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AS Business Studies

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James Cullen

on 26 September 2016

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Transcript of AS Business Studies

AS Business Studies
Managers role:
Setting objectives
Analysing
Leading
Making decisions
Reviewing
Types of management and leadership styles and influences on these
Tannerbaum Schmidt
Blake Mouton grid
Effectiveness of different styles of management and leadership
Mr Cullen
Managers, Leadership and Decision Making
Decision based upon data (scientific decision making) and intuition
Interpreting decision trees
the influences on decision making
Calculating expected value and net gains
Understanding of:
risks
rewards
uncertainty
opportunity cost
decision trees and decision making
Influences on decision making
mission
objectives
ethics
external environment inc competition
resource constraints

Stakeholder needs when making decisions
Stakeholder overlaps and conflicts
Stakeholder mapping
power
interests
Relationships with stakeholders
How to manage relationships with different stakeholders
consultation
communication
Decision Making to Improve Financial Performance

Setting financial objectives

Value of setting financial objectives
Return on investment
ROCE
Understanding of the proportion of long term funding is debt
Gearing
Cash flow vs profit
Profit
Gross
Net
Profit PA
Revenue, cost and profit objectives
Cash flow objectives
Objectives for investment levels - capital expenditure
Capital structure objectives
External and internal influences on financial objectives and decisions.
Analysing financial performance
7 hours

Sources of Finance
4 hours

Internal and external sources
Debt factoring
Overdrafts
Retained profits
Share capital
Loans
Venture capital
Advantages and disadvantages of Different sources
Short term
Long term
Improving Cash Flow and Profits 3 hours

Methods to improve cash flow
Methods to improve
Profit
Profitability
Difficulties in improving cash flow and profit.
Construct and analyse budgets and cash flow forecast.
Variance
Adverse
Favourable
Value of budgeting
Construct and interpret BEP
BEP output
Margin of safety
Contribution per unit
Total contribution
Effects of changes in
Price
Output
Cost
Analyse profitability
Ratio analysis
Gross profit margin
Operating profit margin
Profit for the year
Timings of cash inflows and outflows
Payables
Receievables
Data for financial decision making and planning
Decision making to improve human resource performance.


Analysing HR performance
4 hours

Calculate and interpret HR data
Labour turnover + retention rates
Labour productivity
Employee costs as a % of turnover
Labour cost per unit
How data impacts on decision making and planning
Improving organisational design
and managing the HR flow
6 hours

Influences on job design
Hackman model
Oldham’s model
Influences on organisation design
Authority
Span
Hierarchy
Delegation
Centralisation and Decentralisation
Influences on delegation, centralisation and decentralisation
Value of changing job and organisational design
How managing the HR flow helps meet HR objectives
HR plan
Recruitment
Training
Redeployment
Redundancy
Improving motivation and Engagement
Benefits of motivated and engaged staff
How to improve employee engagement and motivation
Taylor
Maslow
Herzberg
Financial methods of motivation
Piece rate
Commission
Salary schemes
Performance related pay
Non financial methods of motivation
Influences of choice of and assessment of effectiveness of non and financial reward systems
Management, Leadership and Decision making
Understanding management decision making
Role and importance of Stakeholders
Marrissa Mayer
Steve Jobs
Arianna Huffington
Bill Gates
Elon Musk
Marry T Barra
Mission Statement
Corporate Objectives
Division Objectives
Strategy

Tactics
Long Term
Short Term
Revenue, Costs and Profit.
# of units
£
FC
TC
TR
BEP
The Book of Technique
Analysis - link terminology to make a succinct argument as how your content point impacts upon APSL. In both of these videos there is a chain (steps) of points brought together to justify an argument. Be sure to note the detail E.g The better school brings about an engineering job not just a better job. It seems a small point but detail and terminology is so important when achieving L3 (Analysis).
as a result of …
because …
due to the fact that …
furthermore, since …
while …
in addition to …
the result was …
this is why …
thus …
which meant that …
what this shows us is …
yet, while the …
which allowed for …
which resulted in the …

Below are phrases or words that allow to make the connections required.
L4
Evaluation
Heaven
Whilst trawling round the shops it became clear that explaining the advantages and disadvantages of certain types of coat was relatively straightforward (our analysis). For example if we look at a raincoat we can see that it will keep us dry and is fairly lightweight although it may not keep us warm on the coldest days. A duffle coat on the other hand will be warm and durable but may be heavy to carry when not being worn.

What is more difficult is making our final choice (evaluation-making a judgement).

Assuming we have a limited budget and can choose only one coat we need to make a choice and be able to justify it. We may argue that a duffle coat is our best option and that keeping warm is important to us. Can we improve our justification though by saying why keeping warm is more important than keeping dry? (relative importance and significance of points).

For a really good quality judgement we have to take into account our specific circumstances. Do I feel the cold? Do I need it for work or leisure? Do I need it to get to the end of this cold snap or to last 3 or 4 years (short run/long run)? The more applied our judgement is the better our chances of making a good choice.

When we consider evaluation in this light it is clear that it is not some new skill we need to learn but something we do all the time – often without realising it. What pupils need to do is get used to putting this process down in writing.
Below is a great explanation of evaluation. In short it's a reasoned judgement which could take the form of a recommendation. F297 and F293 are both strategic papers as a result you must write from a senior management point of view.
Evaluative Writing

Involves:

• Comparing - finding points of similarity.

• Contrasting – finding points of difference.


• Evaluating significance of similarities and differences. Do they
matter? Do they have important implications for which model should
be used? How did you decide what was significant?

• Making a judgement. Give reasons for your opinion, based on the
evidence.
Tactical Objectives
Strategic Objectives
Mission Statement
Sets out the purpose of the organization to all Stakeholders.
They are brief.
Aspirational and therefore unachievable due to ambiguous wording. Why is this the case?
Aims/Goals
Survival
Breaking Even
Market Share Increase (Growth)
Profit
The Aims/Goals of an organisation will depend upon:
Business age
Size
Type of Market
Private or Public company
Board aspirations.
Match the Mission Statement to the Organisation.

..........'s mission is to organize the world's information and make it universally accessible and useful.
"....... Means Quality"
"Continually increasing value for customers to earn their lifetime loyalty."
"Our mission and values are to help people and business throughout the world realise their full potential"
"To bring inspiration and innovation to every athlete* in the world. *"If you have a body, you are an athlete."
An objective for the whole business for the long term, determined by senior management directors.

Traditionally these were often directed by the desires of who?

In more recent times a new approach has developed which has required organisations to take into consideration the opinions of?

Implemented at department level by middle management.They are short term objectives. They maybe numerous and have a direct impact upon the "shop floor workers".
Stakeholders.
Name the stakeholder groups for the Addlestone Tesco's Extra

Highlight areas in which conflict could arise.
Stakeholder Conflicts
Demand for Profit vs Ethical business practices.

Customers demand for low prices vs workers requiring a fair treatment and wage.

Health and Safety vs the need for low cost production.
Shareholders
Shareholders influence the board of directors at an organizations AGM. Shareholders are able to vote off a CEO and directors if they feel that they are under performing.

Tesco
Google
Nike
Cadbury
Microsoft
Addidas
What could influence which of these is chosen?
What aims do organisations have?
To achieve these strategies a number of tactical objectives will be employed.
Revenue, Costs and Profit.
# of units
£
TR
BEP
= Selling price X # Units sold
TC = VC + FC
VC = Variable cost
FC= Fixed cost
Profit = TR - TC
Wage - per hour
Salary - PA

Selling price - VC = contribution per unit
Stakeholders
shareholders
tescos plc = public limited company
Customers
employees
competition
Suppliers
Government

Folders
Prep
Reading
Multi media
Books
Prezi

Expectations
Terminology
Stakeholders
Breakeven Graph
FC
Salary - PA
wages - P/hr
rent,Insurance
chocolate , caramel, packaging
VC
Piece rate - paid per item produced.
commission - % sales made.
Public - NHS Owned/managed by the gov't
Private - own by groups of or individuals.

Private - PLC - public limited company.
LTD - Private limited company

Customers
Employees
Management
Suppliers
Competitors
bank
Shareholders
Government
Local community
Pressure groups
A stakeholder is a group of people who are influenced by the actions of organisations. They can also influence the organisation.
Functions of management
Leadership - functions of ruling, guiding and inspiring other people in the pursuit of agreed objectives.

Management - planning, organising, directing and controlling all or part of the business.
What do stakeholders want from the organisation?
High wages
Job security
H+S

Profit
Shareholder value

Paid on time

Take market share away
Loans repaid

Dividend

Tax
H+S
Employment

Service
No pollution
JObs

Ensure laws are abided by
Good practice
VC = Variable costs = those costs that change in proportion to output
Finish stakeholder diagram with what each stakeholder group wants.

Margin - profit shown as a percentage of revenue.
CEO
CIO
CFO

Facebook
Google
BA
Jimmy Choo
Alibaba

Homework 2 - Write a minimum of a side to answer:
Of Mintzbergs 10 roles of a manager analyse which three you think will have the biggest influence on an organizations success.

Directing
Objective setting
Where do we want to be and by when
Resources -
How do I get the best out of my people?
Financial vs non financial
Appraisal
Whats working, whats not -
Decision making in each role
S
M
A
R
T
Employees
Raw materials
Finance
Time
Figurehead - represent, protect, sets an example, ceremonial, inspiration.

leader - maintains an effective working environment, controls - discipline, inspires, motivates, responsible for performance of subordinates.

Liasion - converse, communicate, between other managers and subordinates. disseminate information
Interpersonal category - managing through people
Informational - processing information
Monitor - checking data to ensure the department, business performace is as what it should be. Market share monitoring can lead to gaps in the market being highlighted and then taken advanatge of.
Disseminator - spreading information to those that require it.
Spokesperson - representing the organisation at events. ensuring external stakeholders understand the orgnaisation and are aware of relevant information.
Decisional - uses information to make decisions
entrepreneur - business ideas, initiates change
disturbance handler
resource allocator
negotiator
Trait Theory
These theories suggest successful leaders have certain characteristics that set them apart from other mere mortals. The theories have developed from the concept of charismatic leaders such as Barack Obama and Nelson Mandela. This has led to trait theory being known as "Great person theory".
Office of Fair Trading (OFT) and the Competition Commission (CC).
Prevent monopolies and anti competitive behavior from taking place. This is to ensure consumers have choice and are therefore protected from being taken advantage of by large organizations that have too much power.
Blake Mouton Grid

Decision Making
Managers/leaders - required to make many decisions on a plethora of issues. In the vast majoirty of cases there is an underlying motive.
What is the main aim of the majority of organisations?
Profit
How do we work _____?
TR - TC
Most decisions directly or indorectly relate to profit. Whether there are more immediate aims for the business such as growth and diversification.
Type of labour force
depending upon what motivates the employees different workforces require different leadership styles. Subordinates that are "living for the weekend" will require/expect/thrive under an autocratic leader. On the other hand an organization with a different organizational culture who has recruited more ambitious employees would be better suited to an democratic leadership. creative organization that seek to develop value through creativity and entrepreneurial spirit of their employees would be best employing......
Factors that influence the style of leadership
Traditional leadership style of the organisation-organisational culture.
- reporting the performance of the section of a business. Has the department met the objectives set. If so what can be done to further improve, if they haven't been met why not and what can be done to prevent future failures.
Finance - profit, revenue and costs
Employee performance - appraisal.
Social performance - ethical standards, pollution
Controlling
Directing
Influencing behavior - inspiring subordinates to work productively in an attempt to increase revenue or reduce costs in an attempt to increase profits.
Motivation - increased morale leads to engaged and motivated staff, as a result staff are likely to be productive ensuring higher quality goods or services ares produced leading to higher revenues being accomplished.
Communication - vital to feel valued and to understand what your manager expects from you. equally important for subordinated to inform management of mistakes or issues that are preventing the potential of the organization being met.
Organizing
Allocation of resources - ensuring that all aspects of a team or organization have what they require to fulfill objectives.
Resources include:
finance
Labour
Raw materials
Knowledge/know how (experience.)
Figurehead - ceremonial and legal representative to external stakeholders. Expected to be a source of inspiration.
Leader - maintains an effective working environment. Fosters a learning environment that encourages junior staff to develop the skills that will make them future leaders.
Liaison - communicating between different groups within the organizational structure. Further to this they will gather and divulge information to external stakeholders.
Monitor - gather internal and external information. Data should be the basis of most decision making mechanism therefore it is vital that the correct amount and type of information is gathered and presented in a way that all subordinates can access it. This is also vital to measure and assess performance.
Disseminator - communication - ensuring all those that require information receive it in a way that is relevant and able to be actioned.
Spokesperson - external communications - speaking at press conferences and delivering the organizations image to external stakeholders such as customers and the local community.

The nature of the task and timescale
Tasks that require physical activity lends themselves to the autocratic leadership due to the character of those that tend to fill those roles. Whilst more creative roles such as architecture are more suited to a laissez-fare leadership style.
Timescale shorter deadlines lend themselves to autocratic leadership. The nature/standing of the customer may also influence the leadership style.
Different tasks and the morale of the workforce should also be considered when a manger is choosing what leadership style should be employed.
The personality of the manager/leader
The strength and views of some leaders mean that they only employ one style of leadership. Mark Zuckerberg is an autocratic leader due to the strength of his vision and his very exacting expectations mean that his organization tends to adopt autocratic leadership. David O'leary is another example his personality is so strong that Ryanair's company culture is based upon it. He is renowned for being no nonsense and unforgiving in his views.
Data response questions - Page 58
Deadlines
L6P - 2nd October
L6R - 2nd October
L6Q- 2nd October

John Lewis has a democratic leadership style that is embedded in its organizational culture for this reason it would be hard to adopt another management style.
Type of employee
Highly skilled, well trained and committed employees would lend themselves to be led in a laissez-faire or democratic way. Whilst lower skilled, less ambitious employees will more likely require an autocratic leadership style.
Psychometric tests
Decisions
Financial -
Sources of finance
Investment decisions
Budgets

Operations
How much stock to hold
Suppliers
Location
HR -
How much to pay employees
who to employ - recruitment
Redundancy
financial or non financial motivation
Style of leadership
disciplinary issues
Marketing
method of advertising
where to advertise
Who to target with advertising - target market
Setting of objectives - SMART
Business wide
Specific, Measurable, Agreed, Realistic, Timebound
Price of products
Delegation
Price
Place
Promotion
Product
Intuition
Data/Scientific
Mintzberg 10 roles of a Manager
Planning
Setting Objectives
Gathering and interpreting information
Selecting chosen option
Implementing the decision
Reviewing
Basics and Terminology
The decision making process
Types of decisions
Decisions making, risks, rewards and uncertainty
Decision making based on data
Decision making based on intuition
Introduction to decision trees

Prezi/Powerpoint
+
Worksheet
L6R
Application
Deduction
Pg 59 - figure 5.1
Draw
Specific
Measurable
Agreed
Realistic
Time bound
Setting objectives - ensures that all those who are a part of the decision making process understand what the aim of the decision is.
Data that can be gathered to inform decision will include:
MR - Primary, Secondary
Audit of resources.
Financial information - Profit & loss account (P+L), Balance sheet, Cash flow forecasts, sales data.
Selecting the chosen option - Decision making should be based upon both the data provided and the intuition (Gut instinct) of the manager.
Implementing - Because a good decision has been made doesn't ensure that it will successful. The implementation of a strategy or a decision is often the most challenging aspect of the decision making cycle. For it to be implemented effectively clear communication between those who have made the decision and those who have to implement it is vital. This will ensure that those who have been delegated the responsibility for actioning this decision understand the context in which it has been made and what objective is trying to be achieved. Ensuring that managers have the necessary resources to implement the decision - (labour, finance, raw materials, skills/knowledge).
Reviewing - to ensure that the strategy or the choice that has been implemented is performing as it was expected to it will be consistently analyzed to ensure its success. Appraisal of the performance will happen until the deadline for the completion of an objective. Depending upon these results production maybe scaled up or stopped
1. Types of decisions
2. Decision making risks,rewards and uncertainity
3. Data based decision making
4.Intuition based decision making
1. Fewer points more detail.
2.Don't stop making steps until a business consequence has been highlighted - Market share, reduction in cost, increase in revenue.
3. Don't miss steps out. - always explain why - because, therefore
4. BL - business language or terminology. Money makes me :( - revenue, cost, finance
5. Use the case.
6. Use theories

1.Mission and objectives
Objectives - SMART
Mission statements - set a broad unattainable goal for the business. These are designed to ensure all stakeholders understand the over arching purpose of the organization.
Decisions should be made with objectives and the mission in mind. If an organization has an objective of growth then all decisions should be made as to achieve this objective. This may lead to a more profitable option being foregone for the option that provides an increase in market share. This highlights that not all decisions are profit driven.
This also shows what maybe right for one business will not be right for another. (L2 - application!!!!)
Influences on Decision Making
Mission and Objectives
Risk
External Environment
Resource Constraints
Ethics
A key one in modern day business, particularly in developed countries where customers are more discerning. Therefore issues such as child labour, working conditions and environmentalism should be careful considered in any decision making process.
E.g - Ikea makes a promise to use only sustainably produced wood, this will reduce profit margins but the owners believe sustainability to be of greater importance.
3. Risk
Different managers have different attitudes to risk.
Those who avoid risk at all costs are known to be risk adverse.
4. External environment
P
E
S
T
L
E


Demographics
5.Resource constraints
All managers will need to take into consideration the resources he or she has available. Resources include:
Labour - number and skills of workforce
Finance - Budgets will be placed on all projects
Raw materials - tangible resources to complete a project.
Time - deadlines.
1. Write down as many of Mintzbergs 10 roles of a manager. What were the three sections he split these into.
2. Draw and label the Blake Mouton grid.
3. Tannernbaum-Schmidt continuum.
4. Draw decision tree - EMV and net gain.
5. Short answer Q1&4 - Pg 69.
Mind map or notes -

Pg 69
Q1 & 4 - Short answer Q's
Employees - Teachers
Customers - parents
Competitors - Tiffin
Local community - nursing home.
Suppliers - AQA , player layer
Pressure groups - Roman Catholic church.

Recap Quiz aka test
Stakeholders
Employees
Customers
Shareholders
Suppliers
Creditors
Expand Production
Cut Costs
Raise Prices
Launch new Products
Use more technology in production
Decision
Low
High
Low
High
Level of interest
P
o
w
e
r
Minimal effort
Key players
Keep informed
keep satisfied
More jobs available which leads to promotion opportunities. More hours available and therefore higher pay.
white = positive
Yellow - negative
A reduction in demand and therefore sales could lead to job losses
If successful : more jobs - increased opportunities for promotion.
improved working conditions and increase in wages
Job losses
Higher paid/higher skilled
Reduction in pay.
Reduced job security or possible redundancy.
Longer hours and reduction in working environment
If successful - increased profitability - potential for more jobs.
Automation - machines replace humans - robots
Mechanisation - machines help humans - tractors
Reduction in prices if economies of scale are passed on.
Lower prices if cost savings passed on
Reduction in quality
competitors may raise price in response.
Product becomes unaffordable
less value.
Prices increase to cover development costs (R&D)
Increased choice.
Reduction in price of older products
Possible reduction in quality
Lower prices if cost saving passed
Bespoke needs not met
Decision to be made
Always a do nothing option
Costs underneath
(£20,000)
Successful
Unsuccessful
0.7
0.3
£160,000
£15,000
EMV =
Net Gain =
Cycle of decision making
Homework feedback/Technique.
Investment reduces profits in the short term
Long term profits raise leading to increased dividends and share price increases.
Increase profits, dividends and share price
reduction in revenue from customers disliking redundancies.
demand may fall reducing revenue - profits - dividends
if demand is maintained = increase revenue = profits = increase dividends
Launch costs reduce profit in short term.
Risk of new product may damage share price.
boost profits from new product sales.
Share price may increase if new product is successful.
Investments reduces the profits in the short term,
image of business damaged if redundancies caused.
Long term profits increased due lower unit costs and therefore higher profits.
increase profit due to loans being required to fund expansion.
risk increases of company being unable to repay debts if further loans are required to fund expansion.
reduced need to borrow
Cullen's chairs
Price - £155
Number of units sold = 26 per month

Costs
Wood = £40
Screws = £3
Material = £45
Padding = £10
Labour per 2 chairs = £20
Rent PA = £1200
CEO salary = £1600 month
Cullens Chairs
£45- Leather
£40- Wood
£10- padding
£20 - labour per two chairs
£3 - screws
Rent £1200 per month
CEO salary £26,000 PA

Selling price £240
48 units sold per month.
Work out the BEP.
Stakeholder Mapping
A
B
C
D
1.
2.
3.
4.
5
6.
7.
Stakeholder Conflicts
As different stakeholder groups have different expectations of the organisation they will come into conflict.
From a generic point of view for the 8 stakeholder groups write down what they expect from the organisation. Give two or three expectations per group.
Highlight what groups come into conflict with one another and explain the consequences of these conflicts. Include how these conflicts may be played out.
From the pictures
Name the Stakeholder
Draw your version of each stakeholder. - you have until 14:37
List and number the stakeholders of St George's.
8.
Write a paragraph explaining why a stakeholder fits the quadrant you've chosen.
Pick three stakeholder groups
9.
Customers - Parents - D
Teachers - employees - B
DOE - Gov't - C/D
Suppliers - Hodder, player layer, AQA - B
Management - SMT, SLT, Govenors - D
Competitors - RGS, Reeds, Esher - B/A
Local Community - B/A
Owners - Josephites - D
Pressure groups - NSPCC - A
Stakeholder mapping is dynamic from multiple perspectives. The power and interest that a stakeholder will show an organization will evolve depending upon its size and its relationship the organization. Stakeholder mapping can be undertaken in preparation for a specific decision.
Organisations may grow and therefore the power that they can exert will change. As it will interest - Player Layer would pay a customer such as St Georges more interest than Nike.
Using the A3 Paper - Make a colourful, posteresq set of notes on "Possible Approaches to stakeholder management". Page 78/79
Have the Pyramid at the center colorful and clearly annotated. - use examples - link to stakeholder mapping is Key

A side of A3 - mind map
Internal and external factors - 75,76,77,78
severance
Factors that influence Stakeholder Relationships.
Internal Factors
Objectives - Profit, Growth, Ethical business and Social enterprise. Which of these an organization chooses to pursue will have a significant influence on the relationship an organisation will have with its stakeholders. Oil companies such as Shell whose main objective is profit through the exploration of oil will come into conflict with a number of pressure groups and local communities due to the consequence of their business practices. More ethically run organizations such as the John Lewis group have fewer conflicts due to having an objective of providing value for its customers rather than seeking profit.
Leadership - the nature of the leadership will influence how inclusive the decision making process is. More democratic leaders will take on board the view of a broad range of stakeholders, whilst autocratic leaders may consider the needs of different stakeholders however will not consult them. This means stakeholders feel ignored which can lead to a break down in the relationship with the management of an organization. Visionary leaders who have a very strong understanding of where they want to take an organization are less likely to consult stakeholder groups which again can lead to them being alienated.
The Blake mouton grid is a good indicator as to how management deal with employees.
Size/ Ownership
PLC/LTD - these have shareholders to keep happy and therefore may have to seek profit at the cost of more ethical decisions. A PLC's size can also make it hard to involve many stakeholders in the decision making process. Whilst smaller organizations such as sole traders will be able to develop a closer relationship with stakeholders and therefore are able to include them in the decision making process.
Traditional decision making process is the management making decision to satisfy shareholders. Whilst a more modern approach requires managers to seek strategies that placate the needs of a broader range of stakeholders.
External
Market conditions
Power of stakeholders
Government
Market share - oligopoly
Highly competitive.
Competitive advantage through developing partnerships with stakeholders. This can differentiate organizations from its competitors.
The size and therefore influence of some stakeholders ensure managers take their opinions into account.
Institutional investors -
Suppliers - JIT
Many laws and guidelines dictate how organizations treat certain stakeholder groups.
Privatized industries such as.......often face significant regulations that may include...
Stakeholder - final lesson
1. Questions 2 + 3 Page 80 - 15 minutes
2. Show me - your notes on internal and external factors and those on stakeholder management. 5 minutes.
3. Ensure you answer every homework question - ASK for help if unsure.
If your an exceptional student....
4. Write notes on Types of HR objectives - Page 257/258. Labour Productivity, number and location of business workforce, Employee and engagement and involvement.
A - News starter - 15 minutes
HR Objectives
Labour productivity - efficient in producing products or a service. Defined as the the number of units a workforce can produce in a set period of time. in short this measures the number of units per employee.
For this to be achieved employees must be motivated to achieve the objectives set out by the business. Ensure those who are unable to maintain the expected standards are made redundant. Invest in training to improve the skills of the workforce which will reduce mistakes and therefore increase productivity. Recruitment ensure you have the right people in the right job.
Important as higher productivity increases revenue and reduces costs (waste). Better quality products increase the selling price (increases TR).
Numbers and location of workforce
Relevant to MNC (multi national company ) or national companies. Simply ensuring that you have enough employees, with the right skills in the right place/office or location. This will ensure that the standard of the product or service is maintained.
This is vital to maintain revenue or ensure that demand is met. Equally important is to ensure that no employees are left idle to maintain productivity levels.
Homework set on the 23/11/15 - Page 266
Short answer questions
Q1 & 2 = total of 9 marks.
Knowledge check questions
2,3,7

Due - Friday - 27th

Training - The development of skills and competencies . This will benefit the organization through improved levels of productivity and a broader range of skills within the workforce. This allows for greater flexibility and therefore reduces costs. This can also be used as a method of motivation as employees will require training to further their careers through promotion.
Highly skilled employees can act as a competitive advantage and ensure the long term success/profitability of an organisation
CIPD -
Talent development - ensuring that employees are able to fulfil their potential. This is to ensure that the most talented employees are retained. Many of the most talented employees will leave organization if they are not given enough responsibility. To prevent this from happening "fast track" schemes are
External Issues
Social- hand made goods - certain products are deemed to be of a higher quality if they hand made. Traditional methods are also retained and are highly valued. Further more goods from abroad must not be found to be made by forced or child labour. Gap, Nike and Primark
Political - Many aspect of HR are stipulated by laws. National minimum wage, discrimination, maternity and working hours are examples of issues that either UK or EU law cover. Therefore a change of government may influence these. conservatives are traditionally = ..................... Whilst Labour =
Competitive environment - Labour is a cost and therefore is often an area in which cost cutting is undertaken. therefore reducing labour costs is a way to increase competitiveness. Price elasticity of demand will therefore impact on how important labour costs are.
Red tape = bureaucracy = paper work
Economic environment - economic growth will often lead to labour costs increasing as profits rise and therefore organizations can afford to pay more. Now do a chain or the opposite.
Technology - technological development can often lead to the organization having to undertake redundancies and or retraining to ensure employees can use/maintain the new technology. Mechanization - a reduction in labor. Automation leads to the replacement of labor and therefore a significant reduction.
Philanthropy - Mark Zuckerberg and his wife promise to give away 99% of their shares. Worth in the region of £30bn.
Social side of business - recognizing that business can have greater benefits to society that are beyond simply financially benefiting the few.
The Gates foundation is another example of philanthropy - this is also supported by other american multi-billionaires such a Warren Buffett.
He is one of if not the most successful investor in history. His company Berkshire Hathaway produce revenue by investing in other organization therefore they are known as an institutional investor.

Syria - how could this impact upon business.
consumer confidence - how willing people are to spend money- how rich they feel.
terrorist threat can reduce consumer confidence -
The current vote is air based which will have less of an impact upon consumer confidence than it would if it was a ground "boots on the ground" issue.

3d printing -
Facebook-philanthropy
Syria airstrikes - three reasons for and three reasons against
3D Printing-

Herzberg - Two Factor Theory
Hygiene Factors - those that if not adequate lead to a reduction in motivation.
Motivators - aspects that can lead to an increase in motivation.
Pg 302 - Fg23.4
Hygiene factors -
Company policies and administration.
Supervision of employees
Working conditions
Salary
Relationship with fellow workers
For each give a school example.
Motivators -
Personal achievement of goals and targets
Recognition of achievement
interest in the work itself
Responsibility for more complex duties
Personal growth and advancement.
Business comments

Folder Check - Term 1
Folders to be handed in on Friday 11th of December either in lesson or before 1600.
To be collected Monday morning from 0800.
Please Ensure all typed notes are printed off.
compulsory- highlight the differences between Herzberg and Taylors view of pay as a motivator.
Which famous businessman did Taylor work with and what did they develop?

What Model of car was built using this method?

What is Taylor's motivational theory called?

For Dunmore (and everybody else) this is compulsory.
uniform policies that seem irrelevant
smoking breaks - unfair to non smokers
Do they meet H+S rules, do they provide the facilities you would expect - showers.
Is the level of pay equal to other companies is there pay equality.
Ensuring character clashes don't happen. Recruit in a way that prevents issues.
Smart targets - training and mentoring to aid the achievement of goals.
employee of the month
picking tasks that suit employees interests
Empowering them to make more decision or work with greater autonomy.
Provide the opportunity to gain qualification which aids promotion.
Aspects of Taylor
Work Study - analyzed how tasks should be undertaken. This is ensures the most time effective and resource efficient method is used.
Normal times - Employees were told how long a task should take and their performance was compared against this.
Equipment and training - employees were given the appropriate equipment an training to be able to complete the task within the "normal time".
Piece rate pay - employees are paid per item made.
Work study
- the process of testing multiple methods to find the most cost effective, time effective and efficient method. This method will then be rolled out across the factory.
Close supervision
is used to ensure that the "correct" method is replicated by the workforce.
From these studies "
normal times
" are developed. Taylor suggests that a task should take a certain amount of time. An employees performance is judged on their ability to perform the task within this period of time.
"
Rational Man
" - to encourage increased productivity employees should be paid more.
A financial method of motivation born out of this is "
piece rate
". This is when employees are paid per item produced.
Herzberg
1.hygiene
2.salary
3.relationship with fellow workers
4.employee supervision
5.working environment
6.administration and policies
7.motivators
8.personal goals and achievement
9.responsibility / duties
10.recognition
11.advancement
12.interest in work
listen, listen, i dont think youre listening, ive got a watch o my wrist that glistening. listen listen o s
Hygiene factors demotivate the workforce when not satisfied.
Motivator factors can positively motivate employees.
Taylors - Scientific Management
Elton Mayo - Human relations school
Having been a significant supporter of Taylorism Mayo recognized that the social aspect of work was not covered.
Through a series of experiments undertaken in a factory outside of Chicago it was found that groups were motivated by being valued irrelevant of the working conditions. It was suggested that the groups morale and the sense of worth experienced was vitally important to motivation along with the type of job and therefore the nature of supervision employed.
Managers have now recognized that they should:
Employees social needs should be considered
Sporting and social opportunities should be provided.
Work outings/holidays/weekends away
Teamworking is used more often.
Stakeholder
Mapping
Conflicts
Overlapping
Factors that influence
Manage Relationships
Hr
Objectives
Measures
Labour turover
Theories of motivation
Methods of motivation
Decision making
Decision Trees
EV
Net Gains
Risk/reward
Uncertainty
Opportunity cost
Factors that influence decisions
Mission
Objectives
Ethics
External environmental
Resource constraints

Hawthorne effect - being observed leads to increase in productivity. This highlights the importance of meeting employees social needs in the work place.
Recommendations that stemmed from his work:
-Recognition of work. ensure employees work is valued. Team morale is central to productivity. - Happier = more productive.
- Type of work and supervision influences motivation significantly.
Elton Mayo
Social events -
Staff parties.
Sports teams and facilities provided by employers
Teamwork - team meetings to allow issues to be aired - Clear communication with managers
Work holidays! - Subsidized holidays.
Examples of how these are implemented.
Revision for January assessment
Methods of Motivation
Non financial
Financial
Cost - depending upon the financial performance of the company I.E profit margins some motivational methods may not be available to management. Bonuses and Piece rate pay are examples that will not be used if the company is under financial duress. In these times non financial methods maybe preferred.

Attitude of management- Hard HR v's Soft HR. Different managers and groups of management have different attitudes to how to motivate employees. Styles of leadership such as........... will dictate what methods are implemented.
The training given to management team - managers may not be aware of new or different methods of motivation. Understanding which ones are appropriate for the type of work and the type of employee is vital to ensure resources are used effectively.
Skill levels of the workforce - some methods require training of the workforce for them to be effective. - Delegation for instance requires employees to understand the broader objectives of the business.
Public perception of organization - By employing motivational methods such as empowerment and delegation the organization will be able to project a positive corporate image.
Internal and external communication - certain methods require effective two way communication. Teamworking and quality circles would be difficult to implement without clear communication. Simpler methods such as job rotation and piece rate maybe chosen instead.
Pg 311 -
Q3,4,5,6,7,9,
Improving employer-employee relations
What is a trade union
Name three trade unions
What do trade unions do? I.e what are their objectives?
Factors that Influence what methods of motivation are used.
Using the book or your phone

British unions are renowned for being militant which means they are quite willing to take direct action. Apart of direct action is industrial action which can include strike action.
Workplaces with a union are on average paid 7% higher than those without.
unilateral - a decision made by one side.
Unions attempt to prevent unilateral decision being made by management. The use of collective bargaining ensures workers are able to influence the decision making process on key issues.
This leads to a collaborative approach. Employees and their representatives are encouraged to contribute to the decision making process. Associated with soft HR.
This leadership style means thats organisation will deliberately aim to reduce the influence or even eradicate worker representation. Managers wish to retain control of the decision making process.
Management will aim to cut costs as low as possible, the union wage premium means that representation will be unwelcome in an organisation with this as an objective.
Organisations where industrial disputes are rife suffer from low levels of morale and therefore motivation. This will in turn curtail creativity and innovation.
For this to be viable costs need to be reduce as expansion will be the priority.
Special objectives such as installing an ethical approach to business will require suggestions from many different stakeholders including workers and their represetatives.
The society from which an organisation started will have a big influence on how it views worker representation and whats approproiate.
Owners/founders will install an understanding as to how workers and representatives are to be involved in the decision making.
The time that workers will spend with an organisation will dictate the level of influence they will have over decisons.
Different types of workers are suited to being represented in different ways. It is often the case that lower skilled workers require greater representation. Some higher skilled roles make it difficult to have a single opinion for the group.
Organistions with 50 or more employees are obliged to keep employees informed and consulted on issues.
European work councils affect those organizations with 1000 employees and 150 employees located in two or more EU states. They require businesses to keep workers informed of the organization performance.

Employment relations act - organizations with 20 or more employees and a union with membership of over 50% can demand union recognition.
Motivation
Scientific decision making
Training
Stakeholders - legislation
Engaged employees
Break-even =FC/Contribution per unit

Training - Advantages/disadvantages
Motivation - Taylor, Maslow, Mayo, Herzberg
HR measures - Productivity, Labour Turnover, Labour cost per unit.
Stakeholders -Government - Legislation - H+S, Employment law, Tax
Stakeholder mapping
Decision making - Scientific + Initiative
Opportunity cost
BE - Formula
Engaged employees.

Recap
Training
+ve's
Increased productivity/ efficiency
Attracting most able candidates
Reduced labour turnover due to enhanced employee retention.

How to manage and improve employer-employee communication.
The importance of communication cannot be underestimated in ensuring employees work towards corporate objectives.

Methods of communication:
Email - Advantages quick, low cost and mass communication. Disadvantage - tone of message can be misinterpreted.
Social Media - Advantages - transparent. Disadvantages - Not accessible by all.
Intranet (E.g firefly) - Advantages - allows large companies to control the flow of information. Disadvantages - expensive to set up and maintain.
Video conferencing - low cost form, tone can be communicated. Disadvantages - requires internet and time differences can prove problematic,..
Define:
Delegation
Empowerment
Effective communication
Nature of good communication - Two way
Appropriate style of leadership - Democratic, Laissez-faire and Autocractic. Mayo, Maslow, Herzberg
Adapting organizational structure - Flat, tall, centralised, decentralised
Factors that encourage effective manager-employee communication
Note that effective communication can increase motivation which subsequently can lead to increased productivity.
Problems with communication
ACAS What is it and what does it do?
Give examples of disputes its been involved in.
Managing employer-employee relations
Industrial dispute - a disagreement between employer - employee. Terms and conditions are often the main cause for disputes. Workers are often represented by ..... .....
What advice does ACAS give employers and employees to prevent disputes? From the bullet points choose two for each.
What is arbitration?
What is conciliation?
What is big data?
How can big data change business?
What is 3d printing?
How can 3d change business?
Separate piece of paper
Watch short videos to help you - bbc website is a place to start.
Size and complexity of organizational structures due to M&A.
Language.
Time zones
acquisitions
conglomerate
convoluted
subsidiaries
MNC - multi-national corporation
Avoiding Industrial Disputes
1. No strike and single union agreements
No strike deals are for a period of time. A union may agree to this in return for improved conditions such as a pay rise. This is often accompanied by both parties agreeing to binding arbitration. This reduces the risk from the unions point of view.
+ve's to a union.
The union is perceived as being non confrontational. This will allow it to recruit more members boosting income and its strength.
Encourages companies to appoint worker directors.
Improve public perception of unions.
Single union agreements strengthen the union that is dominated to represent all employees. This reduces the complexity of negotiations and therefore can increase the speed of solving disputes. These agreements can reduce the chances of having disputes as communication is improved.
Methods of resolving industrial disputes
1. Arbitration
2. Conciliation -
Non binding arbitration - third party decision is considered by both parties.
Binding arbitration -third parties decision is final.
Pendulum arbitration - is a binding form in which the arbitrator must decide entirely for one side or the other.
A third party encourages the continuation of discussions between the two disputing parties whilst industrial action is on hold.
Consolidation of today:
What does ACAS stand for?
What is conciliation?
How many types of arbitration are there (name them)?
What is an industrial dispute and give an example.
What are the three methods of resolving an industrial dispute?
What could prevent an industrial dispute in the first place.
3. Employment tribunals -
Unfair dismissal
Discrimination
Informal courts
Three people
Legally trained chairperson
Est 1964
Reduction in hearings when fees for employees were introduced in 2013
value of good employer-employee relations
Employee
Employer
3. Long term damage of employer/employee relationship
1. Job security - automation.

5. PR - brand image damaged
4.Risky investment
3.Financially weakened organizations are less able to fund training preventing employees from updating skills.
2. Loss of pay.
1. Reduction in Revenue
2. Loss of future sales
1. Helping develop a strong employer brand
2.Promoting employee engagement
3.Improving the business's corporate image
4. Strengthening competitiveness
A.Financial benefits
B. Job security
C. The possibility of greater participation in decision making.
Q3 Page 325
Definition: Trade union.
What does benefits mean in this context.
Business:
Employee:
+ves
-ves
Unionization from the employee point of view.
Unionization from the employer point of view
+ves
-ves
Evaluation Which of these points is most influential on .................
Improving organisational design and HR flow
Job design: the process of grouping together or dividing up tasks and responsibilities to create complete jobs.
Labour productivity: measures the output per employee per time period.
Job Enrichment: Occurs when employees jobs are redesigned to provide them with more challenging and complex tasks.
Skill variety
Task identity and significance
Autonomy
Enlargement - Volume of work increases. Lateral increase in work. I.E same work but more of it. Increase the number of similar tasks.

Rotation - tasks rotated as to prevent boredom and encourages increased morale - motivation and therefore productivity.

Enrichment - jobs with greater complexity, wider range of tasks, greater responsibility, offering employees greater authority to identify solutions to problems.

Empowerment - greater control over your working life. Workers choose themselves how tasks are completed. Links to laissez-faire style of leadership.
Makes work more interesting.
Recent developments in job design:
Flexible working times- working hours decided by the employee. Allows for a better work/life balance. Early start early leave.
Flexible contract options- freelancing, associates - subcontracting, zero hour contracts.
Flexible locations - home working, hot desking, multiple locations - client site visits.
Tall
Organisational structure
What is alphabet?
Why was alphabet created?
Why are they in the news?
Who did they overtake?
What is their value?

BP - what does it stand for?
Why are they in the headlines?
Did they make a profit or a loss?
How many job losses are taking place?
What is brent crude?
Sainsburys - Argos
How much have Sainsburys offered?
What is the name of the company that owns Argos?
Do Argos and Sainsbury already have a relationship? if so what?
Business news catch up.
Organizational Design
McNamara 2012 - "An organization is a person or group of people intentionally organized to accomplish an overall, common goal or set of goals."
Organizations are designed and not evolved.
CIPD - Organizational design = ensuring an organization is appropriately designed to deliver objectives, in the short and long term.
Chartered institute of personnel and development
Factors that influence Design:
Mission, values and vision
The way in which decisions are made and who makes them.
Information/pay systems
Organizational Culture.
Flat
There is a need to balance factors such as:
Enabling the achievement of goals
External factors - pressures for change
Integrates individuals
recognise the need for change.



encounter their first real challenge. How this transformation is implemented will dictate the extent of the negative consequences.
HR Flow
Human Inflow - Recruitment - where and how undertaken. Actions include planning, recruitment, selection and induction.
Internal Human flow - flow of employees through the organization. Internal transfers, promotions/demotions,training and pay systems.
Human Outflow - release of employees. Retirement, redundancy (Voluntary and involuntary) or dismissal.
1. Human resource planning - Audit of HR in the business. Forecast what will be required. Plan how to ensure what HR is required is brought about. Processes include training, recruitment and selection, redeployment and redundancy.

2. Recruitment and selection - draw recruitment process on pg -
3. Training - internal flow

On the job - training that takes place in the organization. Managers or experienced employees develop other employees skills. lower cost.
Off the job - takes place away from the workplace and is undertaken by professional "trainers",specialist equipment may also be used. Higher cost
Induction training - ensuring new employees understand how the organizations works and is au fait with its processes.
5. Dismissal and Redundancy - outflow
Redundancy is one reason for dismissal .
Reasons exist:
Unable to do the job properly.
Persistent or long term illness
Gross misconduct - violence towards colleagues
A Substantial reason - not agreeing reasonable changes to the workplace.
4. Redeployment - outflow
Job description - What the role entails= hours, responsibilities, locations and requirements
Person specification - What skills, qualifications and experience are required to fulfill the job.

Technology - Linkedin - social networks - reduced the cost and changed the nature.
Headhunting - organizations use headhunters to fill senior positions. This is where potential candidates are identified and approached to encourage them to apply. Headhunters maybe asked to draw up a short list. Headhunters will only receive their full fee if the person stays in post for a prolonged period time. It can be controversial.

Internal - +ve's
Lower cost - no interviews costs.
Better understanding of the candidate.
No induction training required.
-ve
no new ideas - fresh blood can provide a new perspective.
Can reduce morale if two current employees go for a job - one will be left disappointed.
CIPD - training averages
Training spend - £303 - 2013
Time - 25 hours

This is an option offered to employee facing redundancy. This is "suitable alternative appropriate employment". Factors determine whether this was the case:
Proximity of the work to employees current job.
terms of the job being offered
employees skills, abilities, pay, status, hours, and location of the job.
It may be offered if they are too ill to undertake their current job.
Redundancies can take place for the following reasons:
Business closes down.
Jobs replaced by technology
Operations moved overseas.
There are a number of legal stipulations such as:
if a company wants to make 20 or more employees redundant then it must consult the relevant trade union or employee organisation at least 30 days before its undertaken.
The redundancy payment is decided by the length of service and the employees age. Is only paid for to those who have been employed for two or more years.
1. Leadership and management style - the personality of the leader will dictate whether or not decision making is delegated and then decentralised. Visionary leaders such as Steve Jobs have insisted having a centralised decision making process (Autocratic). Richard Branson on the other hand is famous for implementing a leadership style based on delegation (Democratic).
2.Business objectives - objective of growth in a high quality product lends itself to a decentralised model where individuals have greater power to make decisions that will ensure customers needs are satisfied.
3.Skills of the workforce - Skilled workforce more likely to use decentralised - laissez-faire/democratic leadership.
Unskilled autocratic/centralized organizational structure.
External
Technological - data driven decision making (loyalty cards). This can allow managers to decentralize decision making as junior employees can make decisions based upon extensive data.
Competitive environment - the more competitive the market the more need for the organisation to be flexible and adaptable to the external environment. This can be acheived through decentralising decision making to ensure that changes in customer behaviour are adapted to as quickly as possible. However if the markets competiveness is driven by price and therefore cost minimization is key then a centralized organizational structure may be more appropriate,
Economic environment - times of strong economic growth bring about larger demand which leads to organizations growing. During times of expansion delegation is an effective way of ensuring that customer needs are met. In contrast in times of recession organizations often adapt a centralised approach as this allows for autocratic leadership which is most appropriate in the time of a crisis.
Factors influencing centralized and decentralized organizations.
Internal factors
Cost
Benefits
Cost - direct dollar of training courses.
Reduced productivity - trainers/trainees reduced output.
Once trained Leave for better jobs.
Reduced control - "too big for your boots" managers fear subordinates having a better understanding that themselves.
Improved performance of the organization. - greater output, better quality of service.
Increased motivation - labour retention.
Increases the competitive advantage of the organization - increases the likely hood of objectives being achieved.
Reputation for training - attracts the best employees.
Loss
Profit
BEP = TR=TC
Output
Units
£
2000
4000
6000
100
200
300
Breakeven Analysis
VC = Costs that change in proportion to output. E.g Raw materials.
FC= costs that change but not in proportion to output. E.g Salary
TC = FC+VC
TR = Selling price X units sold
BEP = the point at which TR is equal to TC I.E the company doesn't make a profit or a loss. Therefore any units sold above the BEP contribute to making a profit of the organization.
Profit = TR -TC
TR
A rise in FC
On your graph show
An increase in VC
A reduction in selling price

For a back pack company create a breakeven question.
That includes three VCs and three FC's
You need to provide a selling price and number of units sold.
You need to work out the breakeven point and the amount of loss/profit they make.
The Backpack company

Types of Profit
Gross profit
Deducting direct costs from sales revenue.
Operating Profit
Profit arising from normal trading activities. I.E those likely to be repeated are included. One off costs and revenues are not.
Other costs such as interest on loans and tax are not deducted.
Profit for the Year
All costs and revenues taken in to consideration. The managers then decide how to use the profit (if any is made). Options include paying the owners (If an LTD or PLC this would be in the form of dividends), Reinvesting in the organization, keeping it in the organization as a source of cash or as savings.
Analysing the Market
Recognizing what market the organization operates in. A seemingly obvious point however a misinterpretation can have severe detrimental impacts. This can evolve over time - Nintendo - now a games console manufacturer was once a game card maker only, it made this change hugely successfully.
Purpose of Analysis
Recognizing long term trends.
Tesco - Discounters (Lidl, Aldi)- consumer behavior changed as they recognised the value provided by these companies. This led to Tescos revenue and market share tumbling. They've had to employ a turn around strategy.
Consumer Usage and Attitudes
Consumer Profile
Market Mapping
Use of IT in Analysing
Options include paying the owners (If an LTD or PLC this would be in the form of dividends), Reinvesting in the organization, keeping it in the organization as a source of cash or as savings.
Financial Objectives
1.Profit = TR-TC
2.Cash flow
The timing of payments and receipts. I.E the movement of finance in and out of the organisation.
Organisations can be profitable but not hold enough cash to be liquid. This means it is unable to pay its creditors (who the organization owes)
1. Profit - Different measures of profit.
To increase profit the organization must:
Revenue
Cost
Exam tip - to achieve L3 Analysis

Use processed data to justify your point. Processed data is where you use calculations rather than raw data. % change is the most basic of methods and an efficient way of achieving analysis marks.
1. Annotate the diagram
2. Place definitions of indirect and direct costs at the bottom of the page.
3. complete the table - % change = the difference / the original x100.
4. Write the exam tip below
Types of objectives:
1. Percentage based - % increases. Profit to increase by 10%.
2. Numerical - a figure. - Reduce direct costs by 10p per unit.
3. Times by - double revenue.

They should all be time bound - have a deadline.
SMART objectives should always be set.

They maybe relevant to certain parts of the business. E.g the online aspect of an organization rather than it in its entirety.
Demand rises significantly
Reduce prices
Competitors
Demand is elastic
Financial Objective
Demand is price inelastic
Small fall in demand
Increase in price
Products are differentiated
Products are Necessities
Market analysis is rooted in the deep understanding of customers.
Why buy coke instead of Pepsi.
Who are the key decision makers - parents, mothers, early adopters.
who are the users? Pester power..
Once these questions are answered the organization can then accurately target its market.

MR used -
Advantage of Primary and a method for each
Advantage of secondary
Intricate understanding of consumer habits and how they consume the organisation's products.
Communicating this data amongst the different departments is key as it brings the following benefits:
Improved decision making
Fewer mistakes
Reduced duplication
converting new knowledge into added value more quickly.
Draw a picture of a typical VW golf driver.
Age
Job/socio economic groups.
Gender
Sports/hobbies
Type of house they live in.
What brands do they wear.
What phone do they use.
Marital status
children? dependents
Pets


This is statistical break down of who buys the product or brand. by doing this more accurate MR can be implemented, more precise market segmentation, deciding in which media to advertise.
Look up YUPPIE
Premium price
Aspirational (Image)
Budget price
Commodity (function)
Car Market
BMW
Volvo
Aston Martin
Ford
Vauxhall
Kia
VW
Tesla
Cash flow objectives
Objectives for investment levels and returns
What is an asset?
An asset is an item that provides long term benefit to the organization through aiding in the generation of revenue. E.g Property, Vehicles and machinery.
Investment is the purchasing of assets.
Non current assets - those assets that will be used by the organization over a year.
Capital expenditure - another phrase for investment. The purchasing of non current assets such as property....etc
What capital expenditure project are the school currently seeking finance for?
If you were in charge of the schools finances what capital project would you undertake?
What is the link between gearing and capital expenditure?
The dream
Your opinion.
To undertake capital expenditure long term borrowing is likely to be undertaken. This will therefore lead to an increase in gearing.
Capital expenditure is fundamental to the long term success of any organisation. Without it assets become outdated and therefore the organisations productivity is reduced, reducing its competitiveness within the market.
A lack of capital expenditure is an indicator that the organization is under financial stress. In times of recession investment reduces to maintain profits or minimise losses.
Some industries are more capital intensive than others. Mining company Rio Tinto reduced its planned capital expenditure by $2bn in 2014 to $9bn.
Return on investment = Operating Profit
Some organizations require higher levels of cash than others. Those that operate in seasonal industries require overdrafts to ensure they don't face cash flow problems.
Trade credit - buy now pay later. Think Sofas - DFS.
B2B - Business to Business - a builder buying bricks will be able to pick the bricks up on the day and then pay 30 days after the invoice (bill) arrives.
Creditors - suppliers - Payable
Debtors - customers - Receivables
To improve the organisations cash flow position it will negotiate trade credit agreements that ensure its customers pay quicker than the organisation pays it's suppliers.
Interest payments - ensure that the organisations finance (cash) is working for it's benefit. Pay suppliers as late as possible and encourage your customers to pay as quickly.
Gearing
The amount of long term debt within the organization. Organisations that have above 50% gearing is deemed to be highly geared.
Debt is not a bad thing - providing an organization is able to pay the installments when they fall due.
High gearing has an implication = Interest payments are fixed costs. High levels of debt also diminish the likely hood of an organization being lent more finance. Highly geared organizations are more vulnerable to interest rate rises.
Capital invested
X100
Those organizations with the objective of growth may increase the amount of cash they carry as to be able to hire more labour or buy more stock to meet increasing demand.

Internal and external influences on financial objectives
The overall objectives of the organization
The nature of the product that is sold
The objectives of SMT
The financial objective must aid the organization in bringing about the organizations corporate objectives. Once the corporate objective is set then the finance department will set an appropriate financial objective from cost, revenue, profit, cash flow or capital expenditure to meet the needs of the whole organization.
Internal
Certain products require certain types of financial objectives. E,g the oil industry has a long cash cycle which will require cash flow targets to be set. Other organizations with price sensitive products are likely to set cost based objectives, allowing for lower prices to be set leading to higher demand.
Managers who own significant number of shares may chase profit based objectives to increase the dividends payments and increase share prices, leading to significant personal gain. Others may seek to further their own careers through implementing strategies that will ensure that objectives are achieved, this will increase their standing as a leader/manager.
External
Competitive environment
Economic environment
Technological environment
Political/Legal environment
The level of competition and the nature of it will dictate what financial objectives are relevant. Technology based industries require high levels of investment in R&D to ensure a pipeline of new innovative products. Some organizations may seek alliances to bring about greater economies of scale to bring about greater profit margins - airline companies do this.
This is the most important external factor - It will have the biggest impact upon financial objectives. In times of recession investment is likely to reduce as demand for products and services will be low. Interest rates will also have an influence due it having an impact upon cost of borrowing and therefore dictate whether investment is viable. in times of growth then investment will be required to increase capacity to ensure the increase demand is met.
Industries that rely upon technology to remain competitive require high levels of investment. This also lead to managers setting cost minimization as an objectives. Supermarkets and banks have invested heavily in technology that has automated processes to reduce labour costs.
Brexit will play a role in the level of investment within organizations at the moment. Eu membership has allowed for low cost labour to be utilized by British companies. Changes in the min wage will impact upon the ability of organization to meet cost objectives.
Q 1+3 of the short answer questions on Page 207

Retained profit
Saving profits from previous years to invest in extending the organization. Only available to organizations that make profit.
Share capital
issuing shares to raise finance. This is often used to purchase capital projects. People are buying a part of the organization. Only available to who.....
Venture capital
A mix of share capital and a loan. Mostly used by organizations that are deemed too risky for loans. Organizations or people that provide venture capital expect some kind of managerial control over the organization they're investing in. Often no more than £500,000.
Crowdfunding
Kickstarter is the most famous example of a crowdfunding website. This is where organizations ask for funding but from an online community. The total set by the company is often achieved through thousands of small donations from people. Pebble a relatively successful smart watch was funded this way.
Sources of finance
Short term
Pay outstanding bills
overcome temporary cash shortages - cash flow issues
Long term
Retained profits
Debt factoring
Overdrafts
Purchase of non current assets
Finance long term plans
Venture capital
Long term loans + mortgages
Retained profits
share capital
Internal
External
Sources from within the organization that do not lead to an increase in the organization debt.
Sources that are taken from outside of the organization which lead to an increase in it's debts.
Overdrafts - banks provide current account holders with a form of borrowing. This allows the organizations to prevent cash flow shortages. An overdraft will have a limit which will be negotiated on a company by company basis.
Debt factoring - organizations can sell debts that are owed to them to . E.g If a companies customers owe £200,000 they could sell this for £150,000. This brings about an instant injection of cash into the company.

To improve profit you need to do one of two things or both.
Increase revenue
Decrease costs
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1.using the data on Johnson's work out the gross, operating and profit for the year profit margins.
2. Calculate the % change in revenue and COS
Profit Margins
3. Analyse these results - small paragraph explaining what these results show.
Make revision notes on how the three types of profits are calculated.
Make a note as to how these are turned into profit margins.
4. Analyze two ways that Johnson's can improve it's profitability. 9 marks
Apply to a chemical company.
Revenue - price, PED, units sold
Cost - production costs, labour productivity,
Use information - revenue rose, can they maintain this and look to make cost savings.
How can an organization increase the amount of profit it makes?
Be as precise as you can be using the terminology you already have.
Consider the impact it will have upon the graph.

Uses of profit

Capital Structure
Decisions as to the nature of an organizations capital structure is important in the short and long term. There are two forms of capital that can be used to to fund operations and growth (Capital expenditure).
1.Long term borrowing - Interest must be paid on these, this will increase FC's.
2.Issue shares - sell more shares to raise funds for capital expenditure (The purchasing of non current assets ). These will dilute the value of the current shares and the dividend that will be paid per share.
Non current liabilities
Total equity + non current liabilities
Formula:
X100
Total capital
non current liabilities
25%
Pg 202 key terms
Non current liabilities - debts that fall due in over 12 months.
Non current assets - assets that provide a benefit to the organization for more than 12 months.
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