Edexcel Business A Level Revision

Business ethics - The moral principles that guide the way a business behaves. Corporate Social Responsibility - A business's initiatives regarding the community and environment and willingness to take responsibility for the effects the company's actions have on environmental and social issues and the impact on a range of stakeholders. Pressure groups - A group that tries to influence company policy in the interest of a particular cause. CSR is based on the concept that society needs business to employ staff, make investment and raise taxes from profits and the business needs society to create demand, to use public infrastructure, such as roads and power, and for legal protection. THE SHAREHOLDER CONCEPT Not all business organisations operate in a socially responsible manner. Some argue that it is not the job of businesses to be concerned about social issues and problems. The shareholder concept is closely associated with the writing of US economist Milton Friedman

Business ethics - The moral principles that guide the way a business behaves Remuneration - Reward for employment in the form of pay, salary, or wage, including allowances, fringe benefits, bonuses, cash incentives etc. Ethics can be reflected in the way the business recruits, motivates and rewards staff. Is it ethical to pay just the living wage? Should London businesses pay above the living wage? Should senior managers be paid higher remuneration than others in the business? Is it ethical for CEO's to be paid hundreds of more times better than the average employee in the business. The recruitment process needs to be fair and free from bias and should at least follow the law. A company needs to spend money regularly on staff training and development. The trade-off is that these strategies require a significant amount of ongoing financial investment which reduces the business's profits, at least in the short term. Rewards for staff, such as basic pay and bonuses, n

Business ethics - The moral principles that guide the way a business behaves Trade-off - is when one decision results in the loss of an alternative outcome, for each decision made there may be multiple trade-offs In business ethical standards play a crucial role in the decision-making: Used by individuals to make choices about how to behave They define acceptable conduct in business Should underpin decision making An ethical decision is one that is both legal and meets the shared ethical standards of the relevant business community Note: different countries and cultures have different attitudes to what constitutes acceptable ethical behaviour. Ethics in strategic decisions include: 1) Location decisions Ability to exploit workers Impact on the environment 2) Mergers, takeovers and retrenchment (reducing costs of the business e.g. staffing) Impact on workers Ability to exploit customers or control suppliers Transparency of deals 3) Corruption Dealing with auth

Growth - A common corporate objective which means expanding the sales revenue of a business, probably in the hope that profits will increase too. Overtrading - occurs when a business expands top quickly without having the financial resources to support such as quick expansion. Overtrading is where a business suffers financial difficulties from growing too quickly. This particularly relates to a business' s cash flow as if a business expands too quickly it may not have enough money to be able to purchase raw materials to meet the demands of higher sales. Overtrading is, therefore, essentially a problem of growth. It is particularly associated with retail businesses who attempt to grow too fast. When is Overtrading Most Likely to Happen? Overtrading is most likely to occur if: Growth is achieved by making significant capital investment in production or operations capacity before revenues are generated Sales are made on credit and customers take too long to settle amou

Growth - A common corporate objective which means expanding the sales revenue of a business, probably in the hope that profits will increase too. Diseconomies of scale - occurs when a business grows so large that the costs per unit increase. As output rises, it is not inevitable that unit costs will fall. (UNIT COSTS RISING AS WELL OUTPUT RISING) When a business expands, they expect economies of scale, but are often shocked to find that they are outweighed by diseconomies. Diseconomies of scale can occur due to: POOR INTERNAL COMMUNICATION BETWEEN DIFFERENT DEPARTMENTS AND ALONG THE CHAIN OF COMMAND - the more layers there are in the business hierarchy and the wider the spans of control for managers, the greater the risks of workers receiving unclear instructions about what they are supposed to do. POOR EMPLOYEE MOTIVATION - which is where workers can feel more isolated or alienated and less appreciated in a larger business so their loyalty and productivity may reduce - wit

Growth - A common corporate objective which means expanding the sales revenue of a business, probably in the hope that profits will increase too. Increasing profitability and providing a better return for investors and shareholders are particularly important for companies quoted on the stock exchange as shareholders may have purchased shares with an expectation that they will receive a certain annual return on their shares, known as dividends. This is normally achieved by increasing revenue and lowering cost per unit, resulting in increased profit margins. A benefit of increasing profits as a growth objective is that besides the fact the business is making more money, it is more likely to encourage further investors and insulate the business from competition from current or new rivals However, increasing profits may not be possible for a number of reasons, including an already saturated market and fierce competition from rivals who have either better products or a better brand

Growth - A common corporate objective which means expanding the sales revenue of a business, probably in the hope that profits will increase too. Another aim is to achieve increased market share and brand recognition, which overlap gently with increased market power. Increased market share gives greater control today and higher brand recognition gives greater influence over what will happen to the business in the future

Growth - A common corporate objective which means expanding the sales revenue of a business, probably in the hope that profits will increase too. A business will aim to achieve greater market power, which gives it more control over its future, including a greater ability to increase prices. Greater dominance over customers means pricing control ; greater dominance over suppliers gives increasing power to keep purchasing costs down. This allows the business to gain a competitive advantage.

Shareholder and Stakeholder objectives can clearly be in conflict, as when wages rise at the expense of lower profits and dividends, organisational growth is at the expense of short-term profits, and expansion of production may cause disruption to the local community. Additionally, conflict can occur between stakeholders and for a business this can be a hard task to meet all of the needs of the stakeholders. This occurs when the actions or objectives of one group of stakeholders may weaken the power of another. Examples below.  However, stakeholder needs may also overlap in which case they can join together to increase their power, for example the community may support the employees when taking industrial action in order to strengthen their voice.

Stakeholder - a person, group or organisation that has interest or concern in the activities or decision making of a business. Shareholders - defined as any person, company or other institution that owns at least one of a company's shares. They're often one of the source of finance for the business; their financial risk is limited to the value of their shareholding. STAKEHOLDER INFLUENCES The stakeholder concept suggests that a business' responsibilities are towards all of its stakeholders. Therefore the business must consider all of its stakeholders in it decisions and objectives, for example consult with stakeholders before making strategic decisions. They must also treat stakeholders fairly e.g. prompt payment to suppliers, fair pay and conditions for employees, as well as addressing the business' impact on the wider community such as environment footprint. Stakeholder influences should be seen as a genuine concern and not just a PR exercise.  Stakeholders

Stakeholder - is any individual or group with an interest in the actions and decision making of the business. A SHAREHOLDER IS A STAKEHOLDER INTERNAL STAKEHOLDER EXTERNAL STAKEHOLDER Employees Customers Managers Suppliers Owners Shareholders Shareholders Government Local community Society Creditors (owes money to a business) STAKEHOLDER MAIN INTERESTS Shareholders/owners Return on investment and profits and dividends Success and growth of the business Proper running of the business Managers/employees Rewards, including basic pay and other financial incentives Job security and working conditions Promotion opportunities and job satisfaction and status – motivation, roles and responsibilities Customers Value for money Product quality and customer service Suppliers Continued, profitable trade with th

Investment Appraisal - The use of numerical techniques to predict the financial outcomes of potential capital investments. Net present value - The difference between the present value of the future cash flows and the amount invested in the project. FORMULA  - NET PRESENT VALUE EACH NET CASH FLOW MULTIPLIED BY THE DISCOUNT FACTOR WHICH WILL GIVE YOU THE NPV ADD UP ALL THE NPV'S POSITIVE = ACCEPT PROJECT NEGATIVE = REJECT PROJECT   Interpreting NPV allows for close attention to the value of the return in today's terms so is a more realistic view of any investment. Different interest rates can be applied to reflect the expectations of different investors. After applying the discount factors, the NPV could be positive, which may suggest it is a worthwhile investment, or negative, in which case the investment should be rejected. Advantages Disadvantages Considers all future cash flows The most complicated method compared with Payback

Investment Appraisal -  The use of numerical techniques to predict the financial outcomes of potential capital investments. Average Rate of Return (ARR) -   looks at the  total accounting return for a project  to see if it meets the target return Business investment projects need to earn a satisfactory rate of return if they are to justify their allocation of scarce capital. FORMULA  - AVERAGE RATE OF RETURN (TOTAL NET CASH FLOW / NUMBER OF YEARS) / INITIAL INVESTMENT X 100 = ARR% Interpretation of ARR revolves around comparison with other projects and should take into account the level of risk and the period of time over which the return is forecast to take place. If the investment was funded by outside investments they would compare the ARR with potential returns on other investments as well as the potential risks. For example the least risky investment may be to place the money in a bank deposit account, but the ARR on such an investment might only be 2%. A

Investment Appraisal - The use of numerical techniques to predict the financial outcomes of potential capital investments. Payback - The length of time (payback period) required to recover the cost of an investment in a project. FORMULA  - PAYBACK NET CASH FLOW IN YEAR THE INITIAL INVESTMENT IS REPAID / 12 MONTHS = £?  REMAINING CASH TO BE PAID IN FINAL YEAR TO REACH THE REPAYMENT TOTAL / £? = DECIMAL = MONTHS A BUSINESS WANTS THE LOWEST PAYBACK TIME IN ORDER TO BECOME PROFITABLE QUICKER. Interpretarion of payback gives a prediction of when the investment will be paid back and more importantly the point at which it will start to  make a profit for the business. Businesses can use payback to consider a number of potential options and then choose the investment with the fastest payback. Alternatively, businesses may allow investment only if payback is within a maximum period of time, for example 24 months. Advantages Disadvantages Simple and

Organisations often need to adapt to their culture for reasons including takeovers or mergers, growth and changes in the market. Difficulties with changing the culture include staff loyalty to exisiting relationships, the failure to accept the need for change, insecurity, loss of power, loss of skills, break-up of work groups and different individual views of how the change should be managed.  Furthermore, there can be an alienation of suppliers, customers and other stakeholders.

The factors that influence the formation of corporate culture include: The founder of the business - For example the "Bill Gates way" or the "Alan Sugar way" may influence things years after the founder has left Size and development stage of the business - small businesses or start-ups may have a far more entrepreneurial culture than large multinationals. Leadership and management style Employee and management reward structures - For example, at John Lewis staff ('partners') all share in the business's profits The external environment, such as legal, economic or social factors - for example, at British Nuclear Fuels, which disposes of nuclear waste, the culture is based firmly on the very tight legal framework which governs how, where and when the company disposes of highly dangerous materials.

Role culture - A business where power depends on the person's status or role in within the business; normally businesses with a high level of detailed rules on how people should interact. Clear rules and procedures result in a clear hierarchy (Bureaucratic relationship) where the organisation functions based on each individuals role within a clearly defined structure. The organisation has a tall structure with long chains of command. Personal power is frowned upon, with allocation of work and responsibility more important than individuals personalities. Benefits include offering employees security and the opportunity to acquire specialist skills, and good employee performance yields appropriate pay and promotion rewards. Drawbacks include the culture being frustrating for ambitious employees and it is overly bureaucratic, which leads to slow-decision making. Power culture - Usually a strong culture in a business that comes from the center and concentrates power among a small nu

A strong culture - is one which is deeply embedded into the ways a business or organisation does things. With a strong culture, employees and management understand what is required of them and they will try to act in accordance with the core values. A weak culture - can arise when the core values are not clearly defined, communicated or widely accepted by those working for the organisation.  It can also occur if there is little alignment between the way things are done and the espoused values. This can lead to inconsistent behaviour of people in the organisation which in turn results in inconsistent customer experiences! Strong Culture Weak Culture Staff respond positively to culture values Little alignment with culture values Shared sense of responsibility towards vision, mission and objectives Employees have to be forced to perform duties Motivated and loyal workforce Greater management control and