What makes firms effective?

Flash cards for Edexcel Economics and business unit 2B, What makes firms effective.

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What is corporate culture?
Covers all customs, attitudes and expectations that influence the way decisions are made within a business.
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What is a hierarchy?
Shows the layers of managment in an organisation.
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What is the chain of command?
The sequence of authority down which instructions are passed in an organistion.
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What is span of control?
THe number of subordinates directly answerable to a manager.
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What sort of hierarchy would be associated with an autocratic leadership style?
A tall hierarchy
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What is delayering?
Reucing the number of levels it usually involves increasing a managers span of control/
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Why might a business delayer?
A business it trying to become more flexible and responsive to market changes. Pressure to cut costs.
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What are the advantages of tall organisations?
Narrow span of control, clear lines of authority, clearly defined roles and responsibility, speacialist managers, clear promotion paths.
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What are the disadvantages of tall organisations?
Freedom of employees is restricted, can be bureaucratic- slow decision making, expensive- increased salary in each layer, interdepartmental rivalry may reduce efficiency.
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What are the advantages of flat organisations?
Better communication, better motivation due to more responsibility, less bureaucracy- quicker decisions, reduced costs from fewer managers.
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What are the disadvantages of flat organisations?
Employees not strictly controlled-some may abuse this, roles and responsibilities may become blurred, may limit growth
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What is matrix managment?
Individuals are assigned to teams to work on a project. It encourages teamwork, empowerment, creativity, flexibility. Suited to creative fast flowing markets. Can be hard to manage in more stable structures. Team leaders lead each team.
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What is entrepreneurial structures?
Similar to matrix but in smaller scale. Better for smaller businesses with an entrepreneur at the centre. Strengths are thay are formal and inflexible.
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What is decentralising?
Moving decision making away from head office and spreading it throughout the organisation. It allows decisions to be made as close as possible to where they are going to be put into effect.
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What are the advantages of decentralisation?
Senior managers concentrate on monst important decisions, decision making can cause empowerment, people lower down have greater understanding of the market and customers, local managers can react faster to changes.
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What are the disadvantages of decentratisation?
Lack of clear accountability, service may lack consistency, employees may not want extra responsibility.
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What is delegation?
Giving more responsibility to individuals for making decisions rather than having managers hand down decisions.
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What is consultation?
Involves discussions with employees about working methods and practices. Creates a feeling of importance and of being valued. Some employees may know mare about an area of the business t
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What is empowerment?
When empoyees can make independent decisions without consulting a manager.Decisions can be small or large.
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What is team working?
Employees are organised into teams to share decision making and responsibility. There is usually imporved productivity and faster problem solving.
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What is job enrichment?
Giving employees meaningful whole tasks to do, rather than boring, repetitive fragments of work.
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What is flexible working?
Allows employees to have a more variable job schedule as opposed to an 8 hour day it inclueds flexi time, job sharing, working at home.
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What is total quality management?
Employees are involved in quality control and take responsibility for the quality of their teams work. Helps reduce costly wastage and reinforces employee motivation.
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What is cell production?
Applies to assembly line production, it splits different processes into sperate areas where teams are responsible for one part of the process. Using teamwork and TQM together in this way increases quality and quantity of output.
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What is multiskilling?
Involves trainning empoyees so they can undertake a range of tasks. It improves motivation by making work less repetitive. It enhances felixibility because employees can be moved to where their skills are most needed.
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What is production?
Describes the process of combining input(land, labour, capital and enterprise) in order to produce a finshed product.
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What is productivity?
Describes how efficiently resources are actually being used.
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An increase in production may not always lead to...?
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What will an increase in productivity lead to?
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Why might a business want to increase productivity?
Reduce average costs, competitive advantage, reduces prices, quality improvements, increases profitability.
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What is physical capital?
Tools and machines. It enables labour to be more efficient and productive. Technology is very important otherwise modern production and distribution could not function. Technology improvement improves productivity.
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What is Human capital?
Refers to the skills of the work force. Education gives important general skills and these are improved and refined by specialist training, skills need to ge update, human capital improves with experience.
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How can productivity be increased?
Physical capital, Human capital, organising resources more efficiently.
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What is organising resources more efficiently?
If delays cause employees time to be wasted, improving the way they are organised can increase productivity.
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What is capital intensive production?
Uses large amounts of capital and realitively little labour. The more advanced an economy is the more capital intensive it becomes.
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What is labour intensive production?
When large amounts of labour are used and relatively little capital. Often associated with developing countries wheer labour is cheap and pleantiful. Can be used when machines can't easily replace humans.
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What is the problem with capital production?
Tools and machinery may become obsolete, failure to upgrade may mean losing competitive advantage, new investment in capital is needed.
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What are the problems with labour production?
Skills may no longer be needed, Retraining is needed, in general new investments in human capital is needed.
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What is capacity untilisation?
It measures what proportion of the theoretical maximum possible output is actually produced.
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What is the formula for capacity utilisation?
Current output/maximum possible output x100
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What is under- utilisation of capacity?
Capital equipment is lying idle some of the time this is wasteful and productivity is lower than it could be.
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What are the problems with under-capacity utilisation?
The business is producing less than it could, the average cost is likely to rise. This is because the fixed costs are shared over a lower level of output. The business is not as competitive as it could be.
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What is over-capacity utilisation?
The business is trying to produce more than its capital equipment was designed for.
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What are the problems with over-capacity utilisation?
Increased average costs as bottlenecks, breakdowns and overcrowding reduces efficiency. The businesses is not as competitive as it could be.
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How can businesses reduce under-capacity untilisation?
Extend product range, find new markets, increase deamnd by promotion, rent excess capacity to other businesses, close excess capacity-sell assets or make workers redundant.
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How can over-capacity utilisation be improved?
Identify and tack bottlenecks and shortages, outsource or sub-contract some production to other businesses, invest in increased capacity
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What is lean managment?
The term given to a system of production that minimises costs during production.
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Lsit some methods of lean managment?
Just in time, Kaban, Kaizan, Time based managment, TQM, Cell production, Job enrichment and empowerment
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What is Just in time?
Removes the need to hold large quantities of stock or raw materials.
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What does JIT involve?
Frequent deliveries of smaller quantities are made when they are needed. Building close relationships between the suppliers and producer to ensure supplies arrive on time. Average cost is reduced with increases competitivness.
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What are the advantages of JIT ?
Reduced costin handling stock, less need for storage space- space can be converted to production, greater flexibility in responding to changes in demand.
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What are the disadvantages of JIT?
Will not benfefit from reduced bulk buying costs, if there is a break in supply production will be lost, heavy reliance on supplier.
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What is Kaban?
Production only takes place after acustomer has placed an order. Production is pulled through an assembly line.
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What does Kaban involve?
Goes in hand with JIT, all output will generate sales and costs are minimised.
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What is Kaizen?
Japanese word for continuous improvement.
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What does Kaizen involve?
Everyone from top to bottom takes it upon themselves to moniter and improve quality whereever possible. Small improvments add up and spread throughout the business, customers benefit from better quality product, zero defects policy minimises waste .
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What is timebased managment?
Involves minimising product development times. It reduces costs but does require capital equipment that is flexible to produce a range of products.
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What are the advantages of lean production?
Reduces waste+costs, reduces cost of storage, improves quality, fewer reject costs, customers more satified, greater flexibility, shorter product development times, more motivated staff, less staff turnover, competitive advantage.
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What are the disadvantages of lean production?
Doesn't suit all production processes, failure by one small supplier halts entire production process, workers may dislike greater responsibility, managers may not be flexible enough.
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Other cards in this set

Card 2


What is a hierarchy?


Shows the layers of managment in an organisation.

Card 3


What is the chain of command?


Preview of the front of card 3

Card 4


What is span of control?


Preview of the front of card 4

Card 5


What sort of hierarchy would be associated with an autocratic leadership style?


Preview of the front of card 5
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