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Student Handbook Business Studies
Citation preview
IFY Business Studies
Student Handbook
Produced By
Stephen Byrd PhD, MBA, FITOL FICM
IFY Business Studies – Student Handbook
Page 2 of 215
Week Topic Units
Marketing
1 A: The nature of marketing 18
B: Market Analysis 21
81
2 C: Segmentation and positioning 20
D: Market research 19
35
3 E: Marketing Strategy 22
32
4 F: The Marketing Mix
F a: Product
23
24
27
5 F b: Promotion 28
29
6 F c: Place (Distribution) 30
F d: Price 26
Accounting and Finance
7 G: The role and limitations of accounting 37
H a: Finance 44
45
8 I a: Profit and loss accounts 42
I b: Balance Sheets 43
9 I c: Working capital 48
H b: Analysing published accounts:
Ratio analysis
56
57
10
J: Cost and management accounting
Types of cost, Break Even, Contribution 38
40
41
11 Cash Flow Forecasting and Management 46
12 Budgeting and Variance Analysis 41
13 Review
14 Review
15 EXAM WEEK
Notes to Students:
All reading should be completed before the Week number listed.
The weeks may change, but you will be informed well in advance
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Business Studies
Supplies – be prepared
A4 Notebooks
Pencils / Pens
Ring binders, with dividers
Hole punch
Rulers
Calculator
Stapler
Conducting of courses
Lectures / Tutorials
Take notes – always have notebooks
Class participation
– asking questions
– answering questions
Homework – collected and marked
Regular testing
Other rules of class
Be here, be on time!
Handle personal matters before / after class
No talking, unless instructed
Ask teacher about what you don‟t understand
No word finders (ask teacher)
No mobile phones
Assigned seating …
Assessment
2 Assignments each worth 10% = 20%
Term 1 Examination = 10%
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Final Examination = 70%
Total = 100%
Predicted Grades
For university selection and applications
Based on:
Term 1 Assignment
Results of Term 1 regular tests
Term 1 End of Semester Exam results
Homework
Class participation
Method of calculation:
Based on:
Term 1 Assignment 10% 20%
Term 1 EOS Exam 10% 80%
Total 100%
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Marketing: The management process used to identify, anticipate
and satisfy consumer requirements profitably. (Textbook)
Management: the skill of controlling or directing
Process: a series of steps or actions towards an end, a goal
Identify: to recognize or know
Anticipate: to expect or to realize before someone else does
Satisfy: to fulfill a desire, a want or a need
Consumers: people who use products or services
Requirements: a need, want or desire
Product orientation – focused on production process, the product,
and efficiency; sees people as basically similar; practices “mass
marketing” (industrial revolution thru mid-50‟s)
Market orientation – consumers at the center of decision-making;
listening to the customers wants and needs; building long-term
relationships; recognizes differences in people, practices “target
marketing”
It is possible to be successful with either type of orientation, but it is
harder to be successful with product orientation alone.
Features of business marketing behaviors:
Consumers – most important; know your consumers; a “feel”;
trends; react to consumers needs, wants and desires
A Process – no beginning, no end, ongoing; respond to changes
RELATIONSHIP MARKETING: Build relationships with
consumers – know what they want; react to complaints, long-
term
A business philosophy – a way of thinking
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Affects entire business – the goods produced; pricing and
sales
Marketing – not just Selling (usually different departments);
market research (what do consumers want and what‟ll they
pay); design of products, packaging; testing of products on
consumers
Advertising – only a part of Marketing
Asset-based (Asset-led) Marketing – developing and marketing
products based on a company‟s key strengths
REAL DISPOSABLE INCOME – The amount of consumers‟ Income
remaining after deducting taxes and adding back any other
government benefits
A rise in Real Disposable Income causes:
Increase in “Demand”; which causes
Economic Growth; which causes
Changes in tastes and fashions; which causes
New technologies to be created; which causes
Increases in competition
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Markets – classified according to characteristics
Geographical – i.e. by location;
Goods;
Industry;
Size – mass/niche Problems with measuring size
o Market size – can be measured by Value or Volume
Market Share / Penetration – proportion (percentage) of the market
held by a company
Important in judging: size; growth
Market Growth – affected by: Economic changes; Social changes;
Technological changes; Demographic changes; changes in
Legislation
Reasons for / benefits of growth: economies of scale; gain market
share; increase future profits; reduce risk; survival
Economies of scale
Internal (within the company): Technical (efficient use of
facilities); management; financial; purchasing; risk reduction
through diversification
External (growth in industry): labour availability; outside
services; co-operation
Methods of company growth:
Internal: organic (expand sales); innovation (new products)
External: merger; acquisition
Limits to growth – diseconomies of scale – inefficiency
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Still, small firms survive – reasons: Personalized service; flexibility;
efficiency; lower costs; low barriers; owner preference; etc.
Mass Marketing: Marketing products to all consumers in almost the same way. Can
be expensive, and, products will be going “head-to-head” with other mass market
products.
Segmentation: Break a market into sub-groups with similarities.
Examples of Market Segments: Age; gender; ethnic background;
family characteristics; education level; occupation; income level;
social class; religion; political or voting preference; geographic
location; personality; lifestyle; purchasing choices or patterns.
Market research can help identify segments; can also be directed to
specific market segments.
Identifying segments can: reduce market research cost; help
increase sales; reduce product promotion cost by targeting specific
consumers.
Target Marketing: companies choose to concentrate their
marketing efforts on particular groups of consumers
Niche Marketing – aiming products at smaller market segments.
Niche Marketing is less expensive, more cost-effective
Some niches may have been overlooked or ignored by
competitors
Focuses on the specific needs of the members of the niche
Drawbacks and risks in Niche Marketing:
o Success will attract competitors (for the same reasons)
o May not be easy for companies with many products
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o Tastes and preferences of small groups can change more
quickly
MARKET POSITIONING: Consumers tend rank/rate products by
quality, status, value-for-the-money, other characteristics, defining
the Market Position: main products = Market Leaders; others =
Market Followers. As markets and consumers‟ tastes change,
companies try to reposition their products.
Market Mapping: tool to analyze Market Position in eyes of
consumers.
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Market Research: collection, collation and analysis of data relating
to the marketing and consumption of goods and services
Uses for Market Research Information:
Descriptive: what is happening
Predictive: what‟s likely in the future
Explanatory: why are things happening
Exploratory: what new possibilities may be available
Market research:
Helps with decision-making, especially in fast-changing markets
Helps reduce risk
Provides a link to the outside world, about their products and
potential future ventures
Is more important as markets expand in size and scope
Is good for public relations
However, Market research can have failings because:
Human behaviour is unpredictable
Sampling may be biased
Questions or questioners may be biased
QUALITATIVE – Information about attitudes, beliefs and intentions
QUANTITATIVE – Data that can be expressed as numbers
DESK or SECONDARY RESEARCH – information already available
Internal sources
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External sources
PRIMARY or FIELD RESEARCH – collected by the researcher
Advantages for the Company: full control over the kind of
information being gathered; only they can access it
Methods of Field Research: Personal interviews; phone
interviews; focus groups; post-purchase; observation
Types of Questions:
Closed: Offers a limited range of answers
Open: offer the interviewee the chance to openly respond
Clear and unambiguous questions
Leading questions encourage a particular answer
Effects the different questions may have, and how questioning can
be used
Balance between closed and open questions
Closed questions are usually easier to summarize and quantify
Leading questions: for impartial data, they should be avoided;
may be used to influence the results of the survey
Who to ask?? Asking everyone would be impossible
SAMPLING
Random Sampling – population listed, computerized Random No
Gen
Systematic Sampling (Random)
Stratified Random Sampling
Others in book: Quota Sampling (target quantities from different
groups); Cluster Sampling (separating population by area); Multi-
stage Sampling; Snowballing
Haphazard Sampling
Type of information that might be asked:
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What are they currently using? / Would they use this?
What features do they like about it? / What features would they
like?
What should it look like? Size, weight, shape, color?
What type of promotion would be best? / Where they would want
to be able to buy it? / How much would they be willing to pay?
Information about them: Age; Sex; Marital status; General
income levels; Educational background; etc. DEMOGRAPHICS
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Marketing Objectives / Marketing Goals:
Company Growth – to affect profits
Maintaining sales and market share
Product differentiation – from competitors
Product introduction and innovation
Consumer knowledge and satisfaction – build RELATIONSHIP
Marketing Objectives/Goals should be SMART – Specific;
Measurable; Agreed; Realistic; Targeted
Analyzing Constraints (stand in the way of achieving goals):
Internal: Financial; Organizational; Product; Price; Place
External: PEST-G: Political; Economical; Social; Technology;
“Green”
Marketing Strategies: Steps to help a company compete more
effectively
Competitive Strategies: To compete more effectively
Product differentiation – Show the differences from competitors‟
products
Target a particular Market Segment
Price – Try to be the lowest price in a market
Growth Strategies:
Market Penetration or Expansion: Increase sales in the existing
market
Product Development: introduce new products into existing
market
Market Development: Market existing products in new markets or
market segments
Entry into new markets: Developing new products for new
markets
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The Marketing Mix (Combination) – the Four P‟s: To meet their
marketing objectives, companies break down their marketing
activities into 4 areas:
Product: make the product meet consumers needs and company‟s
needs: use; physical presentation (look, feel, smell, etc);
financial, incl. cost; life cycle; uniqueness; market position
Pricing: Market Position; maximize sales (low); maximize profit
(high)
Promotion: choose the most effective for its market
Place: Where sold; how sold; how transported, etc.
Services have 3 more P’s
People providing the service
Process involved in delivering the service
Physical – the environment in which the service is provided
Every business designs its own Marketing Mix for each product it
sells
Ideal Mix = right balance between the 4 P‟s: type of product;
market; level of competition; competitors‟ Marketing Mix; Market
positioning
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The Stages of The Product Life Cycle
Development: design, testing, decision to proceed (money out)
Introduction: 1st Sales (often slow, may be fast); heavy promotion
Growth: accepted; sales begin to grow; if new product,
competition…
Maturity: sales increase rate begins to level off
Saturation: placed well throughout the market
Decline: changes in consumer tastes, new technology, etc
Extension Strategies – ways to extend the Product Life Cycle: new
uses; new markets; wider product range; target markets; change
appearance; encourage more frequent use; change ingredients or
components.
Capacity and Cash Flow
Capacity is the maximum amount a business can produce; the
measure of how fully a company is using its capital.
Cash Flow is the measure of money in and money out
Product Life
Cycle
Capacity Cash Flow
Development No Effect Cash out only
Introduction/
Launch
Sales limited; will have spare
capacity, or, “borrow” from existing capacity
Although Sales begin, still negative
due to prior development, and, promotion costs
Growth Expanding production, use up
spare capacity
Cash Flow moves into the positive
as cash from sales overtakes prior cash expenditures
Maturity May operate at full capacity, may need to expand capacity
Cash Flow at highest, Sales at highest, marketing and advertising
may reduce
Decline Sales & production reducing, capacity may not be fully
utilized
Sales will fall, Cash flow will fall
The longer the life cycle of a product, the longer a company may
expect to operate at full or near-full capacity.
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The Product Life Cycle is a planning tool, useful for:
Showing trends in product revenue
Planning when to launch new products
Planning when to introduce extension strategies
Planning cash flows
Identifying when to stop selling a product
Showing expected profitability at different stages
Planning different marketing strategies
Managing The PRODUCT MIX (combination) or PRODUCT PORTFOLIO
Companies use Product Life Cycle and the Boston Matrix to help plan
when to introduce new products or product lines (groups of closely
related products). Always involved in new product development.
The Boston Matrix: Market Growth
High Low
Market
Share
High STAR
CASH COW
Low PROBLEM CHILD DOG
Star: Large share of a high-growth market
Problem Child: In growth markets (has potential), but sales not
good
Cash Cow: Mature products with stable market share; generate
funds, may support other products
Dog: may be in decline
Brand – a name, design, symbol, etc, lets consumers recognize your
company or products, differentiates your products from your
competitors. BRAND NAME is spoken name; BRAND MARK is a
symbol / LOGO.
Reasons to establish a Brand – a successful Brand can help:
Develop Customer Loyalty
Differentiate your products, especially where products are similar
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Develop recognition
Develop image
Pricing flexibility – more willing to accept higher prices
Brand Equity – Well-known Brand adds value to products and
Companies
Developing a Brand:
Choose the right name or symbol
Protect the Brand – trademark and copyright
Find a Unique Selling Point (USP) – what makes them different
and makes consumers want to have them over other products
Be the first in the market
Positioning – e.g. a “high quality” Brand should be targeted to
people with higher incomes. Product Mix is important:
o Product made from high quality materials
o Price can be a premium price
o Promote in a way that reflects the status of the brand
o Place it where the targeted customers can access it
Types of Brands:
MANUFACTURERS BRAND – the Producer
OWN LABEL BRAND – The seller
Branding Strategies
Individual Branding – single-product Brand
Family Branding – group of similar products, or, Corporate Brand
Combination Branding – mid-way of the above two approaches
Brand Extensions – add Brand name to product outside the
“family”
Problems with Branding
Expensive
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Some markets / products not suited for Branding
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The purpose of Promotion to get and keep customers:
Create / increase customer awareness
Reach a targeted audience (may be geographically spread out)
Remind customers – encourage repeat purchases; gets new
customers
Differentiate your product – encourage buyers to switch
Develop or improve image
Re-assure consumers after purchase – repeat customers
Support existing products
Promotion: Above the Line – independent media
Types of advertising:
Informative – increase customer awareness of, knowledge about
Persuasive – to buy the product
Reassuring – to have current customers continue to buy
Corporate Advertising – Promote the company
o Create an impression as responsible members of
community
o Branding
Types Advertising Media:
Medium Advantages Disadvantages
Television Mass market; Attract
attention; Demonstrate Products
Expensive; message short
lived; Hard to deliver Tech info
Newspapers, Magazines
Mass mkt. or Target segments; Big or small
businesses; Can use national, regional, local
No motion or sound; Black & White (newspapers); ads can
get lost; (magazine) long time to publication
Cinema Strong impact; target
specific consumers
Limited viewers seeing it only
once;
Radio Inexpensive; can target
specific markets;
No visual; may not get
audience attention
Posters, High visual; where Limited info; how effective;
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Billboards customers are; encourage to
buy;
damage
Internet Rel. inexpensive; monitor hits; targeted; easily
changeable
Limited audience; technical problems
Factors in Choosing Advertising Media
Cost – overall cost; cost effectiveness
Reach their Audience – target advertising; reduce “wastage”
Presentation – i.e. TV for visual; print for information
Impact on the viewers – TV or Cinema
Marketing Mix – again targeting consumers
Competitors – what are they doing
Legal restrictions (below)
Controls on Advertising – keep from being misleading
Legislation and regulation: Trades Descriptions Act – avoid false,
misleading info; Office of Communications – regulates TV, radio
ads Competition Commission – investigates anti-competitive
behaviour
Independent Bodies – Advertising Standards Authority:
independent, conform to The CAP Code (British Code of
Advertising, Sales Promotion and Direct Marketing):
o Legal, decent, honest and fair
o Responsible to consumers and society
o In line with principals of fair competition
o Breach of Code, can ask to withdraw ad, or else: a)
publish findings; b) withdraw privileges of membership;
or, c) ask media to refuse to carry future ads
Pressure Groups – community organizations representing their
views
Advertising and Society
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Effects on Society: increases costs; encourages to buy, might
not otherwise; high consumption effects on environment;
encourages things that might damage society
Advertisers’ justification: offers choice; gives consumers
information; respond to, don‟t create, needs in consumers; earn
revenues for the media, reducing costs to consumers; employs
large number of people
Promotion Below the Line – does not depend on Media
Advantages:
Cost usually less
Control the message
Types of Below the Line promotion:
Direct Mailing: Sending information to selected consumers – post
Exhibitions and Trade Fairs: Company sends various staff
(executive, sales, technical), home or abroad; Direct contact with
distributors and consumers: see products, see how they work and
get their reactions
Sales Promotions – special offers to push customers to buy:
coupons; competitions; product endorsements; product
placement (TV & movies); free offers; etc.
Branding
Merchandising – how products are placed in stores: Displays;
point-of-purchase promotion; stores adequately stocked, well-lit,
etc.
Packaging – to be made appealing and convenient: weight &
shape; protect the goods; convenience; design; informative;
environmental
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Personal Selling – company‟s sales people sell by phone, in
meetings, in stores, or door-to-door. Customers given a standard
message and personal attention
Public Relations – communicate with “groups” that publicize info to the customers: “Press conferences” to publicize announcements
and new developments; “Press releases” sent to newspapers, television stations, etc and available on websites
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Distributing the Product – getting it to the right place at the right
time
Channels of Distribution: Direct to consumer; through a retail outlet;
through a wholesaler; using an agent
Physical distribution – how the goods are transported
Retailing: Supermarkets & Hypermarkets; Department Stores;
Multiple shop organizations; Retail co-operatives; Independent
retailers
Direct Marketing – sell directly from company to consumers. Incl:
Retail outlets; Internet; direct mail; personal selling; telephone sales
Choosing the right channel of distribution can depend on:
Type of product: perishables; technically complex goods; tailor
made products; convenience goods; large quantity, low value
goods; data – products not requiring delivery;
Market: Large, disbursed intermediaries; smaller consumers
can buy direct; Segment may dictate; Time periods may
require different action;
Legal restrictions medicines; etc.
Company: larger companies often set up their own distribution
networks
Intermediaries – P. 218, Fig 30.1 shows different combinations
Trends in Retailing and Direct Marketing
New trends and other developments: Shopping Centres; Retail
Parks; Call Centres; Online shopping; Discount chain stores; Variable
hours stores; Diversified products; decline of independents;
reductions in costs; second-hand shops
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What Factors affect pricing decisions?
Objectives: Such as maximize sales, maximize profits
Marketing Mix: Price must fit with the type of product, the way it
is promoted and the places it is being sold
Costs: long-term, cover costs; short-term, some flexibility
Competition …
Consumer expectations – value for money – what‟s it worth
Market Segment
Legal: Taxation; regulation; subsidization
Cost Based pricing: All pricing influenced by costs and profits, but,
with some products / markets, Costs are bigger factor than market
forces
Cost Plus Pricing
Contribution Pricing
Absorption Cost / Full Cost Pricing
Problem of cost based pricing – may not reflect what the market will
bear
Market orientated pricing – based on conditions in the market
Penetration Pricing – pricing low, to “penetrate”, often in mass
markets
Market Skimming – high price for limited time
Consumer Value Pricing – based on the maximum consumers will
pay
Loss Leaders: price at a loss, to bring the consumers in
Psychological Pricing: based on consumers‟ thoughts or feelings
(9.99)
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Price Discrimination: same company, different prices for different
segments – could be time-based – telephone, travel; market
based
Competition based pricing
Going Rate Price – generally in line with Market Leader
Destroyer Pricing – deep price cutting to eliminate competition
Closed bid pricing – larger jobs, bidding
Pricing tactics (plan for attaining a particular goal)
Special Promotion offers
Loss Leaders: Sell a product at a loss to bring in the customers
Discounts on normal prices: timing; regular customers; large
quantities
Introductory offers: Price for first purchase reduced
Pricing strategies (elaborate and systematic plan of action)
New Products
o Lower prices: penetrate existing Markets; launch new
markets
o Skimming or Creaming: High price for limited time
Existing Products
o Price Taking – closely follow leader‟s price increases,
decreases
o Price Leader will be the first to raise, lower
o Destroy competition, capture the market – “aggressive”
pricing
o Price discrimination – different prices to different
consumers
Tutorial
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Case Study Pp 197-198
Accounting: recording, classifying and summarizing business and financial transactions,
and reporting the results to interested parties.
Accounts: reports that give users financial information about a
business
Users-Internal: Management; Owners
Users-External: Legal: Tax Auth, Auditors; Registrar of Companies;
Users-Financial: Bankers; Suppliers; Competitors; Community;
Media; Investors & analysts; Government
Role of Accountants: produce financial accounts; involved with
auditing
2 types of Accounts
Financial Accounts – historical; “true and fair” / financial
accounting standards; independent auditors report on fairness
Management Accounts – future; analyze cost, forecast; budget
Limitations of Accounts:
Don‟t show internal strengths of company (i.e. the quality of staff,
etc)
Don‟t show external factors or economic conditions the company is
facing
Don‟t have information to predict market growth or demand
Sales and other figures may be misleading in times of high inflation
Data can be deliberately changed to give a false impression to users
The balance sheet really only tells about the past not the present
Computerized accounting and financial reporting
Advantages: quick; efficient; capacity; accurate
Disadvantages: cost; technical problems; operator error;
security
Financial Accounts:
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Balance Sheet: funds in the company and how used
Profit and Loss Account: summary of year‟s trading activities
Cash Flow: shows inflows and outflows during trading year
Notes to Accts: detailed analysis; qualitative information
Other: Directors Report; Chairperson‟s statement; Auditor‟s Report
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Companies Need Funds – CAPITAL or REVENUE EXPENDTURES
Remind: Assets = Liabilities + Capital
Capital Structure – how a company is financed (rvw BS)
Choosing the right source of financing: Cost; Use of Funds; Status
and size of company; Financial situation; Gearing: Loans ÷ Equity
Types of Internal Sources: Profits; Working Capital; Sale of Assets
Types of External Sources:
Share Capital: Ownership
o Authorized / Issued – Public (Stock Exchange); Dividends
o Ordinary Shares: riskiest; dividends only when declared
o Preference Shares: not often / Guaranteed dividend,
generally doesn‟t change; in Sale, 1st to get funds back
o Deferred Shares: very seldom / often to starting owners
Loan Capital: Debentures (Bonds; public companies; guaranteed
interest rate; date repaid); Mortgage (smaller companies;
secured)
Short-term sources: Bank Overdraft; Bank Loan; Hire Purchase –
purchase of equipment; Trade Credit; Lease (Finance – with
option to buy; Operating – Rental); Debt Factoring; etc
External sources: Financial Intermediaries (companies that match
Savers and Investors); Stock Market; Banks, etc.
Uses of Funds – Assets: Resources of a company, add value
Asset Structure – the best combination of different assets
Fixed Assets – held over 1 year – considered productive for income
Tangible – can be touched – Land; Plant, Machinery & Equipment
Financial – Investments – generally shares in other companies
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Intangible – Goodwill; Patents, Copyrights, Trademarks; R & D;
Brands
Company Law and the Balance Sheet – P 318
Tutorial:
P 309, Q 3
P 317, Q 2 (a)
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Balance Sheet
Balance Sheet: A snapshot of the company‟s financial position,
shows:
What the owners invested, and that investment‟s current value –
Capital
Everything the company owns – Assets
Everything the company owes – Liabilities
Accounting Equation: Assets = Liabilities + Capital
Fixed Assets – generally held more than 1 year
o Investments
o Tangible Fixed Assets
o Intangible Fixed Assets
Current Assets – Cash or other assets quickly converted to cash
Current Liabilities – amounts owed to be paid in less than 1 year
Net Current Assets / Working Capital
Creditors – amounts due after 1 year
Capital and Reserves – breakdown of value to the owners
o Share Capital – purchase value of shares
o Retained profit – profits not distributed (via Dividends)
Balance Sheets always presented in this form: Standards;
comparability
Sole Trader‟s – no shares; Drawings
Limitations of Balance Sheets:
Lack of details; Intangibles
Current values of Fixed Assets may not be reflected
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Static
Profit & Loss
Profit – what businesses and their stakeholders look for
Remains from Revenue when all business expenses have been paid
What happens to it: pay taxes; distributed to owners; retained
For up to 1 year – Revenue ≥ Costs = Profit; Revenue ≤ Costs =
Loss
Profit and Loss Account:
3 areas: Trading Acct; Profit and Loss Acct; Appropriations Acct
Trading: Sales / Turnover; Cost of Sales; Gross Profit
Sales / Turnover: Ownership, not cash – Realization Concept
(Matching)
Cost of Sales: Standard Calculation – Matches costs to items sold
Gross Profit – amount remaining – GP ÷ Turnover = GP%
Business‟ Profit & Loss: starts with Gross Profit
Less Operating Expenses = Operating Income
Add: Non-operating Income
Add / Subtract: Interest Income / Interest Expense = Net Profit
Appropriations: What happens to the Profit
Dividends may be paid out to owners – leaves the company
Balance remains in the company – adds to owners‟ value in the
company
Public companies: Earnings Per Share = Net Profit after tax ÷ No.
Shares
Calculation: Net Profit Margin = Net Profit ÷ Turnover
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Relation to Balance Sheet:
Sales: Debtors
Cost of Sales: Stocks; Creditors
Other Operating Expenses: Creditors
Retained Profits: Capital
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Working Capital = Current Assets – Current Liabilities
Current assets sometimes called Liquid assets – WC – “Liquidity”
Sometimes called Circulating Capital – important for day-to-day
operations
The Working Capital Lag (Cycle p337)
Sources of Liquidity Problems Solutions
Overtrading Stimulate sales for cash
Invest in too many Fixed Assets Sell off non-vital Fixed Assets
Sale and lease back
Stock-piling Sell off raw materials, even at a
loss
Allowing too much credit Rigorous steps to collect, offer
discounts
Taking too much credit Extend credit with selected suppliers
Overborrowing
Credit Controls
“Late Payment of Commercial Debts Act 1998”
Liquidity Ratios – Measures how quickly a business can pay its
Creditors
Current Ratio or Working Capital Ratio
Current AssetsCurrent Liabilities
Ratio (1.5 : 1)Current Ratio =
Generally, 1.5 : 1 is the minimum preferred
Acid Test Ratio or Quick Ratio
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Current Assets - StocksCurrent Liabilities
Ratio (1 : 1)Acid Test Ratio =
Less than 1 : 1 means a company does not have enough “Quick”
Assets (Cash and Debtors) to cover Current Liabilities
Ratio Analysis – analyze and get meaning from Financial Accounts:
over time; between companies; over time between companies
Can be a Percentage, a Number or a Ratio
4 Types of Ratios: Performance; Liquidity; Gearing; Shareholders
Performance or Profitability Ratios – Focus: Profits
Return on Capital Employed (ROCE) – Earnings on Investment.
How much could the company earn if it used its Capital elsewhere, or
put in the bank? How much extra should it earn for the risk
involved?
Earnings Before Interest and TaxLong Term Capital Used
PercentageROCE = X 100
Long Term Capital = Total Shareholders Funds + Long Term
Liabilities
To increase ROCE: Increase Earnings or Pay down Long Term
Liabilities
Gross Profit Margin – The Profit on Sales
Gross ProfitTurnover or Sales
PercentageGross Profit Margin = X 100
To increase it: Raise Prices or lower Cost of Sales
Net Profit Margin – The Net Profit earned on Sales –
EBITTurnover or Sales
PercentageNet Profit Margin = X 100
To increase it: Have better control of overheads
Activity Ratios – Focus: How well a business uses its resources
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Asset Turnover Ratio – looks at how productive a business‟s
assets are
TurnoverNet Assets
NumberAsset Turnover Ratio =
Net Assets = Fixed Assets + Net Current Assets – Long Term
Liabilities
OR Capital and Reserves
Stock Turnover Ratio – how quickly a business is selling its stock
Cost of SalesClosing Stocks
Closing StocksCost of Sales
# Days
Stock Turnover Ratio =
Stock Turnover Days = X 365
# times
Retailers generally have quicker Stock Turnover than manufacturers
Debt Collection Ratio – Average number of days to collect from
Debtors
DebtorsTurnover
Number of DaysDebt Collection Period = X 365
Increase its Debt collection activities; Tighten or reduce “Terms”
Liquidity Ratios – Focus: how quickly a business can pay its
Creditors
Current Ratio or Working Capital Ratio
Current AssetsCurrent Liabilities
Ratio (1.5 : 1)Current Ratio =
Generally, 1.5 : 1 is the minimum preferred
Acid Test Ratio or Quick Ratio
Current Assets - StocksCurrent Liabilities
Ratio (1 : 1)Acid Test Ratio =
OR
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Less than 1 : 1 means a company does not have enough “Quick”
Assets (Cash and Debtors) to cover Current Liabilities
Gearing Ratios – Looks at how a company has financed itself
Fixed Cost CapitalLong Term Capital
PercentageGearing Ratio = X 100
Fixed Cost Capital = Long Term Liabilities
Long Term Capital = Capital and Reserves + Long Term Liabilities
≤ 50% = Low Geared (more Invested Capital)
≥ 50% = High Geared (more Borrowed Capital)
Interest Cover – Enough earnings to pay Interest Expense
EBITInterest Expense
Number of timesInterest Cover =
An Interest Cover between 1 and 2 is a problem
Shareholder Ratios – Help Investors make decisions
Earnings Per Share (EPS) – a measure (only) of how much is
earned per each Ordinary Share outstanding – has nothing to do
with Dividends
Profit after TaxNumber of Ordinary Shares
AmountEarnings Per Share =
Price Earnings Ratio – used by investors to decide to buy or sell
shares
Share PriceEarnings Per Share
No. of timesPrice/Earnings Ratio =
Share Price rises and falls based on Investors‟ confidence in the
company
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e.g. A P/E Ratio of 12 means Market Price is 12 times higher than
earnings
A rise in P/E Ratio means Investors have greater confidence in
company
Shown on the Profit and Loss Account, at the very bottom
Dividend Per Share – how much Ordinary Shareholders receive per
share
Dividends (Ordinary Shares)Number of Ordinary Shares
AmountDividend Per Share =
To know whether Dividends are really good or not, they must be
compared to the price of the share, to know the “Return on
Investment”
Dividend Yield
Dividend Per ShareShare Price
PercentageDividend Yield = X 100
More difficult to interpret, affected by amount of Dividends paid,
and, changes in the price of the share.
If Dividends increase and Price remains the same, DY goes up
But investors want the share price to go up.
If Share Price goes up and dividends go up by the same percentage, the DY remains
the same.
Which is best???
Return on Equity – Earnings on the Equity (a bit similar to ROCE)
Profit After TaxEquity
PercentageReturn on Equity = X 100
Dividend Cover – based on profits, how many times could a
company‟s
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Profit After TaxDividends (Ordinary Shares)
No. of TimesDividend Cover =
If too high, shareholders: “company should pay more Dividends”
If too low: earnings too low; or, company not retaining enough
profits
Limitations to Ratio Analysis:
Same industries – and size may make a difference
Rising prices – Inflation
Balance Sheet limitations – when significant changes occur
Quantitative analysis only, does not include qualitative info.
Tutorial: P 394, Q 1; P 396, Q 2
P 394, Q 1
£75,400£252,600£154,900£365,900
£32,000£252,600£38,700£365,900
Fish & Chips Gifts & SouvenirGross Profit £75,400 £154,900Net Profit £32,000 £38,700Overheads £43,400 £116,200
29.8%
Gift & Souvenir Gross
Profit Margin =X 100 = 42.3%
Fish and Chips Gross
Profit Margin =X 100 =
Net Profit Margin =Net Profit
X 100
Gift & Souvenir
Net Profit Margin =X 100 = 10.6%
Turnover or SalesFish and Chips Net
Profit Margin =X 100 = 12.7%
P 396, Q 2
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2004 2003 2002 2001Current Assets 10,700 14,700 13,500 12,700Current Liabilities 10,100 16,200 14,500 13,100Current Ratio 1.059 0.907 0.931 0.969Turnover 138,100 141,800 136,200 121,000Debtors 6,400 12,100 11,200 9,800Debt Collection 16.9 31.1 30.0 29.6
P 398, Q 3
GearingFixed Cost Capital 1,500,000 2,000,000Long Term Capital 2,500,000 3,000,000
Interest CoverEBIT 750,000 750,000Interest Expense 90,000 120,000 6.25
60%
8.33
67%
6.00%
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CMA – know how business doing; expanding operations accuracy
essential:
In Business: Accounting Costs – value of resource used up in
operations – an Asset or an Expense (Econ: Opportunity Cost)
Costs in Short Run – at least one FofP is fixed
Long Run:
Fixed Costs – remain the same in the short run
Stepped costs (draw graph)
Variable Costs change as output rises
Semi-variable Costs – not entirely fixed or variable – i.e. Labour;
telephone
Total Costs = Fixed Costs + Variable Costs
Costs in Long Run – all Factors of Production can change
Costs can be classified differently (i.e. Fixed/Variable/etc)
Direct Costs: with the Product or Process
Indirect Costs / Overheads: Running the business as a whole
Average / Marginal Costs – same idea / method as Economics
Prod/Sell/Admin/etc; product/job/contract (however serves
management)
Total Revenue (Quantity sold x Price)
Total Revenue – Total Cost = Profit / (Loss)
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Adjustments in price or costs may impact profits, may be temporary
Quality profits – several/many years
Cost and Profit Centres
Management looks at costs / revenues different ways to make
decisions
Cost Centres: – parts of businesses that incur costs: Product;
Department; Geographical location; employee; etc.
Profit Centres – similar, but where revenues are also recorded
Advantages Disadvantages
Improve accountability
Help in decision making Improve motivation
Trace problems
Internal conflict
Cost allocation Factors outside the
business
Inefficient use of resources Staff Pressure
Contribution
Contribution per Unit = Selling Price – Variable Costs
(Different from Profit, which includes both fixed and variable
costs)
Total Contribution = Contribution per Unit x Quantity Sold
Total Contribution – Fixed Costs = Profit
Contribution is contribution towards fixed costs and profit
A business may use Contribution for:
Decision making (Product A or B, or, accept or reject orders)
Calculating Break Even Point
Pricing
Costing Methods
To provide managers with info for decision making
ABSORPTION Costing (aka FULL, TOTAL) Method for overheads
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Spread or allocate overhead/indirect costs to different cost/profit
centres
Could be allocated based on: Revenue; Direct costs; staff numbers;
floor area; Cost or book value of assets employed; etc. (Problem in
Tutorials)
Standard Costing Method – set up estimates and compare to actual
P 366, Table 52.7 – Simple illustration
Contribution or Marginal Costing – last week
Good for making special order decisions
Relationship between marginal and average costs
Marginal cost cuts AC curve at lowest point
Closing Down Point – where MC = AVC
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Tutorial
P 275, Q 1
P 276, Q 2
P 283, Q 1
P 366, Q2 – Absorption / Full / Total Costing
(a) Suitable basis for apportioning costsRent and electricity - floor spaceAdministrative costs - staff
(b) Apportionment Food Women's Men's Electric Toys Total
Staff 12 8 4 6 6 36
Floor Space 800 600 600 400 200 2600
Direct Costs 400,000 200,000 100,000 200,000 100,000 1,000,000
Allocate CostsRent & Electric 92,308 69,231 69,231 46,154 23,077 300,000
Admin 66,667 46,154 46,154 30,769 15,385 200,000
558,974 315,385 215,385 276,923 138,462 1,500,000
P 368, Q 4
Price £4.00 £3.50Quantity 100,000 20,000
Sales £400,000 £70,000Cost of Sales: Materials & Components £0.70 £70,000 £14,000
Direct Labour £1.60 £160,000 £32,000Other Variable Costs £0.50 £50,000 £10,000
£2.80 £280,000 £56,000(a)(i) Gross Profit / Contribution £120,000 £14,000
Fixed Costs £80,000(a)(ii) Net Profit £40,000
Export Costs £13,000(b) £1,000
(c) (downside) Difficulties and risks of exporting(upside) Potential for developing new business
Q: Are Export Costs fixed costs or variable costs??A: Although not expressed as a cost per unit, the Export Costs are
still variable costs.
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Importance of Cash (discussed in section on Working Capital)
Cash Flow Cycle: Cash Resources Production Sales Cash
Important to Control Cash flow by: records; planning; controls on
credit
Cash Flow Forecast: predicts of what might happen in the future
Pp 322-323 – Sections: Receipts; Payments; Net Cash Flow; Ending
bal‟s
Uses
Identify when there may be cash shortages or surpluses
Supporting applications for credit – banks may request info
Help with planning / starting a new business
Monitor cash flow (at year end)
Reliability depends on accurate, unbiased information
Cash Flow Statement – Table 46.4 (P 326)
It‟s required in published Financial Accounts (with BS and P&L)
Sections: Operating Activities; Returns on Investments and servicing
of finance; Taxation; Investing activities; Financing
Also required: calculation of net cash flows from operations – Table
46.5
Criticism of Cash Flow Statement
Doesn‟t give very much information
Small companies not required to prepare them
Based on historical transactions / future predictions more useful
Differences between cash and profit
Timing of transactions
Purchase of Fixed Assets
Company borrowings
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Owners introduce Capital
Budgets
An agreed plan (different from a Projection); different levels, by
executives, management, supervisors and employees; approved
throughout all levels
Preparation of Budgets
Accurate information: F/S‟s (past); Forecasts (future)
Master / Departments, subsidiaries
Approaches to budgeting
Objectives Budget / Flexible Budget
Capital Budget / Operating Budget
Problems of preparing Budgets
Figures based on prior information, sales levels, etc
Management and coordination of process / Conflict
Time consuming
Sales / Revenue budgets and Production Budgets – explanations,
examples
Zero-based budgeting – budget process that includes justifying with
benefits
(Different from basing on historical costs and forecasts)
Benefits Drawbacks
Helps improve allocation of resources Threat to status quo – motivation
A much more careful approach Difficult – skillful
Creates alternatives Too careful a process – may miss certain opportunities May improve motivation
Budgets – in general Benefits Drawbacks
Helps with control, especially
spending
Competitive emp‟ees –
problems
Sets clear targets, responsibilities Being too inflexible –
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problems
Helps ensure capital is usefully
employed
Too large differences may
hurt effectiveness of budget
process Helps: co-ordination; communication
Variances: differences between budget and actual (also later in course)
Type Favourable (better) Adverse (worse)
Sales / Revenue Higher Lower
Costs / Expenses Lower Higher
Cash Flow Tutorial
P 325, Q 2
Budgets Tutorial
P 326, Q 3
P 333, Q 3
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Break Even Analysis
The point where Total Revenue = Total Costs
Break Even Point = the Quantity of goods needed to sell to break
even
Uses of Break Even Analysis:
How much sales are needed to cover fixed and variable costs
How different levels of output affect profit
How changes in price or costs affect Break Even Point & Profit
Example Data: Price = 100 ; Variable Cost = 40 ; Fixed Costs =
60,000
Calculate BEP using Contribution
Break Even Point = Fixed Costs Contribution
Contribution = 100 – 40 = 60
0 Output
£
TC
TR
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Break Even Point = 60,000 60 = 1,000 units
Calculate BEP using Total Revenue and Total Cost
Break Even Point: Total Revenue = Total Costs
Total Revenue = Price x Quantity Sold
Total Cost = Fixed Costs + Variable Costs
Total Revenue = 100 x Q
Total Cost = 60,000 + (40 x Q)
60,000 + (40 x Q) = 100 x Q
1,000 = Q
Margin of Safety – Difference between level of output and Break
Even
Advantage: a good tool for viewing changes (What if‟s): Price; FC;
VC
But it has some limitations (refer to P 289)
Applications of Break-Even Analysis
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Example
Facts: Fixed Costs 20,000 p.a.
Variable Costs 75 EachTR = TC
Selling Price 125 Each
First, Calculate Break Even Point
TC = 20,000 + 75Q Now, what if they want to figure price?
TR = 125Q Price = Total cost / Output
20,000 + 75Q = 125Q = (20,0000 + 500x75)) / 500
20,000 = 125Q - 75Q = (20,0000 + 37,500)) / 500
20,000 = 50Q so 400 = Q = 115
Draw Chart (show margin of safety)
Now, assume profit of 15,000 Now, add Profit
FC + Profit Target / Contribution Assume output of 1,000 & profit = 40,000
= 20,000 + 15,000 / 50 Price = (Profit Target + total cost) / Output
= 35,000 / 50 = 700 Quantity = (40,000 + (20,0000 + 1,000x75)) / 1000
= (40,000 + 95,0000) / 1000
= 135
So far:
Calculate BEP using Contribution
Calculate BEP using Total Revenue and Total Cost
Target rate of profit:
(Fixed Costs + Target Profit) ÷ Contribution
Break Even Price:
Total Cost ÷ Output
(Total Cost + Target Profit) ÷ Output
Summary of CMA
Overview of Cost Management Accounting – for Management‟s needs
Financial Accounting mentioned: Cash Flow; Budgets
Funding structure
Ratio Analysis
Different types of costs
Cost and Profit Centres
Contribution Costing; Break even analysis
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Absorption costing; Standard costing; Closing point
Variance Analysis
Budgetary control
Preparing Budget / then comparing Budget to Actual / Variance
Analysis
Adverse / favourable
Profit Variance
Direct Materials Variances: Price (cost) / Usage
Direct Labour Variances: Wage Rate / Labour efficiency
Overheads variances
Sales Margin Variances: Price / Volume
Cash Variance
Tutorial
P 376, Q 1
P 378, Q 3
Tutorial
P 287, Q 2, Q 3
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0 Output
£
TC
TR
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How a business organization is structured
Formal Organization: Relationships; Control; Authority to make
and carry out decisions; communication
Organization Charts: Positions; Communications; Weaknesses
(draw)
Hierarchy – the order or levels of management
The “Chain of command” – Orders pass down / information passes
up
Span of control – number of “subordinates” under a manager
o (Some say should be between 3 to 6 people – narrow)
o Narrow may be very expensive.
o Wider gives broader control, maybe more satisfaction to
manager.
Responsibility – being required to justify an action
Authority – the ability and or formal permission to carry out a task
o Line authority – manager over subordinates – hierarchy
o Staff authority – manager or department can give advice to
people in other departments
o Functional authority – specialist gives advice to other
departments
Delegation – passing authority and/or responsibility for some
tasks to employees further down the hierarchy:
o Planning; Clear explanation and instructions, explaining
why; Delegated Employee must also have authority and
responsibility; Managers should avoid interfering with
delegated task – provide support and resources; Establish a
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way to oversee at certain points; “Empower” employees
(self-confidence and control)
Centralization and Decentralization – explain, then benefits below
Centralization Decentralization
Sr Mgmt have more control Standardizing – econ of scale
Decisions Pt of view of whole
Sr Mgmt more experienced Crisis – strong leadership
Communication easier / fewer
decision makers
Empowers / motivates workers
Reduce burden on Sr Mgmt
Greater job satisfaction Benefit from “local” knowledge
More flexibility,
responsiveness Prepares subordinates to
move up
Different forms of structure (P 414)
Entrepreneurial Structure
Bureaucratic, pyramid, hierarchical structure
Matrix Structure
Independence Structure
Informal Business Structure – Advice, trust, communications
Factors influencing organizational structure
Size
View of ownership or management
Business objectives
External factors
Changes in technology
The informal business structure
The corporate culture
Recent trend – delayering
Tutorial – Case study, P 417
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Financial Rewards: / Methods of Payment
Time Rates: Weekly wages; Monthly salaries; overtime
Annualized hours contracts: compute annual hours, work time
flexible
Piece rates: pay by results, incentive / target
Commissions
Fees – for single (“one-off”) tasks
Fringe Benefits – other things besides wages or salaries.
o Salary may be limited due to contract caps or industry
standards
o Emp‟or may be able to pay less for some Fringe benefits
o Some may avoid National Insurance or Income Tax
Employer Considerations regarding Pay:
Motivate employees
Costs
Prestige
Recruitment and labour turnover
Control
Employee Considerations regarding Pay:
Purchasing power – affording to buy / have what they want
Fairness of pay for work performed
Relativities – pay comparisons between employees
Recognition of their contribution to the company
Composition of compensation package / Salary to fringe benefits
Incentive Schemes
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Individual Output Schemes: Piece Rates; Performance Related Pay
(PRP); Commissions
Collective Output Schemes: Measured daywork – based on overall
daily output; Profit Sharing – for Partners, Managers, etc; Profit
related pay – cash bonuses for employees; Share ownership
Employee Input related schemes: Merit Pay (based on employees‟
behaviour and conduct); Skills-based pay (based on capabilities)
Problems with Incentive Schemes
Operations – poorly run business may interfere with employees
Earnings – schemes may cause costs and earnings to fluctuate
Quality Control – excessive outputs may lead to decreased quality
Changes to keep the system “clean” may cause confusion
High pressure may decrease quality of working time
Worker jealousy
Performance measurement standards
Team incentives / some members work harder
Some question effectiveness of incentives, yet they are still
necessary
Tutorial:
Read and analyze: Case Study, P 434
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Management and Leadership
Managers are responsible for getting things done:
Planning;
Organizing;
Commanding;
Co-ordinating; and
Controlling
Leadership – know what direction to take; plan; persuade others to
follow
Qualities of Leadership:
positive self-image;
ability to deeply analyze situations (get to the core) and
recommend solutions;
high level of knowledge;
sense change and respond.
Leaders adopt different styles: Delegating; Participating; Selling;
Telling
Different Leadership styles:
Autocratic – sets goals and delegates tasks – demands obedience. If
members become dissatisfied, don‟t work together well, requiring
much supervision, poor motivation
Paternalistic – similar to Autocratic, except they have a high level of
concern for their subordinates. May decrease dissatisfaction and
supervision, may improve working well together and motivation.
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Democratic – encourage participation in decision-making: The leader
must be persuasive and/or consultative at the same time (to
convince workers to follow his plan). Needs good communication
skills. May be a more effective because: workers can participate in
the process – a sense of freedom; effectively uses collective
knowledge and wisdom of the members; generates greater sense of
commitment and motivation.
Laissez-faire (pronounced Lay say fair) – allows workers to work
freely within broad limits, with few guidelines and directions. Much
more creativity, relaxed atmosphere. Sometimes may result in poor
productivity, lack of motivation.
With the effects of job re-design, delayering, etc, managers are
more team-based leaders. Need to select, coordinate and manage
groups, dealing with all those related issues
Leadership styles are often determined by an individual‟s
personality, and people don‟t often change easily. So companies
should select managers based on the job‟s requirements –
Leadership Matching – either task oriented or relationship oriented
Sometimes different Leadership styles called for in different
situations:
Certain tasks (emergencies);
Skilled / unskilled workforces;
Size;
Personality of the leader;
personalities in the group;
Time constraints
Effective Leading is the most important
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Tutorial
P 446, Q 4, a – together
Combination of Democratic and Laissez-faire
Human resources important – effective management – strategic
implications
Soft Side Hard Side
Motivation; Organizational culture; Support for employees;
employee and industrial relations
Assessing needs for staff; predicting future demand and
supply of personnel; predicting
turnover
Factors affecting HRM:
Changes in: goals; consumer market; technology; Legislation;
Finances
Competition for: labour; Customers
Population: Activity; ageing
Corporate culture and structure
Trade Unions
A strategic approach to HRM
integrate into planning & coordinate with other functions
“Corporate Culture” – sees employees as important
Motivation: incentives; involvement
Encourage work flexibility: change jobs, methods, etc
Flexibility in staffing: natural wastage, voluntary redundancy;
early retirement; redeployment
Advantages of strategic approach – long term benefits
More competitive through greater efficiency
May be able to better solve HR problems
Anticipate changes in workforce and needs
Prevent industrial relations problems
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Effects of good Human Resource Management policies:
Reduced Labour turnover: lost productivity; cost of recruiting,
training. HRM should try to identify potential problems
Absenteeism: Lost productivity / output; late order fulfillment;
cost of off-time; low morale.
Labour productivity = output / Number of employees – increased
Turnover per head = sales / Number of employees – reduced
Strong Industrial Relations: less disputes, strikes, grievances
Relations with stakeholders
Profitability – all this will affect profitability
Flexible workforce – many schemes (textbook). May help: increase
worker satisfaction and motivation; allow company to better plan for
changes; decrease overtime and „shift‟ work costs.
Relocation – moving production to different areas or countries
Outsourcing – shifting production to other companies – efficient
Knowledge Management – identifying and using internal knowledge
Unit 63 – HR Dept‟s main function is managing HUMAN RESOURCES
Human Resource Plan: Forecast Emp‟ee demand (w/depts); plan
supply
Analyze: past information, incl. business and management‟s
knowledge; worker productivity; work study (how many staff /
task)
Calculate staff losses
Analyze current employee supply – detailed: age, position, term,
qualifications, performance; determine internal / recruiting
LABOUR TURNOVER INDEX =
NUMBER OF STAFF LEAVING
AVG NO STAFF DURING PERIOD x 100
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Plan internal employee supply: Promotion; Staff development and
training; staff loss and retirement; flexibility (e.g. change work
hours, work teams, multiskilling, etc); legal issues (redundancy /
severance)
Plan external employee supply: availability of workers (incl.
flexible); skills needed available; gov‟t training, subsidies;
workplace competition; population, demographics;
unemployment; housing & public transport; costs; government
legislation
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Representation at Work
Types of representation: Trade Unions, Staff associations,
Professional Associations; Employers‟ Organizations
Trade Unions developed over last several hundred years
3 Types: Craft, Industrial, General.
Represent members (workers): salary, benefits, working conditions,
etc.
All Trade unions formally registered; may join Trade Union Congress
Recently, powers decreased, role has changed:
UK passed legislation to reduce their powers; plus: economic,
demographic, memberships, have changed: number of unions,
membership and density.
To retain benefits and power, they: gave up single-union
representation, limited / eliminated strikes, accepted binding
arbitration, etc.
TUC (Trade Union Congress): represents all major unions; more
recently, also has a political and social function
CBI (Confederation of British Industry) – represents businesses:
legislation; legal, financial, economic support and advise
Industrial Democracy, Bargaining, Consultation &
Participation
Business / employee conflicts: pay; conditions; flexible work; etc.
Industrial relations – to resolve these issues without industrial
action.
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Collective Bargaining: Conditions and Terms negotiated by company
and union representatives (for employees).
Employers must allow Employees to join trade unions.
Unions: should be independent of both the company and the state,
and must represent employees in good faith.
All parties must agree to and be bound by negotiated results
Negotiations can be: international, national, local, factory / plant,
individual
Negotiations – a process:
Set Agenda (this is done by both parties; all other steps are taken
by each side separately in preparing for the negotiations)
Gather Information
Set Strategy: objectives; roles; predict response of other side,
planning
Assure Unity
Plan size of group
Plan the stages of negotiation
Plan how decisions will be made
Prepare a statement at the end of negotiations
Rep‟s committing to get their side to accept
Consultations:
Joint Consultation: Management, worker reps; common issues; before negotiations
Pseudo-consultation: management decides, informs employee
reps, no power to influence them (looks negotiated, but really not)
Classical consultation: involve emp‟ee reps; influence mgmt‟s
decisions
Integrative consultation: actually bringing in employees,
discussing matters of common concern, etc
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ACAS (Advisory, Conciliation and Arbitration Service): mediates
when consultations & negotiations fail. Other services: Arbitration;
advisory work; Codes of practice; help businesses improve
personnel, mgmt practices
CAC (Central Arbitration Committee): government office; responsible
for union recognition when employees want it, but employers resist
Industrial democracy: Nowadays Employees participate in decisions
in many ways: Work groups; Team-working; own shares of the
company; participate in Employee Work Councils (consult, discuss,
transfer information)
Industrial Democracy depends on: Laws, rules, regulations;
corporate culture; emp‟ee power and/or union representation;
communication, IT; etc.
More employee participation and industrial democracy:
Advantages: increase motivation; new, different or better ideas;
better industrial relations (all sides
take a longer-term view; may make mgmt respond better to
employee needs
Drawbacks: hierarchical businesses may
not adapt well; can increase costs; may
lead to conflict – management may not
want to accept
Industrial Actions (IA)
Industrial Actions can be taken by either side, when conflict not
resolved
Employers: Employees:
Reduce
overtime,
benefits Chg. standards /
piecework rate
Lock-outs; closures of
Unorganized/Unofficial:
Employee responds, often unplanned, the
only way he knows how High turnover; absence; inefficiency or
wasting time; unofficial strikes
Not very effective, but, sometimes can lead to follow up organized / official actions
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factories
Hire other
workers in the situation where
union workers
go on strike
Organized/Official:
“Work to rule” or “Slow go”
Stop working Overtime (ban) Sit-in or work-in
Strike
Industrial action has risk. Factors that may influence success or
failure:
Strength and size of union or business; How well workers and/or
union is organized; Location of workers (very spread out means less
effective); Public support; Actions of management; Laws; Economic
situation
Benefits of IA Problems with IA
Brings grievances out into the open
Management can
better understand employees position
Can help change
rules Management may
adjust company
goals
Employers‟ problems: Lost production / late or lost orders
Lost revenue to pay for idle fixed assets
Future relations – hard feelings Shift mgmt attention away from
planning
Harmful to company‟s reputation
Employees‟ Problems:
Lost earnings
Closure (in the event of a long action) Stress relations w/workforce, motivation
If unsuccessful, may weaken future
positions, lead to losing union members Not w/in law? damages, discipline,
dismissal
Tutorial
P 538, Q 2
P 539, Q 3 – at least 35 minutes (Read the question w/students)
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Equal Opportunities – qualified people should have same chance
UK and EU laws protect people from discriminatory hiring practices
Discrimination, often due to stereotypes, can take the following
form:
Group Stereotype
Women Not want to take responsibilities / home; less likely to relocate; women with children / relocation; more
emotional; weak
Minorities Religious holidays; less educated; different (fear)
Disabled Less capable than those without disabilities
Elderly Less adaptable; difficult to learn new technologies
Women at work Ongoing discrimination / statistics Some improvements
Earnings still lower
Industries (construction)
mgmt jobs still dominated by men
Low-paying occupations
generally dominated by w Full-time work% lower for w
Work% lower, w with kids
Flexible work, legislation, chgs in
demographics lead to higher
employment for women Child care (crèche), home work
In general, the „gender gap‟
narrowing in employment and job seeking statistics
Many laws make it illegal to discriminate based on gender, marital status Statistics suggest that Ethnic Minorities are discriminated against – Illegal to discriminate based on colour, race, nationality, ethnic origins
Disabled people – long term problem affects their ability to do day-
to-day activities. Illegal, to treat disabled less favourably unless
justified.
Older people – general protection from discrimination
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Businesses that seek employment without discrimination:
Get a better, more qualified and more flexible workforce
Higher motivation if everyone feels they will be considered for
promotion
Protection at work – broad category
Employment Protection: Right to employment contract; freedom
from discrimination; from unfair dismissal for various reasons, with
recourse – Labour Tribunal, detailed procedures.
Health and safety: Clean, sanitary, comfortable working conditions.
Safety equipment, clothing and training. Safe procedures for
dangerous materials. Safety from violence or threats. Legislation:
…written Health & Safety Statement – management required to
follow. Inspections to guarantee. Laws about working time
limitations and time off.
Wages: Wages Act, 1986 – sets rules and conditions for paying
wages and procedures for enforcing those rights.
National Minimum Wage Act, 1998: established curr. minimum
wage rules; reduce poverty, inequality; increase motivation in the
workplace.
Social Chapter (EU): Standardizes work practices throughout the
EU, including: minimum wage, maximum working hours per week,
paid holidays, etc.
Introduced European Works Council (EWC) to negotiate contracts,
set and revise minimum wage.
Contained in the Maastricht Treaty, by EU, signed in 1992. UK joined
in 1997, when current Labour government came to power.
Personnel data: Protect, safeguard and keep confidential / personal
info / electronic and hard data. Company’s Motivation: Increased
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emp‟ee motivation; Legislation / consequences; losing employees
can mean costly recruitment, disruption, poor working conditions /
productivity. Some businesses do not adequately protect Pers. Data
– mainly because of cost
Benefits / Advantages Disadvantages
Improve motivation, productivity
Improve industrial relations
Raise costs, restrict flexibility
Reduce EU competitiveness
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Business and Consumer Protection
Undeveloped economy – “caveat emptor” = buyer beware
Now with big businesses, too easy to take advantage of consumers
Consumer Protection Legislation – a series of laws to protect
consumers:
weights and measures
false or misleading descriptions
unsolicited goods
product safety
services
food safety, labeling
Effects of consumer protection laws on business:
costs
quality control
deal with consumer complaints
changes to more market-oriented practices
Monopolies and Mergers – we‟ve looked at the benefits and criticisms
Restrictive Trade Practices can reduce or prevent competition
As a result, the UK has passed various forms of Legislation
Office of Fair Trading – promoting and protecting fair trading
practices
Competition Commission – a promote and protect competition
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The EU – has similar practices
Regulatory bodies – an entire list of offices, commissions, etc to
enforce the fair trading practices in different industries
Private Sector Businesses
Types of business form:
Unincorporated: Sole Trader; Partnerships
Benefits: Lower Costs; Maintain greater control
Incorporated Limited Companies
Private / Public Limited Companies
Benefits: Personal liability protection; Ability to grow; Raise
money
Disadvantage: “Public” – may lose some control
Co-operatives: Consumer; Worker
Building societies, friendly societies (banking/financial services);
Franchises; Charities
Choice of business form based on: control; kind of business; timing /
age of company; financing needs; liability protection
Business Size, Growth and Economies of scale
Defining size: Turnover (Sales); No. of Employees (m≤9; s≤49;
m≤249; ≤l); Capital Invested; Profit; Market Share; Market
Capitalization (share price x stock outstanding)
Reasons to Grow: Survival; Economies of Scale; Future profitability;
Gain market share; Reduce risk
Internal / Organic growth: sell more / do more business
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External Growth: Acquisition; Takeover; Merger
Internal Economies of Scale: Technical efficiency (increased
dimensions; indivisibility; law of multiples – matching (machines,
processes) of different rates to maximize use; Managerial; Financial
(wider range of options); Purchasing and marketing; risk.
External Economies of Scale – savings from industry growth: Labour;
Services; co-operation
Limits to growth: Internal dis-economies of scale; External dis-
economies of scale (Market limitations; funds; geographical)
Still, small firms survive: Personal services; Owners‟ preference;
Flexibility and efficiency; Lower costs; low barriers to entry; can be
monopolists. Unemployment, government schemes, other economic
factors make small firms popular: they: increase flexibility; help
balance (lower) wages, create casual and part-time jobs; etc.
Valuation and manipulation of accounts
Valuations: Sale; takeover; Mergers; Mgmt. buyouts; public
offerings (floatations); loans; etc
Various regulatory standards for preparing accounts
Reasons for manipulating accounts:
Companies increase values: current, future investors; affect stock
price; market position; avoid takeovers.
Companies reduce values: avoid taxes
Methods of manipulation: depreciation; creditors & debtors; stock
valuation; write-offs; profits
Methods of valuation: a guide only; valuation always willing buyer /
seller
Business Stakeholders
Holding a financial interest in the success of the business
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Involvement with the business‟s activity: Owners; Entrepreneurs;
Shareholders (can include Directors, Managers, Employees,
Individuals, Institutions); Managers; Employees; Customers;
Suppliers; Governments; Community. They have an
Interdependence
Conflict can occur when their Objectives are different. Examples are:
Owners and Managers; Owners and Employees; Consumers;
Suppliers; Community
Stakeholder Approach – taking into account the needs, wants,
desires and objectives of all stakeholders.
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The Role of Business Objectives in setting Business Strategy and
Planning
Business Objectives – outcomes, goals, targets that s/b SMART:
Survival (start-up, difficult trading times, takeover threat); Profit;
Growth; Increase Shareholder Value (public companies); Sales
Maximization; Image, Reputation and Social Responsibility –
corporate culture
Managers‟ objectives (budget; department; salary; benefits; status)
The “players” = all the stakeholders
Operations objectives: change focus; product lines, etc
Public sector objectives: change image; improve service levels
Influences on Businesses‟ objectives: Owners; different stakeholders‟
powers; size; status; short- / long-term considerations; internal /
external pressures
Mission statements – Writing out of the aims of the business: focus
all stakeholders; provide a general plan, etc (many feel they are
much the same; may have little effect on the business; more
publicity-oriented)
Strategy and Planning
Identifying Objectives: strategic; tactical; and, operational
Different Business Strategies: functional; business level; corporate;
global
Must suit the Corporate Culture (values) of the organization
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Strategy – a pattern of decisions and actions to achieve objectives
Planning – decide what to do, set objectives, set policies to achieve
them, involves: Analysis; Developing strategies; implementation;
Evaluation
Effective planning and strategy based on: clear Purpose; strategic Vision (creative idea or imagination about the business); strong
Commitment to achieve goals; gearing strategies to customers; achievable timing; enough flexibility to modify details, stay on course; and,
plans must be suitable based on the different department players
Effective Planning, including for Contingencies minimize the effects
of unexpected crisis: legal, financial, production, corporate, image,
etc.
Analysis methods:
SWOT Analysis – Internal: Strengths, Weaknesses; External:
Opportunities, Threats
Pest-G (external factors): Political; Economic; Social; Technological;
Green
5 Forces Model (competitive forces): new competitors; established
firms; buyers; suppliers; substitute products. The stronger the forces
are, the more difficult it is to raise prices and profits.
Industry structure analysis: competitors; suppliers; substitution;
potential entrants.
Competitor analysis: assess rivals to determine strengths,
weaknesses
Also Product Life Cycle and Product Portfolio analyses
Cost and Value analysis (where value added and where value lost)
Developing and implementing strategies, evaluate the results
Strategies to improve Function and Operations (generally one area)
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Production: economies of scale, or, streamlining the process
(lean); quality control – Total Quality Management (TQM) groups,
in process
Marketing: research to better meet customers‟ needs; customer
service/ response through better distribution
HR: forecast changes in staffing requirements; motivation;
training
Other: R & D; waste management
Business Level / Generic strategies: Cost Leadership; Differentiation;
Focus (segment, consumer group); New product development;
Market entry and penetration; Market development and domination;
Consolidation (preserve place in market); Diversification (extend
range of products, services); etc.
Corporate strategy: Internal development; Takeovers, mergers &
acquisitions; Collaboration (working with other companies in some
form)
Global: different strategies that can take advantage of the
company‟s unique strengths; can reduce costs.
Implementing strategy: how to organize itself to carry out the
strategy (structure, hierarchy, function, region, product, customers,
etc.); set up control systems to encourage and monitor the activities
(financial, output, leadership, rewards, etc); how to implement the
changes
Evaluating strategy – first set SMART targets, can be Earnings or
Profits; Return on Capital; Volume; or, Costs. Will need comparison
information. May also make use of qualitative information.
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Business Ethics
Ethics – motivations based on ideas of what is right and wrong
Business Ethics – how ethics operates in business (i.e. damage
health, environment; product quality; community work, charity;
etc.)
Laws attempt to control – the “letter” / ”spirit” of the law, still room
Impact of Ethical behaviour on the business:
Now, consumers are watching for this more (customers/sales)
HR / Staffing – more able to recruit staff
Employees better respect their company and will work harder
Effects of Ethical behaviour:
Increased costs: expensive supplies; pollution control
Loss of business: may have to turn down jobs
Conflict: shareholders or other stakeholders vs. profits
Business practices may need to change
Relations with suppliers may be tested
Should business act ethically?
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Yes: Businesses are part of a society, probably already making
profits, think about effects of their decisions on environment,
community, etc.
No: Free market economists – produce most efficiently; businesses
want profits, naïve to think otherwise.
Not clear whether businesses becoming or looking more ethical.
Major stakeholders often too motivated by profits, greed.
Corporate Responsibility
Companies take into consideration the needs of its stakeholders
Willing to be responsible for and justify its actions.
Ways society encourages companies to be responsible:
Laws enacted and enforced (“letter” / ”spirit”)
o But actions may take place outside boundaries
Business can self-regulate (usually to avoid laws, be more in
control)
Market pressures force responsibility (if public has enough
information to judge; if “activistic” enough to take action; if
willing to pay price)
Pressure groups – activists willing to speak out and take action
Barriers to Corporate Responsibility
Will increase costs, reduce profits
Senior management may have different values and beliefs
Difficult to monitor without information – kept confidential
A company that takes Responsibility may have to change its:
objectives; operating methods; relationships with stakeholders; etc
Social Auditing (different from a financial audit) – looks at
responsibility criteria to see its: ethics; social performance
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(measured and checked); salary levels; health and safety standards;
employee motivation; etc.
Benefits of Social Auditing: employees at all levels get better view of
company; identify social strengths, weaknesses; deal with
shareholders, outside parties; pressure groups; etc.
The main weakness in the Corporate Responsibility Approach is that
it may just relate to things on the surface, things that do not relate
to the core business the company operates. In addition, the Social
Audits are performed by the company and look at only those things
the company wants to look at.
Business and the Environment
Costs and Benefits of Business activity
Private Benefits = profits, dividends, etc. Private Costs +
Externalities = Social Costs.
Negative externalities – cost to the rest of society
Environmental costs: Air pollution; water pollution; congestion and
noise; destroying the natural environment; loss of arable land;
desertification; waste disposal
Controlling Environmental costs: Regulation; taxation; Permits;
compensation; government subsidies; road charges; Park and ride
schemes; education; pressure groups; environmental audits.
With environmental awareness growing Businesses may need to:
Change production processes or materials
Change practices, such as how they dispose of waste
Spend more on research and development
Face higher costs
Work more closely with pressure groups
There may be benefits:
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Reduced costs: energy efficiency; recycling
Attract customers and others who approve of their practices
Conservation
Business opportunities
Summary:
As environmental awareness grows Businesses may need to: Change
production processes or materials; Change practices, such as how
they dispose of waste; Spend more on research and development;
Face higher costs; Work more closely with pressure groups
There may be benefits:
Reduced costs: energy efficiency; recycling
Attract customers and others who approve of their practices
Conservation – conserving resources, promoted at all levels
Business opportunities – a competitive environment – entrepreneurs
see opportunities.
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Business Ethics
Ethics – motivations based on ideas of what is right and wrong
Business Ethics – how ethics operates in business (i.e. damage
health, environment; product quality; community work, charity;
etc.)
Laws attempt to control – the “letter” / ”spirit” of the law, still room
Impact of Ethical behaviour on the business:
Now, consumers are watching for this more (customers/sales)
HR / Staffing – more able to recruit staff
Employees better respect their company and will work harder
Effects of Ethical behaviour:
Increased costs: expensive supplies; pollution control
Loss of business: may have to turn down jobs
Conflict: shareholders or other stakeholders vs. profits
Business practices may need to change
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Relations with suppliers may be tested
Should business act ethically?
Yes: Businesses are part of a society, probably already making
profits, think about effects of their decisions on environment,
community, etc.
No: Free market economists – produce most efficiently; businesses
want profits, naïve to think otherwise.
Not clear whether businesses becoming or looking more ethical.
Major stakeholders often too motivated by profits, greed.
Corporate Responsibility
Companies take into consideration the needs of its stakeholders
Willing to be responsible for and justify its actions.
Ways society encourages companies to be responsible:
Laws enacted and enforced (“letter” / ”spirit”)
o But actions may take place outside boundaries
Business can self-regulate (usually to avoid laws, be more in
control)
Market pressures force responsibility (if public has enough
information to judge; if “activistic” enough to take action; if
willing to pay price)
Pressure groups – activists willing to speak out and take action
Barriers to Corporate Responsibility
Will increase costs, reduce profits
Senior management may have different values and beliefs
Difficult to monitor without information – kept confidential
A company that takes Responsibility may have to change its:
objectives; operating methods; relationships with stakeholders; etc
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Social Auditing (different from a financial audit) – looks at
responsibility criteria to see its: ethics; social performance
(measured and checked); salary levels; health and safety standards;
employee motivation; etc.
Benefits of Social Auditing: employees at all levels get better view of
company; identify social strengths, weaknesses; deal with
shareholders, outside parties; pressure groups; etc.
The main weakness in the Corporate Responsibility Approach is that
it may just relate to things on the surface, things that do not relate
to the core business the company operates. In addition, the Social
Audits are performed by the company and look at only those things
the company wants to look at.
Business and the Environment
Costs and Benefits of Business activity
Private Benefits = profits, dividends, etc. Private Costs +
Externalities = Social Costs.
Negative externalities – cost to the rest of society
Environmental costs: Air pollution; water pollution; congestion and
noise; destroying the natural environment; loss of arable land;
desertification; waste disposal
Controlling Environmental costs: Regulation; taxation; Permits;
compensation; government subsidies; road charges; Park and ride
schemes; education; pressure groups; environmental audits.
With environmental awareness growing Businesses may need to:
Change production processes or materials
Change practices, such as how they dispose of waste
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Spend more on research and development
Face higher costs
Work more closely with pressure groups
There may be benefits:
Reduced costs: energy efficiency; recycling
Attract customers and others who approve of their practices
Conservation
Business opportunities
Summary:
As environmental awareness grows Businesses may need to: Change
production processes or materials; Change practices, such as how
they dispose of waste; Spend more on research and development;
Face higher costs; Work more closely with pressure groups
There may be benefits:
Reduced costs: energy efficiency; recycling
Attract customers and others who approve of their practices
Conservation – conserving resources, promoted at all levels
Business opportunities – a competitive environment – entrepreneurs
see opportunities.
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SLIDES
Slide 1
Business Stream
Introduction to Courses
•Business Studies
Slide 2 Supplies
Be prepared!
A4 Notebooks
Pencils / Pens
Ring binders with dividers
Hole punch
Ruler
Calculator
Stapler
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Slide 3 Business Vocabulary
Constantly learning new words
Responsible for:
• Spelling
• Pronunciation
• Form
• Definition / explanation
• Usage
Must keep and update a business vocabulary
Slide 4 Sample Business Vocabulary
sole trader noun /soʊl/ /treɪdər/
A business started and run by one person
Bill Gates started his business as a sole trader.
Now it is a multi-national corporation.
Slide 5 Conducting of Courses
Lectures / Tutorials
Take notes – always have notebooks
Class participation
– asking questions
– answering questions
Homework – collected and marked
Regular testing
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Slide 6 Other Rules of Class
Be here, be on time!
Handle personal matters before / after class
No talking, unless instructed
Ask teacher about what you don’t understand
No word finders (ask teacher)
No mobile phones
Assigned seating …
Slide 7 Assessment
Assignments (2) 10% each 20%
Term 1 End of Semester Exams 10%
Final Exam 70%
Total 100%
Slide 8 Predicted Grades
For university selection and applications
Based on:
Term 1 Assignment
Results of Term 1 regular tests
Term 1 End of Semester Exam results
Homework
Class participation
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Slide 9 Predicted Grades
Method of calculation:
Term 1 Assignment 10%
Term 1 EOS Exam 10%
Total 100%
Homework
Term 1 regular tests
Class participation
20%
80%
Increase… ?
These next 15 weeks the most important weeks of your life
– your performance will determine your future!
Slide 10
Business Studies
Introduction to course
Slide 11 Start a Small Business
What functions does the owner perform?
• Purchasing
• Production
• Selling
• Promotion
• Hiring workers
• Financial
• Administration
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Slide 12 Organized in an informal diagram
Purchasing
Production
Selling
Promotion
Hiring
Financial
Administration
Owner
The owner is responsible for everything!
Slide 13 As the Small Business Grows…
• More tasks performed by employees
• Take direction from owner
• Report to owner
• Communication with other employees:
– provide information
– work together with
• A more formalized diagram more clearly
shows how members of an organization work
together
Slide 14 An Organization Chart
for a Sole Trader
Owner
Purchasing Sales Promotion Hiring Financial Administration
As the business grows and develops, operations and
communications become even more formalized.
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Slide 15 Organization Chart
Purchasing Sales Promotion HR FinancialProduction
Advertising
Owner
AdministrationManufacturing Marketing
Slide 16 Topics to be covered
Term 1
• Marketing
• Accounting and Finance
Term 2
• People and Organizations
• Business and the Legal Environment
• Basics of Business Management
Slide 17
Introduction to Marketing
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Slide 18
Marketing: The
management process used to
identify, anticipate and satisfy
consumer requirements
profitably.
Slide 19 Marketing: The management
process used to identify,
anticipate and satisfy consumer
requirements profitably.
management: the skill of
controlling or directing
Slide 20 Marketing: The management
process used to identify,
anticipate and satisfy consumer
requirements profitably.
process: a series of steps or
actions towards an end, a goal
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Slide 21 Marketing: The management
process used to identify,
anticipate and satisfy consumer
requirements profitably.
identify: to recognize or know
Slide 22 Marketing: The management
process used to identify,
anticipate and satisfy consumer
requirements profitably.
anticipate: to expect or to
realize before someone else does
Slide 23 Marketing: The management
process used to identify,
anticipate and satisfy consumer
requirements profitably.
satisfy: to fulfill a desire, a want
or a need
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Slide 24 Marketing: The management
process used to identify,
anticipate and satisfy consumer
requirements profitably.
consumers: people who use
products or services
Slide 25 Marketing: The management
process used to identify,
anticipate and satisfy consumer
requirements profitably.
requirements: a need, want or
desire
Slide 26 Basic Marketing Concepts
Product orientation
Market orientation
Both can be successful, but more difficult with
product orientation alone
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Slide 27 Basic Marketing Concepts
Consumers
An ongoing process
“Relationship marketing”
Business philosophy
Affects entire company
Not just selling
Not just advertising
Asset-based / Asset-led marketing
Slide 28 Concept of Real Disposable
IncomeConsumers income – taxes + government
benefits
A rise in real disposable income causes:
• Increase in demand for G & S
• Increase in economic growth
• Changes in tastes and fashions
• New technologies
• Increases in competition
Slide 29 Overview of Marketing Studies
• Introduction
• Market Analysis
• Segmentation and positioning
• Market research
• Marketing objectives and strategies
• The “Marketing Mix”
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Slide 30
Market Analysis
Slide 31 Market Classification
Characteristics:
• Geographical
• Goods
• Industry
• Size
Measured by value or volume
Problems with measuring size
– Mass / Niche
Slide 32 Market share / market
penetrationProportion of market held by a company
Important in judging:
– Size
– Growth
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Slide 33 Market Growth
Affected by changes in the following:
• Economics
• Social
• Technological
• Demographics
• Legislation
Slide 34 Reasons for Growth
• Economies of scale
• Gain market share
• Increase future profits
• Reduce risk
• Survival
Slide 35 Economies of scale
Internal
• Technical
• Management
• Financial
• Purchasing
• Reduce risk through diversification
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Slide 36 Economies of scale
External
• Labour availability
• Outside services
• Cooperation
Slide 37 Methods of company growth
Internal
• Organic
• Innovation
External
• Merger
• Acquisition
Limits to growth – diseconomies of scale
Slide 38 Reasons small firms still survive
• Personalized service
• Flexibility
• Efficiency
• Lower costs
• Easier to start up (low barriers)
• Owners prefer to stay small
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Slide 39
Company
(Operating System)
2001 Sales 2001 Sales Sales
GrowthUnits Mkt.
Share
Units Mkt.
Share
Palm (Palm) 5,056 38.6 5,588 50.4 -9.5
Handspring (Palm) 1,648 12.6 1,369 12.4 20.4
Compaq (Microsoft) 1,283 9.8 466 4.2 175.4
Hewlett-Packard (Microsoft) 711 5.4 442 4.0 60.9
Casio (Microsoft) 529 4.0 440 4.0 20.4
Others 3,884 29.6 2,777 25.1 39.9
Total Market 13,111 100.0 11,083 100.0 18.3
Slide 40
Business Studies
2nd Term
Slide 41
Topics to be covered
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Slide 42 People and Organizations
• Organizational structure and design
• Motivation
• Leadership and management styles
• Personnel management and HRM
• Labour and management relations
Slide 43 Business & the Legal Environment
• Equal Opportunities
• Protection at work
• The National Minimum Wage
• The Social Chapter
• Consumer Protection
• Contract Law
Slide 44 Fundamentals of Management
• Business Strategies
• Business Objectives
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Slide 45
Assessments
Slide 46 Assessments
Completed Business Plan 10%
Final Exam 70%
Slide 47
Marketing
An Overview
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Slide 48
Review definition: The management
process used to identify, anticipate and
satisfy consumer requirements
profitably.
Marketing
Slide 49
Topics covered thus far:
•Introduction to Marketing
•Market Analysis
•Market Research
•Segmentation•Market Positioning
•Marketing Objectives and Strategy
Marketing
Slide 50 Marketing
Getting the right product at the right price
to the right place at the right time.
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Slide 51
The Marketing Mix
An Overall Marketing Strategy
Slide 52 The Marketing Mix
Product•Meet Consumers’ Needs
•Meet Company’s Needs
•Use
•Physical Presentation
•Financial
•Revenues & Costs
•Life Cycle
•Uniqueness
•Market Position
Slide 53 The Marketing Mix
Price•Consider Market Position
•Maximize Sales (Low)
•Maximize Profits (High)
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Slide 54 The Marketing Mix
Place•How Transported
•Where Sold
•How Sold
Slide 55 The Marketing Mix
Promotion•Promotion Strategy
•Advertising
•Sales Promotions
•Public Relations
Slide 56 The Marketing Mix
PromotionPlace
ProductPrice
Target
Market
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Slide 57
Slide 58 The Marketing Mix
Product•Brand Name
•Function
•Quality
•Style
•Packaging
•Accessories
•Repairs & Service
•Warranty
Slide 59 The Marketing Mix
Price•Pricing Strategy
•Discounts
•Seasonal Prices
•Price Discrimination
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Slide 60 The Marketing Mix
Place•Distribution Channels
•Market Coverage
•Distribution Centers
•Order Processing
•Transportation
Slide 61 The Marketing Mix
Promotion•Promotion Strategy
•Advertising
•Sales Promotions
•Public Relations
Slide 62
Product
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Slide 63
The Product Life Cycle
Slide 64 The Product Life Cycle
0
Mo
ne
y
Time
Intr
od
uctio
n
De
ve
lop
me
nt
Gro
wth
Ma
turi
ty &
S
atu
ratio
n
De
clin
e
Slide 65 Development Stage
•Design
•Testing
•Decision to proceed
•Large amount of money spent
•No revenues in (no sales yet)
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Slide 66 Introduction Stage
•Begin Selling
•Often slow, but may be fast
•So, a little money in
•Large amount of promotion
•So still large amount of money out
Slide 67 Growth Stage
•Product now accepted by consumers
•Sales grow at a fast rate
•So, money in begins to increase
•If new product, competition may enter market
Slide 68 Maturity & Saturation Stage
•Sales rate begins to level off
•Promotion costs reduced
•Saturation – placed well throughout market
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Slide 69 Decline Stage
•Sales begin to decline
•May be due to:
•Change in Customer tastes
•New technology
•Decision may be made to kill the product, or …
Slide 70 Extension Strategies
Ways to extend the product’s life cycle
•New uses
•New markets
•Wider product range
•Target markets
•Change appearance
•Encourage consumer to use more often
•Change ingredients or components
Slide 71 The Product Life Cycle
0
Money
Time
Intr
od
uctio
n
De
ve
lop
me
nt
Gro
wth
Ma
turi
ty &
S
atu
ratio
n
De
clin
e
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Slide 72 The Product Life Cycle
Stage Capacity Cash Flow
Development No Effect Negative – cash out only
Introduction/Launch
May have spare capacity (limited sales), or,
May “borrow” from existing capacity (other products)
Sales begin, so some inflowStill overall negative due to
prior development, and, promotion costs
Growth Production expands, use up spare capacity
Cash Flow moves to positiveCash from sales starts
exceeding prior cash expenditures
Maturity May operate at full capacityMay need to expand
capacity
Cash Flow at highestSales at highest, marketing and
advertising may decline
Decline Sales and production are going down, capacity may not be fully utilized
Sales will fall, Cash flow will fall
Slide 73 The Product Life Cycle
Useful for:
•Showing trends in product revenue •Planning when to launch new products•Planning when to introduce extension strategies
•Planning cash flows•Identifying when to stop selling a product
•Showing expected profitability at different stages•Planning different marketing strategies•Managing PRODUCT MIX and PRODUCT
PORTFOLIO
Slide 74 The Boston Matrix
Market Growth
Market
Share
High Low
High
Low
Star
DogProblem
Child
Cash
Cow
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Slide 75
Branding
Recognition by consumers
Slide 76 Reasons to establish Brand
• Customer loyalty
• Product differentiation
• Recognition
• Image
• Pricing flexibility
• Brand Equity
Slide 77 Developing a Brand
• Name or symbol (logo)
• Protection (trademark, copyright)
• Unique Selling Point (USP)
• First out
• Market positioning awareness
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Slide 78 Types of Brands
• Manufacturer’s Brand
• Own Label Brand
Slide 79 Branding Strategies
• Individual Branding
• Family or Corporate Branding
• Combination Branding
• Brand extensions
Slide 80 Problems with Branding
• Expensive
• Time consuming
• May not be suitable for some products / markets
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Slide 81
Promotion
To GET and KEEP customers
Slide 82 Purposes of Promotion
• Create / increase customer awareness
• Reach a target market
• Reminding
• Product differentiation
• Image
• Reassurance
Slide 83 Types of Promotion
• Above the Line
• Below the Line
Uses independent commercial media to
reach consumers
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Slide 84 Promotion: Above the Line
Types of advertising
• Informative
• Persuasive
• Reassuring
• Corporate advertising
– Responsible members of society
– Branding
Slide 85 Promotion: Above the Line
Medium Advantages Disadvantages
Television Mass market; Attention; Demonstrate Products
Expensive; short lived; not for technical info
Newspapers, Magazines
Mass or Target markets;
Big or small businesses; National, regional, local
No motion, sound; Black
& White; ads can get lost; long time to publication
Cinema Strong impact; target specif ic consumers
Limited: viewers see it only once
Radio Inexpensive; target specif ic markets
No visuals; may not get attention
Posters, Billboards
Target location; visual;
encourage to buy;
Limited info,
effectiveness; damage environment
Internet Inexpensive; monitor
hits; targeted; easy to change
Limited audience; technical problems
Slide 86
Factors in choosing media:
• Cost: overall; effectiveness
• Target advertising
• Presentation
• Impact
• Marketing Mix
• Competition
• Legal restrictions / controls
Promotion: Above the Line
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Slide 87
Limit misleading advertising
• Legislation and regulation
• Independent bodies
• Pressure groups
Controls on Advertising
Slide 88
Limit misleading advertising
Legislation and regulation:
• Trades Descriptions Act – avoid false, misleading
• Office of Communications – regulates TV, radio ads
• Competition Commission – investigates anti-
competitive behaviour
Controls on Advertising
Slide 89
Limit misleading advertising
Independent bodies:
• Advertising Standards Authority – independent self-governing body
• The CAP Code (British Code of Advertising, Sales
Promotion and Direct Marketing)
Controls on Advertising
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Slide 90
• Legal, decent, honest and fair
• Responsible to consumers and society
• In line with principals of fair competition
The CAP Code
Slide 91
Breach of CAP Code – ask company to withdraw ad
If not, can:
a) Publish findings
b) Withdraw privileges of membership
c) Pressure media to refuse future ads
The CAP Code
Slide 92
Effects on Society:
• Increases Costs
• Encourages spending
• Consumption effects on environment
• Encourages behaviour that may damage
society
Advertising: Social aspect
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Slide 93
Advertisers’ Justifications:
• Offers choice
• Gives consumers information
• Respond to, don’t create, consumers’ needs
• Revenues reduce cost of media
• Employs large number of people
Advertising: Social aspect
Slide 94 Promotion: Below the Line
Advantages:
• Lower costs
• Control the message
Slide 95 Below the Line Promotion – Types
• Direct mailing
• Exhibitions and Trade Fairs
• Sales Promotion
• Branding
• In-store Merchandising
• Packaging
• Personal Selling
• Public Relations
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Slide 96
Slide 97
Place (Distribution)
The right place at the right time
Slide 98 Place (Distribution)
Channels of Distribution
• Retail
• Direct to customer
• Wholesaler
• Agent
Physical Distribution
• How goods are transported
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Slide 99 Retail
• Supermarkets & Hypermarkets
• Department Stores
• Multiple shop organizations
• Retail co-operatives
• Independent retailers
Slide 100 Direct Marketing
• Retail Outlets
• Internet
• Direct mail
• Personal selling
• Telephone sales
Slide 101 Choosing right Distribution
• Type of Product
• Market
• Legal restrictions
• Company
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Slide 102 Channels of Distribution
Slide 103
Price
Slide 104 Price
Factors affecting pricing decisions
•Marketing Objectives: maximize sales,
maximize profits, etc.
•Marketing Mix: product, promotion, place
•Costs: long-term, cover costs; short-term,
some flexibility
•Competition
•Consumer expectations
•Market Segment
•Legal
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Slide 105 Pricing Methods
•Market Orientated Pricing
•Competition Based Pricing
•Cost Based Pricing
Slide 106 Market Orientated Pricing
Name Based on
•Penetration Pricing
•Market Skimming
•Loss Leader
•Psychological Pricing
•Price Discrimination
Based on Market conditions
Pricing low to penetrate
(mass market)
High price, limited time
(new product)
Losing money (bring
customers in)
Consumer thoughts,
feelings (e.g. £ 9.99) Different segments
Slide 107 Competition Based Pricing
Name Based on
•Going Rate Pricing
•Destroyer Pricing
•Closed Bid Pricing
When selling in a highly competitive market
About the same as
Market Leader
Very low, to eliminate
competition
Very large projects
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Slide 108 Cost Based Pricing
Name Based on
•Cost Plus
•Contribution
•Absorption / Full Cost
With some products and services, Costs are a
bigger factor than market forces
Disadvantage:
May not consider the price the Market will accept
Costs plus a specific %
Variable costs plus
some amount
Covering all direct and
indirect costs
Slide 109 How businesses use Price
Pricing Tactics
Short-term actions to achieve
some specific marketing goal
Pricing Strategies
Longer-term actions
Slide 110 How businesses use Price
Pricing Tactics
Special Promotion Offers
Loss Leaders
Introductory Offers
Discounts
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Slide 111 How businesses use Price
Pricing Strategies
New Products
Existing Products
Skimming / Creaming
Lower pricing
Price Taking
Price Leader
Destroyer Pricing
Price Discriminating
Slide 112
Accounting
Slide 113 Accounting
−Record
−Classify
−Summarize
business and
f inancial
transactions
and report
the results
to interested
users.
“Accounts”
…the name
for f inancial
reports
Users
Internal – management, owners
External – Registrar of Corporations,
auditors, tax authority, legal
Financial – Bankers, suppliers, competitors,
community, media, investors &
analysts, Government
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Slide 114
The Role of Accountants
•To produce Accounts
•Involved in Audits
–Audits = reviews of Accounts
Slide 115
Types of Accounts
Management Accounts:
Financial Accounts
For “internal” users to:
•Analyze costs
•Prepare Budgets & Forecasts
•Predict future situations
For “external” users
•Based on historical (past) information
•Prepared according to f inancial
accounting standards
•Auditors review them and report whether
they are “true and fair”
Slide 116 Limitation of Accounts
• Quantitative information only, no qualitative information
• No information about outside f inancial situation
• No information to help predict market situation
• No information about outside economic situation
Additional limitations to be discussed when we
discuss each of the two f inancial accounts
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Slide 117 Computers and Accounting
• Most (All) companies
• Advantages:
– Quick and ef f icient
– Can handle large volumes
– Accurate
• Disadvantages:
– Cost
– Technical problems
– Operator error
– Security
Slide 118
Finance
The Need for Funds
Slide 119 Types of Expenditures (Spending)
• Capital Expenditures:
• Revenue Expenditures:
Investments such as land,
buildings, machines, other companies, etc. (appear on the Balance Sheet)
To produce income, such
as advertising campaign, stock for resale, production staffs, etc. (appear on the
Profit and Loss Account)
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Slide 120 Financing
How a company finances itself
(gets the money it needs) to:
–begin operations; or,
–grow in size
Slide 121 Sources of funds
• Profits
• Working Capital
• Sale of assets
• Share capital – ownership
• Loan capital
– Long term sources
– Short term sources
Internal:
External:
Slide 122 Capital Structure
The combination of:
–Share capital
–Loan capital
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Slide 123 Choosing the right Capital Structure
• Cost
• Use of funds
• Image (status)
• Company size
• Financial situation
• “Gearing” – the combination of
Capital and Loans
Companies consider:
Slide 124 Share Capital
Selling shares of stock
Advantages:
• Money never paid back
• Dividends (payments to shareholders)
optional
Slide 125 Share Capital
Selling shares of stock
Limitations / disadvantages:
• Many more owners
• Only large companies can do
• Very costly
• Rules and restriction
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Slide 126 Loan Capital
Borrow the money
Advantages:
• No change in ownership
• Any size company
• Not very costly
• Few rules or procedures
Slide 127 Loan Capital
Borrow the money
Limitations / disadvantages:
• Funds must be repaid
• Interest must be paid
Slide 128 Short Term Loan Capital
• Bank Overdraft
• Bank Loan
• Hire Purchase – equipment
• Trade Credit
• Lease
– Financing – like buying
– Operating – just renting
• Debt Factoring
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Slide 129 Long Term Loan Capital
• Debentures (only public companies) *
– Bonds – public invests (like shares)
• Mortgages (all companies) *
– For purchase of a fixed asset
– Secured by that asset
* Fixed interest rate, guaranteed repayment date
Slide 130 Uses of funds – Assets
• Land
• Buildings
• Machinery
• Equipment
“Tangible” (can be touched)
Slide 131 Uses of funds – Assets
• Investments
(mostly shares
in other
companies
“Financial”
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Slide 132 Uses of funds – Assets
• Patents
• Copyrights
• Trademarks
• Branding
• Research and
development
“Intangible” (cannot be
touched)
Slide 133
Financial Accounts
Slide 134 Financial Accounts
Prof it and Loss Account
Balance Sheet
Summary of yearly trading and operations
Financial position of the company
How company has built itself up
How its funds have been used
Where its funds have come from
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Slide 135 Other Reports
• Cash Flow Statement
• Notes to Accounts:
– Details
– Some qualitative information about Accounts
• Directors’ Report
• Chairman’s Statement
• Auditor’s Report
Slide 136 Profit and Loss Account
• Reports a company’s trading (business
operations) activities
• Over a period of time (usually 1 year)
• Shows:
– Sales
– Selling and Operating Costs
– Profits paid out to owners
– Amount kept in the business for growth
Slide 137 Profit and Loss Account
For the year ended 31 Dec 20xx
£millions
Turnover (sales revenue) 500
Less: Cost of sales -200
Gross profit 300
Less: Other costs -100
Trading / operating profit 200
To shareholders (dividends) -75
Retained profit 125
Always presented for some period of time, usually 1 year.Trading – sales of goods
and services over the year.How much spent to produce the goods and services sold.Profit earned from trading activities. Shows efficiency in production or buying.Other costs to run the business. Shows how well the company is managed.Business profit after all costs and expenses.Amount paid out to shareholders each year as their share of profits.Amount retained in the
business to build financial strength and to pay for growth.
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Slide 138 Balance Sheet
As of 31 Dec 20xx
£millions
Fixed assets 200Current Assets - stock 40
- debtors 50- cash 20
Total current assets 110Less: current liabilities -40Net current assets 70NET ASSETS 270
Share capital 100Retained prof it 170CAPITAL EMPLOYED 270
Always presented as of
some date, usually the last day of year.Investments held for over 1 year, such as buildings, machines & equipment, other companies, etc.
Assets the company expects to use within the year.
Amounts that must be paid within 1 year.
Assets: Everything the
company owns.
Liabilities: amounts the company owes to others.
Current assets minus Current liabilities, also called Working capital. Shows if a company can
pay its current amounts when they come due.
Assets minus Liabilities.
On the Balance Sheet CAPITAL means the amount belonging to the owners.Original purchase of the
company shares.Profits left in the company for growth.
NET ASSETS and CAPITAL EMPLOYED must always be equal (they must always balance). Thus the name Balance Sheet.
Slide 139
Working Capital
Slide 140 Working Capital
Current Assets
– Current Liabilities
Working Capital
• Current Assets Liquid Assets
• Working Capital Measures Liquidity
• Working Capital Circulating Capital
• WC Important for day-to-day operations
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Slide 141 Working Capital
A company cannot be without it.
So, too little is bad!
But, too much is not good!
The company should be putting its valuable
resources to work!!
Slide 142 The Working Capital Cycle
Pay
Suppliers
Goods
Produced
(Labour, etc.)
Goods
Sold
(Debtors)
Customer
Pays
Slide 143 Working Capital Lag
Liquidity Problems Solutions
•Overtrading
•Too many Fixed Assets
•Sale and lease back
•Sell non-vital Fixed Assets
•Sell off raw materials, even
if at a loss
•Stock-piling
•Strong measures to collect,
allow cash discounts
•Allowing too much credit
•Extend credit with some
suppliers
•Taking too much credit
•Encourage cash sales
•Over-borrowing
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Slide 144 Other Measures
• Internal credit controls
• “Late Payment of Commercial
Debts Act 1988”
Slide 145 Ratios
• Business has certain expected standards
• Not absolutes, not rules, just measures
• Used to analyze businesses
• More specific details soon
Liquidity Ratios
Measure how well businesses can pay creditors
Slide 146 Current Ratio
or
Working Capital Ratio
Current Assets
Current Liabilities
1.5 : 1 = Generally the minimum preferred
2 : 1 = Strong.
Any more, and a company should consider if
their resources could be put to better use.
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Slide 147 Acid Test Ratio
or
Quick Ratio
Current Assets – Stock
Current Liabilities
Less than 1 : 1 = the company doesn’t have
enough “Quick” assets (Cash and Debtors) to cover Current Liabilities
Slide 148 Liquidity Ratios
Current Assets - stock 8,490- debtors 10,222- cash 4,409
Total current assets 23,121Less: current liabilities -7,783Net current assets 15,338
Sample calculations
and analysis:
This company seems to have very strong liquidity
Current Ratio =23,121
7,783= 2.97 : 1
Quick Ratio =14,631
7,783= 1.88 : 1
Slide 149
Cost & Management
Accounting (CMA)
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Slide 150 Cost & Management Accounting
• Know how a business is doing
• Decision making
• Need accurate accounting information
Slide 151 Costs
• Accounting Costs
– Value of resources used up in operations
– For Assets or Expenses
• Economic Costs
– Includes Opportunity Cost
– Opportunity Cost not considered in Accounting
Slide 152 Cost Classification
• Behaviour
• Function
• Other
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Slide 153 Cost Classification – Behaviour
• Fixed Costs
– Do not change as output rises
– Examples: rent; power; management
• Step Costs
– Fixed Costs that change
• Variable Costs
– Change (vary) directly with changes in output
– Examples: materials; production supplies; labour
• Semi-variable
– Variable costs that have fixed elements
Slide 154 Cost Classification – Function
• Direct Costs
– Costs directly involved with the production or
process
– Examples: material; labour; production supplies; supervisors
• Indirect Costs / Overhead Costs
– Costs of running the business, not directly involved with the production or process
– Examples: management; administration
Slide 155 Cost Classification – Other
• Average Cost
– Cost per unit (Total Cost divide by Units)
• Marginal Cost
– Additional cost of producing the next unit
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Slide 156 Cost Classification – Other
• Production
• Selling
• Administration
Slide 157 “Quality” Profits
• Add to business vocabulary
• Profits over a long period – several years
Slide 158 Management Accounting
• Accounting for Management Purpose
• Used to assist in decision making
• Analyzes costs and revenues in many
different ways
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Slide 159 Costing Centres
• A way of collecting or accumulating costs
• A method of:
– Managing Cost
– Assigning responsibility
– Evaluating performance
• Different departments or areas of a business:
– Cost Centres
– Profit Centres
Slide 160
Slide 161 Cost Centres
• Costs are collected based on:
– Different Departments
– Different geographical locations
– Employees
– Etc.
• Information can be used for budgets,
controlling costs, etc.
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Slide 162 Profit Centres
• Very similar to Cost Centres
• Each Centre also has sales
• In the end, profit or loss can be measured
in each Centre
Slide 163 Cost & Profit Centre
Analysis
Advantages:
• Helps in decision-making
• Improves motivation
• Makes departments act more responsibly
• Helps in finding problems
Slide 164 Cost & Profit Centre
Analysis
Disadvantages:
• Company-wide costs may be allocated
unfairly
• May create internal conflicts
• May increase pressure / stress among
employees
• Inefficient use of resources
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Slide 165
Costing Methods
Different ways of looking at costs
Provides managers with
information for decision-making
Slide 166 Costing Methods
• Product Costing – by the product
– Useful for manufacturing
• Job Costing – by the job
– Useful for services
• Contract Costing – by the contract
– Useful for construction
Slide 167 Contribution Costing
Also called Marginal Costing
Shows if a Product or Order contributes
toward Fixed Costs and Profits, and if
so, how much
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Slide 168 Contribution Costing
Uses:
• Calculating Prices
• Calculating Break Even Point
• Decision-making
– Should company produce Product A, B or C
– Accept or reject orders
Slide 169 Contribution Costing
Calculations available:
• Contribution per unit
CPU = P – VC
Different from profit
• Total Contribution
- CPU x Q (Quantity Sold)
• Total Profit
– Total Contribution – FC
Slide 170 Standard Costing
An estimated Cost per Unit
Very detailed analysis of production costs
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Slide 171 Absorption Costing Method
Also called Full Costing or Total Costing
Begins with Standard Cost
Adds in non-production Overheads
Non-production Overheads then re-
allocated to production departments
based on different assumptions
Slide 172
Break Even
Total Revenue = Total Cost
TR = TC
Slide 173 Break Even Analysis
Helps Users to know:
• How much sales needed to cover our costs
• How different output levels affect profit
• How changes in price or costs affect:
– Break Even Point
– Profit
Break Even Point (BEP): the quantity of goods
sold needed to break even
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Slide 174 Break Even Analysis
Key Break Even calculations (already reviewed)
• Calculate BEP using Contribution Costing
BEP = FC CPU
• Calculate BEP using TR and TC
P x Q = FC + (VC x Q) OR
P x BEP = FC + (VC x BEP)
Slide 175 Break Even Analysis
Key Break Even calculations:
• Calculate the Output needed to meet a Target Profit
Target Output = (FC + Target Profit) CPU
• Calculate Price using Break Even
Break Even Price = TC Output
BE Price + Target Profit = (TC + Target Profit) Output
Slide 176 Break Even Diagram
0 Output
£
TC
TRBreak Even Point
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Slide 177 Break Even Diagram
0 Output
£
TC
TRBreak Even Point
OutputLevel
Margin of
Safety
Slide 178
Cash Flow & Budgets
Slide 179 Cash Flow
• Cash Flow Statement
• Cash Flow Forecast
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Slide 180 Cash Flow
Different from Profit
• Timing of transactions
• Fixed Assets
• Company borrowings
• Owners’ Capital
Slide 181 Cash Flow Statement
Uses
• Identify cash shortages or surpluses
• Support applications for credit
• Monitor cash flow (at year end)
Required with Financial Accounts
Slide 182 Cash Flow Statement
Sections
• Operating activities
• Returns on Investments and servicing of
finance
• Taxation
• Investing activities
• Financing
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Slide 183 Cash Flow Statement
Also required:
• Statement calculating net cash flows from
operations
Slide 184 Cash Flow Statement
Criticisms
• Doesn’t give very much information
• Not required for small companies
• Based on historical transactions
• Future predictions would be more useful
Slide 185 Cash Flow Forecast
Uses
• Help with planning or starting a new
business
• Identify cash shortages or surpluses
• Support applications for credit
• Monitor cash flow
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Slide 186
Budgets
Slide 187 Budgets
• An agreed plan for spending
• Throughout all levels of company
• Need accurate information
– Financial Accounts (past)
– Forecasts (future)
• Master Departments Subsidiaries
Slide 188 Budgeting – in general
• Helps with control, especially spending
• Sets clear targets & responsibilities
• Helps make sure capital is usefully
employed
• Helps with coordination and
communication
Benefits:
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Slide 189 Budgeting – in general
• Can create problems, especially among
competitive employees
• May be too inflexible
• If differences between budget and actual
are too large, may hurt effectiveness of
budget process
Drawbacks:
Slide 190 Approaches to Budgeting
• Sales / Revenue budget
• Operations budget – operating activities
• Production budget
• Flexible budget – different levels of
production
• Objectives budget – meet some goal
• Capital budget – planning large items,
such as purchasing fixed assets, etc.
Slide 191 Difficulties in preparing Budgets
• Based on prior sales levels, etc
• Management and coordination of budget
process
• Conflict
• Time consuming
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Slide 192 Zero-based budgeting
• Helps allocate resources
• A more careful approach
• Creates alternatives
• Can improve motivation
Benefits Drawbacks
• Threat to “the way it
is” – motivation
• Difficult
• May miss some
opportunities
Justify expenditures with benefits
Slide 193
Break Even
Total Revenue = Total Cost
TR = TC
Slide 194 Break Even Analysis
Helps Users to know:
• How much sales needed to cover our costs
• How different output levels affect profit
• How changes in price or costs affect:
– Break Even Point
– Profit
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Slide 195
0 Output
£
TCTR
Break Even Point
Break even points
Quantityof goods sold needed to break even
Slide 196
0 Output
£
TCTR
Margin of Safety
If a company is
producing at
any output A…
A
How much can
output drop
before they
begin losing
money?
Slide 197 Break Even Analysis
Key Break Even calculations:
• Calculate BEP using Contribution Costing
• Calculate BEP using TR and TC
• Calculate a Target Profit
• Calculate a Break Even Price
Example Calculations – Data:
Price per Unit = 100
Variable Cost per Unit = 40
Fixed Costs = 60,000
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Slide 198 Calculate BEP using Contribution
Break Even Point = Fixed Costs Contribution per unit
Contribution per unit = 100 – 40
= 60
Break Even Point = 60,000 60
= 1,000 units
Company needs to produce 1,000 units to break even
Slide 199 Calculate BEP using TR and TC
Break Even Point: TR = TC
Total Revenue = Price x Quantity Sold (Q)
= 100 x Q
Total Cost = Fixed Costs + Variable Costs
= 60,000 + (40 x Q)
So, 100 x Q = 60,000 + (40 x Q)
Q = 1,000 units
Company needs to produce 1,000 units to break even
Slide 200
Variance Analysis
Using the Budget to Control Costs
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Slide 201 Variance Analysis
• Begins with the Budget – the Plan
• At period end, Actual compared to Budget
• Differences are called Variances
• Favourable:
– Income higher
– Expense lower
• Adverse / Unfavourable:
– Income lower
– Expense higher
Slide 202 Variance Analysis
Using all the different types of Variances
together, a company can really pinpoint
exactly where they are experience cost
problems, and can help identify how to
solve those problems.
Slide 203 Types of Variances
• Sales Margin Variance
• Profit Variance
• Materials Variance
– Price (cost)
– Usage
• Labour Variance
– Wage Rate
– Labour Efficiency
• Overheads Variance
• Cash Variance
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Slide 204
Organizational Structure and
Design
Slide 205 Organizational Structure and Design
• An organization’s design and structure
affects every aspect of the business, internal
and external
• A Formal Organization establishes:
– Relationships
– Authority to make and carry out decisions
– Communications
Slide 206 Factors Influencing Organizational
Structure
• Size
• Views of owners or management
• Business objectives
• External factors
• Changes in technology
• The “informal” business structure
• The “corporate culture”
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Slide 207 Organization Charts
• Positions within the organization
• Lines of communication
• Analyze for weaknesses
• “Hierarchy”: order & levels of management
Slide 208 Organization Chart – Example
Slide 209 Organizational Design
• “Chain of Command” – the way in which:
– Orders pass down
– Information passes up
• “Span of Control”:
– Number of “subordinates” under a
manager
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Slide 210 “Chain of Command”
• “Tall” organization – many layers
– For companies needing strong control
– Orders and information travel more slowly
– May reduce motivation
– May be inefficient
• “Short” organization – few layers
– May increase motivation
– May be more efficient
Slide 211 “Span of Control”
• “Wide” span – many “subordinates”
– More “cost effective”
– Less effective management / motivation
– May increase managers feeling of power
• “Narrow” span – fewer “subordinates”– More effective management / motivation
– More expensive
• 3–6 subordinates may be most effective
Slide 212
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Slide 213 Responsibility & Authority
Responsibility:
• Being required to justify actions
Authority:
• The power or right to order, control or judge
others
• Line authority: manager over subordinates
• Staff authority: advice to other departments
• Functional authority: specialists give advice
Slide 214 Delegation
• Effective planning
• Clear explanations and instructions – why
• Employees having authority & responsibility
• Managers supporting, avoiding interference
• Oversight and control
Passing authority and/or responsibility for some
tasks to employees further down the hierarchy
Requires:
Slide 215 Management Structures
• Centralized Management
– All decisions made by central management
• Decentralized Management
– Decisions made by branches
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Slide 216 Centralized – Benefits
• Senior management greater control
• Senior management more experienced
• Standardization – economies of scale
• Decisions – point of view of whole company
• Crisis – strong leadership
• Communications easier
• Fewer decision makers
Slide 217 Decentralized – Benefits
• Reduces burdens on senior management
• Empowers and motivates workers
• Greater job satisfaction
• “Local” knowledge
• More flexibility, responsiveness
• Prepares subordinates to move up
Slide 218 Different forms of Business
Structure
• Entrepreneurial
• Bureaucratic, pyramid or hierarchical
• Matrix (project)
• Independence
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Slide 219 “Informal” Business Structure
• Spontaneous / unplanned
• Employees have their own circles of
communication
• Seek advice from colleagues
• Often involve higher levels of trust
Slide 220 “Delayering”
• Recent trend – cut out layers of middle
management, making organizations flatter
• Hierarchy structured in projects or teams
• Better communication
• Better decision-making
• Greater management & financial flexibility
• Empowers employees:
– self-monitoring
– take responsibility
Slide 221 Examples
P. 411, Figure 58.2
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Slide 222
Motivation Theory
Slide 223 Motivation at Work
• Why is it important at work?
• Gives purpose and direction to behaviour
• People’s needs – varied and limitless
Slide 224 Motivation Theories
• Generally divided into two groups
– “Scientific Management”
– “Human Relations”
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Slide 225 Motivation Theories
• Scientific Management – Taylor
• Hierarchy of Needs – Maslow Human
• Human Relations Management
• Theory X and Theory Y – McGregor
• Others…
Slide 226 Scientific Management – Taylor
• Studied workers performance
– Timed speed
– Observed methods
• Divide & perform tasks – efficiency
• Assumed a single motivator – money
• “Piece rate” method
• “Fair day’s pay” for “fair day’s work”
Slide 227 Scientific Management – Taylor
Motivation:
• Work faster – earn more
• Work slower – lose earnings
Problems:
• People are different
• What’s fair for different people
• Viewed people as machines, not humans
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Slide 228 Hierarchy of Needs – Maslow
• Divide needs into different classifications
• Begin with basic needs
• As those needs satisfied …
• People consider other needs…
Slide 229 Hierarchy of Needs – Maslow
SELF-ACTUALIZATION
SELF-ESTEEM
LOVE & BELONGING
SAFETY & SECURITY
PHYSIOLOGICAL
Slide 230 Hierarchy of Needs – Maslow
• Levels satisfied one by one
• Some people do not need some levels
• Difficult to tell when a level satisfied
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Slide 231 Human Relations Methods
• Increased communications
• Increased workers cooperating with each
other and with company
• Increased efficiency and productivity
Slide 232
Possible problems:
• When workers have different goals, difficult
to reach “consensus”
• Too much information may create problems
• Workers may feel tricked by management
Human Relations Methods
Slide 233
Theory X Theory Y• Motivated by money
• Lazy, dislike work
• Selfish, don’t care about company, avoid responsibility, lack ambition
• Need management’s control and direction
• Motivated by many
different things
• Can enjoy work
• Can organize work, take
responsibility – if properly managed
• Can show creativity, and apply their knowledge to
the job
Theory X and Theory Y – McGregor
Theory: people are one way or the other
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Slide 234 Theory X and Theory Y – McGregor
• Know and understand which people are
X’s and Y’s
• Which types of people are appropriate for
different types of jobs
• Which types are appropriate for
management
Slide 235 Herzberg’s Two-Factor Theory
• Hygiene Factors – lead to dissatisfaction
• Motivators – lead to job satisfaction
Slide 236 Motivation Theories
Knowing them can help management:
• Understand and know employees
• Select and hire employees
• Design different jobs and positions
• Increase worker satisfaction
• Increase productivity
• Solve problems
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Slide 237 Motivation Theories
Difficulties with Motivation Theories:
• Is one is right, the other wrong?
• Difficult to generalize about employees
Slide 238
Motivation in Practice
Achieving a balance between
productivity and job satisfaction
Slide 239 Motivation in Practice
• Two general methods:
– Financial Rewards
– Non-financial
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Slide 240 Financial Rewards
• Time rates
• Annualized hours contracts
• Piece rates
• Commissions
• Fees
• Fringe Benefits
Slide 241
Employer Considerations:
• Employee motivation
• Cost
• Prestige
• Recruitment / Labour turnover
• Control
Financial Rewards
Slide 242
Employee Considerations:
• Purchasing power
• Fairness
• Relative to other employees / companies
• Recognition of contribution
• Composition of compensation package
Financial Rewards
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Slide 243
Incentive schemes
Incentive: something that encourages or tends
to encourage action or greater effort
Financial Rewards
Slide 244
Incentive schemes
• Individual output schemes
• Collective output schemes
• Employee input related schemes
Financial Rewards
Slide 245
Problems with Incentive schemes
• Operational
• Earnings forecasting
• Quality control
• Changes to scheme
Financial Rewards
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Slide 246
Problems with Incentive schemes
• Pressure / quality of working time
• Worker jealousy
• Performance standards
• Team incentives
Financial Rewards
Slide 247 Motivation in Practice
Non-financial Rewards
Non-monetary motivation
Slide 248 Non-financial Rewards
Job design or Job redesign
• Carry out series of tasks – closure
• Workers / teams responsible for quality
• Increase range of tasks (rotation)
• Employees control speed, method and
sequence
• Allows interaction and cooperation
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Slide 249 Non-financial Rewards
Job design or Job redesign Schemes
• Job enlargement – broad range of tasks
• Job rotation
• Team working
• Job enrichment
• Multi-skilling
• Quality control circles
• Empowerment
Slide 250 Non-financial Rewards
Problems with Job redesign
• Resist change
• Costly with little effect on productivity
• New technologies – more difficult
• Need evaluation for effectiveness
• Quality control circles
• Empowerment
Slide 251 Non-financial Rewards
Management By Objectives (MBO)
• Setting goals and achieving them
• Creates job satisfaction
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Slide 252 Non-financial Rewards
Organization Behaviour Modifaction
(OBMod)
• Positive reinforcement
• Negative reinforcement
• Punishment
Slide 253 Non-financial Rewards
Employee assistance programmes
• Mental health assistance
• Child care
Slide 254 Motivation in Practice
Achieving a balance between
productivity and job satisfaction
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Slide 255
Leadership
Slide 256 Management & Leadership
Manager: responsible for getting things done.
• Job involves
– Planning
– Organizing
– Commanding
– Coordinating
– Controlling
Slide 257 Management & Leadership
Leadership:
– Know what direction to take
– Plan
– Persuade others to follow
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Slide 258 Management & Leadership
Leaders adopt different styles:
– Delegating
– Participating
– Selling
– Telling
Slide 259 Leadership Styles
• Autocratic
• Paternalistic
• Democratic
• Laissez faire
Slide 260 Autocratic Leadership
Style:
– Leader sets all goals
– Delegates tasks
– Demands obedience
Analysis:
– If dissatisfied, won’t work well together
– Supervision
– Poor motivation
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Slide 261 Paternalistic Leadership
Style:
– Same style as Autocratic, except
– Concern about subordinates welfare
Analysis:
– Decrease dissatisfaction, supervision
– May improve working together and
motivation
Slide 262 Democratic Leadership
Style:
– Encourage participation in decision-making
– Persuasive / consultative to follow his plan
– Strong communication skills
Analysis:
– Workers participate, a sense of freedom
– Uses knowledge, wisdom of workers
– Greater commitment and motivation
Slide 263 Laissez Faire Leadership
Style:
– Workers work freely within broad limits
– Few guidelines and directions
Analysis:
– Allows for much more creativity
– Relaxed atmosphere
– Sometimes may result in poor productivity,
lack of motivation
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Slide 264 Leadership in General
Due to job redesign, delayering,
managers must be more team-based
Need to select, coordinate and manage groups
Deal with related issues
Slide 265 Leadership in General
Leadership style often determined by
personality
People don’t change easily
Selected based on job requirements
Leadership Matching
Task oriented
Relationship oriented
Slide 266 Leadership in General
Leadership style based on situation:
• Certain tasks / emergencies
• Skilled / unskilled workforce
• Size
• Leader’s personality
• Personalities in the group
• Time constraints
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Slide 267 Leadership
Effective Leading is the most important
Slide 268
Human Resource
Management
Slide 269 Human Resource Management
• Managing a company’s HUMAN resources
• Requires effective management
• Has strategic implications
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Slide 270 Human Resource Management
“Soft” Side:
• Motivation
• Organizational structure
• Support for employees
• Employee relations
• Industrial relations
“Hard” Side:
• Staffing needs
• Future staffing
– Demands
– Supply
• Predicting turnover
Slide 271 Factors affecting HRM
• Changes …
• Competition …
• Population
• Corporate culture and structure
• Trade unions
Slide 272 Strategic approach to HRM
• HRM as part of company’s overall strategy
• Plan, coordinate with other departments
• Corporate culture
• Motivation
• Encourage work flexibility
• Flexibility in staffing
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Slide 273 Strategic approach: Advantages
• Competitive / efficiency
• Better able to solve HR problems
• Reduces Labour turnover
• Reduces Absenteeism
• Helps anticipate workforce needs
• Stakeholder relations
• Labour Union relations
Slide 274
• personnel management (training,
developing and appraising staff;
measuring and monitoring staff
performance).
Slide 275
Labour Turnover Index =
Number of staff leaving
Average number of staff during period
Labour Productivity =
Output
Number of employees
Turnover (Sales) Per Head =
Sales
Number of employees
Human Resource Data
x 100
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Slide 276 Human Resource Planning
Forecast Employee Demand; Plan Supply
Analyze:
• Past information
– Business information
– Management’s knowledge
• Worker productivity
• Work study
– How many staff for the tasks
Slide 277 Human Resource Planning
Forecast Employee Demand; Plan Supply
Calculate staff losses:
• Labour Turnover Index
Slide 278 Human Resource Planning
Forecast Employee Demand; Plan Supply
Analyze (detailed) current employee supply:
• Age
• Position
• Term
• Qualifications
• Performance
• Internal recruiting
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Slide 279 Human Resource Planning
Forecast Employee Demand; Plan Supply
Plan internal employee supply:
• Promotion
• Staff development and training
• Staff loss and retirement
• Flexibility
• Legal issues
Slide 280 Human Resource Planning
Forecast Employee Demand; Plan Supply
Plan external employee supply:
• Availability of workers
• Skills needed / availability
• Government training / subsidies
• Workplace competition
• Population / Demographics
….
Slide 281 Human Resource Planning
Forecast Employee Demand; Plan Supply
Plan external employee supply:
• Unemployment
• Housing & Public transit
• Costs
• Government legislation
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Slide 282 Flexible Work policies
Study different schemes in the textbook
Benefits:
• Worker satisfaction and motivation
• Better to plan for changes
• Decreases overtime costs
Slide 283 Evaluating all options
Relocation
Move production to different area or country
Outsourcing
Shift production to other companies
Knowledge Management
Identify and use internal knowledge
Slide 284
Labour Management
Relations
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Slide 285 Representation at Work
• Trade Unions
• Staff Associations
• Professional Associations
• Employers’ Organizations
Slide 286 Trade Unions
3 Types
• General
• Industrial
• Craft
Represent members / workers in areas of:
• Salary
• Benefits
• Working conditions
Slide 287 Trade Unions – Background
• Were very powerful
• By 1980’s laws began limiting power
• Must be formally registered
• May join Trade Union Congress (TUC)
– Represents all major unions
• Confederation of British Industry
– Represents businesses
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Slide 288 Labour Unions – Conditions
• Employers must allow employees to join Labour Unions
• Unions should be independent
– Of the company
– Of the government
• Represent employees in good faith
• All parties must agree to, and be bound by, negotiated results
Slide 289
Industrial Democracy,
Bargaining, Consultation &
Participation
How Industrial Relations works –
the process
Slide 290 Industrial Relations
Business and employee conflicts:
• Pay / Compensation
• Benefits
• Working conditions
• Flexible work
Industrial Relations – to try to resolve these
issues without problems
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Slide 291 Collective Bargaining
• Negotiations between:
– Company
– Union Representatives (for employees)
• Negotiate Contracts
– Terms
– Conditions
Slide 292 Negotiation Process
• Set Agenda
• Collect information
• Set strategies
• Be united
• Plan size of group
• Plan stages of negotiation
• Plan how decisions made
• Prepare statements at the end
• Commit to getting their sides to accept
– both sides together
– each side individually
Slide 293 Joint Consultations
• Management & worker representatives
meet to discuss, see if there are
common issues they can all agree on
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Slide 294 Joint Consultations
• Pseudo-consultation
(/su doʊ/ not actual but looks like)
– Management makes decisions
– Informs employee representatives
– No power to influence those decisions
• Looks negotiated, but really isn’t
Slide 295 Joint Consultations
• Classical consultation
– Involves employee representatives
– Can influence Management’s decisions
Slide 296 Joint Consultations
• Integrative consultation
(integrate: to bring together)
– Actually bringing in employees
– Discuss matters of common concern
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Slide 297 Other Organizations
ACAS – Advisory, Conciliation and
Arbitration Service
• Mediates when consultations and
negotiations fail
• Other services:
– Arbitration
– Advisory
– Codes of Practice
– Help businesses improve personnel & management practices
Slide 298 Other Organizations
CAC – Central Arbitration Committee
• Government office
• Responsible for union recognition
• Helps when employees want union
recognition but employers resist
Slide 299 Industrial Democracy
• Work groups
• Team working
• Employee shareholders
• Employee Work Councils
– Consult
– Discuss
– Transfer information
• Depends on laws; corporate culture; union
representation; employee power, etc.
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Slide 300 Industrial Democracy
Advantages
• Increases motivation
• Creates new, different and better ideas
• Better industrial relations
• May make management respond better to
employee needs
Slide 301 Industrial Democracy
Disadvantages
• Hierarchical businesses may not adapt well
• Can increase costs
• May lead to conflict
Slide 302
Industrial Actions (IA)
May be taken by either side when
conflicts not resolved
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Slide 303 Industrial Actions
Employers
• Reduce overtime, benefits
• Change standards for piecework workers
• Lock outs
• Hire new employees when union workers
go on strike
Slide 304 Industrial Actions
Employees – Unorganized / Unofficial
• Employees take action the only way they
may know how (usually unplanned)
• High turnover, absence, inefficiency,
wasting time, unofficial strikes
• Usually not very effective, but can lead to
follow up organized / official actions
Slide 305 Industrial Actions
Employees – Organized / Official
• “Work to rule” or “Slow go”
• Stop working overtime
• “Sit-in” or “work-in”
• Strike
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Slide 306 Industrial Actions
Risk – Factors influencing success or failure
• Strength / size of union / company
• Workers / union well organized
• Location(s)
• Public / other union support
• Actions of management
• Laws
• Economic situation
Slide 307 Industrial Actions
Benefits
• Brings grievances out into the open
• Management better understand employees
• Help change rules
• Management may adjust company goals
Slide 308 Industrial Actions
Problems – Employers
• Lost production / late or lost orders
• Lost revenue – idle fixed assets
• Future relations – bad feelings
• Shift management’s attention away from
future planning
• May harm company’s reputation
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Slide 309 Industrial Actions
Problems – Employees
• Lost earnings
• Close factory (long action)
• Stress relations among workforce
• Bad effect on motivation
• If unsuccessful, weakens future position,
lead to losing union members
• If against law, may lead to damages,
discipline, dismissal
Slide 310
Organisational Functions 1
BTEC Business
Slide 311
What are an Organisation’s
Functions?• As we have seen, businesses exist
to provide products or services that people want to consume
• They do this by organising the firm’s resources to meet customers’ needs
• Many organisations arrange these resources
into different business functions
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Slide 312
What are an Organisation’s
Functions?Whatever the business, all organisations have
to manage the following functions:
• Sales and marketing
• Accounts or finance
• Human resources or staff
• Administration
Slide 313
What are an Organisation’s
Functions?Many businesses will also have the following
activities that need managing:
• Production
• Purchasing or buying
• Research and development
Whether they do or not depends
on their industry or sector
Slide 314 Finding out more
The following is a good source of information about organisational functions:
• Biz/ed’s Virtual Factory
• Find our more about production, marketing, accounts, stock control and design in a real world business at:
http://www.bized.ac.uk/virtual/cb/factory/reception/intro1.htm
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Slide 315 Applying your Knowledge
• Now go to the following Biz/ed resource for more
on a range of real world business organisations:
http://www.bized.ac.uk/compfact/business_profil
es.htm
• Select two businesses and analyse their key functional areas. Be prepared to feed this back
to the whole group.
Slide 316
Equal Opportunities
&
Protection at Work
Slide 317
Equal Opportunities
Qualified people should have the
same chance to get a job.
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Slide 318 Discrimination / Stereotypes
A simplified vision of someone, with special
(usually negative) meaning
• Women:
– Doesn’t want to take responsibilities
– Doesn’t want (or shouldn’t) leave the home
– Wouldn’t want to relocate
– More “emotional”
– Weak
Slide 319 Discrimination / Stereotypes
A simplified vision of someone, with special
(usually negative) meaning
• Minorities:
– Religious holidays might interfere
– Less educated
– Different / “strange”
– Dirty
Slide 320 Discrimination / Stereotypes
A simplified vision of someone, with special
(usually negative) meaning
• Disabled:
– Less capable
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Slide 321 Discrimination / Stereotypes
A simplified vision of someone, with special
(usually negative) meaning
• Elderly:
– Less adaptable
– Difficult for them to learn new things, new
technologies
Slide 322 Women at work
Ongoing discrimination Statistics
• Lower earnings
• Management jobs still dominated by men
• Low paying jobs dominated by women
• Full-time work percentage lower for women
• Work percent lower for women with children
Slide 323
Equal Opportunities
UK & EU laws protect people from
job discrimination due to: gender,
marital status, colour, race,
nationality, ethnic origin, religion,
age, disabilities, etc.
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Slide 324 Women at work
Improvements in situation
• Flexible work
• Legislation
• Changes in demographics
• Child Care (creche)
Result: higher employment for women
The “gender gap” narrowing
Slide 325 Employment without
Discrimination
• Better workforce
• More qualified workforce
• More flexible workforce
• Higher motivation
• Everyone feels they will be considered
• Easier in finding new employees
Slide 326
Protection at Work
A broad category
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Slide 327 Employment Protection
• A right to an Employment Contract
• Freedom from all forms of discrimination
• Freedom from unfair dismissal
• Recourse: Labour Tribunal
Slide 328 Health & Safety Protection
• Clean, sanitary, comfortable working conditions
• Safety equipment, clothing and training
• Safe procedures for dangerous materials
• Safety from violence and threats
• Laws now require:
– Written Health & Safety Statement
– Management required to follow
– Inspections to guarantee
Slide 329 Wages Protection
Wages Act, 1986
• Rules and conditions for paying wages
• Procedures for enforcing those rights
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Slide 330 Wages Protection
National Minimum Wage Act, 1998
• Established current minimum wage rules
• To reduce poverty and inequality
• To increase motivation in the workplace
Slide 331 Wages Protection
National Minimum Wage Act, 1998
• Established current minimum wage rules
• To reduce poverty and inequality
• To increase motivation in the workplace
Slide 332 Social Chapter
National Minimum Wage Act, 1998
• Standardize work practices throughout EU
– Minimum Wages
– Maximum working hours per week
– Paid holidays
• Introduced European Works Council (EWC)
– To negotiate contracts
– Set and revise minimum wages
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Slide 333 Personnel Data
Protect, safeguard and keep confidential
personal information on employees
– Electronic data
– Hard data
• Company’s motivation:
– Increase employee motivation
– Consequences to not following laws
– Losing employees can cost the company
• Some businesses don’t follow – costs
Slide 334 Equal Opportunity Practices
Benefits / Advantages:
– Improve motivation
– Improve productivity
– Improve industrial relations
Disadvantages:
– Raise costs
– Restrict flexibility
– Reduce EU competitiveness
Slide 335
Consumer Protection
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Slide 336 Business & Consumer
Protection
Undeveloped economy
– “Caveat emptor” = buyer beware
Developed economy – big businesses
– Too easy to take advantage of consumers
Slide 337 Consumer Protection Legislation
Effects of laws on businesses:
– Costs
– Quality control
– Deal with consumer complaints
– Adopt more market-oriented practices
Slide 338 Monopolies & Mergers
Examined benefits and criticisms in Economics
Restrictive practices can reduce competition
UK has passed various types of legislation:
– Office of Fair Trading
– Competition Commission
EU has similar practices
Regulatory bodies to enforce fair trading
practices in industry
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Slide 339
Business Form
Slide 340 Private Sector Businesses
Types of Business Forms
Unincorporated businesses
– Sole Trader
– Partnership
Benefits:
• Costs
• Control
Slide 341 Private Sector Businesses
Types of Business Forms
Incorporated / Limited Companies (Corporations)
– Private Limited Company
– Public Limited Company
Benefits:
• Protection from personal Liability
• Ability to grow
• Ability to raise money
Disadvantage:
may lose some control
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Slide 342 Private Sector Businesses
Types of Business Forms
Cooperatives
– Consumer cooperatives
– Worker cooperatives
Other:
• Building Societies
• Friendly Societies (banks, financial services)
• Franchises
• Charities
Slide 343 Private Sector Businesses
Types of Business Forms
Choice of Business Form based on:
– Control
– Kind of business
– Timing / age
– Financial needs
– Liability protection
Slide 344 Private Sector Businesses
Types of Business Forms
Students should know the different
business forms, be able to discuss,
compare and contrast them…
And, should be able to analyze when,
how and why a business would
change from one form to another
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Slide 345 Private Sector Businesses
Types of Business Forms
• Incorporated Limited Companies
(Corporations)
– Private Limited Company
– Public Limited Company
Slide 346
Business Size
Slide 347 Business Size
Can be defined by:
– Turnover / Sales
– Number of Employees
– Capital Invested
– Profit
– Market Share
– Market Capitalization
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Slide 348 Business Size
Reasons to grow:
– Survival
– Economies of Scale
– Future profitability
– Gain market share
– Reduce risk
Slide 349 Business Size
Methods of growth:
• Internal / organic growth:
– Selling more
• External growth:
– Acquisition
– Takeover
– Merger
Slide 350 Benefits of growth:
Internal economies of scale:
– Technical efficiencies
– Indivisibilities / Law of multiples
– Managerial
– Financial
– Purchasing & Marketing
– Risk
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Slide 351 Benefits of growth:
External economies of scale –
• Savings from industry’s growth
– Labour
– Services
– Co-operation
Slide 352 Limits to growth:
Internal diseconomies of scale
– Managerial
– Funds
• External diseconomies of scale
– Market limitations
– Geographical
Slide 353 How and why
Small firms still survive
• Provide personal services
• Owners choose to stay small
• Flexibility & Efficiency
• Lower costs
• Low barriers to entry
• Monopolists
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Slide 354 How and why
Small firms still survive
• Unemployment
• Other government schemes
• Ways small firms benefit the market
– Increase market flexibility
– Help balance market wages
– Create casual and part-time jobs
Slide 355 Financial Accounts
Valuation of companies:
• Sale
• Takeovers
• Mergers
• Management buyouts
• Public offerings (floatations)
• Loans
Slide 356 Financial Accounts
Various methods of valuing
companies:
• Only a guide
• Value of something is always between:
–A willing buyer
–And a willing seller
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Slide 357 Financial Accounts
Standards for preparing accounts
To avoid manipulation of accounts
Manipulation – different aspects:
• Increase values
• Reduce values
Slide 358 Financial Accounts
Reasons for Account manipulation:
• Increase values
– Current or future investors
– Stock prices
– Market position
– Avoid takeovers
Slide 359 Financial Accounts
Reasons for Account manipulation:
• Reduce values
– Avoid taxes
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Slide 360 Financial Accounts
Methods of Account manipulation:
• Change depreciation
• Revalue creditors & Debtors
• Revalue stock
• Write-offs
• Profits
Slide 361
Business Stakeholders
Taking a “Stakeholders Approach”
Slide 362 Business Stakeholders
• Hold a financial interest in the success
of the business
• Have some involvement with the business’s activity
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Slide 363 Business Stakeholders
• Owners
• Entrepreneurs
• Shareholders
• Managers
• Employees
• Customers• Suppliers
• Governments
• Community
Objectives of stakeholder groups may differ
A “stakeholder approach”
Slide 364
Strategy & Objectives
Role of Business Objectives
in Setting Business Strategy
and Planning
Slide 365 Strategy & Objectives
Business Objectives:
Outcomes, goals, targets (SMART) include:
• Survival
• Profit
• Growth
• Increase shareholder value
• Maximize Sales
• Image, Reputation & Social Responsibility
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Slide 366 Strategy & Objectives
Business Objectives:
Managers’ Objectives could include:
• Budgetary
• Departmental
• Salary
• Benefits
• Status
The “players” are all stakeholders
Slide 367 Strategy & Objectives
Business Objectives:
Operational Objectives:
• Change focus
• Product lines
• Etc.
Slide 368 Strategy & Objectives
Business Objectives:
Public Sector Objectives:
• Change image
• Improve service levels
• Etc.
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Slide 369 Strategy & Objectives
Business Objectives:
Factors influencing a business’s Objectives:
• Owners
• Different stakeholders’ powers
• Size, Status
• Short-term or long-term considerations
• Internal or external pressures
Slide 370
Mission Statement
A written statement that sets
out the aims of a business
Slide 371 Mission Statements
Should focus on:
• All stakeholders
• Providing a general idea or plan
“At Microsoft, our mission and values are to
help people and businesses throughout the
world realize their full potential.”
“Our mission is to be the consumer's first
choice for food, delivering products of
outstanding quality and great service at a
competitive cost through working faster,
simpler and together." Sainsbury’s
For example:
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Slide 372
Strategy and Planning
Slide 373 Strategy and Planning
Identify Objectives:
• Strategic
• Tactical
• Operational
Slide 374 Strategy and Planning
Strategy:
A pattern of decisions and actions
to achieve objectives
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Slide 375 Strategy and Planning
Planning:
• Decide what to do
• Set objectives
• Set policies to achieve them
• Involves: Analysis
Developing strategies
Implementation
Evaluation
Slide 376 Strategy and Planning
Types of Business Strategies:
• Functional
• Business Level
• Corporate
• Global
Must suit the corporate culture (the values)
of the organization
Slide 377 Strategy and Planning
Effective Planning & Strategy based on:
• Clear Purpose
• Strategic Vision
• Strong Commitment to achieve goals
• Focusing strategies on customers
• Achievable timing
• Flexibility to modify details, stay on course
• Suitable to different departmental players
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Slide 378 Strategy and Planning
Effective Planning (include Contingencies)
can minimize effects of unexpected crises:
• Legal
• Financial
• Production
• Corporate
• Image
Slide 379 Strategy and Planning
Analysis Methods:
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Internal
External
Slide 380 Strategy and Planning
Analysis Methods:
For analyzing External factors
PEST
Political
Economic
Social
Technological
- G
Green
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Slide 381 Strategy and Planning
Analysis Methods:
5 Forces Model
New competitors
Established firms
Buyers
Suppliers
Substitute products
– Competitive Forces
– The stronger the Forces are,the more difficult to raise prices & profits
Slide 382 Strategy and Planning
Analysis Methods:
Industry Structure Analysis
Competitors
Suppliers
Substitution
Potential entrants
Slide 383 Strategy and Planning
Analysis Methods:
Industry Structure Analysis
Competitors
Suppliers
Substitution
Potential entrants
Competitor Analysis
To determine strengths & weaknesses
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Slide 384 Strategy and Planning
Analysis Methods:
Competitor Analysis
To determine strengths
Slide 385 Strategy and Planning
Other Analysis:
Product Life Cycle Analysis
Product Portfolio Analysis
Cost and Value Analysis
Slide 386 Different Strategies
To improve Function & Operations:
Production:
– Economies of scale
– Streamline the process (lean)
– Quality control – TQM groups
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Slide 387 Different Strategies
To improve Function & Operations:
Marketing:
– Research to better meet customers’ needs
– Customer service / response through
better distribution
Slide 388 Different Strategies
To improve Function & Operations:
Human Resource Management:
– Forecast changes in staffing requirements
– Motivation
– Training
Slide 389 Different Strategies
To improve Function & Operations:
Other:
– Research & development
– Waste management
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Slide 390 Different Strategies
Business Level / Generic Strategies:
• Cost Leadership
• Differentiation
• Focus (segment, customer group)
• New product development
• Market entry and penetration
• Market development and domination
• Consolidation (preserve place in market)
• Diversification (extend range of products, services)
Slide 391 Different Strategies
Business Level / Generic Strategies:
Corporate strategies:
• Internal development
• Takeovers, mergers & acquisitions
• Collaboration
Slide 392 Different Strategies
Business Level / Generic Strategies:
Global strategies:
• Capitalize on company’s unique strengths
• Reduce costs
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Slide 393 Implementing Strategies
• Organizing itself to carry out the strategy
• Setting up control systems to encourage
and monitor activities
• Implementing changes
Slide 394 Evaluating Strategies
• Setting SMART targets
– Earnings or profits
– Return on capital
– Sales volume
– Costs
• Need comparison information
• Also use qualitative information
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