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A292 Business and People

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Daniel Van Hymus

on 27 May 2015

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Transcript of A292 Business and People

OCR A292 Business and People Exam Revision
Aims and Objectives of a business
Sectors of Industry
Stakeholders aims

may want higher profits but
want more pay.

appreciate low prices, but
want high prices for their products.

The local community
demand less pollution, however, the
do not want to pay the higher costs involved as this would mean less profit.
Why do businesses exist and why do people start them?
A Business exists to provide goods or services to its customers
Aims vs Objectives
There are four main types of objective for a business which can be remembered using 'PIGS'.
• Profit
• Increase Market Share
• Growth
• Survival

Others include...
Why do people start their own
A target is set to help achieve an aim that the business has.

e.g. Sports Direct may have a target to sell 500 NUFC shirts by the end of the
month in order to fulfill the
objective make a profit.
Targets should be

• Specific
• Measurable
• Agreed/Appropriate
• Realistic
• Timescale
The Business
We paid for these shares and demand a share of the healthy profits in the form of dividends.
We are the main supplier and our jobs and profits depend on future orders from the business.
The business provides jobs and wealth. However, we must ensure that the working conditions are safe.
We would like an annual pay rise, better working conditions and job security.

Managers would also want greater responsibility, promotion, high rewards and status.
We demand good quality products, good service and competitive prices.
The Primary Sector
The primary sector produces raw materials which are later used to produce goods or services.

• Extracted from the ground.
• Grown e.g. farming and forestry.
• Collecting, for example fishing.
The Secondary Sector
• Consumer Goods go straight to the final consumer this includes consumables which are things that get used up like pens, and consumer durables that last for longer like phones and laptops.

• The building and construction industry e.g. use raw materials to build houses etc.
The Tertiary Sector
Services are provided for the use of others.

• Some services are provided for businesses e.g. warehousing and advertising.

• Some services are provided for consumers such as hairdressers and shops.

• Financial services like banking and insurance are used by both businesses and consumers.
With regards to the UK
The UK's Biggest Sector
In the UK the Tertiary sector is now the biggest of the three.

• As people become wealthier they spend more money on services.

• The number of manufacturers has shrunk reducing the primary and the secondary sector. This is because it’s hard to produce goods as cheaply as they can be produced abroad in places like China.

The UK's Shrinking Sector
As well as shrinking the secondary sector has changed in other ways such as:

• Manufacturing in technology industries such as computing has increased.

• Traditional industries such as ship building have decreased.

• Machines can do the job of people more efficiently meaning fewer people are needed.

Advantages vs Disadvantages
Specialisation makes firms interdependent
Businesses specialise too. For example, one firm will grow cocoa beans, another will ship it, and another business will sell it. If one firm tries to be completely dependent it will not be very efficient. Businesses specialise in only what they are best at, whether that be farming or selling to customers.
• Workers play to their strengths.

• Skills are improved. This is because if you spend a lot of time doing something you will get better at it.

• Complex production techniques can be broken up into smaller, simpler tasks. Different workers will specialise in different simpler tasks.

• Efficiency will improve as the worker will be doing the same task repeatedly every day; this improves the firm’s productivity.
• Workers will get bored doing the same thing every day, resulting in the worker being demotivated and possessing low job satisfaction.

• This could lead to poorer quality products.

• If there is a fault in one section of the workers it could cause a standstill on the production of the business reducing profit.

• A worker can become over-specialised in a particular job and may find it difficult to find a job if their skills are no longer needed.
Firms use specialisation to make their production more efficient. This means they divide up their workers to get each one of them to a specific job in an attempt to make production more efficient.
Sole Proprietors
This is the smallest type of business in the UK. It is known not to cost a lot of money to set up; however a sole trader is unlikely to get a business loan from the bank as this represents high risk, this means the sole trader will have to finance the business himself.
These businesses tend to be a little larger than sole traders. They have 2-20 partners, are unincorporated, have unlimited liability and sometimes have a deed of partnership.
Private Limited Companies (LTDs)
Private Limited Companies (LTDs) are incorporated and are owned by least 2 shareholders. Shares can be sold privately to friends and family. Profits are paid by paying dividends to shareholders.
Public Limited Companies
PLCs are the biggest type of private business in the UK. Shares are sold on the stock exchange and shareholders have limited liability. Shareholders vote for a board of directors who run the business. The businesses have PLC in their name.
A franchise is where a large company, for example McDonalds allows smaller businesses to use their name.
Social Enterprises
Some profit-seeking businesses exist to achieve social objectives such as providing help for the homeless, farmers in poorer countries. Their main aim is to use the profit they make to help benefit society.
Advantages vs Disadvantages
• They’re easy to set up

• The owner gets to keep all the profits made by the business.

• The owner is in complete control of the business.

• Some sole proprietor businesses can be set up with very little start-up capital.

• All the financial information about the business is private.
• Illness

• Unlimited Liability.

• Long hours

• Continuity

• Shortage of skills

• Economies of large-scale production

• Shortage of capital
What is a Sleeping Partner
A sleeping partner is someone who has put money into the partnership but does not play an active part in the day to day running of the club. This means they have limited liability.
Advantages vs. Disadvantages
• Easy and cheap to
, but a deed of partnership is advisable.

• Because there are more people who can own the business, more
can be introduced into the business to help it grow in size.

• In the event of
to one of the partners, the business should be able to operate as normal as one of the partners could just take over.

• Financial information about the business remains
to the partners.

: If extra skills or capital are needed in the business an additional partner could easily be admitted to the business.

Specialist skills:
Each partner could have a different specialist skill that could be used by the business.
• Unlimited liability (not sleeping partners or limited liability partnerships)

• Disagreements could occur on how the business should be run.

• Profit has to be shared between the partners.

Advantages vs. Disadvantages
• Can raise capital by selling shares to friends and family.

• Shareholders have limited liability.

• Likely to employ specialists.

• Death and illness won’t affect the running of the company.

• Shares can be sold to family members.
• Shares can’t be sold on the stock market.

• Accounts are not kept private.

• Incorporated – so must be a separate legal company.

• More expensive to set up.

• Have to share profits by paying dividends.

• Not all decisions are made by owners.
Advantages vs Disadvantages
• Capital can be raised by selling shares to the general public.

• Shareholders have limited liability.

• Will employ specialists.

• Death and illness will not affect the running of the company.

• Shares can be given to workers to motivate them.

• The business could easily be taken over.

• Accounts are not private.

• Incorporated – so must be a separate legal company.

• More expensive to set up.

• Have to share profits by paying dividends.

• Not all decisions are made by the owners.

Features of Franchise
• An agreement between a franchisor and a franchisee.

• Franchisor allows the use of their business name for an agreed length of time

• Franchisor provides materials, training and advice.

• Franchisee must provide the money to start their business.

• Franchisee must make regular payments to the franchisor.

• Examples include McDonalds, Shell and Starbucks.
Being A Franchisor
• Large companies see it as a means of rapid expansion with the franchisee providing most of the finance.

• If the franchise model works, then there are large profits to made from:
• Selling franchises
• Royalty payments
• Selling raw materials and equipment.
• The trade name could be tarnished by ‘misfits’

• Considerable capital allocation is required to build the franchise infrastructure.

• Will have to advertise on a nationwide scale.

Setting up as a Franchisee
• Support and Training
• Nation Wide Advertising
• Less risk - proven product
• Cost to buy franchise – can be very expensive

• Have to pay a percentage of your revenue to the business you have bought the franchise from.

• Have to follow the franchise model, so less flexible. You would probably be told what prices to set, what advertising to use and what type of staff to employ.
Public Corporations
Growth and Integration
Internal Growth
The tree methods of Internal Expansion or Organic Growth are:

1. The firm can produce more of its current products to sell in its existing markets.

2. The firm can sell its current product into new markets.

3. The firm could launch a new product this is called line extension or diversification if it’s a completely different product.
External Integration
• Economies of Scale

• Diversification

• Financial Support

• Personal Vanity

• Domination of the market
Reasons for Integration
Problems with Integration
• Less than half of all mergers are successful.

• This is because management styles differ between firms.

• Takeovers often involve financial cuts and redundancies within one of the companies this can be unsettling for some workers as people are often made redundant, this leads to demotivation and tension among the workforce due to long-term fear over their jobs.
When a firm takes over another firm that it has nothing in common with. This means the firm will be diversifying into new markets; this reduces the risk that comes from relying on a single markets.
Forward Vertical
When the firm takes over a customer. For example if Carling took over a pub that sells Carling. This would make it easier to sell their own products straight to the consumer with greater profit margins.
Backward Vertical
When two competitors join together; they make the same product at the same stage of the production chain. This means they will have a greater market share.
When a firm joins with a supplier. For example, when Henry Ford took over steel mines, this meant he was able to guarantee a supply of raw materials at a lower cost.
Location, Location, Location!
• Some businesses need to be in a location that suits their image.

• Remember, though, high class locations tend to have high rents!
• In some cases, you might want to be the only business of your type nearby - perhaps this would be good for a petrol station or a news agent.

• Other businesses cluster together - restaurants e.g. Chinatown, fashion shops and jewelers on Bond Street.
• Workers must be available locally, or must be willing to travel to work at the business.

• These workers must have the right skills.

• If there is high unemployment locally, you might find it easier to recruit workers, and maybe you won’t have to pay them as much as you would elsewhere.

• But if there is high unemployment, local people may not have as much to spend with your business.

• Often a location becomes a centre for related industries - Staffordshire for potteries, Sheffield for steel, and the local people have particular skills.
Natural Resources
• Primary industries need to be situated near to natural resources.

• Because of the costs of transport of raw materials, secondary businesses may also be situated close to resources that are important to their businesses.
Transport and Communication Links
• Your workers need to be able to travel to work.

• You might need to be able to transport materials and products in and out of your business.

• Telephone, postal and Internet services might be better in cities than in the countryside.
The Importance Of Location
A business's location can make an important difference to its success. Choosing the right location means taking into account a number of factors that we have just looked at.
• The right amount and type of land and buildings must be available.

• For some businesses, you need a lot of space - perhaps your business is noisy or creates fumes and needs to be well away from where people live.

• Some businesses need to be near their customers, or their suppliers.
• Every business needs to be able to reach its customers.

• For a retail shop, you might want potential customers to be walking past all the time.

• An Internet business might be able to locate almost anywhere!
Recruitment and Selection
Attitudes vs Skills
•Skills are the things that a person has learned (such as being able to write in PHP)
Attitudes are personal qualities that a person may have e.g. being able to work as part of a team.

• A highly skilled person will be very good at the technical aspect of the job. However, they may not be able to work effectively as part of a team.

• A candidate with a good attitude may work well as part of the team, however, may need additional training which would cost the business time and money
Job Descriptions
• The job title e.g. ‘CEO of Google’.

• The main purpose of the job e.g. ‘Run Google offices’

• Who you would report to e.g. ‘Company Directors’

• Who you are in charge of e.g. ‘all Human Resources’

• Plus, the main duties and responsibilities involved as well as any occasional duties and responsibilities. E.g. ‘A duty to act on the ideas and concerns of the directors’
Person Specification
• Essential criteria lists the criteria that the candidate must have for the job.

• Desirable Criteria Lists the criteria that the candidate would ideally have.

• Whether the job is part or full time.

Internal vs External
• It’s much cheaper to advertise internally

• The candidates will already know a lot about the firm

• The chance for promotion could motivate some workers.

• There will be no new ideas.

• The promotion will leave an additional vacancy to fill.
• Lots of new ideas

• Better fit for the job as there will be more people to choose from.

• Demotivating to current workers

• More expensive and time consuming

• Will take time to adjust to the new business

Advertising Externally
• Local and national press. (specialist and senior jobs only)

• Job centres

• Trade Journals

• Employment Agencies (head hunters)

Selection Process
A written application is the first part of the selection process as it helps firms decide who meets the personal specification. There are four main documents that a firm can use when shortlisting candidates.

1. A Letter of Application
2. CV (Curriculum Vitae)
3. An Application Form
4. References
Shortlisted candidates are offered an interview with a manager or a panel of people.

Advantages and disadvantages include...
Additional Tests
Tests are more frequently being used in addition with the interview to help asess a candidates skills and attitudes further. These tests include:

1. Skills Tests/In-tray exercises
2. Aptitude Test
3. Personality Tests
4. Group Tests
Induction Training
Induction training introduces the employee to the workplace.

It often starts on the first day of a new job...
On-the-job Training
The person learns to do their job better by being shown how to do it, and then practicing, this is sometimes called internal training as it takes place within the workplace.
Off-the-job Training
This is when the employee is trained outside of the workplace. If the business has its own training section, the off-the-job training can be done internally/in-house. If not, which is usually the case, training would be done outside the business, and this is called external training.
Training is the main way that a firm invests in its human resources. A well-trained workforce will usually be more productive and better motivated.
Motivation and Remuneration
Motivation Theories
Taylor believed that workers were lazy and were only motivated by money.

This would be best applied to jobs like McDonalds, people don't enjoy it but for the money.
George Elton Mayo
Mayo's theory suggests that there is more to motivating employees than money, he believed superiors could motivate employees by showing an interest in their work and personal progression
Douglas McGregor
McGregor suggests that there are two different management approaches to motivating employees.

Method X - Taylor's theory
Method Y - Mayo's theory
Maslow's Hierarchy of Needs
Herzberg's Hygeine Factors
Hygiene Factors
Are expected and will demotivate when not present, however when they are does not act as a motivator
Time Rate
Overtime Pay
Piece Rate
Profit Sharing
Fringe Benefits or Perks
Job Rotation
Job Enlargement
Job Enrichment
Leadership Styles
Autocratic Leadership
• This type of leadership involves the leader making all the decisions.

• The leader will expect the workers beneath them to carry out the orders, there will be little or no discussion with the workers about the work the workers are expected to get on with the work.

Laissez-faire Leadership
• The French term Laissez-faire means ‘leave to do’.

• The leader will decide the main objectives but the workers are given responsibility for deciding how they want to achieve these objectives.
Democratic Leadership
• This is when the workers are allowed to discuss plans with the leader and are allowed to influence decisions about what you have to do and how you are going to do it.

• The leader will have the final say.

Forces that influence the leadership style to be used include:
o The amount of time available.
o Are relationships based on respect and trust or disrespect?
o Who has the information; you, your employees or both?
o How well the employees are trained and how well you know the task.
o Internal conflicts.
o Stress levels.
o Type of task, is it structured, unstructured, complex or simple.

Examples of Forces and Management Style Adaption
o Using an authoritarian style on a new employee who is just learning how to do the job. The leader is competent and a good coach, the employee is then motivated to learn a new skill, this particular situation would be a new environment for the employee.

o Using a democratic style in order to gain some information from your employees and to then act on that information by taking an autocratic approach in saying how you want the rest or a separate task to be done differently. This is common in football clubs, a manager may take a democratic approach with his backroom staff, but then switch to an autocratic approach when instructing his players how he wants them to play.
Employment Legislation
Employment Rights Act
• All employees must be given a written contract of employment within 2 months of starting work.

• The Government sets a National Minimum Wage for all workers, depending on their age and depending if they’re an apprentice or not. The standard wage is £5.30 an hour.

A disadvantage for businesses with regards to the minimum wage is that it leads to greater costs, this means the price of the product would increase, and the sales of the product could decrease.

The minimum wage can have benefits for some businesses as it can lead to better motivated staff and increase productivity.
The Working Time Directive
• Guarantees all employees a maximum 48 hours working week, and a four week holiday.

• Employees can choose to opt out of the Working Time requirement and agree to work longer hours if they wish.

The Anti-Discrimination/Equality Act
• Recruitment processes must not discriminate against men, women or the disabled.

• The Equality Act 2010 also states that men and women must be paid the same amount for the same job by the same employer as men. They should be paid the same for work of equal value.

• It’s also illegal for the employer to discriminate against employees because of their age, religion, race or sexual orientation.
The Employment Act (2002)
• All staff should receive a copy of the businesses discipline procedure. This explains which offences would lead to a warning, and which would lead to a dismissal.

• The Employment act also protects workers against unfair dismissal. One can only be dismissed if one is incompetent or have shown gross misconduct.

• Employees can be made redundant if the job they are employed to do a job that no longer exists, the firm cannot re-advertise a redundant job.

• Employees who think they have been unfairly dismissed can appeal to an employment tribunal, the tribunal can award compensation or reinstate the employee to their previous position.

Health and Safety at Work Act (1974)
• Health and safety procedures are enforced onto businesses buy the Government to prevent staff from being harmed or becoming ill due to work.

• All businesses are required by law to display a health and safety posters carry out a risk assessment to identify workplace risks, and then put sensible measures in place to control them. Potential risks include trip hazards and asbestos.
The extra paper work increases the total costs of the business.
Paternity and Maternity Leave
• New mothers are legally entitled to 39 weeks paid maternity leave to look after their new-borns. Employers have to pay the mother during her leave, but not usually her full salary. New fathers can take up to 2 weeks paternity leave.

• While the parent is on leave someone else will have to do their job at work.
o Sometimes existing staff can do this. This saves money on extra wages. However, it means that staff have less time to focus on their usual tasks, this could reduce productivity.
o An extra worker will have to be employed on a short-term contract. This increases costs as the firm has to pay the extra wages as well as the parent’s paid leave.

• Maternity leave can be very expensive and can leave a gap in the work force. However, parents are more likely to return to work for the business if it had supported them, this saves time on recruiting and training a new employee to replace the parent.
Trade Unions
Trade unions are organisations that try and protect the interests of their members, to join a union you will have to pay a subscription fee. The union will then do what it can to make your life easier.
Why Join a Trade Union?
• A trade union can sometimes negotiate on behalf of all its members, by using collective bargaining a union can get a better deal for its members rather than if the employee approached the business on their own.

• The trade union can help its members to get higher pay, better working conditions, and help with legal disputes.

• However, some refuse to negotiate with trade unions.

• Some trade unions offer their members social facilities, training, insurance and general legal advice.

Types of Trade Union
1. Industry Specific Unions: Usually only accept members who work in a particular type of job. For example, teachers, workers or those in the retail industries. They’re sometimes called sector-specific unions. E.g. NASWUT, RCN, Unison etc.

2. General Unions: Negotiate for workers in any job from any industry. E.g. GMB, Unite etc.
Industrial Action
An industrial dispute occurs when employers and unions can’t agree on a significant issue. Trade Unions can then organise industrial action and the business will lose money until the dispute is settled.
Reasons for Decline in Membership
• Fewer people work in manufacturing which was the sector with the largest number of union members.

• Laws passed by the Thatcher Government gave Unions less power.

• Most modern businesses behave in a way that makes it less likely for people to join a Union.

• Many large businesses have a Works Council where workers discuss their concerns with management.
ACAS (Advisory, Conciliation and Arbitration Service)
• ACAS is an independent body financed by the Government, is responsible for giving advice to both sides, sitting in and helping with negotiations between the two sides.

• It provides an arbitrator who judges the right outcome of the dispute.
Types of Industrial Action
Work to Rule
Go Slow
Overtime Ban
Functional Areas and Internal Organisation
Accountants prepare cash flow forecasts, profit and loss accounts and balance sheets.
Research & Development
Researchers, Designers and Technologists develop innovative ideas into best selling products that are safe and reliable.
Efficient organisation is the key to success. Admin staff maintain efficient communication by answering the phone, word processing letters and managing mail.
Production and Transport
Technicians build the product to a high standard.

Drivers get the products to customers on time.
Purchasing officers order the raw materials and get them to the factory on time and in the right quantity.
Sales and Marketing
Sales executives set sales targets for the sales team who then contact customes. Marketing experts promotte the brand.
Human Resources
The HR Team manage people, this involves recruitment and selection, industrial relations, training, rewards and staff welfare.
Technicians develop ICT within the business. They carry out maintenance work on computer systems, design web sites and deal with electronic communications.
Tall vs Flat Business
Changing Patterns in Employment
Last Minute Tip
Line Managers
Span of Control (Number)
Chain of Command
Lines of communication
Tall organisations have many levels of hierarchy. The span of control is narrow and there are
opportunities for promotion
Lines of communication are long, making the firm unresponsive to change.
Flat organisations have few levels of hierarchy.
Lines of communication are short, making the firm responsive to change.

A wide span of control means that tasks must be delegated and managers can feel overstretched.
Increase in Women
With employment law and equal pay legislation coming into place over the last 25 years, women are being encouraged to work and not be penalised for raising children.

Employers offering flexible working practices or child care facilities at the workplace have also helped to make it easier for women with children to continue working.
Rise in Part-time Workers
A huge increase in part-time staff has occurred again mainly due to more women being in the workplace and many only work part-time due to child care commitments.

The increase in students going to college and university has also resulted in a large temporary workforce available for employers such as supermarkets, fast food restaurants and call centres to make use of.
Flexible Working Practices
Job-sharing, teleworking and homeworking are more common than ever before.

This means workers do not have to spend as much time in the workplace as the traditional 9 to 5 job, but workers can work from home or on the move due to advances in mobile office technologies with laptops and smart phones.
Increase in Public Sector Workers
There is a growing number of public sector workers, people employed to work for the State in areas such as the councils, the police, education and the NHS.
Difficult Keywords
: When a line manager assesses the work of somebody he is responsible for.
Life Long Learning
: The idea that workers will need to keep learning different skills during their working lives.
Investors in People
: A scheme by which the quality of staff training and development can be recognised by an outside organisation.
Needs Analysis
: How an organisation decides how many and what type of workers it wants.
Mission Statement
: A brief summary of the main objectives a business has.
: The worldwide interdependence of business activity.
: A business can locate anywhere it chooses.
By Daniel Van Hymus
Types of Communication
Internal communications
happen within the business.
External communications
take place between the business and outside individuals or organisations.
Vertical communications
are messages sent between staff belonging to different levels of the organisation hierarchy.
Horizontal communications
are messages sent between staff on the same level of the organisation hierarchy.
Formal communications
are official messages sent by an organisation, eg a company memo, fax or report.
Informal communications
are unofficial messages not formally approved by the business, eg everyday conversation or gossip between staff.
channel of communication
is the path taken by a message.
What is Communication?
Communication is about passing messages between people or organisations. Messages between a sender and receiver take place using a medium such as email or phone.

One-way communication is when the receiver cannot respond to a message.

Two-way communication is when the receiver can respond to a message. This allows confirmation the message has been both received and understood.
Effective Communication = Efficient Business Activity
Customers enjoy a good relationship with the business, eg complaints are dealt with quickly and effectively.

Staff understand their roles and responsibilities, eg tasks and deadlines are understood and met.

Staff motivation improves when, for instance, managers listen and respond to suggestions.
Barriers to effective communication
Communications fail when a message is unclear or the receiver does not understand technical jargon. Selecting the right medium is important. Messages may never be received if they are sent at the wrong time or to a junk email folder.

The result is inefficiency and higher costs, as more resources are needed to achieve the same result.

Training staff to select an appropriate medium and send clear, accurate, thorough messages will improve the quality of communications, especially if there is an opportunity for feedback.
Advantages of Using ICT
Allow staff to work remotely from home.
Automated stock ordering where items are reordered to ensure shelves are always full. Less paper work, which reduces administration costs.
E-commerce where products are traded and paid for on the internet.
E-commerce opens up international markets to firms as overseas customers can view products for sale online.
A business can develop links with customers through email newsletters.
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