Business Studies Unit 2 (growing businesses):

?
What are the three methods of expansion?
Internal growth, external growth, franchising.
1 of 106
Why do businesses grow? (5)
To benefit from economies of scale. Reduce risks through diversification. Increase financial support (it's easier for a bigger business). Personal vanity (power). Increase market share (security from takeover, control prices).
2 of 106
What is internal expansion also known as?
Organic growth.
3 of 106
What are the four main methods of internal expansion?
Produce more current products to increase market share. Sell current products into new markets. Launch a new product. Change ownership (raise more capital).
4 of 106
What is line extension?
Introducing a new product similiar to existing ones.
5 of 106
What are the two methods of external exansion?
Takeovers and mergers.
6 of 106
What is a takeover?
When an existing firm buys another firm.
7 of 106
What is a merger?
Two firms join together to form a new but larger firm.
8 of 106
What are the two methods of mergers and takeovers?
Horizontal or vertical.
9 of 106
What is a horizontal takeover/ merger?
Joining two businesses in the same industry and stage of production.
10 of 106
What are the two vertical takeover/ merger methods?
Backwards and forwards.
11 of 106
What is vertical backwards integration?
Joining two businesses in the same industry but a different stage of production, towards the supplier (control quality and quantity of products)
12 of 106
What is vertical forwards integration?
Joining two businesses in the same industry but a different stage of production, towards the customers (control prices).
13 of 106
Definition of diversification:
"Spreading the risk by reducing the dependency on one product or market". / Joining two businesses in different industries.
14 of 106
Methods of diversification:
New products, new opening times, new outlets, new services, new pricing scale, different marketing.
15 of 106
Advantages of expansion on the 6 main stakeholders:
Government- collect more taxes. Suppliers- Increased sales. Local community- create jobs. Customers- lower prices (EofS). Shareholders- increased dividends. Employees- greater job security.
16 of 106
Disadvantages of expansion on the 6 main stakeholders:
Government- hard to pass interest- threatening laws. Suppliers- increased competition to supply. Local community- pollution/ traffic. Customers- higher prices if less competition. Shareholders- reduced power. Employees- less involved (hierarchal).
17 of 106
Definition of a public limited company:
A company that trades its shares publically; on the stock exchange.
18 of 106
Definition of flotation:
Occurs when a business offers in excess of £50,000 of shares on the stok exchange.
19 of 106
Advantages of becoming a Plc:
Limited liability, raise more capital (grow and diversify), status improves (easier to get loans, impress customers), more media coverage.
20 of 106
Disadvantages of becoming a Plc:
Threat of someone buying enough shares to take over. A weak CEO can lead to failure and directors can make decision that cause disagreements. Shareholders generally want more profit so ethical objectives may be lost. Media coverage can turn bad.
21 of 106
How does a growing business' objectives change?
Tend to change from survival to becoming and staying profitable.
22 of 106
What is the calculation for 'rate of growth'?
(Change in value ÷ original value) x 100. (answer is a percentage)
23 of 106
Definition of the Product Life Cycle:
The stages through which a product passes from its development to being withdrawn.
24 of 106
What are the 5 stages of the Product Life Cycle?
Development (R&D, expensive). Introduction (product launch, expensive (promotion), some revenue). Growth (sales rise, competitors launch rival products). Maturity (sales peak, development costs paid off). Decline (sales decrease).
25 of 106
What is the cash flow at each stage of a product's life cycle?
Development and introduction = negative cash flow. Growth, maturity and decline = positive cash flow.
26 of 106
Definition of product portfolio:
The range of products sold by a business.
27 of 106
Definition of an extension strategy:
Steps taken to extend the life cycle of a product.
28 of 106
Most important consideration with each stage of the product life cycle:
R&D= raising capital (loan, personal savings). Introduction= cash flow (loan). Growth= keeping up with the demand of sales (batch/flow production). Maturity= extend length of maturity. Decline= slow rate of decline. Extension strategy= obvious USP.
29 of 106
Marketing mix definition:
The combination of the 4 Ps (price, product, place, promotion) to ensure a product has maximum influence on encouraging a potential buyer to buy the prodcut).
30 of 106
Penetration pricing definition:
Charging a low price when a product is launched to get lots of interest and gain market share.
31 of 106
Competetive pricing definition:
Setting a price for a product based on prices charged by competitors e.g. petrol.
32 of 106
Definitions of the two methods of cost- plus pricing:
Using a mark-up: Work out cost of making the product and add a percentage mark-up. Using a profit margin: Work out cost of making the product and incrase by the required profit margin (cost=£2, you want a 20% profit margin, means £2= 80% of price.
33 of 106
Seven methods of sale promotion:
Discounts, product trials, free gifts, buy one get one free, competitions, Point-of-sale advertising (e.g. special display case), Use of credit (buy now pay later).
34 of 106
Definition of Sales Promotion:
Activities to attract consumer attention to a product to a product to increase sales.
35 of 106
What are the four methods of promotion?
Advertising, Sales promotion, Direct marketing, Sponsoring.
36 of 106
Definition & advantage & disadvantage of Direct Marketing:
Using direct means to contact consumers to increase sales e.g mailing out vouchers. + A business can measure its success. - Junk and spam can annoy potential customers.
37 of 106
Direct distribution definition & advantages & disadvantages:
(Direct channel. Manufacturer> cosumer. +Fastest channel, cheapest for consumer. - No variety for consumers, poor customer service levels (maybe).
38 of 106
Modern distribution definition & advantages & disadvantages:
Manufacturer> retailer> consumer. + Faster without involving wholesalers, manufacturer gets better customer feedback. - Hard for small retailers to avoid holding lots of stock.
39 of 106
Traditional distribution definition & advantages & disadvantages:
Manufacturer> wholesaler> retailer> consumer. +Manufacture gets bulk orders & no costs of storing products & risks of no sales, Retailer buys in smaller quantities, wider choice (reduce risks). -Long time for goods to get from manufacture to consumer
40 of 106
Cash and carry warehouse distribution definition & advantages & disadvantages:
Manufacturer > wholesaler > consumer. + Manufacturer gets bulk orders, Consumer often pays lower prices than if buying from retailer. -Wholesaler takes on cost of storing products and risk of not selling them, Reduced levels of customer service (?).
41 of 106
Four methods of measuring the size of a business with brief description:
Value of sales (revenue or turnover, doesn't judge efficiency). Value of Net Assets (assets- liabilities).Number of employees (useful for company with no products/competitors e.g. NHS). Market share.
42 of 106
What are the disadvantages of growth/expansion?
Slower decision making/ reaction time. Isolated employees. Difficulties in control/ coordination. Managerial abilities are tested.
43 of 106
What are the three ways a business can structure its organisation and brief descriptions?
By Function (FUNCTIONAL AREAS e.g. sales, marketing, customer service, operations, finance, human resources), by Product (split into SECTORS e.g. toys/ clothing/ furnishings), by Region (REGIONAL or NATIONAL divisions- multinational businesses).
44 of 106
Organisational Structure definition:
The internal links between managers and workers showing lines of authority.
45 of 106
'Span of control' definition:
The number of junior employees each manager is directly responsible for.
46 of 106
'Chain of command' definition:
The route by which decisions are passed between different levels of an organisation.
47 of 106
Definition of a 'hierarchy':
A series of levels within the business, where each level has responsibility and authority over the levels below.
48 of 106
Definition of 'centralisation' & advantages & disadvantages:
Senior managers take all important decisions. + senior manages have experience & become very powerful, rapid decision making. - managers may lack specialist knowledge, requires good chain of command, reduced staff motivation, pressure on managers.
49 of 106
Definition of 'decentralisation' & advantages & disadvantages:
Decision-making power is spread to managers in branches and divisions of the business. + Independence= motivated staff, more innovation (ideas). - Inconsistencies may develop between regions, decisions may not suit overall needs.
50 of 106
'Autocratic' leadership description:
"Where senior managers keep authority in a business" e.g. the Army, Tesco. Occurs in centralised organisations. + efficient, cheap, maximises profit, quick reaction time. -no motivation, no autonomy(choice), bad relationships.
51 of 106
'Democratic' leadership description:
"Employees play a major role in decision making" e.g. google, the government. Links well with decentralised organisations. + motivating, less pressure on managers, encourages trust. - expensive, time consuming (slows process), capability?.
52 of 106
Induction training description:
First training on first day of the job. Introduce to fellow workers. Told about company rules (including health and saftey rules). Tour of the site. Should make the new employee feel welcome and comfortable in their new work place.
53 of 106
On-the-job training description:
The most common form of training. Given in the work place. + Training is precise to the business, cost-effective for the employer (employee is working whilst learning). -bad working practices can be passed on, production may be disrupted.
54 of 106
Off-the-job training description:
Takes place away from the job at another place. + high quality (taught by properly qualified people). -expensive, not always directly related to the actual job, employees have good skills and may leave job.
55 of 106
Appraisal description:
Assessing how effectively an employee is working. 1=set performance targets. 2=meet the targets (training & resources provided). 3=discuss meeting of targets. +motivation, improved production. -demotivating if unrealistic, needs honesty & management.
56 of 106
What is remuneration and how can it motivate employees?
Remuneration is financial rewards e.g. increasing wages, bonuses, pension payments. Means more disposable income for employees.
57 of 106
How does training boost motivation?
Makes staff better at their jobs. New skills improves chance of promotion. Extra pay and responsibility motivates staff. Training helps staff meet their personal targets in the appraisal process.
58 of 106
'Retaining Staff' definition:
Keeping existing staff in the business, which cuts down the cost of recruitment, selection and training.
59 of 106
Definition of 'Laissez-faire':
Managers allow workers to perform tasks as they see fit, offering help if needed.
60 of 106
Specialisation definition:
Work is divided into separate tasks or jobs that allow workers to become skilled at one of them. It leads to 'division of labour'.
61 of 106
'Division of labour' definition:
– Breaking down a job into small repetitive tasks what can be done quickly by workers or machines specialised in this one task.
62 of 106
Advantages of specialisation:
+ workers can use their strengths, skills are improved, complex production is broken up into simple tasks, workers get efficient at their tasks (improve productivitiy).
63 of 106
Disadvantages of 'division of labour':
- Workers may get bored of repetition= low job satisfaction= industrial action & poor quality products. - one problem can halt the whole production process. - workers can become over-specialised and suffer from occupational immobility.
64 of 106
What is 'adding value'?
When some production stages make the product more valuable than before.
65 of 106
Flow production definition:
Large scale production where each stage of production is carried out one after the other on a production line.
66 of 106
Advantages and disadvantages of flow production:
+ efficient, benefit from economies of scale, long term cost reduction, use of robots= lower wage costs. - highly capital intensive, increased electricity bill, de-motivating for employees, a breakdown/ block in production causes major set backs.
67 of 106
Lean production definition:
A production approach that aims to use fewer resources by using them more efficiently.
68 of 106
Definitions of the two methods that 'lean production' links with:
Kaizen- "continuous improvement" (employee can give opinions on improvement). JIT (Just in Time production)- "Manufacturers order supplies so they arrive just when they are needed and make goods only when ordered by customers".
69 of 106
Advantages and disadvantages of JIT production:
+ don't hold stock which saves time and money, improved cash flow, raw materials are fully quality checked. - quality can drop if rushed, doesn't benefit from EofS, shortages can occur if huge demand (costly delays), good relationships are required.
70 of 106
Description of the two non-lean stock control methods:
'Stock control graphs'- maximum stock level, re-order level, minimum stock level. JIC (Just-in-Case) "Store a large amount of stock because they are likely to run out of stock.
71 of 106
What are 4 things to check when measuring quality?
Design, appearance, defects and safety.
72 of 106
Definition of 'Quality Product':
Goods or service that meets customers expectations and is therefore “fit for purpose”.
73 of 106
What is quality control and what are the three stages & advantages & disadvantages:
'Checking products to make sure quality standards are being met'. 1- check raw materials from suppliers. 2- take random samples of work in progress. 3- check random samples of finished products. +defects are spotted as they happen. - expensive
74 of 106
Definition & advantages of 'total quality management':
An approach to quality that aims to involve all employees in the quality improvement process. + employees take pride in work, removes inspection costs, less waste, Kaizen.
75 of 106
Definition of 'quality assurance' and the 'Kitemark':
A business guarantees quality of product. The BSI Kitemark™ is a registered certification mark recognized throughout the world as a mark of quality.
76 of 106
Definition of 'economies of scale':
The reasons why production costs of each item fall as a firm expands/ fall in unit cost as production increases.
77 of 106
Definition of 'purchasing economies of scale':
Buying in bulk to pay lower raw material costs. (larger firms).
78 of 106
Definition of 'specialisation economies of scale':
Occurs when larger firms can afford to employ specialist managers full time (e.g. accountants and lawyers) instead of paying by the hour like small firms have to.
79 of 106
Definition of 'financial economies of scale':
Banks are more prepared to lend money at lower rates of interest to larger firms as they are more likely to pay it back than smaller firms.
80 of 106
Definition of 'technical economies of scale':
Equpiment will be used more efficiently & larger firms can afford to operate more advanced machinery than smaller firms.
81 of 106
Definition of 'marketing economies of scale':
Sreading the fixed cost of promotion over a larger level of output.
82 of 106
Definition of 'risk-bearing economies of scale':
Where a firm can afford to sell a range of products into many different markets as a decline of sales of one product will not significantly harm the firm's cash flow.
83 of 106
Definition of 'diseconomies of scale':
The reasons why production costs of each item rises as a firm expands.
84 of 106
Definition of 'communication diseconomies of scale':
Orders passed downt the hierarchy can be distorted by a long chain of command'. Workers at the bottom can feel insignificant and therefore get demotivated.
85 of 106
Definition of 'coordination diseconomies of scale':
The production process may become more complex and difficult to coordinate which can lead to different departments working on very similar projects without knowing.
86 of 106
Definition of 'opportunity cost':
The cost of not going ahead with the next best alternative. e.g. Harry Trig goes for a lad's night out instead of buying his girlfriend a present with his last £10.
87 of 106
What is the definition of 'gearing'?
How a business is financing itself. Debt= bank loans. Equity= shareholder's funds. Highly geared means over 50% is bank loans which is risky due to interest rate changes.
88 of 106
What are 'business ethics'?
Moral principles that underpin decision making e.g. looking after stakeholders or reducing CO2 emissions instead of making the most profitable action.
89 of 106
What does 'culture' mean in a business?
The unwritten code that affects the attitudes, decision making and management style of a business' staff. Can attract better staff and lead to good motivation.
90 of 106
What is 'efficiency' and what are the two methods of measuring it?
'Using resources effectively'. Can be measured by 'labour productivity' (output per worker) or 'financial efficiency' (asset turnover).
91 of 106
What is 'short termism'?
When managers of public limited companies pursue rapid results due to shareholder pressure e.g. cutting back on training and R&D to increase profit. Private limited companies do not suffer from it as shareholders are family and friends.
92 of 106
What is the definition of 'price elasticity of demand' and the two types?
The relationship between changes in price of a product and the change in demand for the product. Price elastic goods compete on price e.g. luxury goods. Price inelastic goods are generally necessities e.g. petrol so prices can change.
93 of 106
What is the definition of 'income elasticity of demand'?
The relationship between a change in income and the change in demand for a product.
94 of 106
Definition of the 'Boston Matrix' and the four sections:
'Compares market share with market growth'. Question marks/ Oil rigs/ Problem children & Stars & Dogs & Cash cows.
95 of 106
Description of 'Question marks/ Oil rigs/ Problem children' :
'Low market share in a fast-growth market'. The market has great potential but the product isn't doing that well. *could use revenue from cash cows to promote and develop question marks.
96 of 106
Description of 'Stars':
'High market share in a fast-growth market'. The product's sales will fall eventually. *Diversification can prolong life.
97 of 106
Description of 'Dogs':
'Low market share in a low-growth market'. They are no good to a business. *Needs to be binned or improved e.g. promotion or redesign.
98 of 106
Description of 'Cash cows':
'High market share in a low-growth market'. They are in the maturity stage of their life cycle and provide ongoing finance. *Promotion has already ocurred and is no longer needed, market may have already grown quite big.
99 of 106
Definition of 'job description':
Explain the work to be done and typically set out the job title, location of work and main tasks of the employee.
100 of 106
Definition of 'person specification':
List individual qualities of the person required, eg qualifications, experience and skills. Includes essential and desirable qualities/skills.
101 of 106
What are 7 methods to assess and select applicants for a job?
Application forms, CVs, references, interviews, presentations, role-play and tests (e.g. psychometric testing).
102 of 106
Description of interviews:
Intervies- most common form of selection. +cheap, face to face, candidates' personalities show. -intimidating, pressure, interviewer needs to be competant, applicants who interview well don't always perform well.
103 of 106
Description of assessment centres:
Assessment centres- an amalgamation of tests, interviews, role play. Day long. +highly accurate, choose staff who perform under pressure. -expensive & time consuming.
104 of 106
Description of psychometric testing:
Multiple choice test designed to show the personaltiy of the candidate. +aids choice of suitable employee, not time consuming. - opportunity for candidates to lie about expertise, candidates may have different views of themselves.
105 of 106
What is a 'niche market'?
'A smaller segment of a larger market'. e.g. custom-made yachts. USES JOB PRODUCTION. +little competition, charge high prices. -low sales volume.
106 of 106

Other cards in this set

Card 2

Front

Why do businesses grow? (5)

Back

To benefit from economies of scale. Reduce risks through diversification. Increase financial support (it's easier for a bigger business). Personal vanity (power). Increase market share (security from takeover, control prices).

Card 3

Front

What is internal expansion also known as?

Back

Preview of the front of card 3

Card 4

Front

What are the four main methods of internal expansion?

Back

Preview of the front of card 4

Card 5

Front

What is line extension?

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all Growing businesses: resources »