Business Student Handbook PDF

IFY Business Studies
Student Handbook
Produced By
Stephen Byrd PhD, MBA, FITOL FICM
IFY Business Studies Student Handbook
Week
Topic
Units
Marketing
1
A: The nature of marketing

B: Market Analysis
C: Segmentation and positioning

D: Market research
E: Marketing Strategy
F: The Marketing Mix

F a: Product
F b: Promotion
F c: Place (Distribution)
F d: Price
18
21
81
20
19
35
22
32
23
24
27
28
29
30
26
Accounting and Finance

7
G: The role and limitations of accounting

H a: Finance
I a: Profit and loss accounts

I b: Balance Sheets
I c: Working capital
H b: Analysing published accounts:
Ratio analysis
J: Cost and management accounting
Types of cost, Break Even, Contribution
10
11
12
13
14
15
Cash Flow Forecasting and Management

Budgeting and Variance Analysis
Review
Review
37
44
45
42
43
48
56
57
38
40
41
46
41
EXAM WEEK
Notes to Students:
All reading should be completed before the Week number listed.

The weeks may change, but you will be informed well in advance
Page 2 of 215

Business Studies
Supplies be prepared
A4 Notebooks
Pencils / Pens
Ring binders, with dividers
Hole punch
Rulers
Calculator
Stapler
Conducting of courses
Lectures / Tutorials
Take notes always have notebooks
Class participation
asking questions
answering questions
Homework collected and marked
Regular testing
Other rules of class
Be here, be on time!
Handle personal matters before / after class
No talking, unless instructed
Ask teacher about what you dont understand
No word finders (ask teacher)
No mobile phones
Assigned seating
Assessment
2 Assignments each worth 10% =
20%
Term 1 Examination
10%
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Final Examination
Total
= 100%
Predicted Grades
For university selection and applications
Based on:
Term 1 Assignment
Results of Term 1 regular tests
Term 1 End of Semester Exam results
Homework
Class participation
Method of calculation:
Based on:
Term 1 Assignment
10%
20%
Term 1 EOS Exam
10%
80%
Total
100%
Page 4 of 215
70%
Marketing: The management process used to identify, anticipate

and satisfy consumer requirements profitably. (Textbook)
Management: the skill of controlling or directing
Process: a series of steps or actions towards an end, a goal
Identify: to recognize or know
Anticipate: to expect or to realize before someone else does
Satisfy: to fulfill a desire, a want or a need
Consumers: people who use products or services
Requirements: a need, want or desire
Product orientation focused on production process, the product,
and efficiency; sees people as basically similar; practices mass
marketing (industrial revolution thru mid-50s)
Market orientation consumers at the center of decision-making;
listening to the customers wants and needs; building long-term
relationships; recognizes differences in people, practices target
marketing
It is possible to be successful with either type of orientation, but it is
harder to be successful with product orientation alone.
Features of business marketing behaviors:
Consumers most important; know your consumers; a feel;
trends; react to consumers needs, wants and desires
A Process no beginning, no end, ongoing; respond to changes
RELATIONSHIP MARKETING: Build relationships with
consumers know what they want; react to complaints, longterm
A business philosophy a way of thinking
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Affects entire business the goods produced; pricing and
sales
Marketing not just Selling (usually different departments);
market research (what do consumers want and whatll they
pay); design of products, packaging; testing of products on
consumers
Advertising only a part of Marketing
Asset-based (Asset-led) Marketing developing and marketing
products based on a companys key strengths
REAL DISPOSABLE INCOME The amount of consumers Income
remaining after deducting taxes and adding back any other
government benefits
A rise in Real Disposable Income causes:
Increase in Demand; which causes
Economic Growth; which causes
Changes in tastes and fashions; which causes
New technologies to be created; which causes
Increases in competition
Page 6 of 215
Markets classified according to characteristics

Geographical i.e. by location;
Goods;
Industry;
Size mass/niche Problems with measuring size
o Market size can be measured by Value or Volume
Market Share / Penetration proportion (percentage) of the market
held by a company
Important in judging: size; growth
Market Growth affected by: Economic changes; Social changes;
Technological changes; Demographic changes; changes in
Legislation
Reasons for / benefits of growth: economies of scale; gain market
share; increase future profits; reduce risk; survival
Economies of scale
Internal (within the company): Technical (efficient use of
facilities); management; financial; purchasing; risk reduction
through diversification
External (growth in industry): labour availability; outside
services; co-operation
Methods of company growth:
Internal: organic (expand sales); innovation (new products)
External: merger; acquisition
Limits to growth diseconomies of scale inefficiency
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Still, small firms survive reasons: Personalized service; flexibility;
efficiency; lower costs; low barriers; owner preference; etc.
Mass Marketing: Marketing products to all consumers in almost the same way. Can
be expensive, and, products will be going head-to-head with other mass market
products.
Segmentation: Break a market into sub-groups with similarities.
Examples of Market Segments: Age; gender; ethnic background;
family characteristics; education level; occupation; income level;
social class; religion; political or voting preference; geographic
location; personality; lifestyle; purchasing choices or patterns.
Market research can help identify segments; can also be directed to
specific market segments.
Identifying segments can: reduce market research cost; help
increase sales; reduce product promotion cost by targeting specific
consumers.
Target Marketing: companies choose to concentrate their
marketing efforts on particular groups of consumers
Niche Marketing aiming products at smaller market segments.
Niche Marketing is less expensive, more cost-effective
Some niches may have been overlooked or ignored by
competitors
Focuses on the specific needs of the members of the niche
Drawbacks and risks in Niche Marketing:
o Success will attract competitors (for the same reasons)
o May not be easy for companies with many products
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o Tastes and preferences of small groups can change more
quickly
MARKET POSITIONING: Consumers tend rank/rate products by
quality, status, value-for-the-money, other characteristics, defining
the Market Position: main products = Market Leaders; others =
Market Followers. As markets and consumers tastes change,
companies try to reposition their products.
Market Mapping: tool to analyze Market Position in eyes of
consumers.
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Market Research: collection, collation and analysis of data relating

to the marketing and consumption of goods and services
Uses for Market Research Information:
Descriptive: what is happening
Predictive: whats likely in the future
Explanatory: why are things happening
Exploratory: what new possibilities may be available
Market research:
Helps with decision-making, especially in fast-changing markets
Helps reduce risk
Provides a link to the outside world, about their products and
potential future ventures
Is more important as markets expand in size and scope
Is good for public relations
However, Market research can have failings because:
Human behaviour is unpredictable
Sampling may be biased
Questions or questioners may be biased
QUALITATIVE Information about attitudes, beliefs and intentions
QUANTITATIVE Data that can be expressed as numbers
DESK or SECONDARY RESEARCH information already available
Internal sources
Page 10 of 215

External sources
PRIMARY or FIELD RESEARCH collected by the researcher
Advantages for the Company: full control over the kind of
information being gathered; only they can access it
Methods of Field Research: Personal interviews; phone
interviews; focus groups; post-purchase; observation
Types of Questions:
Closed: Offers a limited range of answers
Open: offer the interviewee the chance to openly respond
Clear and unambiguous questions
Leading questions encourage a particular answer
Effects the different questions may have, and how questioning can
be used
Balance between closed and open questions
Closed questions are usually easier to summarize and quantify
Leading questions: for impartial data, they should be avoided;
may be used to influence the results of the survey
Who to ask?? Asking everyone would be impossible
SAMPLING
Random Sampling population listed, computerized Random No
Gen
Systematic Sampling (Random)
Stratified Random Sampling
Others in book: Quota Sampling (target quantities from different
groups); Cluster Sampling (separating population by area); Multistage Sampling; Snowballing
Haphazard Sampling
Type of information that might be asked:
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What are they currently using? / Would they use this?
What features do they like about it? / What features would they
like?
What should it look like? Size, weight, shape, color?
What type of promotion would be best? / Where they would want
to be able to buy it? / How much would they be willing to pay?
Information about them: Age; Sex; Marital status; General
income levels; Educational background; etc. DEMOGRAPHICS
Page 12 of 215

Marketing Objectives / Marketing Goals:
Company Growth to affect profits
Maintaining sales and market share
Product differentiation from competitors
Product introduction and innovation
Consumer knowledge and satisfaction build RELATIONSHIP
Marketing Objectives/Goals should be SMART Specific;
Measurable; Agreed; Realistic; Targeted
Analyzing Constraints (stand in the way of achieving goals):
Internal: Financial; Organizational; Product; Price; Place
External: PEST-G: Political; Economical; Social; Technology;
Green
Marketing Strategies: Steps to help a company compete more
effectively
Competitive Strategies: To compete more effectively
Product differentiation Show the differences from competitors
products
Target a particular Market Segment
Price Try to be the lowest price in a market
Growth Strategies:
Market Penetration or Expansion: Increase sales in the existing
market
Product Development: introduce new products into existing
market
Market Development: Market existing products in new markets or
market segments
Entry into new markets: Developing new products for new
markets
Page 13 of 215
The Marketing Mix (Combination) the Four Ps: To meet their

marketing objectives, companies break down their marketing
activities into 4 areas:
Product: make the product meet consumers needs and companys

needs: use; physical presentation (look, feel, smell, etc);
financial, incl. cost; life cycle; uniqueness; market position
Pricing: Market Position; maximize sales (low); maximize profit

(high)
Promotion: choose the most effective for its market
Place: Where sold; how sold; how transported, etc.

Services have 3 more Ps
People providing the service
Process involved in delivering the service
Physical the environment in which the service is provided
Every business designs its own Marketing Mix for each product it
sells
Ideal Mix = right balance between the 4 Ps: type of product;
market; level of competition; competitors Marketing Mix; Market
positioning
Page 14 of 215
The Stages of The Product Life Cycle

Development: design, testing, decision to proceed (money out)
Introduction: 1st Sales (often slow, may be fast); heavy promotion
Growth: accepted; sales begin to grow; if new product,
competition
Maturity: sales increase rate begins to level off
Saturation: placed well throughout the market
Decline: changes in consumer tastes, new technology, etc
Extension Strategies ways to extend the Product Life Cycle: new
uses; new markets; wider product range; target markets; change
appearance; encourage more frequent use; change ingredients or
components.
Capacity and Cash Flow
Capacity is the maximum amount a business can produce; the
measure of how fully a company is using its capital.
Cash Flow is the measure of money in and money out
Product Life
Cycle
Development
Introduction/
Launch
Growth
Capacity
No Effect
Sales limited; will have spare
capacity, or, borrow from
existing capacity
Expanding production, use up
spare capacity
Maturity
May operate at full capacity,

may need to expand capacity
Decline
Sales & production reducing,

capacity may not be fully
utilized
Cash Flow
Cash out only
Although Sales begin, still negative
due to prior development, and,
promotion costs
Cash Flow moves into the positive
as cash from sales overtakes prior
cash expenditures
Cash Flow at highest, Sales at
highest, marketing and advertising
may reduce
Sales will fall, Cash flow will fall
The longer the life cycle of a product, the longer a company may
expect to operate at full or near-full capacity.
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The Product Life Cycle is a planning tool, useful for:
Showing trends in product revenue

Planning when to launch new products
Planning when to introduce extension strategies
Planning cash flows
Identifying when to stop selling a product
Showing expected profitability at different stages
Planning different marketing strategies
Managing The PRODUCT MIX (combination) or PRODUCT PORTFOLIO
Companies use Product Life Cycle and the Boston Matrix to help plan
when to introduce new products or product lines (groups of closely
related products). Always involved in new product development.
The Boston Matrix:

Market
Share
High
Low
Market Growth
High
Low
CASH COW
PROBLEM CHILD
DOG
STAR
Star: Large share of a high-growth market

Problem Child: In growth markets (has potential), but sales not
good
Cash Cow: Mature products with stable market share; generate
funds, may support other products
Dog: may be in decline
Brand a name, design, symbol, etc, lets consumers recognize your
company or products, differentiates your products from your
competitors. BRAND NAME is spoken name; BRAND MARK is a
symbol / LOGO.
Reasons to establish a Brand a successful Brand can help:
Develop Customer Loyalty
Differentiate your products, especially where products are similar
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Develop recognition
Develop image
Pricing flexibility more willing to accept higher prices
Brand Equity Well-known Brand adds value to products and
Companies
Developing a Brand:
Choose the right name or symbol
Protect the Brand trademark and copyright
Find a Unique Selling Point (USP) what makes them different
and makes consumers want to have them over other products
Be the first in the market
Positioning e.g. a high quality Brand should be targeted to
people with higher incomes. Product Mix is important:
o Product made from high quality materials
o Price can be a premium price
o Promote in a way that reflects the status of the brand
o Place it where the targeted customers can access it
Types of Brands:
MANUFACTURERS BRAND the Producer
OWN LABEL BRAND The seller
Branding Strategies
Individual Branding single-product Brand
Family Branding group of similar products, or, Corporate Brand
Combination Branding mid-way of the above two approaches
Brand Extensions add Brand name to product outside the
family
Problems with Branding
Expensive
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Some markets / products not suited for Branding
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The purpose of Promotion to get and keep customers:

Create / increase customer awareness
Reach a targeted audience (may be geographically spread out)
Remind customers encourage repeat purchases; gets new
customers
Differentiate your product encourage buyers to switch
Develop or improve image
Re-assure consumers after purchase repeat customers
Support existing products
Promotion: Above the Line independent media
Types of advertising:
Informative increase customer awareness of, knowledge about
Persuasive to buy the product
Reassuring to have current customers continue to buy
Corporate Advertising Promote the company
o Create an impression as responsible members of
community
o Branding
Types Advertising Media:
Medium
Television
Advantages
Mass market; Attract
attention; Demonstrate
Products
Newspapers, Mass mkt. or Target
Magazines
segments; Big or small
businesses; Can use
national, regional, local
Cinema
Strong impact; target
specific consumers
Radio
Inexpensive; can target
specific markets;
Posters,
High visual; where
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Disadvantages
Expensive; message short
lived; Hard to deliver Tech
info
No motion or sound; Black &
White (newspapers); ads can
get lost; (magazine) long
time to publication
Limited viewers seeing it only
once;
No visual; may not get
audience attention
Limited info; how effective;

Billboards
customers are; encourage to

buy;
Rel. inexpensive; monitor
hits; targeted; easily
changeable
Internet
damage
Limited audience; technical
problems
Factors in Choosing Advertising Media

Cost overall cost; cost effectiveness
Reach their Audience target advertising; reduce wastage
Presentation i.e. TV for visual; print for information
Impact on the viewers TV or Cinema
Marketing Mix again targeting consumers
Competitors what are they doing
Legal restrictions (below)
Controls on Advertising keep from being misleading
Legislation and regulation: Trades Descriptions Act avoid false,
misleading info; Office of Communications regulates TV, radio
ads Competition Commission investigates anti-competitive
behaviour
Independent Bodies Advertising Standards Authority:
independent, conform to The CAP Code (British Code of
Advertising, Sales Promotion and Direct Marketing):
o Legal, decent, honest and fair
o Responsible to consumers and society
o In line with principals of fair competition
o Breach of Code, can ask to withdraw ad, or else: a)
publish findings; b) withdraw privileges of membership;
or, c) ask media to refuse to carry future ads
Pressure Groups community organizations representing their
views
Advertising and Society
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Effects on Society: increases costs; encourages to buy, might
not otherwise; high consumption effects on environment;
encourages things that might damage society
Advertisers justification: offers choice; gives consumers
information; respond to, dont create, needs in consumers; earn
revenues for the media, reducing costs to consumers; employs
large number of people
Promotion Below the Line does not depend on Media
Advantages:
Cost usually less
Control the message
Types of Below the Line promotion:
Direct Mailing: Sending information to selected consumers post
Exhibitions and Trade Fairs: Company sends various staff
(executive, sales, technical), home or abroad; Direct contact with
distributors and consumers: see products, see how they work and
get their reactions
Sales Promotions special offers to push customers to buy:
coupons; competitions; product endorsements; product
placement (TV & movies); free offers; etc.
Branding
Merchandising how products are placed in stores: Displays;
point-of-purchase promotion; stores adequately stocked, well-lit,
etc.
Packaging to be made appealing and convenient: weight &
shape; protect the goods; convenience; design; informative;
environmental
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Personal Selling companys sales people sell by phone, in
meetings, in stores, or door-to-door. Customers given a standard
message and personal attention
Public Relations communicate with groups that publicize info to the customers: Press conferences to publicize announcements
and new developments; Press releases sent to newspapers, television stations, etc and available on websites
Page 22 of 215
Distributing the Product getting it to the right place at the right

time
Channels of Distribution: Direct to consumer; through a retail outlet;
through a wholesaler; using an agent
Physical distribution how the goods are transported
Retailing: Supermarkets & Hypermarkets; Department Stores;
Multiple shop organizations; Retail co-operatives; Independent
retailers
Direct Marketing sell directly from company to consumers. Incl:
Retail outlets; Internet; direct mail; personal selling; telephone sales
Choosing the right channel of distribution can depend on:
Type of product: perishables; technically complex goods; tailor
made products; convenience goods; large quantity, low value
goods; data products not requiring delivery;
Market: Large, disbursed intermediaries; smaller consumers
can buy direct; Segment may dictate; Time periods may
require different action;
Legal restrictions medicines; etc.
Company: larger companies often set up their own distribution
networks
Intermediaries P. 218, Fig 30.1 shows different combinations
Trends in Retailing and Direct Marketing
New trends and other developments: Shopping Centres; Retail
Parks; Call Centres; Online shopping; Discount chain stores; Variable
hours stores; Diversified products; decline of independents;
reductions in costs; second-hand shops
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What Factors affect pricing decisions?

Objectives: Such as maximize sales, maximize profits
Marketing Mix: Price must fit with the type of product, the way it
is promoted and the places it is being sold
Costs: long-term, cover costs; short-term, some flexibility
Competition
Consumer expectations value for money whats it worth
Market Segment
Legal: Taxation; regulation; subsidization
Cost Based pricing: All pricing influenced by costs and profits, but,
with some products / markets, Costs are bigger factor than market
forces
Cost Plus Pricing
Contribution Pricing
Absorption Cost / Full Cost Pricing
Problem of cost based pricing may not reflect what the market will
bear
Market orientated pricing based on conditions in the market
Penetration Pricing pricing low, to penetrate, often in mass
markets
Market Skimming high price for limited time
Consumer Value Pricing based on the maximum consumers will
pay
Loss Leaders: price at a loss, to bring the consumers in
Psychological Pricing: based on consumers thoughts or feelings
(9.99)
Page 24 of 215

Price Discrimination: same company, different prices for different
segments could be time-based telephone, travel; market
based
Competition based pricing
Going Rate Price generally in line with Market Leader
Destroyer Pricing deep price cutting to eliminate competition
Closed bid pricing larger jobs, bidding
Pricing tactics (plan for attaining a particular goal)
Special Promotion offers
Loss Leaders: Sell a product at a loss to bring in the customers
Discounts on normal prices: timing; regular customers; large
quantities
Introductory offers: Price for first purchase reduced
Pricing strategies (elaborate and systematic plan of action)
New Products
o Lower prices: penetrate existing Markets; launch new
markets
o Skimming or Creaming: High price for limited time
Existing Products
o Price Taking closely follow leaders price increases,
decreases
o Price Leader will be the first to raise, lower
o Destroy competition, capture the market aggressive
pricing
o Price discrimination different prices to different
consumers
Tutorial
Page 25 of 215

Case Study Pp 197-198
Accounting: recording, classifying and summarizing business and financial transactions,
and reporting the results to interested parties.
Accounts: reports that give users financial information about a

business
Users-Internal: Management; Owners
Users-External: Legal: Tax Auth, Auditors; Registrar of Companies;
Users-Financial: Bankers; Suppliers; Competitors; Community;
Media; Investors & analysts; Government
Role of Accountants: produce financial accounts; involved with
auditing
2 types of Accounts
Financial Accounts historical; true and fair / financial

accounting standards; independent auditors report on fairness
Management Accounts future; analyze cost, forecast; budget
Limitations of Accounts:
Dont show internal strengths of company (i.e. the quality of staff,
etc)
Dont show external factors or economic conditions the company is
facing
Dont have information to predict market growth or demand
Sales and other figures may be misleading in times of high inflation
Data can be deliberately changed to give a false impression to users
The balance sheet really only tells about the past not the present
Computerized accounting and financial reporting
Advantages: quick; efficient; capacity; accurate
Disadvantages: cost; technical problems; operator error;
security
Financial Accounts:
Page 26 of 215

Balance Sheet: funds in the company and how used
Profit and Loss Account: summary of years trading activities
Cash Flow: shows inflows and outflows during trading year
Notes to Accts: detailed analysis; qualitative information
Other: Directors Report; Chairpersons statement; Auditors Report
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Companies Need Funds CAPITAL or REVENUE EXPENDTURES

Remind: Assets = Liabilities + Capital
Capital Structure how a company is financed (rvw BS)
Choosing the right source of financing: Cost; Use of Funds; Status
and size of company; Financial situation; Gearing: Loans Equity
Types of Internal Sources: Profits; Working Capital; Sale of Assets
Types of External Sources:
Share Capital: Ownership
o Authorized / Issued Public (Stock Exchange); Dividends
o Ordinary Shares: riskiest; dividends only when declared
o Preference Shares: not often / Guaranteed dividend,
generally doesnt change; in Sale, 1st to get funds back
o Deferred Shares: very seldom / often to starting owners
Loan Capital: Debentures (Bonds; public companies; guaranteed
interest rate; date repaid); Mortgage (smaller companies;
secured)
Short-term sources: Bank Overdraft; Bank Loan; Hire Purchase
purchase of equipment; Trade Credit; Lease (Finance with
option to buy; Operating Rental); Debt Factoring; etc
External sources: Financial Intermediaries (companies that match
Savers and Investors); Stock Market; Banks, etc.
Uses of Funds Assets: Resources of a company, add value
Asset Structure the best combination of different assets
Fixed Assets held over 1 year considered productive for income
Tangible can be touched Land; Plant, Machinery & Equipment
Financial Investments generally shares in other companies
Page 28 of 215

Intangible Goodwill; Patents, Copyrights, Trademarks; R & D;
Brands
Company Law and the Balance Sheet P 318
Tutorial:
P 309, Q 3
P 317, Q 2 (a)
Page 29 of 215
Balance Sheet
Balance Sheet: A snapshot of the companys financial position,
shows:
What the owners invested, and that investments current value
Capital
Everything the company owns Assets
Everything the company owes Liabilities
Accounting Equation: Assets = Liabilities + Capital
Fixed Assets generally held more than 1 year
o Investments
o Tangible Fixed Assets
o Intangible Fixed Assets
Current Assets Cash or other assets quickly converted to cash
Current Liabilities amounts owed to be paid in less than 1 year
Net Current Assets / Working Capital
Creditors amounts due after 1 year
Capital and Reserves breakdown of value to the owners
o Share Capital purchase value of shares
o Retained profit profits not distributed (via Dividends)
Balance Sheets always presented in this form: Standards;
comparability
Sole Traders no shares; Drawings
Limitations of Balance Sheets:
Lack of details; Intangibles
Current values of Fixed Assets may not be reflected
Page 30 of 215

Static
Profit & Loss

Profit what businesses and their stakeholders look for
Remains from Revenue when all business expenses have been paid
What happens to it: pay taxes; distributed to owners; retained
For up to 1 year Revenue Costs = Profit; Revenue Costs =
Loss
Profit and Loss Account:

3 areas: Trading Acct; Profit and Loss Acct; Appropriations Acct
Trading: Sales / Turnover; Cost of Sales; Gross Profit
Sales / Turnover: Ownership, not cash Realization Concept
(Matching)
Cost of Sales: Standard Calculation Matches costs to items sold
Gross Profit amount remaining GP Turnover = GP%
Business Profit & Loss: starts with Gross Profit
Less Operating Expenses = Operating Income
Add: Non-operating Income
Add / Subtract: Interest Income / Interest Expense = Net Profit
Appropriations: What happens to the Profit
Dividends may be paid out to owners leaves the company
Balance remains in the company adds to owners value in the
company
Public companies: Earnings Per Share = Net Profit after tax No.
Shares
Calculation: Net Profit Margin = Net Profit Turnover
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Relation to Balance Sheet:
Sales: Debtors
Cost of Sales: Stocks; Creditors
Other Operating Expenses: Creditors
Retained Profits: Capital
Page 32 of 215
Working Capital = Current Assets Current Liabilities

Current assets sometimes called Liquid assets WC Liquidity
Sometimes called Circulating Capital important for day-to-day
operations
The Working Capital Lag (Cycle p337)
Sources of Liquidity Problems
Solutions
Overtrading
Invest in too many Fixed Assets
Stimulate sales for cash

Sell off non-vital Fixed Assets
Sale and lease back
Sell off raw materials, even at a
loss
Rigorous steps to collect, offer
discounts
Extend credit with selected
suppliers
Stock-piling
Allowing too much credit
Taking too much credit
Overborrowing
Credit Controls
Late Payment of Commercial Debts Act 1998
Liquidity Ratios Measures how quickly a business can pay its

Creditors
Current Ratio or Working Capital Ratio
Current Ratio =
Current Assets
Current Liabilities
Generally, 1.5 : 1 is the minimum preferred

Acid Test Ratio or Quick Ratio
Page 33 of 215
Ratio (1.5 : 1)
Acid Test Ratio =
Current Assets - Stocks

Current Liabilities
Ratio (1 : 1)
Less than 1 : 1 means a company does not have enough Quick

Assets (Cash and Debtors) to cover Current Liabilities
Ratio Analysis analyze and get meaning from Financial Accounts:
over time; between companies; over time between companies
Can be a Percentage, a Number or a Ratio
4 Types of Ratios: Performance; Liquidity; Gearing; Shareholders

Performance or Profitability Ratios Focus: Profits
Return on Capital Employed (ROCE) Earnings on Investment.

How much could the company earn if it used its Capital elsewhere, or
put in the bank? How much extra should it earn for the risk
involved?
Earnings Before Interest and Tax

X 100 Percentage
Long Term Capital Used
Long Term Capital = Total Shareholders Funds + Long Term
ROCE =
Liabilities
To increase ROCE: Increase Earnings or Pay down Long Term
Liabilities
Gross Profit Margin The Profit on Sales
Gross Profit
X 100
Turnover or Sales
To increase it: Raise Prices or lower Cost of Sales
Gross Profit Margin =
Percentage
Net Profit Margin The Net Profit earned on Sales
Net Profit Margin =
EBIT
Turnover or Sales
X 100 Percentage
To increase it: Have better control of overheads

Activity Ratios Focus: How well a business uses its resources
Page 34 of 215

Asset Turnover Ratio looks at how productive a businesss
assets are
Turnover
Net Assets
Asset Turnover Ratio =
Number
Net Assets = Fixed Assets + Net Current Assets Long Term

Liabilities
OR Capital and Reserves
Stock Turnover Ratio how quickly a business is selling its stock
Cost of Sales
Closing Stocks
OR
Stock Turnover Days = Closing Stocks
Cost of Sales
Stock Turnover Ratio =
# times
X 365
# Days
Retailers generally have quicker Stock Turnover than manufacturers

Debt Collection Ratio Average number of days to collect from
Debtors
Debt Collection Period =
Debtors
Turnover
X 365 Number of Days
Increase its Debt collection activities; Tighten or reduce Terms

Liquidity Ratios Focus: how quickly a business can pay its
Creditors
Current Ratio or Working Capital Ratio
Current Ratio =
Current Assets
Current Liabilities
Ratio (1.5 : 1)
Generally, 1.5 : 1 is the minimum preferred

Acid Test Ratio or Quick Ratio
Acid Test Ratio =
Current Assets - Stocks

Current Liabilities
Page 35 of 215
Ratio (1 : 1)

Less than 1 : 1 means a company does not have enough Quick
Assets (Cash and Debtors) to cover Current Liabilities
Gearing Ratios Looks at how a company has financed itself
Gearing Ratio =
Fixed Cost Capital

Long Term Capital
X 100 Percentage
Fixed Cost Capital = Long Term Liabilities

Long Term Capital = Capital and Reserves + Long Term Liabilities
50% = Low Geared (more Invested Capital)
50% = High Geared (more Borrowed Capital)
Interest Cover Enough earnings to pay Interest Expense
Interest Cover =
EBIT
Interest Expense
Number of times
An Interest Cover between 1 and 2 is a problem

Shareholder Ratios Help Investors make decisions
Earnings Per Share (EPS) a measure (only) of how much is
earned per each Ordinary Share outstanding has nothing to do
with Dividends
Earnings Per Share =
Profit after Tax

Number of Ordinary Shares
Amount
Price Earnings Ratio used by investors to decide to buy or sell

shares
Price/Earnings Ratio =
Share Price
Earnings Per Share
No. of times
Share Price rises and falls based on Investors confidence in the

company
Page 36 of 215

e.g. A P/E Ratio of 12 means Market Price is 12 times higher than
earnings
A rise in P/E Ratio means Investors have greater confidence in
company
Shown on the Profit and Loss Account, at the very bottom
Dividend Per Share how much Ordinary Shareholders receive per
share
Dividend Per Share =
Dividends (Ordinary Shares)

Number of Ordinary Shares
Amount
To know whether Dividends are really good or not, they must be

compared to the price of the share, to know the Return on
Investment
Dividend Yield
Dividend Yield =
Dividend Per Share

Share Price
X 100
Percentage
More difficult to interpret, affected by amount of Dividends paid,

and, changes in the price of the share.
If Dividends increase and Price remains the same, DY goes up
But investors want the share price to go up.
If Share Price goes up and dividends go up by the same percentage, the DY remains
the same.
Which is best???
Return on Equity Earnings on the Equity (a bit similar to ROCE)
Return on Equity =
Profit After Tax

Equity
X 100 Percentage
Dividend Cover based on profits, how many times could a

companys
Page 37 of 215
Dividend Cover =
Profit After Tax

Dividends (Ordinary Shares)
No. of Times
If too high, shareholders: company should pay more Dividends
If too low: earnings too low; or, company not retaining enough
profits
Limitations to Ratio Analysis:
Same industries and size may make a difference
Rising prices Inflation
Balance Sheet limitations when significant changes occur
Quantitative analysis only, does not include qualitative info.
Tutorial: P 394, Q 1; P 396, Q 2
P 394, Q 1
Fish and Chips Gross

Profit Margin =
Gift & Souvenir Gross
Profit Margin =
Net Profit Margin =
Fish and Chips
Net
Profit Margin =
Gift & Souvenir
Net Profit Margin =
Gross Profit
Net Profit
Overheads
75,400
252,600
154,900
365,900
X 100 =
29.8%
X 100 =
42.3%
Net Profit
Turnover or Sales
32,000
X 100 =
252,600
38,700
X 100 =
365,900
X 100
12.7%
10.6%
Fish & Chips Gifts & Souvenir

75,400
154,900
32,000
38,700
43,400
116,200
P 396, Q 2
Page 38 of 215
Current Assets
Current Liabilities
Current Ratio
Turnover
Debtors
Debt Collection
2004
10,700
10,100
1.059
138,100
6,400
16.9
2003
14,700
16,200
0.907
141,800
12,100
31.1
2002
13,500
14,500
0.931
136,200
11,200
30.0
2001
12,700
13,100
0.969
121,000
9,800
29.6
P 398, Q 3
Gearing
Fixed Cost Capital
Long Term Capital
Interest Cover
EBIT
Interest Expense
1,500,000
2,500,000
750,000
90,000
2,000,000
60% 3,000,000
8.33
Page 39 of 215
6.00%
67%
750,000
120,000
6.25
CMA know how business doing; expanding operations accuracy

essential:
In Business: Accounting Costs value of resource used up in
operations an Asset or an Expense (Econ: Opportunity Cost)
Costs in Short Run at least one FofP is fixed
Long Run:
Fixed Costs remain the same in the short run
Stepped costs (draw graph)
Variable Costs change as output rises
Semi-variable Costs not entirely fixed or variable i.e. Labour;
telephone
Total Costs = Fixed Costs + Variable Costs
Costs in Long Run all Factors of Production can change
Costs can be classified differently (i.e. Fixed/Variable/etc)
Direct Costs: with the Product or Process
Indirect Costs / Overheads: Running the business as a whole
Average / Marginal Costs same idea / method as Economics
Prod/Sell/Admin/etc; product/job/contract (however serves
management)
Total Revenue (Quantity sold x Price)
Total Revenue Total Cost = Profit / (Loss)
Page 40 of 215

Adjustments in price or costs may impact profits, may be temporary
Quality profits several/many years
Cost and Profit Centres
Management looks at costs / revenues different ways to make

decisions
Cost Centres: parts of businesses that incur costs: Product;
Department; Geographical location; employee; etc.
Profit Centres similar, but where revenues are also recorded
Advantages
Disadvantages
Improve accountability
Help in decision making
Improve motivation
Trace problems
Internal conflict
Cost allocation
Factors outside the
business
Inefficient use of resources
Staff Pressure
Contribution
Contribution per Unit = Selling Price Variable Costs

(Different from Profit, which includes both fixed and variable
costs)
Total Contribution = Contribution per Unit x Quantity Sold
Total Contribution Fixed Costs = Profit
Contribution is contribution towards fixed costs and profit
A business may use Contribution for:
Decision making (Product A or B, or, accept or reject orders)
Calculating Break Even Point
Pricing
Costing Methods
To provide managers with info for decision making

ABSORPTION Costing (aka FULL, TOTAL) Method for overheads
Page 41 of 215

Spread or allocate overhead/indirect costs to different cost/profit
centres
Could be allocated based on: Revenue; Direct costs; staff numbers;
floor area; Cost or book value of assets employed; etc. (Problem in
Tutorials)
Standard Costing Method set up estimates and compare to actual
P 366, Table 52.7 Simple illustration
Contribution or Marginal Costing last week
Good for making special order decisions
Relationship between marginal and average costs
Marginal cost cuts AC curve at lowest point
Closing Down Point where MC = AVC
Page 42 of 215

Tutorial
P 275, Q 1
P 276, Q 2
P 283, Q 1
P 366, Q2 Absorption / Full / Total Costing
(a) Suitable basis for apportioning costs
Rent and electricity - floor space
Administrative costs - staff
(b) Apportionment
Food
Women's
Staff
12
8
Floor Space
800
600
Direct Costs
Allocate Costs
Rent & Electric
Admin
Men's
4
600
Electric
6
400
Toys
Total
6
200
36
2600
400,000 200,000 100,000 200,000 100,000
1,000,000
92,308
69,231
69,231
46,154
23,077
66,667
46,154
46,154
30,769
15,385
558,974 315,385 215,385 276,923 138,462
300,000
200,000
1,500,000
P 368, Q 4
Price
4.00
Quantity 100,000
Sales
400,000
Cost of Sales: Materials & Components
0.70
70,000
Direct Labour
1.60 160,000
Other Variable Costs
0.50
50,000
2.80 280,000
(a)(i) Gross Profit / Contribution
120,000
Fixed Costs
80,000
(a)(ii)
Net Profit
40,000
Export Costs
(b)
(c) (downside) Difficulties and risks of exporting
(upside) Potential for developing new business
Q: Are Export Costs fixed costs or variable costs??
A: Although not expressed as a cost per unit, the Export Costs are
still variable costs.
Page 43 of 215
3.50
20,000
70,000
14,000
32,000
10,000
56,000
14,000
13,000
1,000
Importance of Cash (discussed in section on Working Capital)

Cash Flow Cycle: Cash Resources Production Sales Cash
Important to Control Cash flow by: records; planning; controls on
credit
Cash Flow Forecast: predicts of what might happen in the future
Pp 322-323 Sections: Receipts; Payments; Net Cash Flow; Ending
bals
Uses
Identify when there may be cash shortages or surpluses
Supporting applications for credit banks may request info
Help with planning / starting a new business
Monitor cash flow (at year end)
Reliability depends on accurate, unbiased information
Cash Flow Statement Table 46.4 (P 326)
Its required in published Financial Accounts (with BS and P&L)
Sections: Operating Activities; Returns on Investments and servicing
of finance; Taxation; Investing activities; Financing
Also required: calculation of net cash flows from operations Table
46.5
Criticism of Cash Flow Statement
Doesnt give very much information
Small companies not required to prepare them
Based on historical transactions / future predictions more useful
Differences between cash and profit

Timing of transactions
Purchase of Fixed Assets
Company borrowings
Page 44 of 215

Owners introduce Capital
Budgets
An agreed plan (different from a Projection); different levels, by
executives, management, supervisors and employees; approved
throughout all levels
Preparation of Budgets
Accurate information: F/Ss (past); Forecasts (future)
Master / Departments, subsidiaries
Approaches to budgeting
Objectives Budget / Flexible Budget
Capital Budget / Operating Budget
Problems of preparing Budgets
Figures based on prior information, sales levels, etc
Management and coordination of process / Conflict
Time consuming
Sales / Revenue budgets and Production Budgets explanations,
examples
Zero-based budgeting budget process that includes justifying with
benefits
(Different from basing on historical costs and forecasts)
Benefits
Helps improve allocation of resources
A much more careful approach
Creates alternatives
May improve motivation
Drawbacks
Threat to status quo motivation
Difficult skillful
Too careful a process may miss
certain opportunities
Budgets in general
Benefits
Helps with control, especially
spending
Sets clear targets, responsibilities
Drawbacks
Competitive empees
problems
Being too inflexible
Page 45 of 215
Helps ensure capital is usefully

employed
Helps: co-ordination; communication
problems
Too large differences may
hurt effectiveness of budget
process
Variances: differences between budget and actual (also later in

course)
Type
Favourable (better)
Adverse (worse)
Sales / Revenue
Higher
Lower
Costs / Expenses
Lower
Higher
Cash Flow Tutorial
P 325, Q 2
Budgets Tutorial
P 326, Q 3
P 333, Q 3
Page 46 of 215
Break Even Analysis

The point where Total Revenue = Total Costs
Break Even Point = the Quantity of goods needed to sell to break
even
Uses of Break Even Analysis:
How much sales are needed to cover fixed and variable costs
How different levels of output affect profit
How changes in price or costs affect Break Even Point & Profit
TC
TR
Output
Example Data: Price = 100 ; Variable Cost = 40 ; Fixed Costs =

60,000
Calculate BEP using Contribution
Break Even Point = Fixed Costs Contribution

Contribution = 100 40 = 60
Page 47 of 215

Break Even Point = 60,000 60 = 1,000 units
Calculate BEP using Total Revenue and Total Cost
Break Even Point: Total Revenue = Total Costs

Total Revenue = Price x Quantity Sold
Total Cost = Fixed Costs + Variable Costs
Total Revenue = 100 x Q
Total Cost = 60,000 + (40 x Q)
60,000 + (40 x Q) = 100 x Q
1,000 = Q
Margin of Safety Difference between level of output and Break
Even
Advantage: a good tool for viewing changes (What ifs): Price; FC;
VC
But it has some limitations (refer to P 289)
Applications of Break-Even Analysis
Page 48 of 215

Example
Facts:
Fixed Costs
20,000 p.a.
Variable Costs
75 EachTR = TC
Selling Price
125 Each
First, Calculate Break Even Point
TC = 20,000 + 75Q
Now, what if they want to figure price?
TR = 125Q
Price = Total cost / Output
20,000 + 75Q = 125Q
= (20,0000 + 500x75)) / 500
20,000 = 125Q - 75Q
= (20,0000 + 37,500)) / 500
20,000 = 50Q so 400 = Q
= 115
Draw Chart (show margin of safety)
Now, assume profit of 15,000
Now, add Profit
FC + Profit Target / Contribution
Assume output of 1,000 & profit = 40,000
= 20,000 + 15,000 / 50
Price = (Profit Target + total cost) / Output
= 35,000 / 50 = 700 Quantity
= (40,000 + (20,0000 + 1,000x75)) / 1000
= (40,000 + 95,0000) / 1000
= 135
So far:
Calculate BEP using Total Revenue and Total Cost
Target rate of profit:

(Fixed Costs + Target Profit) Contribution
Break Even Price:
Total Cost Output
(Total Cost + Target Profit) Output
Summary of CMA
Overview of Cost Management Accounting for Managements needs
Financial Accounting mentioned: Cash Flow; Budgets
Funding structure
Ratio Analysis
Different types of costs
Cost and Profit Centres
Contribution Costing; Break even analysis
Page 49 of 215

Absorption costing; Standard costing; Closing point
Variance Analysis
Budgetary control
Preparing Budget / then comparing Budget to Actual / Variance
Analysis
Adverse / favourable
Profit Variance
Direct Materials Variances: Price (cost) / Usage
Direct Labour Variances: Wage Rate / Labour efficiency
Overheads variances
Sales Margin Variances: Price / Volume
Cash Variance
Tutorial
P 376, Q 1
P 378, Q 3
Tutorial
P 287, Q 2, Q 3
Page 50 of 215
TC
TR
Output
Page 51 of 215
How a business organization is structured

Formal Organization: Relationships; Control; Authority to make
and carry out decisions; communication
Organization Charts: Positions; Communications; Weaknesses
(draw)
Hierarchy the order or levels of management
The Chain of command Orders pass down / information passes
up
Span of control number of subordinates under a manager
o (Some say should be between 3 to 6 people narrow)
o Narrow may be very expensive.
o Wider gives broader control, maybe more satisfaction to
manager.
Responsibility being required to justify an action
Authority the ability and or formal permission to carry out a task
o Line authority manager over subordinates hierarchy
o Staff authority manager or department can give advice to
people in other departments
o Functional authority specialist gives advice to other
departments
Delegation passing authority and/or responsibility for some
tasks to employees further down the hierarchy:
o Planning; Clear explanation and instructions, explaining
why; Delegated Employee must also have authority and
responsibility; Managers should avoid interfering with
delegated task provide support and resources; Establish a
Page 52 of 215

way to oversee at certain points; Empower employees
(self-confidence and control)
Centralization and Decentralization explain, then benefits below
Centralization
Sr Mgmt have more control
Standardizing econ of scale
Decisions Pt of view of whole
Sr Mgmt more experienced
Crisis strong leadership
Communication easier / fewer
decision makers
Decentralization
Empowers / motivates
workers
Reduce burden on Sr Mgmt
Greater job satisfaction
Benefit from local knowledge
More flexibility,
responsiveness
Prepares subordinates to
move up
Different forms of structure (P 414)

Entrepreneurial Structure
Bureaucratic, pyramid, hierarchical structure
Matrix Structure
Independence Structure
Informal Business Structure Advice, trust, communications
Factors influencing organizational structure
Size
View of ownership or management
Business objectives
External factors
Changes in technology
The informal business structure
The corporate culture
Recent trend delayering
Tutorial Case study, P 417
Page 53 of 215
Financial Rewards: / Methods of Payment

Time Rates: Weekly wages; Monthly salaries; overtime
Annualized hours contracts: compute annual hours, work time
flexible
Piece rates: pay by results, incentive / target
Commissions
Fees for single (one-off) tasks
Fringe Benefits other things besides wages or salaries.
o Salary may be limited due to contract caps or industry
standards
o Empor may be able to pay less for some Fringe benefits
o Some may avoid National Insurance or Income Tax
Employer Considerations regarding Pay:
Motivate employees
Costs
Prestige
Recruitment and labour turnover
Control
Employee Considerations regarding Pay:
Purchasing power affording to buy / have what they want
Fairness of pay for work performed
Relativities pay comparisons between employees
Recognition of their contribution to the company
Composition of compensation package / Salary to fringe benefits
Incentive Schemes
Page 54 of 215

Individual Output Schemes: Piece Rates; Performance Related Pay
(PRP); Commissions
Collective Output Schemes: Measured daywork based on overall
daily output; Profit Sharing for Partners, Managers, etc; Profit
related pay cash bonuses for employees; Share ownership
Employee Input related schemes: Merit Pay (based on employees
behaviour and conduct); Skills-based pay (based on capabilities)
Problems with Incentive Schemes
Operations poorly run business may interfere with employees
Earnings schemes may cause costs and earnings to fluctuate
Quality Control excessive outputs may lead to decreased quality
Changes to keep the system clean may cause confusion
High pressure may decrease quality of working time
Worker jealousy
Performance measurement standards
Team incentives / some members work harder
Some question effectiveness of incentives, yet they are still
necessary
Tutorial:
Read and analyze: Case Study, P 434
Page 55 of 215
Management and Leadership

Managers are responsible for getting things done:
Planning;
Organizing;
Commanding;
Co-ordinating; and
Controlling
Leadership know what direction to take; plan; persuade others to
follow
Qualities of Leadership:
positive self-image;
ability to deeply analyze situations (get to the core) and
recommend solutions;
high level of knowledge;
sense change and respond.
Leaders adopt different styles: Delegating; Participating; Selling;
Telling
Different Leadership styles:
Autocratic sets goals and delegates tasks demands obedience. If
members become dissatisfied, dont work together well, requiring
much supervision, poor motivation
Paternalistic similar to Autocratic, except they have a high level of
concern for their subordinates. May decrease dissatisfaction and
supervision, may improve working well together and motivation.
Page 56 of 215

Democratic encourage participation in decision-making: The leader
must be persuasive and/or consultative at the same time (to
convince workers to follow his plan). Needs good communication
skills. May be a more effective because: workers can participate in
the process a sense of freedom; effectively uses collective
knowledge and wisdom of the members; generates greater sense of
commitment and motivation.
Laissez-faire (pronounced Lay say fair) allows workers to work
freely within broad limits, with few guidelines and directions. Much
more creativity, relaxed atmosphere. Sometimes may result in poor
productivity, lack of motivation.
With the effects of job re-design, delayering, etc, managers are
more team-based leaders. Need to select, coordinate and manage
groups, dealing with all those related issues
Leadership styles are often determined by an individuals
personality, and people dont often change easily. So companies
should select managers based on the jobs requirements
Leadership Matching either task oriented or relationship oriented
Sometimes different Leadership styles called for in different
situations:
Certain tasks (emergencies);
Skilled / unskilled workforces;
Size;
Personality of the leader;
personalities in the group;
Time constraints
Effective Leading is the most important
Page 57 of 215

Tutorial
P 446, Q 4, a together
Combination of Democratic and Laissez-faire
Human resources important effective management strategic
implications
Soft Side
Motivation; Organizational
culture; Support for employees;
employee and industrial relations
Hard Side
Assessing needs for staff;
predicting future demand and
supply of personnel; predicting
turnover
Factors affecting HRM:

Changes in: goals; consumer market; technology; Legislation;
Finances
Competition for: labour; Customers
Population: Activity; ageing
Corporate culture and structure
Trade Unions
A strategic approach to HRM
integrate into planning & coordinate with other functions
Corporate Culture sees employees as important
Motivation: incentives; involvement
Encourage work flexibility: change jobs, methods, etc
Flexibility in staffing: natural wastage, voluntary redundancy;
early retirement; redeployment
Advantages of strategic approach long term benefits
More competitive through greater efficiency
May be able to better solve HR problems
Anticipate changes in workforce and needs
Prevent industrial relations problems
Page 58 of 215

Effects of good Human Resource Management policies:
Reduced Labour turnover: lost productivity; cost of recruiting,
training. HRM should try to identify potential problems
Absenteeism: Lost productivity / output; late order fulfillment;
cost of off-time; low morale.
Labour productivity = output / Number of employees increased
Turnover per head = sales / Number of employees reduced
Strong Industrial Relations: less disputes, strikes, grievances
Relations with stakeholders
Profitability all this will affect profitability
Flexible workforce many schemes (textbook). May help: increase
worker satisfaction and motivation; allow company to better plan for
changes; decrease overtime and shift work costs.
Relocation moving production to different areas or countries
Outsourcing shifting production to other companies efficient
Knowledge Management identifying and using internal knowledge
Unit 63 HR Depts main function is managing HUMAN RESOURCES
Human Resource Plan: Forecast Empee demand (w/depts); plan
supply
Analyze: past information, incl. business and managements
knowledge; worker productivity; work study (how many staff /
task)
Calculate staff losses
NUMBER OF STAFF LEAVING
LABOUR TURNOVER INDEX =
AVG NO STAFF DURING PERIOD
x 100
Analyze current employee supply detailed: age, position, term,

qualifications, performance; determine internal / recruiting
Page 59 of 215

Plan internal employee supply: Promotion; Staff development and
training; staff loss and retirement; flexibility (e.g. change work
hours, work teams, multiskilling, etc); legal issues (redundancy /
severance)
Plan external employee supply: availability of workers (incl.
flexible); skills needed available; govt training, subsidies;
workplace competition; population, demographics;
unemployment; housing & public transport; costs; government
legislation
Page 60 of 215
Representation at Work
Types of representation: Trade Unions, Staff associations,
Professional Associations; Employers Organizations
Trade Unions developed over last several hundred years
3 Types: Craft, Industrial, General.
Represent members (workers): salary, benefits, working conditions,
etc.
All Trade unions formally registered; may join Trade Union Congress
Recently, powers decreased, role has changed:
UK passed legislation to reduce their powers; plus: economic,
demographic, memberships, have changed: number of unions,
membership and density.
To retain benefits and power, they: gave up single-union
representation, limited / eliminated strikes, accepted binding
arbitration, etc.
TUC (Trade Union Congress): represents all major unions; more
recently, also has a political and social function
CBI (Confederation of British Industry) represents businesses:
legislation; legal, financial, economic support and advise
Industrial Democracy, Bargaining, Consultation &
Participation
Business / employee conflicts: pay; conditions; flexible work; etc.
Industrial relations to resolve these issues without industrial
action.
Page 61 of 215

Collective Bargaining: Conditions and Terms negotiated by company
and union representatives (for employees).
Employers must allow Employees to join trade unions.
Unions: should be independent of both the company and the state,
and must represent employees in good faith.
All parties must agree to and be bound by negotiated results
Negotiations can be: international, national, local, factory / plant,
individual
Negotiations a process:
Set Agenda (this is done by both parties; all other steps are taken
by each side separately in preparing for the negotiations)
Gather Information
Set Strategy: objectives; roles; predict response of other side,
planning
Assure Unity
Plan size of group
Plan the stages of negotiation
Plan how decisions will be made
Prepare a statement at the end of negotiations
Reps committing to get their side to accept
Consultations:
Joint Consultation: Management, worker reps; common issues; before negotiations
Pseudo-consultation: management decides, informs employee

reps, no power to influence them (looks negotiated, but really not)
Classical consultation: involve empee reps; influence mgmts
decisions
Integrative consultation: actually bringing in employees,
discussing matters of common concern, etc
Page 62 of 215

ACAS (Advisory, Conciliation and Arbitration Service): mediates
when consultations & negotiations fail. Other services: Arbitration;
advisory work; Codes of practice; help businesses improve
personnel, mgmt practices
CAC (Central Arbitration Committee): government office; responsible
for union recognition when employees want it, but employers resist
Industrial democracy: Nowadays Employees participate in decisions
in many ways: Work groups; Team-working; own shares of the
company; participate in Employee Work Councils (consult, discuss,
transfer information)
Industrial Democracy depends on: Laws, rules, regulations;
corporate culture; empee power and/or union representation;
communication, IT; etc.
More employee participation and industrial democracy:
Drawbacks: hierarchical businesses may
Advantages: increase motivation;
not adapt well; can increase costs; may
new, different or better ideas;
better industrial relations (all sides lead to conflict management may not
want to accept
take a longer-term view; may
make mgmt respond better to
employee needs
Industrial Actions (IA)
Industrial Actions
resolved
Employers:
Reduce
overtime,
benefits
Chg. standards /
piecework rate
Lock-outs;
closures of
can be taken by either side, when conflict not

Employees:
Unorganized/Unofficial:
Employee responds, often unplanned, the
only way he knows how
High turnover; absence; inefficiency or
wasting time; unofficial strikes
Not very effective, but, sometimes can lead
to follow up organized / official actions
Page 63 of 215

factories
Hire other
workers in the
situation where
union workers
go on strike
Organized/Official:
Work to rule or Slow go
Stop working Overtime (ban)
Sit-in or work-in
Strike
Industrial action has risk. Factors that may influence success or

failure:
Strength and size of union or business; How well workers and/or
union is organized; Location of workers (very spread out means less
effective); Public support; Actions of management; Laws; Economic
situation
Benefits of IA
Brings grievances
out into the open
Management can
better understand
employees position
Can help change
rules
Management may
adjust company
goals
Problems with IA
Employers problems:
Lost production / late or lost orders
Lost revenue to pay for idle fixed assets
Future relations hard feelings
Shift mgmt attention away from
planning
Harmful to companys reputation
Employees Problems:
Lost earnings
Closure (in the event of a long action)
Stress relations w/workforce, motivation
If unsuccessful, may weaken future
positions, lead to losing union members
Not w/in law? damages, discipline,
dismissal
Tutorial
P 538, Q 2
P 539, Q 3 at least 35 minutes (Read the question w/students)
Page 64 of 215
Equal Opportunities qualified people should have same chance

UK and EU laws protect people from discriminatory hiring practices
Discrimination, often due to stereotypes, can take the following
form:
Group
Stereotype
Women
Not want to take responsibilities / home; less likely to
relocate; women with children / relocation; more
emotional; weak
Minorities Religious holidays; less educated; different (fear)
Disabled
Less capable than those without disabilities
Elderly
Less adaptable; difficult to learn new technologies
Women at work
Ongoing discrimination / statistics
Some improvements
Earnings still lower

Flexible work, legislation, chgs in
Industries (construction)
demographics lead to higher
mgmt jobs still dominated by
employment for women
men
Child care (crche), home work
Low-paying occupations
In general, the gender gap
generally dominated by w
narrowing in employment and
Full-time work% lower for w
job seeking statistics
Work% lower, w with kids
Many laws make it illegal to discriminate based on gender, marital
status
Statistics suggest that Ethnic Minorities are discriminated against Illegal to discriminate based on colour, race, nationality, ethnic origins
Disabled people long term problem affects their ability to do dayto-day activities. Illegal, to treat disabled less favourably unless
justified.
Older people general protection from discrimination
Page 65 of 215

Businesses that seek employment without discrimination:
Get a better, more qualified and more flexible workforce
Higher motivation if everyone feels they will be considered for
promotion
Protection at work broad category
Employment Protection: Right to employment contract; freedom
from discrimination; from unfair dismissal for various reasons, with
recourse Labour Tribunal, detailed procedures.
Health and safety: Clean, sanitary, comfortable working conditions.
Safety equipment, clothing and training. Safe procedures for
dangerous materials. Safety from violence or threats. Legislation:
written Health & Safety Statement management required to
follow. Inspections to guarantee. Laws about working time
limitations and time off.
Wages: Wages Act, 1986 sets rules and conditions for paying
wages and procedures for enforcing those rights.
National Minimum Wage Act, 1998: established curr. minimum
wage rules; reduce poverty, inequality; increase motivation in the
workplace.
Social Chapter (EU): Standardizes work practices throughout the
EU, including: minimum wage, maximum working hours per week,
paid holidays, etc.
Introduced European Works Council (EWC) to negotiate contracts,
set and revise minimum wage.
Contained in the Maastricht Treaty, by EU, signed in 1992. UK joined
in 1997, when current Labour government came to power.
Personnel data: Protect, safeguard and keep confidential / personal
info / electronic and hard data. Companys Motivation: Increased
Page 66 of 215

empee motivation; Legislation / consequences; losing employees
can mean costly recruitment, disruption, poor working conditions /
productivity. Some businesses do not adequately protect Pers. Data
mainly because of cost
Benefits / Advantages
Disadvantages
Improve motivation, productivity Raise costs, restrict flexibility
Improve industrial relations
Reduce EU competitiveness
Page 67 of 215
Business and Consumer Protection

Undeveloped economy caveat emptor = buyer beware
Now with big businesses, too easy to take advantage of consumers
Consumer Protection Legislation a series of laws to protect
consumers:
weights and measures
false or misleading descriptions
unsolicited goods
product safety
services
food safety, labeling
Effects of consumer protection laws on business:
costs
quality control
deal with consumer complaints
changes to more market-oriented practices
Monopolies and Mergers weve looked at the benefits and criticisms
Restrictive Trade Practices can reduce or prevent competition
As a result, the UK has passed various forms of Legislation
Office of Fair Trading promoting and protecting fair trading
practices
Competition Commission a promote and protect competition
Page 68 of 215

The EU has similar practices
Regulatory bodies an entire list of offices, commissions, etc to
enforce the fair trading practices in different industries
Private Sector Businesses

Types of business form:
Unincorporated: Sole Trader; Partnerships
Benefits: Lower Costs; Maintain greater control
Incorporated Limited Companies
Private / Public Limited Companies
Benefits: Personal liability protection; Ability to grow; Raise
money
Disadvantage: Public may lose some control
Co-operatives: Consumer; Worker
Building societies, friendly societies (banking/financial services);
Franchises; Charities
Choice of business form based on: control; kind of business; timing /
age of company; financing needs; liability protection
Business Size, Growth and Economies of scale
Defining size: Turnover (Sales); No. of Employees (m9; s49;
m249; l); Capital Invested; Profit; Market Share; Market
Capitalization (share price x stock outstanding)

Reasons to Grow: Survival; Economies of Scale; Future profitability;
Gain market share; Reduce risk
Internal / Organic growth: sell more / do more business
Page 69 of 215

External Growth: Acquisition; Takeover; Merger
Internal Economies of Scale: Technical efficiency (increased
dimensions; indivisibility; law of multiples matching (machines,
processes) of different rates to maximize use; Managerial; Financial
(wider range of options); Purchasing and marketing; risk.
External Economies of Scale savings from industry growth: Labour;
Services; co-operation
Limits to growth: Internal dis-economies of scale; External diseconomies of scale (Market limitations; funds; geographical)
Still, small firms survive: Personal services; Owners preference;
Flexibility and efficiency; Lower costs; low barriers to entry; can be
monopolists. Unemployment, government schemes, other economic
factors make small firms popular: they: increase flexibility; help
balance (lower) wages, create casual and part-time jobs; etc.
Valuation and manipulation of accounts
Valuations: Sale; takeover; Mergers; Mgmt. buyouts; public
offerings (floatations); loans; etc
Various regulatory standards for preparing accounts
Reasons for manipulating accounts:
Companies increase values: current, future investors; affect stock
price; market position; avoid takeovers.
Companies reduce values: avoid taxes
Methods of manipulation: depreciation; creditors & debtors; stock
valuation; write-offs; profits
Methods of valuation: a guide only; valuation always willing buyer /
seller
Business Stakeholders
Holding a financial interest in the success of the business
Page 70 of 215

Involvement with the businesss activity: Owners; Entrepreneurs;
Shareholders (can include Directors, Managers, Employees,
Individuals, Institutions); Managers; Employees; Customers;
Suppliers; Governments; Community. They have an
Interdependence
Conflict can occur when their Objectives are different. Examples are:
Owners and Managers; Owners and Employees; Consumers;
Suppliers; Community
Stakeholder Approach taking into account the needs, wants,
desires and objectives of all stakeholders.
Page 71 of 215
The Role of Business Objectives in setting Business Strategy and

Planning
Business Objectives outcomes, goals, targets that s/b SMART:

Survival (start-up, difficult trading times, takeover threat); Profit;
Growth; Increase Shareholder Value (public companies); Sales
Maximization; Image, Reputation and Social Responsibility
corporate culture
Managers objectives (budget; department; salary; benefits; status)
The players = all the stakeholders
Operations objectives: change focus; product lines, etc
Public sector objectives: change image; improve service levels
Influences on Businesses objectives: Owners; different stakeholders
powers; size; status; short- / long-term considerations; internal /
external pressures
Mission statements Writing out of the aims of the business: focus
all stakeholders; provide a general plan, etc (many feel they are
much the same; may have little effect on the business; more
publicity-oriented)
Strategy and Planning
Identifying Objectives: strategic; tactical; and, operational
Different Business Strategies: functional; business level; corporate;
global
Must suit the Corporate Culture (values) of the organization
Page 72 of 215

Strategy a pattern of decisions and actions to achieve objectives
Planning decide what to do, set objectives, set policies to achieve
them, involves: Analysis; Developing strategies; implementation;
Evaluation
Effective planning and strategy based on: clear Purpose; strategic Vision (creative idea or imagination about the business); strong
Commitment to achieve goals; gearing strategies to customers; achievable timing; enough flexibility to modify details, stay on course; and,
plans must be suitable based on the different department players
Effective Planning, including for Contingencies minimize the effects

of unexpected crisis: legal, financial, production, corporate, image,
etc.
Analysis methods:
SWOT Analysis Internal: Strengths, Weaknesses; External:
Opportunities, Threats
Pest-G (external factors): Political; Economic; Social; Technological;
Green
5 Forces Model (competitive forces): new competitors; established
firms; buyers; suppliers; substitute products. The stronger the forces
are, the more difficult it is to raise prices and profits.
Industry structure analysis: competitors; suppliers; substitution;
potential entrants.
Competitor analysis: assess rivals to determine strengths,
weaknesses
Also Product Life Cycle and Product Portfolio analyses
Cost and Value analysis (where value added and where value lost)
Developing and implementing strategies, evaluate the results
Strategies to improve Function and Operations (generally one area)
Page 73 of 215

Production: economies of scale, or, streamlining the process
(lean); quality control Total Quality Management (TQM) groups,
in process
Marketing: research to better meet customers needs; customer
service/ response through better distribution
HR: forecast changes in staffing requirements; motivation;
training
Other: R & D; waste management
Business Level / Generic strategies: Cost Leadership; Differentiation;
Focus (segment, consumer group); New product development;
Market entry and penetration; Market development and domination;
Consolidation (preserve place in market); Diversification (extend
range of products, services); etc.
Corporate strategy: Internal development; Takeovers, mergers &
acquisitions; Collaboration (working with other companies in some
form)
Global: different strategies that can take advantage of the
companys unique strengths; can reduce costs.
Implementing strategy: how to organize itself to carry out the
strategy (structure, hierarchy, function, region, product, customers,
etc.); set up control systems to encourage and monitor the activities
(financial, output, leadership, rewards, etc); how to implement the
changes
Evaluating strategy first set SMART targets, can be Earnings or
Profits; Return on Capital; Volume; or, Costs. Will need comparison
information. May also make use of qualitative information.
Page 74 of 215
Business Ethics
Ethics motivations based on ideas of what is right and wrong
Business Ethics how ethics operates in business (i.e. damage
health, environment; product quality; community work, charity;
etc.)
Laws attempt to control the letter / spirit of the law, still room
Impact of Ethical behaviour on the business:
Now, consumers are watching for this more (customers/sales)
HR / Staffing more able to recruit staff
Employees better respect their company and will work harder
Effects of Ethical behaviour:
Increased costs: expensive supplies; pollution control
Loss of business: may have to turn down jobs
Conflict: shareholders or other stakeholders vs. profits
Business practices may need to change
Relations with suppliers may be tested
Should business act ethically?
Page 75 of 215

Yes: Businesses are part of a society, probably already making
profits, think about effects of their decisions on environment,
community, etc.
No: Free market economists produce most efficiently; businesses
want profits, nave to think otherwise.
Not clear whether businesses becoming or looking more ethical.
Major stakeholders often too motivated by profits, greed.
Corporate Responsibility
Companies take into consideration the needs of its stakeholders
Willing to be responsible for and justify its actions.
Ways society encourages companies to be responsible:
Laws enacted and enforced (letter / spirit)
o But actions may take place outside boundaries
Business can self-regulate (usually to avoid laws, be more in
control)
Market pressures force responsibility (if public has enough
information to judge; if activistic enough to take action; if
willing to pay price)
Pressure groups activists willing to speak out and take action
Barriers to Corporate Responsibility
Will increase costs, reduce profits
Senior management may have different values and beliefs
Difficult to monitor without information kept confidential
A company that takes Responsibility may have to change its:
objectives; operating methods; relationships with stakeholders; etc
Social Auditing (different from a financial audit) looks at
responsibility criteria to see its: ethics; social performance
Page 76 of 215

(measured and checked); salary levels; health and safety standards;
employee motivation; etc.
Benefits of Social Auditing: employees at all levels get better view of
company; identify social strengths, weaknesses; deal with
shareholders, outside parties; pressure groups; etc.
The main weakness in the Corporate Responsibility Approach is that
it may just relate to things on the surface, things that do not relate
to the core business the company operates. In addition, the Social
Audits are performed by the company and look at only those things
the company wants to look at.
Business and the Environment
Costs and Benefits of Business activity
Private Benefits = profits, dividends, etc. Private Costs +
Externalities = Social Costs.
Negative externalities cost to the rest of society
Environmental costs: Air pollution; water pollution; congestion and
noise; destroying the natural environment; loss of arable land;
desertification; waste disposal
Controlling Environmental costs: Regulation; taxation; Permits;
compensation; government subsidies; road charges; Park and ride
schemes; education; pressure groups; environmental audits.
With environmental awareness growing Businesses may need to:
Change production processes or materials
Change practices, such as how they dispose of waste
Spend more on research and development
Face higher costs
Work more closely with pressure groups
There may be benefits:
Page 77 of 215

Reduced costs: energy efficiency; recycling
Attract customers and others who approve of their practices
Conservation
Business opportunities
Summary:
As environmental awareness grows Businesses may need to: Change
production processes or materials; Change practices, such as how
they dispose of waste; Spend more on research and development;
Face higher costs; Work more closely with pressure groups
Conservation conserving resources, promoted at all levels
Business opportunities a competitive environment entrepreneurs
see opportunities.
Page 78 of 215
Business Ethics
Ethics motivations based on ideas of what is right and wrong
Business Ethics how ethics operates in business (i.e. damage
health, environment; product quality; community work, charity;
etc.)
Laws attempt to control the letter / spirit of the law, still room
Impact of Ethical behaviour on the business:
Now, consumers are watching for this more (customers/sales)
HR / Staffing more able to recruit staff
Employees better respect their company and will work harder
Effects of Ethical behaviour:
Increased costs: expensive supplies; pollution control
Loss of business: may have to turn down jobs
Conflict: shareholders or other stakeholders vs. profits
Business practices may need to change
Page 79 of 215

Relations with suppliers may be tested
Should business act ethically?
Yes: Businesses are part of a society, probably already making
profits, think about effects of their decisions on environment,
community, etc.
No: Free market economists produce most efficiently; businesses
want profits, nave to think otherwise.
Not clear whether businesses becoming or looking more ethical.
Major stakeholders often too motivated by profits, greed.
Corporate Responsibility
Companies take into consideration the needs of its stakeholders
Willing to be responsible for and justify its actions.
Ways society encourages companies to be responsible:
Laws enacted and enforced (letter / spirit)
o But actions may take place outside boundaries
Business can self-regulate (usually to avoid laws, be more in
control)
Market pressures force responsibility (if public has enough
information to judge; if activistic enough to take action; if
willing to pay price)
Pressure groups activists willing to speak out and take action
Barriers to Corporate Responsibility
Will increase costs, reduce profits
Senior management may have different values and beliefs
Difficult to monitor without information kept confidential
A company that takes Responsibility may have to change its:
objectives; operating methods; relationships with stakeholders; etc
Page 80 of 215

Social Auditing (different from a financial audit) looks at
responsibility criteria to see its: ethics; social performance
(measured and checked); salary levels; health and safety standards;
employee motivation; etc.
Benefits of Social Auditing: employees at all levels get better view of
company; identify social strengths, weaknesses; deal with
shareholders, outside parties; pressure groups; etc.
The main weakness in the Corporate Responsibility Approach is that
it may just relate to things on the surface, things that do not relate
to the core business the company operates. In addition, the Social
Audits are performed by the company and look at only those things
the company wants to look at.
Business and the Environment

Costs and Benefits of Business activity
Private Benefits = profits, dividends, etc. Private Costs +
Externalities = Social Costs.
Negative externalities cost to the rest of society
Environmental costs: Air pollution; water pollution; congestion and
noise; destroying the natural environment; loss of arable land;
desertification; waste disposal
Controlling Environmental costs: Regulation; taxation; Permits;
compensation; government subsidies; road charges; Park and ride
schemes; education; pressure groups; environmental audits.
With environmental awareness growing Businesses may need to:
Change production processes or materials
Change practices, such as how they dispose of waste
Page 81 of 215

Spend more on research and development
Face higher costs
Work more closely with pressure groups
Conservation
Business opportunities
Summary:
As environmental awareness grows Businesses may need to: Change
production processes or materials; Change practices, such as how
they dispose of waste; Spend more on research and development;
Face higher costs; Work more closely with pressure groups
Conservation conserving resources, promoted at all levels
Business opportunities a competitive environment entrepreneurs
see opportunities.
Page 82 of 215
SLIDES
Slide 1
Business Stream
Introduction to Courses
Business Studies
Slide 2
Supplies
Be prepared!
A4 Notebooks
Pencils / Pens
Ring binders with dividers
Hole punch
Ruler
Calculator
Stapler
Page 83 of 215

Slide 3
Business Vocabulary
Constantly learning new words
Responsible for:
Spelling
Pronunciation
Form
Definition / explanation
Usage
Must keep and update a business vocabulary
Slide 4
Sample Business Vocabulary
sole trader
noun
/sol/ /tredr/
A business started and run by one person
Bill Gates started his business as a sole trader.

Now it is a multi-national corporation.
Slide 5
Conducting of Courses
Lectures / Tutorials
Take notes always have notebooks
Class participation
asking questions
answering questions
Homework collected and marked
Regular testing
Page 84 of 215

Slide 6
Other Rules of Class

Be here, be on time!
Handle personal matters before / after class
No talking, unless instructed
Ask teacher about what you dont understand
No word finders (ask teacher)
No mobile phones
Assigned seating
Slide 7
Assessment
Assignments (2)
10% each
Term 1 End of Semester Exams
Final Exam
Total
Slide 8
20%
10%
70%
100%
Predicted Grades
For university selection and applications
Based on:
Term 1 Assignment
Results of Term 1 regular tests
Term 1 End of Semester Exam results
Homework
Class participation
Page 85 of 215

Slide 9
Predicted Grades
Method of calculation:
Term 1 Assignment
Term 1 EOS Exam
Total
Homework
Term 1 regular tests
Class participation
10%
10%
20%
80%
100%
Increase ?
These next 15 weeks the most important weeks of your life

your performance will determine your future!
Slide 10
Business Studies
Introduction to course
Slide 11
Start a Small Business

What functions does the owner perform?
Purchasing
Production
Selling
Promotion
Hiring workers
Financial
Administration
Page 86 of 215

Slide 12
Organized in an informal diagram

Purchasing
Administration
Production
Financial
Owner
Hiring
Selling
Promotion
The owner is responsible for everything!
Slide 13
As the Small Business Grows
More tasks performed by employees

Take direction from owner
Report to owner
Communication with other employees:
provide information
work together with
A more formalized diagram more clearly

shows how members of an organization work
together
Slide 14
An Organization Chart
for a Sole Trader
Owner
Purchasing
Sales
Promotion
Hiring
Financial
Administration
As the business grows and develops, operations and

communications become even more formalized.
Page 87 of 215

Slide 15
Organization Chart
Owner
Manuf acturing
Purchasing
Production
Marketing
Sales
Promotion
Administration
HR
Financial
Advertising
Slide 16
Topics to be covered
Term 1
Marketing
Accounting and Finance
Term 2
People and Organizations
Business and the Legal Environment
Basics of Business Management
Slide 17
Introduction to Marketing
Page 88 of 215

Slide 18
Marketing: The
management process used to
identify, anticipate and satisfy
consumer requirements
profitably.
Slide 19
Marketing: The management
process used to identify,
anticipate and satisfy consumer
requirements profitably.
management: the skill of

controlling or directing
Slide 20
process: a series of steps or

actions towards an end, a goal
Page 89 of 215

Slide 21
identify: to recognize or know
Slide 22
anticipate: to expect or to
realize before someone else does
Slide 23
satisfy: to fulfill a desire, a want

or a need
Page 90 of 215

Slide 24
consumers: people who use

products or services
Slide 25
requirements: a need, want or

desire
Slide 26
Basic Marketing Concepts

Product orientation
Market orientation
Both can be successful, but more difficult with
product orientation alone
Page 91 of 215

Slide 27
Basic Marketing Concepts

Consumers
An ongoing process
Relationship marketing
Business philosophy
Affects entire company
Not just selling
Not just advertising
Asset-based / Asset-led marketing
Slide 28
Concept of
Real Disposable
Income
Consumers income taxes + government

benefits
A rise in real disposable income causes:
Changes in tastes and fashions

New technologies
Increase in demand for G & S

Increase in economic growth
Increases in competition
Slide 29
Overview of Marketing Studies
Introduction
Market Analysis
Segmentation and positioning
Market research
Marketing objectives and strategies
The Marketing Mix
Page 92 of 215

Slide 30
Market Analysis
Slide 31
Market Classification
Characteristics:
Geographical
Goods
Industry
Size
Measured by value or volume
Problems with measuring size
Mass / Niche
Slide 32
Market share / market

penetration
Proportion of market held by a company
Important in judging:
Size
Growth
Page 93 of 215

Slide 33
Market Growth
Affected by changes in the following:
Economics
Social
Technological
Demographics
Legislation
Slide 34
Reasons for Growth
Slide 35
Economies of scale
Gain market share
Increase future profits
Reduce risk
Survival
Economies of scale
Internal
Technical
Management
Financial
Purchasing
Reduce risk through diversification
Page 94 of 215

Slide 36
Economies of scale
External
Labour availability
Outside services
Cooperation
Slide 37
Methods of company growth

Internal
Organic
Innovation
External
Merger
Acquisition
Limits to growth diseconomies of scale
Slide 38
Reasons small firms still survive
Personalized service
Flexibility
Efficiency
Lower costs
Easier to start up (low barriers)
Owners prefer to stay small
Page 95 of 215

Slide 39
Company
(Operating System)
2001 Sales
2001 Sales
Units
Mkt.
Share
Units
Mkt.
Share
Palm (Palm)
5,056
38.6
5,588
50.4
Handspring (Palm)
1,648
12.6
1,369
12.4
20.4
Compaq (Microsoft)
1,283
9.8
466
4.2
175.4
Hewlett-Packard (Microsoft)
Casio (Microsoft)
Others
Total Market
711
5.4
442
Sales
Growth
-9.5
4.0
60.9
529
4.0
440
4.0
20.4
3,884
29.6
2,777
25.1
39.9
13,111
100.0
11,083
100.0
18.3
Slide 40
Business Studies
2nd Term
Slide 41
Topics to be covered
Page 96 of 215

Slide 42
People and Organizations
Slide 43
Business & the Legal Environment
Slide 44
Organizational structure and design

Motivation
Leadership and management styles
Personnel management and HRM
Labour and management relations
Equal Opportunities
Protection at work
The National Minimum Wage
The Social Chapter
Consumer Protection
Contract Law
Fundamentals of Management
Business Strategies
Business Objectives
Page 97 of 215

Slide 45
Assessments
Slide 46
Assessments
Completed Business Plan
Final Exam
10%
70%
Slide 47
Marketing
An Overview
Page 98 of 215

Slide 48
Marketing
Review definition: The management
process used to identify, anticipate and
satisfy consumer requirements
profitably.
Slide 49
Marketing
Topics covered thus far:
Introduction to Marketing
Market Analysis
Market Research
Segmentation
Market Positioning
Marketing Objectives and Strategy
Slide 50
Marketing
Getting the right product at the right price
to the right place at the right time.
Page 99 of 215

Slide 51
The Marketing Mix

An Overall Marketing Strategy
Slide 52
The Marketing Mix

Product
Meet Consumers Needs
Meet Companys Needs
Use
Physical Presentation
Financial
Revenues & Costs
Life Cycle
Uniqueness
Market Position
Slide 53
The Marketing Mix
Price
Consider Market Position
Maximize Sales (Low)
Maximize Profits (High)
Page 100 of 215

Slide 54
The Marketing Mix
Place
How Transported
Where Sold
How Sold
Slide 55
The Marketing Mix
Promotion
Promotion Strategy
Advertising
Sales Promotions
Public Relations
Slide 56
The Marketing Mix
Price
Product
Target
Market
Place
Promotion
Page 101 of 215

Slide 57
Slide 58
The Marketing Mix
Product
Brand Name
Function
Quality
Style
Packaging
Accessories
Repairs & Service
Warranty
Slide 59
The Marketing Mix
Price
Pricing Strategy
Discounts
Seasonal Prices
Price Discrimination
Page 102 of 215

Slide 60
The Marketing Mix
Place
Distribution Channels
Market Coverage
Distribution Centers
Order Processing
Transportation
Slide 61
The Marketing Mix
Promotion
Promotion Strategy
Advertising
Sales Promotions
Public Relations
Slide 62
Product
Page 103 of 215

Slide 63
The Product Life Cycle
Slide 64
Decline
Maturity &
Saturation
Growth
Introduction
Development
Money
Time
Slide 65
Development Stage
Design
Testing
Decision to proceed
Large amount of money spent
No revenues in (no sales yet)
Page 104 of 215

Slide 66
Introduction Stage
Begin Selling
Often slow, but may be fast
So, a little money in
Large amount of promotion
So still large amount of money out
Slide 67
Growth Stage
Product now accepted by consumers
Sales grow at a fast rate
So, money in begins to increase
If new product, competition may enter market
Slide 68
Maturity & Saturation Stage

Sales rate begins to level off
Promotion costs reduced
Saturation placed well throughout market
Page 105 of 215

Slide 69
Decline Stage
Sales begin to decline
May be due to:
Change in Customer tastes
New technology
Decision may be made to kill the product, or
Slide 70
Extension Strategies
Ways to extend the products life cycle
New uses
New markets
Wider product range
Target markets
Change appearance
Encourage consumer to use more often
Change ingredients or components
Slide 71

Decline
Maturity &
Saturation
Growth
Introduction
Development
Money
Time
Page 106 of 215

Slide 72

Stage
Capacity
Cash Flow
Development No Effect
Negative cash out only
Introduction/ May have spare capacity

Sales begin, so some inflow
Launch
(limited sales), or,
Still overall negative due to
May borrow from existing
prior development, and,
capacity (other products)
promotion costs
Slide 73
Growth
Production expands, use up

spare capacity
Cash Flow moves to positive

Cash from sales starts
exceeding prior cash
expenditures
Maturity
May operate at full capacity

May need to expand
capacity
Cash Flow at highest

Sales at highest, marketing and
advertising may decline
Decline
Sales and production are

going down, capacity
may not be fully utilized
Sales will fall, Cash flow will fall

Useful for:
Showing trends in product revenue
Planning when to launch new products
Planning when to introduce extension strategies
Planning cash flows
Identifying when to stop selling a product
Showing expected profitability at different stages
Planning different marketing strategies
Managing PRODUCT MIX and PRODUCT
PORTFOLIO
Slide 74
The Boston Matrix

Market Growth
High
Low
High
Star
Cash
Cow
Low
Problem
Child
Dog
Market
Share
Page 107 of 215

Slide 75
Branding
Recognition by consumers
Slide 76
Reasons to establish Brand

Customer loyalty
Product differentiation
Recognition
Image
Pricing flexibility
Brand Equity
Slide 77
Developing a Brand
Name or symbol (logo)
Protection (trademark, copyright)

Unique Selling Point (USP)
First out
Market positioning awareness
Page 108 of 215

Slide 78
Types of Brands
Manufacturers Brand
Own Label Brand
Slide 79
Branding Strategies
Individual Branding
Family or Corporate Branding

Combination Branding
Brand extensions
Slide 80
Problems with Branding

Expensive
Time consuming
May not be suitable for some products / markets
Page 109 of 215

Slide 81
Promotion
To GET and KEEP customers
Slide 82
Purposes of Promotion
Slide 83
Create / increase customer awareness

Reach a target market
Reminding
Product differentiation
Image
Reassurance
Types of Promotion
Above the Line
Below the Line
Uses independent
commercial media to
reach consumers
Page 110 of 215

Slide 84
Promotion: Above the Line

Types of advertising
Informative
Persuasive
Reassuring
Corporate advertising
Responsible members of society
Branding
Slide 85

Medium
Television
Slide 86
Advantages
Mass market; Attention;
Demonstrate Products
Disadvantages
Expensive; short lived;
not f or technical inf o
Newspapers, Mass or Target markets;

Magazines
Big or small businesses;
National, regional, local
No motion, sound; Black

& White; ads can get lost;
long time to publication
Cinema
Strong impact; target

specif ic consumers
Limited: viewers see it

only once
Radio
Inexpensive; target
specif ic markets
No visuals; may not get

attention
Posters,
Billboards
Target location; visual;

encourage to buy;
Limited inf o,
ef f ectiveness; damage
environment
Internet
Inexpensive; monitor
hits; targeted; easy to
change
Limited audience;
technical problems

Factors in choosing media:
Cost: overall; effectiveness
Target advertising
Presentation
Impact
Marketing Mix
Competition
Legal restrictions / controls
Page 111 of 215

Slide 87
Controls on Advertising
Limit misleading advertising
Legislation and regulation
Independent bodies
Pressure groups
Slide 88
Legislation and regulation:
Trades Descriptions Act avoid false, misleading
Office of Communications regulates TV, radio ads
Competition Commission investigates anticompetitive behaviour
Slide 89
Independent bodies:
Advertising Standards Authority independent selfgoverning body
The CAP Code (British Code of Advertising, Sales

Promotion and Direct Marketing)
Page 112 of 215

Slide 90
The CAP Code

Legal, decent, honest and fair
Responsible to consumers and society
In line with principals of fair competition
Slide 91
The CAP Code

Breach of CAP Code ask company to withdraw ad
If not, can:
a) Publish findings
b) Withdraw privileges of membership
c) Pressure media to refuse future ads
Slide 92
Advertising: Social aspect

Effects on Society:
Increases Costs
Encourages spending
Consumption effects on environment
Encourages behaviour that may damage
society
Page 113 of 215

Slide 93
Advertising: Social aspect

Advertisers Justifications:
Offers choice
Gives consumers information
Respond to, dont create, consumers needs
Revenues reduce cost of media
Employs large number of people
Slide 94
Promotion: Below the Line

Advantages:
Lower costs
Control the message
Slide 95
Below the Line Promotion Types
Direct mailing
Exhibitions and Trade Fairs
Sales Promotion
Branding
In-store Merchandising
Packaging
Personal Selling
Public Relations
Page 114 of 215

Slide 96
Slide 97
Place (Distribution)
The right place at the right time
Slide 98
Place (Distribution)
Channels of Distribution
Retail
Direct to customer
Wholesaler
Agent
Physical Distribution
How goods are transported
Page 115 of 215

Slide 99
Retail
Slide 100
Supermarkets & Hypermarkets

Department Stores
Multiple shop organizations
Retail co-operatives
Independent retailers
Direct Marketing
Slide 101
Retail Outlets
Internet
Direct mail
Personal selling
Telephone sales
Choosing right Distribution
Type of Product
Market
Legal restrictions
Company
Page 116 of 215

Slide 102
Channels of Distribution
Slide 103
Price
Slide 104
Price
Factors affecting pricing decisions
Marketing Objectives: maximize sales,
maximize profits, etc.
Marketing Mix: product, promotion, place
Costs: long-term, cover costs; short-term,
some flexibility
Competition
Consumer expectations
Market Segment
Legal
Page 117 of 215

Slide 105
Pricing Methods
Market Orientated Pricing
Competition Based Pricing
Cost Based Pricing
Slide 106
Market Orientated Pricing

Based on Market conditions
Name
Based on
Penetration Pricing Pricing low to penetrate
(mass market)
Market Skimming
High price, limited time
(new product)
Loss Leader
Losing money (bring
customers in)
Psychological Pricing Consumer thoughts,
feelings (e.g. 9.99)
Price Discrimination Different segments
Slide 107
Competition Based Pricing

When selling in a highly competitive market
Name
Going Rate Pricing
Destroyer Pricing
Closed Bid Pricing
Based on
About the same as
Market Leader
Very low, to eliminate

competition
Very large projects
Page 118 of 215

Slide 108
Cost Based Pricing

With some products and services, Costs are a
bigger factor than market forces
Disadvantage:
May not consider the price the Market will accept
Name
Based on
Costs plus a specific %
Cost Plus
Contribution
Variable costs plus

some amount
Absorption / Full Cost Covering all direct and

indirect costs
Slide 109
How businesses use Price

Pricing Tactics
Short-term actions to achieve
some specific marketing goal
Pricing Strategies
Longer-term actions
Slide 110

Pricing Tactics
Special Promotion Offers
Loss Leaders
Discounts
Introductory Offers
Page 119 of 215

Slide 111

Pricing Strategies
New Products
Lower pricing
Skimming / Creaming
Existing Products
Price Taking
Price Leader
Destroyer Pricing
Price Discriminating
Slide 112
Accounting
Slide 113
Accounting
Record
Classif y
Summarize
Accounts
the name
f or f inancial
reports
business and
f inancial
transactions
and report
the results
to interested
users.
Users
Internal
management, owners
External
Registrar of Corporations,
auditors, tax authority, legal
Financial
Bankers, suppliers, competitors,

community, media, investors &
analysts, Government
Page 120 of 215

Slide 114
The Role of Accountants
To produce Accounts
Involved in Audits
Audits = reviews of Accounts
Slide 115
Types of Accounts
Management Accounts: For internal users to:
Analyze costs
Prepare Budgets & Forecasts
Predict f uture situations
Financial Accounts
For external users

Based on historical (past) inf ormation
Prepared according to f inancial
accounting standards
Auditors review them and report whether
they are true and f air
Slide 116
Limitation of Accounts
Quantitative inf ormation only, no qualitative inf ormation
No inf ormation about outside f inancial situation

No inf ormation to help predict market situation
No inf ormation about outside economic situation
Additional limitations to be discussed when we

discuss each of the two f inancial accounts
Page 121 of 215

Slide 117
Computers and Accounting
Most (All) companies

Advantages:
Quick and ef f icient
Can handle large volumes
Accurate
Disadvantages:
Cost
Technical problems
Operator error
Security
Slide 118
Finance
The Need for Funds
Slide 119
Types of Expenditures (Spending)

Capital Expenditures:
Investments such as land,

buildings, machines, other
companies, etc. (appear
on the Balance Sheet)
Revenue Expenditures: To produce income, such

as advertising campaign,
stock for resale, production
staffs, etc. (appear on the
Profit and Loss Account)
Page 122 of 215

Slide 120
Financing
How a company finances itself
(gets the money it needs) to:
begin operations; or,
grow in size
Slide 121
Sources of funds
Internal:
Profits
Working Capital
Sale of assets
External:
Share capital ownership

Loan capital
Long term sources
Short term sources
Slide 122
Capital Structure
The combination of:
Share capital
Loan capital
Page 123 of 215

Slide 123
Choosing the right Capital Structure

Companies consider:
Cost
Use of funds
Image (status)
Company size
Financial situation
Gearing the combination of
Capital and Loans
Slide 124
Share Capital
Selling shares of stock
Advantages:
Money never paid back
Dividends (payments to shareholders)
optional
Slide 125
Share Capital
Selling shares of stock
Limitations / disadvantages:
Many more owners
Only large companies can do
Very costly
Rules and restriction
Page 124 of 215

Slide 126
Loan Capital
Borrow the money
Advantages:
No change in ownership
Any size company
Not very costly
Few rules or procedures
Slide 127
Loan Capital
Borrow the money
Limitations / disadvantages:
Funds must be repaid
Interest must be paid
Slide 128
Short Term Loan Capital
Bank Overdraft
Bank Loan
Hire Purchase equipment
Trade Credit
Lease
Financing like buying
Operating just renting
Debt Factoring
Page 125 of 215

Slide 129
Long Term Loan Capital

Debentures (only public companies) *
Bonds public invests (like shares)
Mortgages (all companies) *

For purchase of a fixed asset
Secured by that asset
* Fixed interest rate, guaranteed repayment date
Slide 130
Uses of funds Assets
Slide 131
Land
Buildings
Machinery
Equipment
Tangible (can be touched)

Investments
(mostly shares
in other
companies
Financial
Page 126 of 215

Slide 132
Patents
Intangible (cannot be
Copyrights
touched)
Trademarks
Branding
Research and
development
Slide 133
Financial Accounts
Slide 134
Financial Accounts
Prof it and Loss Account Summary of yearly trading and operations
Balance Sheet
Financial position of the company

How company has built itself up
How its funds have been used
Where its funds have come from
Page 127 of 215

Slide 135
Other Reports
Slide 136
Cash Flow Statement

Notes to Accounts:
Details
Some qualitative inf ormation about Accounts

Directors Report
Chairmans Statement
Auditors Report
Profit and Loss Account

Reports a companys trading (business
operations) activities
Over a period of time (usually 1 year)
Shows:
Sales
Selling and Operating Costs
Profits paid out to owners
Amount kept in the business for growth
Slide 137
Profit and Loss Account

For the year ended 31 Dec 20xx
millions
Turnover (sales revenue)
Less: Cost of sales

Gross profit
Less: Other costs
Trading / operating profit
500
-200
300
-100
200
To shareholders (dividends)
-75
Retained profit
125
Always presented for

some
period
of of
time,
Trading
sales
goods
usually 1 year.
and services over the
How much spent to
year.
produce
the
goods
Profit earned from and
services
sold.
trading activities.
Shows
Other
costsinto
run the
efficiency
production
or buying.Shows how
business.
well the company is
Business profit after all
managed.
costs andpaid
expenses.
Amount
out to
shareholders each year
Amount
retained
in the
as their share
of profits.
business to build
financial strength and
to pay for growth.
Page 128 of 215

Slide 138
Balance Sheet
As of 31 Dec 20xx
Fixed assets
Current Assets - stock
- debtors
- cash
Total current assets
Less: current liabilities
Net current assets
NET ASSETS
Share capital
Retained prof it
CAPITAL EMPLOYED
millions
200
40
50
20
110
-40
70
270
100
170
270
Always presented as of
some date, usually the
last day of year.
Assets: Everything the
Investments held for
company owns.
over 1 year, such as
buildings,
Assets
themachines
company &
equipment,
other
expects
to amounts
use
within
Liabilities:
the
companies,
etc.to
the year. owes
company
others.
Amounts that must be
paid within 1 year.
Current assets minus
Current liabilities, also
called
On
theWorking
Balancecapital.
Sheet
Shows ifmeans
a company
CAPITAL
the can
Assets minus Liabilities.
pay
its current
amounts
amount
belonging
Original
purchase
oftothe
when
Profits
they
left
in
come
the
due.
the owners.
company
shares.
company for growth.
NET ASSETS and CAPITAL EMPLOYED must always be equal (they must
always balance). Thus the name Balance Sheet.
Slide 139
Working Capital
Slide 140
Working Capital
Current Assets
Current Liabilities
Working Capital
Current Assets Liquid Assets

Working Capital Measures Liquidity
Working Capital Circulating Capital
WC Important for day-to-day operations
Page 129 of 215

Slide 141
Working Capital
A company cannot be without it.
So, too little is bad!
But, too much is not good!
The company should be putting its valuable
resources to work!!
Slide 142
The Working Capital Cycle

Goods
Produced
(Labour, etc.)
Customer
Pays
Pay
Suppliers
Goods
Sold
(Debtors)
Slide 143
Working Capital Lag

Liquidity Problems
Solutions
Overtrading
Too many Fixed Assets
Encourage cash sales

Sell non-vital Fixed Assets
Sale and lease back
Stock-piling
Sell off raw materials, even

if at a loss
Allowing too much credit Strong measures to collect,

allow cash discounts
Taking too much credit
Extend credit with some

suppliers
Over-borrowing
Page 130 of 215

Slide 144
Other Measures
Internal credit controls
Late Payment of Commercial
Debts Act 1988
Slide 145
Ratios
Business has certain expected standards

Not absolutes, not rules, just measures
Used to analyze businesses
More specific details soon
Liquidity Ratios
Measure how well businesses can pay creditors
Slide 146
Current Ratio
or
Working Capital Ratio

Current Assets
Current Liabilities
1.5 : 1 = Generally the minimum preferred
2 : 1 = Strong.
Any more, and a company should consider if

their resources could be put to better use.
Page 131 of 215

Slide 147
Acid Test Ratio

or
Quick Ratio
Current Assets Stock
Current Liabilities
Less than 1 : 1 = the company doesnt have
enough Quick assets (Cash and Debtors) to
cover Current Liabilities
Slide 148
Liquidity Ratios
Sample calculations
and analysis:
Current Ratio
Current Assets - stock

- debtors
- cash
Total current assets
Less: current liabilities
Net current assets
23,121
2.97 : 1
1.88 : 1
8,490
10,222
4,409
23,121
-7,783
15,338
7,783
Quick Ratio
14,631
7,783
This company seems to have very strong liquidity
Slide 149
Cost & Management
Accounting (CMA)
Page 132 of 215

Slide 150
Cost & Management Accounting

Know how a business is doing
Decision making
Need accurate accounting information
Slide 151
Costs
Accounting Costs
Value of resources used up in operations
For Assets or Expenses
Economic Costs
Includes Opportunity Cost
Opportunity Cost not considered in Accounting
Slide 152
Cost Classification
Behaviour
Function
Other
Page 133 of 215

Slide 153
Cost Classification Behaviour

Fixed Costs
Do not change as output rises
Examples: rent; power; management
Step Costs
Fixed Costs that change
Variable Costs
Change (vary) directly with changes in output
Examples: materials; production supplies; labour
Semi-variable
Variable costs that have fixed elements
Slide 154
Cost Classification Function

Direct Costs
Costs directly involved with the production or
process
Examples: material; labour; production supplies;
supervisors
Indirect Costs / Overhead Costs

Costs of running the business, not directly
involved with the production or process
Examples: management; administration
Slide 155
Cost Classification Other

Average Cost
Cost per unit (Total Cost divide by Units)
Marginal Cost
Additional cost of producing the next unit
Page 134 of 215

Slide 156
Cost Classification Other

Production
Selling
Administration
Slide 157
Quality Profits
Add to business vocabulary
Profits over a long period several years
Slide 158
Management Accounting
Accounting for Management Purpose
Used to assist in decision making
Analyzes costs and revenues in many
different ways
Page 135 of 215

Slide 159
Costing Centres
A way of collecting or accumulating costs
A method of:
Managing Cost
Assigning responsibility
Evaluating performance
Different departments or areas of a business:
Cost Centres
Profit Centres
Slide 160
Slide 161
Cost Centres
Costs are collected based on:
Different Departments
Different geographical locations
Employees
Etc.
Information can be used for budgets,
controlling costs, etc.
Page 136 of 215

Slide 162
Profit Centres
Very similar to Cost Centres
Each Centre also has sales
In the end, profit or loss can be measured
in each Centre
Slide 163
Cost & Profit Centre

Analysis
Advantages:
Helps in decision-making
Improves motivation
Makes departments act more responsibly
Helps in finding problems
Slide 164
Cost & Profit Centre

Analysis
Disadvantages:
Company-wide costs may be allocated
unfairly
May create internal conflicts
May increase pressure / stress among
employees
Inefficient use of resources
Page 137 of 215

Slide 165
Costing Methods
Different ways of looking at costs
Provides managers with
information for decision-making
Slide 166
Costing Methods
Product Costing by the product
Useful for manufacturing
Job Costing by the job

Useful for services
Contract Costing by the contract

Useful for construction
Slide 167
Contribution Costing
Also called Marginal Costing
Shows if a Product or Order contributes
toward Fixed Costs and Profits, and if
so, how much
Page 138 of 215

Slide 168
Uses:
Calculating Prices
Calculating Break Even Point
Decision-making
Should company produce Product A, B or C
Accept or reject orders
Slide 169
Calculations available:
Contribution per unit
CPU = P VC
Different from profit
Total Contribution
- CPU x Q (Quantity Sold)
Total Profit
Total Contribution FC
Slide 170
Standard Costing
An estimated Cost per Unit
Very detailed analysis of production costs
Page 139 of 215

Slide 171
Absorption Costing Method

Also called Full Costing or Total Costing
Begins with Standard Cost
Adds in non-production Overheads
Non-production Overheads then reallocated to production departments
based on different assumptions
Slide 172
Break Even
Total Revenue = Total Cost
TR = TC
Slide 173
Break Even Analysis

Helps Users to know:
How much sales needed to cover our costs
How different output levels affect profit
How changes in price or costs affect:
Break Even Point
Profit
Break Even Point (BEP): the quantity of goods

sold needed to break even
Page 140 of 215

Slide 174
Break Even Analysis

Key Break Even calculations (already reviewed)
Calculate BEP using Contribution Costing
BEP = FC CPU
Calculate BEP using TR and TC

P x Q = FC + (VC x Q) OR
P x BEP = FC + (VC x BEP)
Slide 175
Break Even Analysis

Key Break Even calculations:
Calculate the Output needed to meet a Target Profit
Target Output = (FC + Target Profit) CPU
Calculate Price using Break Even

Break Even Price = TC Output
BE Price + Target Profit = (TC + Target Profit) Output
Slide 176
Break Even Diagram
TC
Break Even Point
TR
Output
Page 141 of 215

Slide 177
Break Even Diagram
Break Even Point
TC
Output
Level
TR
Margin of
Saf ety
Output
Slide 178
Cash Flow & Budgets
Slide 179
Cash Flow
Cash Flow Statement
Cash Flow Forecast
Page 142 of 215

Slide 180
Cash Flow
Different from Profit
Timing of transactions
Fixed Assets
Company borrowings
Owners Capital
Slide 181
Cash Flow Statement

Uses
Identify cash shortages or surpluses
Support applications for credit
Monitor cash flow (at year end)
Required with Financial Accounts
Slide 182
Cash Flow Statement

Sections
Operating activities
Returns on Investments and servicing of
finance
Taxation
Investing activities
Financing
Page 143 of 215

Slide 183
Cash Flow Statement

Also required:
Statement calculating net cash flows from
operations
Slide 184
Cash Flow Statement

Criticisms
Doesnt give very much information
Not required for small companies
Based on historical transactions
Future predictions would be more useful
Slide 185
Cash Flow Forecast

Uses
Help with planning or starting a new
business
Identify cash shortages or surpluses
Support applications for credit
Monitor cash flow
Page 144 of 215

Slide 186
Budgets
Slide 187
Budgets
An agreed plan for spending
Throughout all levels of company
Need accurate information
Financial Accounts (past)
Forecasts (future)
Master Departments Subsidiaries
Slide 188
Budgeting in general
Benefits:
Helps with control, especially spending
Sets clear targets & responsibilities
Helps make sure capital is usefully
employed
Helps with coordination and
communication
Page 145 of 215

Slide 189
Budgeting in general
Drawbacks:
Can create problems, especially among
competitive employees
May be too inflexible
If differences between budget and actual
are too large, may hurt effectiveness of
budget process
Slide 190
Approaches to Budgeting
Sales / Revenue budget

Operations budget operating activities
Production budget
Flexible budget different levels of
production
Objectives budget meet some goal
Capital budget planning large items,
such as purchasing fixed assets, etc.
Slide 191
Difficulties in preparing Budgets

Based on prior sales levels, etc
Management and coordination of budget
process
Conflict
Time consuming
Page 146 of 215

Slide 192
Zero-based budgeting
Justify expenditures with benefits
Benefits
Drawbacks
Helps allocate resources

A more careful approach
Creates alternatives
Can improve motivation
Threat to the way it

is motivation
Difficult
May miss some
opportunities
Slide 193
Break Even
Total Revenue = Total Cost
TR = TC
Slide 194
Break Even Analysis

Helps Users to know:
How much sales needed to cover our costs
How different output levels affect profit
How changes in price or costs affect:
Break Even Point
Profit
Page 147 of 215

Slide 195
Break Even Point

Quantity of goods sold needed to break even
Break even points
TC
TR
Slide 196
Output
Margin of Safety
If a company is
producing at
any output A
TC
TR
How much can

output drop
bef ore they
begin losing
money?
Slide 197
Output
Break Even Analysis

Key Break Even calculations:
Calculate BEP using Contribution Costing
Calculate a Target Profit
Calculate a Break Even Price
Example Calculations Data:

Price per Unit =
100
Variable Cost per Unit =
40
Fixed Costs =
60,000
Page 148 of 215

Slide 198

Break Even Point = Fixed Costs Contribution per unit
Contribution per unit = 100 40
= 60
Break Even Point = 60,000 60
= 1,000 units
Company needs to produce 1,000 units to break even
Slide 199

Break Even Point: TR = TC
Total Revenue = Price x Quantity Sold (Q)
= 100 x Q
Total Cost = Fixed Costs + Variable Costs
= 60,000 + (40 x Q)
So, 100 x Q = 60,000 + (40 x Q)
Q = 1,000 units
Company needs to produce 1,000 units to break even
Slide 200
Variance Analysis
Using the Budget to Control Costs
Page 149 of 215

Slide 201
Variance Analysis
Begins with the Budget the Plan

At period end, Actual compared to Budget
Differences are called Variances
Favourable:
Income higher
Expense lower
Adverse / Unfavourable:
Income lower
Expense higher
Slide 202
Variance Analysis
Using all the different types of Variances
together, a company can really pinpoint
exactly where they are experience cost
problems, and can help identify how to
solve those problems.
Slide 203
Types of Variances
Sales Margin Variance
Profit Variance
Materials Variance
Price (cost)
Usage
Labour Variance
Wage Rate
Labour Efficiency
Overheads Variance
Cash Variance
Page 150 of 215

Slide 204
Organizational Structure and
Design
Slide 205
Organizational Structure and Design

An organizations design and structure
affects every aspect of the business, internal
and external
A Formal Organization establishes:
Relationships
Authority to make and carry out decisions
Communications
Slide 206
Factors Influencing Organizational

Structure
Size
Views of owners or management
Business objectives
External factors
Changes in technology
The informal business structure
The corporate culture
Page 151 of 215

Slide 207
Organization Charts
Slide 208
Slide 209
Positions within the organization

Lines of communication
Analyze for weaknesses
Hierarchy: order & levels of management
Organization Chart Example
Organizational Design
Chain of Command the way in which:
Orders pass down
Information passes up
Span of Control:
Number of subordinates under a
manager
Page 152 of 215

Slide 210
Chain of Command
Tall organization many layers
For companies needing strong control
Orders and information travel more slowly
May reduce motivation
May be inefficient
Short organization few layers

May increase motivation
May be more efficient
Slide 211
Span of Control
Wide span many subordinates
More cost effective
Less effective management / motivation
May increase managers feeling of power
Narrow span fewer subordinates

More effective management / motivation
More expensive
36 subordinates may be most effective
Slide 212
Page 153 of 215

Slide 213
Responsibility & Authority

Responsibility:
Being required to justify actions
Authority:
The power or right to order, control or judge
others
Line authority: manager over subordinates
Staff authority: advice to other departments
Functional authority: specialists give advice
Slide 214
Delegation
Passing authority and/or responsibility for some
tasks to employees further down the hierarchy
Requires:
Effective planning
Clear explanations and instructions why
Employees having authority & responsibility
Managers supporting, avoiding interference
Oversight and control
Slide 215
Management Structures
Centralized Management
All decisions made by central management
Decentralized Management
Decisions made by branches
Page 154 of 215

Slide 216
Centralized Benefits
Slide 217
Senior management greater control

Senior management more experienced
Standardization economies of scale
Decisions point of view of whole company
Crisis strong leadership
Communications easier
Fewer decision makers
Decentralized Benefits
Slide 218
Reduces burdens on senior management

Empowers and motivates workers
Greater job satisfaction
Local knowledge
More flexibility, responsiveness
Prepares subordinates to move up
Different forms of Business

Structure
Entrepreneurial
Bureaucratic, pyramid or hierarchical
Matrix (project)
Independence
Page 155 of 215

Slide 219
Informal Business Structure

Spontaneous / unplanned
Employees have their own circles of
communication
Seek advice from colleagues
Often involve higher levels of trust
Slide 220
Delayering
Recent trend cut out layers of middle
management, making organizations flatter
Hierarchy structured in projects or teams
Better communication
Better decision-making
Greater management & financial flexibility
Empowers employees:
self-monitoring
take responsibility
Slide 221
Examples
P. 411, Figure 58.2
Page 156 of 215

Slide 222
Motivation Theory
Slide 223
Motivation at Work
Why is it important at work?
Gives purpose and direction to behaviour
Peoples needs varied and limitless
Slide 224
Motivation Theories
Generally divided into two groups
Scientific Management
Human Relations
Page 157 of 215

Slide 225
Motivation Theories
Slide 226
Scientific Management Taylor

Hierarchy of Needs Maslow Human
Human Relations Management
Theory X and Theory Y McGregor
Others

Studied workers performance
Timed speed
Observed methods
Slide 227
Divide & perform tasks efficiency

Assumed a single motivator money
Piece rate method
Fair days pay for fair days work

Motivation:
Work faster earn more
Work slower lose earnings
Problems:
People are different
Whats fair for different people
Viewed people as machines, not humans
Page 158 of 215

Slide 228
Hierarchy of Needs Maslow
Slide 229
Divide needs into different classifications

Begin with basic needs
As those needs satisfied
People consider other needs
SELF-ACTUALIZATION
SELF-ESTEEM
LOVE & BELONGING
SAFETY & SECURITY
PHYSIOLOGICAL
Slide 230

Levels satisfied one by one
Some people do not need some levels
Difficult to tell when a level satisfied
Page 159 of 215

Slide 231
Human Relations Methods

Increased communications
Increased workers cooperating with each
other and with company
Increased efficiency and productivity
Slide 232
Human Relations Methods

Possible problems:
When workers have different goals, difficult
to reach consensus
Too much information may create problems
Workers may feel tricked by management
Slide 233

Theory: people are one way or the other
Theory X
Motivated by money
Lazy, dislike work
Selfish, dont care
about company,
avoid responsibility,
lack ambition
Need managements
control and direction
Theory Y
Motivated by many
different things
Can enjoy work
Can organize work, take
responsibility if
properly managed
Can show creativity, and
apply their knowledge to
the job
Page 160 of 215

Slide 234

Know and understand which people are
Xs and Ys
Which types of people are appropriate for
different types of jobs
Which types are appropriate for
management
Slide 235
Herzbergs Two-Factor Theory

Hygiene Factors lead to dissatisfaction
Motivators lead to job satisfaction
Slide 236
Motivation Theories
Knowing them can help management:
Understand and know employees
Select and hire employees
Design different jobs and positions
Increase worker satisfaction
Increase productivity
Solve problems
Page 161 of 215

Slide 237
Motivation Theories
Difficulties with Motivation Theories:
Is one is right, the other wrong?
Difficult to generalize about employees
Slide 238
Motivation in Practice
Achieving a balance between
productivity and job satisfaction
Slide 239
Two general methods:
Financial Rewards
Non-financial
Page 162 of 215

Slide 240
Financial Rewards
Slide 241
Time rates
Annualized hours contracts
Piece rates
Commissions
Fees
Fringe Benefits
Financial Rewards
Employer Considerations:
Slide 242
Employee motivation
Cost
Prestige
Recruitment / Labour turnover
Control
Financial Rewards
Employee Considerations:
Purchasing power
Fairness
Relative to other employees / companies
Recognition of contribution
Composition of compensation package
Page 163 of 215

Slide 243
Financial Rewards
Incentive schemes
Incentive: something that encourages or tends
to encourage action or greater effort
Slide 244
Financial Rewards
Incentive schemes
Individual output schemes
Collective output schemes
Employee input related schemes
Slide 245
Financial Rewards
Problems with Incentive schemes
Operational
Earnings forecasting
Quality control
Changes to scheme
Page 164 of 215

Slide 246
Financial Rewards
Problems with Incentive schemes
Pressure / quality of working time
Worker jealousy
Performance standards
Team incentives
Slide 247
Non-financial Rewards
Non-monetary motivation
Slide 248
Job design or Job redesign
Carry out series of tasks closure

Workers / teams responsible for quality
Increase range of tasks (rotation)
Employees control speed, method and
sequence
Allows interaction and cooperation
Page 165 of 215

Slide 249
Job design or Job redesign Schemes
Slide 250
Job enlargement broad range of tasks

Job rotation
Team working
Job enrichment
Multi-skilling
Quality control circles
Empowerment
Problems with Job redesign
Slide 251
Resist change
Costly with little effect on productivity
New technologies more difficult
Need evaluation for effectiveness
Quality control circles
Empowerment
Management By Objectives (MBO)
Setting goals and achieving them
Creates job satisfaction
Page 166 of 215

Slide 252
Organization Behaviour Modifaction
(OBMod)
Positive reinforcement
Negative reinforcement
Punishment
Slide 253
Employee assistance programmes
Mental health assistance
Child care
Slide 254
Achieving a balance between
productivity and job satisfaction
Page 167 of 215

Slide 255
Leadership
Slide 256
Management & Leadership
Manager: responsible for getting things done.
Job involves
Planning
Organizing
Commanding
Coordinating
Controlling
Slide 257
Leadership:
Know what direction to take
Plan
Persuade others to follow
Page 168 of 215

Slide 258
Leaders adopt different styles:
Delegating
Participating
Selling
Telling
Slide 259
Leadership Styles
Autocratic
Paternalistic
Democratic
Laissez faire
Slide 260
Autocratic Leadership
Style:
Leader sets all goals
Delegates tasks
Demands obedience
Analysis:
If dissatisfied, wont work well together
Supervision
Poor motivation
Page 169 of 215

Slide 261
Paternalistic Leadership
Style:
Same style as Autocratic, except
Concern about subordinates welfare
Analysis:
Decrease dissatisfaction, supervision
May improve working together and
motivation
Slide 262
Democratic Leadership
Style:
Encourage participation in decision-making
Persuasive / consultative to follow his plan
Strong communication skills
Analysis:
Workers participate, a sense of freedom
Uses knowledge, wisdom of workers
Greater commitment and motivation
Slide 263
Laissez Faire Leadership
Style:
Workers work freely within broad limits
Few guidelines and directions
Analysis:
Allows for much more creativity
Relaxed atmosphere
Sometimes may result in poor productivity,
lack of motivation
Page 170 of 215

Slide 264
Leadership in General
Due to job redesign, delayering,
managers must be more team-based
Need to select, coordinate and manage
groups
Deal with related issues
Slide 265
Leadership style often determined by
personality
People dont change easily
Selected based on job requirements
Leadership Matching
Task oriented
Relationship oriented
Slide 266
Leadership style based on situation:
Certain tasks / emergencies
Skilled / unskilled workforce
Size
Leaders personality
Personalities in the group
Time constraints
Page 171 of 215

Slide 267
Leadership
Effective Leading is the most important
Slide 268
Human Resource
Management
Slide 269
Human Resource Management

Managing a companys HUMAN resources
Requires effective management
Has strategic implications
Page 172 of 215

Slide 270
Human Resource Management

Soft Side:
Hard Side:
Motivation
Staffing needs
Organizational structure Future staffing
Support for employees
Demands
Employee relations
Supply
Predicting turnover
Industrial relations
Slide 271
Factors affecting HRM
Slide 272
Changes
Competition
Population
Corporate culture and structure
Trade unions
Strategic approach to HRM
HRM as part of companys overall strategy

Plan, coordinate with other departments
Corporate culture
Motivation
Encourage work flexibility
Flexibility in staffing
Page 173 of 215

Slide 273
Strategic approach: Advantages
Competitive / efficiency
Better able to solve HR problems
Reduces Labour turnover
Reduces Absenteeism
Helps anticipate workforce needs
Stakeholder relations
Labour Union relations
Slide 274
personnel management (training,
developing and appraising staff;
measuring and monitoring staff
performance).
Slide 275
Human Resource Data

Labour Turnover Index =
Number of staff leaving
x 100
Average number of staff during period
Labour Productivity =
Output
Number of employees
Turnover (Sales) Per Head =

Sales
Number of employees
Page 174 of 215

Slide 276
Human Resource Planning

Forecast Employee Demand; Plan Supply
Analyze:
Past information
Business information
Managements knowledge
Worker productivity
Work study
How many staff for the tasks
Slide 277

Calculate staff losses:
Labour Turnover Index
Slide 278

Analyze (detailed) current employee supply:
Age
Position
Term
Qualifications
Performance
Internal recruiting
Page 175 of 215

Slide 279

Plan internal employee supply:
Promotion
Staff development and training
Staff loss and retirement
Flexibility
Legal issues
Slide 280

Plan external employee supply:
Availability of workers
Skills needed / availability
Government training / subsidies
Workplace competition
Population / Demographics
.
Slide 281

Plan external employee supply:
Unemployment
Housing & Public transit
Costs
Government legislation
Page 176 of 215

Slide 282
Flexible Work policies

Study different schemes in the textbook
Benefits:
Worker satisfaction and motivation
Better to plan for changes
Decreases overtime costs
Slide 283
Evaluating all options

Relocation
Move production to different area or country
Outsourcing
Shift production to other companies
Knowledge Management
Identify and use internal knowledge
Slide 284
Labour Management
Relations
Page 177 of 215

Slide 285
Representation at Work
Trade Unions
Staff Associations
Professional Associations
Employers Organizations
Slide 286
Trade Unions
3 Types
General
Industrial
Craft
Represent members / workers in areas of:
Salary
Benefits
Working conditions
Slide 287
Trade Unions Background
Were very powerful

By 1980s laws began limiting power
Must be formally registered
May join Trade Union Congress (TUC)
Represents all major unions
Confederation of British Industry

Represents businesses
Page 178 of 215

Slide 288
Labour Unions Conditions

Employers must allow employees to
join Labour Unions
Unions should be independent
Of the company
Of the government
Represent employees in good faith

All parties must agree to, and be
bound by, negotiated results
Slide 289
Industrial Democracy,
Bargaining, Consultation &
Participation
How Industrial Relations works
the process
Slide 290
Industrial Relations
Business and employee conflicts:
Pay / Compensation
Benefits
Working conditions
Flexible work
Industrial Relations to try to resolve these
issues without problems
Page 179 of 215

Slide 291
Collective Bargaining
Negotiations between:
Company
Union Representatives (for employees)
Negotiate Contracts
Terms
Conditions
Slide 292
Negotiation Process
Slide 293
Set Agenda both sides together

Collect information each side individually
Set strategies
Be united
Plan size of group
Plan stages of negotiation
Plan how decisions made
Prepare statements at the end
Commit to getting their sides to accept
Joint Consultations
Management & worker representatives
meet to discuss, see if there are
common issues they can all agree on
Page 180 of 215

Slide 294
Joint Consultations
Pseudo-consultation
(/su do/ not actual but looks like)
Management makes decisions
Informs employee representatives
No power to influence those decisions
Looks negotiated, but really isnt
Slide 295
Joint Consultations
Classical consultation
Involves employee representatives
Can influence Managements decisions
Slide 296
Joint Consultations
Integrative consultation
(integrate: to bring together)
Actually bringing in employees
Discuss matters of common concern
Page 181 of 215

Slide 297
Other Organizations
ACAS Advisory, Conciliation and
Arbitration Service
Mediates when consultations and
negotiations fail
Other services:
Arbitration
Advisory
Codes of Practice
Help businesses improve personnel &
management practices
Slide 298
Other Organizations
CAC Central Arbitration Committee
Government office
Responsible for union recognition
Helps when employees want union
recognition but employers resist
Slide 299
Industrial Democracy
Work groups
Team working
Employee shareholders
Employee Work Councils
Consult
Discuss
Transfer information
Depends on laws; corporate culture; union

representation; employee power, etc.
Page 182 of 215

Slide 300
Advantages
Increases motivation
Creates new, different and better ideas
Better industrial relations
May make management respond better to
employee needs
Slide 301
Disadvantages
Hierarchical businesses may not adapt well
Can increase costs
May lead to conflict
Slide 302
Industrial Actions (IA)
May be taken by either side when

conflicts not resolved
Page 183 of 215

Slide 303
Industrial Actions
Employers
Reduce overtime, benefits
Change standards for piecework workers
Lock outs
Hire new employees when union workers
go on strike
Slide 304
Industrial Actions
Employees Unorganized / Unofficial
Employees take action the only way they
may know how (usually unplanned)
High turnover, absence, inefficiency,
wasting time, unofficial strikes
Usually not very effective, but can lead to
follow up organized / official actions
Slide 305
Industrial Actions
Employees Organized / Official
Work to rule or Slow go
Stop working overtime
Sit-in or work-in
Strike
Page 184 of 215

Slide 306
Industrial Actions
Risk Factors influencing success or failure
Strength / size of union / company
Workers / union well organized
Location(s)
Public / other union support
Actions of management
Laws
Economic situation
Slide 307
Industrial Actions
Benefits
Brings grievances out into the open
Management better understand employees
Help change rules
Management may adjust company goals
Slide 308
Industrial Actions
Problems Employers
Lost production / late or lost orders
Lost revenue idle fixed assets
Future relations bad feelings
Shift managements attention away from
future planning
May harm companys reputation
Page 185 of 215

Slide 309
Industrial Actions
Problems Employees
Lost earnings
Close factory (long action)
Stress relations among workforce
Bad effect on motivation
If unsuccessful, weakens future position,
lead to losing union members
If against law, may lead to damages,
discipline, dismissal
Slide 310
Organisational Functions 1
BTEC Business
Slide 311
What are an Organisations
As we have seen,
businesses exist
Functions?
to provide products or services
that people want to consume
They do this by organising the firms resources
to meet customers needs
Many organisations arrange these resources
into different business functions
Page 186 of 215

Slide 312
Functions?
Whatever the business, all organisations have
to manage the following functions:
Sales and marketing

Accounts or finance
Human resources or staff
Administration
Slide 313
Functions?
Many businesses
will also have the following
activities that need managing:
Production
Purchasing or buying
Research and development
Whether they do or not depends
on their industry or sector
Slide 314
Finding out more

The following is a good source
of information about organisational functions:
Biz/eds Virtual Factory
Find our more about production, marketing,
accounts, stock control
and design in a real world business at:
http://www.bized.ac.uk/virtual/cb/factory/recep
tion/intro1.htm
Page 187 of 215

Slide 315
Applying your Knowledge

Now go to the following Biz/ed resource for more
on a range of real world business organisations:
http://www.bized.ac.uk/compfact/business_profil
es.htm
Select two businesses and analyse their key
functional areas. Be prepared to feed this back
to the whole group.
Slide 316
Equal Opportunities
&
Protection at Work
Slide 317
Equal Opportunities
Qualified people should have the
same chance to get a job.
Page 188 of 215

Slide 318
Discrimination / Stereotypes
A simplified vision of someone, with special
(usually negative) meaning
Women:
Doesnt want to take responsibilities
Doesnt want (or shouldnt) leave the home
Wouldnt want to relocate
More emotional
Weak
Slide 319
Minorities:
Religious holidays might interfere
Less educated
Different / strange
Dirty
Slide 320
Disabled:
Less capable
Page 189 of 215

Slide 321
Elderly:
Less adaptable
Difficult for them to learn new things, new
technologies
Slide 322
Women at work
Ongoing discrimination Statistics
Lower earnings
Management jobs still dominated by men
Low paying jobs dominated by women
Full-time work percentage lower for women
Work percent lower for women with children
Slide 323
Equal Opportunities
UK & EU laws protect people from
job discrimination due to: gender,
marital status, colour, race,
nationality, ethnic origin, religion,
age, disabilities, etc.
Page 190 of 215

Slide 324
Women at work
Improvements in situation
Flexible work
Legislation
Changes in demographics
Child Care (creche)
Result: higher employment for women

The gender gap narrowing
Slide 325
Employment without
Discrimination
Better workforce
More qualified workforce
More flexible workforce
Higher motivation
Everyone feels they will be considered
Easier in finding new employees
Slide 326
Protection at Work
A broad category
Page 191 of 215

Slide 327
Employment Protection
A right to an Employment Contract
Freedom from all forms of discrimination

Freedom from unfair dismissal
Recourse: Labour Tribunal
Slide 328
Health & Safety Protection

Clean, sanitary, comfortable working
conditions
Safety equipment, clothing and training
Safe procedures for dangerous materials
Safety from violence and threats
Laws now require:
Written Health & Safety Statement
Management required to follow
Inspections to guarantee
Slide 329
Wages Protection
Wages Act, 1986
Rules and conditions for paying wages
Procedures for enforcing those rights
Page 192 of 215

Slide 330
Wages Protection
National Minimum Wage Act, 1998
Established current minimum wage rules
To reduce poverty and inequality
To increase motivation in the workplace
Slide 331
Wages Protection
Established current minimum wage rules
To reduce poverty and inequality
To increase motivation in the workplace
Slide 332
Social Chapter
Standardize work practices throughout EU
Minimum Wages
Maximum working hours per week
Paid holidays
Introduced European Works Council (EWC)

To negotiate contracts
Set and revise minimum wages
Page 193 of 215

Slide 333
Personnel Data
Protect, safeguard and keep confidential
personal information on employees
Electronic data
Hard data
Companys motivation:
Increase employee motivation
Consequences to not following laws
Losing employees can cost the company
Some businesses dont follow costs
Slide 334
Equal Opportunity Practices

Benefits / Advantages:
Improve motivation
Improve productivity
Improve industrial relations
Disadvantages:
Raise costs
Restrict flexibility
Reduce EU competitiveness
Slide 335
Consumer Protection
Page 194 of 215

Slide 336
Business & Consumer

Protection
Undeveloped economy
Caveat emptor = buyer beware
Developed economy big businesses

Too easy to take advantage of consumers
Slide 337
Consumer Protection Legislation

Effects of laws on businesses:
Costs
Quality control
Deal with consumer complaints
Adopt more market-oriented practices
Slide 338
Monopolies & Mergers

Examined benefits and criticisms in Economics
Restrictive practices can reduce competition
UK has passed various types of legislation:
Office of Fair Trading
Competition Commission
EU has similar practices

Regulatory bodies to enforce fair trading
practices in industry
Page 195 of 215

Slide 339
Business Form
Slide 340

Types of Business Forms
Unincorporated businesses
Sole Trader
Partnership
Benefits:
Costs
Control
Slide 341

Incorporated / Limited Companies
(Corporations)
Private Limited Company
Public Limited Company Disadvantage:
Benefits:
may lose some control
Protection from personal Liability
Ability to grow
Ability to raise money
Page 196 of 215

Slide 342

Cooperatives
Consumer cooperatives
Worker cooperatives
Other:
Building Societies
Friendly Societies (banks, financial services)
Franchises
Charities
Slide 343

Choice of Business Form based on:
Control
Kind of business
Timing / age
Financial needs
Liability protection
Slide 344

Students should know the different
business forms, be able to discuss,
compare and contrast them
And, should be able to analyze when,
how and why a business would
change from one form to another
Page 197 of 215

Slide 345

Incorporated Limited Companies
(Corporations)
Private Limited Company
Public Limited Company
Slide 346
Business Size
Slide 347
Business Size
Can be defined by:
Turnover / Sales
Number of Employees
Capital Invested
Profit
Market Share
Market Capitalization
Page 198 of 215

Slide 348
Business Size
Reasons to grow:
Survival
Economies of Scale
Future profitability
Gain market share
Reduce risk
Slide 349
Business Size
Methods of growth:
Internal / organic growth:
Selling more
External growth:
Acquisition
Takeover
Merger
Slide 350
Benefits of growth:
Internal economies of scale:
Technical efficiencies
Indivisibilities / Law of multiples
Managerial
Financial
Purchasing & Marketing
Risk
Page 199 of 215

Slide 351
Benefits of growth:
External economies of scale
Savings from industrys growth
Labour
Services
Co-operation
Slide 352
Limits to growth:
Internal diseconomies of scale
Managerial
Funds
External diseconomies of scale

Market limitations
Geographical
Slide 353
How and why
Small firms still survive
Provide personal services

Owners choose to stay small
Flexibility & Efficiency
Lower costs
Low barriers to entry
Monopolists
Page 200 of 215

Slide 354
How and why
Small firms still survive

Unemployment
Other government schemes
Ways small firms benefit the market
Increase market flexibility
Help balance market wages
Create casual and part-time jobs
Slide 355
Financial Accounts
Valuation of companies:
Sale
Takeovers
Mergers
Management buyouts
Public offerings (floatations)
Loans
Slide 356
Financial Accounts
Various methods of valuing
companies:
Only a guide
Value of something is always between:
A willing buyer
And a willing seller
Page 201 of 215

Slide 357
Financial Accounts
Standards for preparing accounts
To avoid manipulation of accounts
Manipulation different aspects:
Increase values
Reduce values
Slide 358
Financial Accounts
Reasons for Account manipulation:
Increase values
Current or future investors
Stock prices
Market position
Avoid takeovers
Slide 359
Financial Accounts
Reasons for Account manipulation:
Reduce values
Avoid taxes
Page 202 of 215

Slide 360
Financial Accounts
Methods of Account manipulation:
Change depreciation
Revalue creditors & Debtors
Revalue stock
Write-offs
Profits
Slide 361
Taking a Stakeholders Approach
Slide 362
Hold a financial interest in the success
of the business
Have some involvement with the
businesss activity
Page 203 of 215

Slide 363
Customers
Owners
Suppliers
Entrepreneurs
Governments
Shareholders
Community
Managers
Employees
Objectives of stakeholder groups may differ
A stakeholder approach
Slide 364
Strategy & Objectives

Role of Business Objectives
in Setting Business Strategy
and Planning
Slide 365

Business Objectives:
Outcomes, goals, targets (SMART) include:
Survival
Profit
Growth
Increase shareholder value
Maximize Sales
Image, Reputation & Social Responsibility
Page 204 of 215

Slide 366

Managers Objectives could include:
Budgetary
Departmental
Salary
Benefits
Status
The players are all stakeholders
Slide 367

Operational Objectives:
Change focus
Product lines
Etc.
Slide 368

Public Sector Objectives:
Change image
Improve service levels
Etc.
Page 205 of 215

Slide 369

Factors influencing a businesss Objectives:
Owners
Different stakeholders powers
Size, Status
Short-term or long-term considerations
Internal or external pressures
Slide 370
Mission Statement
A written statement that sets
out the aims of a business
Slide 371
Mission Statements
Should focus on:
All stakeholders
Providing a general idea or plan
For example:
Our
mission our
is tomission
be the consumer's
first to
At
Microsoft,
and values are
choice
for food,
of the
help
people
and delivering
businessesproducts
throughout
outstanding
and
great service at a
world
realize quality
their full
potential.
competitive cost through working faster,
simpler and together." Sainsburys
Page 206 of 215

Slide 372
Slide 373

Identify Objectives:
Strategic
Tactical
Operational
Slide 374

Strategy:
A pattern of decisions and actions
to achieve objectives
Page 207 of 215

Slide 375

Planning:
Decide what to do
Set objectives
Set policies to achieve them
Involves: Analysis
Developing strategies
Implementation
Evaluation
Slide 376

Types of Business Strategies:
Functional
Business Level
Corporate
Global
Must suit the corporate culture (the values)
of the organization
Slide 377

Effective Planning & Strategy based on:
Clear Purpose
Strategic Vision
Strong Commitment to achieve goals
Focusing strategies on customers
Achievable timing
Flexibility to modify details, stay on course
Suitable to different departmental players
Page 208 of 215

Slide 378

Effective Planning (include Contingencies)
can minimize effects of unexpected crises:
Legal
Financial
Production
Corporate
Image
Slide 379

Analysis Methods:
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Slide 380
Internal
External

Analysis Methods:
For analyzing External factors
PEST - G
Political
Economic
Social
Technological
Green
Page 209 of 215

Slide 381

Analysis Methods:
5 Forces Model Competitive Forces
New competitors
Established firms
Buyers
Suppliers
Substitute products
The stronger the Forces are,
the more difficult to raise prices & profits
Slide 382

Analysis Methods:
Industry Structure Analysis
Competitors
Suppliers
Substitution
Potential entrants
Slide 383

Analysis Methods:
Industry Structure Analysis
Competitors
Suppliers
Substitution
Potential entrants
Competitor Analysis
To determine strengths & weaknesses
Page 210 of 215

Slide 384

Analysis Methods:
Competitor Analysis
To determine strengths
Slide 385

Other Analysis:
Product Life Cycle Analysis
Product Portfolio Analysis
Cost and Value Analysis
Slide 386
Different Strategies
To improve Function & Operations:
Production:
Economies of scale
Streamline the process (lean)
Quality control TQM groups
Page 211 of 215

Slide 387
Marketing:
Research to better meet customers needs
Customer service / response through
better distribution
Slide 388
Human Resource Management:
Forecast changes in staffing requirements
Motivation
Training
Slide 389
Other:
Research & development
Waste management
Page 212 of 215

Slide 390
Business Level / Generic Strategies:
Cost Leadership
Differentiation
Focus (segment, customer group)
New product development
Market entry and penetration
Market development and domination
Consolidation (preserve place in market)
Diversification (extend range of products, services)
Slide 391
Corporate strategies:
Internal development
Takeovers, mergers & acquisitions
Collaboration
Slide 392
Global strategies:
Capitalize on companys unique strengths
Reduce costs
Page 213 of 215

Slide 393
Implementing Strategies
Organizing itself to carry out the strategy
Setting up control systems to encourage
and monitor activities
Implementing changes
Slide 394
Evaluating Strategies
Setting SMART targets
Earnings or profits
Return on capital
Sales volume
Costs
Need comparison information
Also use qualitative information
Page 214 of 215
Page 215 of 215

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IFY Business Studies

Stephen Byrd PhD, MBA, FITOL FICM

IFY Business Studies Student Handbook

A: The nature of marketing

C: Segmentation and positioning

F: The Marketing Mix

Accounting and Finance

G: The role and limitations of accounting

I a: Profit and loss accounts

Cash Flow Forecasting and Management

All reading should be completed before the Week number listed.

IFY Business Studies Student Handbook

IFY Business Studies Student Handbook

Term 1 EOS Exam

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Marketing: The management process used to identify, anticipate

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IFY Business Studies Student Handbook

Markets classified according to characteristics

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IFY Business Studies Student Handbook

IFY Business Studies Student Handbook

Market Research: collection, collation and analysis of data relating

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IFY Business Studies Student Handbook

IFY Business Studies Student Handbook

IFY Business Studies Student Handbook

The Marketing Mix (Combination) the Four Ps: To meet their

Product: make the product meet consumers needs and companys

Pricing: Market Position; maximize sales (low); maximize profit

Promotion: choose the most effective for its market

Place: Where sold; how sold; how transported, etc.

People providing the service

Process involved in delivering the service

Physical the environment in which the service is provided

IFY Business Studies Student Handbook

The Stages of The Product Life Cycle

May operate at full capacity,

Sales & production reducing,

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Showing trends in product revenue

The Boston Matrix:

Star: Large share of a high-growth market

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IFY Business Studies Student Handbook

IFY Business Studies Student Handbook

The purpose of Promotion to get and keep customers:

IFY Business Studies Student Handbook

customers are; encourage to

Factors in Choosing Advertising Media

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IFY Business Studies Student Handbook

IFY Business Studies Student Handbook

Distributing the Product getting it to the right place at the right

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What Factors affect pricing decisions?

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IFY Business Studies Student Handbook

Accounts: reports that give users financial information about a

Financial Accounts historical; true and fair / financial

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IFY Business Studies Student Handbook