BUSS 2

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Business Structures

Chain of Command - The path of communication and authority up and down the hierarchy

Tall Structures:

- Large number of people

- A long chain of command

- Too tall, communication is slow and decisions take a long time to make

Flat Structures:

- A few levels in the hierarchy

- People given more responsibility but freedom

- Too flat, managers get too many people reporting back to them

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Business Structures

Span of Control - The number of people who report directly to a manager

- Tall structures have a narrow span of control and flat structures have a wide span of control

- Too wide, managers manage less effectively. But too narrow, workers may become demotivated because of interfering bosses

Centralised Structures keep authority for decisions at the top

Advantages:

- Leaders usually have more experience

- Managers receive an overview of the business

Disadvantages:

- Few workers are expert enough in all aspects of the business

- Excluding employees from decision-making can be demotivating

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Business Structures

Decentralised Structures share out the authority to make decisions

Advantages:

- Involvement motivates them

- Quicker decisions being made as no need to ask senior managers

Disadvantages:

- Subordinates may not have enough experience to make the decisions

- Sectors in a business may become inconsistent due to more experience/knowledge in areas

Delayering - Removing layers of the hierarchy

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Workforce Effectiveness

Labour productivity= Output per period ÷ Number of employees

- Can be increased by improving worker motivation and improved training

- However, increasing labour productivity means redundancies unless sales improve

Absenteeism (%)= Number of staff days lost ÷ Number of working days x 100

-  Caused by (examples) : Poor working conditions, low motiviation, poor relationships

- Results in increased costs, and results in lost opportunities such as unanswered sale enquiries

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Workforce Effectiveness

Labour turnover= Number of staff leaving ÷ Average number of staff employed

Causes of high labour turnover:

- Changes in regional employment levels, growth of other firms with similar skilled staff (External)

- Low wages, poor motivation of staff, lack of promotional opportunities (Internal)

Benefits of high labour turnover:

- Constant stream of new staff ideas

- Business can recruit pre-trained staff from other firms, cutting training costs

Negatives of high labour turnover:

- A lack of loyal and experienced staff

- Firms loses staff that they have trained to other competitors

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Workforce Planning

Advantages of internal recruitment:

- Managers know the candidates, and the candidates know the job/business/objectives

- Shorter and less expensive than external

Disadvantages of internal recruitment:

- Leaves another vacancy to be filled, and may cause conflict if other collegues aren't picked

Advantages of external recruitment:

- Recruits may bring in fresh ideas with previous experience

- Larger selection of recruitment

Disadvantages of external recruitment:

- Managers do not know the applicant

- This recruitment is very long and expensive

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Workforce Planning (On/off the job training)

Advantages:

- Training is specific to the job as well as easy to organise, with low costs

Disadvantages:

- Both the trainer and trainee are not productive during training hours

- Bad work habits may be passed on to the trainee

Advantages:

- Uses specialist trainers

- New theories and practices can be introduced to the business

Disadvantages:

- More expensive

- The trainee is not productive and they may not have access to specific work tools for a job

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Taylor's and Mayo's Theory

Taylor's:

- Workers are motivated by money

- Most productive workers get a better rate

- However increased productivity means less workers are needed

Mayo's:

- Workers are motivated by social factors

- Working in groups made workers more productive

- Workers should socialise at work and outiside of work

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Maslow's and Herzberg's Theory

Maslow's:

- Motivated by the hierarchy, start from the bottom and work up

(Bottom to top)

Basic physical needs - Food, water, shelter and clothes. Businesses, a good working environment

Safety - Safe working environment with job security, businesses offer employment contracts

Social needs - Friendships and teamworking

Self esteem - Achievement such as businesses offering promotion 

Self actualisation - Meeting the potential, businesses provide a chance to develop new skills

Herzberg's:

- Motivated by hygiene factors such as good supervision, working conditions and pay

- Motivating factors such as interesting work, recoginition, personal development and rewards

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Financial and Non-Financial Motivation

Financial:

Piece rates - Production workers are paid by per finished item, more produced = more pay

Non financial:

Job enlargement - Employees get more work at the same level of hierarchy

Job enrichment - Workers get more challenging work, providing more responsibility for organisation of work and problem solving

Empowerment - Giving workers more control over their work with a greater decision making role

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Capacity Utilisation

Capacity - Maximum output with the current resources available

Capacity utilisation - How much capacity a business is using. 

Capacity Utilsation(%)= Output ÷ Capacity x 100

Low capacity utilsation = Under utilisation, which is inefficient. Under utilisation increases costs because fixed costs are spread over less output, therefore the break even level increases

Too much capacity utilisation - No downtime, staff can get stressed, no margin for error, and businesses cannot respond to increased demand, forcing them to turn down customers

Unit cost= Total costs ÷ Output

Firms with low demand should reduce capacity by:

Rationalisation - Reducing capacity by closing part of their production facilities

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Quality

Quality improvements reducing costs:
- Less raw materials and less worker/machinery time get used up

- Less advertising and promotion required 

- Less customer care as less complaints to deal with, therefore fewer refunds

Quality improvements increasing revenue:

- Greater price flexibility 

- Good quality can be used as a USP

- Higher quality products improve image and reputation of a business

Quality control - Detecting errors in a product and correcting them before customers buy it

Quality assurance - Workers check their own work, called self-checking, which is motivating

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Quality

Total quality management:

- Whole workforce is comitted to quality improvements 

- Every employee must try to satisfy customers

- However workers need training, it can be expensive and my disrupt short term production0

Quality awards:

- BS 5750 is an award given by the British Standards Institution to firms with good quality assurance systems which meet the industry standards

- ISO 9000 is the European equivalent to BS 5750

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Customer Service

Customer service - The actions a business takes to keep its customers happy, before, during or after a sale

Good customer service:

- Provides a USP

- Good service reputation is hard to for competitors to duplicate unlike products

- Satisfied customers provide good advertisement by spreading the reputation by mouth to others

- Long term customers repeat purchase, bring in new customers and are less price sensitive

Customer satisfaction

- Next day or free delivery, returns flexibility, extended opening hours, and call centres open for long hours

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Suppliers

Building relationships with suppliers:

- Shared costs (The business and supplier share costs by sharing specialist equipment and storing their goods in the same warehouse)

- Just in time systems (Suppliers produce and send the materials to arrive at precise times)

- Linked networks (Shared IT systems e.g stock control management, so both ends can see stock levels and judge when more stock is needed. This can cut costs, and improve customer value)

Supply chain:

- Consists of the group of firms that are involved in all the processes in completing a product

- Generally consists of suppliers, manufacturers, distributors, retailers

Strategic supplier - Provides goods/materials that are essential to a business (high value raw materials)

Non-strategic supplier - Provides low value supplies (office stationary)

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Technology

Types of technology:

- Robotic engineering (using robots as part of the manufacturing process)

- Computer technology (computers are used in ways such as product development and financing)

Advantages of robots:

- Company needs fewer employees

- Generally more accurate and more reliable

Disadvantages:

- Staff may lose their jobs, which could demotivate them

- Higher initial costs when purchasing the robot

- Maintenance costs are expensive

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Technology

Computer aided design (CAD) uses computers to design or alter products on a 3D screen

Computer aided manufacture (CAM) uses computers to produce a product 

Advantages of technology:

- Increased productivity and quality

- Reduced waste through more effective production methods

- Reduced administrative and financial costs

Disadvantages of technology:

- Initial technology costs could be high

- Technology requires constant updating, which can be expensive

- New IT systems may create an increased need for staff training

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Marketing

Advantages of Niche marketing:

- Although a small group of consumers are targeted, they're likely to buy the product

- Marketing is cheaper than mass marketing

Disadvantages of Niche marketing:

- Identifying a niche can be expensive, and companies are forced to set a high price for the product

Advantages of Mass marketing:

- Very large audience, and producers save money because of economies of scale

Disadvantages of Mass marketing:

- The strategy is unlikely to meet the customer's needs, and market share may decrease

- Mass marketing is expensive as it relies on widespread forms of promotion e.g TV adverts

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Managing products

Product portfolio - A variety of products a business has to offer

Boston Matrix - A model of Portfolio Analysis, comparing market growth with market share. The size of a circle represents the sales revenue of the product (bigger the better)

Question Marks - New products with small market share and high market growth. Require heavy marketing, such as brand building to start the success

Stars - High market share and high market growth, future cash cows, have the most potential

Cash Cows - High market share but low market growth, they've already been promoted and produced in high volumes, so costs are low

Dogs - Low market share and low market growth, but if they're still profitable the business will harvest profit in the short term, but no profit=product can be sold off

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Managing products

Marketing Mix - The factors that firms consider when marketing a product, consisting of Product, Place, Price, Promotion

Three types of new product: Innovative (Completely original, such as Post-it notes), Imitative (Copy innovative products once they're successful), Replacement (A new model of an existing product)

New products: Bring in new customers, Give a competitive advantage, and allows a company to maintain a balanced product portfolio

Products can have both tangible and intangible benefits that can be used as a USP:

- Tangible (Can be measured) benefits such as low calorie pizza 

- Intangible (Cannot be measured) benefits such as the reputation and image 

- Other things customers want include customer service and money back guarantees

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Marketing Mix - Product

Product Development Stages:

- Ideas stage: Market researches look for a gap in the market

- Screening stage: Business analyses the idea to see if it's easy to market and if it'll make a profit

- Product development stage: Prototype is turned into a saleable product

- Value analysis: Business tries to make the product good value for money for the business and the consumer (If the whole process is efficient)

- Testing: Small batch of of test products are made and market researches investigate customers reactions to them

Product Life Cycle:

Development , Introduction (Product launched), Growth (Sales grow fast), Maturity (Sales reach a peak), Decline (Product no longer appeals to consumers)

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Marketing Mix - Promotion

Promotion aims to increase sales and profits by increasing the awareness of the products

Product life cycle promotion:

Launch - Product is new so promotion is informative

Growth - Why the product is different to competitors, and aim is to increase market share

Maturity - Reminder of the product to the customers

Public Relations (PR):

- Brochures, newsletters, leaflets and information of the business

- Deals with product launches, special events, press conferences

- Media, answering press enquiries, and writing press releases

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Marketing Mix - Price

Pricing strategy - The way in which a company plans to price a product for the long term future

Price discrimination - Charging different customers different prices, such as buying hotel rooms in advance compared to a last minute booking, improving capacity utilisation 

Price leader - When a powerful brand sets a price, causing other businesses to follow

Price taker - When a business lowers the selling price to what the consumers are willing to pay, as a result of increased demand

Psychological pricing - Bases prices on customer's expectations, such as a high price means high quality, and £99.99 seems a lot better than £100

Loss leaders - Products are sold at below cost price, but will attract customers in to the shop and purchase high-priced products

Skimming method - Selling new products at a high price, such as a computer

Penetration pricing - Selling a new product at a low price to increase market share (Price sensitive  items) and also attract customers

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Marketing Mix - Price

Factors affecting demand - Price (Price up, demand down), Competitors prices, Disposable income, Seasonality, Marketing

Price elastic - As the price changes by a small amount, the demand decreases by a large amount

Price inelastic - As the price changes by a large amount, the demand on slightly decreases

Price elasticity of demand= % change in quantity demanded ÷ % change in price                             If result is 1 or above (ignoring the minus) the product is price elastic. Less than 1, inelastic. For example -3 is price elastic and -0.6 is price inelastic

Income elasticity of demand= % change in demand ÷ % change in real incomes                                  This helps to see what will happen to sales if there are economical changes

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Marketing Mix - Place

Channels of distribution:

Direct Selling - For example accountants, this involves selling services directly to a consumer (Manufacturer -> Consumer)

Indirect Selling - For example large supermarkets buy goods in bulk from a wholesaler and sell to consumers (Manufacturer -> Retailer -> Consumer)

Indirect Selling (Traditional) - Manufacturer -> Wholesaler -> Retailer -> Consumer

Direct Selling Through an Agent - An agent is a sales representitive not employed by anyone , they get commission instead of a salary (Manufacturer -> Agent -> Consumer)

Short distribution channels usually are industrial products with few customers, infrequent sales, and expensive goods

Long distribution channels usually involve consumer products, many customers, inexpensive goods, with frequent sales

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Improving Competitiveness

Competition usually forces prices down, improves customer service, and improves the quality of goods on offer (beneficial to the customer)

Monopoly - A market which only has one organisation providing a service or product. 

Oligopolies - When there are a few dominant businesses in a market

To remain profitable and compete, businesses must regularly review their marketing mix, and may alter for things such as technological advances and economical changes

Businesses can improve competitiveness without marketing:

- Reduce fixed costs by rationalise staff, cheaper raw materials, or cheaper utility providers

- Improving customer service quality, as this increases consumer loyalty, which may spread the awareness of the brand

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