1

Section 1: Business objectives and strategies.

Chapter1 corporate objectives
Key terms
1. Break even: when a business generates just enough revenue to cover its total
costs.
2. Corporate aim: the specific goal a corporation hopes to achieve.
3. Mission statement: a brief statement written by the business describing its purpose
and objectives, designed to cover its present operations.
4. Shareholder: somebody who owns shares in a company or business.
5. SMART: acronym for attributes of a good objective: specific, measurable, agreed,
realistic, time specific.
6. Stakeholder: somebody who has invested money in a business or has an important
connection with it. They are therefore affected by the success or failure of the
business.
7. Vision: a view of what the corporation wants to be like in the future.
1. Business aims
• Business aim; the things that the business wants to achieve in the long term.
• Vision; a view of what the corporation wants to be like in the future
• Mission; a brief statement written by the business, deriding its purpose and objectives,
designed to cover its present operations.
The main elements of mission statement
1. Purpose
2. Values; the corporate value that they emotionally invest in, including qualities,
innovation, sustainability
3. Standards and behaviour ; a business's commitment to high standards e.g.
ethical behaviour
4. Strategy e.g. TOYOTA develops driverless cars to achieve aims of convenience.

2. Development of corporate objectives.

- To help a business achieve its aims, corporate objectives must be SMART
Specific; clear
Measurable; quantifiable element by a number e.g. increasing sales by 30%
Agreed; happy & understand the objectives
Realistic; the objective should be achievable
Time specific; timeframe required to achieve the objectives.

3. Department and functional objectives

- Departmental and functional objectives; the objectives of a department within a
business. These set the daily goals that may include human resource, finance,
operations, logistics and marketing.

4. Objectives of business.
1. making profit
2. achieving cost efficiencies
3. looking after its employees.
4. ensuring customer satisfaction.
5. aiming for social purpose
 Chapter 2 Theories of corporate strategy
Key terms
1. Corporate strategy: the plans and policies developed to meet a company’s objectives.
It is concerned with what range of activities the business needs to undertake in order
to achieve its goals. It is also concerned with whether the size of the business
organization makes it capable of achieving the objectives set.
2. Customer base: a group of customers that make continual repeat purchases from a
business.
3. Diversification: developing new products in new markets.
4. Market development: the marking of existing products in the new markets.
5. Market penetration: using tactics such as the marketing mix to increase the growth of
existing products in an existing market.
6. Portfolio analysis: a method of categorising all the products of a firms to decide where
each one fits within the strategic plans.
7. Product development: marketing new or modified products in existing markets.
8. Theoretical model: a situation that could exist but doesn’t really.
1. Business strategy
• Corporate stategy: the plans and policies developed to meet a company's objectives.
It is concerned with want range of activities the business needs to undertake in order
to achieve its goals. It is also concerned with whether the size of the business organisation
make it capable of achieving the objectives set.

2. Development of corporate strategy

• It involves key members of management looking critically at what business has done
before.

3. Ansoff's matrix (by Igor Ansoff)

• He develop Ansoff's matrix as a strategic tool to help a business achieve growth.

1. Market penetration: to achieve growth in existing markets with existing products.
↳ by brand loyalty, use products more frequently
2. Product development: concern marketing new or modified product in existing
markets.
↳ e.g. Iphone, Ipad
3. Market development: involves the marketing of existing products in new markets.
↳ It needs to understand local habits, tastes and needs.
4. Diversification: when new products are developed for new markets.
↳ It reduces risk from over dependence on existing markets and products.
4. Porter's strategic matrix by Michael porter
↳ to identify the source of competitive advantage that a business might achieve in the
market.

1.) Cost leadership → lowest cost producer in the market, meaning that the business

can offer the lowest price.

2.) Differentiation → a business operating in a mass market with a unique position

3) Focus → targeting a narrow range of customers in one of ways e. g. niche marketing

focusing on a very narrow segment of the market.

1.) cost focus
2.) differentiation focus

5. Aims of portfolio analysis

• Portfolio analysis; a method of categorizing all of products of a firm in order to
decide where each one fits within the strategic plans.
• 2 steps in portfolio analysis
1.) giving full overview of all products in current business portfolio
2.) looking at the performance of each product by examining.
2.1) current and projected sales
2.2) current and projected costs
2.3) competitor activity and future competitor
2.4) risk that may affect performance
6. Boston Consulting Group Matrix or Boston Matrix

1. Star: high growth & competition

→ require investment.

2. Cash cows: low growth of product with high market share.

→ generate cash for investing in other areas.

3. Question marks: a product with low market shares in high growth market.
→ consume a lot of cash but give little return.

4. Dog: low market share in low growth market.

→ they should be sold or divested

7. Effects of strategic and tactical decision

- Strategic decisions are long term to achieve goals.
- Tactical decisions are short term. to respond the current business conditions (day to
day.
 Chapter 3 SWOT analysis
Key terms
1. External audit: an audit of the external environment in which a business finds itself, such
as the market within which it operates or government restrictions on its operations.
2. Flotation: the sale of company shares to public for the first time. The shares are then
traded on the stock market.
3. Internal audit: an analysis of business itself and how it operates.
4. Strategic planning: a process which involves making the vision for the future of a
business easier to understand. It also involves identifying the goals that need to be
achieved in order to realize that vision.
5. SWOT analysis; an analysis of the internal strengths and weakness of the business
6. and the opportunities and threats presented by its external environment.
7. Trade association: an organization whose members are all involved in same industry or
trade. The organization pursues the interests of these businesses.
1. Gathering information to help develop a strategy
1.) The internal audit: an analysis of the business itself and how it operates.
such as products and their costs.

2.) The external audit; an analysis of the environment in which the business
operates. The audit should analyse size and growth of market, characteristic of customers
and the product offer.

2. What is SWOT analysis?

• Swot analysis; an analysis of the internal strengths and weakness of the business
and the opportunities and threats presented by its external environment.
1. Strengths
2. Weaknesses
3. Opportunities
4. Threats

3. SWOT analysis can be used to develop corporate strategies

1. decide which new product to launch.
2. design new meting strategy
3. prepare new business venture.
 Chapter 4. Impact of external influences
Key terms
1. Cartel: a group of business that act together to reduce competition in a market- by
fixing prices.
2. Monopoly: a market dominated by a single business.
3. Oligopoly: a market dominated a few large businesses.
4. Peer-to-peer(P2P) lending: providing loans to individuals or businesses through online
services that match lenders with borrowers.
5. PESTLE analysis: analysis of the external political, economic, social, technological,
legal. And environmental factors affecting a business.
6. Predatory pricing: setting a low price to force rivals outs of business.
7. Rivaly: the competition that exists between business operating in the same market.
1. External Influences
→ To deal with unexpected events called external influences.

→ External influences may fall into a number of different categories which are

outlined below.

2. PESTLE Analysis
1.) Political (P) - political stability influences business
2.) Economics (E) - state of the economy can have impact on business activity
3.) Social (S) - social and cultural changes also affect businesses.
4.) Technological (T) -technological developments provide new product
opportunities and improve efficiency.
5.) Legal (L) - Legislation at business to protect vulnerable groups.
6.) Environmental (E) - increasing protective of the environment due to
globalisations issue.

The Structure of markets

• Competition is the rivalry that exists between Arms when they are trying to sell goods
in particular market

Competitive market Monopoly market Oligopoly market

Definition Market with many Only one seller supplies Few larger firms supply
buyers and sellers. products in the market. products in the market.

The impact on businesses of a changing competitive environment.

1. Increasing new entrants
2. Increasing new products
3. Rising in consolidation
 PORTER'S FIVE FORCES

- Another way of looking at the competitive environment is to consider a model put

forward by Michael Porter.

1. the bargaining power of suppliers.

- The more power a supplier has over its customers, the higher the prices it can charge.
2. The bargaining power of buyers
- If buyer has bargaining power, it can push price down.
3. The threat of new entrants
- If businesses can easily enter an industry and exist, if profit are low, it becomes
difficult for existing businesses in the industry to charge high prices and make high
profits.
4. Substitutes
- the more substitutes the higher competition
5. Rivalry among existing firms
- If rivalry is fierce can push down price and profit
 Section 2: Business growth
Chapter5 Growth

Key terms
1. Diseconomies of scale: rising long-run average costs as a business expands beyond
its minimum efficient scale.
2. Economies of scale: the reduction in average costs experiences by a business as
output increases.
3. External economies of scale: the reductions in costs to all businesses from the industry
grows.
4. Indivisibility: the physical inability, or economic inappropriateness, of running a
machine or some other piece of equipment at below its optimal operational capacity.
5. Internal economies of scale: when production rises leading to lower average cost.
6. Minimum efficient scales: the output that minimizes long run average cost.
7. Organic growth; a business growth strategy that involves a business growing gradually
using its own resources.
8. Inorganic growth; a business growth strategy that involves two or more businesses
joining together to form one much larger one.
9. Venture capitalist: provider of funds for small- or medium-sized companies that may be
considered too risky for other investors.
1. Growth - If a business is growing, it can generate more revenue and own more assets.

2. Objectives of growth

1) Economies of scale.
↳ A reduction in average cost when output increases.
↳ When firms become larger, they can take advantage of economies of scale (AC)
1.1 Internal economies of scale
When production rises, it leads to lower average cost(AC))
1. Technical : A large firm can invest in technology and capital, resulting in lower AC
2. Managerial : A large firm is more able to employ supervisors, which makes
business more efficient, resulting lower AC.
3. Purchasing : A large firm can buy raw materials in bulk; each unit cost falls.
4. Financial : A large firm can borrow more money from banks at lower interest
rate than a small firm.
5. Risk-bearing: A large firm can expand its product range. Therefore, they can
spread
the cost of uncertainty. If one part is not successful, they still have other parts to fall
back on.
1.2 External economies of scale.
The reductions in costs that any business within an industry might benefit from
the industry grows.
1.) Labour; when an industry grows, there are a lot of local schools, training
institutionoffer courses which are aimed at the need of the local industry.
2.) Commercial and support services can be offered e.g. distribution service.
3.) Cooperation; firms in the same industry are more likely to cooperate in R&D.

2) Increased market power

- When business become larger, they could be dominant from and able to dominate
stakeholder
3.) Increased market share and brand recognition
- When business grow, the Market share of business is likely to grow.
- As the brand become stronger, a business may be able to charge high price.

4.) Increased profitability

- Large businesses tend to make more profits than smaller firms.

3. Distinction between inorganic and organic growth.

- Organic growth; a business growth strategy that involves a business growing
gradually using its own resources.
- Inorganic growth; a business growth strategy that involves two or more businesses
joining together to form one much larger one.

↳ e.g. horizontal integration, vertical integration

 Chapter 6 Organic growth
Key terms
1. Franchising: a business model where a business owner(the franchisor) allows another
person(the franchisee) to trade under their name.
2. Retained profit: profit after tax is ploughed back into the business.
3. Stake: a financial interest in a business which entitles the investor to part-ownership.
Organic growth; growing by building its strengths to increase sales

1.) Method of growing organic growth

1. Increasing new customer
2. Creating are products
3. Finding new market

Advantages of organic growth

1. Less risk
2. Relatively cheaper
3. Keep control
4. Avoid diseconomies of scale

Disadvantages of organic growth

1. Slow pace of growth
2. If businesses lack of access to resources, It prevent the businesses to expand
production.
3. A business that grow slowly may left behind in the market.
4. A business maybe unable to fully exploit economies of scale
 Chapter 7 Inorganic growth
Key terms
1. Acquisition: the purchase of one company by another.
2. Backward vertical integration: joining with a business in the previous stage of
production.
3. Conglomerate: a very large single business organization made up of many different
businesses producing unrelated products.
4. Forward vertical integration: joining with a business in the next stage of production.
5. Globalisation(of a market): where markets become so large that products cloud be sold
anywhere in the world.
6. Horizontal integration: the joining together of two businesses as a result of merger or
takeover.
7. Merger: occurs when two or more business join together and operate as one.
8. Regulatory intervention: control by the relevant authorities such as the Competition
Commission
9. Synergy: the combining of two or more activities or businesses which creates a better
outcome then the sum of the individual parts.
10. Takeover: the process of one business buying another.
11. Vertical integration: the joining of two businesses at different stages of production.
• Integration; the joining together of two businesses as a result of a merger or takeover.
• Merger; occurs When two or more businesses join together and operate as one.
• Takeover; the process of are business buying another.

Reasons for mergers and take over

1. To exploit the synergies that might exist following a merger and takeover.
2. It is a quick and easy way to expand the business.
3. Buying another business is often cheaper than growing internally.
4. Some businesses have cash available for buying another business.
5. Merging to become large form in order to avoid being taken over.
6. Merging with a business in a different country is are way to avoid tariff and trade
barrier.
7. Globalisation of markets has encouraged merger between foreign businesses.
8. A business wants to gain economies of scale.

2. External growth/inorganic growth : when firms acquire another business.

1.) Horizontal integration: A firm merges with another firm which is in the same stage
and industry eg. two car manufacturers merge

2) Vertical integration : when a firm merges with another firm in different

stage of production
2.1) Backward vertical integration :
↳ A firms merge with another firm within the earlier stage or supplier of raw material
↳ e. g. coffee manufacturing & coffee farm.
2.2) forward vertical integration:
↳ A firm merges with another firm in the next stage which is closer to consumers
↳ e.g. coffee manufacturing & coffee shop

3.) Conglomerate merger:

↳ The merger if two firms which make different products
↳ e.g. coffee manufacturing merges with hotel
 Financial risks and rewards
1. Financial reward; firms decide to join together in order to improve the financial
strength of a business and make more money.
Financial reward;
1.) Stakeholder benefits; increasing in share price after merge, higher dividend
2.) Stronger balance sheet; more assets
3.) Lower costs from economies of scale.
4) Lower taxes ; when taking over a business located in a low-tax country.

Financial risk; if firms go wrong it can cause negative long-term financial impact.
1.) Integration costs e.g. technical changes and system changes.
2.) overpayment; paying too much on acquisition.
3.) Bidding wars; Businesses may attract more than one potential buyer. Cost of
taking over rises.
 Chapter 8 Problems arising from growth
Key terms
1. Overtrading: a situation where a business does not have enough cash to support its
production and sales, usually because it is growing too fast.
Problems of being large firms
1. Diseconomies of scale
1.1 Internal Diseconomies of scale (when production rises, it leads to higher average
cost)
1. Poor worker motivation → large size firms employ many workers and each worker

does only small part of the business. It might demotivate them to work.
2. Poor communication → large firms many layers it takes time for communication

from top to down. It might make wrong communication and results in higher cost.
3. Control and coordination ‫ כ‬to control and coordinate in large businesses require

thousands of employees. Business has to employ large number of managers and

supervisors to maintain adequate control, resulting in higher cost.
4. Technical diseconomies ‫ כ‬large businesses may overuse plants, machinery and

equipment, which can lead to inefficiency in the production.

5. Bureaucracy ‫ כ‬It occurs when too much resources are used in administration

e.g.paperwork.

1.2 External diseconomies of scale: Industry grows too big, it results in high average
cost

2. Internal communication
- When business grows too big , channels of communication can get longer.

3. Overtrading
- If a business grows too fast, there is a danger that it might suffer from over trading. It
results in runs out of cash.
 Section 3 Decision-making techniques
Chapter 9 Quantitative sales forecasts

Key terms
1. Centring: a method used to calculate a moving average, where the average is plotted
or calculated in relation to the central figure.
2. Correlation: the relationship between two sets of variables.
3. Correlation coefficient: a measure of the extent of the relationship between two sets of
variables.
4. Extrapolation: forecasting future trends based on past data.
5. Line of best fit: a straight line drawn through the centre of a group of data points plotted
on a scatter graph.
6. Moving average: a succession of averages derived from successive segments of
series values.
7. Scatter graph: a graph showing the performance of one variable against another
independent variable on a variety of occasions. It is used to show whether a correlation
exists between the variables.
8. Time-series analysis: a method that allows a business to predict future levels from past
figures.
1. Calculating time-series analysis.
• Time-series analysis; a method that allows a business to predict future level from
past figure
• 4 main components that a business wants to identify in time-series analysis.
1.) Trend; upward, downward, or constant trend
- Variation from the trend : How much variation there is from the trend by calculating
Variation = Actual sales - Trend

2.) Seasonal Variations: shows sales of a different business over a specific time period.
3.) Causal modeling and line of best fit: is to find a link between one set of data and
another
4.) Qualitative forecasting : using people opinions or judgements rather than
numerical data
 Chapter 10 Investment Appraisal
Key terms
1. Average rate of return or accounting rate of return(ARR): a method of investment
appraisal that measures the net return per annum as a percentage of the initial
spending.
2. Capital cost: the amount of money spend when setting up a new venture.
3. Cash inflow: the cash coming into the business such as that from sales or bank loans
4. Cash outflow: the cash going out of business when payments are made to workers or
suppliers, for example.
5. Discounted cash flow(DCF): a method of investment appraisal that takes interest rates
into account by calculating the present value of future income.
6. Investment: the purchase of capital goods.
7. Investment appraisal: the evaluation of an investment project to determine whether or
not it is likely to be worthwhile.
8. Net cash flow: cash inflows minus cash outflows
9. Net present value(NPV): the present value of future income from an investment
project, minus cost.
10. Opportunity cost: when choosing between different alternatives, the opportunity cost is
the benefit lost from the next best alternative to the one that has been chosen.
11. Payback period: the amount of time it takes to recover the cost of an investment
project.
12. Present value: the value today of a sum of money available in the future.
13. Qualitative: represented by words.
14. Quantitative: represented by numbers.
1. Investment : refers to the purchase of capital goods e.g. a building contractor buys a
cement mixer.

Investment appraisal: how a business might evaluate an investment project to determine

whether or not it is likely to be profitable.

2. Simple payback
- Payback period; refers to the amount of time it takes for a project to recover

3. Average (Accounting) Rate of Return (ARR)

- The average rate of return or the accounting rate of return method.
- Measures the net return each year as a percentage of the capital cost of investment.

Average Rate of Return (ARR) = Net return(Profit) per annum x 100

Capital outlay cost
Advantages of ARR method
1. It shows clearly the profitability of an investment project.
2. The rate of return can be compared to other uses for investment funds.

4 Discounted cash flow (Net present value NPV)

- Payback & ARR methods do not take into account the time valve of money.
- Discounted cash-flow technique; money in the future is worth less than the same
amount now (present value).
Advantages of discounted cash flow method
1. It is calculated in present value.
2. The discount rate used can be changed as risk and conditions in financial market
charge.
 Chapter 11 Decision trees
Key terms
1. Back data: data obtained from a previous time period.
2. Chance node: a point on a decision tree diagram(represented by a circle) where a
number of outcomes are possible.
3. Decision tree: a technique which shows all possible outcomes of a decision. The name
comes from the similarity of the diagrams to the branches of trees.
4. Expected value: the numerical value of an outcome multiplied by the probability of that
outcome happening
5. Probability: the chances of an event happening.
6. Rollback technique: the process of working back through a decision tree(from right to
left) calculating the expected values at each node.
1. Decision trees; a technique which shows all possible outcomes of a decision.

Decision trees combines 1. decision points

2. outcome
3. probability or chance

Advantages of decision trees

1. It shows possible courses of action not previously considered.
2. It places numerical values on decision. This tends to improve results.
3. It allows management to take account of the risk involved in decision
4. People may get better ideas.

Limitation of decision trees

1. Probability is estimated and it may be inaccurate.
2. People's opinion cannot always be shown by numerical value.
3. Decision makers may manipulate data to reach the decision they want.
 Chapter 12 Critical path analysis
Key terms
1. Critical path: the tasks involved in a project which, if delayed, could delay the project.
2. Critical path analysis(CPA)/network analysis: a method of calculating the minimum time
required to complete a project, identifying delays which could be critical to its
completion.
3. Earliest start time(EST): how soon a task in a project can begin. It is influenced by the
length of time taken by tasks which must be completed before it can begin.
4. Free float: the time by which a task can be delayed without affecting the following task.
5. Latest finish time(LFT): the latest time that a task in a project can finish.
6. Network diagram: a chart showing the order of the tasks involved in completing a
project , containing information about the times taken to complete the tasks.
7. Nodes: positions in a network diagram which indicate the start and finish times of task.
8. Total float: the time by which task can be delayed with out affecting the time needed to
complete the project.
1. Critical path analysis (CPA) I Network analysis
• Critical path; the task involved in a project which, if delayed, could delay the project
• Critical path analysis; a method of calculating the minimum time required to complete a
project, identifying delays which could be critical to its completion

Advantages of critical path

1. It improves efficiency in operation for business.
2. Network analysis is based on past information and an analysis of tasks involved
should lead to deadlines being met more effectively. This is because the implications
of delays can be assessed, identified and prevented.

2. Networks
Network diagram; a chart showing the order of the tasks involved in completing
a project, containing information about the times taken to complete the tasks.

3 Network analysis
- It is useful to know the minimum length of time a project will take to complete
- To identify the sequence or path of tasks which are critical to the project, if delayed, will
cause a delay in entire operation

4. Calculating the earliest start times (EST)

• Earliest start time (EST) how soon a task in a project can project. It is influenced by the
length of time taken by tasks which must be completed before it can begin.

5. Calculating the fastest finish times (LFT)

↳ Lastest finish time (LFI); the Iastest time that a task in a project can finish.

6. Identifying the critical path

↳ The critical path shows the task which, if delayed, will lead to a delay in the
project. It is where the earliest start times and the bestest start times in the nodes are the
same. But it must also be the route through the nodes which takes the largest time.
7. Calculating the float
• The float; the amount of time by which a task can be delayed without
causing the project to be delayed.

How much delay can there be in tasks which do not lie on the critical
path? total float 'g total float is the amount of time by which a task can be
delayed without affecting the project.

Total float = LFT of activity - EST of activity - Duration

Free float; the free float is the amount of time by which a task can be delayed without
affecting the following task

Tree float = EST start of next task - EST start of this task - Duration

Limitations of critical path

1. Information used to estimate times in the network may be inaccurate.
2. Changes sometimes occur during the life of the project.
3. Although critical path analysis identifies thus when resources might be
used somewhere else in the business, these resources may be inflexible.
 Chapter 13 Contribution
Key terms
1. Contribution: the amount of money left from a sale after variable costs have been
subtracted from revenue. The money contributes to fixed costs and profit.
2. Contribution costing: the use of contribution to help make decisions based on costs
such as which order to accept.
3. Contribution pricing: a pricing strategy that involves setting a price that exceeds the
value of the variable cost.
4. Overheads: an overhead cost or expense, for example lighting, equipment and any
extras paid for out of a centralised budget.
5. Total contribution: the amount of money left over from the sale of several units, or an
order, after variable costs have been covered.
6. Unit contribution: the amount of money left over from the sale of single unit after
variable cost have been covered.
1. What is contribution?
• Contribution is the amount of money left over from sale after Variable cost have been
subtracted from revenue. The money contributes to fixed cost or Overhead (expense)
and profit.
• Unit contribution: the contribution made by the sale of a product

Contribution per unit = selling price = variable cost per unit

• Total contribution: the amount of money left over from the sale of several units
or an order, after variable costs have been covered

Total contribution = unit contribution X number of units sold

2. The nature of contribution and it calculation

1. Break even level of output = Fixed cost

Unit Contribution

2. Profit = Total contribution - Fixed cost

3. Output target = Fixed cost + Profit target

Unit contribution

3. Interpretation contribution

1. Contribution margin = gross profit margin = total contribution margin X 100

Sales revenue

2. Contribution margin = Unit contribution X 100

Price
3. Contribution and decision making
• Contribution costing: the use of contribution to help make decisions based on costs
such as which order to accept.
• Contribution pricing: a pricing strategy that involves setting a price that exceeds the
valve of variable cost.
 Section 4 Influences oh business decisions
Chapter 14 Corporate culture
Key
terms
1. Bureaucracy: the system of rules
2. Cultural dimensions: a set of characteristics that form the international context of
business culture.
3. Infrastructure: the basic physical and organizational structures and facilities needed for
the operation of a society or enterprise.
4. Multinational: a business organization operating in serval countries.
5. Organizational culture: the value, attitudes, beliefs, meanings and norms that are
shared by people and groups within an organization.
6. Strong culture: a culture where the values, beliefs and ways of working are deeply
fixed within the business and its employees.
7. Labour turnover: the rate at which employees leave a business
8. Weak culture: a culture where workers are not fully aligned to the values, beliefs and
ways of working of an organization.
1. What is corporate culture?
• Organisational culture (organisation, corporate or business culture)
is the values, attributes, beliefs, meanings and norms that are shared by people and group
within organisation.
1.) Strong corporate cultures: is one that is deeply fixed into the way a business
does things.
Advantages of a strong corporate culture
1. Workers feel they are a part of a business.
2. Workers identity with other employees may help teamwork.
3. It increases commitment of employees to the company. It prevents problems
such as high labour turnover rate.
4. It motivates workers in their jobs.
5. It prevents miss understanding in operation or instruction passed to them.

2.) Weak corporate culture: where it is difficult to identify the factors that forms the
culture or where a wide range of subcultures exist, making the culture difficult to define.

2. Classification of company cultures

4 types of company culture
1.) Power culture → is a central source of power responsible for decision making

2.) Role culture → decisions are made through well-established rules and procedures.

3.) Task culture → in task culture, power is given to those who can complete tasks.

4.) Person culture → A person culture is one where there are a number of individuals in

the business who have expertise, but who don't necessarily work together particularly
closely.

3. Hofstede’s cultural dimensions.

Cultural dimensions: studying work-related values and identified S key variables, or
dimensions that vary across businesses in different countries. These variables impact
organisationals culture and how the business may react in certain circumstances.
 Chapter 15 stakeholder model VS shareholder model
Key terms
1. Dividend: a sum of money paid regularly by a company to its shareholders out of its
profits.
2. External stakeholders: groups outside a business with an interest in its activities.
3. Funds: a sum of money saved or made available for a particular purpose.
4. Internal stakeholders: groups inside a business with an interest in its activities.
5. Remuneration: the reward for work in the form of pay, salary or wages, including
allowances and benefits, such as company cars, health insurance, pension, bonus and
non-cash incentives.
6. Shareholder value: a measure of company performance that combines the size of
dividends with the share price.
1. Internal and external stakeholders
• Stakeholder is a person group or organisation who can affect or be affected by the
activities, objectives and policies of a business e.g. employees, owners, suppliers,
unions and customers
• Internal stakeholders ; group of people inside the business
1) Business owners
Internal shareholders: directors, managers, employees
External shareholders: financial institutions, investment bank, insurance
company.
2) Employees
3) Managers and directors

• External stakeholders; group outside a business

1) External Shareholders ; not involved in day to day running the business.
2) customers
3) creditors: lend money to business.
4) suppliers
5) Pressure groups e.g. trade union or environmental groups.
6) The local community
7) The government
8) The environment
2. Stakeholder objectives
1) Shareholders → dividend & share price.

2) Employee → high wage & bonus, good working condition.

3) Manager → wage, bonus, benefits

4) A customer → good quality product at fair price.

5) Supplier → prefer long term contracts and regular orders

6) government → tax revenue I want business to comply with legislation

7) Environment → avoid negative impact on environment

8) Local community → want business to contribute to the success of the community

& to be good citizens

Stakeholders influence stakeholder model

• Some corporations take into account the objectives of a wide group of stakeholders.
↳ by recognising stakeholders interest, open communication channels, recognising
the mutual dependence that exists between different stakeholders, removing
negative effects of business activity.

Stakeholders influence shareholder model

• The main objective is to maximise shareholder returns by raising both dividends paid to
shareholders and the share price.
The potential for conflict between shareholders and stakeholders
1. Shareholders & employees
↳ Shareholders aim for profit, may try to cut cost by reducing wages for workers.

2. Shareholders & customers

↳ Shareholders aim for profit, may reduce cost by using low quality of raw material.

3. Shareholders and directors and mangers

↳ Divorce of ownership and control ; if shareholders lose some of their control
over the business. As managers may aim for revenue max rather than profit max.
↳ Shareholders may prefer to have high dividends while the directors may prefer to
retain more profit for investment.

4. Shareholders and the environment

↳ when business aims for profit maximization, might ignore effects on environment.

5. Shareholders and the government

↳ The business may avoid paying tax to enjoy bigger profits.
 Chapter 16 Business ethics
Key terms
1. Audit: an official inspection of an organization’s accounts, typically by an independent
body.
2. Business ethics: the moral principles that guide the way in which a business behaves.
3. Corporate Social Responsibility(CSR): a business assessing and taking responsibility
for its effects on the environment and its impact on social welfare. It involves the idea
that businesses are responsible for more than their shareholders.
4. Ethical codes of practice: statements about how employees in a business should
behave in particular circumstances where they experience ethical issues.
5. Ethical decision: a decision which considers what is morally right or wrong.
6. Ethics: moral rules or principles of behavior that should guide members of a profession
or organization and make them deal honestly and fairly with each other and with their
stakeholders.
7. National minimum wage: the minimum wage pay per hour all workers are entitled to by
law.
8. Sustainable and ethical investment: where investments are made in companies with a
strong ethical stance.
1. Ethics
• Ethics; moral rules or principles of behaviour that should guide members of profession
or organisations and make them deal honestly and fairly with each other and with their
stakeholders.
• Ethical decision; a decision which considers what is morally right or wrong.

2. Ethics of strategic decision

• Strategic decisions; are those that affect how a business operates in the long term.
• A large number of issues that require strategic decisions based on ethics; including
environment, animal right and corruption.

3. Codes of practice
• Ethical code of practice may contain statement about;
• Environmental responsibility
• Dealing with customers and suppliers.

4. Pay and rewards

• Remuneration is the reward for work, such as pay, wage, or salary.

5. Corporate Social Responsibility (CSR)

• CSR is a form of self regulation. A business assessing and taking responsibility for its
effects on the environment and its impact on social welfare. It involves the idea that
businesses are responsible for more than their shareholders.
 Section 5; Assessing competitiveness
Chapter 17 Interpretation of financial statements

Key terms
1. Administrative expenses: costs relating to running a business.
2. Debtors: people or businesses that owe money.
3. Finance cost: interest received by a business on any money held in deposit.
4. Patent: a government authority to license for a right or title for a set period of time. This
involves the sole right to exclude others from making, using or selling a product,
service or idea.
5. Solvency: the ability of a business to meet its debt.
1. Financial statement
↳ 1) Statement of financial position (balance sheet) showing assets, liability, and
capital of the business.
↳ 2) Statement of comprehensive income (profit and lost account)

2. The statement of comprehensive income

3. Stakeholder interest
The statement of comprehensive income can be used to help evaluate.
↳ For shareholder → They can assess the performance of business through gross profit,

net profit.

↳ For manager and directors → They use the statement to monitor progress of the

business in terms of profits and growth.

↳ For employees → if the business can make higher profit, they could ask for better

wage.

↳ For suppliers → suppliers may proof the creditworthiness (ability to pay for what they

have bought on credit from the profit & loss account.

↳ For government → tax authorities can assess how much tax a business has to pay.
3. Statement of financial position
Assets: resources that a business owns and uses.
Liability: debt of the business
Capital: money introduced by the owners of business.

Asset = Liability + Capital

1. Asset : resources that a business owns and uses.

1) Current asset: liquid assets are either cash or are expected to be converted into
cash within 12months.
2) Non current asset: assets that are not expected to sold within 12 months.

2. Liability : debt of the business

1) Current liability: money owed by the business that is expected to be repaid with
in 12 months.
2) Non current liability: long term liability, any amount of money owed for more
than 1 year.

3. Equity : the amounts of money owed to the shareholders, containing share capital
and reserve.
1) Share capital: the amount of money paid by shareholders for their shares when
they were originally issued. (Not represent the current valve of shares)
2) Share premium account: Shows the difference between the value of new
shares issued by the company and their nominal value.
3) Other reserves
4) Retained earnings ; the amount of profit kept by the business to be used in the
future.
• Net assets = value of all assets - Value of all liabilities

• Working capital: short-term liquid assets remaining after paying short term debt
Working capital = current Assets - Current liability

• Capital employed = Non current liability + Equity

= Assets - Current liability.

Stakeholder interest : The statement of financial position can be used to evaluate the
performance of a business.
Shareholders
- Analyse the asset structure of the business. how the funds raised by the
business have been put to use.
Managers and directors
- monitor working capital level to ensure that the business does hot
overspend.
Suppliers and creditors
- Suppliers do not want to offer trade credit to a business that only has a
limited amount of working capital.
Others
- Employees might use the balance sheet to assess whether a business can afford a pay
rise on whether the jobs are secured.
 Chapter 18 Ratio analysis

Key terms
1. Fraud: the illegal act of cheating somebody to get money.
2. Gearing: the ratio of a company’s loam capital to its share capital.
3. Gearing ratios: explore the capital structure of business by comparing the proportions
of capital raised by debt and equity.
4. Performance indicator: a type of performance measurement that evaluates the success
of an organization or of a particular activity.
5. Profitability or performance ratios: illustrate the profitability of a business compared to
other business.
6. Ratio analysis: to investigate accounts by comparing two connected figures.
7. Return on capital employed(ROCE): the profit of a business as percentage of total
amount of money used to generate it
8. Window dressing: the legal adjusting of accounts by a business to present a financial
picture that is to its benefit.
1. Profitability ratio
1) Gross profit margin : gross profit made on sales turnover / revenue

Gross profit margin = Revenue x 100

Gross Profit

2) Operating profit margin : operating profit profit made on sales revenue/turnover.

Operating profit margin = Operating Profit X 100

Revenue

3) Profit for the year (Net profit) margin:

• Net profit takes into account all business costs, include financial costs, other non
operating costs and exceptional items.

Profit for the year margin = Net profit before tax X 100
(Net profit margin) Revenue
2. Liquidity ratio
Measuring liquidity

1. Current ratio = Current assets , should be > 1.5

Current liabilities

2. Acid test ratio = Current assets - Inventories

Current liabilities

3. Gearing ratios; shows the long-term financial position of the business.

↳ It can show the relationship between loans on which interest is paid and shareholders’
equity on which dividends might be paid.

Gearing ratio = Non-current liabilities X 100

Capital employed
Capital employed (fund for longterm investment) = Total asset - current .liability) or
NC liability + Equity

4. Return on capital employed (ROCE or primary ratio)

ROCE = Operating profit or EBIT (Earning Before Interest and tax)

Capital employed ( A - CL or NC(L) + E )
 Chapter 19 Human Resources
Key terms
1. Absenteeism: where workers fail to turn up for work with our good reason.
2. Capital gain: the profit made from selling a share for more than it was bought for.
3. Labour productivity: output per worker in a given time period.
4. Labour retention: the number of employees who remain in a business over a period of
time.
5. Labour turnover: the rate at which staff leave a business.
6. Quality circles: where workers are given time to meet regularly to discuss work issues
such as solving problems.
7. Rate of absenteeism/absentee rate: the number of staff who are absent as a
percentage of the total work force. It can be calculated for different periods of time, e.g.
daily or annually.
1. Labour productivity
- Labour productivity ; output per worker per period of time.
- Labour productivity = Total output (per period of time)
Average number of employees (per period of time)

2. Labour turnover (looking at the rate at which employees leave a business)

- Labour turnover is the proportion of staff leaving a business compared to the
number of staff staying over a period of time.
- Retention rate = Number of staff Staying (over a time period) X 100
Average number of staff in post(in the time period)

3. Absenteeism
- Absenteeism where workers fail to turn up for work without good reason.
Rate of absenteeism = # of Staff absent on a day X 100
# of staff employed

4. Strategies to increase productivities and retention and reduce turnover rate and
absenteeism
1. Financial rewards
2. Employee share ownership
3. Consultation strategies: allow workers to involve decision making to motivate them
↳ 3 types of consultation
1) Pseudo-consultation; where management makes a decision and informs
employees of that decision through their representatives.
2) Classical consultation; a way of involving employees through their
representatives in discussions on matters which affect them.
3.) Integrative consultation; it can motivate workers by allow them to make
decision.
4. Empowerment strategies
 Section 6 managing change.
Chapter 20 key factors in change

Key terms
1. Insolvency: the state of being unable to pay the money owed, by a person or company,
on time.
2. Management consulting: the practice of helping organisations to improve their
performance
3. Management of change: the process of organizing and introducing new methods of
working within a business.
4. Organization of change: a process in which a large company or organization changes
its working methods or aims, for example in order to develop and deal with situations
or markets.
5. Transformative leadership: where new leadership, such as a new CEO, brings about
change with the purpose of improving business performance.
1. Possible causes of change in business.
- Business may use SWOT or PESTLE analysis to assess the nature of future changes
and how likely they are.

2. Managing change
- Change management is the process of organising and introducing new methods of
working in a business.
1) Organisational culture
→ It may change because of merger & takeover.

→ To avoid culture clash (when two cultures do not get along)

2) Size of organisation
→ moving from centralised decision making to decentralised.

3) Time / speed of change

→ e.g. fashion industry → fast charge in trend and also product development.

4) Managing resistance to charge.

- resistance to change is caused by fear of unknown, fear of redundant, fear of
unable to work with preferred colleagues.
5) Transformative leadership
- may lead to a new vision or strategic direction for the business
 Chapter 21 Contingency Planning
Key terms
1. Business continuity plan: shows how a business will operate after a serious incident
and how it expects to return to normal in the quickest time possible.
2. Business interruption cover: a type of insurance that covers the loss of income that a
business suffers after disaster.
3. Contingency planning: the creation of plans for how particular crises might affect a
business in some way, such as a fire which destroys the premises or cyberattrack.
4. Risk assessment: identifying and evaluating the potential risk that maybe involved in
an activity that a business proposes to do, and then ensuring compliance which health
and safety laws.
5. Risk mitigation plans: identify, assess and prioritize risks, and plan responses to deal
with the impact of these risks on the operation of the business.
6. Succession planning: identifying and developing people who have the potential to
occupy key roles in a business in the future.
1. What is contingency planning?
- Contingency planning; an Effort to deal with these crises. it is not about trying to
predict future events. It is a strategic planning method designed to identify potential
crises that a business might experience.

2. Risk assessment
- Risk assessment: is to attempt to identify the possible crises it might face in the
future.
- The purpose of risk assessment is to help comply with health and safety laws.

3. Possible crises
- Natural disasters
- IT system failure

4. Planning for risk mitigation

- Risk mitigation plans ; identify, assess and prioritise risks. They also plan response
to deal with the impact of these risk to business operations.
- Business can use mitigation strategies to reduce damage caused by disruptive
events.

4.1) Business continuity plan

Business continuity plan ; shows how a business will operate after a serious incident
and how it expects to return to normal in the quickest the possible.

↳ 4 stages in business continuity plan

1.) Carry out a business impact analysis.
2.) Formulate recovery strategies.
3) Plan development
4) Testing and training

4.2) Succession planning

- Part of risk mitigation involves identifying current employees who have the
potential to play key roles in the future and helping them develop skills.