Handbook.pdf - This handbook compiles information from the...

This preview shows page 1 out of 58 pages.

Unformatted text preview: Welcome to the Handbook This handbook compiles information from the IB Business HL textbook, online resources, and other study guides. The handbook is structured as according to the syllabus: 1. Introduction to Business Management 1.1 Introduction 1.2 Types of organization 1.3 Organizational objectives 1.4 Stakeholders 1.5 The external environment 1.6 Growth and evolution 1.7 Organizational planning tools 2. HR Management 2.1 Functions and evolution of HR management 2.2 Organizational structure 2.3 Leadership and management 2.4 Motivation 2.5 Organizational culture 2.6 Industrial employee relations 3. Finance 3.1 Sources of finance 3.2 Costs and revenues 3.3 Break­even analysis 3.4 Final accounts 3.5 Profitability and liquidity ratio analysis 3.6 Efficiency analysis 3.7 Cash flow 3.8 Investment appraisal 3.9 Budgets 4. Marketing 4.1 The role of marketing 4.2 Marketing planning 4.3 Sales forecasting 4.4 Market research 4.5 The four Ps 4.6 The extended marketing mix of seven Ps 4.7 International marketing 4.8 E­commerce 5. Operations Management 5.1 The role of operations 5.2 Production methods 5.3 Lean production and quality management 5.4 Location analysis 5.5 Production planning 5.6 Research and development 5.7 Crisis management and contingency planning We hope that the handbook helps you revise. Good luck in your exams! 1. Introduction to Business Management 1.1 Introduction Business sectors ● ● ● ● Primary ​Extraction of natural resources. Secondary ​Construction and manufacturing processes Tertiary ​Providing skills and or services for business Quaternary ​Knowledge based services such as information technology Reasons for setting up a business ● ● ● ● Financial independence Pursuing a passion Obtaining a degree of control of their future Filling a gap in the market Problems a start­up may face ● ● ● ● Lack of initial finance Lacking the ability to prepare and monitor financial accounts. Incorrect pricing Larger competition 1.2 Types of organization Type of business Ownership Finance Decision making Sole trader One owner Savings, government grants, retained profits. One person Partnership Up to 20 partners Saving loans, capital from new partners. Partnership agreement Private limited company Depends on the country of operation Capital from partners Signed agreement Public limited company Unlimited if shares are on local or global exchanges Shares Shareholders will vote annually Non government organization (NGO) Partnerships with the government. Donations and According to terms funds (depends on of the individual the size of the NGO) agreement Profit Social Enterprises ● ● ● Cooperatives Micro­finance providers Public­private partnerships 1.3 Organizational objectives Typical business objectives ● ● ● ● Survival or breaking even Cost minimization Growth (market share) Profit maximisation 1.4 Stakeholders Internal Stakeholders ● ● ● Employees Shareholders Managers External Stakeholders ● ● ● ● ● Suppliers Customers Pressure groups Competitors Local and national government. Stakeholder Interest in Shareholders/Owners Profit growth, vision, liquidity, efficiency. Government Taxation, compliance with legislation. Senior management Financial performance, profit and sales targets. Non­managerial staff Pay, conditions, job security Customers Value, service, quality, ethical considerations. Creditors Liquidity, gearing. Local community Social responsibility, jobs, environment. 1.5 The external environment See PESTLE and STEEPLE in the “Tools and Concepts” section. 1.6 Growth and evolution ● ● Economies of scale As the scale of operation changes, firms can benefit from reductions​ in long­run costs. Diseconomies of scale As the scale of operation changes, long­run costs actually increase Types of Economies of Scale Internal Economies of Scale Type Explanation Technical Bigger units of production can reduce costs because of the​ law of variable proportions​ (the increase in variable costs spread against a set of fixed costs) Managerial A bigger business can afford to have managers ​specializing​ in one job as opposed to trying to do everything Financial Bigger businesses are less ​risky​ than smaller businesses Marketing Bigger businesses can ​direct​ more effective marketing campaigns Purchasing Big businesses can gain discounts by​ bulk buying Risk Bearing Big businesses can afford to produce a bigger product range and in doing so, spread the risk of one product failing ­ ​hedging their bets. External Economies of Scale Type Explanation Consumer A shopping mall increases the number of potential customers as more people go to the mall compared to an independent shop because of the ease of one­stop shopping. So, a whole range of other businesses benefits from some else building the infrastructure. Employees Labour concentrations ­ some cities or geographic areas concentrate on certain industries or sectors. Individual businesses located in those areas and operating in the industry that has the concentration can often benefit from lower recruiting and training costs. As a firm grows with diseconomies of scale ● ● It can become harder to control Communication becomes more difficult Growth ● ● Internal growth ​Trying to capture a bigger slice of total market share by selling more of its existing products. External growth ​Gaining market share with the help of ​other​ businesses ○ Joint ventures ○ Strategic alliances ○ Mergers and acquisitions ○ Takeovers Horizontal merger Decision by a business to acquire the intellectual property of a rival company. Vertical merger Merger of businesses operating at different levels in an industry’s supply chain. Conglomerate Deliberate attempt by a business to acquire new firm in an unfamiliar market or industry. (​Exam Technique​) The Seven C framework can be applied for all discussion and evaluation questions relating to internal and external growth: ● Cost ​Financing of the new strategy will have to be considered ● Control ​The larger the firm grows, the more difficult it will be to manage ● Conflict ​There needs to be redundancies to avoid duplication of roles ● Compromise ​Impacts on objectives and vision ● Communication ​Effectiveness of communication channels. ● Culture clashes ​Unless the culture of the new organization is appropriate, then strategic success is unlikely. ● Confusion​ Lines of accountability and responsibility need to be drawn. Globalization General connectedness of the world though markets, labour mobility and capital transfer. Benefit to the host country Discussion Creation of new jobs Jobs may be lower down in the hierarchy, with limited senior management position for local workers. Revenue­raising opportunities MNC’s can repatriate funds offshore due to tax free havens. Importation of new technology Providing new education and skillsets for local workers. Increase in choice of goods and services available Unfair competition for local producers, may increase unemployment. 1.7 Organizational planning tools Decision Tree Example Fishbone Diagram: Forcefield Analysis 2. HR Management 2.1 Functions and evolution of HR management Demographic changes in the developed world ● ● ● Tertiary sector represents the​ biggest employer Male participation in full­time work has ​decreased​ relative to female participation Hours worked by full­time employees has​ fallen​ by one third. Impact of changes in the developed world ● ● ● Online recruitment of workers Use of overseas employment agencies Firms outsourcing some of their operations Impact on recruitment People now send their ​CV over the internet or social media, which enables businesses to recruit globally. Impact of changes in work patterns and practises ● ● ● ● Extended opening hours 24/7 service sector 9am to 5pm convention of normal working days. Both parents of young children to participate in the workplace Internal factors affecting workforce planning ● ● ● Flexible time arrangements Work from home via internet access Replacing permanent positions with contract workers Labour turnover ​Rate at which employees leave an organisation The purpose of recruitment To employ the right employee at the right time for the right job and allow him or her to be productive. There are also legal obligations of the employer and responses by the employee. Training ● ● Behavioral training ​Initiate training to change employees behavior at work Cognitive training Developing the physical and mental skill base through on the job training, and cognitive exercises. Types of training Type of training Benefits to employer Benefits to employee Issues or problems Induction Set expectations Sets culture, role Costly, diverts and expectations senior managers from important tasks. On the job Lower cost Minimal disruption to working day Narrows experiences of the employee Off the job Expensive method, cover may be needed for absent staff. Perspective and sharing of best practice. May take time to be put into practice Appraisal ● ● ● Summative appraisal ​A formal interview at the end of the year, for employer and employee to put forward views and present evidence to justify a particular point. 360­degree feedback and self­appraisal Any employee can give feedback about any other employee or manager Formative ​monitoring employees to see if they’ve acquired certain skills Dismissal and Redundancy ● ● Dismissal ​When an employee ​fails in his or her obligation ​to an employer and is dismissed Redundancy ​When the employee loses their job, through ​no fault ​of their own Reasons for Dismissal: ● ● ● ● Performance continually below expectations Not following company rules Poorly explained absenteeism Issues that contravened the employee’s work contract Reasons for Redundancy: ● ● ● Sustained decrease in demand Need for restructuring Reducing costs Outsourcing, offshoring and reshoring ● ● ● Outsourcing ​A business function or operation performed by ​a third party either onshore or offshore Offshoring ​Moving part of a company’s operation to ​another country Reshoring ​A deliberate attempt to ​move functions ​back ​to the country of origin. 2.2 Organizational structure Key Definitions Term Definition Delegation Entrusting a subordinate to perform a task Span of Control Number of subordinates under the control of a supervisor Levels of the hierarchy Number of levels of formal authority Chain of command Formal communication channels between managers and subordinates Bureaucracy Administrative system of a business, relying on a set of rules and procedures to implement control over an organisation. Centralization The responsibility of those higher up in the hierarchy influences both tactical and strategic decision making. Decentralisation Lower level decision making and empowering of staff to bring new ideas to management. Delayering Removing the number of layers in the hierarchy in an organization. Tall vs Flat Organizational Hierarchy Business hierarchies can be structured by: Structure Benefits Issues or problems By Function Established lines of communication and responsibility Encourages isolation of departments. By Geography Autonomy to local managers Potential loss of control from geographical location and time differences. By product Expertise in specific products and markets is gained Conflict and competition between individual centres. Handy’s Shamrock ● ● ● Core workers are ​full time ​employees with trusted experience Contract workers are employed on ​short term ​basis Peripheral workers are flexible workers, employers on a ​part time​ basis. 2.3 Leadership and management Effective leadership requires the ​setting of clear aims and strategic goals to ensure that objectives are met in pursuit of the overall aim. Leadership Style Description Discussion Autocratic Decisions are made by the leader Can be demotivating, but effective in crisis situations Democratic Decisions are made after a group discussion and consultation Increased motivation and productivity, but can be time consuming. Laissez­faire No leadership, groups are Employee’s may find the left to decide for themselves environment confusing. Setting organization objectives may be difficult without formal leadership. Paternalistic The leader acts in a fatherly manner towards employees Leader seeks loyalty in return for his influence. Can be seen as rewarding bloodlines rather than ability in family businesses. 2.4 Motivation Maslow’s hierarchy of needs: Herzberg’s Two factor theory Remember, the hygiene factors are not motivators themselves, but it would be wrong of employers to neglect them. The presence of these factors, allow the motivating factors to work. Taylor The idea that an employee should be paid depending on the quality of work they have done. To set a standard, a performance measurement should be carried out once the worker has been shown the demands of the unit of work and trained in how to complete it. Adams Equity Theory The function of workers perceiving that the reward they are receiving for their efforts fully reflects their contribution to the organization. If workers feel that their contribution is being recognized then motivation to stay will be high and vice versa. Pink Individuals in well­paid highly skilled occupations will give up large amounts of their free “discretionary” time in order to develop a service or information source to help others. Autonomy is the ability to be self­directed at work, and to have a very strong influence in the new century. Consider “wikipedia”, people will be more ​motivated to work on a project if they see it has a ​purpose​ and they have the ​autonomy​ to do it. Financial Rewards ● ● ● ● ● ● ● Profit related pay Performance related pay Wages on the basis of time rates or piece rates Salary Fringe benefits Company benefits such as Share ownership schemes Commission Non­Financial Rewards ● ● ● ● ● ● Job rotation ​Production processes are broken down into smaller parts and workers are rotated to reduce boredom Purpose​ Motivated to make a difference with the job they’re doing Job enrichment Employees are offered more challenging work with increased levels of responsibility Job enlargement ​The employee is challenged by performing more tasks at the same responsibility Empowerment ​The employee is given more control over their daily work routine with minimal supervision Teamwork ​ Higher levels of productivity than working individually 2.5 Organizational culture Definition The attitudes, beliefs, experiences, norms and values which determine working relationships between internal stakeholders and ways of interacting with external stakeholders. Culture Clashes Culture clashes occur when organizations grow, merge and when leadership style changes. It is a conflict between the companies that follow different principles and values. 2.6 Industrial employee relations Employer Representatives Employer representatives are more loosely organized and membership will depend on a number of factors, such as: ● The size of the industry ● The current political and economic environment Employee Representatives Focused on achieving fair pay, safe conditions at work, the protection of worker’s rights and ensuring the employers meet their responsibilities. How Employee Representatives Pursue Objectives ● ● ● ● ● Negotiation ​A period of bargaining with the employee. Go­slow ​Employees are instructed by their representatives to work at reduced speeds without jeopardizing the production process. Work­to­rule Employees are instructed to work deliberately to the letter of their contract and withdraw “goodwill”. (Goodwill is the unpaid additional duties workers perform that are not included in the formal job description) Overtime ban ​Public sector organization rely on employees working overtime during weekends and unsocial hours. This is withdrawn and has an impact on these sectors and services considerably. Strike action Last resort, a strike or prolonged stoppage may be called by the employees representatives, where the production process stops. Resulting Effects ● ● If the strike is unlawful, workers may be entitled to “strike pay”, which supports them while they are not working. An unlawful strike may generate a lack of stakeholder support for the strike action and lead to a loss of public sympathy or goodwill for their cause. How Employers Exert Pressure On Employees ● ● ● ● Threat of redundancies ­ Announcing that redundancies are inevitable to blunt the union’s industrial action. Changes of contract ­ Employer may announce that changes of contract are required to keep the organization in business. Lockout ­ Firm may lock workers out of the workplace. This is a difficult and dangerous tactic. Closure of the workplace ­ A last resort in which the organization would cease to exist, affecting the livelihoods of a number of stakeholders. Possible Solutions Conciliation ­ Alternative out­of­court dispute resolution instrument. Arbitration ­ Private, judicial determination of a dispute Tactics such as: ● No­strike agreement ­ In return for not striking, an employer may automatically allow a dispute to go to the conciliation and arbitration process by a third party. ● Single­union agreements ­ Allow the employer to avoid negotiating with three or four unions. Resistance Resistance will mostly ​stem from fear ​caused by misinformation and misinterpretations that the various stakeholders involved do not know exactly what the changes may mean for them. Stakeholder Resistance due to: Line workers Fear of new working practices, threat to Maslow’s order of needs such as security, love and belonging. Suppliers Fear of losing a place in the supply chain fear of job losses and lost revenue. Managers Fear of having to implement change and dealing with adverse reaction by line workers. 3. Finance 3.1 Sources of finance All forms of business organization need funding for the various activities they undertake. Businesses need to be clear on the exact purpose of their finances: this purpose can be classified as either ​capital expenditure ​or ​revenue expenditure​. Capital expenditure is the money spent to acquire items in a business that will last for more than a year and may be used over and over again. These are known as ​fixed assets and include machinery, land, buildings, and equipment. Fixed assets often have a high initial costs, so they can be used as ​collateral (financial security pledged for repayment of a particular source of finance such as bank loans). Capital expenditures are therefore long­term investments intended to assist the business to succeed and grow. Revenue expenditure is the money spent on the day­to­day running of a business. These payments and expenses include rent, wages, raw materials, and insurance. Revenue expenditures need to be covered immediately to keep the business operational and should therefore provide immediate benefits. The sources of finance for a business can be obtained from either ​internal or ​external sources. Internal sources of finance Internal finance is money obtained within the business and is usually from already established businesses. Typical internal sources are: Personal funds ● ● ● Shows good commitment to the business, is a good signal to other investors Cheap and easily available, no interest Poses greater risk Retained profit ● ● ● ● ● ● Profit that remains after a business has paid tax to the government (corporation tax) and dividends to shareholders May be reinvested back into the business Does not incur interest charges Permanent source of finance Very flexible May be insufficient for expansion if too low Sales of assets ● ● ● ● Sale of unwanted or unused assets to raise funds Good way to raise cash from capital tied up in unused assets No interest May only be an option available to established businesses and not new ones External sources of finance Money obtained from sources outside the business. Could be from institutions or individuals willing to provide the funds. Common sources include the following: Share ...
View Full Document

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern