Business Studies Unit 2 (growing businesses):

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What are the three methods of expansion?
Internal growth, external growth, franchising.
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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).
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What is internal expansion also known as?
Organic growth.
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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).
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What is line extension?
Introducing a new product similiar to existing ones.
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What are the two methods of external exansion?
Takeovers and mergers.
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What is a takeover?
When an existing firm buys another firm.
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What is a merger?
Two firms join together to form a new but larger firm.
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What are the two methods of mergers and takeovers?
Horizontal or vertical.
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What is a horizontal takeover/ merger?
Joining two businesses in the same industry and stage of production.
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What are the two vertical takeover/ merger methods?
Backwards and forwards.
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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)
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What is vertical forwards integration?
Joining two businesses in the same industry but a different stage of production, towards the customers (control prices).
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Definition of diversification:
"Spreading the risk by reducing the dependency on one product or market". / Joining two businesses in different industries.
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Methods of diversification:
New products, new opening times, new outlets, new services, new pricing scale, different marketing.
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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.
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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).
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Definition of a public limited company:
A company that trades its shares publically; on the stock exchange.
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Definition of flotation:
Occurs when a business offers in excess of £50,000 of shares on the stok exchange.
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Advantages of becoming a Plc:
Limited liability, raise more capital (grow and diversify), status improves (easier to get loans, impress customers), more media coverage.
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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.
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How does a growing business' objectives change?
Tend to change from survival to becoming and staying profitable.
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What is the calculation for 'rate of growth'?
(Change in value ÷ original value) x 100. (answer is a percentage)
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Definition of the Product Life Cycle:
The stages through which a product passes from its development to being withdrawn.
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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).
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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.
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Definition of product portfolio:
The range of products sold by a business.
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Definition of an extension strategy:
Steps taken to extend the life cycle of a product.
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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.
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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).
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Penetration pricing definition:
Charging a low price when a product is launched to get lots of interest and gain market share.
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Competetive pricing definition:
Setting a price for a product based on prices charged by competitors e.g. petrol.
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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.
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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).
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Definition of Sales Promotion:
Activities to attract consumer attention to a product to a product to increase sales.
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What are the four methods of promotion?
Advertising, Sales promotion, Direct marketing, Sponsoring.
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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.
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Direct distribution definition & advantages & disadvantages:
(Direct channel. Manufacturer> cosumer. +Fastest channel, cheapest for consumer. - No variety for consumers, poor customer service levels (maybe).
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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.
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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
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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 (?).
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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.
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What are the disadvantages of growth/expansion?
Slower decision making/ reaction time. Isolated employees. Difficulties in control/ coordination. Managerial abilities are tested.
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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).
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Organisational Structure definition:
The internal links between managers and workers showing lines of authority.
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'Span of control' definition:
The number of junior employees each manager is directly responsible for.
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'Chain of command' definition:
The route by which decisions are passed between different levels of an organisation.
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Definition of a 'hierarchy':
A series of levels within the business, where each level has responsibility and authority over the levels below.
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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.
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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.
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'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.
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'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?.
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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.
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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.
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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.
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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.
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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.
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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.
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'Retaining Staff' definition:
Keeping existing staff in the business, which cuts down the cost of recruitment, selection and training.
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Definition of 'Laissez-faire':
Managers allow workers to perform tasks as they see fit, offering help if needed.
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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'.
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'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.
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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).
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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.
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What is 'adding value'?
When some production stages make the product more valuable than before.
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Flow production definition:
Large scale production where each stage of production is carried out one after the other on a production line.
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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.
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Lean production definition:
A production approach that aims to use fewer resources by using them more efficiently.
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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".
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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.
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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.
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What are 4 things to check when measuring quality?
Design, appearance, defects and safety.
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Definition of 'Quality Product':
Goods or service that meets customers expectations and is therefore “fit for purpose”.
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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
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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.
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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.
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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.
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Definition of 'purchasing economies of scale':
Buying in bulk to pay lower raw material costs. (larger firms).
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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.
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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.
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Definition of 'technical economies of scale':
Equpiment will be used more efficiently & larger firms can afford to operate more advanced machinery than smaller firms.
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Definition of 'marketing economies of scale':
Sreading the fixed cost of promotion over a larger level of output.
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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.
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Definition of 'diseconomies of scale':
The reasons why production costs of each item rises as a firm expands.
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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.
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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.
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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.
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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.
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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.
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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.
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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).
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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.
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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.
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What is the definition of 'income elasticity of demand'?
The relationship between a change in income and the change in demand for a product.
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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.
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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.
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Description of 'Stars':
'High market share in a fast-growth market'. The product's sales will fall eventually. *Diversification can prolong life.
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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.
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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.
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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.
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Definition of 'person specification':
List individual qualities of the person required, eg qualifications, experience and skills. Includes essential and desirable qualities/skills.
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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).
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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.
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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.
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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.
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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.
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Card 2


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).

Card 3


What is internal expansion also known as?


Preview of the front of card 3

Card 4


What are the four main methods of internal expansion?


Preview of the front of card 4

Card 5


What is line extension?


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