6. An ability to be open and spot opportunities as they arise: they are
opportunistic, they may be outward looking and creative in non-
conventional way. They may have an approach that would challenge
acceptable norms of doing business.