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Business Unit 2 Revision

edexcel alevel
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R Sembi

on 27 May 2015

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Transcript of Business Unit 2 Revision

Business Unit 2 Revision
Marketing
Marketing has many purposes and they will very from business to business
Find out what the customer wants
Help design goods and services that customers want
Anticipate and plan for future changes in customer preferences
Help to obtain, maintain and increase market share and to maintain and increase sales and profits
Help to create and USP for products and services
Maintain and increase customer loyalty
Create a strong brand that will justify a price increase
Create and maintain a competitive advantage over other businesses
Market Research
Market research involves collecting, recording and making sense of all the available information which will help a business unit to understand its market. Market research sets out to answer the following questions:
How are existing products perceived by current and potential customers?
what changes can be made to the product so as appeal to a wider market?
are out products inferior to competing products and if so in what way? could we add more value?
Are potential customers aware of our products
does our product provide value for money?
should we compete on price or quality or both?
Market Strategies
Market Strategies are used in order to meet the marketing objectives set by the business. they can be long term or short term. they can be used to focus on developing a niche market or moving into a mass market
The Marketing Mix
Marketing Objectives
Marketing objectives are the marketing goals and targets that a business is trying to achieve by its marketing
Prevent losses
Position or re-position a market
Target a market or segment
Build brand image
create competitive advantage
increase profits and sales
develop a range of products
Corporate Culture
Corporate Culture refers to all those attitudes, customers and expectations that influence the way decisions are made within the business. This will vary from business to business
Niche Market
a niche market is a small part of the overall market that has certain special characteristics, these may include providing a specialised or luxury product or service. Niche Marketing is used when a business focuses on narrow or small market segment
Mass Market
Mass Market is a very large market with a high sales volume. Mass marketing occurs when one standardises product is aimed at the largest group of consumers for that particular product or service
Benefits of a Niche Market
avoids competition (in the short run)
differentiated products focus more precisley on consumer needs
specialist knowledge give competitive advantage
can charge higher prices
can respond quickly to changes in the market
Limitations of Niche Market
Limited room for growth; difficult to achieve economies of scale
vulnerable to changes on consumer tastes
vulnerable to economic downturns
if too successful, mass market businesses may try to compete
Benefits of Mass Marketing
Maximises the number of customers and sales revenue
economies of scale reduce average costs
mass marketing (undifferentiated) is cheaper per customer
allows full use of brand value
Limitations of Mass Marketing
Cannot satisfy all customers in the market
being priced competitive can mean lower profit margins
vulnerable to competition from differentiated marketing
high advertising and promotional costs
Price
Product
Promotion
Place
Price
The ability to set price can be valuable source of competitive advantage. for many consumers price is an important factor when deciding which product to choice
when price is more important
when launching a new product or entering new market
for products with a lot of competition
when price is less important
if the product has little competition
if there is a strong brand
when producers accept that going market price
Product
For some consumers the product itself will be the most important factor when deciding which product to choose. high tech products sell themselves on their features. the shelf life of a smartphone or digital camera is relativity short, as new models/ versions regularly appear to tempt the consumer. Price becomes less important
when product is more important
for high tech products e.g smartphones
when quality, reliability or fashion are important to customers
to differentiate a product from the competition
when product is less important
for standardised or mass markets products
when price is critical
Promotion
this refers to any tactic used to bring a product or service to a consumers attention and then persuade them to buy it. there is a whole range of promotional techniques including price reductions, special offers, advertising in all its forms, sponsorship and direct selling
when promotion is more important
when product is new
when sales are declining
when competition is high
when promotion is less important
if there are few competitors
if consumers are already aware of the product
Place
This is all about getting the product/service to the consumer at the right time and place. it is about making the product easily accessible and available for the consumer to buy.
when place is more important
when launching new products
if consumers need to see and be aware of the product
if customers might buy the product on impulse
when place is less important
internet has made physical place less important
when strong advertising presence will lead customers to find the product for themselves
Product Life Cycle
the product life cycle shows the different stages a product passes through as it moves from being just an idea to the end of its life
the five stages associated with it:
development
introduction
growth
maturity
decline

Development
Impact on cash flow
high levels of investment and no sales mean that cash flow is all negative
Impact on marketing mix
Maybe some limited promotion to alert retailers and consumers prior to launch
Introduction
Impact on cash flow
still negative as low initial sales do not outweigh high costs of initial launch and promotion
Impact on marketing mix
heavy promotion to create awareness
competitor-based prices may increase market share
premium prices can be charges for new product in high demand
Growth
Impact on cash flow
sales pick up
promotional costs still high
cash flow should be positive
Impact on marketing mix
promotion may change emphasis to building brand loyalty
prices may rise to a premium level or fall to match the competition and secure a mass market
Maturity
Impact on cash flow
cash flow should be maximised as sales begin to peak
average cost begin to fall as any economies of scale are reached
Impact on marketing mix
promotion may ease as brand becomes established with occasional bursts to maintain sales or differentiate from rival products
Decline
Impact on cash flow
sales will fall but cash flow may remain positive as average costs are also low
impact on marketing mix
little promotion
price is likely yo fall to maintain some sales until the product reaches the end of its life
Extension Strategy
an extension strategy is any method used to lengthen the maturity stage of the product life cycle
they include
finding a new market for the product
finding a new market segment for the product
finding new uses for the existing product
changing appearance, format or packaging
developing variations of the product
change the pricing strategy and adverting
extension strategy are way to increase sales by re-launching the product with in a new image or aiming at a different market segment or promoting it in a fresh way
Boston Matrix
the Boston matrix is a method of analysing a company's products in terms of their market share and growth potential.

Brand
A Brand creates an identity for a product or service that distinguishes it to a potential customers
Branding is important part of marketing. bands can be used to:
create brand loyalty: customers will seek it out and repeat purchase
form part of the adverting and promotion plan
help word of mouth promotion
aid product differentiation and customer recognition and awareness
reinforce the idea of the status and quality
create a competitive advantage
enable premium pricing
reduce price elasticity of demand
Price Elasticity of Demand
PED = %change in quantity demanded
% change in price
Price elasticity of demand measures the responsiveness of quantity demanded to change in price
Price Elastic when a price change causes a proportionately bigger change in quantity demanded. this is when % change in quantity is greater than the % change in price = beyond -1
Unit Price Elasticity when a price change causes the same proportional change in quantity demanded this is when % change in quantity is the same as the % change in price = -1
Price Inelastic when a price change causes a proportionately smaller change in quantity demanded this is when % change in quantity is smaller than the % change in price = 0 to -1
Importance of PED to Business
Marketing
it is extremely important for a business to know what may happen to its demand it it changes the price of its products or services. a business may have to change price for all sorts of reasons.
Branding
businesses try to make the demand for their products more price inelastic they do this by advertising and branding
Total revenue
changing price can dramatically affect total revenue depending upon whether the demand is price inelastic. a business needs to know what might happen
Factors that Affect the Degree of Price Elasticity
Number and closeness of substitutes
Luxury or necessity
proportion of income spent on good
time scale
The Impact on current social trends on the marketing mix
Ethical trading - products that reflect ethical concerns are more in demand and may carry a higher price without deterring sale.
Sustainable sourcing - consumers are more aware of environmental concerns and prefer products that come form sustainable sources
Packaging
Health concerns - many food manufactures now provide much more information on labels to aid consumer who which to follow a healthier diet
Carbon Footprint
Online Retailing
Retailer purchasing power

Design, Productivity and Efficiency
Design - making sure that the product is suited to market requirements and adapting it when these change.
Production - sourcing all the necessary inputs (either in-house or out sourcing from independent suppliers), creating a quality product and providing customer service
Operations Management - covers all aspects of production including the sourcing of all inputs and the efficient organisation of all resources used in production

Product or Service Design
the design mix combines 3 elements :
function - the way in which the product performs (does it actually work?)
aesthetics - does it have a degree of beauty or style, as perceived by the user (is it appealing?)
economic manufacture - can it be produced at a low enough cost to be competitive
design mix refers to the way in which function, aesthetics and economic manufacture are combines in the overall design
with the help product innovation it provides opportunities to to explore all aspects of the design mix
product innovation occurs when new technologies make it possible to create completely new or greatly improved products
Productivity and Efficiency
Productivity - measures how efficiently resources are actually being used, usually by looking at output per unit of input
Efficiency - means organising production so that waste is minimsed and cost are the lowest possible
productivity can be increased
Physical capital
technology
human capital
organising resources more efficiently
process innovation means using new technologies to improve production methods so that costs are reduced
Capital and Labour Intensity
Capital intensive production uses large amounts of capital and relatively little labour
Labour intensive production uses large amounts of labour and relatively little capital
Capital
tools and machinery may become obsolete
failure to upgrade may mean losing competitive advantage
new investment in capital is needed
Labour
skills may no longer be needed
retraining is needed
in general, new investment in human capital is needed
Efficiency and Growth
Positive growth process cannot happen without certain key requirements being met:
Finance
Skills
Flexible Working
Flexible contracts
outsourcing means that the business buys some inputs from other businesses, rather than using its own employees to do the work
(page 67 revision guide)
Capacity Utilisation
Capacity utilisation measures what proportion or percentage if the theoretical maximum possible output is actually produced
Capacity utilisation = current output x100
maximum output
capacity utilisation is a problem for business managers
Under Utillisation of Capacity
Means that capital equipment is lying idle some of time. Obviously, this is wasteful; it means that productivity is lower than it could be
the business is producing less than it actually could; its average costs are likely to rise. this because fixed costs are shared over a lower level of output
this means that the business is not as competitive as it could be.
the productivity of either labour or capital could be increased
Ways to reduce under utilisation of capacity
extend the product range
find new markets
increase demand by production
rent excess capacity to other businesses
in the long run close excess capacity
Over Utilisation of Capasity
Means that the business is trying to produce more than its equipment was designed for.
this too can result in an increase in average costs as bottlenecks, breakdowns and overcrowding reduce efficiency
once again this means that the business is not as competitive as it could be
Ways to improve over utilisation of capacity
identify and tackle bottlenecks and shortages
outsource or sub-contract some of the production to other businesses
in the long run invest in increased capacity
Stock Control and Lean Management
Stock is a term used to cover everything from raw materials though work-in-progress to fully finished products that the business is holding
Stock control is the process of making sure the optimum level of stock is held so that demand can be met while keeping the costs of holding that stock to a minimum
Too much Stock
increased cost of handling and storing stock
too much cash tied up in stock
cash flow problems may occur
Too little Stock
production may be halted as stock runs out
workers and machines may lie idle
cannot meet orders and lose reputation
How Stock Contol Works
As production takes place, stock is used and stock levels falls
stock levels are monitored; when they reach a certain level more supplies are ordered, this is the re-order level
production continues and stock levels fall to a minimum level
new supplies arrive and stock levels are replenished and the pattern repeats itself
the minimum stock level is set so that there is still a small amount of emergency stock (buffer stock) left if the delivery is delayed
Lean Management
Lean Management is a general term given to any system of production that tries to minimise waste during the production process this helps to cut costs
Lean production;
Just-In-Time (JIT) a new approach to stock control
Kanban, which helps with market orientation
Time-based Management
Kazien, continuous improvement
TQM - attention to quality issuses
Cell production - working flexibly
Job enrichment and empowerment
Just-In-Time (JIT)
Just-In-Time (JIT) is a stock control system that does away with the need to hold large quantities of stock or raw materials. Stock arrive as and when they are needed
Advantages of JIT
reduced costs in terms of buffer stocks and handling
less need for storage space, this can be converted to production
greater flexibility in responsibility to changes in demand
Disadvantages of JIT
many not benefit from reduced unit costs for bulk purchasing
if there is a break in supply, production will be lost; time money may be wasted
heavy reliance on the reliability of the supplier
Kanban
This is the idea that production takes place only after a customer has placed an order. it removes the need for a stockpile of finished goods ready for sale.
Kanban goes hand-in-hand with JIT
It is commonly seen in places such as car factories where individually specified vehicles move down the production line
This means that all output will generate sales revenue and costs are once again minimised
Good computer controls are vital, to ensure that the parts required for each vehicle are to hand when they are needed
Competitive Advantage of Short Development Lead Times
Product development lead times starts from the first idea about the product through the design and development period, to being ready to start selling the final product
Time based management is based on saving time whenever possible. For many businesses, the speed with which they can respond to change is a key factor in maintaining competitiveness. it requires flexibility
this applies to:
speed of development
speed of delivery
flexibility
Benefits of Short Product Development Lead Times
Reduces the development time in the product life cycle
Reduces costs
Improves cash flow
Can respond rapidly to changes in consumer tastes and demand
Can enter the market before competitors can.
Lean Production : Summary
Advantages
Reduces wastage and related costs
Reduces costs of storage and handling
Improves quality
Lower reject costs
Customers more satisfied with quality
Greater flexibility
Shorter lead times
More motivated staff, less staff turnover
Disadvantages
Doesn't suit all production processes
Failure by one small supplier can halt the entire production process
Workers may dislike greater responsibility
Managers and staff may not be flexible enough.
Quality Control Quality Assurance
Quality control refers to the traditional method of checking that product are good enough standard
it does not solve the problem of what has caused the defect in the first place
it does not find every faulty product; this can mean dissatisfied customers and costly returns and replacement process
it can send the wrong message to the workforce e.g. mistakes are inevitable and someone else will sort them out
it is expensive in terms of implementations and wastage of stock
it does not add value
Quality assurance takes into account customers' needs and involves employees in looking at every aspect of the business, in an attempt to improve the quality of the product or service
putting in place systems that require high standards at each stage of production
organising employees in teams that can collaborate and take responsibility for quality and issues
changing the corporate culture of the business so that employees see quality as high priority that influences all aspects of their work
Focusing on prevention of defects, rather than just checking for any that have already happened. some businesses have a zero-defects policy (means getting the product right first time) so wastage is minimised which reduces costs
Developing Kaizen or Total quality management (TQM
Kaizen
Kaizen is the japanese word for continuous improvement. it summarises a whole company approach to quality control. everyone is involved in the search for improvements to both the product and the process of production.
Customers may have steadily rising expectations, so continuous improvement may be vital element in the business strategy
Kaizen means that:
Everyone in the business, from top to bottom, takes it upon themselves to monitor and improve quality wherever possible
These improvements are small and may seem trivial but spread throughout the business, they add up to a continually improving product or service.
Customers benefit from a better quality product.
Time Quality Management (TQM)
TQM employees are all involved in quality control and take responsibility for the quality of their and their team's work. this not only helps reduce costly wastage but also reinforces employee motivation. For TQM to work properly the following components need to be in place;
Committed leadership - management must be wholeheartedly behind the scheme
Employee empowerment - they must have greater involvement in their work and greater responsibility to make changes
Increased training - it takes time and effort to make employees aware of their changing role and the importance of TQM
Kaizen and quality circles are important elements in TQM
Closer relationship with customers and a determination to meet their needs.
Closer relationship with suppliers to raise the quality of inputs
Benefit of TQM
Improved products and services
Reduced costs
Increased customer satisfaction
Repeat purchases and brand loyalty
Improved profitability
Competitive advantage
More motivated workforce
Drawbacks of TQM
Implementation costs
Takes time to set up
Retraining of employees
Increased pressure on management
May be difficult to involve staff
Does not suit all businesses
Consumer Protection Legislation
Consumer protection legislation refers to the laws that governments passin order to protect retail consumers from fraudulent, misleading or unsafe business practices. There is a potential conflict between the aims of the producer and the consumer
Consumer want choice, low prices, high quality and innovative products and good service
Producers, on the other hand have an incentive to avoid wasting time, effort and money unnecessarily. They wish to maximise their profits and to do so, they may engage in all sorts of undesirable tactics including:
Cutting costs so that products are unfit for purpose, potentially harmful or even dangerous
Making misleading claims as to the quality or use of their products.
Using misleading pricing or production information
Refusing to exchange faulty goods
Mis-selling financial products, by recommending inappropriate products
Collaborating to fix prices or restrict prices and to restrict competition and consumer choice
Dealing With Unfair Competition
The Office of Fair Trading (OFT) enforces both consumer protection and competition law. the OFT's goal is to make markets work as well for consumers. it promotes healthy competition between fair-dealing businesses and prohibits unfair practices such as price fixing
The Competition Commission is an independent public body which conducts in-depth inquires into mergers, markets an the regulations of the major regulated industries (such as water, energy and railways) it has the power to impose changes on the companies concerned or ban proposed mergers. This helps keep the market competitive
The EU Commission has a similar role to the competition commission but focuses on issues that cross European borders. The USA and other countries have their own competition laws and often there will be a collaborative effort to deal with a business that sells in more than one country
How Do Budgets and Forecasts Help?
A Budget is a financial plan for the future that sets out targets to be met, the costs of achieving them and how that spending might be financed
Budgets can cover a range of business variables such as sales revenue, production costs, overheads, personnel, cash, capital expenditure and expected profit.
budgets are normally set for 12 months and coincide with the accounting year, although they can for much shorter periods of time
Senior management will devise an overall budget and budgets for individual departments; then it is up to the departmental managers to implement them.
budgets act as a form of supervision and departmental managers are expected to stick to the targets set out in the budget.
This may mean achieving a certain level of sales or nor spending more than the sum allowed.
if managers wish to vary the targets, they must be able to justify it to the senior management.
After the time period the actual figures can be compared to the planned budget and performance can be reviewed.
Preparation of Budgets
The Budget Process
Decide objectives - set out broad objectives e.g. sales revenue, market share, overall costs
obtain information - may use previous year's figures or use estimates based on them
prepare budgets - overall budgets decided and split into departments for individual managers
monitor performance - managers closely monitor progress against budget and react
review - lessons are learnt from variances and applied to improve business
Benefits of Budgets
Helps to control income and expenditure
Provide clear targets for managers
Authority is delegated to managers which can be motivating in itself
Helps to focus on costs
Forces management to constantly monitor their budget and highlight wastage and inefficiency
Helps to coordinate department and managing the business in general
Helps to reveal area where corrective action is necessary
Drawbacks of Budgets
Can cause resentment and/or rivalry as departments compete for funding
If a budget is too inflexible the business might miss opportunities when markets change
Restrictive budgets may stifle creative managers and be de-motivating
Setting budgets can be time consuming and expensive
If the actual results are very different, then the value of the budget is diminished
Historical Figure
For and existing business it may be best to produce a budget based on previous figures, such as last year's sale and costs. this gives a basis on which to model the next year's targets. however, several problems with using this approach;
It assumes that business conditions remain unchanged or stay similar
As the product moves through its life cycle, it places different demands on budgets, for example less adverting may be needed
Allowances need to be made for inflation, to ensure estimates are accurate
if the business wishes to expand how much extra should be added to sales targets
if the business has grown over the previous year, will last years targets be realistic for this years target
sales figures can be unpredictable
costs can fluctuate and may not stay the same
Economic variables such as the business cycle can affect budget figures
Unforeseen events such as the Euro crisis can affect budgets
Zero Based
Zero based budgeting means starting from scratch each year with no money allocated to cover costs. Managers must be prepared to bid for and justify spending on their departments. This forces them to examine all their costs
Benefits
Resources should be allocated more efficiently
Easier to adapt as circumstances change
Gives more flexibility in response to changes in the market or economy
Forces managers to think and plan more carefully
Drawbacks
Can be more expensive
can be more time consuming
Forceful managers may be more successful in attracting funds that others who may have more worthwhile projects
Variances
A Variance is the difference between the budgeted figure and the actual figure
An ADVERSE Variance
means that the actual figure are Worse that the budgeted ones
An FAVORABLE Variance
means that the actual figures are Better that the budgeted ones
Variance analysis
Variances need to be investigated and the business needs to understand what has gone wrong
It is important to investigate negative variances to find out why they have happened and put things right early on, before they get any worse
It is also important to understand favorable variance; it may mean that the business isn't being stretched enough
Small variances are not s big problem; staff can actually be motivated by small variances. An adverse one can encourage them to close the gap and a favorable one to feel satisfied
On the other hand a large variance is a problem; it can cause feelings of complacency if it is a favorable one, or it can be de-motivating if it is an adverse one, and staff feel they have no chance of catching up.
Sales Forecasts
A Sales Forecast is a method of predicting future sales levels using an analysis of existing information.
The sales forecast will help determine;
budgets - if sales are forecast to increase,the business will need departmental budgets for areas such as production, distribution and marketing
Staffing levels - the business will need more or fewer staff depending on the forecast
Production levels - may need to be increased or decreased
Stock and purchasing levels - again, may need to be increased or decreased
Cash flow forecast - sales will directly affect cash inflow so any change in future sales will alter the cash flow forecast and the level and availability of working capital
Profit and loss forecasts - future sales will have a direct bearing on this
Difficulties Of Estimation
Like all forecast they are just predictions and can be inaccurate.
The further ahead the forecasts are, the more likely they are to be out.
Various factors can affect a sales forecast; if the forecast is inaccurate it can have a real impact on the business
Most of these factors are beyond the control of the business
An unexpected fall in sales may mean reductions in budgets and the need to adjust cash flow forecasts which may also mean a need for more working capital
Factors That Can Affect Sale Forecasts
Economic variables
Changes in growth rates of GDP can affect consumer confidence and spending power which will affect sales. Inflation, exchange rate variations and changes in interest rates can all affect prices and sales
Actions of Competitors
The launch of a new or improved product or a fresh promotional campaign by a rival can affect sales
Actions of Government
Changes in tax rates or legislation can affect sales
Natural Changes
The weather can have a big impact on sales
Change in costs
The costs of raw materials may be volatile and affect prices and sales
Changes In Market
The size and structure of the market may change over time
Changes In Taste
Tastes and fashions come and go; just because something is popular one year does not mean it will continue to be so. Conversely, a sudden rise in popularity as they become fashionable
How Can Sales Be Increased?
A reduction in price will increase the sales of most goods and services and may increase total revenue BUT this will depend on the PED
Adverting and promotion may boost sales and revenue but there will be an increase in costs to pay for promotion; hopefully revenue gains will outweigh this increase.
The product could be changes, adapted or upgraded, either as an extension strategy or as a way of adding value
Different ways (place)of selling the product might be considered. The website could be upgraded or alternative retail outlets found. Businesses may also consider moving into new markets at home or abroad
Cash Flow Forecasting
A Cash Flow Forecast is a statement over time of the cash entering a business form its sales and the cash leaving a business to pay for its cost. the difference between the inflow and out flow is the net cash flow and is a crucial indicator of a business to cover its day to day running costs
Every business needs available cash on a day to day basis
Cash flow is the flow of all money into and out of a business
When a business sell it products money flows in (cash inflow)
When it buys raw materials or pays ways, money flows out (cash outflow)
The problems is that cash inflow often lags well behind cash outflow
Cash dries up and creditors demand payment. (creditors are people or businesses that are owed money. Debtors are people or businesses that owe money to the business)
Bills need to be paid on a regular basis
If you cants pay your bills, you can't stay in business
Therefore managing your cash flow is crucial
A cash flow forecast helps to predict when you are going to need extra finance to avoid these problems
How to Prepare a Cash Flow Forecast
Cash In - all cash sales, credit sales and any other money introduced during the month e.g capital, loans, etc.
Cash Out - all payments made by the business during the month including overheads and variable costs
Net Cash Flow - the difference between cash in cash out during the month, it may be a positive or a negative figure
Opening Balance - the opening bank balance at the starts of the month
Closing Balance net cash flow is added to show that bank balance at the end of that month
How a Cash Flow Forecast can help with planning
By monitoring the closing balance, the business can see how much cash they are likely to have the bank on a monthly basis
If the closing balance is negative figure then that is a prompt to seek extra finance, usually in the form of an overdraft.
An overdraft is a facility from the bank that allows a business to spend more that it has in its account, up to an agreed limit.
This is a flexible and useful form of finance that is particularly suited to ash flow problems. interest is only paid on the amount borrowed, for the time it is used.
If a cash flow problem can be foreseen then it may be possible to plan ahead and reduce the payments going out, perhaps by asking creditors to wait another month or so before payment
Items such as advertising could be postponed
It may also be possible to persuade debtors (people who owe you money) to pay up early to increase cash coming in.
Managing Working Capital
Working Capital is the amount of cash and other liquid assets a company holds in order to finance its day-to-day operations.
However, it is better to have too much working capital that too little!
Without adequate working capital a business may not be able to pay its bills and could be in trouble
Managing cash flow and therefore levels of working capital is crucial part in running a successful business. Contingency Finance planning can help by encouraging the business to anticipate future problems and planning how to deal with them.
Typically, Problems arise when customers are unable to pay for the products they have brought - this is particularly likely for businesses that sell to other businesses. Or production costs may rise .
Contingency Finance Planning means working out how the business might deal with a shortage of cash. this might involve an overdraft from the bank but the business could look first at credit management or stocks
Mangers Can Improve The Use Of Working Capital By
Customer Credit - minimising the amount of credit given to customers means more cash payments and less waiting for credit payments; this will improve cash flow. This is know as credit control
Credit From Suppliers - Maximising the amount from suppliers means reducing the meed for prompt payments which can put pressure on cash flow
Cash Flow Forecast - having accurate and constantly updated cash flow forecasts enables managers to foresee any problems; costs and revenues constantly change. The more warning of problems a business has, the better
Looking Ahead - having a contingency finance plan such as an overdraft or short term loan, negotiated and in place, before they are actually needed, avoids any delays
Stock control - by using efficient stock control systems which reduce the amount of stock held payments to suppliers can be reduced, which reduces the need fro working capital
Production - lean production will reduce costs and outgoings, Improved quality will also reduce wastage and costs as well as increasing reputaion and brand loyalty which should increase sales
Marketing - Efficient marketing will help to match sales to demand which minimises costs and maximises revenue.
Distribution - efficient distribution minimises delays. the sooner finished goods reach the customer and the sooner the payment will come
Difference Between Cash And Profit
Cash - is usually in the form of money or bank deposits, some businesses would also include assets that can easily be converted into money
Profit - is the difference over a period of time between total sales revenue and total production costs
Sources of additional fincance
Loans - a fixed sum loaned by a bank or other institution that is paid back in regular installments
Needs regular repayments, expensive, not flexible, banks can be very reluctant to lend
Overdraft - an agreement with the bank whereby credit is given and money can be withdrawn up to an agreed amount
Interest will be charged on the overdraft but it is still probably the best source of finance for cash flow problems
Extra Capital From Owner - the owner raises more capital to invest in to the business. this might come from personal savings or might be raised on the strength of an asset
No need to re-pay or to pay intrest but if problems persist the owner may lose the money or the asset
Factoring - specialised factoring companies buy up outstanding bills at a discounted then wait for payment at the full rate. Meanwhile the original business benefits from immediate, albeit discounted, payment
Immediate payments to ease cash flow but at a discount. trade-off between less money now against more money but having to wait
Sales of assets - businesses may have assets that can be sold to raise cash
no need to re-pay or pay intrest but assets may be needed at a later date
Sales of assets and leasing - assets can be sold and then replaced on lease basis
cash raised fro sales of assets but the business is committed to continuous payments which may be more expensive in the long run.
Why Businesses Fail
Overtrading - a leading cause of business failure, overtrading, often happens when business owners confuse success with how fast they can expand their business. if they expand too quickly, cash flow problems can cause problems. Slow and steadily growth is often best
A Declining Market - as sales decline so do the number of businesses
Businesses Run Out of Cash - cash flow management is crucial to a business. without adequate planning and extra finance if needed, otherwise profitable businesses may fail
Inaccurate Or Too Optimistic Sales Forecast - accurate planning requires accurate forecasts on which to base decisions. expecting more sales that actually happen can lead to overproduction, unsold and cash flow problems
Weak Stock Control - too much working capital may be tied up in maintaining stocks that are not really needed
Poor Control and Planning Of Business Finances - all aspects of business finance need to be constantly monitored and tightly controlled. if management is lax this can cause real problems
Poor Knowledge of The Market - not enough notice may be taken of customer wants or the actions of competitors which can lead to poor sales and a downwards spiral. the business loses it focus on market orientation
Weak Management - managing a business successfully is a real skill and failure to do this can lead to any or most of the problems above
Different Type
Of Organisational Structures

An Organisational structure is the framework, usually hierarchical, which shows how a business arranges its lines of authority and communications, and allocates responsibility and duties

a typical, basic organisation chart for management; this could be enlarged to show all the middle managers working in each of the departments and the people in the next layer beneath them
Hierarchical Organisations
A Hierarchy shows they layers of management in an organisation. A tall hierarchical organisation has many layers a flat hierarchical organisation only has a few
Chain Of Demand the sequence of authority down which instructions are passed in an organisation
Tall organisational structure, long chain of command
Flat organistaional structure, short chain of command
Span Of Control - the number of subordinates directly answerable to a manager the business might have a policy of restricting the span of control
Narrow span of Control
Wide span of Control
Tall and Flat Organisational Structures
Advantages of Tall Organisations
Narrow span of control means each employee can be closely supervised
clear lines of authority and control
Clearlu defined roles and responsibilities
Specialist managers
Clear promotion paths
Disadvantages of Tall Organisations
Freedom and responsibility of employees is restricted
Can be bureaucratic - decision making may be slow as communications pass through each layer in turn
Expensive, managers tend to be paid more each time they move up a layer
Interdepartmental rivalry may reduce efficiency
Advantages of Flat Organisations
Better communication between managers and worker
Better motivation as workers enjoy more responsibility
Less bureaucracy quicker decision making
Reduced costs with fewer managers
Disadvantages of Flat Organisations
Employees not strictly controlled, some may abuse this
Roles and responsibilities may become blurred
May limit growth
Delayering
Means reducing the number of levels in an organisational hierarchy. it usually entails increasing managers average span of control. It reshapes the structure from a tall pyramid to a much flatter shape
Centralisation
and Decetralisation
Centralisation means businesses have a centralised structure that keeps all decision making at the top of the hierarchy usually in the head office (i.e amongst the most senior management).
Decentralisation means moving the decision making process away from a central head office and spreading throughout the organisation, often to branch level
Delegation involves giving more individuals responsibility for decisions, rather than having top managers handing down all decisions to employees who simply carry out instructions
Centralisation
Advantages of Centralisation
Easier to maintain overall strategic direction
More rapid decision making
Easier to co-ordinate budgets
Easier to achieve economies of scale
In uncertain times the organisation will need strong leadership this is the easiest with Centralisation
Disadvantages of Centralisation
Hierarchy ends to be taller and more bureaucratic and can lack flexibility
Local needs are not catered for local opportunities may be missed
Local managers mat feel powerless and demotivated
Decentralisation
Advantages of Decentralisation
Senior managers concentrate on the most important decisions, as the other decisions can be made further down the organisational structure
Decision making is a form of empowerment which can increase motivation
People lower down the chain have a greater understanding of the market and the customer. this may enable them to make more effective decision than senior managers
Disadvantages of Decentralisation
Local managers can react faster to local changes
Lack of clear accountability of things go wrong
Sevrice may lack consistency between branches
Employees may not want extra responsibility
More difficult to co-oridinate overal strategy
Economies of scae are less easy to achieve
Communications may be more difficult without a clear chain of command
Recruitment and Training
Internal Recruitment means that potential applicants are found within an organisation
External Recruitment means that potential candidates are found from outside the organisation either by advertising or using recruitment agencies
Internal Recruitment
Advantages
Less need for training as the applicant is already familiar with the business
Business has more knowledge of applicants qualities and work record
May be quicker and cheaper that external recruitement
Prospect of internal promotions can be strong motivator for staff
Disadvantages
Number of applicants is limited
External candidates may be of better quality
An internal appointments automatically creats another vacancy which needs to be filled
If no suitable internal applicants is found, recruitment takes linger as an external applicant must be found
External Recruitment
Advantages
Attracts a wider range or potential candidates
They may be more skilled or experienced that internal applicants
Recruitment agencies can save the business a great deal of time
Recruitment agencies can be specialists, experienced in finding certain types of worker
Disadvantages
Usually more time consuming than internal recruitment
Usually more expensive than internal recruitment
Less is know about candidates references may be inaccurate
Recruitment agencies can be very expensive
Recruitment for positive attitude vs recruitment for skill
Reasons for recruiting for positive attitude
If applicants are young they will not have existing skills or experience anyway
If working relationships are important an recruits have to work within a team
If dealing with customers or clients is an important aspect of the job
If the business values openness and the ability to adapt.
Reasons for recruiting for skills
If the demands a level of technical competence without the job cannot be done
If training in the skills is very expensive or time consuming
If Experience is an important aspect of the job
Labour Turnover
Labour Turnover measures the rate at which staff leave the business. They may or may not need replacing
High labour turnover can be a problem because
There will be recruitment costs for replacing staff
There will be a loss of know-how and customer goodwill
It lowers productivity as new staff will need time for training and may not be as skilled as more experienced staff
There is a potential loss of sales
it can make the problem worse by creating a culture of impermanence.
Low labour turnover is generally considered to be an advantage because
Recruitment costs are lower
Training costs are lower
It can mean contented and therefore well-motivated employees
There is less disruption to production.
But...
Low labour turnover may mean that the business does not get the benefit of fresh ideas, new energy or a questioning attitude towards established and possibly stale ways of doing things
Low staff turnover can mean that your employees lack ambition and are really not that productive
Taylor Management Style
Taylor set out his ideas in 1911. His scientific principles were designed to increase the efficiency of the workforce. He believed that money would motivate people to work harder.
Taylor believed that by careful and scientific observation of how people work, a job could be broken down into its component parts so that the most efficient way of doing it could be calculated. This lead to an ideal level of production per worker if more
is produced that a bonus is earned
if less is produced then earnings are lost
How Taylor's ideas worked
Observe skilled workers at work
Note elements in the task
Time each element to the second
Eliminate all unnecessary activities
Decide on the most efficient sequence and time needed
Teach all workers the same sequence
All workers must meet the time allowed
Employ supervision to make sure workers follow the sequence
Productivity is increased
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Problems With Taylor's Ideas
They did not take into account individual differences in the way employees work
Employees became worried about their jobs as productivity increased and fewer people were needed to do the work
In order to meet productivity targets, quality could suffer
Supervision were needed to maintain quality and efficiency
The repetitive nature if the work was demotivating
People work for other reasons besides money
Human
Relations Approach
The Human Relations Approach emphasises the importance of the way in which people interact and how they are treated. Motivation can improve when the employee feels more involved
Maslow's
Hierarchy of Needs

Abraham Maslow was a psychologist who believed that people had a whole set of needs that must be fulfilled in order fro them to be motivated. These needs had to be met in order of priority.
Self-actualisation
Fulfilling potential, being able to develop and be creative, making things happen, being the best that you can be
Self-Esteem
Gaining recognition for achievements at work praise and promotion.
Social Needs
Interacting with work colleagues, friendship, team-working
Safety Needs
A safe working environment and job security
Basic
Physical Needs
These are the needs essential to life - food, drink and shelter. Businesses satisfy these needs by paying wages that enable workers to pay the bills
Problems
with Maslow's Ideas
Maslow said that each level has to be satisfied before moving on to the next but this is not always the case. e.g. voluntary aid workers may reach the top levels but not be able to satisfy their basic needs, or a promotion may only be temporary, so that safety needs are not being met
Individual behavior seems to respond to several needs - not just one
It can be difficult to decide when a level had actually been reached or satisfied
Job satisfaction does not necessarily mean that worker will become highly motivated or productive
Herzberg's
Two Factor Theory

Fredrick Herzberg was a psychologist. He argued that certain needs must be satisfied in order to motivate people.
Herzberg goes further -he argued that is was not just the motivating factors such as praise and promotion that were needed but also absence of other factors that would lead to dissatisfaction e.g. poor working conditions
He called these Hygiene factors - they do not motivate people by themselves but if the aren't up to standard dissatisfaction might occur
Before motivation can begin, the hygiene factors must be satisfied.
Hygiene Factors
Working conditions
Pay levels
Company policy
Job security
Closeness of supervision
Relations with co-workers
Motivation Factors
Personal achievement
Stimulating work
Status
Responsibility
Praise and recognition
Promotion
Problems
With Herzberg's Ideas
As with Maslow there is a basic assumption that happy and satisfied workers will be more productive. Some researchers challenge this.
Different individuals will respond in different ways to the various factors
For some employees, the hygiene factors may actually be motivating factors
Critics of Herzburg's theory argue that the 2-factor result is observed because it is natural for people to take credit for satisfaction and blame dissatisfaction on external factors
Financial Incentives
Piecework - means that each production worker gets paid according to
their level of output
Features
An agreed amount is set for each item produced
The more that they produce the more money they get paid
There is an incentive to be as productive as possible
Problems
Quality may suffer as workers try to get as much done as possible
Shortage of materials or machinery breakdowns mean no pay
Bonus Schemes - are designed to motivate employees by rewarding them for achieving particular targets or standards previously agreed with the employer
Features
Can help to recruit, motivate and retain staff
Can increase employee understanding , involvement and commitment to the business.
Problems
Not all jobs shoe a clear link between employee performance and productivity or profit gains
Employees may concentrate on the bonus target at the expense of the
other goals

Financial
Incentives Continued

Profit Share - means that an agreed share of the profits is paid to employees
Features
Employees have an incentive to be as productive as possible
Can take the form of cash or share options
Problems
Not linked to individual performance
External factors can influence business performance beyond the control of the employees
Performance Related Pay - is a scheme where wages or salaries are linked to performance in the workplace. There are many different schemes
Features
An appraisal (review of performance) is conducted by senior managers
The size of the payment will depend upon how well the worker has performed
This may be based on pre-agreed targets
Goals and/or targets are set for the next appraisal
Problems
There may be disputes over how performance is measured
Employees may not get on well with the person doing the appraisal
Some research indicates that these schemes can demotivate some employees
Non-Financial Techniques
To Get The Best From Staff
Delegation - means giving more individuals responsibility for making decisions.
This encourages initiative and increases motivation
Consultation - involves discussions with employees about working methods and practices
This creates a feeling of importance and of being valued for more than just their labour
Team Working - employees are organised into teams that share decisions making and practices
This usually results in improved productivity an fasted problem solving
Empowerment - a term used to describe ways in which employees can make independent decisions without consulting a manager
Increases feeling of self-worth and improves morale and motivation, as well as generating new ideas
Job Enrichment - means giving employees meaningful whole tasks to do rather than boring repetitive fragments of work
Herzberg defined it as "giving people the opportunity to use their ability" increases motivation

Job Rotation/Enlargement - allowing employees to change jobs, or
increasing the range of tasks they preform
Reduce time spent repeating tedious or routine processes that can lead to boredom and carelessness
Flexible Working - is general term for any arrangement that allows employees
to change jobs or increasing the range of tasks they perform
Can give employees more control over their working lives an increase their job sanctification
Total Quality Management (TQM) - employees are involved in quality control and take responsibility for the quality or their and their teams work
This not only helps reduce costly wastage but also reinforces employee motivation
Multiskilling - involves training employees so that they can undertake a range
of different tasks
It enhances flexibility because employees can be moved to where their
skills are most needed
Non-Financial Techniques
To Get The Best From Staff
Continued
Reducing Labour Costs
Use of a Flexible Workforce
Flexible working - means that the business can quickly adapt to the changing demands of dynamic market
It is likely that the workforce will be multi-skilled and can adopt form one type of job to another without needing to be restrained
This means that the business is likely to be able to handle a wider range of jobs and be more likely to find contacts.
It can also mean a mental approach in that the workforce and management embrace change and are willing to try new ways and methods of working. Again this gives the business a more flexible approach and opens up opportunities, provided employees can see gains for themselves.
Flexible Employment - means that the workforce is able and willing to work odd or irregular hours on a full or part-time basis
By only employing staff when needed, rather than being tied to a set number of hours at set times, a business can reduce labour costs.
Many businesses use seasonal staff or part-time staff for this reason
When labour costs are reduced, profits increase
There is also the advantage that many staff may prefer to work on a flexible basis and this could result in a more contented and motivated workforce
This can mean increased productivity (lower average costs) and less staff turnover which also reduces costs. It may also mean lower pay for some employees
Flexible Employment Terms
Flexitime
- Flexitime employees choose within agreed limit when to start and end their working day. An agreed standard core time is worked, but they can vary their start, finish and break times each day
Homeworking
- homeworking allows all or part of contracted hours to be worked from home. if your job is computer based you could work from home expect on the days you have meeting or training
Annualised Hours
- Annualised hours average out working time across the year, so that a set number of hours are worked per year rather than per week. More hours are worked in busy periods than quieter ones
Job-Share
- with job-shearing, a part-time worker shares the duties and responsibilities of a full-time position with another part-time worker
Staggered Hours
- staggered hours allows employees to have different start, finish and break time, so that the employees can have longer opening hours. it is essentially a shift system
Zero Hour Contact
- workers are only used when they are needed and there is no guarantee of any work at all
Advantages
and Disadvantages
Advantages
Work/life balance improves for workforce
A happier workforce may be more motivated leading to higher productivity for the business
Easier/better recruitment - wider choice of applicants
Homework means less costly office space is needed
More women have been able to find work which fits in around childcare/school requirements
More likely to retain skilled workers
Disadvantages
Not everyone wants flexitime some like regular hours
loss of team spirit and social needs if working from home
Can be insecure for workers - particularly for those on zero hour contracts
Difficulty of managing home workers and monitoring performance
Pay can be lower for pat0time workers than for their full-time counterparts
Not all workers can be motivated by flexible employment
Staff Dismissal
Employees may be dismissed if they are incapable of doing the job or if there has been misconduct. However, they will protected against unfair dismissal by employment law and the employer must follow the correct procedures.
ACAS (Advisory, Conciliation and Arbitration Service) statutory code of practice. Their procedure of correct dismissal is
Establish the facts of each case and inform the employee of the problem
Hold a meeting with the employee to explain the problem
Decide on appropriate action
Provide employees with an opportunity to appeal.
Employees have the right to appeal if they believe that the dismissal is unfair and can take their case to a tribunal. This will involve legal professionals and may become a long and expensive process
Redundancy
In certain circumstances, cutting the workforce many be
the only way for a business to survive
Changing economic or market conditions may mean redundancies are inevitable
Employees are protected by law; if they must be made redundant, the correct procedure must be followed
They must be consulted and the have the right to statutory redundancy payment if they have worked continuously for the employer for a least 2 years
How much statutory pay they will receive depends on how long they have worked for their employer, their age and their pay
Employees can get advice from their union, ACAS or the Citizen Advice Bureau
A business that has to make redundancies may look for volunteers, rather than make someone go against their will.
Some employees may be looking to retire, be happy to retire early ot take the redundancy pay and look for another job.
Voluntary
Labour Turnover
All businesses lose staff for a variety of reasons including retirement, illness, death, unsuitability, misconduct,
seasonal change and redundancy
Voluntary labour turnover refers to employees who leave for other reasons other than these they resign voluntarily from their jobs.

Labour Turnover = Number of employees leaving
Number of employees

Average labour turnover in the uk is currently 15.7% and voluntary labour turnover makes up about 2/3 of this total
For reasons described n the recruitment section replacing staff is very costly business and so employers are
concerned with minimising the level of voluntary turnover
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