Business Studies Handbook by Dr Steve Byrd

IFY Business Studies Student Handbook Produced By

Stephen Byrd PhD, MBA, FITOL FICM

IFY Business Studies – Student Handbook

Week

Topic

Units

Marketing 1

A: The nature of marketing B: Market Analysis

C: Segmentation and positioning D: Market research

E: Marketing Strategy

F: The Marketing Mix F a: Product

F b: Promotion

F c: Place (Distribution) F d: Price

18 21 81 20 19 35 22 32 23 24 27 28 29 30 26

Accounting and Finance 7

G: The role and limitations of accounting H a: Finance

I a: Profit and loss accounts I b: Balance Sheets I c: Working capital H b: Analysing published accounts: Ratio analysis J: Cost and management accounting Types of cost, Break Even, Contribution

11 12 13 14 15

Cash Flow Forecasting and Management Budgeting and Variance Analysis Review Review

37 44 45 42 43 48 56 57 38 40 41 46 41

EXAM WEEK

Notes to Students:  

All reading should be completed before the Week number listed. The weeks may change, but you will be informed well in advance

Page 2 of 215

IFY Business Studies – Student Handbook Business Studies Supplies – be prepared A4 Notebooks Pencils / Pens Ring binders, with dividers Hole punch Rulers Calculator Stapler Conducting of courses Lectures / Tutorials Take notes – always have notebooks Class participation – asking questions – answering questions Homework – collected and marked Regular testing Other rules of class Be here, be on time! Handle personal matters before / after class No talking, unless instructed Ask teacher about what you don‟t understand No word finders (ask teacher) No mobile phones Assigned seating … Assessment 2 Assignments each worth 10% =

20%

Term 1 Examination

10%

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IFY Business Studies – Student Handbook Final Examination

Total

= 100%

Predicted Grades For university selection and applications Based on: Term 1 Assignment Results of Term 1 regular tests Term 1 End of Semester Exam results Homework Class participation Method of calculation: Based on: Term 1 Assignment

10% 

20%

Term 1 EOS Exam

10% 

80%

Total

100%

Page 4 of 215

70%

IFY Business Studies – Student Handbook

Marketing: The management process used to identify, anticipate and satisfy consumer requirements profitably. (Textbook) Management: the skill of controlling or directing Process: a series of steps or actions towards an end, a goal Identify: to recognize or know Anticipate: to expect or to realize before someone else does Satisfy: to fulfill a desire, a want or a need Consumers: people who use products or services Requirements: a need, want or desire Product orientation – focused on production process, the product, and efficiency; sees people as basically similar; practices “mass marketing” (industrial revolution thru mid-50‟s) Market orientation – consumers at the center of decision-making; listening to the customers wants and needs; building long-term relationships; recognizes differences in people, practices “target marketing” It is possible to be successful with either type of orientation, but it is harder to be successful with product orientation alone. Features of business marketing behaviors:  Consumers – most important; know your consumers; a “feel”; trends; react to consumers needs, wants and desires  A Process – no beginning, no end, ongoing; respond to changes  RELATIONSHIP MARKETING: Build relationships with consumers – know what they want; react to complaints, longterm  A business philosophy – a way of thinking Page 5 of 215

IFY Business Studies – Student Handbook  Affects entire business – the goods produced; pricing and sales  Marketing – not just Selling (usually different departments); market research (what do consumers want and what‟ll they pay); design of products, packaging; testing of products on consumers  Advertising – only a part of Marketing Asset-based (Asset-led) Marketing – developing and marketing products based on a company‟s key strengths REAL DISPOSABLE INCOME – The amount of consumers‟ Income remaining after deducting taxes and adding back any other government benefits A rise in Real Disposable Income causes:  Increase in “Demand”; which causes  Economic Growth; which causes  Changes in tastes and fashions; which causes  New technologies to be created; which causes  Increases in competition

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IFY Business Studies – Student Handbook

Markets – classified according to characteristics  Geographical – i.e. by location;  Goods;  Industry;  Size – mass/niche Problems with measuring size o Market size – can be measured by Value or Volume Market Share / Penetration – proportion (percentage) of the market held by a company Important in judging: size; growth Market Growth – affected by: Economic changes; Social changes; Technological changes; Demographic changes; changes in Legislation Reasons for / benefits of growth: economies of scale; gain market share; increase future profits; reduce risk; survival Economies of scale  Internal (within the company): Technical (efficient use of facilities); management; financial; purchasing; risk reduction through diversification  External (growth in industry): labour availability; outside services; co-operation Methods of company growth: Internal: organic (expand sales); innovation (new products) External: merger; acquisition Limits to growth – diseconomies of scale – inefficiency Page 7 of 215

IFY Business Studies – Student Handbook Still, small firms survive – reasons: Personalized service; flexibility; efficiency; lower costs; low barriers; owner preference; etc.

Mass Marketing: Marketing products to all consumers in almost the same way. Can be expensive, and, products will be going “head-to-head” with other mass market products. Segmentation: Break a market into sub-groups with similarities. Examples of Market Segments: Age; gender; ethnic background; family characteristics; education level; occupation; income level; social class; religion; political or voting preference; geographic location; personality; lifestyle; purchasing choices or patterns. Market research can help identify segments; can also be directed to specific market segments. Identifying segments can: reduce market research cost; help increase sales; reduce product promotion cost by targeting specific consumers. Target Marketing: companies choose to concentrate their marketing efforts on particular groups of consumers Niche Marketing – aiming products at smaller market segments.  Niche Marketing is less expensive, more cost-effective  Some niches may have been overlooked or ignored by competitors  Focuses on the specific needs of the members of the niche  Drawbacks and risks in Niche Marketing: o Success will attract competitors (for the same reasons) o May not be easy for companies with many products Page 8 of 215

IFY Business Studies â&#x20AC;&#x201C; Student Handbook o Tastes and preferences of small groups can change more quickly MARKET POSITIONING: Consumers tend rank/rate products by quality, status, value-for-the-money, other characteristics, defining the Market Position: main products = Market Leaders; others = Market Followers. As markets and consumersâ&#x20AC;&#x; tastes change, companies try to reposition their products. Market Mapping: tool to analyze Market Position in eyes of consumers.

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IFY Business Studies – Student Handbook

Market Research: collection, collation and analysis of data relating to the marketing and consumption of goods and services Uses for Market Research Information:  Descriptive: what is happening  Predictive: what‟s likely in the future  Explanatory: why are things happening  Exploratory: what new possibilities may be available Market research:  Helps with decision-making, especially in fast-changing markets  Helps reduce risk  Provides a link to the outside world, about their products and potential future ventures  Is more important as markets expand in size and scope  Is good for public relations However, Market research can have failings because:  Human behaviour is unpredictable  Sampling may be biased  Questions or questioners may be biased QUALITATIVE – Information about attitudes, beliefs and intentions QUANTITATIVE – Data that can be expressed as numbers DESK or SECONDARY RESEARCH – information already available  Internal sources Page 10 of 215

IFY Business Studies – Student Handbook  External sources PRIMARY or FIELD RESEARCH – collected by the researcher Advantages for the Company: full control over the kind of information being gathered; only they can access it Methods of Field Research: Personal interviews; phone interviews; focus groups; post-purchase; observation Types of Questions:  Closed: Offers a limited range of answers  Open: offer the interviewee the chance to openly respond  Clear and unambiguous questions  Leading questions encourage a particular answer Effects the different questions may have, and how questioning can be used  Balance between closed and open questions  Closed questions are usually easier to summarize and quantify  Leading questions: for impartial data, they should be avoided; may be used to influence the results of the survey Who to ask?? Asking everyone would be impossible SAMPLING  Random Sampling – population listed, computerized Random No Gen  Systematic Sampling (Random)  Stratified Random Sampling  Others in book: Quota Sampling (target quantities from different groups); Cluster Sampling (separating population by area); Multistage Sampling; Snowballing  Haphazard Sampling Type of information that might be asked: Page 11 of 215

IFY Business Studies – Student Handbook  What are they currently using? / Would they use this?  What features do they like about it? / What features would they like?  What should it look like? Size, weight, shape, color?  What type of promotion would be best? / Where they would want to be able to buy it? / How much would they be willing to pay?  Information about them: Age; Sex; Marital status; General income levels; Educational background; etc. DEMOGRAPHICS

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IFY Business Studies – Student Handbook Marketing Objectives / Marketing Goals:  Company Growth – to affect profits  Maintaining sales and market share  Product differentiation – from competitors  Product introduction and innovation  Consumer knowledge and satisfaction – build RELATIONSHIP Marketing Objectives/Goals should be SMART – Specific; Measurable; Agreed; Realistic; Targeted Analyzing Constraints (stand in the way of achieving goals): Internal: Financial; Organizational; Product; Price; Place External: PEST-G: Political; Economical; Social; Technology; “Green” Marketing Strategies: Steps to help a company compete more effectively Competitive Strategies: To compete more effectively  Product differentiation – Show the differences from competitors‟ products  Target a particular Market Segment  Price – Try to be the lowest price in a market Growth Strategies:  Market Penetration or Expansion: Increase sales in the existing market  Product Development: introduce new products into existing market  Market Development: Market existing products in new markets or market segments  Entry into new markets: Developing new products for new markets Page 13 of 215

IFY Business Studies – Student Handbook

The Marketing Mix (Combination) – the Four P‟s: To meet their marketing objectives, companies break down their marketing activities into 4 areas: 

Product: make the product meet consumers needs and company‟s needs: use; physical presentation (look, feel, smell, etc); financial, incl. cost; life cycle; uniqueness; market position



Pricing: Market Position; maximize sales (low); maximize profit (high)



Promotion: choose the most effective for its market



Place: Where sold; how sold; how transported, etc. Services have 3 more P’s 

People providing the service



Process involved in delivering the service



Physical – the environment in which the service is provided

Every business designs its own Marketing Mix for each product it sells Ideal Mix = right balance between the 4 P‟s: type of product; market; level of competition; competitors‟ Marketing Mix; Market positioning

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IFY Business Studies – Student Handbook

The Stages of The Product Life Cycle  Development: design, testing, decision to proceed (money out)  Introduction: 1st Sales (often slow, may be fast); heavy promotion  Growth: accepted; sales begin to grow; if new product, competition…  Maturity: sales increase rate begins to level off  Saturation: placed well throughout the market  Decline: changes in consumer tastes, new technology, etc Extension Strategies – ways to extend the Product Life Cycle: new uses; new markets; wider product range; target markets; change appearance; encourage more frequent use; change ingredients or components. Capacity and Cash Flow Capacity is the maximum amount a business can produce; the measure of how fully a company is using its capital. Cash Flow is the measure of money in and money out Product Life Cycle Development Introduction/ Launch Growth

Capacity No Effect Sales limited; will have spare capacity, or, “borrow” from existing capacity Expanding production, use up spare capacity

Maturity

May operate at full capacity, may need to expand capacity

Decline

Sales & production reducing, capacity may not be fully utilized

Cash Flow Cash out only Although Sales begin, still negative due to prior development, and, promotion costs Cash Flow moves into the positive as cash from sales overtakes prior cash expenditures Cash Flow at highest, Sales at highest, marketing and advertising may reduce Sales will fall, Cash flow will fall

The longer the life cycle of a product, the longer a company may expect to operate at full or near-full capacity. Page 15 of 215

IFY Business Studies – Student Handbook The Product Life Cycle is a planning tool, useful for:

 Showing trends in product revenue  Planning when to launch new products  Planning when to introduce extension strategies  Planning cash flows  Identifying when to stop selling a product  Showing expected profitability at different stages  Planning different marketing strategies Managing The PRODUCT MIX (combination) or PRODUCT PORTFOLIO Companies use Product Life Cycle and the Boston Matrix to help plan when to introduce new products or product lines (groups of closely related products). Always involved in new product development.

The Boston Matrix: Market Share

High Low

Market Growth High

Low CASH COW

PROBLEM CHILD

DOG

STAR

 Star: Large share of a high-growth market  Problem Child: In growth markets (has potential), but sales not good  Cash Cow: Mature products with stable market share; generate funds, may support other products  Dog: may be in decline Brand – a name, design, symbol, etc, lets consumers recognize your company or products, differentiates your products from your competitors. BRAND NAME is spoken name; BRAND MARK is a symbol / LOGO. Reasons to establish a Brand – a successful Brand can help:  Develop Customer Loyalty  Differentiate your products, especially where products are similar Page 16 of 215

IFY Business Studies – Student Handbook  Develop recognition  Develop image  Pricing flexibility – more willing to accept higher prices Brand Equity – Well-known Brand adds value to products and Companies Developing a Brand:  Choose the right name or symbol  Protect the Brand – trademark and copyright  Find a Unique Selling Point (USP) – what makes them different and makes consumers want to have them over other products  Be the first in the market  Positioning – e.g. a “high quality” Brand should be targeted to people with higher incomes. Product Mix is important: o Product made from high quality materials o Price can be a premium price o Promote in a way that reflects the status of the brand o Place it where the targeted customers can access it Types of Brands:  MANUFACTURERS BRAND – the Producer  OWN LABEL BRAND – The seller Branding Strategies  Individual Branding – single-product Brand  Family Branding – group of similar products, or, Corporate Brand  Combination Branding – mid-way of the above two approaches  Brand Extensions – add Brand name to product outside the “family” Problems with Branding  Expensive Page 17 of 215

IFY Business Studies â&#x20AC;&#x201C; Student Handbook ď&#x201A;§ Some markets / products not suited for Branding

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IFY Business Studies – Student Handbook

The purpose of Promotion to get and keep customers:  Create / increase customer awareness  Reach a targeted audience (may be geographically spread out)  Remind customers – encourage repeat purchases; gets new customers  Differentiate your product – encourage buyers to switch  Develop or improve image  Re-assure consumers after purchase – repeat customers  Support existing products Promotion: Above the Line – independent media

Types of advertising:  Informative – increase customer awareness of, knowledge about  Persuasive – to buy the product  Reassuring – to have current customers continue to buy  Corporate Advertising – Promote the company o Create an impression as responsible members of community o Branding Types Advertising Media: Medium Television

Advantages Mass market; Attract attention; Demonstrate Products Newspapers, Mass mkt. or Target Magazines segments; Big or small businesses; Can use national, regional, local Cinema Strong impact; target specific consumers Radio Inexpensive; can target specific markets; Posters, High visual; where Page 19 of 215

Disadvantages Expensive; message short lived; Hard to deliver Tech info No motion or sound; Black & White (newspapers); ads can get lost; (magazine) long time to publication Limited viewers seeing it only once; No visual; may not get audience attention Limited info; how effective;

IFY Business Studies – Student Handbook Billboards

customers are; encourage to buy; Rel. inexpensive; monitor hits; targeted; easily changeable

Internet

damage Limited audience; technical problems

Factors in Choosing Advertising Media  Cost – overall cost; cost effectiveness  Reach their Audience – target advertising; reduce “wastage”  Presentation – i.e. TV for visual; print for information  Impact on the viewers – TV or Cinema  Marketing Mix – again targeting consumers  Competitors – what are they doing  Legal restrictions (below) Controls on Advertising – keep from being misleading  Legislation and regulation: Trades Descriptions Act – avoid false, misleading info; Office of Communications – regulates TV, radio ads Competition Commission – investigates anti-competitive behaviour  Independent Bodies – Advertising Standards Authority: independent, conform to The CAP Code (British Code of Advertising, Sales Promotion and Direct Marketing): o Legal, decent, honest and fair o Responsible to consumers and society o In line with principals of fair competition o Breach of Code, can ask to withdraw ad, or else: a) publish findings; b) withdraw privileges of membership; or, c) ask media to refuse to carry future ads  Pressure Groups – community organizations representing their views Advertising and Society Page 20 of 215

IFY Business Studies – Student Handbook  Effects on Society: increases costs; encourages to buy, might not otherwise; high consumption effects on environment; encourages things that might damage society  Advertisers’ justification: offers choice; gives consumers information; respond to, don‟t create, needs in consumers; earn revenues for the media, reducing costs to consumers; employs large number of people Promotion Below the Line – does not depend on Media Advantages:  Cost usually less  Control the message Types of Below the Line promotion:  Direct Mailing: Sending information to selected consumers – post  Exhibitions and Trade Fairs: Company sends various staff (executive, sales, technical), home or abroad; Direct contact with distributors and consumers: see products, see how they work and get their reactions  Sales Promotions – special offers to push customers to buy: coupons; competitions; product endorsements; product placement (TV & movies); free offers; etc.  Branding  Merchandising – how products are placed in stores: Displays; point-of-purchase promotion; stores adequately stocked, well-lit, etc.  Packaging – to be made appealing and convenient: weight & shape; protect the goods; convenience; design; informative; environmental Page 21 of 215

IFY Business Studies – Student Handbook  Personal Selling – company‟s sales people sell by phone, in meetings, in stores, or door-to-door. Customers given a standard message and personal attention 

Public Relations – communicate with “groups” that publicize info to the customers: “Press conferences” to publicize announcements and new developments; “Press releases” sent to newspapers, television stations, etc and available on websites

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IFY Business Studies – Student Handbook

Distributing the Product – getting it to the right place at the right time Channels of Distribution: Direct to consumer; through a retail outlet; through a wholesaler; using an agent Physical distribution – how the goods are transported Retailing: Supermarkets & Hypermarkets; Department Stores; Multiple shop organizations; Retail co-operatives; Independent retailers Direct Marketing – sell directly from company to consumers. Incl: Retail outlets; Internet; direct mail; personal selling; telephone sales Choosing the right channel of distribution can depend on:  Type of product: perishables; technically complex goods; tailor made products; convenience goods; large quantity, low value goods; data – products not requiring delivery;  Market: Large, disbursed  intermediaries; smaller  consumers can buy direct; Segment  may dictate; Time periods  may require different action;  Legal restrictions  medicines; etc.  Company: larger companies often set up their own distribution networks Intermediaries – P. 218, Fig 30.1 shows different combinations Trends in Retailing and Direct Marketing New trends and other developments: Shopping Centres; Retail Parks; Call Centres; Online shopping; Discount chain stores; Variable hours stores; Diversified products; decline of independents; reductions in costs; second-hand shops Page 23 of 215

IFY Business Studies – Student Handbook

What Factors affect pricing decisions?  Objectives: Such as maximize sales, maximize profits  Marketing Mix: Price must fit with the type of product, the way it is promoted and the places it is being sold  Costs: long-term, cover costs; short-term, some flexibility  Competition …  Consumer expectations – value for money – what‟s it worth  Market Segment  Legal: Taxation; regulation; subsidization Cost Based pricing: All pricing influenced by costs and profits, but, with some products / markets, Costs are bigger factor than market forces  Cost Plus Pricing  Contribution Pricing  Absorption Cost / Full Cost Pricing Problem of cost based pricing – may not reflect what the market will bear Market orientated pricing – based on conditions in the market  Penetration Pricing – pricing low, to “penetrate”, often in mass markets  Market Skimming – high price for limited time  Consumer Value Pricing – based on the maximum consumers will pay  Loss Leaders: price at a loss, to bring the consumers in  Psychological Pricing: based on consumers‟ thoughts or feelings (9.99)

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IFY Business Studies – Student Handbook  Price Discrimination: same company, different prices for different segments – could be time-based – telephone, travel; market based Competition based pricing  Going Rate Price – generally in line with Market Leader  Destroyer Pricing – deep price cutting to eliminate competition  Closed bid pricing – larger jobs, bidding Pricing tactics (plan for attaining a particular goal)  Special Promotion offers  Loss Leaders: Sell a product at a loss to bring in the customers  Discounts on normal prices: timing; regular customers; large quantities  Introductory offers: Price for first purchase reduced Pricing strategies (elaborate and systematic plan of action)  New Products o Lower prices: penetrate existing Markets; launch new markets o Skimming or Creaming: High price for limited time  Existing Products o Price Taking – closely follow leader‟s price increases, decreases o Price Leader will be the first to raise, lower o Destroy competition, capture the market – “aggressive” pricing o Price discrimination – different prices to different consumers Tutorial Page 25 of 215

IFY Business Studies – Student Handbook Case Study Pp 197-198 Accounting: recording, classifying and summarizing business and financial transactions, and reporting the results to interested parties.

Accounts: reports that give users financial information about a business Users-Internal: Management; Owners Users-External: Legal: Tax Auth, Auditors; Registrar of Companies; Users-Financial: Bankers; Suppliers; Competitors; Community; Media; Investors & analysts; Government Role of Accountants: produce financial accounts; involved with auditing 2 types of Accounts

 Financial Accounts – historical; “true and fair” / financial accounting standards; independent auditors report on fairness  Management Accounts – future; analyze cost, forecast; budget Limitations of Accounts: Don‟t show internal strengths of company (i.e. the quality of staff, etc) Don‟t show external factors or economic conditions the company is facing Don‟t have information to predict market growth or demand Sales and other figures may be misleading in times of high inflation Data can be deliberately changed to give a false impression to users The balance sheet really only tells about the past not the present Computerized accounting and financial reporting Advantages: quick; efficient; capacity; accurate Disadvantages: cost; technical problems; operator error; security Financial Accounts: Page 26 of 215

IFY Business Studies – Student Handbook Balance Sheet: funds in the company and how used Profit and Loss Account: summary of year‟s trading activities Cash Flow: shows inflows and outflows during trading year Notes to Accts: detailed analysis; qualitative information Other: Directors Report; Chairperson‟s statement; Auditor‟s Report

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IFY Business Studies – Student Handbook

Companies Need Funds – CAPITAL or REVENUE EXPENDTURES Remind: Assets = Liabilities + Capital Capital Structure – how a company is financed (rvw BS) Choosing the right source of financing: Cost; Use of Funds; Status and size of company; Financial situation; Gearing: Loans ÷ Equity Types of Internal Sources: Profits; Working Capital; Sale of Assets Types of External Sources:  Share Capital: Ownership o Authorized / Issued – Public (Stock Exchange); Dividends o Ordinary Shares: riskiest; dividends only when declared o Preference Shares: not often / Guaranteed dividend, generally doesn‟t change; in Sale, 1st to get funds back o Deferred Shares: very seldom / often to starting owners  Loan Capital: Debentures (Bonds; public companies; guaranteed interest rate; date repaid); Mortgage (smaller companies; secured)  Short-term sources: Bank Overdraft; Bank Loan; Hire Purchase – purchase of equipment; Trade Credit; Lease (Finance – with option to buy; Operating – Rental); Debt Factoring; etc External sources: Financial Intermediaries (companies that match Savers and Investors); Stock Market; Banks, etc. Uses of Funds – Assets: Resources of a company, add value Asset Structure – the best combination of different assets Fixed Assets – held over 1 year – considered productive for income  Tangible – can be touched – Land; Plant, Machinery & Equipment  Financial – Investments – generally shares in other companies Page 28 of 215

IFY Business Studies – Student Handbook  Intangible – Goodwill; Patents, Copyrights, Trademarks; R & D; Brands Company Law and the Balance Sheet – P 318 Tutorial: P 309, Q 3 P 317, Q 2 (a)

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IFY Business Studies – Student Handbook

Balance Sheet Balance Sheet: A snapshot of the company‟s financial position, shows: What the owners invested, and that investment‟s current value – Capital Everything the company owns – Assets Everything the company owes – Liabilities Accounting Equation: Assets = Liabilities + Capital  Fixed Assets – generally held more than 1 year o Investments o Tangible Fixed Assets o Intangible Fixed Assets  Current Assets – Cash or other assets quickly converted to cash  Current Liabilities – amounts owed to be paid in less than 1 year  Net Current Assets / Working Capital  Creditors – amounts due after 1 year  Capital and Reserves – breakdown of value to the owners o Share Capital – purchase value of shares o Retained profit – profits not distributed (via Dividends) Balance Sheets always presented in this form: Standards; comparability Sole Trader‟s – no shares; Drawings Limitations of Balance Sheets:  Lack of details; Intangibles  Current values of Fixed Assets may not be reflected Page 30 of 215

IFY Business Studies – Student Handbook  Static

Profit & Loss Profit – what businesses and their stakeholders look for Remains from Revenue when all business expenses have been paid What happens to it: pay taxes; distributed to owners; retained For up to 1 year – Revenue ≥ Costs = Profit; Revenue ≤ Costs = Loss

Profit and Loss Account: 3 areas: Trading Acct; Profit and Loss Acct; Appropriations Acct Trading: Sales / Turnover; Cost of Sales; Gross Profit Sales / Turnover: Ownership, not cash – Realization Concept (Matching) Cost of Sales: Standard Calculation – Matches costs to items sold Gross Profit – amount remaining – GP ÷ Turnover = GP% Business‟ Profit & Loss: starts with Gross Profit Less Operating Expenses = Operating Income Add: Non-operating Income Add / Subtract: Interest Income / Interest Expense = Net Profit Appropriations: What happens to the Profit Dividends may be paid out to owners – leaves the company Balance remains in the company – adds to owners‟ value in the company Public companies: Earnings Per Share = Net Profit after tax ÷ No. Shares Calculation: Net Profit Margin = Net Profit ÷ Turnover Page 31 of 215

IFY Business Studies â&#x20AC;&#x201C; Student Handbook Relation to Balance Sheet: Sales: Debtors Cost of Sales: Stocks; Creditors Other Operating Expenses: Creditors Retained Profits: Capital

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IFY Business Studies – Student Handbook

Working Capital = Current Assets – Current Liabilities Current assets sometimes called Liquid assets – WC – “Liquidity” Sometimes called Circulating Capital – important for day-to-day operations The Working Capital Lag (Cycle p337) Sources of Liquidity Problems

Solutions

Overtrading Invest in too many Fixed Assets

Stimulate sales for cash Sell off non-vital Fixed Assets Sale and lease back Sell off raw materials, even at a loss Rigorous steps to collect, offer discounts Extend credit with selected suppliers

Stock-piling Allowing too much credit Taking too much credit Overborrowing Credit Controls “Late Payment of Commercial Debts Act 1998”

Liquidity Ratios – Measures how quickly a business can pay its Creditors Current Ratio or Working Capital Ratio

Current Ratio =

Current Assets Current Liabilities

Generally, 1.5 : 1 is the minimum preferred Acid Test Ratio or Quick Ratio

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Ratio (1.5 : 1)

IFY Business Studies – Student Handbook

Acid Test Ratio =

Current Assets - Stocks Current Liabilities

Ratio (1 : 1)

Less than 1 : 1 means a company does not have enough “Quick” Assets (Cash and Debtors) to cover Current Liabilities Ratio Analysis – analyze and get meaning from Financial Accounts: over time; between companies; over time between companies Can be a Percentage, a Number or a Ratio

4 Types of Ratios: Performance; Liquidity; Gearing; Shareholders Performance or Profitability Ratios – Focus: Profits

Return on Capital Employed (ROCE) – Earnings on Investment. How much could the company earn if it used its Capital elsewhere, or put in the bank? How much extra should it earn for the risk involved?

Earnings Before Interest and Tax X 100 Percentage Long Term Capital Used Long Term Capital = Total Shareholders Funds + Long Term ROCE =

Liabilities To increase ROCE: Increase Earnings or Pay down Long Term Liabilities Gross Profit Margin – The Profit on Sales

Gross Profit X 100 Turnover or Sales To increase it: Raise Prices or lower Cost of Sales Gross Profit Margin =

Percentage

Net Profit Margin – The Net Profit earned on Sales –

Net Profit Margin =

EBIT Turnover or Sales

X 100 Percentage

To increase it: Have better control of overheads Activity Ratios – Focus: How well a business uses its resources Page 34 of 215

IFY Business Studies – Student Handbook Asset Turnover Ratio – looks at how productive a business‟s assets are

Turnover Net Assets

Asset Turnover Ratio =

Number

Net Assets = Fixed Assets + Net Current Assets – Long Term Liabilities OR Capital and Reserves Stock Turnover Ratio – how quickly a business is selling its stock

Cost of Sales Closing Stocks OR Stock Turnover Days = Closing Stocks Cost of Sales Stock Turnover Ratio =

# times X 365

# Days

Retailers generally have quicker Stock Turnover than manufacturers Debt Collection Ratio – Average number of days to collect from Debtors

Debt Collection Period =

Debtors Turnover

X 365 Number of Days

Increase its Debt collection activities; Tighten or reduce “Terms” Liquidity Ratios – Focus: how quickly a business can pay its Creditors Current Ratio or Working Capital Ratio

Current Ratio =

Current Assets Current Liabilities

Ratio (1.5 : 1)

Generally, 1.5 : 1 is the minimum preferred Acid Test Ratio or Quick Ratio

Acid Test Ratio =

Current Assets - Stocks Current Liabilities

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Ratio (1 : 1)

IFY Business Studies – Student Handbook Less than 1 : 1 means a company does not have enough “Quick” Assets (Cash and Debtors) to cover Current Liabilities Gearing Ratios – Looks at how a company has financed itself

Gearing Ratio =

Fixed Cost Capital Long Term Capital

X 100 Percentage

Fixed Cost Capital = Long Term Liabilities Long Term Capital = Capital and Reserves + Long Term Liabilities ≤ 50% = Low Geared (more Invested Capital) ≥ 50% = High Geared (more Borrowed Capital) Interest Cover – Enough earnings to pay Interest Expense

Interest Cover =

EBIT Interest Expense

Number of times

An Interest Cover between 1 and 2 is a problem Shareholder Ratios – Help Investors make decisions Earnings Per Share (EPS) – a measure (only) of how much is earned per each Ordinary Share outstanding – has nothing to do with Dividends

Earnings Per Share =

Profit after Tax Number of Ordinary Shares

Amount

Price Earnings Ratio – used by investors to decide to buy or sell shares

Price/Earnings Ratio =

Share Price Earnings Per Share

No. of times

Share Price rises and falls based on Investors‟ confidence in the company Page 36 of 215

IFY Business Studies – Student Handbook e.g. A P/E Ratio of 12 means Market Price is 12 times higher than earnings A rise in P/E Ratio means Investors have greater confidence in company Shown on the Profit and Loss Account, at the very bottom Dividend Per Share – how much Ordinary Shareholders receive per share

Dividend Per Share =

Dividends (Ordinary Shares) Number of Ordinary Shares

Amount

To know whether Dividends are really good or not, they must be compared to the price of the share, to know the “Return on Investment” Dividend Yield

Dividend Yield =

Dividend Per Share Share Price

X 100

Percentage

More difficult to interpret, affected by amount of Dividends paid, and, changes in the price of the share. If Dividends increase and Price remains the same, DY goes up But investors want the share price to go up. If Share Price goes up and dividends go up by the same percentage, the DY remains the same.

Which is best??? Return on Equity – Earnings on the Equity (a bit similar to ROCE) Return on Equity =

Profit After Tax Equity

X 100 Percentage

Dividend Cover – based on profits, how many times could a company‟s

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Dividend Cover =

Profit After Tax Dividends (Ordinary Shares)

No. of Times

If too high, shareholders: “company should pay more Dividends”

If too low: earnings too low; or, company not retaining enough profits Limitations to Ratio Analysis: Same industries – and size may make a difference Rising prices – Inflation Balance Sheet limitations – when significant changes occur Quantitative analysis only, does not include qualitative info. Tutorial: P 394, Q 1; P 396, Q 2 P 394, Q 1

Fish and Chips Gross Profit Margin = Gift & Souvenir Gross Profit Margin = Net Profit Margin = Fish and Chips Net Profit Margin = Gift & Souvenir Net Profit Margin = Gross Profit Net Profit Overheads

£75,400 £252,600 £154,900 £365,900

X 100 =

29.8%

X 100 =

42.3%

Net Profit Turnover or Sales £32,000 X 100 = £252,600 £38,700 X 100 = £365,900

X 100 12.7% 10.6%

Fish & Chips Gifts & Souvenir £75,400 £154,900 £32,000 £38,700 £43,400 £116,200

P 396, Q 2

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Current Assets Current Liabilities Current Ratio Turnover Debtors Debt Collection

2004 10,700 10,100 1.059 138,100 6,400 16.9

2003 14,700 16,200 0.907 141,800 12,100 31.1

2002 13,500 14,500 0.931 136,200 11,200 30.0

2001 12,700 13,100 0.969 121,000 9,800 29.6

P 398, Q 3

Gearing Fixed Cost Capital Long Term Capital Interest Cover EBIT Interest Expense

1,500,000 2,500,000 750,000 90,000

2,000,000 60% 3,000,000 8.33

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6.00%

67% 750,000 120,000

6.25

IFY Business Studies – Student Handbook

CMA – know how business doing; expanding operations accuracy essential: In Business: Accounting Costs – value of resource used up in operations – an Asset or an Expense (Econ: Opportunity Cost)  Costs in Short Run – at least one FofP is fixed  Long Run: Fixed Costs – remain the same in the short run Stepped costs (draw graph) Variable Costs change as output rises Semi-variable Costs – not entirely fixed or variable – i.e. Labour; telephone Total Costs = Fixed Costs + Variable Costs Costs in Long Run – all Factors of Production can change Costs can be classified differently (i.e. Fixed/Variable/etc) Direct Costs: with the Product or Process Indirect Costs / Overheads: Running the business as a whole Average / Marginal Costs – same idea / method as Economics Prod/Sell/Admin/etc; product/job/contract (however serves management) Total Revenue (Quantity sold x Price) Total Revenue – Total Cost = Profit / (Loss) Page 40 of 215

IFY Business Studies – Student Handbook Adjustments in price or costs may impact profits, may be temporary Quality profits – several/many years Cost and Profit Centres

Management looks at costs / revenues different ways to make decisions Cost Centres: – parts of businesses that incur costs: Product; Department; Geographical location; employee; etc. Profit Centres – similar, but where revenues are also recorded Advantages

   

Disadvantages

Improve accountability Help in decision making Improve motivation Trace problems

 Internal conflict  Cost allocation  Factors outside the business  Inefficient use of resources 

Staff Pressure

Contribution

Contribution per Unit = Selling Price – Variable Costs (Different from Profit, which includes both fixed and variable costs) Total Contribution = Contribution per Unit x Quantity Sold Total Contribution – Fixed Costs = Profit Contribution is contribution towards fixed costs and profit A business may use Contribution for:  Decision making (Product A or B, or, accept or reject orders)  Calculating Break Even Point  Pricing

Costing Methods

To provide managers with info for decision making ABSORPTION Costing (aka FULL, TOTAL) Method for overheads

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IFY Business Studies – Student Handbook Spread or allocate overhead/indirect costs to different cost/profit centres Could be allocated based on: Revenue; Direct costs; staff numbers; floor area; Cost or book value of assets employed; etc. (Problem in Tutorials) Standard Costing Method – set up estimates and compare to actual P 366, Table 52.7 – Simple illustration Contribution or Marginal Costing – last week Good for making special order decisions Relationship between marginal and average costs Marginal cost cuts AC curve at lowest point Closing Down Point – where MC = AVC

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IFY Business Studies – Student Handbook Tutorial P 275, Q 1 P 276, Q 2 P 283, Q 1 P 366, Q2 – Absorption / Full / Total Costing (a) Suitable basis for apportioning costs Rent and electricity - floor space Administrative costs - staff (b) Apportionment Food Women's Staff 12 8 Floor Space 800 600 Direct Costs Allocate Costs Rent & Electric Admin

Men's

4 600

Electric

6 400

Toys

Total

6 200

36 2600

400,000 200,000 100,000 200,000 100,000

1,000,000

92,308 69,231 69,231 46,154 23,077 66,667 46,154 46,154 30,769 15,385 558,974 315,385 215,385 276,923 138,462

300,000 200,000 1,500,000

P 368, Q 4 Price £4.00 Quantity 100,000 Sales £400,000 Cost of Sales: Materials & Components £0.70 £70,000 Direct Labour £1.60 £160,000 Other Variable Costs £0.50 £50,000 £2.80 £280,000 (a)(i) Gross Profit / Contribution £120,000 Fixed Costs £80,000 (a)(ii) Net Profit £40,000 Export Costs (b) (c) (downside) Difficulties and risks of exporting (upside) Potential for developing new business Q: Are Export Costs fixed costs or variable costs?? A: Although not expressed as a cost per unit, the Export Costs are still variable costs.

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£3.50 20,000 £70,000 £14,000 £32,000 £10,000 £56,000 £14,000

£13,000 £1,000

IFY Business Studies – Student Handbook

Importance of Cash (discussed in section on Working Capital) Cash Flow Cycle: Cash  Resources  Production  Sales  Cash Important to Control Cash flow by: records; planning; controls on credit Cash Flow Forecast: predicts of what might happen in the future Pp 322-323 – Sections: Receipts; Payments; Net Cash Flow; Ending bal‟s Uses  Identify when there may be cash shortages or surpluses  Supporting applications for credit – banks may request info  Help with planning / starting a new business  Monitor cash flow (at year end) Reliability depends on accurate, unbiased information Cash Flow Statement – Table 46.4 (P 326) It‟s required in published Financial Accounts (with BS and P&L) Sections: Operating Activities; Returns on Investments and servicing of finance; Taxation; Investing activities; Financing Also required: calculation of net cash flows from operations – Table 46.5 Criticism of Cash Flow Statement 

Doesn‟t give very much information



Small companies not required to prepare them



Based on historical transactions / future predictions more useful

Differences between cash and profit  Timing of transactions  Purchase of Fixed Assets  Company borrowings Page 44 of 215

IFY Business Studies – Student Handbook  Owners introduce Capital Budgets An agreed plan (different from a Projection); different levels, by executives, management, supervisors and employees; approved throughout all levels Preparation of Budgets  Accurate information: F/S‟s (past); Forecasts (future)  Master / Departments, subsidiaries Approaches to budgeting  Objectives Budget / Flexible Budget  Capital Budget / Operating Budget Problems of preparing Budgets  Figures based on prior information, sales levels, etc  Management and coordination of process / Conflict  Time consuming Sales / Revenue budgets and Production Budgets – explanations, examples Zero-based budgeting – budget process that includes justifying with benefits (Different from basing on historical costs and forecasts) Benefits Helps improve allocation of resources A much more careful approach Creates alternatives May improve motivation

Drawbacks Threat to status quo – motivation Difficult – skillful Too careful a process – may miss certain opportunities

Budgets – in general Benefits Helps with control, especially spending Sets clear targets, responsibilities

Drawbacks Competitive emp‟ees – problems Being too inflexible –

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Helps ensure capital is usefully employed Helps: co-ordination; communication

problems Too large differences may hurt effectiveness of budget process

Variances: differences between budget and actual (also later in course) Type Favourable (better) Adverse (worse) Sales / Revenue Higher Lower Costs / Expenses Lower Higher Cash Flow Tutorial P 325, Q 2 Budgets Tutorial P 326, Q 3 P 333, Q 3

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Break Even Analysis The point where Total Revenue = Total Costs Break Even Point = the Quantity of goods needed to sell to break even Uses of Break Even Analysis:  How much sales are needed to cover fixed and variable costs  How different levels of output affect profit  How changes in price or costs affect Break Even Point & Profit £

TC TR

Output

Example Data: Price = 100 ; Variable Cost = 40 ; Fixed Costs = 60,000 Calculate BEP using Contribution

Break Even Point = Fixed Costs  Contribution Contribution = 100 – 40 = 60 Page 47 of 215

IFY Business Studies – Student Handbook Break Even Point = 60,000  60 = 1,000 units Calculate BEP using Total Revenue and Total Cost

Break Even Point: Total Revenue = Total Costs Total Revenue = Price x Quantity Sold Total Cost = Fixed Costs + Variable Costs Total Revenue = 100 x Q Total Cost = 60,000 + (40 x Q) 60,000 + (40 x Q) = 100 x Q 1,000 = Q Margin of Safety – Difference between level of output and Break Even Advantage: a good tool for viewing changes (What if‟s): Price; FC; VC But it has some limitations (refer to P 289)

Applications of Break-Even Analysis

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IFY Business Studies – Student Handbook Example Facts: Fixed Costs 20,000 p.a. Variable Costs 75 EachTR = TC Selling Price 125 Each First, Calculate Break Even Point TC = 20,000 + 75Q Now, what if they want to figure price? TR = 125Q Price = Total cost / Output 20,000 + 75Q = 125Q = (20,0000 + 500x75)) / 500 20,000 = 125Q - 75Q = (20,0000 + 37,500)) / 500 20,000 = 50Q so 400 = Q = 115 Draw Chart (show margin of safety) Now, assume profit of 15,000 Now, add Profit FC + Profit Target / Contribution Assume output of 1,000 & profit = 40,000 = 20,000 + 15,000 / 50 Price = (Profit Target + total cost) / Output = 35,000 / 50 = 700 Quantity = (40,000 + (20,0000 + 1,000x75)) / 1000 = (40,000 + 95,0000) / 1000 = 135 So far:  Calculate BEP using Contribution 

Calculate BEP using Total Revenue and Total Cost

Target rate of profit: (Fixed Costs + Target Profit) ÷ Contribution Break Even Price: Total Cost ÷ Output (Total Cost + Target Profit) ÷ Output

Summary of CMA Overview of Cost Management Accounting – for Management‟s needs Financial Accounting mentioned: Cash Flow; Budgets Funding structure Ratio Analysis Different types of costs Cost and Profit Centres Contribution Costing; Break even analysis Page 49 of 215

IFY Business Studies â&#x20AC;&#x201C; Student Handbook Absorption costing; Standard costing; Closing point Variance Analysis Budgetary control Preparing Budget / then comparing Budget to Actual / Variance Analysis Adverse / favourable Profit Variance Direct Materials Variances: Price (cost) / Usage Direct Labour Variances: Wage Rate / Labour efficiency Overheads variances Sales Margin Variances: Price / Volume Cash Variance Tutorial P 376, Q 1 P 378, Q 3 Tutorial P 287, Q 2, Q 3

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TC TR

Output

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How a business organization is structured  Formal Organization: Relationships; Control; Authority to make and carry out decisions; communication  Organization Charts: Positions; Communications; Weaknesses (draw)  Hierarchy – the order or levels of management  The “Chain of command” – Orders pass down / information passes up  Span of control – number of “subordinates” under a manager o (Some say should be between 3 to 6 people – narrow) o Narrow may be very expensive. o Wider gives broader control, maybe more satisfaction to manager.  Responsibility – being required to justify an action  Authority – the ability and or formal permission to carry out a task o Line authority – manager over subordinates – hierarchy o Staff authority – manager or department can give advice to people in other departments o Functional authority – specialist gives advice to other departments  Delegation – passing authority and/or responsibility for some tasks to employees further down the hierarchy: o Planning; Clear explanation and instructions, explaining why; Delegated Employee must also have authority and responsibility; Managers should avoid interfering with delegated task – provide support and resources; Establish a Page 52 of 215

IFY Business Studies – Student Handbook way to oversee at certain points; “Empower” employees (self-confidence and control) Centralization and Decentralization – explain, then benefits below Centralization  Sr Mgmt have more control  Standardizing – econ of scale  Decisions Pt of view of whole  Sr Mgmt more experienced  Crisis – strong leadership  Communication easier / fewer decision makers

Decentralization  Empowers / motivates workers  Reduce burden on Sr Mgmt  Greater job satisfaction  Benefit from “local” knowledge  More flexibility, responsiveness  Prepares subordinates to move up

Different forms of structure (P 414)  Entrepreneurial Structure  Bureaucratic, pyramid, hierarchical structure  Matrix Structure  Independence Structure Informal Business Structure – Advice, trust, communications Factors influencing organizational structure  Size  View of ownership or management  Business objectives  External factors  Changes in technology  The informal business structure  The corporate culture Recent trend – delayering Tutorial – Case study, P 417

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Financial Rewards: / Methods of Payment  Time Rates: Weekly wages; Monthly salaries; overtime  Annualized hours contracts: compute annual hours, work time flexible  Piece rates: pay by results, incentive / target  Commissions  Fees – for single (“one-off”) tasks  Fringe Benefits – other things besides wages or salaries. o Salary may be limited due to contract caps or industry standards o Emp‟or may be able to pay less for some Fringe benefits o Some may avoid National Insurance or Income Tax Employer Considerations regarding Pay:  Motivate employees  Costs  Prestige  Recruitment and labour turnover  Control Employee Considerations regarding Pay:  Purchasing power – affording to buy / have what they want  Fairness of pay for work performed  Relativities – pay comparisons between employees  Recognition of their contribution to the company  Composition of compensation package / Salary to fringe benefits Incentive Schemes Page 54 of 215

IFY Business Studies – Student Handbook  Individual Output Schemes: Piece Rates; Performance Related Pay (PRP); Commissions  Collective Output Schemes: Measured daywork – based on overall daily output; Profit Sharing – for Partners, Managers, etc; Profit related pay – cash bonuses for employees; Share ownership  Employee Input related schemes: Merit Pay (based on employees‟ behaviour and conduct); Skills-based pay (based on capabilities) Problems with Incentive Schemes  Operations – poorly run business may interfere with employees  Earnings – schemes may cause costs and earnings to fluctuate  Quality Control – excessive outputs may lead to decreased quality  Changes to keep the system “clean” may cause confusion  High pressure may decrease quality of working time  Worker jealousy  Performance measurement standards  Team incentives / some members work harder Some question effectiveness of incentives, yet they are still necessary Tutorial: Read and analyze: Case Study, P 434

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Management and Leadership Managers are responsible for getting things done:  Planning;  Organizing;  Commanding;  Co-ordinating; and  Controlling Leadership – know what direction to take; plan; persuade others to follow Qualities of Leadership:  positive self-image;  ability to deeply analyze situations (get to the core) and recommend solutions;  high level of knowledge;  sense change and respond. Leaders adopt different styles: Delegating; Participating; Selling; Telling Different Leadership styles: Autocratic – sets goals and delegates tasks – demands obedience. If members become dissatisfied, don‟t work together well, requiring much supervision, poor motivation Paternalistic – similar to Autocratic, except they have a high level of concern for their subordinates. May decrease dissatisfaction and supervision, may improve working well together and motivation. Page 56 of 215

IFY Business Studies – Student Handbook Democratic – encourage participation in decision-making: The leader must be persuasive and/or consultative at the same time (to convince workers to follow his plan). Needs good communication skills. May be a more effective because: workers can participate in the process – a sense of freedom; effectively uses collective knowledge and wisdom of the members; generates greater sense of commitment and motivation. Laissez-faire (pronounced Lay say fair) – allows workers to work freely within broad limits, with few guidelines and directions. Much more creativity, relaxed atmosphere. Sometimes may result in poor productivity, lack of motivation. With the effects of job re-design, delayering, etc, managers are more team-based leaders. Need to select, coordinate and manage groups, dealing with all those related issues Leadership styles are often determined by an individual‟s personality, and people don‟t often change easily. So companies should select managers based on the job‟s requirements – Leadership Matching – either task oriented or relationship oriented Sometimes different Leadership styles called for in different situations:  Certain tasks (emergencies);  Skilled / unskilled workforces;  Size;  Personality of the leader;  personalities in the group;  Time constraints Effective Leading is the most important Page 57 of 215

IFY Business Studies – Student Handbook Tutorial P 446, Q 4, a – together Combination of Democratic and Laissez-faire Human resources important – effective management – strategic implications Soft Side Motivation; Organizational culture; Support for employees; employee and industrial relations

Hard Side Assessing needs for staff; predicting future demand and supply of personnel; predicting turnover

Factors affecting HRM:  Changes in: goals; consumer market; technology; Legislation; Finances  Competition for: labour; Customers  Population: Activity; ageing  Corporate culture and structure  Trade Unions A strategic approach to HRM  integrate into planning & coordinate with other functions  “Corporate Culture” – sees employees as important  Motivation: incentives; involvement  Encourage work flexibility: change jobs, methods, etc  Flexibility in staffing: natural wastage, voluntary redundancy; early retirement; redeployment Advantages of strategic approach – long term benefits  More competitive through greater efficiency  May be able to better solve HR problems  Anticipate changes in workforce and needs  Prevent industrial relations problems Page 58 of 215

IFY Business Studies – Student Handbook Effects of good Human Resource Management policies:  Reduced Labour turnover: lost productivity; cost of recruiting, training. HRM should try to identify potential problems  Absenteeism: Lost productivity / output; late order fulfillment; cost of off-time; low morale.  Labour productivity = output / Number of employees – increased  Turnover per head = sales / Number of employees – reduced  Strong Industrial Relations: less disputes, strikes, grievances  Relations with stakeholders  Profitability – all this will affect profitability Flexible workforce – many schemes (textbook). May help: increase worker satisfaction and motivation; allow company to better plan for changes; decrease overtime and „shift‟ work costs. Relocation – moving production to different areas or countries Outsourcing – shifting production to other companies – efficient Knowledge Management – identifying and using internal knowledge Unit 63 – HR Dept‟s main function is managing HUMAN RESOURCES Human Resource Plan: Forecast Emp‟ee demand (w/depts); plan supply  Analyze: past information, incl. business and management‟s knowledge; worker productivity; work study (how many staff / task)  Calculate staff losses

NUMBER OF STAFF LEAVING

LABOUR TURNOVER INDEX =

AVG NO STAFF DURING PERIOD

x 100

 Analyze current employee supply – detailed: age, position, term, qualifications, performance; determine internal / recruiting Page 59 of 215

IFY Business Studies – Student Handbook  Plan internal employee supply: Promotion; Staff development and training; staff loss and retirement; flexibility (e.g. change work hours, work teams, multiskilling, etc); legal issues (redundancy / severance)  Plan external employee supply: availability of workers (incl. flexible); skills needed available; gov‟t training, subsidies; workplace competition; population, demographics; unemployment; housing & public transport; costs; government legislation

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Representation at Work Types of representation: Trade Unions, Staff associations, Professional Associations; Employers‟ Organizations Trade Unions developed over last several hundred years 3 Types: Craft, Industrial, General. Represent members (workers): salary, benefits, working conditions, etc. All Trade unions formally registered; may join Trade Union Congress Recently, powers decreased, role has changed: UK passed legislation to reduce their powers; plus: economic, demographic, memberships, have changed: number of unions, membership and density. To retain benefits and power, they: gave up single-union representation, limited / eliminated strikes, accepted binding arbitration, etc. TUC (Trade Union Congress): represents all major unions; more recently, also has a political and social function CBI (Confederation of British Industry) – represents businesses: legislation; legal, financial, economic support and advise Industrial Democracy, Bargaining, Consultation & Participation Business / employee conflicts: pay; conditions; flexible work; etc. Industrial relations – to resolve these issues without industrial action. Page 61 of 215

IFY Business Studies – Student Handbook Collective Bargaining: Conditions and Terms negotiated by company and union representatives (for employees). Employers must allow Employees to join trade unions. Unions: should be independent of both the company and the state, and must represent employees in good faith. All parties must agree to and be bound by negotiated results Negotiations can be: international, national, local, factory / plant, individual Negotiations – a process:  Set Agenda (this is done by both parties; all other steps are taken by each side separately in preparing for the negotiations)  Gather Information  Set Strategy: objectives; roles; predict response of other side, planning  Assure Unity  Plan size of group  Plan the stages of negotiation  Plan how decisions will be made  Prepare a statement at the end of negotiations  Rep‟s committing to get their side to accept Consultations: Joint Consultation: Management, worker reps; common issues; before negotiations

 Pseudo-consultation: management decides, informs employee reps, no power to influence them (looks negotiated, but really not)  Classical consultation: involve emp‟ee reps; influence mgmt‟s decisions  Integrative consultation: actually bringing in employees, discussing matters of common concern, etc Page 62 of 215

IFY Business Studies – Student Handbook ACAS (Advisory, Conciliation and Arbitration Service): mediates when consultations & negotiations fail. Other services: Arbitration; advisory work; Codes of practice; help businesses improve personnel, mgmt practices CAC (Central Arbitration Committee): government office; responsible for union recognition when employees want it, but employers resist Industrial democracy: Nowadays Employees participate in decisions in many ways: Work groups; Team-working; own shares of the company; participate in Employee Work Councils (consult, discuss, transfer information) Industrial Democracy depends on: Laws, rules, regulations; corporate culture; emp‟ee power and/or union representation; communication, IT; etc. More employee participation and industrial democracy: Drawbacks: hierarchical businesses may Advantages: increase motivation; not adapt well; can increase costs; may new, different or better ideas; better industrial relations (all sides lead to conflict – management may not want to accept take a longer-term view; may make mgmt respond better to employee needs Industrial Actions (IA) Industrial Actions resolved Employers:  Reduce overtime, benefits  Chg. standards / piecework rate  Lock-outs; closures of

can be taken by either side, when conflict not Employees: Unorganized/Unofficial:  Employee responds, often unplanned, the only way he knows how  High turnover; absence; inefficiency or wasting time; unofficial strikes  Not very effective, but, sometimes can lead to follow up organized / official actions

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IFY Business Studies – Student Handbook factories  Hire other workers in the situation where union workers go on strike

Organized/Official:  “Work to rule” or “Slow go”  Stop working Overtime (ban)  Sit-in or work-in  Strike

Industrial action has risk. Factors that may influence success or failure: Strength and size of union or business; How well workers and/or union is organized; Location of workers (very spread out means less effective); Public support; Actions of management; Laws; Economic situation Benefits of IA  Brings grievances out into the open  Management can better understand employees position  Can help change rules  Management may adjust company goals

Problems with IA Employers‟ problems:  Lost production / late or lost orders  Lost revenue to pay for idle fixed assets  Future relations – hard feelings  Shift mgmt attention away from planning  Harmful to company‟s reputation Employees‟ Problems:  Lost earnings  Closure (in the event of a long action)  Stress relations w/workforce, motivation  If unsuccessful, may weaken future positions, lead to losing union members  Not w/in law? damages, discipline, dismissal

Tutorial P 538, Q 2 P 539, Q 3 – at least 35 minutes (Read the question w/students)

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Equal Opportunities – qualified people should have same chance UK and EU laws protect people from discriminatory hiring practices Discrimination, often due to stereotypes, can take the following form: Group Stereotype Women Not want to take responsibilities / home; less likely to relocate; women with children / relocation; more emotional; weak Minorities Religious holidays; less educated; different (fear) Disabled Less capable than those without disabilities Elderly Less adaptable; difficult to learn new technologies Women at work Ongoing discrimination / statistics

Some improvements

 Earnings still lower  Flexible work, legislation, chgs in  Industries (construction) demographics lead to higher mgmt jobs still dominated by employment for women men  Child care (crèche), home work  Low-paying occupations  In general, the „gender gap‟ generally dominated by w narrowing in employment and  Full-time work% lower for w job seeking statistics  Work% lower, w with kids Many laws make it illegal to discriminate based on gender, marital status Statistics suggest that Ethnic Minorities are discriminated against – Illegal to discriminate based on colour, race, nationality, ethnic origins

Disabled people – long term problem affects their ability to do dayto-day activities. Illegal, to treat disabled less favourably unless justified. Older people – general protection from discrimination Page 65 of 215

IFY Business Studies – Student Handbook Businesses that seek employment without discrimination:  Get a better, more qualified and more flexible workforce  Higher motivation if everyone feels they will be considered for promotion Protection at work – broad category Employment Protection: Right to employment contract; freedom from discrimination; from unfair dismissal for various reasons, with recourse – Labour Tribunal, detailed procedures. Health and safety: Clean, sanitary, comfortable working conditions. Safety equipment, clothing and training. Safe procedures for dangerous materials. Safety from violence or threats. Legislation: …written Health & Safety Statement – management required to follow. Inspections to guarantee. Laws about working time limitations and time off. Wages: Wages Act, 1986 – sets rules and conditions for paying wages and procedures for enforcing those rights. National Minimum Wage Act, 1998: established curr. minimum wage rules; reduce poverty, inequality; increase motivation in the workplace. Social Chapter (EU): Standardizes work practices throughout the EU, including: minimum wage, maximum working hours per week, paid holidays, etc. Introduced European Works Council (EWC) to negotiate contracts, set and revise minimum wage. Contained in the Maastricht Treaty, by EU, signed in 1992. UK joined in 1997, when current Labour government came to power. Personnel data: Protect, safeguard and keep confidential / personal info / electronic and hard data. Company’s Motivation: Increased Page 66 of 215

IFY Business Studies – Student Handbook emp‟ee motivation; Legislation / consequences; losing employees can mean costly recruitment, disruption, poor working conditions / productivity. Some businesses do not adequately protect Pers. Data – mainly because of cost Benefits / Advantages Disadvantages  Improve motivation, productivity  Raise costs, restrict flexibility  Improve industrial relations  Reduce EU competitiveness

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Business and Consumer Protection Undeveloped economy – “caveat emptor” = buyer beware Now with big businesses, too easy to take advantage of consumers Consumer Protection Legislation – a series of laws to protect consumers:  weights and measures  false or misleading descriptions  unsolicited goods  product safety  services  food safety, labeling Effects of consumer protection laws on business:  costs  quality control  deal with consumer complaints  changes to more market-oriented practices Monopolies and Mergers – we‟ve looked at the benefits and criticisms Restrictive Trade Practices can reduce or prevent competition As a result, the UK has passed various forms of Legislation Office of Fair Trading – promoting and protecting fair trading practices Competition Commission – a promote and protect competition Page 68 of 215

IFY Business Studies – Student Handbook The EU – has similar practices Regulatory bodies – an entire list of offices, commissions, etc to enforce the fair trading practices in different industries

Private Sector Businesses Types of business form: Unincorporated: Sole Trader; Partnerships Benefits: Lower Costs; Maintain greater control Incorporated Limited Companies Private / Public Limited Companies Benefits: Personal liability protection; Ability to grow; Raise money Disadvantage: “Public” – may lose some control Co-operatives: Consumer; Worker Building societies, friendly societies (banking/financial services); Franchises; Charities Choice of business form based on: control; kind of business; timing / age of company; financing needs; liability protection Business Size, Growth and Economies of scale Defining size: Turnover (Sales); No. of Employees (m≤9; s≤49; m≤249; ≤l); Capital Invested; Profit; Market Share; Market

Capitalization (share price x stock outstanding) Reasons to Grow: Survival; Economies of Scale; Future profitability; Gain market share; Reduce risk Internal / Organic growth: sell more / do more business Page 69 of 215

IFY Business Studies – Student Handbook External Growth: Acquisition; Takeover; Merger Internal Economies of Scale: Technical efficiency (increased dimensions; indivisibility; law of multiples – matching (machines, processes) of different rates to maximize use; Managerial; Financial (wider range of options); Purchasing and marketing; risk. External Economies of Scale – savings from industry growth: Labour; Services; co-operation Limits to growth: Internal dis-economies of scale; External diseconomies of scale (Market limitations; funds; geographical) Still, small firms survive: Personal services; Owners‟ preference; Flexibility and efficiency; Lower costs; low barriers to entry; can be monopolists. Unemployment, government schemes, other economic factors make small firms popular: they: increase flexibility; help balance (lower) wages, create casual and part-time jobs; etc. Valuation and manipulation of accounts Valuations: Sale; takeover; Mergers; Mgmt. buyouts; public offerings (floatations); loans; etc Various regulatory standards for preparing accounts Reasons for manipulating accounts:  Companies increase values: current, future investors; affect stock price; market position; avoid takeovers.  Companies reduce values: avoid taxes Methods of manipulation: depreciation; creditors & debtors; stock valuation; write-offs; profits Methods of valuation: a guide only; valuation always willing buyer / seller Business Stakeholders Holding a financial interest in the success of the business Page 70 of 215

IFY Business Studies – Student Handbook Involvement with the business‟s activity: Owners; Entrepreneurs; Shareholders (can include Directors, Managers, Employees, Individuals, Institutions); Managers; Employees; Customers; Suppliers; Governments; Community. They have an Interdependence Conflict can occur when their Objectives are different. Examples are: Owners and Managers; Owners and Employees; Consumers; Suppliers; Community Stakeholder Approach – taking into account the needs, wants, desires and objectives of all stakeholders.

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IFY Business Studies – Student Handbook

The Role of Business Objectives in setting Business Strategy and Planning

Business Objectives – outcomes, goals, targets that s/b SMART: Survival (start-up, difficult trading times, takeover threat); Profit; Growth; Increase Shareholder Value (public companies); Sales Maximization; Image, Reputation and Social Responsibility – corporate culture Managers‟ objectives (budget; department; salary; benefits; status) The “players” = all the stakeholders Operations objectives: change focus; product lines, etc Public sector objectives: change image; improve service levels Influences on Businesses‟ objectives: Owners; different stakeholders‟ powers; size; status; short- / long-term considerations; internal / external pressures Mission statements – Writing out of the aims of the business: focus all stakeholders; provide a general plan, etc (many feel they are much the same; may have little effect on the business; more publicity-oriented) Strategy and Planning Identifying Objectives: strategic; tactical; and, operational Different Business Strategies: functional; business level; corporate; global Must suit the Corporate Culture (values) of the organization Page 72 of 215

IFY Business Studies – Student Handbook Strategy – a pattern of decisions and actions to achieve objectives Planning – decide what to do, set objectives, set policies to achieve them, involves: Analysis; Developing strategies; implementation; Evaluation Effective planning and strategy based on: clear Purpose; strategic Vision (creative idea or imagination about the business); strong Commitment to achieve goals; gearing strategies to customers; achievable timing; enough flexibility to modify details, stay on course; and, plans must be suitable based on the different department players

Effective Planning, including for Contingencies minimize the effects of unexpected crisis: legal, financial, production, corporate, image, etc. Analysis methods: SWOT Analysis – Internal: Strengths, Weaknesses; External: Opportunities, Threats Pest-G (external factors): Political; Economic; Social; Technological; Green 5 Forces Model (competitive forces): new competitors; established firms; buyers; suppliers; substitute products. The stronger the forces are, the more difficult it is to raise prices and profits. Industry structure analysis: competitors; suppliers; substitution; potential entrants. Competitor analysis: assess rivals to determine strengths, weaknesses Also Product Life Cycle and Product Portfolio analyses Cost and Value analysis (where value added and where value lost) Developing and implementing strategies, evaluate the results Strategies to improve Function and Operations (generally one area)

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IFY Business Studies – Student Handbook  Production: economies of scale, or, streamlining the process (lean); quality control – Total Quality Management (TQM) groups, in process  Marketing: research to better meet customers‟ needs; customer service/ response through better distribution  HR: forecast changes in staffing requirements; motivation; training  Other: R & D; waste management Business Level / Generic strategies: Cost Leadership; Differentiation; Focus (segment, consumer group); New product development; Market entry and penetration; Market development and domination; Consolidation (preserve place in market); Diversification (extend range of products, services); etc. Corporate strategy: Internal development; Takeovers, mergers & acquisitions; Collaboration (working with other companies in some form) Global: different strategies that can take advantage of the company‟s unique strengths; can reduce costs. Implementing strategy: how to organize itself to carry out the strategy (structure, hierarchy, function, region, product, customers, etc.); set up control systems to encourage and monitor the activities (financial, output, leadership, rewards, etc); how to implement the changes Evaluating strategy – first set SMART targets, can be Earnings or Profits; Return on Capital; Volume; or, Costs. Will need comparison information. May also make use of qualitative information.

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IFY Business Studies – Student Handbook

Business Ethics Ethics – motivations based on ideas of what is right and wrong Business Ethics – how ethics operates in business (i.e. damage health, environment; product quality; community work, charity; etc.) Laws attempt to control – the “letter” / ”spirit” of the law, still room Impact of Ethical behaviour on the business:  Now, consumers are watching for this more (customers/sales)  HR / Staffing – more able to recruit staff  Employees better respect their company and will work harder Effects of Ethical behaviour:  Increased costs: expensive supplies; pollution control  Loss of business: may have to turn down jobs  Conflict: shareholders or other stakeholders vs. profits  Business practices may need to change  Relations with suppliers may be tested Should business act ethically?

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IFY Business Studies – Student Handbook Yes: Businesses are part of a society, probably already making profits, think about effects of their decisions on environment, community, etc. No: Free market economists – produce most efficiently; businesses want profits, naïve to think otherwise. Not clear whether businesses becoming or looking more ethical. Major stakeholders often too motivated by profits, greed. Corporate Responsibility Companies take into consideration the needs of its stakeholders Willing to be responsible for and justify its actions. Ways society encourages companies to be responsible:  Laws enacted and enforced (“letter” / ”spirit”) o But actions may take place outside boundaries  Business can self-regulate (usually to avoid laws, be more in control)  Market pressures force responsibility (if public has enough information to judge; if “activistic” enough to take action; if willing to pay price)  Pressure groups – activists willing to speak out and take action Barriers to Corporate Responsibility  Will increase costs, reduce profits  Senior management may have different values and beliefs  Difficult to monitor without information – kept confidential A company that takes Responsibility may have to change its: objectives; operating methods; relationships with stakeholders; etc Social Auditing (different from a financial audit) – looks at responsibility criteria to see its: ethics; social performance Page 76 of 215

IFY Business Studies – Student Handbook (measured and checked); salary levels; health and safety standards; employee motivation; etc. Benefits of Social Auditing: employees at all levels get better view of company; identify social strengths, weaknesses; deal with shareholders, outside parties; pressure groups; etc. The main weakness in the Corporate Responsibility Approach is that it may just relate to things on the surface, things that do not relate to the core business the company operates. In addition, the Social Audits are performed by the company and look at only those things the company wants to look at. Business and the Environment Costs and Benefits of Business activity  Private Benefits = profits, dividends, etc. Private Costs + Externalities = Social Costs.  Negative externalities – cost to the rest of society Environmental costs: Air pollution; water pollution; congestion and noise; destroying the natural environment; loss of arable land; desertification; waste disposal Controlling Environmental costs: Regulation; taxation; Permits; compensation; government subsidies; road charges; Park and ride schemes; education; pressure groups; environmental audits. With environmental awareness growing Businesses may need to:  Change production processes or materials  Change practices, such as how they dispose of waste  Spend more on research and development  Face higher costs  Work more closely with pressure groups There may be benefits: Page 77 of 215

IFY Business Studies – Student Handbook  Reduced costs: energy efficiency; recycling  Attract customers and others who approve of their practices Conservation Business opportunities Summary: As environmental awareness grows Businesses may need to: Change production processes or materials; Change practices, such as how they dispose of waste; Spend more on research and development; Face higher costs; Work more closely with pressure groups There may be benefits:  Reduced costs: energy efficiency; recycling  Attract customers and others who approve of their practices Conservation – conserving resources, promoted at all levels Business opportunities – a competitive environment – entrepreneurs see opportunities.

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IFY Business Studies – Student Handbook

IFY Business Studies – Student Handbook  Relations with suppliers may be tested Should business act ethically? Yes: Businesses are part of a society, probably already making profits, think about effects of their decisions on environment, community, etc. No: Free market economists – produce most efficiently; businesses want profits, naïve to think otherwise. Not clear whether businesses becoming or looking more ethical. Major stakeholders often too motivated by profits, greed. Corporate Responsibility Companies take into consideration the needs of its stakeholders Willing to be responsible for and justify its actions. Ways society encourages companies to be responsible:  Laws enacted and enforced (“letter” / ”spirit”) o But actions may take place outside boundaries  Business can self-regulate (usually to avoid laws, be more in control)  Market pressures force responsibility (if public has enough information to judge; if “activistic” enough to take action; if willing to pay price)  Pressure groups – activists willing to speak out and take action Barriers to Corporate Responsibility  Will increase costs, reduce profits  Senior management may have different values and beliefs  Difficult to monitor without information – kept confidential A company that takes Responsibility may have to change its: objectives; operating methods; relationships with stakeholders; etc Page 80 of 215

IFY Business Studies – Student Handbook Social Auditing (different from a financial audit) – looks at responsibility criteria to see its: ethics; social performance (measured and checked); salary levels; health and safety standards; employee motivation; etc. Benefits of Social Auditing: employees at all levels get better view of company; identify social strengths, weaknesses; deal with shareholders, outside parties; pressure groups; etc. The main weakness in the Corporate Responsibility Approach is that it may just relate to things on the surface, things that do not relate to the core business the company operates. In addition, the Social Audits are performed by the company and look at only those things the company wants to look at.

Business and the Environment Costs and Benefits of Business activity  Private Benefits = profits, dividends, etc. Private Costs + Externalities = Social Costs.  Negative externalities – cost to the rest of society Environmental costs: Air pollution; water pollution; congestion and noise; destroying the natural environment; loss of arable land; desertification; waste disposal Controlling Environmental costs: Regulation; taxation; Permits; compensation; government subsidies; road charges; Park and ride schemes; education; pressure groups; environmental audits. With environmental awareness growing Businesses may need to:  Change production processes or materials  Change practices, such as how they dispose of waste Page 81 of 215

IFY Business Studies – Student Handbook  Spend more on research and development  Face higher costs  Work more closely with pressure groups There may be benefits:  Reduced costs: energy efficiency; recycling  Attract customers and others who approve of their practices Conservation Business opportunities Summary: As environmental awareness grows Businesses may need to: Change production processes or materials; Change practices, such as how they dispose of waste; Spend more on research and development; Face higher costs; Work more closely with pressure groups There may be benefits:  Reduced costs: energy efficiency; recycling  Attract customers and others who approve of their practices Conservation – conserving resources, promoted at all levels Business opportunities – a competitive environment – entrepreneurs see opportunities.

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IFY Business Studies â&#x20AC;&#x201C; Student Handbook

SLIDES Slide 1 Business Stream Introduction to Courses â&#x20AC;˘Business Studies

Slide 2

Supplies Be prepared! A4 Notebooks Pencils / Pens Ring binders with dividers Hole punch Ruler Calculator Stapler

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IFY Business Studies – Student Handbook Slide 3

Business Vocabulary Constantly learning new words Responsible for: • Spelling • Pronunciation • Form • Definition / explanation • Usage Must keep and update a business vocabulary

Slide 4

Sample Business Vocabulary

sole trader

noun

/soʊl/ /treɪdər/

A business started and run by one person

Bill Gates started his business as a sole trader. Now it is a multi-national corporation.

Slide 5

Conducting of Courses Lectures / Tutorials Take notes – always have notebooks Class participation – asking questions – answering questions Homework – collected and marked Regular testing

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IFY Business Studies – Student Handbook Slide 6

Other Rules of Class Be here, be on time! Handle personal matters before / after class No talking, unless instructed Ask teacher about what you don’t understand No word finders (ask teacher) No mobile phones Assigned seating …

Slide 7

Assessment Assignments (2) 10% each Term 1 End of Semester Exams Final Exam Total

Slide 8

20% 10% 70% 100%

Predicted Grades For university selection and applications Based on: Term 1 Assignment Results of Term 1 regular tests Term 1 End of Semester Exam results Homework Class participation

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IFY Business Studies – Student Handbook Slide 9

Predicted Grades Method of calculation: Term 1 Assignment Term 1 EOS Exam Total Homework Term 1 regular tests Class participation

10% 10%

 20%  80% 100%

Increase… ?

These next 15 weeks the most important weeks of your life – your performance will determine your future!

Slide 10

Business Studies Introduction to course

Slide 11

Start a Small Business What functions does the owner perform? • Purchasing • Production • Selling • Promotion • Hiring workers • Financial • Administration

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IFY Business Studies – Student Handbook Slide 12

Organized in an informal diagram Purchasing

Administration

Production

Financial Owner Hiring

Selling

Promotion

The owner is responsible for everything!

Slide 13

As the Small Business Grows… • • • •

More tasks performed by employees Take direction from owner Report to owner Communication with other employees: – provide information – work together with

• A more formalized diagram more clearly shows how members of an organization work together

Slide 14

An Organization Chart for a Sole Trader Owner

Purchasing

Sales

Promotion

Hiring

Financial

Administration

As the business grows and develops, operations and communications become even more formalized.

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IFY Business Studies – Student Handbook Slide 15

Organization Chart Owner

Manuf acturing

Purchasing

Production

Marketing

Sales

Promotion

Administration

Financial

Advertising

Slide 16

Topics to be covered Term 1 • Marketing • Accounting and Finance Term 2 • People and Organizations • Business and the Legal Environment • Basics of Business Management

Slide 17

Introduction to Marketing

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IFY Business Studies â&#x20AC;&#x201C; Student Handbook Slide 18

Marketing: The management process used to identify, anticipate and satisfy consumer requirements profitably.

Slide 19 Marketing: The management process used to identify, anticipate and satisfy consumer requirements profitably.

management: the skill of controlling or directing

Slide 20 Marketing: The management process used to identify, anticipate and satisfy consumer requirements profitably.

process: a series of steps or actions towards an end, a goal

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IFY Business Studies â&#x20AC;&#x201C; Student Handbook Slide 21 Marketing: The management process used to identify, anticipate and satisfy consumer requirements profitably.

identify: to recognize or know

Slide 22 Marketing: The management process used to identify, anticipate and satisfy consumer requirements profitably.

anticipate: to expect or to realize before someone else does

Slide 23 Marketing: The management process used to identify, anticipate and satisfy consumer requirements profitably.

satisfy: to fulfill a desire, a want or a need

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IFY Business Studies â&#x20AC;&#x201C; Student Handbook Slide 24 Marketing: The management process used to identify, anticipate and satisfy consumer requirements profitably.

consumers: people who use products or services

Slide 25 Marketing: The management process used to identify, anticipate and satisfy consumer requirements profitably.

requirements: a need, want or desire

Slide 26

Basic Marketing Concepts Product orientation Market orientation Both can be successful, but more difficult with product orientation alone

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IFY Business Studies – Student Handbook Slide 27

Basic Marketing Concepts Consumers An ongoing process “Relationship marketing” Business philosophy Affects entire company Not just selling Not just advertising Asset-based / Asset-led marketing

Slide 28

Concept of

Real Disposable Income

Consumers income – taxes + government benefits A rise in real disposable income causes:

  Changes in tastes and fashions  New technologies 

• Increase in demand for G & S • Increase in economic growth •

• • Increases in competition

Slide 29

Overview of Marketing Studies • • • • • •

Introduction Market Analysis Segmentation and positioning Market research Marketing objectives and strategies The “Marketing Mix”

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IFY Business Studies – Student Handbook Slide 30

Market Analysis

Slide 31

Market Classification Characteristics: • Geographical • Goods • Industry • Size Measured by value or volume Problems with measuring size – Mass / Niche

Slide 32

Market share / market penetration Proportion of market held by a company Important in judging: – Size – Growth

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IFY Business Studies – Student Handbook Slide 33

Market Growth Affected by changes in the following: • Economics • Social • Technological • Demographics • Legislation

Slide 34

Reasons for Growth • • • • •

Slide 35

Economies of scale Gain market share Increase future profits Reduce risk Survival

Economies of scale Internal • Technical • Management • Financial • Purchasing • Reduce risk through diversification

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IFY Business Studies – Student Handbook Slide 36

Economies of scale External • Labour availability • Outside services • Cooperation

Slide 37

Methods of company growth Internal • Organic • Innovation External • Merger • Acquisition Limits to growth – diseconomies of scale

Slide 38

Reasons small firms still survive • • • • • •

Personalized service Flexibility Efficiency Lower costs Easier to start up (low barriers) Owners prefer to stay small

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IFY Business Studies â&#x20AC;&#x201C; Student Handbook Slide 39 Company (Operating System)

2001 Sales

Units

Mkt. Share

Units

Mkt. Share

Palm (Palm)

5,056

38.6

5,588

50.4

Handspring (Palm)

1,648

12.6

1,369

12.4

20.4

Compaq (Microsoft)

1,283

9.8

466

4.2

175.4

Hewlett-Packard (Microsoft) Casio (Microsoft) Others Total Market

711

5.4

442

Sales Growth

-9.5

4.0

60.9

529

4.0

440

4.0

20.4

3,884

29.6

2,777

25.1

39.9

13,111

100.0

11,083

100.0

18.3

Slide 40

Business Studies 2nd Term

Slide 41

Topics to be covered

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IFY Business Studies – Student Handbook Slide 42

People and Organizations • • • • •

Slide 43

Business & the Legal Environment • • • • • •

Slide 44

Organizational structure and design Motivation Leadership and management styles Personnel management and HRM Labour and management relations

Equal Opportunities Protection at work The National Minimum Wage The Social Chapter Consumer Protection Contract Law

Fundamentals of Management • Business Strategies • Business Objectives

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IFY Business Studies â&#x20AC;&#x201C; Student Handbook Slide 45

Assessments

Slide 46

Assessments Completed Business Plan Final Exam

10% 70%

Slide 47

Marketing An Overview

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IFY Business Studies – Student Handbook Slide 48

Marketing Review definition: The management process used to identify, anticipate and satisfy consumer requirements profitably.

Slide 49

Marketing Topics covered thus far: •Introduction to Marketing •Market Analysis •Market Research •Segmentation •Market Positioning •Marketing Objectives and Strategy

Slide 50

Marketing Getting the right product at the right price to the right place at the right time.

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IFY Business Studies – Student Handbook Slide 51

The Marketing Mix An Overall Marketing Strategy

Slide 52

The Marketing Mix Product •Meet Consumers’ Needs •Meet Company’s Needs •Use •Physical Presentation •Financial •Revenues & Costs •Life Cycle •Uniqueness •Market Position

Slide 53

The Marketing Mix

Price •Consider Market Position •Maximize Sales (Low) •Maximize Profits (High)

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IFY Business Studies – Student Handbook Slide 54

The Marketing Mix

Place •How Transported •Where Sold •How Sold

Slide 55

The Marketing Mix

Promotion •Promotion Strategy •Advertising •Sales Promotions •Public Relations

Slide 56

The Marketing Mix

Price

Product

Target Market Place

Promotion

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IFY Business Studies – Student Handbook Slide 57

Slide 58

The Marketing Mix

Product •Brand Name •Function •Quality •Style •Packaging •Accessories •Repairs & Service •Warranty

Slide 59

The Marketing Mix

Price •Pricing Strategy •Discounts •Seasonal Prices •Price Discrimination

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IFY Business Studies – Student Handbook Slide 60

The Marketing Mix

Place •Distribution Channels •Market Coverage •Distribution Centers •Order Processing •Transportation

Slide 61

The Marketing Mix

Promotion •Promotion Strategy •Advertising •Sales Promotions •Public Relations

Slide 62

Product

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IFY Business Studies – Student Handbook Slide 63

The Product Life Cycle

Slide 64

Decline

Maturity & Saturation

Growth

Introduction

Development

Money

The Product Life Cycle

Time

Slide 65

Development Stage •Design •Testing •Decision to proceed •Large amount of money spent •No revenues in (no sales yet)

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IFY Business Studies – Student Handbook Slide 66

Introduction Stage •Begin Selling •Often slow, but may be fast •So, a little money in •Large amount of promotion •So still large amount of money out

Slide 67

Growth Stage •Product now accepted by consumers •Sales grow at a fast rate •So, money in begins to increase •If new product, competition may enter market

Slide 68

Maturity & Saturation Stage •Sales rate begins to level off •Promotion costs reduced •Saturation – placed well throughout market

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IFY Business Studies – Student Handbook Slide 69

Decline Stage •Sales begin to decline •May be due to: •Change in Customer tastes •New technology •Decision may be made to kill the product, or …

Slide 70

Extension Strategies Ways to extend the product’s life cycle •New uses •New markets •Wider product range •Target markets

•Change appearance •Encourage consumer to use more often •Change ingredients or components

Slide 71

The Product Life Cycle Decline

Maturity & Saturation

Growth

Introduction

Development

Money

Time

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IFY Business Studies – Student Handbook Slide 72

The Product Life Cycle Stage

Capacity

Cash Flow

Development No Effect

Negative – cash out only

Introduction/ May have spare capacity Sales begin, so some inflow Launch (limited sales), or, Still overall negative due to May “borrow” from existing prior development, and, capacity (other products) promotion costs

Slide 73

Growth

Production expands, use up spare capacity

Cash Flow moves to positive Cash from sales starts exceeding prior cash expenditures

Maturity

May operate at full capacity May need to expand capacity

Cash Flow at highest Sales at highest, marketing and advertising may decline

Decline

Sales and production are going down, capacity may not be fully utilized

Sales will fall, Cash flow will fall

The Product Life Cycle Useful for: •Showing trends in product revenue •Planning when to launch new products •Planning when to introduce extension strategies •Planning cash flows •Identifying when to stop selling a product •Showing expected profitability at different stages •Planning different marketing strategies •Managing PRODUCT MIX and PRODUCT PORTFOLIO

Slide 74

The Boston Matrix Market Growth High

Low

High

Star

Cash Cow

Low

Problem Child

Dog

Market Share

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IFY Business Studies – Student Handbook Slide 75

Branding Recognition by consumers

Slide 76

Reasons to establish Brand • Customer loyalty

• Product differentiation • Recognition • Image • Pricing flexibility • Brand Equity

Slide 77

Developing a Brand • Name or symbol (logo)

• Protection (trademark, copyright) • Unique Selling Point (USP) • First out • Market positioning awareness

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IFY Business Studies – Student Handbook Slide 78

Types of Brands • Manufacturer’s Brand

• Own Label Brand

Slide 79

Branding Strategies • Individual Branding

• Family or Corporate Branding • Combination Branding • Brand extensions

Slide 80

Problems with Branding • Expensive

• Time consuming • May not be suitable for some products / markets

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IFY Business Studies – Student Handbook Slide 81

Promotion To GET and KEEP customers

Slide 82

Purposes of Promotion • • • • • •

Slide 83

Create / increase customer awareness Reach a target market Reminding Product differentiation Image Reassurance

Types of Promotion • Above the Line • Below the Line Uses independent commercial media to reach consumers

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IFY Business Studies – Student Handbook Slide 84

Promotion: Above the Line Types of advertising • Informative • Persuasive • Reassuring • Corporate advertising – Responsible members of society – Branding

Slide 85

Promotion: Above the Line Medium Television

Slide 86

Advantages Mass market; Attention; Demonstrate Products

Disadvantages Expensive; short lived; not f or technical inf o

Newspapers, Mass or Target markets; Magazines Big or small businesses; National, regional, local

No motion, sound; Black & White; ads can get lost; long time to publication

Cinema

Strong impact; target specif ic consumers

Limited: viewers see it only once

Radio

Inexpensive; target specif ic markets

No visuals; may not get attention

Posters, Billboards

Target location; visual; encourage to buy;

Limited inf o, ef f ectiveness; damage environment

Internet

Inexpensive; monitor hits; targeted; easy to change

Limited audience; technical problems

Promotion: Above the Line Factors in choosing media: • Cost: overall; effectiveness • Target advertising • Presentation • Impact • Marketing Mix • Competition • Legal restrictions / controls

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IFY Business Studies – Student Handbook Slide 87

Controls on Advertising Limit misleading advertising • Legislation and regulation • Independent bodies • Pressure groups

Slide 88

Controls on Advertising Limit misleading advertising Legislation and regulation: • Trades Descriptions Act – avoid false, misleading • Office of Communications – regulates TV, radio ads • Competition Commission – investigates anticompetitive behaviour

Slide 89

Controls on Advertising Limit misleading advertising Independent bodies: • Advertising Standards Authority – independent selfgoverning body

• The CAP Code (British Code of Advertising, Sales Promotion and Direct Marketing)

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IFY Business Studies – Student Handbook Slide 90

The CAP Code • Legal, decent, honest and fair • Responsible to consumers and society • In line with principals of fair competition

Slide 91

The CAP Code Breach of CAP Code – ask company to withdraw ad If not, can: a) Publish findings b) Withdraw privileges of membership c) Pressure media to refuse future ads

Slide 92

Advertising: Social aspect Effects on Society: • Increases Costs • Encourages spending • Consumption effects on environment • Encourages behaviour that may damage society

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IFY Business Studies – Student Handbook Slide 93

Advertising: Social aspect Advertisers’ Justifications: • Offers choice • Gives consumers information • Respond to, don’t create, consumers’ needs • Revenues reduce cost of media • Employs large number of people

Slide 94

Promotion: Below the Line Advantages: • Lower costs • Control the message

Slide 95

Below the Line Promotion – Types • • • • • • • •

Direct mailing Exhibitions and Trade Fairs Sales Promotion Branding In-store Merchandising Packaging Personal Selling Public Relations

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IFY Business Studies – Student Handbook Slide 96

Slide 97

Place (Distribution) The right place at the right time

Slide 98

Place (Distribution) Channels of Distribution • Retail • Direct to customer • Wholesaler • Agent Physical Distribution • How goods are transported

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IFY Business Studies – Student Handbook Slide 99

Retail • • • • •

Slide 100

Supermarkets & Hypermarkets Department Stores Multiple shop organizations Retail co-operatives Independent retailers

Direct Marketing • • • • •

Slide 101

Retail Outlets Internet Direct mail Personal selling Telephone sales

Choosing right Distribution • • • •

Type of Product Market Legal restrictions Company

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IFY Business Studies – Student Handbook Slide 102

Channels of Distribution

Slide 103

Price

Slide 104

Price Factors affecting pricing decisions •Marketing Objectives: maximize sales, maximize profits, etc. •Marketing Mix: product, promotion, place •Costs: long-term, cover costs; short-term, some flexibility •Competition •Consumer expectations •Market Segment •Legal

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IFY Business Studies – Student Handbook Slide 105

Pricing Methods •Market Orientated Pricing •Competition Based Pricing •Cost Based Pricing

Slide 106

Market Orientated Pricing Based on Market conditions Name Based on •Penetration Pricing Pricing low to penetrate (mass market) •Market Skimming High price, limited time (new product) •Loss Leader Losing money (bring customers in) •Psychological Pricing Consumer thoughts, feelings (e.g. £ 9.99) •Price Discrimination Different segments

Slide 107

Competition Based Pricing When selling in a highly competitive market

Name •Going Rate Pricing •Destroyer Pricing

•Closed Bid Pricing

Based on About the same as Market Leader

Very low, to eliminate competition Very large projects

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IFY Business Studies – Student Handbook Slide 108

Cost Based Pricing With some products and services, Costs are a bigger factor than market forces

Disadvantage: May not consider the price the Market will accept Name Based on Costs plus a specific % •Cost Plus •Contribution

Variable costs plus some amount

•Absorption / Full Cost Covering all direct and indirect costs

Slide 109

How businesses use Price Pricing Tactics Short-term actions to achieve some specific marketing goal Pricing Strategies Longer-term actions

Slide 110

How businesses use Price Pricing Tactics Special Promotion Offers Loss Leaders

Discounts Introductory Offers

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IFY Business Studies – Student Handbook Slide 111

How businesses use Price Pricing Strategies New Products Lower pricing Skimming / Creaming Existing Products

Price Taking Price Leader Destroyer Pricing Price Discriminating

Slide 112

Accounting

Slide 113 Accounting −Record −Classif y −Summarize “Accounts” …the name f or f inancial reports

business and f inancial transactions

and report the results

to interested users.

Users Internal –

management, owners

External –

Registrar of Corporations, auditors, tax authority, legal

Financial –

Bankers, suppliers, competitors, community, media, investors & analysts, Government

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IFY Business Studies – Student Handbook Slide 114 The Role of Accountants •To produce Accounts •Involved in Audits –Audits = reviews of Accounts

Slide 115 Types of Accounts Management Accounts: For “internal” users to: •Analyze costs •Prepare Budgets & Forecasts •Predict f uture situations Financial Accounts

For “external” users •Based on historical (past) inf ormation •Prepared according to f inancial accounting standards •Auditors review them and report whether they are “true and f air”

Slide 116

Limitation of Accounts •

Quantitative inf ormation only, no qualitative inf ormation

• • •

No inf ormation about outside f inancial situation No inf ormation to help predict market situation No inf ormation about outside economic situation

Additional limitations to be discussed when we discuss each of the two f inancial accounts

Page 121 of 215

IFY Business Studies – Student Handbook Slide 117

Computers and Accounting • •

•

Most (All) companies Advantages: – Quick and ef f icient – Can handle large volumes – Accurate Disadvantages: – Cost – Technical problems – Operator error – Security

Slide 118

Finance The Need for Funds

Slide 119

Types of Expenditures (Spending) • Capital Expenditures:

Investments such as land, buildings, machines, other companies, etc. (appear on the Balance Sheet)

• Revenue Expenditures: To produce income, such as advertising campaign, stock for resale, production staffs, etc. (appear on the Profit and Loss Account)

Page 122 of 215

IFY Business Studies – Student Handbook Slide 120

Financing How a company finances itself (gets the money it needs) to: –begin operations; or, –grow in size

Slide 121

Sources of funds Internal:

• Profits • Working Capital • Sale of assets

External:

• Share capital – ownership • Loan capital – Long term sources – Short term sources

Slide 122

Capital Structure The combination of: –Share capital –Loan capital

Page 123 of 215

IFY Business Studies – Student Handbook Slide 123

Choosing the right Capital Structure Companies consider: • • • • • •

Cost Use of funds Image (status) Company size Financial situation “Gearing” – the combination of Capital and Loans

Slide 124 Share Capital Selling shares of stock

Advantages: • Money never paid back • Dividends (payments to shareholders) optional

Slide 125 Share Capital Selling shares of stock

Limitations / disadvantages: • Many more owners • Only large companies can do • Very costly • Rules and restriction

Page 124 of 215

IFY Business Studies – Student Handbook Slide 126

Loan Capital Borrow the money Advantages: • No change in ownership • Any size company • Not very costly • Few rules or procedures

Slide 127

Loan Capital Borrow the money Limitations / disadvantages: • Funds must be repaid • Interest must be paid

Slide 128

Short Term Loan Capital • • • • •

Bank Overdraft Bank Loan Hire Purchase – equipment Trade Credit Lease – Financing – like buying – Operating – just renting

• Debt Factoring

Page 125 of 215

IFY Business Studies – Student Handbook Slide 129

Long Term Loan Capital • Debentures (only public companies) * – Bonds – public invests (like shares)

• Mortgages (all companies) * – For purchase of a fixed asset – Secured by that asset

* Fixed interest rate, guaranteed repayment date

Slide 130

Uses of funds – Assets • • • •

Slide 131

Land Buildings Machinery Equipment

“Tangible” (can be touched)

Uses of funds – Assets • Investments (mostly shares in other companies

“Financial”

Page 126 of 215

IFY Business Studies – Student Handbook Slide 132

Uses of funds – Assets • • • • •

Patents “Intangible” (cannot be Copyrights touched) Trademarks Branding Research and development

Slide 133

Financial Accounts

Slide 134 Financial Accounts Prof it and Loss Account Summary of yearly trading and operations

Balance Sheet

Financial position of the company How company has built itself up How its funds have been used Where its funds have come from

Page 127 of 215

IFY Business Studies – Student Handbook Slide 135

Other Reports • •

• • •

Slide 136

Cash Flow Statement Notes to Accounts: – Details

– Some qualitative inf ormation about Accounts Directors’ Report Chairman’s Statement Auditor’s Report

Profit and Loss Account • Reports a company’s trading (business operations) activities • Over a period of time (usually 1 year) • Shows: – Sales – Selling and Operating Costs – Profits paid out to owners – Amount kept in the business for growth

Slide 137

Profit and Loss Account For the year ended 31 Dec 20xx £millions Turnover (sales revenue)

Less: Cost of sales Gross profit Less: Other costs

Trading / operating profit

500

-200 300 -100

200

To shareholders (dividends)

-75

Retained profit

125

Always presented for some period of of time, Trading – sales goods usually 1 year. and services over the How much spent to year. produce the goods Profit earned from and services sold. trading activities. Shows Other costsinto run the efficiency production or buying.Shows how business. well the company is Business profit after all managed. costs andpaid expenses. Amount out to shareholders each year Amount retained in the as their share of profits. business to build financial strength and to pay for growth.

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IFY Business Studies – Student Handbook Slide 138

Balance Sheet As of 31 Dec 20xx

Fixed assets Current Assets - stock - debtors - cash Total current assets Less: current liabilities Net current assets NET ASSETS Share capital Retained prof it CAPITAL EMPLOYED

£millions 200 40 50 20 110 -40 70 270 100 170 270

Always presented as of some date, usually the last day of year. Assets: Everything the Investments held for company owns. over 1 year, such as buildings, Assets themachines company & equipment, other expects to amounts use within Liabilities: the companies, etc.to the year. owes company others. Amounts that must be paid within 1 year. Current assets minus Current liabilities, also called On theWorking Balancecapital. Sheet Shows ifmeans a company CAPITAL the can Assets minus Liabilities. pay its current amounts amount belonging Original purchase oftothe when Profits they left in come the due. the owners. company shares. company for growth.

NET ASSETS and CAPITAL EMPLOYED must always be equal (they must always balance). Thus the name Balance Sheet.

Slide 139

Working Capital

Slide 140

Working Capital Current Assets

– Current Liabilities Working Capital • • • •

Current Assets  Liquid Assets Working Capital  Measures Liquidity Working Capital  Circulating Capital WC  Important for day-to-day operations

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IFY Business Studies – Student Handbook Slide 141

Working Capital A company cannot be without it. So, too little is bad! But, too much is not good! The company should be putting its valuable resources to work!!

Slide 142

The Working Capital Cycle Goods Produced (Labour, etc.)

Customer Pays

Pay Suppliers Goods Sold (Debtors)

Slide 143

Working Capital Lag Liquidity Problems

Solutions

•Overtrading •Too many Fixed Assets

•Encourage cash sales •Sell non-vital Fixed Assets •Sale and lease back

•Stock-piling

•Sell off raw materials, even if at a loss

•Allowing too much credit •Strong measures to collect, allow cash discounts

•Taking too much credit

•Extend credit with some suppliers

•Over-borrowing

Page 130 of 215

IFY Business Studies – Student Handbook Slide 144

Other Measures • Internal credit controls • “Late Payment of Commercial Debts Act 1988”

Slide 145

Ratios • • • •

Business has certain expected standards Not absolutes, not rules, just measures Used to analyze businesses More specific details soon

Liquidity Ratios Measure how well businesses can pay creditors

Slide 146

Current Ratio or

Working Capital Ratio Current Assets Current Liabilities 1.5 : 1 = Generally the minimum preferred 2 : 1 = Strong.

Any more, and a company should consider if their resources could be put to better use.

Page 131 of 215

IFY Business Studies – Student Handbook Slide 147

Acid Test Ratio or

Quick Ratio Current Assets – Stock Current Liabilities Less than 1 : 1 = the company doesn’t have enough “Quick” assets (Cash and Debtors) to cover Current Liabilities

Slide 148

Liquidity Ratios Sample calculations and analysis:

Current Ratio

Current Assets - stock - debtors - cash Total current assets Less: current liabilities Net current assets 23,121

2.97 : 1

1.88 : 1

8,490 10,222 4,409 23,121 -7,783 15,338

7,783

Quick Ratio

14,631 7,783

This company seems to have very strong liquidity

Slide 149 Cost & Management Accounting (CMA)

Page 132 of 215

IFY Business Studies – Student Handbook Slide 150

Cost & Management Accounting • Know how a business is doing • Decision making

• Need accurate accounting information

Slide 151

Costs • Accounting Costs – Value of resources used up in operations – For Assets or Expenses

• Economic Costs – Includes Opportunity Cost – Opportunity Cost not considered in Accounting

Slide 152

Cost Classification • Behaviour • Function • Other

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IFY Business Studies – Student Handbook Slide 153

Cost Classification – Behaviour • Fixed Costs – Do not change as output rises – Examples: rent; power; management • Step Costs – Fixed Costs that change • Variable Costs – Change (vary) directly with changes in output – Examples: materials; production supplies; labour • Semi-variable – Variable costs that have fixed elements

Slide 154

Cost Classification – Function • Direct Costs – Costs directly involved with the production or process – Examples: material; labour; production supplies; supervisors

• Indirect Costs / Overhead Costs – Costs of running the business, not directly involved with the production or process – Examples: management; administration

Slide 155

Cost Classification – Other • Average Cost – Cost per unit (Total Cost divide by Units)

• Marginal Cost – Additional cost of producing the next unit

Page 134 of 215

IFY Business Studies – Student Handbook Slide 156

Cost Classification – Other • Production • Selling • Administration

Slide 157

“Quality” Profits • Add to business vocabulary • Profits over a long period – several years

Slide 158

Management Accounting • Accounting for Management Purpose • Used to assist in decision making • Analyzes costs and revenues in many different ways

Page 135 of 215

IFY Business Studies – Student Handbook Slide 159

Costing Centres • A way of collecting or accumulating costs • A method of: – Managing Cost – Assigning responsibility – Evaluating performance • Different departments or areas of a business: – Cost Centres – Profit Centres

Slide 160

Slide 161

Cost Centres • Costs are collected based on: – Different Departments – Different geographical locations – Employees – Etc. • Information can be used for budgets, controlling costs, etc.

Page 136 of 215

IFY Business Studies – Student Handbook Slide 162

Profit Centres • Very similar to Cost Centres • Each Centre also has sales • In the end, profit or loss can be measured in each Centre

Slide 163

Cost & Profit Centre Analysis Advantages: • Helps in decision-making • Improves motivation • Makes departments act more responsibly • Helps in finding problems

Slide 164

Cost & Profit Centre Analysis Disadvantages: • Company-wide costs may be allocated unfairly • May create internal conflicts • May increase pressure / stress among employees • Inefficient use of resources

Page 137 of 215

IFY Business Studies – Student Handbook Slide 165

Costing Methods Different ways of looking at costs Provides managers with information for decision-making

Slide 166

Costing Methods • Product Costing – by the product – Useful for manufacturing

• Job Costing – by the job – Useful for services

• Contract Costing – by the contract – Useful for construction

Slide 167

Contribution Costing Also called Marginal Costing Shows if a Product or Order contributes toward Fixed Costs and Profits, and if so, how much

Page 138 of 215

IFY Business Studies – Student Handbook Slide 168

Contribution Costing Uses: • Calculating Prices • Calculating Break Even Point • Decision-making – Should company produce Product A, B or C – Accept or reject orders

Slide 169

Contribution Costing Calculations available: • Contribution per unit CPU = P – VC Different from profit

• Total Contribution - CPU x Q (Quantity Sold)

• Total Profit – Total Contribution – FC

Slide 170

Standard Costing An estimated Cost per Unit Very detailed analysis of production costs

Page 139 of 215

IFY Business Studies – Student Handbook Slide 171

Absorption Costing Method Also called Full Costing or Total Costing Begins with Standard Cost Adds in non-production Overheads Non-production Overheads then reallocated to production departments based on different assumptions

Slide 172

Break Even Total Revenue = Total Cost TR = TC

Slide 173

Break Even Analysis Helps Users to know: • How much sales needed to cover our costs • How different output levels affect profit • How changes in price or costs affect: – Break Even Point – Profit

Break Even Point (BEP): the quantity of goods sold needed to break even

Page 140 of 215

IFY Business Studies – Student Handbook Slide 174

Break Even Analysis Key Break Even calculations (already reviewed) • Calculate BEP using Contribution Costing BEP = FC  CPU

• Calculate BEP using TR and TC P x Q = FC + (VC x Q) OR P x BEP = FC + (VC x BEP)

Slide 175

Break Even Analysis Key Break Even calculations: • Calculate the Output needed to meet a Target Profit Target Output = (FC + Target Profit)  CPU

• Calculate Price using Break Even Break Even Price = TC  Output BE Price + Target Profit = (TC + Target Profit)  Output

Slide 176

Break Even Diagram £

Break Even Point

Output

Page 141 of 215

IFY Business Studies – Student Handbook Slide 177

Break Even Diagram £

Break Even Point

Output Level

Margin of Saf ety

Output

Slide 178

Cash Flow & Budgets

Slide 179

Cash Flow • Cash Flow Statement • Cash Flow Forecast

Page 142 of 215

IFY Business Studies – Student Handbook Slide 180

Cash Flow Different from Profit • Timing of transactions • Fixed Assets • Company borrowings • Owners’ Capital

Slide 181

Cash Flow Statement Uses • Identify cash shortages or surpluses • Support applications for credit • Monitor cash flow (at year end) Required with Financial Accounts

Slide 182

Cash Flow Statement Sections • Operating activities • Returns on Investments and servicing of finance • Taxation • Investing activities • Financing

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IFY Business Studies – Student Handbook Slide 183

Cash Flow Statement Also required: • Statement calculating net cash flows from operations

Slide 184

Cash Flow Statement Criticisms • Doesn’t give very much information • Not required for small companies • Based on historical transactions • Future predictions would be more useful

Slide 185

Cash Flow Forecast Uses • Help with planning or starting a new business • Identify cash shortages or surpluses • Support applications for credit • Monitor cash flow

Page 144 of 215

IFY Business Studies – Student Handbook Slide 186

Budgets

Slide 187

Budgets • An agreed plan for spending • Throughout all levels of company • Need accurate information – Financial Accounts (past) – Forecasts (future) • Master  Departments  Subsidiaries

Slide 188

Budgeting – in general Benefits: • Helps with control, especially spending • Sets clear targets & responsibilities • Helps make sure capital is usefully employed • Helps with coordination and communication

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IFY Business Studies – Student Handbook Slide 189

Budgeting – in general Drawbacks: • Can create problems, especially among competitive employees • May be too inflexible • If differences between budget and actual are too large, may hurt effectiveness of budget process

Slide 190

Approaches to Budgeting • • • •

Sales / Revenue budget Operations budget – operating activities Production budget Flexible budget – different levels of production • Objectives budget – meet some goal • Capital budget – planning large items, such as purchasing fixed assets, etc.

Slide 191

Difficulties in preparing Budgets • Based on prior sales levels, etc • Management and coordination of budget process • Conflict • Time consuming

Page 146 of 215

IFY Business Studies – Student Handbook Slide 192

Zero-based budgeting Justify expenditures with benefits

Benefits • • • •

Drawbacks

Helps allocate resources • A more careful approach • Creates alternatives Can improve motivation •

Threat to “the way it is” – motivation Difficult May miss some opportunities

Slide 193

Break Even Total Revenue = Total Cost TR = TC

Slide 194

Page 147 of 215

IFY Business Studies – Student Handbook Slide 195

Break Even Point Quantity of goods sold needed to break even £

Break even points

TC TR

Slide 196

Output

Margin of Safety If a company is producing at any output A…

TC TR

How much can output drop bef ore they begin losing money?

Slide 197

Output

Break Even Analysis Key Break Even calculations: • Calculate BEP using Contribution Costing • Calculate BEP using TR and TC • Calculate a Target Profit • Calculate a Break Even Price

Example Calculations – Data: Price per Unit = 100 Variable Cost per Unit = 40 Fixed Costs = 60,000

Page 148 of 215

IFY Business Studies – Student Handbook Slide 198

Calculate BEP using Contribution Break Even Point = Fixed Costs  Contribution per unit Contribution per unit = 100 – 40 = 60 Break Even Point = 60,000  60 = 1,000 units Company needs to produce 1,000 units to break even

Slide 199

Calculate BEP using TR and TC Break Even Point: TR = TC Total Revenue = Price x Quantity Sold (Q) = 100 x Q Total Cost = Fixed Costs + Variable Costs = 60,000 + (40 x Q) So, 100 x Q = 60,000 + (40 x Q) Q = 1,000 units Company needs to produce 1,000 units to break even

Slide 200

Variance Analysis Using the Budget to Control Costs

Page 149 of 215

IFY Business Studies – Student Handbook Slide 201

Variance Analysis • • • •

Begins with the Budget – the Plan At period end, Actual compared to Budget Differences are called Variances Favourable: – Income higher – Expense lower

• Adverse / Unfavourable: – Income lower – Expense higher

Slide 202

Variance Analysis Using all the different types of Variances together, a company can really pinpoint exactly where they are experience cost problems, and can help identify how to solve those problems.

Slide 203

Types of Variances • Sales Margin Variance • • Profit Variance • Materials Variance • – Price (cost) • – Usage

Labour Variance – Wage Rate – Labour Efficiency

Overheads Variance Cash Variance

Page 150 of 215

IFY Business Studies – Student Handbook Slide 204 Organizational Structure and Design

Slide 205

Organizational Structure and Design • An organization’s design and structure affects every aspect of the business, internal and external • A Formal Organization establishes: – Relationships – Authority to make and carry out decisions – Communications

Slide 206

Factors Influencing Organizational Structure • • • • • • •

Size Views of owners or management Business objectives External factors Changes in technology The “informal” business structure The “corporate culture”

Page 151 of 215

IFY Business Studies – Student Handbook Slide 207

Organization Charts • • • •

Slide 208

Slide 209

Positions within the organization Lines of communication Analyze for weaknesses “Hierarchy”: order & levels of management

Organization Chart – Example

Organizational Design • “Chain of Command” – the way in which: – Orders pass down – Information passes up • “Span of Control”: – Number of “subordinates” under a manager

Page 152 of 215

IFY Business Studies – Student Handbook Slide 210

“Chain of Command” • “Tall” organization – many layers – For companies needing strong control – Orders and information travel more slowly – May reduce motivation – May be inefficient

• “Short” organization – few layers – May increase motivation – May be more efficient

Slide 211

“Span of Control” • “Wide” span – many “subordinates” – More “cost effective” – Less effective management / motivation – May increase managers feeling of power

• “Narrow” span – fewer “subordinates” – More effective management / motivation – More expensive

• 3–6 subordinates may be most effective

Slide 212

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IFY Business Studies – Student Handbook Slide 213

Responsibility & Authority Responsibility: • Being required to justify actions Authority: • The power or right to order, control or judge others • Line authority: manager over subordinates • Staff authority: advice to other departments • Functional authority: specialists give advice

Slide 214

Delegation Passing authority and/or responsibility for some tasks to employees further down the hierarchy

Requires: • Effective planning • Clear explanations and instructions – why • Employees having authority & responsibility • Managers supporting, avoiding interference • Oversight and control

Slide 215

Management Structures • Centralized Management – All decisions made by central management

• Decentralized Management – Decisions made by branches

Page 154 of 215

IFY Business Studies – Student Handbook Slide 216

Centralized – Benefits • • • • • • •

Slide 217

Senior management greater control Senior management more experienced Standardization – economies of scale Decisions – point of view of whole company Crisis – strong leadership Communications easier Fewer decision makers

Decentralized – Benefits • • • • • •

Slide 218

Reduces burdens on senior management Empowers and motivates workers Greater job satisfaction “Local” knowledge More flexibility, responsiveness Prepares subordinates to move up

Different forms of Business Structure • • • •

Entrepreneurial Bureaucratic, pyramid or hierarchical Matrix (project) Independence

Page 155 of 215

IFY Business Studies – Student Handbook Slide 219

“Informal” Business Structure • Spontaneous / unplanned • Employees have their own circles of communication • Seek advice from colleagues • Often involve higher levels of trust

Slide 220

“Delayering” • Recent trend – cut out layers of middle management, making organizations flatter • Hierarchy structured in projects or teams • Better communication • Better decision-making • Greater management & financial flexibility • Empowers employees: – self-monitoring – take responsibility

Slide 221

Examples P. 411, Figure 58.2

Page 156 of 215

IFY Business Studies – Student Handbook Slide 222

Motivation Theory

Slide 223

Motivation at Work • Why is it important at work? • Gives purpose and direction to behaviour • People’s needs – varied and limitless

Slide 224

Motivation Theories • Generally divided into two groups – “Scientific Management” – “Human Relations”

Page 157 of 215

IFY Business Studies – Student Handbook Slide 225

Motivation Theories • • • • •

Slide 226

Scientific Management – Taylor Hierarchy of Needs – Maslow Human Human Relations Management Theory X and Theory Y – McGregor Others…

Scientific Management – Taylor • Studied workers performance – Timed speed – Observed methods

• • • •

Slide 227

Divide & perform tasks – efficiency Assumed a single motivator – money “Piece rate” method “Fair day’s pay” for “fair day’s work”

Scientific Management – Taylor Motivation: • Work faster – earn more • Work slower – lose earnings Problems: • People are different • What’s fair for different people • Viewed people as machines, not humans

Page 158 of 215

IFY Business Studies – Student Handbook Slide 228

Hierarchy of Needs – Maslow • • • •

Slide 229

Divide needs into different classifications Begin with basic needs As those needs satisfied … People consider other needs…

Hierarchy of Needs – Maslow

SELF-ACTUALIZATION SELF-ESTEEM LOVE & BELONGING SAFETY & SECURITY PHYSIOLOGICAL

Slide 230

Hierarchy of Needs – Maslow • Levels satisfied one by one • Some people do not need some levels • Difficult to tell when a level satisfied

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IFY Business Studies – Student Handbook Slide 231

Human Relations Methods • Increased communications • Increased workers cooperating with each other and with company • Increased efficiency and productivity

Slide 232

Human Relations Methods Possible problems: • When workers have different goals, difficult to reach “consensus” • Too much information may create problems • Workers may feel tricked by management

Slide 233

Theory X and Theory Y – McGregor Theory: people are one way or the other

Theory X • Motivated by money • Lazy, dislike work • Selfish, don’t care about company, avoid responsibility, lack ambition • Need management’s control and direction

Theory Y • Motivated by many different things • Can enjoy work • Can organize work, take responsibility – if properly managed • Can show creativity, and apply their knowledge to the job

Page 160 of 215

IFY Business Studies – Student Handbook Slide 234

Theory X and Theory Y – McGregor • Know and understand which people are X’s and Y’s • Which types of people are appropriate for different types of jobs • Which types are appropriate for management

Slide 235

Herzberg’s Two-Factor Theory • Hygiene Factors – lead to dissatisfaction • Motivators – lead to job satisfaction

Slide 236

Motivation Theories Knowing them can help management: • Understand and know employees • Select and hire employees • Design different jobs and positions • Increase worker satisfaction • Increase productivity • Solve problems

Page 161 of 215

IFY Business Studies – Student Handbook Slide 237

Motivation Theories Difficulties with Motivation Theories: • Is one is right, the other wrong? • Difficult to generalize about employees

Slide 238

Motivation in Practice Achieving a balance between productivity and job satisfaction

Slide 239

Motivation in Practice • Two general methods: – Financial Rewards – Non-financial

Page 162 of 215

IFY Business Studies – Student Handbook Slide 240

Financial Rewards • • • • • •

Slide 241

Time rates Annualized hours contracts Piece rates Commissions Fees Fringe Benefits

Financial Rewards Employer Considerations: • • • • •

Slide 242

Employee motivation Cost Prestige Recruitment / Labour turnover Control

Financial Rewards Employee Considerations: • • • • •

Purchasing power Fairness Relative to other employees / companies Recognition of contribution Composition of compensation package

Page 163 of 215

IFY Business Studies – Student Handbook Slide 243

Financial Rewards Incentive schemes Incentive: something that encourages or tends to encourage action or greater effort

Slide 244

Financial Rewards Incentive schemes • Individual output schemes • Collective output schemes • Employee input related schemes

Slide 245

Financial Rewards Problems with Incentive schemes • Operational • Earnings forecasting • Quality control • Changes to scheme

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IFY Business Studies – Student Handbook Slide 246

Financial Rewards Problems with Incentive schemes • Pressure / quality of working time • Worker jealousy • Performance standards • Team incentives

Slide 247

Motivation in Practice Non-financial Rewards Non-monetary motivation

Slide 248

Non-financial Rewards Job design or Job redesign • • • •

Carry out series of tasks – closure Workers / teams responsible for quality Increase range of tasks (rotation) Employees control speed, method and sequence • Allows interaction and cooperation

Page 165 of 215

IFY Business Studies – Student Handbook Slide 249

Non-financial Rewards Job design or Job redesign Schemes • • • • • • •

Slide 250

Job enlargement – broad range of tasks Job rotation Team working Job enrichment Multi-skilling Quality control circles Empowerment

Non-financial Rewards Problems with Job redesign • • • • • •

Slide 251

Resist change Costly with little effect on productivity New technologies – more difficult Need evaluation for effectiveness Quality control circles Empowerment

Non-financial Rewards Management By Objectives (MBO) • Setting goals and achieving them • Creates job satisfaction

Page 166 of 215

IFY Business Studies – Student Handbook Slide 252

Non-financial Rewards Organization Behaviour Modifaction (OBMod) • Positive reinforcement • Negative reinforcement • Punishment

Slide 253

Non-financial Rewards Employee assistance programmes • Mental health assistance • Child care

Slide 254

Motivation in Practice Achieving a balance between productivity and job satisfaction

Page 167 of 215

IFY Business Studies – Student Handbook Slide 255

Leadership

Slide 256 Management & Leadership Manager: responsible for getting things done. • Job involves – Planning – Organizing – Commanding – Coordinating – Controlling

Slide 257 Management & Leadership Leadership: – Know what direction to take – Plan – Persuade others to follow

Page 168 of 215

IFY Business Studies – Student Handbook Slide 258 Management & Leadership Leaders adopt different styles: – Delegating – Participating – Selling – Telling

Slide 259 Leadership Styles • • • •

Autocratic Paternalistic Democratic Laissez faire

Slide 260 Autocratic Leadership Style: – Leader sets all goals – Delegates tasks – Demands obedience Analysis: – If dissatisfied, won’t work well together – Supervision – Poor motivation

Page 169 of 215

IFY Business Studies – Student Handbook Slide 261 Paternalistic Leadership Style: – Same style as Autocratic, except – Concern about subordinates welfare Analysis: – Decrease dissatisfaction, supervision – May improve working together and motivation

Slide 262 Democratic Leadership Style: – Encourage participation in decision-making – Persuasive / consultative to follow his plan – Strong communication skills Analysis: – Workers participate, a sense of freedom – Uses knowledge, wisdom of workers – Greater commitment and motivation

Slide 263 Laissez Faire Leadership Style: – Workers work freely within broad limits – Few guidelines and directions Analysis: – Allows for much more creativity – Relaxed atmosphere – Sometimes may result in poor productivity, lack of motivation

Page 170 of 215

IFY Business Studies – Student Handbook Slide 264 Leadership in General Due to job redesign, delayering, managers must be more team-based Need to select, coordinate and manage groups Deal with related issues

Slide 265 Leadership in General Leadership style often determined by personality People don’t change easily Selected based on job requirements Leadership Matching Task oriented Relationship oriented

Slide 266 Leadership in General Leadership style based on situation: • Certain tasks / emergencies • Skilled / unskilled workforce • Size • Leader’s personality • Personalities in the group • Time constraints

Page 171 of 215

IFY Business Studies – Student Handbook Slide 267 Leadership Effective Leading is the most important

Slide 268 Human Resource Management

Slide 269

Human Resource Management • Managing a company’s HUMAN resources • Requires effective management • Has strategic implications

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IFY Business Studies – Student Handbook Slide 270

Human Resource Management “Soft” Side: “Hard” Side: • Motivation • Staffing needs • Organizational structure • Future staffing • Support for employees – Demands • Employee relations – Supply • Predicting turnover • Industrial relations

Slide 271

Factors affecting HRM • • • • •

Slide 272

Changes … Competition … Population Corporate culture and structure Trade unions

Strategic approach to HRM • • • • • •

HRM as part of company’s overall strategy Plan, coordinate with other departments Corporate culture Motivation Encourage work flexibility Flexibility in staffing

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IFY Business Studies – Student Handbook Slide 273

Strategic approach: Advantages • • • • • • •

Competitive / efficiency Better able to solve HR problems Reduces Labour turnover Reduces Absenteeism Helps anticipate workforce needs Stakeholder relations Labour Union relations

Slide 274 • personnel management (training, developing and appraising staff; measuring and monitoring staff performance).

Slide 275

Human Resource Data Labour Turnover Index = Number of staff leaving x 100 Average number of staff during period

Labour Productivity = Output Number of employees

Turnover (Sales) Per Head = Sales Number of employees

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IFY Business Studies – Student Handbook Slide 276

Human Resource Planning Forecast Employee Demand; Plan Supply Analyze: • Past information – Business information – Management’s knowledge

• Worker productivity • Work study – How many staff for the tasks

Slide 277

Human Resource Planning Forecast Employee Demand; Plan Supply Calculate staff losses: • Labour Turnover Index

Slide 278

Human Resource Planning Forecast Employee Demand; Plan Supply Analyze (detailed) current employee supply: • Age • Position • Term • Qualifications • Performance • Internal recruiting

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IFY Business Studies – Student Handbook Slide 279

Human Resource Planning Forecast Employee Demand; Plan Supply Plan internal employee supply: • Promotion • Staff development and training • Staff loss and retirement • Flexibility • Legal issues

Slide 280

Human Resource Planning Forecast Employee Demand; Plan Supply Plan external employee supply: • Availability of workers • Skills needed / availability • Government training / subsidies • Workplace competition • Population / Demographics ….

Slide 281

Human Resource Planning Forecast Employee Demand; Plan Supply Plan external employee supply: • Unemployment • Housing & Public transit • Costs • Government legislation

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IFY Business Studies – Student Handbook Slide 282

Flexible Work policies Study different schemes in the textbook Benefits: • Worker satisfaction and motivation • Better to plan for changes • Decreases overtime costs

Slide 283

Evaluating all options Relocation Move production to different area or country Outsourcing Shift production to other companies Knowledge Management Identify and use internal knowledge

Slide 284 Labour Management Relations

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IFY Business Studies – Student Handbook Slide 285

Representation at Work • • • •

Trade Unions Staff Associations Professional Associations Employers’ Organizations

Slide 286

Trade Unions 3 Types • General • Industrial • Craft Represent members / workers in areas of: • Salary • Benefits • Working conditions

Slide 287

Trade Unions – Background • • • •

Were very powerful By 1980’s laws began limiting power Must be formally registered May join Trade Union Congress (TUC) – Represents all major unions

• Confederation of British Industry – Represents businesses

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IFY Business Studies – Student Handbook Slide 288

Labour Unions – Conditions • Employers must allow employees to join Labour Unions • Unions should be independent – Of the company – Of the government

• Represent employees in good faith • All parties must agree to, and be bound by, negotiated results

Slide 289 Industrial Democracy, Bargaining, Consultation & Participation How Industrial Relations works – the process

Slide 290

Industrial Relations Business and employee conflicts: • Pay / Compensation • Benefits • Working conditions • Flexible work Industrial Relations – to try to resolve these issues without problems

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IFY Business Studies – Student Handbook Slide 291

Collective Bargaining • Negotiations between: – Company – Union Representatives (for employees) • Negotiate Contracts – Terms – Conditions

Slide 292

Negotiation Process • • • • • • • • •

Slide 293

Set Agenda – both sides together Collect information – each side individually Set strategies Be united Plan size of group Plan stages of negotiation Plan how decisions made Prepare statements at the end Commit to getting their sides to accept

Joint Consultations • Management & worker representatives meet to discuss, see if there are common issues they can all agree on

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IFY Business Studies – Student Handbook Slide 294

Joint Consultations • Pseudo-consultation (/su doʊ/ not actual but looks like) – Management makes decisions – Informs employee representatives – No power to influence those decisions

• Looks negotiated, but really isn’t

Slide 295

Joint Consultations • Classical consultation – Involves employee representatives – Can influence Management’s decisions

Slide 296

Joint Consultations • Integrative consultation (integrate: to bring together) – Actually bringing in employees – Discuss matters of common concern

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IFY Business Studies – Student Handbook Slide 297

Other Organizations ACAS – Advisory, Conciliation and Arbitration Service • Mediates when consultations and negotiations fail • Other services: – Arbitration – Advisory – Codes of Practice – Help businesses improve personnel & management practices

Slide 298

Other Organizations CAC – Central Arbitration Committee • Government office • Responsible for union recognition • Helps when employees want union recognition but employers resist

Slide 299

Industrial Democracy • • • •

Work groups Team working Employee shareholders Employee Work Councils – Consult – Discuss – Transfer information

• Depends on laws; corporate culture; union representation; employee power, etc.

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IFY Business Studies – Student Handbook Slide 300

Industrial Democracy Advantages • Increases motivation • Creates new, different and better ideas • Better industrial relations • May make management respond better to employee needs

Slide 301

Industrial Democracy Disadvantages • Hierarchical businesses may not adapt well • Can increase costs • May lead to conflict

Slide 302

Industrial Actions (IA)

May be taken by either side when conflicts not resolved

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IFY Business Studies – Student Handbook Slide 303

Industrial Actions Employers • Reduce overtime, benefits • Change standards for piecework workers • Lock outs • Hire new employees when union workers go on strike

Slide 304

Industrial Actions Employees – Unorganized / Unofficial • Employees take action the only way they may know how (usually unplanned) • High turnover, absence, inefficiency, wasting time, unofficial strikes • Usually not very effective, but can lead to follow up organized / official actions

Slide 305

Industrial Actions Employees – Organized / Official • “Work to rule” or “Slow go” • Stop working overtime • “Sit-in” or “work-in” • Strike

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IFY Business Studies – Student Handbook Slide 306

Industrial Actions Risk – Factors influencing success or failure • Strength / size of union / company • Workers / union well organized • Location(s) • Public / other union support • Actions of management • Laws • Economic situation

Slide 307

Industrial Actions Benefits • Brings grievances out into the open • Management better understand employees • Help change rules • Management may adjust company goals

Slide 308

Industrial Actions Problems – Employers • Lost production / late or lost orders • Lost revenue – idle fixed assets • Future relations – bad feelings • Shift management’s attention away from future planning • May harm company’s reputation

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IFY Business Studies – Student Handbook Slide 309

Industrial Actions Problems – Employees • Lost earnings • Close factory (long action) • Stress relations among workforce • Bad effect on motivation • If unsuccessful, weakens future position, lead to losing union members • If against law, may lead to damages, discipline, dismissal

Slide 310

Organisational Functions 1 BTEC Business

Slide 311 What are an Organisation’s • As we have seen, businesses exist Functions? to provide products or services that people want to consume • They do this by organising the firm’s resources to meet customers’ needs • Many organisations arrange these resources into different business functions

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IFY Business Studies – Student Handbook Slide 312 What are an Organisation’s Functions? Whatever the business, all organisations have to manage the following functions: • • • •

Sales and marketing Accounts or finance Human resources or staff Administration

Slide 313 What are an Organisation’s Functions? Many businesses will also have the following activities that need managing: • Production • Purchasing or buying • Research and development Whether they do or not depends on their industry or sector

Slide 314

Finding out more The following is a good source of information about organisational functions: • Biz/ed’s Virtual Factory • Find our more about production, marketing, accounts, stock control and design in a real world business at: http://www.bized.ac.uk/virtual/cb/factory/recep tion/intro1.htm

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IFY Business Studies – Student Handbook Slide 315

Applying your Knowledge • Now go to the following Biz/ed resource for more on a range of real world business organisations: http://www.bized.ac.uk/compfact/business_profil es.htm • Select two businesses and analyse their key functional areas. Be prepared to feed this back to the whole group.

Slide 316 Equal Opportunities & Protection at Work

Slide 317 Equal Opportunities Qualified people should have the same chance to get a job.

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IFY Business Studies – Student Handbook Slide 318

Discrimination / Stereotypes A simplified vision of someone, with special (usually negative) meaning • Women: – Doesn’t want to take responsibilities – Doesn’t want (or shouldn’t) leave the home – Wouldn’t want to relocate – More “emotional” – Weak

Slide 319

Discrimination / Stereotypes A simplified vision of someone, with special (usually negative) meaning • Minorities: – Religious holidays might interfere – Less educated – Different / “strange” – Dirty

Slide 320

Discrimination / Stereotypes A simplified vision of someone, with special (usually negative) meaning • Disabled: – Less capable

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IFY Business Studies – Student Handbook Slide 321

Discrimination / Stereotypes A simplified vision of someone, with special (usually negative) meaning • Elderly: – Less adaptable – Difficult for them to learn new things, new technologies

Slide 322

Women at work Ongoing discrimination Statistics • • • • •

Lower earnings Management jobs still dominated by men Low paying jobs dominated by women Full-time work percentage lower for women Work percent lower for women with children

Slide 323 Equal Opportunities UK & EU laws protect people from job discrimination due to: gender, marital status, colour, race, nationality, ethnic origin, religion, age, disabilities, etc.

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IFY Business Studies – Student Handbook Slide 324

Women at work Improvements in situation • • • •

Flexible work Legislation Changes in demographics Child Care (creche)

Result: higher employment for women The “gender gap” narrowing

Slide 325

Employment without Discrimination • • • • • •

Better workforce More qualified workforce More flexible workforce Higher motivation Everyone feels they will be considered Easier in finding new employees

Slide 326 Protection at Work A broad category

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IFY Business Studies – Student Handbook Slide 327

Employment Protection • A right to an Employment Contract

• Freedom from all forms of discrimination • Freedom from unfair dismissal • Recourse: Labour Tribunal

Slide 328

Health & Safety Protection • Clean, sanitary, comfortable working conditions • Safety equipment, clothing and training • Safe procedures for dangerous materials • Safety from violence and threats • Laws now require: – Written Health & Safety Statement – Management required to follow – Inspections to guarantee

Slide 329

Wages Protection Wages Act, 1986 • Rules and conditions for paying wages • Procedures for enforcing those rights

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IFY Business Studies – Student Handbook Slide 330

Wages Protection National Minimum Wage Act, 1998 • Established current minimum wage rules • To reduce poverty and inequality • To increase motivation in the workplace

Slide 331

Wages Protection National Minimum Wage Act, 1998 • Established current minimum wage rules • To reduce poverty and inequality • To increase motivation in the workplace

Slide 332

Social Chapter National Minimum Wage Act, 1998 • Standardize work practices throughout EU – Minimum Wages – Maximum working hours per week – Paid holidays

• Introduced European Works Council (EWC) – To negotiate contracts – Set and revise minimum wages

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IFY Business Studies – Student Handbook Slide 333

Personnel Data Protect, safeguard and keep confidential personal information on employees – Electronic data – Hard data

• Company’s motivation: – Increase employee motivation – Consequences to not following laws – Losing employees can cost the company

• Some businesses don’t follow – costs

Slide 334

Equal Opportunity Practices Benefits / Advantages: – Improve motivation – Improve productivity – Improve industrial relations

Disadvantages: – Raise costs – Restrict flexibility – Reduce EU competitiveness

Slide 335

Consumer Protection

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IFY Business Studies – Student Handbook Slide 336

Business & Consumer Protection Undeveloped economy – “Caveat emptor” = buyer beware

Developed economy – big businesses – Too easy to take advantage of consumers

Slide 337

Consumer Protection Legislation Effects of laws on businesses: – Costs – Quality control – Deal with consumer complaints – Adopt more market-oriented practices

Slide 338

Monopolies & Mergers Examined benefits and criticisms in Economics Restrictive practices can reduce competition UK has passed various types of legislation: – Office of Fair Trading – Competition Commission

EU has similar practices Regulatory bodies to enforce fair trading practices in industry

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IFY Business Studies – Student Handbook Slide 339

Business Form

Slide 340

Private Sector Businesses Types of Business Forms Unincorporated businesses – Sole Trader – Partnership Benefits: • Costs • Control

Slide 341

Private Sector Businesses Types of Business Forms Incorporated / Limited Companies (Corporations) – Private Limited Company – Public Limited Company Disadvantage: Benefits: may lose some control • Protection from personal Liability • Ability to grow • Ability to raise money

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IFY Business Studies – Student Handbook Slide 342

Private Sector Businesses Types of Business Forms Cooperatives – Consumer cooperatives – Worker cooperatives Other: • Building Societies • Friendly Societies (banks, financial services) • Franchises • Charities

Slide 343

Private Sector Businesses Types of Business Forms Choice of Business Form based on: – Control – Kind of business – Timing / age – Financial needs – Liability protection

Slide 344

Private Sector Businesses Types of Business Forms Students should know the different business forms, be able to discuss, compare and contrast them… And, should be able to analyze when, how and why a business would change from one form to another

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IFY Business Studies – Student Handbook Slide 345

Private Sector Businesses Types of Business Forms • Incorporated Limited Companies (Corporations) – Private Limited Company – Public Limited Company

Slide 346

Business Size

Slide 347 Business Size Can be defined by: – Turnover / Sales – Number of Employees – Capital Invested – Profit – Market Share – Market Capitalization

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IFY Business Studies – Student Handbook Slide 348 Business Size Reasons to grow: – Survival – Economies of Scale – Future profitability – Gain market share – Reduce risk

Slide 349 Business Size Methods of growth: • Internal / organic growth: – Selling more

• External growth: – Acquisition – Takeover – Merger

Slide 350 Benefits of growth: Internal economies of scale: – Technical efficiencies – Indivisibilities / Law of multiples – Managerial – Financial – Purchasing & Marketing – Risk

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IFY Business Studies – Student Handbook Slide 351 Benefits of growth: External economies of scale – • Savings from industry’s growth – Labour – Services – Co-operation

Slide 352 Limits to growth: Internal diseconomies of scale – Managerial – Funds

• External diseconomies of scale – Market limitations – Geographical

Slide 353

How and why

Small firms still survive • • • • • •

Provide personal services Owners choose to stay small Flexibility & Efficiency Lower costs Low barriers to entry Monopolists

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IFY Business Studies – Student Handbook Slide 354

How and why

Small firms still survive • Unemployment • Other government schemes • Ways small firms benefit the market – Increase market flexibility – Help balance market wages – Create casual and part-time jobs

Slide 355 Financial Accounts Valuation of companies: • Sale • Takeovers • Mergers • Management buyouts • Public offerings (floatations) • Loans

Slide 356 Financial Accounts Various methods of valuing companies: • Only a guide • Value of something is always between: –A willing buyer –And a willing seller

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IFY Business Studies – Student Handbook Slide 357 Financial Accounts Standards for preparing accounts To avoid manipulation of accounts Manipulation – different aspects: • Increase values • Reduce values

Slide 358 Financial Accounts Reasons for Account manipulation: • Increase values – Current or future investors – Stock prices – Market position – Avoid takeovers

Slide 359 Financial Accounts Reasons for Account manipulation: • Reduce values – Avoid taxes

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IFY Business Studies – Student Handbook Slide 360 Financial Accounts Methods of Account manipulation: • Change depreciation • Revalue creditors & Debtors • Revalue stock • Write-offs • Profits

Slide 361

Business Stakeholders Taking a “Stakeholders Approach”

Slide 362 Business Stakeholders • Hold a financial interest in the success of the business • Have some involvement with the business’s activity

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IFY Business Studies – Student Handbook Slide 363 Business Stakeholders • Customers • Owners • Suppliers • Entrepreneurs • Governments • Shareholders • Community • Managers • Employees Objectives of stakeholder groups may differ A “stakeholder approach”

Slide 364

Strategy & Objectives Role of Business Objectives in Setting Business Strategy and Planning

Slide 365

Strategy & Objectives Business Objectives: Outcomes, goals, targets (SMART) include: • Survival • Profit • Growth • Increase shareholder value • Maximize Sales • Image, Reputation & Social Responsibility

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IFY Business Studies – Student Handbook Slide 366

Strategy & Objectives Business Objectives: Managers’ Objectives could include: • Budgetary • Departmental • Salary • Benefits • Status The “players” are all stakeholders

Slide 367

Strategy & Objectives Business Objectives: Operational Objectives: • Change focus • Product lines • Etc.

Slide 368

Strategy & Objectives Business Objectives: Public Sector Objectives: • Change image • Improve service levels • Etc.

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IFY Business Studies – Student Handbook Slide 369

Strategy & Objectives Business Objectives: Factors influencing a business’s Objectives: • Owners • Different stakeholders’ powers • Size, Status • Short-term or long-term considerations • Internal or external pressures

Slide 370

Mission Statement A written statement that sets out the aims of a business

Slide 371

Mission Statements Should focus on: • All stakeholders • Providing a general idea or plan For example: “Our mission our is tomission be the consumer's first to “At Microsoft, and values are choice for food, of the help people and delivering businessesproducts throughout outstanding and great service at a world realize quality their full potential.” competitive cost through working faster, simpler and together." Sainsbury’s

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IFY Business Studies – Student Handbook Slide 372

Strategy and Planning

Slide 373

Strategy and Planning Identify Objectives: • Strategic • Tactical • Operational

Slide 374

Strategy and Planning Strategy: A pattern of decisions and actions to achieve objectives

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IFY Business Studies – Student Handbook Slide 375

Strategy and Planning Planning: • Decide what to do • Set objectives • Set policies to achieve them • Involves: Analysis Developing strategies Implementation Evaluation

Slide 376

Strategy and Planning Types of Business Strategies: • Functional • Business Level • Corporate • Global Must suit the corporate culture (the values) of the organization

Slide 377

Strategy and Planning Effective Planning & Strategy based on: • Clear Purpose • Strategic Vision • Strong Commitment to achieve goals • Focusing strategies on customers • Achievable timing • Flexibility to modify details, stay on course • Suitable to different departmental players

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IFY Business Studies – Student Handbook Slide 378

Strategy and Planning Effective Planning (include Contingencies) can minimize effects of unexpected crises: • Legal • Financial • Production • Corporate • Image

Slide 379

Strategy and Planning Analysis Methods: SWOT Analysis

Strengths Weaknesses Opportunities Threats

Slide 380

Internal

External

Strategy and Planning Analysis Methods: For analyzing External factors PEST - G

Political Economic Social Technological Green

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IFY Business Studies – Student Handbook Slide 381

Strategy and Planning Analysis Methods: 5 Forces Model – Competitive Forces New competitors Established firms Buyers Suppliers Substitute products – The stronger the Forces are, the more difficult to raise prices & profits

Slide 382

Strategy and Planning Analysis Methods: Industry Structure Analysis Competitors Suppliers Substitution Potential entrants

Slide 383

Strategy and Planning Analysis Methods: Industry Structure Analysis Competitors Suppliers Substitution Potential entrants Competitor Analysis To determine strengths & weaknesses

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IFY Business Studies – Student Handbook Slide 384

Strategy and Planning Analysis Methods: Competitor Analysis To determine strengths

Slide 385

Strategy and Planning Other Analysis: Product Life Cycle Analysis Product Portfolio Analysis Cost and Value Analysis

Slide 386

Different Strategies To improve Function & Operations: Production: – Economies of scale – Streamline the process (lean) – Quality control – TQM groups

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IFY Business Studies – Student Handbook Slide 387

Different Strategies To improve Function & Operations: Marketing: – Research to better meet customers’ needs – Customer service / response through better distribution

Slide 388

Different Strategies To improve Function & Operations: Human Resource Management: – Forecast changes in staffing requirements – Motivation – Training

Slide 389

Different Strategies To improve Function & Operations: Other: – Research & development – Waste management

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IFY Business Studies – Student Handbook Slide 390

Different Strategies Business Level / Generic Strategies: • Cost Leadership • Differentiation • Focus (segment, customer group) • New product development • Market entry and penetration • Market development and domination • Consolidation (preserve place in market) • Diversification (extend range of products, services)

Slide 391

Different Strategies Business Level / Generic Strategies: Corporate strategies: • Internal development • Takeovers, mergers & acquisitions • Collaboration

Slide 392

Different Strategies Business Level / Generic Strategies: Global strategies: • Capitalize on company’s unique strengths • Reduce costs

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IFY Business Studies – Student Handbook Slide 393

Implementing Strategies • Organizing itself to carry out the strategy • Setting up control systems to encourage and monitor activities • Implementing changes

Slide 394

Evaluating Strategies • Setting SMART targets – Earnings or profits – Return on capital – Sales volume – Costs • Need comparison information • Also use qualitative information

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IFY Business Studies â&#x20AC;&#x201C; Student Handbook

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