Business studies revision – Strategic management

Business objectives and strategy:

Objectives: Distinguishing between Tactical and Strategic objectives:

Mission statements: What is their significance?

Stakeholder-main interests

Shareholders Profit growth, Share price growth, dividendsCreditors Interest and principal to be repaid, maintain

credit ratingsDirectors and managers Salary, share options, job satisfaction and statusEmployees Salaries and wages, job security, job satisfaction

and motivationSuppliers Long term contracts, prompt payment and

growth of purchasingCustomers Reliable quality, value for money, product

availability and good customer serviceCommunity Environment, local jobs, local impactGovernment Operate legally, tax, receipts, laws and

regulations taxation and jobs

Impacts of the decision to grow elsewhere (open another firm)

Shareholders Want to see their profit rise however will still be worried about risk in the business (not gaining return through dividends)

Creditors Creditors may be weary. May not want to give the loan to a business because of the risk implications.

Directors and managers Concerned about location, will it be the right

move? However, eager to see the business grow in order to gain larger wages

Employees Concerned about their job. May not want to move outside of their home. Concerned about the security of their job

Suppliers A larger business may result in pressure on suppliers to offer lower prices. Large business-larger influence. However, may be eager to see demand in products increase. Current suppliers may lose their business

Customers May not be the right customers in the area. If the business offers unique products, it makes the move convenient.

Community Concerned about pollution, concerned about smaller business’ but happy with the jobs created

Government Does not want the business to make current employees redundant as it means more benefits need to be paid out. However, will be pleased with more jobs being created.

Understanding the conflicts of risk and reward

Sometimes, taking risks in a business can often be successful. However, if a business plan doesn’t work out, the business risks serious implications. But what could go wrong for the business?

Business will fail and lose investments, possible liability of debts, harder to find work and start again as well as stigma of failure.

Why are start-ups risky?

-High rate of business failure for start ups

-Difficult to test a new business idea without trading

-Easy to be over optimistic in a business plan

-Competitor response is often aggressive

-Easy to underestimate the effort and persistence is required for success

Insufficient customer demand

-Poor market research and unrealistic plan

-Competitor response e.g. price cuts or extra promotions

Good idea but poor execution

-wrong people; poor management

-growth is too quick (overtrading) or too slow

-failure to manage cash flow

External factors

-economic change (e.g credit crunch)

-legal, social and technological change

However, a business can also derive huge benefits from taking a risk. Such as :

There are two types of rewards of enterprise:

Financial: profits, dividends, capital growth

Non-financial: Satisfaction, control, contribution

Planning

Before a business implements a new strategy or aims to improve its market share, it is important that it analyses themselves in the market first. There are a number of ways a business can do this. Such as:

Using a SWOT analysis

What is a SWOT analysis?

A SWOT analysis is broken down into strengths, weaknesses, opportunities and threats. This then can help a business pinpoint where they may be losing profits (through threats,) where they can achieve more market share (through opportunities) and where they are doing well- and thus maintain this

Advantages of a SWOT analysis Disadvantages of using a SWOT analysisLittle or no costs Doesn’t prioritise issuesUnderstand your business better The business may not have the means

(financially) in order to address threats or expand on opportunities

Deter threats Doesn’t provide solutions of offer alternative decisions

Capitalise on opportunities Can generate many ideas but not help the

business choose which one is most effectiveTake advantage and maintain strengths Can produce lots of information- not all may be

usefulDevelop business goals and strategies for achieving them

Not as simplistic as it seems. In order for a SWOT analysis to become truly successful, it requires further research for example into opportunities.

What influences can affect company objectives?

Micro factors

Product = this revolves around the customer base. Products can only be successful if it’s under customer demand.

Price = The company needs to be aware of competitive threat, plus recognising and defining the competition, and taking advantage of new opportunities to form new price patterns and incentives.

Place = It is necessary to form good relationships with suppliers, and keep the distributions methods up to date, including working with intermediaries and logistics and the impact these could have on customers.

Promotion = Research into new customer categories and their changing needs, plus suitable public relations with neighbours, the media and other publics, needs good communication links with all connections and referrals.

People = Understanding the aspirations of all staff, dealing with internal politics, career structures and the availability of skilled employees to use their knowledge and experience.

Processes = Using available resources to overcome restraints, maintaining good communication links with logistics and other distribution values, not to mention the implications of the SWOT analysis.

Physical Evidence = the results of front line relationships, public reactions, friendly neighbourly connections and working with external sources such as the media and the government.

Macro environment

Political = The effects of privatisation, workers’ rights, rising competition, government influence, political parties, pressure groups and legislation.

Environmental = Demographic or population changes, how ethics change demand for goods and services, and reactions due to social behaviour. Geological and ecological issues include a scarcity of raw materials, what to do with waste, climate change and public views from pressure groups.

Social or socio-cultural = Customers’ shared beliefs and attitudes slowly change the company’s culture, exasperated by feedback and customer expectations. This requires good public relations with the media, and citizen action and pressure groups.

Technological = This fast changing world introduces new industries, ICT and other internet communications: websites, social media and virtual shopping, not to mention global competition competing with new breakthroughs and other revelations.

Economical = The economic boom and bust cycle happens every few decades, and affects how customers spend their incomes, changes the management of their demand, and financially affected by interest rates, taxes and government expenditure.

Legal = Legislation is interpreted via the courts in this country, the EU and further abroad. Government and Case Law can make serious, uncontrollable impacts, so individual firms need to find a way to work around this.

Stakeholder objectives:

Assessing the extent to which stakeholder objectives may affect the behaviour and decisions of a business

Owners and Shareholders Some insist on CSR: demand improvements in working conditions, control of emissions, waste, influence decisions over suppliers.Others: influence business to take most profitable option (regardless of the effect on society)

Directors and managers May have their own agenda e.g increased pay,power,status-make business decisions which help achieve these goals rather than the owners.

Employees Demand better working conditions, better quality of life, want to be consulted in decisions.Employees also force business’ to look for ways of attracting and retaining staff, particularly if high competition for staff e.g by offering attractive rewards packages or flexible work.

Customers/consumers Force firms to adopt a more customer orientated approach: lead to ‘customer care’ departments/ may influence a firms pricing strategy and therefore businesses may adopt more affordable prices to suit the needs of customers.

Suppliers Want profit/ timely pay.Government Stable economic growth, low inflation, low

unemployment and a healthy balance of payments.

Community The local community concern themselves with the environmental conditions. May not want more firms opening due to pollution.

Business analysis:

Market analysis:

For this exam, it is important to know and discuss the significance of constant review of the market and environmental circumstances, including international aspects.

Reviewing your progress will be particularly useful if you feel:

-Uncertain about how well the business is performing

-Unsure if you’re getting the most of the business or making the most of market opportunities

-Your business plan may be out of date e.g. you haven’t updated since objectives have been met

-Certain objectives need to be modified due to a unpredictable change in the economy

-The business may be becoming unwieldy or unresponsive to market demands

-Your business is moving into a different direction to the one you have planned

Time series analysis:

-One method of forecasting is using time series analysis.

-Although this technique can be used to forecast any data, it is frequently used to forecast sales.

The technique is sometimes referred to as "moving average"

Time series analysis combines the moving average of past data over a given period of time to project figures for the future.

The Trend and fluctuations

Figures fluctuate over time, especially for seasonal products and services. The trend will smooth out these fluctuations. Establishing whether the trend is upwards or downwards will allow the

business to respond accordingly

-Cyclical fluctuations: variations related to the business cycle/economic cycle such as the recession that has led to a fall in demand.

-Seasonal: changes in figures during any given year. How much a business is affected is dependent on the nature of the product or service e.g agriculture/tourism

-Random fluctuations: refer to the change in level of sales that are hard to predict. For example the weather.

How to find the moving average:

If you plot the sales figures on to a graph, instead of joining up all the dots you can draw a straight line to represent the line of best fit.

Calculating the cyclical variation

Cyclical variation is the different between the actual sales figures and the moving average.

Note that it is the actual figure that determines whether the answer is positive or negative. If the actual figure is less than the moving average, the cyclical variation is negative.

From the cyclical variation it is possible to go on and calculate the average cyclical variation by taking the cyclical variations for all three figures in the three-period time and diving by 3.

Advantages of forecasting:

It is useful for identifying seasonal variations which can help plan at different times of the year.

It can be reasonably accurate in the short term if the firm is in a stable economic environment.

The line of best fit can be drawn quite correctly in varying positions.

Limitations of forecasting:

Forecasting is only as reliable as the data

Past data will not necessarily reflect future figures, and circumstances change

This technique cannot distinguish between old and new data (the latest being most reliable

The objectives of the business are not considered hence you will need to think carefully about objectives when using the data.

It is a long winded and complex process, particularly if four period moving averages are used.

Historical data is not always a good indication of what might happen in the future.

It is not really useful for long term forecasting

Determine critical path analysis

Critical Path Analysis (CPA) is a project management tool that:

Sets out all the individual activities that make up a larger project. Shows the order in which activities have to be undertaken. Shows which activities can only taken place once other activities have been completed. Shows which activities can be undertaken simultaneously, thereby reducing the overall time

taken to complete the whole project. Shows when certain resources will be needed – for example, a crane to be hired for a

building site.

Then the CPA is drawn up a based on dependencies such as:

The availability of labour and other resources Lead times for delivery of materials and other services Seasonal factors – such as dry weather required in a building project

Once the CPA is drawn up, it is possible to see the CRITICAL PATH itself – this is a route through the CPA, which has no spare time (called ‘FLOAT’ or ‘slack’) in any of the activities. In other words, if there is any delay to any of the activities on the critical path, the whole project will be delayed unless the firm makes other changes to bring the project back on track.

The total time along this critical path is also the minimum time in which the whole project can be completed.

Some branches on the CPA may have FLOAT, which means that there is some spare time available for these activities.

T h e k e y r u l e s o f a C P A

Nodes are numbered to identify each one and show the Earliest Start Time (EST) of the activities that immediately follow the node, and the Latest Finish Time (LFT) of the immediately preceding activities

The CPA must begin and end on one ‘node’ – see below There must be no crossing activities in the CPA East activity is labelled with its name eg ‘print brochure’, or it may be given a label, such as

‘D’, below. The activities on the critical path are usually marked with a ‘//’

In the example below

The Node is number 3 The EST for the following activities is 14 days The LFT for the preceding activities is 16 days There is 2 days’ float in this case (difference between EST and LFT) The activity that follows the node is labelled ‘D’ and will take 6 days

A simple example – baking a loaf of bread

Here is a simple example, in which some activities depend on others having been undertaken in order, whereas others can be done independently.

Activity Preceded by Elapsed time (minutes)A weigh ingredients - 1B mix ingredients A 3C dough rising time B 60D prepare tins - 1E pre-heat oven - 10F knock back dough and place in tins C&D 2G 2 nd dough rising time F 15H cooking time E & G 40

What is the significance of data analysis?

Data analysis can offer the following benefits:

-Structuring the findings from a survey reearch or other means of a data: form a plan after statistics are found

-Break a macro picture into a micro one

-Acquiring meaningful insights from the data

-Basing critical decisions from the findings

-Ruling human bias through proper statistical treatment

Ansoff’s matrix

Advantages of the Ansoff Matrix:

- Increasing the brand loyalty, this will encourage customers to buy their brand instead of some other. Well known brands use this strategy, such as; Kellogg's corn flakes.- Encourages customers to buy the product more regularly.- The brand may bring out different size quantities of the product, which will encourage customers to buy more of the product.

Disadvantages of the Ansoff Matrix:K

-is highly simplistic and does not factor in the external environment,

ICT (Technology) in decision making

Advantages Disadvantages-Using IT to make decisions can often be more accurate. It means that decisions are based on more reliable information. The use of IT takes

out the factor of human error.

The use of IT means that individual variances aren’t considered.

ICT can often mean decision making is faster. By the use of easily sending and producing data, ICT

can certainly evoke a quicker decision.

Using ICT to predict decisions can be risky. Sometimes technology is not always reliable

The use of ICT may make it easier for employees to get involved in the decision making process.

Emails have made it considerably easier for business’ to send information to staff all at the

same time; reduces the time of having to consult everyone.

The information is not always accurate; the data produced is only as reliable as the data entered.

Measures of a business performance

Productivity

Productivity is output per worker and it measures the efficiency of the workforce.

Most businesses want to increase productivity if possible because it will lower the cost per unit.

Productivity= total output

Number of employees

Absenteeism

-Absenteeism may give an indication of worker morale and job satisfaction.

Absenteeism rate= no of days lost through absence x100

Total possible days worked

The factors that contribute to absenteeism are:

Lack of job satisfaction

Work that is not challenging

Poor management

Stress

Solutions of reducing absenteeism

-Management can actively manage absence by giving return to work interviews after a period of absence to find the causes.

Mangers need to ensure that workers have the training to do the job effectively

Work should not be boring or lack challenge. Job rotation or cell working can help with this

Incentives can be offered to improve attendance

Labour turnover; Labour turnover is another quantifiable measure that gives an indicator of performance. However, it should be viewed in isolation. It is also important to talk account of the fact that some areas such as catering always have higher turnover than elsewhere.

Labour turnover: No. Of people leaving in period x100

Average number of workers in that period

Costs and causes of labour turnover:

-The recruitment process might be fault. It is possible that job advertising is attracting the wrong candidates.

The induction process might be inadequate, leaving workers feeling unsure of the role

-The job itself might lack the necessary y challenge and variety.

-The pay rates may be lower than those paid elsewhere in the reigon,leaving workers feeling a sense of grievance

Skill shortages in a certain area might lead to higher than usual turnovers.

Ratio Ratio typeCurrent ratio and acid test Liquidity ratioReturn on capital employed (ROCE) ProfitabilityReturn on net assets ProfitabilityGross profit margin and net profit margin ProfitabilityAsset turnover Financial efficiency

Stock turnover Financial efficiencyDebtor days Financial efficiencyCreditor days Financial efficiencyDividend per share ShareholderDividend yield ShareholderPrice earnings ratio ShareholderGearing GearingInterest cover Gearing

Current Ratio: This ratio considers the current assets and the current liabilities. Te ratio between the assets and the liabilities gives an indication as to the level of liquidity within the business. In other words, it looks at the level of liabilities in relation to the level of assets to ensure there is sufficient working capital.

Acid test: A business cannot be certain that it will be able to sell all of its stock. The acid test takes this fact into consideration. Selling perishable goods with short shelf life may well mean not all the stock is sold and therefore is converted into cash.

Gross profit margin: This ratio looks at the level of profit as a percentage of the sales or turnover. The gross profit margin considers only the direct costs and not indirect costs. (Overheads) Gross profit is the sales revenue less the cost of sales.

Net profit margin: this measures the net profit. This does take into consideration the direct and indirect costs and is therefore realistic measure o profitability against sales than gross profit margin.

Return on capital employed: This is a more frequently used ratio for performance. The return on capital (ROCE) measures the net profit as a percentage of the capital employed

Asset turnover: this ratio measures how efficiently a business is able to use its assets to generate sales revenue.

Stock turnover: this ratio measures how quickly the stock is turned over-sold

Creditor days: this ratio measures how quickly a business pays its suppliers. It shows how many days a business takes to pay money it owes to suppliers.

Dividend per share: this measures how much of the total dividend each share receives.

Dividend yield: This measures the return on investment

Price earnings ratio: this ratio is concerned with the expectations potential investors have. It is a measure of confidence as to what the shares will earn. This ratio compares the current market price with earnings for that share.

Gearing ratio: This ratio considers the level of risk. Gearing is the percentage of long term finance that is loans rather than shareholders funds and retained profits.

Interest cover: This ratio measures the number of times a business can pay its interest charges with the operating profit it makes.

Formulae

Significance of budgets

Budgets can:

Control income and expenditure (the traditional use) Establish priorities and set targets in numerical terms Provide direction and co-ordination, so that business objectives can be turned into practical

reality Assign responsibilities to budget holders (managers) and allocate resources Communicate targets from management to employees Motivate staff Improve efficiency Monitor performance

Variances

A variance arises when there is a difference between actual and budget figures

Variances can be either:

Positive/favourable (better than expected) or Adverse/unfavourable ( worse than expected)

A favourable variance might mean that:

Costs were lower than expected in the budget, or Revenue/profits were higher than expected

By contrast, an adverse variance might arise because:

Costs were higher than expected

Revenue/profits were lower than expected

External influences- Macro factors

Causes of market failure:

Complete and partial market failure

Complete market failure occurs when the market simply does not supply products at all - we see “missing markets”

Partial market failure occurs when the market does actually function but it produces either the wrong quantity of a product or at the wrong price.

Markets can fail for lots of reasons:

Negative externalities (e.g. the effects of environmental pollution) causing the social cost of production to exceed the private cost

Positive externalities (e.g. the provision of education and health care) causing the social benefit of consumption to exceed the private benefit

Imperfect information or information failure means that merit goods are under-produced while demerit goods are over-produced or over-consumed

The private sector in a free-markets cannot profitably supply to consumers pure public goods and quasi-public goods that are needed to meet people’s needs and wants

Market dominance by monopolies can lead to under-production and higher prices than would exist under conditions of competition, causing consumer welfare to be damaged

Factor immobility causes unemployment and a loss of productive efficiency

Equity (fairness) issues. Markets can generate an ‘unacceptable’ distribution of income and consequent social exclusion which the government may choose to change

Government responses to market failure:

Parliament can pass laws that for example prohibit the sale of cigarettes to children, or ban smoking in the workplace. The laws of competition policy act against examples of price-fixing cartels or other forms of anti-competitive behaviour by firms within markets. Employment laws may offer some

legal protection for workers by setting maximum working hours or by providing a price-floor in the labour market through the setting of a minimum wage.

The economy operates with a huge amount of regulation. The government appointed regulators who can impose price controls in most of the main utilities such as telecommunications, electricity, gas and rail transport.

Regulation may be used to introduce fresh competition into a market – for example breaking up the existing monopoly power of a service provider. A good example of this is the attempt to introduce more competition for British Telecom and also for the postal service industry. This is known as market liberalisation.

Impact of skill shortages

What is a skill shortage?

A skill shortage exists when there are not enough people with a particular skill to meet demand. Skill shortage is a catch-all term used to describe a range of situations in which an employer finds it hard to find a worker with the right skills.

Genuine skill shortages

Genuine skill shortages occur when employers find it hard to fill job vacancies because there are not enough job seekers who have the required skills. For example, if carpenters were needed for construction projects, but there were too few carpenters with these skills currently unemployed and looking for a job, that would be a genuine skill shortage.

Skill shortages caused by recruitment and retention difficulties

This is when there is a good supply of individuals who have the required skills, but they choose not to work because they are unhappy with pay rates and/or working conditions.

Labour shortage

A labour shortage occurs when there are just not enough workers available to do all the work required. This kind of shortage can happen across industries, and affects skilled, low/semi-skilled and unskilled jobs. Low unemployment is a major cause of this type of shortage.

Skills in demand change over time and can be influenced by:

technological changes – for example, a move to automation may mean workers need additional skills to be able to operate new machinery

economic shifts – for example, significant growth in the economy may create a labour shortage the global movement of skilled workers – for example, people with certain skills may choose to

work overseas for better pay and conditions ageing populations – for example, some jobs have a high number of older workers, and when

these workers retire, they leave a skills gap.

What is a surplus?

A situation in which the value of goods that a country exports is more than the value of goods it imports, or the size of this difference:

Impacts of a surplus

Trade deficits and surpluses have an immediate impact on several important economic indicators, including important things like GDP. However, these figures must be considered within the context of a country’s overall size. For example, the U.S. may have a large trade deficit, but since most of its goods and services are produced and consumed domestically, this trade deficit doesn’t have a major impact on its overall GDP.Often times, investors should pay closest attention to the current account as a percentage of GDP, since it shows the current account number relative to overall economic output. Trade balances should also be balanced by an equal dollar amount of foreign direct investment in order to maintain global purchasing power. If the current account deficit rises as a percentage of GDP and FDI doesn’t balance out the different, a country could be headed for trouble.Trade surpluses can be extremely important to watch in countries that rely on exports to drive economic growth, too. For example, oil exporting countries may rely on trade surpluses in order to fund public programs or sovereign wealth funds. Decreases in oil prices could lead to narrower trade surpluses and greater difficulties with public finances. And in some cases, these scenarios could lead to higher political risk in the affected regions.

Unemployment

The main types of unemployment:

-Real wage unemployment: form of dis-equilibrium unemployment that occurs when real wages for jobs are forced above the market clearing level. Traditionally, trade unions are seen as the institutions causing this type of unemployment.

-Demand deficient unemployment: Cyclical unemployment is involuntary unemployment due to lack of demand for goods and services. When there is an economic recession we expect to see a rising level of unemployment due to plant closures and worker lay-offs.

-Frictional unemployment: transitional unemployment due to people etween jobs: for example newly redundant workers or workers entering the labour market may find it hard to find appropriate jobs at wage rates they are prepared to accept

Structural unemployment: occurs when people are made unemployed because of capital labour substitution: or when there is a long run decline in demand in their particular industry. This occurs when there is a mismatch between skills and requirements for new job opportunities

-Hidden employment: whatever the published figures for employment, there are bound to be people who are interested in taking paid work but who for one reason or another are not classified as unemployed. An example of this is discouraged workers: people who have effectively given up active search for jobs perhaps because they have been out of work for a long time and lost the motivation.

Impacts of inflation

International impact of inflation:

Effect on UK competitiveness - if the UK has higher inflation than the rest of the world it will lose price competitiveness in international markets. This assumes a given exchange rate. If the exchange rate depreciates, this may help to restore some of the lost competitiveness.

Introduction to the business cycle and its implications on a local, national and international scale

The business cycle is characterised by four main phases:

Boom: high levels of consumer spending, business confidence, profits and investment. Prices and costs also tend to rise faster. Unemployment tends to be low as growth in the economy creates new jobs

Recession: falling levels of consumer spending and confidence mean lower profits for businesses – which start to cut back on investment. Spare capacity increases + rising unemployment as businesses cut back and reduce stocks

Slump / depression: a prolonged period of declining GDP - very weak consumer spending and business investment; many business failures; rapidly rising unemployment; prices may start falling (deflation)

Recovery: things start to get better; consumers begin to increase spending; businesses feel a little more confident and start to invest again and build stocks; but it takes time for unemployment to stop growing

Trend growth refers to the smooth path of long run national output - an estimate of how fast the economy can be expected to grow without creating an unsustainable increase in inflation. There is a long list of upsides for businesses operating in economies that are growing, including:

Increased profits A rise in average living standards The creation of new jobs Lower unemployment Increased tax revenues for government - used to fund more spending on government

services Improved business confidence Increased capital investment Greater technological innovation

There are, however, some drawbacks for an economy that is growing rapidly:

The risk of demand pull inflation if actual growth exceeds potential growth Increased inequality if the benefits of growth are not evenly distributed Increased demand for imports and a trade deficit

Legal issues in business

Some main acts that protect stakeholders of a business.

Consumer Protection:

1. The Trade Descriptions Act, 1968: This makes it illegal for a business to provide false or misleading descriptions of their products, services, accommodation and facilities.

2. The Sale of Goods Act, 1979: This states that goods must be of merchantable quality, as described in their advertisements and fit for their purpose.

3. The Consumer Protection Act, 1987: This states that it is an offence for a business to give a false or misleading price indication on its product(s) AND businesses are liable for any damage and injury that their defective products cause to consumers.

Employee Protection

1. The Employment Relations Bill, 1999: Stating that employees who have been in employment with the same business for a period of one year have the right not to be unfairly dismissed.

2. The Employment Rights Act, 1996: Covering unfair dismissal, redundancy and maternity.3. The National Minimum Wage Act, 1999: Making it illegal for employers to pay less than £3.60

per hour to its full-time staff who are aged over 21.4. The Equal Pay Act, 1970: stating that pay and working conditions must be equal for employees

of the opposite sex who are performing the same work.

Competition Legislation

In the UK, the government body that is responsible for ensuring that anti-competitive business practices are abolished and consumers are protected is the Office of Fair Trading (O.F.T). This ensures that businesses meet the requirements of the Fair Trading Act 1973.

The O.F.T. has the power to recommend any business to the Monopolies and Mergers Commission (M.M.C) for further investigation, if it feels that they are acting against the public interest (e.g. charging very high prices, or restricting consumer choice).

So how do all the legislations actually impact a business?

Employing- When employing, businesses will have to make sure that they are not being discriminatory. This means ensuring that the position is open to male and female, as well as all age groups and races. Businesses will also need to ensure that they are not being discriminatory to candidates with disabilities which may not be possible for the post sometimes.

Marketing- Legislation will need to be considered when a business is advertising. Businesses need to make sure that they promote their product accurate and precisely, due to the Trade descriptions act which makes it illegal for a business to conduct false advertising. In addition, a business will need to make sure advertising their specific product is actually legal; under the Smoking advertisement ban, it is illegal for businesses to advertise smoking and cigarettes on the TV. In addition, businesses may

also have to consider the legal watershed time to make sure that their advertisement is appropriate for the audience watching at the time.

To what extent does political change create opportunities/threats for a business?

Political changes relate to changes in government influence and can have huge significance for companies. Changes in the priorities for public spending or the UK 's relationships with other countries can open or close major markets. European Union (EU) regulations can have similar effects while the accession of new members (eg Poland) can bring business opportunities. Political changes are closely tied up with legal changes. Laws are continually being updated in a wide range of areas, e.g. consumer protection legislation, environmental legislation, health & safety and employment –law.New European Union regulations have led to greater levels of competition on European routes. But increasing concerns are being raised about the environmental impact of aviation.

Nationalisation

When the government takes a public business (bank) and invests in it to bring it back to its feet and then sell it back to private investors. An example of this is the Royal Bank of Scotland.

Privatisation

When a public business becomes public for example a public organisation owned by the government is sold off to private individuals: an example of this is Royal Mail.

The state as a consumer?:

-Purchasing: the state may want to purchase particular goods (export) from countries that are better at producing them.

Government and EU influences on business activity

Our national governments as well as the European Union play a big part in influencing business activity today:

through taxation and spending through laws, directives and regulations through encouraging business activity through subsidies and support by providing advice and support for business.

Here are some examples of the way in which government influences business activity today:1. Employment policy: Governments play a major part in trying to stimulate employment. For example, the present government is keen to encourage business efficiency so that UK businesses are competitive in international markets and therefore create jobs. For those who have difficulty finding work, the government has created what is termed 'The New Deal', offering people the opportunity of developing training and experience on government funded and sponsored employment programmes.

2. Regional policy: At European Union level, funds are made available to support regions of high unemployment and social deprivation such as large areas of Southern Italy and rural France, as well as the Highlands and Islands of Scotland. Regional policy sets out to compensate for the fact that with the development of the more prosperous parts of the European Union, jobs have been lost in other areas.3. Inflation policy: The government seeks to make sure that there are no sudden general rises in prices. They do this through the Monetary Policy Committee (MPC) of the Bank of England which sets interest rates. Interest rates are put up if there is a danger of people borrowing and spending too much, thus pushing prices up. Raising interest rates makes it more expensive for businesses to borrow money. It also makes it more expensive for consumers to borrow money. They then have less to spend, which helps to force down prices.

An example of the European Union law imposing on individual state sovereignty is by the EU making it compulsory for coach passengers to wear seatbelts; this proved costly for bus companies because it forced them to fit belts- however it makes passengers a lot safer. EU regulations are directly binding on all member states without needing national legislation to uphold them.

Factors which influence the exchange rateExchange rates are determined by supply and demand. For example if there was a greater demand for British goods then there would tend to be appreciation (increase in value) of the pound. If markets were worried about the future of the UK economy, they would tend to sell pounds leading to a fall in the value of the sterling.

Appreciation=increase in value of exchange rateDepreciation/devaluation=decrease in value of exchange rate.

Main factors that influence exchange rate:1.)Inflation If inflation in the UK is relatively lower elsewhere

then UK exports will become more competitive and there will be an increase in demand for pound sterling to buy UK goods. Foreign goods will be less competitive and so the UK public end up buying less imports.

- Lower inflation: if British goods become more competitive, there will be greater demand causing the value to increase. Therefore countries with lower inflation rates tend to see appreciation in the value of currency.

2.)Interest Rates If UK interest rates rise relative to elsewhere, it will become more attractive to deposit money in the UK. You will get a better rate of return from saving in UK banks; therefore demand for

sterling will rise. This is known as “hot money flows” and is an important short run factor of determining value of a currency.

3.)Speculation If speculators believe the sterling will rise in the future, they will demand more now to be able to make a profit. This increase in demand will cause the value to rise.

4.) Change in competitiveness If British goods become more attractive and competitive this will cause the value of exchange rate to rise.

5.)Balance of payments A deficit on the current account means that the value of imports (of goods and services) is greater than the value of exports. If this is financed by a surplus on the financial/capital account then this is ok.

6.)Government debt Under some circumstances the value of government debt can influence exchange rate. If markets fear a government may default on its debt, then investors will sell their bonds causing a fall in the value of the exchange rate.

7.)Economic growth/recession A recession may cause depreciation in the exchange rate because during a recession interest rates usually fall.

Reasons why the value of the sterling fallen?-Restoring UK’s lost competiveness. UK had large current account deficit in 2007-Bank of England cut interest rates to 0.5 in 2008-Recession hit UK economy hard. Markets expected interest rates in UK to stay low for considerable time.-Bank of England pursued quantitive easing.

The Business Cycle-Shows long run fluctuations in GDP over time-Four phases of the business cycle:Expansion: GDP rises more rapidly than the long run trendPeaks: GDP begins to decline (bust)Contradictions: RecessionTroughts: End of a recession (when growth resumes)The goal of macroeconomic policy is to create a business cycle that is more stable and has less dramatic fluctuations.

Social

Social factors

Businesses not only have to comply by government legislation politically, but also have a role to play in social responsibility. One way businesses can do this is by using improving their CSR- corporate

social responsibility.

So what are some of the advantages and disadvantages of using CSR?

Advantages DisadvantagesIt is the right thing to do. Some of the society’s problems have been created by corporations such as pollution and poverty level wages. It is the ethical responsibility of a business to correct these wrongs.

Sceptics often claim that businesses should focus on profits and leave social and environmental issues to the government or non-profit organizations to deal with. Milton Friedman claimed that free markets rather than companies should decide what is best for the world.

In addition, businesses have the resources needed for solving some of the society’s problems

Companies are meant to create products or provide services rather than handle welfare activities .They do not have the expertise and knowledge necessary for handling social problems.

Companies need to be socially responsible or else governments can create regulations and fines against corporations. (this has been the case of the pollution issue)

If managers are concentrating on social responsibilities they are not performing their primary duties for the company at full capacity

CSR can be profitable. It is possible for companies to prosper in building shareholder value by working to solve problems. Customers do not want to purchase from an unethical business, this has been the case with the boost in fair trade sales.

Finally, being socially responsible could be damaging a company in the global marketplace. Cleaning up the environment, ensuring product safety, and donating money or time for welfare issues raise company costs. In the end, this cost will be passed on to the consumer through the final prices of the product or service. While some customers may be willing to pay more for a product from a company that is socially responsible others customers might not be. This can place a company at an economic disadvantage.

Technology in a business

A business can be affected by the following technological change:

Time

GDP

In production In provision of services In the office

Technological change in production

Technological change leads to improved production of goods and services due to:

Computer-aided manufacturing ( CAM) this reduces labour costs, is more accurate and faster and can work at any hour of the day. The computer controls the machinery.

Computer-integrated manufacturing (CIM) here, computers control the whole production line. Best example is in car production where robots undertake much of the work, reducing the need for labour to perform boring, routine tasks.

Computer-aided design (CAD) Computers are used to help design products using computer generated models and 3D drawings. Reduces the need to build physical models to test certain conditions, known as prototypes. This can be expensive to produce just for testing purposes (e.g. aircraft or new cars.

Therefore new production technology can increase the speed of production, improve the quality of the product and reduce costs per unit of production.

E-commerce is the ability of businesses to trade with the world via websites. This means that there is a larger market and the business is now open 24 hours a day.

The Internet can also be useful for recruitment purposes. Job vacancies can be advertised and targeted to the right audience, often costing less than print alternatives. E.g. e-teach sends free emails every week detailing teachers posts to subscribers.

Technological change can be very expensive: technology involves the following additional costs:

Purchasing the equipment Installation Training staff Maintenance

In summary technological change can bring the following benefits to a business:

Reduced running costs Improved productivity Improved competitiveness Lower costs per unit of product Improved quality of service (e.g. speed of service) Reduced wastage

If the benefits of the above outweigh the costs, then a business should be investing in new technology.

However it may need to consider the social costs of new technology:

Job losses Motivation of workers – worried about machines taking over their jobs (though extra

training to work with machines may provide some increased motivation) Loss of traditional skills Expenses

The key environmental issues which potentially constrain the ability of a business to achieve its objectives include:

Key Environmental Concerns

Sustainability

A “green” supply chain

Minimising packaging

Promoting environmental policies

Complying with environmental laws

Carbon emissions

Waste disposal

Business & environmental regulation

Business activities are regulated by three main agencies in the UK:

Environment Agency in England and Wales Northern Ireland Environment Agency Scottish Environment Protection Agency

And also by Local authorities who regulate

Air quality & pollution Noise, odor and light pollution Land contamination Environmental health

How can businesses improve their environmental behaviour?

Using packaging that can be reused or recycled Minimising or eliminating the use of hazardous chemicals and processes that produce

harmful by-products Working with suppliers to assess and improve their sustainability, or switching to more

sustainable suppliers Using more energy-efficient equipment, or using renewable sources of energy Collaborating with other businesses that can use waste (or supply by-products that can be

used as raw materials)

Change

What causes change in a business?

Competition The entrance of a new competitor would cause a business to change its marketing stratergy and its objectives in order to deal with competition.

Technology Innovations in technology can force a business to change to keep up for example employees who aren’t used to computers may need to be trained. It can also mean that employees are out of a job due to having technology replace them.

Desire to grow (change in objectives)

If a business decides on expanding, it will need to alter the way it operates for example implement a scheme that introduces larger stores, more productivity and would need more staff.

Government regulations Changes in government regulation as newly mandated safety procedures can force a factor to change its production process to create a safer environment. E.g the 2009 food and drug administration food code included provisions such as banning the option to serve rare hamburger on children’s menu.

Impact of trade unions on organisations

People management - Trade unions

Trade unions are organisations of workers that seek through collective bargaining with employers to:

Protect and improve the real incomes of their members Provide or improve job security Protect workers against unfair dismissal and other issues relating to

employment legislation Lobby for better working conditions Offer a range of other work-related services including support for people

claiming compensation for injuries sustained in a job

Individual trade unions have historically been associated with specific industries, trades and professions. Examples of trade unions which are still active include:

Association of Flight Attendants (AFA)

Association of Teachers and Lecturers (ATL)

Bakers, Food and Allied Workers Union (BFAWU)

Communication Workers Union (CWU)

Fire Brigades Union (FBU) National Union of Journalists (NUJ)

Prison Officers Association (POA) Professional Footballers Association (PFA)

Transport and General Workers' Union (T&G)

The two main functions of a trade union are to represent their members and to negotiate with employers. The basic concept behind a trade union is that of increased bargaining and negotiation power which comes from acting together.

Advantages of unionisation from the employers’ point of view:

Negotiating with trade unions (ideally a single union) saves time and cost rather than dealing with all employees individually

Unions are part of the communication process between the business and employees

Employee morale and motivation may be improved if they know that their interests are being protected by a union

The trade union can be a supportive partner in helping a business undergo significant change

In the UK there has been a long term decline in union membership. In 2008, only 28% of people in a job in the UK were members of a trade union. That percentage is much lower in the private sector where less than one in six employees is in a union. Unionisation is much higher in the public sector – at over 50%.

The main reasons for the decline in union membership are:

Decline in employment in manufacturing (where union membership is traditionally strong) and an increase in employment in the service sector (e.g. retail) where unions are less well established

Growth in the number of small firms which tend not to recognise (or need) trade unions

Significant growth in flexible working (part-time, temporary, seasonal) – where employees see less need for union protection

Improved employee involvement in the workplace – so less perceived need for collective bargaining

Partly as a result of their declining membership, unions now have significantly less power and influence to determine pay and conditions than twenty years ago although in some industries (including postal workers, railway worker, fire fighters and prison officers) unions are still prepared to exert their “industrial muscle”.

Solving conflict at a workplace

Arbitration. This is the process of resolving an industrial dispute by using an independent person to decide the appropriate outcome. The arbitrator will look at the arguments put forward by both parties, and then he will arrive at a decision. The decision can be legally binding on both parties if this was agreed prior to the arbitrator's decision.

Advisory Conciliation and Arbitration Service (ACAS).

This was set up by the government in 1975 as an independent body that helps to settle industrial disputes and claims of unfair dismissal by employees. As the name suggests, there are three main services that are offered by ACAS - advice, conciliation and arbitration.

Collective bargaining.

This is when a trade union negotiates with the management of a business on behalf of a large number of employees. The negotiations cover aspects of

employment such as pay, working conditions and working practices.Conciliation. This is one of the services offered by ACAS in an attempt to get the two sides

in an industrial dispute to resolve their differences. A conciliator listens to the arguments of both sides, and then tries to encourage the trade union and the employer to negotiate and compromise so that they can reach a solution that is acceptable to both parties.

Trade union. This is an organisation consisting of a large number of workers who combine together to protect their interests in the workplace. The workers each pay an annual membership fee to join the trade union, and in return the union will negotiate on their behalf on such issues as pay, working conditions and new working practices.

Changing location

A common question in the exam is to debate a move of location. It is important you know the for and against arguments for this:

Advantages:

Access Labour: Access a more specialised labour pool. Sometimes, if you want to remain at the forefront of innovation and be able to compete with the best businesses in your industry you have to go to the best employees, as they will not come to you.

Better Serve Customers: Currently your customers may be receiving a better product or service from your competition, do not allow this; and factors relating to your location may be contributing to your competition gaining an advantage over you.

Increase visibility: Create more footfall around your business especially for your target audience. If your business in an industry that relies on footfall such as in a high street then your location is vital for business success.

Reach/tap into new market: You may be part of a constantly changing industry, to continue as a leader within this industry you must change and adapt too, and this may extend to your location.

Upgrade facilities: Relocate to a more modern facility with better future prospects for expansion. Your current facility might have become outdated and does not lend to a competitive edge.

Lower costs: Utility costs and other expenses. Your current location might constrain you in terms of bills and other costs.

Increase cash flow: Increase customer base resulting in increased revenue. More customers equals more cash!

Quality of life: Access to entertainment, support services other leisure activities. You must consider your work like balance and your time away from the office.

Disadvantages:

Risk losing labour: While you may gain new employees, you risk losing some long standing, cherished employees who know all about your business, your culture and how you like to get things done.

Lose customer base: You may also have long standing customers that may lose out when you move away, this could damage loyalty and customer satisfaction.

Costs: Costs related to moving are undoubtedly high, higher than you anticipate. Difficulty in balancing costs with proximity to your target market. The closer to your

customers, the more expensive property is bound to be. Risk: If you do not conduct effective market research then your new location could have

downfalls as well as perks. There are no guarantees.

Time & Effort: Relocating your business is not something to be rushed. It can cause high levels of stress, and if your business is suffering it could be the move that breaks the camel’s back.

New environment & regulations: Your new location might present itself with a whole new set of regulations that affect your business, these must be factored in to operations and planning.

Disruption: Consider the transition, what will happen in the meantime whilst the move is going on?