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Higher business management

‘DO YOU KNOW’ QUESTIONS

Answers1 Understanding business1.1 Role of business in society (p. 6)1 The role of business in society is to provide goods and services to consumers, and to provide

jobs so that consumers can pay for those goods and services.

By their action, businesses improve the standard of living of the country.

By specialisation, work will be done more efficiently using less resources.

2 The four sectors of industry are:

The primary sector, which extracts natural resources from the sea, land and air, for example oil extraction.

The secondary sector, which involves manufacturing and construction (man-made resources), for example a car manufacturer.

The tertiary sector, which involves the service industries, for example banking.

The quaternary sector, which involves education, training, and IT, for example universities.

3 The sectors of the economy are:

The private sector — privately owned, profit-making businesses.

The public sector — government-owned organisations.

The third sector — made up of charities, clubs, associations.

1.2 Types of organisation (p. 9)1 A public limited company (plc) is:

owned by shareholders

run by a board of directors

financed by shares that can be traded on the stock market

2 Franchises can be used to expand a business quickly and cheaply. The franchisee takes the most risk, but the franchisor still has a high level of control over how the business is run. Mistakes by the franchisee can affect the whole brand.

Hodder & Stoughton © Peter Hagan 2019 1

Higher business management 1 Understanding business

3 The benefits of trading internationally include:

The business has a much larger market for its products.

It can benefit from economies of scale due to its size.

Increased sales will mean higher profits.

Shareholders will be attracted to invest due to the business’s international success.

The business can gain a worldwide reputation.

It can take advantage of local laws or lower taxes in other countries, which reduces costs.

It can take advantage of lower wage rates in other countries.

4 A public sector organisation and a plc compared:

A public sector organisation is owned by the government whereas a plc is owned by shareholders.

A public sector organisation is controlled by managers appointed under a government minister, whereas a plc is controlled by a board of directors elected by shareholders.

A public sector organisation is financed by taxation whereas a plc is funded through the sale of shares.

1.3 Objectives (p. 12)1 A corporate social responsibility policy provides a positive public image and enhances

customer trust in the operations of the business. Public limited companies are required by law to have and report on their corporate social responsibility.

2 Profit maximisation should not be the only objective because:

high prices can attract negative publicity

low costs can mean poor quality

high profits attract competition

high profits can lead to high pay claims

3 Satisficing means keeping stakeholders happy with the operation of the organisation. Stakeholders have an influence over the business’s success and if their interests are not met then that influence may be of a negative nature.

4 A mission statement can:

be motivating for employees

reassure customers and shareholders

improve the reputation of the business

help to attract high-quality applicants for jobs

5 A local council and a private sector business compared:



A local council would have an objective of keeping within budget whereas a private sector business would seek to make profits.

Both would want to keep their customers satisfied.

Both would want to maintain a good reputation.

A private sector business may want to grow whereas a local council would want to provide the best possible service with the resources it has.

1.4 Methods of growth (p. 14)1 Methods of organic/internal growth include:

opening new outlets or shops

increasing sales through improved popularity or new promotion methods

increasing profits through new manufacturing techniques

entering new markets such as expanding abroad

introducing new products to the range on sale

2 Horizontal growth is where one business merges with or takes over another at the same stage of production, whereas vertical growth can be forward, where one business merges or takes over a major customer, or backward, where one business merges or takes over a supplier.

3 Diversification allows the business to increase its sales and profits. It also spreads the risk of failure in its traditional market.

1.5 External factors (p. 18)1 The impact of government on a business includes:

Government legislation — health and safety, employment law, competition law, etc. will all have an impact on a business, meaning it may have to change the way it behaves.

Government policy — recycling, planning permission, immigration, etc. can have a cost effect on the business.

Government spending — grants and allowances, investment, environmental spending, tax relief, etc. are used to encourage positive behaviour from business.

2 During a recession, demand for goods and services decreases as consumers have less money to spend.

3 Consumers will be looking for:

more environmentally friendly cars, for example electric or hybrid cars

new safety features, for example advanced breaking systems, air bags

technological advances, for example automatic parking sensors

4 The impact of new communication technologies changes the way a business operates. For example:



staff can work off site, leading to lower office costs for the business

the internet/social media can be used to access new customers worldwide

large amounts of customer information can be compiled and stored

antivirus software will be needed to protect the information held

the business will have to comply with data protection legislation

5 An organisation’s environmental impact is important because, for example:

customers may opt to buy from competitors if they think the business is not environmentally friendly

the government may pass legislation which requires it to think carefully about packaging and recycling

6 The actions of competitors can impact in the following ways:

Price — a reduction in a competitor’s pricing policy will put the business at a disadvantage.

Product — new products introduced by a competitor will need to be matched to avoid losing customers.

Promotion — increased advertising by a competitor can take customers away from the business.

Place — if a competitor offers its goods online, the business will have to do the same to keep up.

1.6 Internal factors (p. 20)1 A business could introduce staff uniforms, provide set procedures to be used throughout the

organisation, have team building days.

2 Using corporate culture has the following advantages:

it makes employees feel part of the organisation

it is motivational for staff

it improves employee relationships

it increases employee loyalty

it gives customers a sense of quality/efficiency

it may attract new workers

it improves the business’s image



But using corporate culture also has some disadvantages:

it may stifle creative thinking

some essential staff might find it difficult to fit in

time and effort are required to maintain the culture and for new staff to adapt to the culture

change may be more difficult to implement

3 A business will need the right number of employees with the right level of skills to help it achieve its goals. If the current employees are not capable of taking on new tasks, and if the managers are not capable of picking the right options for change, then the business will be restricted in what it can achieve without bringing in new employees.

For example, the business will have to consider the following questions:

Are there are enough employees available with the right skills?

Do the managers have the appropriate skills or initiative to be able to cope with complex decisions, handle risks and make the best decisions?

Do the employees have the necessary skills to implement change? Or is additional training required?

What is the employees’ level of motivation?

4 How much money a business has available to spend will affect the decisions it makes. The business may not be able to raise finance externally, e.g. in the form of loans. It may not be able to expand or buy new resources because it does not have the money to do so. This will limit the potential success of the business.

1.7 Stakeholders (p. 22)1 Stakeholders could include for example, shareholders, employees and the local community:

Shareholders will want the business to be profitable, so that they get a high dividend and the value of their shares increase.

Employees will want a successful business, so they know that their job will be safe, with the potential for a pay rise.

The local community will want the business to be successful so that it will provide jobs for the community. They will also want it to be environmentally friendly.

2 The stakeholders’ interests could conflict in the following ways:

Employees may want a pay rise, but the shareholders may want a higher dividend instead.

Shareholders may want reduced wage costs, so the business is more profitable, but the local community wants employees to keep their jobs.

Employees may want to drive to work, but the local community wants to reduce traffic congestion.



3 The stakeholders’ interests can be met when they rely on each other for mutual gain. For example:

The business needs good, motivated workers to be profitable, so shareholders depend on the workers for their dividends.

Employees only have a job because the shareholders invested in the business.

The local community will only have employment because of the shareholders’ investment.

1.8 Structures (p. 31)1 The use of customer grouping has the following advantages:

Because the customer’s needs are identified as a priority, customer loyalty can be built up by developing close, personal relationships with individual customers.

It allows for services to be tailored to each group of customers or a specific customer, better meeting their needs, and customers feel they receive a personal service even when dealing with a large firm.

The organisation can respond much faster to customer needs due to the close relationship.

However, there are disadvantages:

Administration of such a grouping can be time-consuming as individual customer needs take time and effort to meet, and this could mean less efficient use of staff.

Staffing costs with this type of grouping can be high.

The feeling of a personal service can be lost as members of staff change positions or jobs.

There will be duplication of personnel and resources.

Competition between groups can exist leading to wasted time and resources.

2 The benefits to a business of place/territory/geographical grouping include:

Local offices with local knowledge can better cater for local clients’ needs, so are more responsive to changes in customer needs.

Local offices can overcome problems caused by different countries having language and cultural differences.

Because the local office is responsible for that area, it can be held accountable for success/failure in that area.

Customer loyalty can be built up through a local personal service.



3 The benefits to a business of technology grouping include:

The degree of specialisation in the production process can be increased, making workers more efficient.

It is suitable for large organisations with different production processes.

Problems with the technology can be easily identified and fixed.

It can reduce wastage and costs, making the business more efficient and profitable.

1.9 Decision making (p. 34)1 Strategic decisions are made by senior managers whereas tactical decisions are made by

middle managers. Strategic decisions are high risk whereas tactical decisions are medium risk. Strategic decisions are long term whereas tactical decisions are medium term.

2 Managers take the following steps:

Identify objectives — know what it is the business wants to achieve.

Gather information — the better the quality of information gathered, the more likely the decision is to succeed.

Analyse information — have staff with the ability to analyse the information gathered.

Take account of internal and external factors when making the decision — use a SWOT analysis.

Devise appropriate solutions — have several different courses of action to choose from that will achieve the objectives.

Inform/consult staff — make sure staff are aware of the changes and why they are happening.

Implement the decision — put the decision into action.

3 According to Henry Fayol, the five key functions of a manager involve:

Planning — looking ahead, seeing potential opportunities or problems and devising solutions, setting targets, aims and strategies.

Organising — arranging the resources of the organisation to be there when needed and acquiring additional resources if required.

Commanding — issuing instructions, motivating staff and displaying leadership.

Coordinating — making sure everyone is working towards the same goals, that all the work being done fits together and people are not duplicating work or working against each other.

Controlling— looking at what is being done, checking it against what was expected and making any necessary adjustments. This is the monitoring and evaluating role of management.



2 Management of marketing2.1 Customers (p. 36)1 Market-led products are more likely to be successful because:

the focus is on the needs of the consumer

market research is carried out and consumer feedback is responded to before production starts

market-led products face strong competition

a market-led approach is more able to meet and respond to consumer changes in fashion or tastes

2 Product-led products tend to be highly technical or specialist products and therefore often face little competition in comparison to market-led products. The focus on research and development leads to successful technical products.

3 Demographics is the study of the structure of the population in terms of age, gender, household income, buying patterns and lifestyle. Research shows that similar population groups also have similar buying preferences. Therefore market-led businesses can use studies of demographics to tailor their products to each group’s needs.

2.2 Market research (p. 38)1 Organisations can use market research to:

get opinions which they can use to make alterations to existing products

get feedback to ensure new products meet customers’ needs

find out if the price of the product is at the right level

gain a better understanding of the size and profile of their market. e.g. by using internet research

ensure advertising is targeted at the correct market segment and is cost-effective

find new markets

2 Methods of field research include:

Personal, one-to-one interviews — give direct feedback, allow for discussion/clarification.

Postal surveys — cheap and quick to do, can reach large numbers of people, but the response rate is low.

Telephone surveys — can annoy people but gives instant feedback and allows for discussion.

Hall tests — consumers are brought together to give feedback on a product. A lot of information is gathered quickly but they are costly to organise.



Consumer audit — consumers record their experiences of using the product. They are expensive and time consuming to set up and many respondents just give up.

Test marketing — allows for direct feedback, expensive if the product fails.

3 Field research is where a business collects the information itself (primary information). It is expensive and time consuming to collect information this way, but the data should be up to date and more accurate than desk research.

Desk research is where the business uses someone else’s information for its own purpose (secondary information). It is a cheaper and quicker method of collecting data than field research, but the data may not be accurate.

4 With random sampling, a random list of individuals to survey is produced, for example from a telephone directory or the electoral register. It removes the chance of bias being introduced when selecting participants but is an expensive method to administer and run.

With quota sampling, participants are selected in proportion to the whole population by social status, gender, age, etc. Once the quota for a certain criterion has been reached, no more are surveyed. It is cheaper than random sampling but the results can be less representative.

2.3 The marketing mix (p. 39)1 The price may have to be changed to reflect the improvement, and a new promotional effort

should be made to advise consumers of the improvement. The improvement may appeal to a new market segment so the place may have to be extended to reach these new consumers, which may in turn require new processes to be developed to meet the new consumers’ needs.

2 A whole new process would need to be created to cater for the website, including secure shopping, warehousing and distribution, and a new customer service centre. This would affect the people element as it would require staff to be trained in the new processes. The price would have to be competitive which may mean reducing the selling price of goods online. The product may also need to be adapted to meet the needs of the new target market, and promotion would need to be changed to include the new target market.



2.4 Product (p. 42)1 The effects on profit and sales at each stage of the product life cycle are as follows:

Research and development — costs are incurred, but there are no sales; losses are made at this stage.

Introduction — heavy promotion costs are incurred, but sales are low; losses continue to be made.

Growth — consumer awareness increases and sales start to rise; eventually profits are made.

Maturity — sales and profits reach their highest point and only a low level of advertising is required; competitors enter the market.

Saturation — sales start to fall as the whole market is saturated with similar products and competition is fierce.

Decline — sales and profits fall; eventually losses are made and the product is withdrawn from the market.

2 Extension strategies include:

Change the price — decreasing the price can attract a new market segment.

Add new features — make the product more appealing.

New advertising — relaunch the product with a new promotional campaign.

Change the packaging — make the product appear fresh and new.

Find new markets — find a new use for the product or a new set of consumers.

Improve the product — bring it up to the standard of the best in the market.

3 The benefits of having a wide product portfolio include:

a greater range of products provides increased profits

the portfolio develops brand awareness

it is easier to launch new products from the brand name

it spreads the risk — the business is not relying on one product for its success

products at the maturity stage (where sales and profits reach their highest point) will pay for the development of new products

a range of products can meet the needs of different consumer groups

2.5 Price (p. 44)1 For penetration pricing the price is set slightly lower than competitors in order to attract

customers whereas for skimming the price is initially set high.

Penetration pricing is used to entice consumers to switch from other brands whereas with skimming a high price can be set because there is little or no competition.



With penetration pricing, once a customer base has been created, the price is slowly increased to the same as competitors, whereas with skimming the price is lowered gradually to attract new market segments.

2 Promotional pricing or low pricing can be used to extend the life of a product. With promotional pricing, a low price is set for a short period of time to boost sales in the short term. However, this sometimes leads to a loss being made on the product.

The price can be set lower than competitors in order to attract customers to the product. This tactic is often used for value-for-money products where consumers are less interested in the image of the product.

2.6 Place (p. 46)1 The choice of distribution channel will depend on:

The product — for example a restaurant sells meals straight to the customer.

The size of the market — in a large, widespread market, a manufacturer such as Cadbury will sell through as many wholesalers and retailers as it can.

The target market — a small local market will be best served by selling directly to the customer.

The size and age of the business — large, well-established businesses will use a variety of channels.

The costs involved — for example delivery costs; in a mass market, it may be cheaper for a business to use wholesalers or retailers to distribute goods.

The finance available within the organisation — it is usually cheaper to sell directly to the customer.

The image of the product — some retailers may affect the business’s marketing mix.

The reliability of the other companies in the chain — some retailers may not provide a good service.

Legal restrictions that may apply — for example alcohol and pharmaceuticals can only be sold through licensed outlets.

Where the product is in the life cycle — new products may need a lot of exposure through many different channels to promote them.

Durability of the product —products with a short shelf life may be better sold directly.

2 Wholesalers buy in bulk from manufacturers and break the packaging of the product down into smaller quantities to sell on to retailers or sometimes direct to consumers. They display the products and may offer their own promotions. For the manufacturer this saves time and costs on packaging and promotion, and makes deliveries cheaper.

However, manufacturers make less of a profit as wholesalers will need to take their cut. They also lose control of how the product is marketed which may harm their marketing strategy.



3 Direct selling to consumers can be done through:

mail order using catalogues, which reduces the need for a physical shop. However, there is little interaction with the customer.

direct mail via leaflets sent to consumers, which can reach a wide market area but may be treated as junk mail

internet selling which can show the whole product range but is expensive to set up and run

personal selling, for example telesales or door-to-door sales. You can interact directly with the customer and answer any queries immediately, however, you may be seen as a nuisance caller.

specialist magazines which target interested consumers

2.7 Promotion (p. 48)1 Which type of advertising media a business will consider depends on:

The costs and how much money the business has available to spend on advertising. For example, television advertising is more expensive than radio advertising.

The target audience and which type of advertising is the most likely to reach the majority of the business’s customers.

Competitors’ advertising as the business will need to match or keep up with competitive pressures.

The impact required. For example, a business would look for maximum impact for a new product, so a variety of media could be used to inform as many potential customers as possible.

The law, as there are legal restrictions on the advertising of some products such as tobacco and alcohol.

2 Promotions into the pipeline include:

dealer loaders, such as 12 boxes for the price of 10

providing staff training

point-of-sale displays

sale-or-return terms (if the product doesn’t sell just send it back)

competitions

credit facilities (buy now pay later)

bulk-buying discounts

payments/fees for favourable displays or for just for selling the product in their stores



3 Promotions out of the pipeline include:

free samples/trial packs given away with other products

bonus packs, such as 50% free

price reductions to entice consumers to buy

premium offers

direct mail offers sent to people’s homes

in-store demonstrations or tastings

social media promotions, for example, endorsements by YouTube celebrities

2.8 The extended marketing mix (p. 50)1 The behaviour of staff will affect the customer’s perception of the whole business — a

positive image will show the business in a good light. Managers must therefore ensure that staff are courteous and helpful at all times, and that they are fully trained in customer care in order to provide the best service.

2 Happy customers tend to be loyal to the business. A good after-sales service will encourage customers to return to buy again. They will also recommend the business to others.

3 Physical evidence impacts on the marketing of an organisation in the following ways:

Bright and modern premises will improve the image of the business.

Stores that are easy to find your way around will help customers to find what they are looking for quickly, making shopping more pleasurable.

Interesting displays and a good standard of presentation will entice customers to buy.

Easy-to-navigate virtual stores or websites will quickly lead customers to the products they are interested in.

Self-checkout tills will help to prevent long queues from building up.

Ample and convenient parking will encourage customers to shop at the business’s stores rather than go elsewhere.

Customer recycling facilities will show that the business is environmentally friendly.

2.9 Technology (p. 52)1 Any three from:

The full range of an organisation’s products can be shown on a website.

This saves the need for large outlets or costly high-street shops to display them.

It reduces costs because large numbers of shop staff are not required.

Customers can purchase online from their own home.

It allows worldwide sales — access to global economy.

Sales can be made 24/7.



Customers can leave comments on the website.

Businesses can make use of customer details for market research purposes by email to contact customers with promotions.

Text alerts can be used to inform customers of new products and special offers.

Apps can be used to give customers easier access to products and services.

2 Use of the internet has given marketing departments increased access to information about their competitors. For example they can look at all their competitors’ websites. It also gives them the opportunity to find suppliers anywhere in the world.

3 Management of operations3.1 Inventory management (p. 57)1 The purpose of an inventory management system is to track inventory, decide when new

inventory needs to be ordered and minimise any delays associated with the need for inventory.

2 An inventory control diagram shows the economic inventory level, the re-order level, the minimum inventory level, the lead time and the re-order points.

3 The problems are:

Understocking — the business may run out of inventory and then have nothing to sell or it may have to stop production. As a consequence, it may lose customers, its reputation may be damaged, sales and profits may be lost.

Overstocking — there are additional storage costs which ties up money that could be used elsewhere; perishable inventory may become unusable; the risk of theft is increased.

4 JIT inventory control is based on the premise that inventory is only to hand when it is needed and is not stored. This can save money but relies heavily on good logistics and quality stock.

5 The advantages of JIT inventory control are: storage costs are reduced; the organisation is more responsive to customers’ needs; cash flow is improved; the risk of theft is reduced; less storage is required.

The disadvantages of JIT inventory control are: the organisation can lose out on bulk-buying discounts as it only buys inventory as and when required; it relies on suppliers to cooperate; it can result in higher costs as there are many small deliveries; the organisation may be unable to meet demand at short notice.

6 Centralised inventory control is where inventory is all held in one location. Decentralised inventory control is where inventory is held at various locations within the organisation.

7 The advantages of centralised inventory control are the use of standard organisational procedures, better control over storage costs and reduced costs gained from bulk-buying



discounts. The disadvantages are having to maintain a central store to hold inventory, time delays between ordering and receiving inventory, the fact that some areas of the business may be remote from the central store which may cause delays, and the cost of moving inventory from the central store to each department.

Decentralised inventory control has the advantage that better decisions can be made about what inventory to buy and how much to order, so that inventory is always available for production needs. The disadvantage is that it is often a more expensive system to operate.

8 Warehousing is used for the bulk storage of goods. Most businesses use warehouses to store inventories of finished goods so that demand can be met quickly. The conditions in the warehouse should meet the needs of the inventory being stored. Ideally, they should be located on ground level only as the storage and retrieval of inventory from floors above ground level will increase handling times.

9 Logistics is the movement of goods from the business to its customers. Businesses can use their own transport to do this, or use hired or public transport.

10 Road transport is often the best option for cost and convenience as it is relatively cheap but it is not suitable for all products.

Rail transport is convenient for bulky products and is more environmentally friendly than road but can only be used in areas that are covered by the rail network.

Air transport is the fastest for long distances but will often be the most expensive option and it needs to link to road transport for the initial and final stages of delivery.

Sea transport is usually the best option for international trade but is slower than other methods.

3.2 Methods of production (p. 60)1 Capital-intensive production is where machines are used in manufacture rather than workers.

Labour-intensive production is where people do most of the work.

2 With capital-intensive production, automated machines can operate efficiently and quickly, 24 hours a day. This saves on labour costs and reduces waste. However, an automated production line is costly to set up and maintain and each machine may only be able to carry out a narrow range of tasks.

3 With labour-intensive production, skilled workers can produce quality products with a personal touch, suitable for niche markets. However, workers will not be as fast as machines, wage costs will be high, working hours will be limited and the workers will need to be managed.



4 The choice of production method depends on factors such as the cost and how much finance the organisation has available, the product being made, the quality required, the volume required, and the availability of suitably skilled staff.

3.3 Quality (p. 63)1 Providing high-quality goods or services is important because it improves customer

satisfaction which increases the reputation of the business, increases sales and profits and results in fewer complaints.

2 Quality control happens at the end of the production process whereas quality assurance is built into the process.

3 Quality standards and symbols act as a guide to consumers to demonstrate that products have been manufactured to a minimum quality standard.

4 Benchmarking is a process of quality assurance that uses the best performers in a sector to set the standards for others to meet.

5 A quality circle is where a small group of workers and managers meet to discuss improvements that can be made in the production process. It is an opportunity for the workers that do the job to put forward their suggestions.

6 Mystery shoppers investigate how well a business performs in its treatment of customers. They can be used to ensure managers and staff are focused on the key issues of customer care.

7 Continuous improvement means constantly reviewing a business’s processes and procedures to strive for better quality and performance.

3.4 Ethical and environmental issues (p. 66)1 Fair trade is about getting better prices, decent working conditions and fair terms of trade for

farmers and suppliers.

2 The benefits of fair trade include demonstrating an ethical commitment, making a positive impact on the producers and providing high-quality products that are ethically sourced. The costs of fair trade include higher costs of production and the costs of becoming certified and maintaining certification.

3 The costs of environmental responsibility include the financial impact of investing in equipment and staff, and the need to comply with environmental guidance or legislation. The benefits include good publicity and an enhanced image for the business.



4 The costs of ethical operations include the financial impact of investing in improved procedures, a reduction in the number of suppliers and increased costs in the supply chain. The benefits of ethical responsibility include a positive image for the business and the ability to use ethical standards as a marketing tool.

5 The issues facing modern businesses include reducing their carbon footprint, reducing their use of energy, improving animal welfare standards, reducing their use of pollutants and being able to identify all aspects of the supply chain as being ethical.

3.5 Technology (p. 67)1 The benefits of introducing new technologies to the operations department include improved

production methods, more efficient production, reduced waste, consistent quality of product, reduced staff costs, fewer accidents, better decision making with increased access to information, a better reputation for the business.

2 The benefits of introducing new technologies to inventory management include the use of databases which are updated automatically, the ability to link stock information to EPOS systems, the ability to check ready inventory levels and values at any time, the reduced risk of theft.

3 The costs include the initial set-up and purchase costs which can be high, the ongoing maintenance costs, the cost of any new premises or furniture required, staff training costs and subsequent loss of worktime, losses due to hacking or viruses, the development of a dependency culture.

4 Management of people4.1 Workforce planning (p. 70)1 The different elements of workforce planning include the skills analysis of current staff,

staffing forecasts to meet future demand and planning the internal and external supply of staff.

2 The six-step approach to workforce planning is:

1 Define the plan

2 Map the changes

3 Define the required workforce

4 Understand the workforce availability

5 Plan to deliver the required workforce

6 Implement, monitor and refresh



3 Workforce planning links to the strategic business objectives, aligns with the business planning cycle, forces all aspects of the business to work together and plan ahead, helps to identify talent gaps in the workforce before they occur, creates synergies between departments.

4.2 Training and development (p. 75)1 Training helps people to be more effective in their job and to reach their full potential. Any

training should serve to improve the efficiency of employees and make them more productive and more motivated. More motivated staff are more likely to be loyal to the organisation.

2 Methods of training include induction training, on-the-job training, off-the-job training, apprenticeships, graduate training schemes, corporate training schemes, work-based qualifications, continuing professional development (CPD).

3 Induction training introduces employees to the organisation, its policies and procedures.

4 On-the-job training is carried out in the workplace and during work time. Off-the-job training is carried out away from the workplace.

5 An apprenticeship is when someone is employed and does a job but undertakes training at the same time. It is generally an entry level job and is often offered to someone who does not have a higher qualification.

6 A graduate training scheme may involve a period of in-house training over 1 or 2 years, or the graduate may study for a professional qualification while working and being supported by the employer, for example in accountancy or actuarial work.

7 Corporate training involves an employee undergoing a training programme while working for a company which may be delivered in-house or may incorporate some form of external training.

8 Work-based qualifications enable employees to work while they also learn, fitting their study around work and enabling them to gain useful practical experience. Unlike training courses that require employees to be off-site during working hours, work-based qualifications involve either no or limited time away from the workplace.

9 CPD stand for continuing professional development which is a term used to describe the learning activities that professionals engage in to develop and enhance their abilities and remain up-to-date in their chosen field of work.



10 The costs of training are:

the financial costs of providing training

employees may less effective while in training

an organisation with its own training department will incur additional employment costs to deliver the training

well-qualified and trained staff may seek employment elsewhere once they are fully trained

The benefits are:

well-trained staff are more motivated to do a good job and be loyal

it is easier for the organisation to meet its objectives with appropriately trained staff

the organisation may attract better staff to apply for vacancies

the flexibility of the workforce will increase

11 Appraisal is used to establish employees’ training and development needs, discuss and measure their performance in the job and agree on a set of goals for the forthcoming year.

12 One-to-one appraisal takes place on a one-to-one basis between the employee and his/her line manager. Peer-to-peer appraisal is where a colleague in the same or similar role carries out the evaluation. 360-degree appraisal involves self-evaluation and contributions from a number of different people.

4.3 Motivation and leadership (p. 79)1 Abrahram Maslow developed a hierarchy of human needs and theorised that management

methods should be appropriate and reflect the level on which employees currently operate. Frederick Herzberg promoted the theory of job enrichment and developed the motivator-hygiene theory, which is also known as the two-factor theory of job satisfaction.

2 The benefits of motivation include: happier employees, better productivity, reduced absenteeism, reduced staff turnover, a good reputation for the business.

3 A manager is often associated with tangible action while a leader is seen as being more strategic.

4 Autocratic leadership is defined by:

the leader having absolute authority

no consultation with subordinates

upward communication being discouraged

the leader dictating how employees should behave and act

the leader expecting total obedience

the typical view of the leader as controlling and bossy

5 The advantages of laissez-faire leadership are:



a high degree of trust is developed among employees

motivation is increased

the stress on managers is reduced

employees can improve their skills quickly

6 The leadership style used will depend on a variety of factors including the type of organisation, the personality of the leader, the complexity of the task, the time available, the skill levels of the employees, the finance or resources available, the size of the staff groups and the corporate culture. All styles can be justified depending on the circumstances.

4.4 Employee relations (p. 83)1 Employee relations is concerned with how employers deal and interact with their employees,

as individuals or as a group.

2 An organisation’s employee relations policies might cover: terms and conditions of employment, grievance procedures, disciplinary procedures, absenteeism, redundancy, trade union recognition, collective bargaining.

3 Examples include:

Grievance procedures — these allow complaints between employees or between the employee and the organisation to be dealt with fairly.

Disciplinary procedures — these allow situations to be managed where an employee breaks the rules set out by the organisation.

Absenteeism policies — these allow all employees to be treated equally when they are absent from work.

Redundancy policies — these allow payments to be made to affected staff when their job no longer exists.

4 Examples of external institutions include employers’ associations and trade unions. In each case the institution represents the views and interests of its members, usually in a particular industry. This gives them a strong, single voice and more impact than acting alone.

5 Employee relations can be managed by increasing employee participation and improving communication through the use of work councils, worker directors and consultative committees.

4.5 Legislation (p. 86)1 Laws are varied and complex and compliance often requires specialist knowledge within the

organisation. It is the responsibility of the HR department to ensure that the organisation is fully aware and fully compliant with any relevant legislation by ensuring that employees are appropriately informed and trained.



2 Examples include: the Health and Safety at Work Act, the Equality Act, National Minimum Wage and National Living Wage Regulations.

3 Employees have a duty to comply with legislation, for example the Health and Safety at Work Act. Some legislation is there to protect employees, for example to ensure they are not discriminated against or that they are appropriately paid.

4 The Health and Safety at Work Act places duties on both employers and employees. Employers must take all reasonable steps to ensure safety and carry out inspections. Employees must act responsibly and follow instructions of their employer.

5 The Equality Act gives employees the right to complain about behaviour towards them that they feel is discriminatory. Employees also have the right to complain about behaviour that they find offensive even when it is not directed at them.

6 The National Minimum Wage and National Living Wage Regulations set the minimum wage levels that employers must pay their employees. You must be at least school-leaving age to be paid the minimum wage. The rates are tied to age groups.

4.6 Technology (p. 88)1 The use of online (rather than paper) application forms means that organisations can more

easily track and manage applications for vacancies. In some organisations this also ties into a fully electronic recruitment system.

2 Examples of benefits of using different technologies in the people function include:

better monitoring and control of employees

training can be better supported in-house, which can save money

recruitment and selection can be fully controlled by HR

if other areas of the business use technology then employees will be used to such systems



5 Management of finance5.1 Sources of finance (p. 92)1 Any three from: retained profits, sale of assets, share issue, bank loan, commercial mortgage,

debt factoring, debentures, leasing, hire purchase, grants, venture capital, crowd funding.

2 Examples include:

Bank loans can be used to expand the business.

Commercial mortgages can be used to purchase new premises.

Debentures can be used to buy new equipment.

Overdrafts, sale of assets or debt factoring can be used to manage cash flow.

Leasing can be used to obtain a fleet of company cars.

Venture capital can be used to start up a new business.

3 The advantages of crowd funding are:

it can be set up easily using crowd-funding websites

it is easy to attract people to invest since the level of investment is low

The disadvantages are:

people will only invest if they think the business is worthwhile or of interest to them

without the correct level of support, the business or idea will not take off

4 Any two from: interest payments, payback, associated running costs, administrative costs, level of risk, penalties.

5.2 Cash budgeting (p. 95)1 A cash budget is a statement of anticipated future expenditure.

2 Cash inflow is money flowing into the business, for example from sales. Cash outflow is money flowing out of the business, for example paying for purchases.

3 Organisations can run out of cash due to poor cash management, poor forecasting, not chasing money due, or not arranging a planned overdraft to cover short-term cash flow issues.

4 The business may incur large financial costs or could run out of cash (have negative liquidity) and go bust.

5 Potential solutions include:

good business practice — planning ahead, producing and reviewing forecasts, keeping accurate accounting records

selling unnecessary fixed assets



arranging a bank overdraft

improving credit control by chasing trade receivables

offering promotions to encourage sales and shift inventory

arranging credit with suppliers

reducing owners’ drawings

finding cheaper suppliers

buying assets on hire purchase

5.3 Financial statements (p. 98)1 An income statement is a financial document that shows whether the business has made a

profit or a loss over the period for which it is drawn up.

2 It details the business income and expenditure over the course of the financial year.

3 A statement of financial position is a financial document that shows the net worth of the business.

4 It details the assets and liabilities of the business.

5 An income statement shows the historic financial picture over a period of time and details the income and expenditure of the business. A statement of financial position shows the financial worth of the business on a particular date.

6 Final accounts are produced to satisfy a legal requirement; for external use, for example for shareholders or other stakeholders; for internal use, for example to give management information.

5.4 Ratios (p. 103)1 Accounting ratios are used as a tool in the decision-making process and as an aid to financial

interpretation and planning. They may be used internally by managers as well as by external parties who are interested in the performance of the business or who have an interest in the business.

2 The six ratios are:

Gross profit ratio, which shows the basic profitability of the business as a percentage of sales.

Profit for the year ratio, which shows the profitability of the business after expenditure has been taken into account.

Return on equity employed ratio, which measures the return on the money invested in the business.

Current ratio, which shows the business’s ability to repay its short-term debts.



Acid test ratio, which shows the business’s ability to repay its short-term debts without accounting for inventory held.

Rate of inventory turnover ratio, which calculates how often inventory is turned over, i.e. bought and sold.

3 Gross profit, profit for the year and return on equity employed ratios are usually expressed as percentages. Current and acid test ratios are expressed in the format 1:1. Rate of inventory turnover is calculated as the number of times the inventory has turned over in a year.

4 The limitations include the fact that: the accounting information used to calculate the ratios is historic; when comparisons are made with other businesses the comparison is only valid where the business is of the same type and size; comparisons with other businesses can be difficult as many businesses publish limited financial information; ratios are of little use on their own; other sources of information should also be utilised when interpreting the accounts.

5.5 Technology (p. 104)1 The use of accounting software (e.g. Sage) is commonplace, with most businesses taking

advantage of the tracking, recording and control that this offers. The use of computerised accounting systems also allows easy integration to tax and VAT systems, often allowing electronic submissions to be made.

2 The costs include:

the financial costs associated with purchasing and introducing new technology, including training costs for staff in the finance department

an increased risk that the business will become dependent on technology to run its finance function and will bear increased future costs of maintaining it

increased potential security risks, for example information being hacked

3 Generally the benefits outweigh the costs, but supporting different technologies in this function of the business usually requires significant initial investment and on-going costs.


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