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(a) Distinguish between the ‘private sector’ and the ‘public sector’.

The private sector consists of businesses owned and controlled by individuals or groups of individuals. The public sector consists of organisations owned
by, accountable to and controlled by the State (central or local government).
(b) Briefly explain two advantages of public sector businesses.
The advantages of public sector businesses are said to include: • the provision of goods and services that the private sector might not provide (merit and
public goods) • the provision of critical goods and services that a State/Government needs to maintain control over • the provision of loss-making services
where the social benefit is considered important • appropriate funding/investment can be provided by the State to fund and develop essential goods and
services • provide employment opportunities and career progressions • the internal environments may be less demanding than the private sector • they
often focus on social value and values, rather than raw competitive objectives.
(b) Briefly explain two stages of business decision-making.
The different stages of business decision-making are said to include: • Identification of objectives/goals/problem identification. • Planning i.e. collection of
information and ideas. • Analysis of information and ideas. • Formulation of alternative courses of action. • Choice of alternative courses of action. • Making
a decision. • Implement the decision • Communicate the decision. • Evaluate the results of the decision
(b) Briefly explain two reasons why new businesses often fail.
Despite the enthusiasm and skills of an entrepreneur, many new businesses fail within one year. Lack of finance/capital – banks unwilling to lend. Poor
cash flow management. Poor management skills – entrepreneur’s not always good operational managers. Severe competition – large
companies/competitors squeeze. Limited portfolio of products/services. Very vulnerable to change and environments/threats – e.g. recession, legal
requirements – technological change. Lack of market understanding. Lack of reputation/brand. Lack of record keeping.
7 (a) Analyse the importance to a large business of setting corporate objectives.
These specific organisation objectives become part of senior level management strategies. Set the context for divisional/departmental objectives and
effective plans of action can be developed. Ensures that the business is focused and does not drift – clear corporate objectives given such as growth,
profit/sales maximisation. Present a clear set of guidelines and parameters for middle, junior management actions and strategies. Without these clear
corporate objectives a business can drift and cease to compete and flourish. Give meaning and purpose for all engaged in the business.
(b) Discuss how a large food retailer, with many shops, could effectively communicate corporate objectives to its workforce.
Strong answers will recognise the particular communication challenge to reach all the retail outlets in different location areas – senior management visits
and presentations – regional/local managers invited into HQ?
Specific communication methods could be used: ‘State of nation’ address by CEO and/or senior managers Senior managers to middle managers to junior
managers Team meeting/briefing Away days Training and development days Company newsletters/digital platforms/company website Internet/social
Methods may not be as important or effective as developing participation and engagement opportunities for employees – to educate, inform and inspire
employees. Develop an open, sharing, two-way communication culture in the business – train and retrain managers to share information and practise a
management style that is supportive of staff engagement approaches.
Effectiveness depends on the extent to which open communication is part of the bloodstream/DNA of the organisation and its managers and that there is
full recognition of the need for consistency of approach over all this disparate business.
(a) Analyse the advantages of a co-operative as a legal form of business.
• Co-operatives are joint ownership organisations (producer, workers, consumer). • A distinctive type of business organisation – often a significant amount
of democratic control and profits shared/distributed in proportion to members’ investment. • Producer co-operatives common in agriculture in developing
• Advantages claimed for co-operatives include:
– Members/users are involved and have opportunity to direct and control the business
– The business is designed and operated specifically for the members/users
– Resources are pooled for mutual gain
– Increased purchasing power with suppliers – Increased marketing power – joint advertising – More consumer power – less social/environmental damage
– Allows members with common interests to work together and assume responsibility (e.g. village post office/shop).
(While a brief reference to the limitations of co-operatives may be relevant, this answer needs to focus on the advantages of co-operative businesses).

Discuss the factors that could influence the success of a small business manufacturing fashion clothing for children.
• Definition of small businesses and their characteristics • Success factors could be owner/venture/economy specific
• Reference to the specific advantages and limitations of the context of a small niche market manufacturer • Degree of owner business expertise,
• Degree of capitalisation/under-capitalisation • Relevance of business objectives (measured growth) • Quality of business systems/functions (marketing,
product, development, costing, planning) • Level and type of competition • Viability of business model chosen , before starting a business, the most
suitable business model should be chosen to move on from a start up to a viable business, and it need to be sustainable • Luck! Reward particular
application to the niche market of children’s fashion clothing.
(b) Briefly explain two limitations of mission statements.
Limitations could include: • Often written in very general / vague terms in order to appeal to internal and external stakeholders as to have little impact. •
Often long and aspirational – a wish list with little operational value. • Often seen as a PR exercise – so little motivational impact (other than negative
cynicism!). • If not supported by management has little positive impact • Seen as being distant from operational reality
(b) Briefly explain two advantages of joint ventures to the businesses involved.
Advantages may include: • Share strengths, minimise risk and increases opportunity for competitive advantage in business ventures. • Given access to
new resources, markets, or distribution channels. • Particularly useful for small businesses wanting to spread risks – e.g. joint advertising, marketing, R&D.
• Popular way of entering new, emerging markets. • May be used by large businesses to shut out the competition. • Loyal customers of both companies
are likely to purchase the new product or service and the customer base is therefore widened. NB: do not accept economies of scale as an advantage
unless it is linked to a new project/service coming out of the new venture.
Explain why many new businesses fail within their first year.
Insufficient capital – run out of cash for day to day operational needs (working capital).
• Flawed business plan/model – inadequate information and too ambitious forward projections.
• Poor management – entrepreneurs without experience in finance, sales, hiring – poor leadership and decision-making.
• Failure to understand customers – too ‘product led’. • No real differentiated product/service and no real understanding of the competition. • Lack of
business visibility – website. • Over expansion – too soon. • Too much red tape – bureaucratic restrictions. • Unable to respond to external environmental
changes – recession.
Analyse the qualities of a successful entrepreneur.
• Have innovative and viable business ideas/proposals.
• Willing to take risks they take reasonable risks. While taking risks is part of the entrepreneurship process, those who succeed weigh the options, see
what else is out there, and careful about the types of risks . • Self– confident and assertive. • Multi-skilled. • Committed and self-motivated. • Good
leaders/motivators.very good at highlighting the benefits of any situation and coaching others to their success. • Ability to raise finance/convince investors.
(b) Benefits of operating a franchised business could include: – reduced risk of business failure. – dealing with an established brand/product. –
advice/training available from franchisor. – marketing and advertising initiated and funded by franchisor. – quality assured supplies guaranteed. – market
segment/area protected by the franchisor. – easier to obtain loan finance.
Discuss why senior managers leading large public limited companies might decide not to have corporate social responsibility (CSR) as a business
Some senior managers see CSR (that business should consider the interests of society in its decisions and activities over and above legal responsibilities)
as fundamentally flawed and a dangerous distraction from profit seeking and shareholder satisfaction.
• Companies that simply do all they can to boost profits will end up increasing social welfare. It is argued that, for example, producing fuel efficient cars is
not about increasing the quality of the environment, but about responding to customer demand for fuel efficient cars. The profit motive will, therefore, lead
to successful environmental situations. • Senior managers should relentlessly pursue profit maximisation – the market response to consumer demand will
maximise consumer satisfaction. • More important to make money than to give it away. • It is irresponsible to focus on wider community if the business is
managed/ led successfully. • If the aim/objective is ‘to do good’ companies may well fail. • The movement towards CSR is seen to be in direct opposition to
the best interests of a business organisation. • Companies who sacrifice profit for the common good are imposing a tax on shareholders and other
company stakeholders. • An awareness of social consequences of business activity is sufficient – CSR is going too far. Briefly explain two ways in which
the objectives of a social enterprise might be similar to those of other types of business.Although a social enterprise is a business that has
specific social objectives and is not solely in pursuit of profit, it still shares some common features with other types of businesses such as:
– It is a business that seeks to make a surplus/profit – It is concerned with being efficient and effective. – It will likely face competition from other
businesses in the same market or industry. – It uses business principles and processes to achieve its objectives. – It will have concerns for its workforce –
It will aim to deliver quality goods and services. – It is of course committed to social/environmental responsibility as can be other businesses.
A public limited company is accountable to its shareholders in the following ways:
– accountability for the general direction and performance of the company.
– accountability for the financial performance of the company (share price and dividends).
– accountability for compliance with legal requirements, eg employment laws, health and
safety, taxation, equality etc. (these may be cited as separate and specific examples of
– accountability for the image, reputation of the company.
– requirement to hold an AGM
[These accountabilities will be managed through appropriate governance organisation arrangements].
Explain why a mission statement might be important for a multinational business.
A mission statement is a statement of the core business, purpose and focus of an organisation – designed to resonate with internal and external
A multinational business might use a mission statement to: communicate the philosophy and goals of the business to its many employees in different
country locations – to direct and motivate these employees – to provide a reference point for national, corporate, departmental, section, and individual
Externally, the mission statement may well serve to support and communicate the claims, aspirations of the business – in terms of customer, supplier,
community relationships and its treatment of employees in each of its different locations.
Effective explanation of the importance of a mission statement in a multinational business.
Analyse the strengths and weaknesses of a ‘public limited company’ legal structure for business
Answers may well initially define a public limited company – a company that can sell shares to the general public on a stock exchange and has limited
Identified and analysed advantages and disadvantages of this form of business organisation could include the following:
• business has a separate legal identity
• limited liability for shareholders
• ability to raise large sums of capital - no limitation on number of shares
• shares are freely transferable - providing liquidity for shareholders
• provides prestige and status
• increased opportunity to make acquisitions by offering shares
• may find it easier and cheaper to borrow form banks
• tax advantages vis a vis other organisation structures.
Weaknesses:• complex legal formalities to form a public limited company - costly and time consuming • strict controls and regulations to protect the
interests of the ordinary shareholder
• requirement to file accounts
• the original owners may lose control
• risk of takeover
• financial markets will determine the value of the company through the
trading of the shares
• greater public scrutiny of company performance and activities
• may lead to governance/management problems.
Discuss how ethics may influence the decisions of private sector banks.
Ethics is about the morality, rights and wrongs of business decisions as perceived by the stakeholders of a business.
• Business ethics are concerned with how businesses treat the environment,
work with staff and suppliers to build a responsible company, relate to local communities and produce a viable, sustainable company and add value
socially as well as economically.
• Business ethics is now part of the language of business; customers demand more and management is often trained to deliver more.
• May mean that a business makes explicit provision for ethical behaviour and ethical performance.
• Might mean additional costs.
• More monitoring and rules of accountability.
• May mean new and different practices.
• May be seen as part of brand building and reputational protection (USP).
• May be a source of additional investment for ethical investors.
• Becoming a necessity rather than a discretionary approach to business
In relation to private sector banks, answers may address some of the following issues:
• Willingness of a bank to take risks – the level of discretion/freedom given to employees.
• The extent and significance of internal regulatory protocols that prevent unethical behaviour.
• Without ethical frameworks, expectations or codes, banks may engage in unethical behaviour – over-invest – focus on high profit making activities at the
expense of core customer lending activities – engage in exploitative practices with small businesses – manipulate lending rates – engage in illegal activity.
• Ethical behaviour will constrain banks and move them into fair and reasonable behaviour and to adopt internal codes and regulations and so avoid need
for external regulations, fines and even prison sentences.
Answers may well refer to the banking crisis and crashes in recent times. Full credit to be given to such references.
Explain why corporate objectives are important to a business.
Answers could include:
This question seeks information and comment on objectives at the corporate level and some reference to importance.
Objectives are important at every level of a business – gives focus and clarity – allows control and review of operations.
Corporate objectives – are designed to make specific the aims and mission of a business – they provide a much clearer guide for management and
workforce action throughout a business.
They are set at the highest level of a business – examples include: profit maximisation, market share, growth, return on investment, cash flow, sales
revenue, shareholder value, corporate image and reputation.
• they express the aims, purpose and mission of a business.
• the main, and primary, business objectives.
• set the frameworks and guidelines for all activities in a business.
Analyse problems a business could experience in its first year of trading.
Answers could include a focus on the need to:
• establish and build a customer base of loyal returning customers.
• establish itself in the market.
• effectively manage cash flow – generate sufficient working capital.
• establish good relations with suppliers.
• follow an effective pricing strategy that allows the business to compete effectively.
Failure to achieve such objectives likely to lead to problems of:
• lack of cash and working capital
• uncompetitive production
• inability to effectively market the business
• insufficient demand to survive
• failure to secure external finance
• inability to repay start-up capital
Credit to answers that might include analysis of how significant these problems might be and/or briefly how they might be solved.
Note: Some candidates may focus on the word trading in the question and this can then be developed into problems of trading internationally but must
retain focus on a business in its first year.

Briefly explain how business decisions involve opportunity cost, using an appropriate example.
• Businesses have limited resources and need to make choices.
• The allocating of scarce resources between competing demands is at the
heart of most business decision making.
• A decision to invest in a particular asset/machine means that alternative
capital expenditure choices have been forgone.
• The opportunity cost of paying a generous dividend to shareholders is the
lost opportunity to better reward employees.
• Businesses become very competitive to reduce the strength of the next
best alternative
Analyse the rights and responsibilities of employees as stakeholders in a business.
Answers may include:
As stakeholders in a business, employees are said to have certain rights:
• to be given legal entitlements – minimum wage etc.
• to be treated in the workplace as set out in an employment contract –
conditions of service, hours, disciplinary procedures, holiday entitlements.
• to join a union or trade association to protect employment rights.
• to have basic human rights guaranteed.
As stakeholders, employees are also said to have responsibilities:
• to meet the conditions of the contract of employment.
• to be honest and productive.
• to co-operate with managers and supervisors.
• to uphold the ethical codes of behaviour set by a business.
• to respect the confidentiality of the business.
Discuss how the stakeholders of a public sector organisation might be affected by a reduction in Government financial support for the organisation.
Answers could include:
Comment on the characteristic features of a public sector organisation. Speculation on the degree of importance of the service(s) provided by this public
sector organisation (presumably not a vital service, or a service that could be provided with less governmental financial support.)
Stakeholders affected by such a scenario could include
• Customers/service users may be concerned that services may no longer
be available, or reduced, or subject to price increase if a different form of
service provision resulted such as private sector provision.
• Employees may be concerned about potential job losses if the
organisation contracts and reduced conditions of employment if drastic
measures are taken to preserve a reduced service.
• Unions will be concerned about potential impact on their members.
• Local Government affected by the threat to this public sector organisation
will be concerned for their local economies.
• Suppliers to this public sector organisation will have concerns of the
impact of the reduction in governmental financial support on their businesses.
Good answers will recognise that the impact on stakeholders will very much depend on the extent of the reduction in financial support, on the discretion
available to the public sector organisation to make savings, gain alternative sources of finance, and/or or make changes to the structure/systems, and/or
management of the organisation.
Some stakeholders may suffer (employees) but others may benefit as the Government spends less e.g. lower tax rates for tax payers and more
discretionary options for government.
Explain how a business might benefit from acting ethically.
Answers may include:
Acting ethically is regarded as doing the ‘right thing’ – taking business decisions against a background of certain moral principles – morally correct
In the short-term there may be a ‘cost’ involved in acting ethically – only doing things in a certain way or not doing certain things.
In the long-term there could be substantial benefits:
• avoid negative publicity.
• retain customer loyalty – retain/gain sales through high reputational
• attract ethical customers/investors.
• attract staff/retain staff.
• gives a competitive advantage.
• improved brand and business awareness.
Effective explanation of possible benefits to a business of ethical business activities
Briefly explain two aims of a social enterprise.
NOTE: Questions 1(a) and 1(b) may well attract similar relevant points/information. Repeated material in 1(b) is perfectly acceptable and should be
rewarded as long as it is explained or developed as evidence for a brief explanation of distinctive social enterprise aims.
Answers could include:
• a social enterprise may not focus on making profits or maximising profits like a normal business but rather seek to secure enough resources to provide
services to the community
• a social enterprise may seek to achieve a triple bottom line set of objectives rather than simply generate profits or maximise sales, or grow the business
• a social enterprise may have as its primary purpose the provision of jobs to local disadvantaged citizens who may have difficulty in securing employment
in traditional ways
• a social enterprise may engage in business activities such as sustainable production to support and protect the environment
• a social enterprise may seek to give employees a ‘living wage’ and a supportive working environment at the expense of maximising profits
Two distinct economic aims, two social aims or two environmental aims are worthy of full marks.
Examples may be given but they are NOT required as part of an answer.
Analyse the importance of corporate objectives and departmental objectives to the success of a business.
Corporate objectives: objectives that transfer mission and aims into clearer guidelines for management action at the business level.
Answers may include:
• ensure that each business unit is compatible with others in the business portfolio.
• concerned with long-term business performance and priorities.
• see that all sections of a business contribute to corporate success.
• set the framework for departmental objectives.
• corporate objectives in a single business company might include growth,
profit maximisation, market share increase.
• they are all overall strategic objectives.
Departmental objectives: each department of a business will be constrained by the corporate objectives and will set departmental objectives that will
specifically support and sustain the corporate objectives.
Answers may include:
• marketing may have a departmental objective to improve sales through more effective sales promotions.
• finance may have an objective of reducing long-term borrowing by 5% or reducing costs by 10%.
• operations may have an objective of introducing a new product each year.
Each functional department will develop functional level strategies that make processes and the value chain more efficient through clearly defined
objectives and thus support and sustain the corporate objectives and the success of the business.
Discuss why a bank might change its corporate objectives over time.
• corporate objectives of a bank (if a PLC) might well be to maximise profits; grow; reduce the competition; develop new products/services; pay employees
significant salaries/bonuses; expand into new markets; manipulate markets and ignore regulations.
• these objectives may change for a number of reasons: new government regulations may require significant change; to curtail marginal potentially
unethical activities so costs may increase.
• competition might increase from more ethical banks, credit unions; social enterprise.
• may be urged to pay more attention to small and medium enterprises.
• if a government has a shareholding, a bank may be required to withdraw
from some highly profitable activities and pay more taxes or be subject to
extra taxes.
• new senior managers may have different views on what the corporate
objectives should be.
• the economy may change requiring a bank to play a much more social role
in pumping money into an economy through a more liberal lending policy.
Strong and evaluative answers will recognise that the corporate objectives of a bank may change as a result of internal and external forces and that banks
that fail to be adaptive and flexible may well fail.
Explain the responsibilities employees have to the business that employs them.
Answers may include:
• stakeholder theory suggests that those interested in and affected by a business have roles, rights, and responsibilities.
• employees are said to be important business stakeholders and to have important responsibilities in respect of business performance.
• employees are said to have specific responsibilities to the business that employs them:
– to meet the conditions and requirements of their employment contracts.
– to co-operate with management in all reasonable requests.
– to observe the ethical code of conduct or values in a mission
– to be honest and respect the rights of fellow workers.
– to fulfil Health and Safety requirements.
Explain why many tertiary sector businesses differentiate their services.
– tertiary sector businesses are those that provide services to consumers and other
businesses such as banking, hotels, tourism, retailing and transport
– differentiation is the process of making a product or service so distinctive that it stands out
from competitor products/services in the perception of a consumer
Given these definitions the reasons why tertiary sector businesses try to differentiate their
services could include:
– to establish and gain market share
– to establish and maintain a reputation
– to persuade customers to pay a particular price for the service
– to create an exclusive purchasing environment
– to create a unique selling proposition (USP)
– to survive and thrive in a very competitive environment
– to establish a perceived difference amongst consumers for services that are essentially much
the same
Explain why a business might not behave ethically.(a) Ethics is concerned with moral guidelines. A business may decide to act in compliance with the law
but go no further.– it may decide that its business is the business of making profits, producing goods and services, and employing people – not
ethical/social responsibility activities– a business may decide it cannot afford to be ethical– the aim is survival, growth and profitability – if that requires
compromises on employee terms and conditions, or treatment of suppliers for example, then so be it! – a low priority may be given to any objective or
activity that is not directly contributing tothe bottom line–the pressure to establish more positive ethical standards may be relatively weak in the business
(by Government or pressure groups)– a business may be a business in an ethically under-developed industry or country with few ethical objectives or
aspirationsDiscuss, with examples, how unethical business behaviour could damage the reputation of a company.7 (b) Candidates can either give
theoretical examples of unethical business practices and/orprovide actual examples of companies suffering reputational damage due to unethical or
alleged unethical conduct (e.g. Enron, News of the World, or own country examples).Candidates may well discuss different types of unethical business
behaviour such as:– poor working conditions for employees or suppliers– dishonest sales techniques

– environmentally unfriendly production methods

– bribery and corrupt operating policies
– misleading financial reports
Such unethical business practices could lead to:
– loss of trust in the company by customers and employees
– legal action may result, leading to compensation and damage to reputation
– poor publicity affects market standing
– the brand is tarnished
– investors and potential investors respond negatively
– the value of the company can seriously deteriorate leading to liquidation, merger or
Briefly explain two reasons why many businesses set growth as an objective.
Business growth may be sought for reasons such as:
– increase profits and sales
– increase market share – a higher market profile
– secure economies of scale
– increase power and influence of owners in society
– reduce risk of takeover
– exploit entrepreneurial ambition and potential
Explain why small businesses are important for many economies.
Small businesses employ in total a significant proportion of the working population in many
– They often provide entrepreneurial impetus and give greater consumer choice.
– They provide competition for the larger companies.
– They often provide specialist goods and services to large/important industries in a country.
– They can be flexible and adaptable to the needs of larger businesses.
– They may well grow into larger and more efficient businesses.
– They can provide more personal services to consumers and enjoy lower average costs.
– They contribute to GDP.
Explain how the objectives of a social enterprise might differ from those of other private sector
– A social enterprise is a business with mainly social objectives and re-invests profits into
benefitting society rather than maximising returns to owners.
– Profit is still an objective and social enterprises compete with other businesses in the
market / industry.
– Business principles are used to achieve social objectives and they seek to make profits
in a socially responsible way.
– Objectives are Economic (make profits in sociably responsible ways), Social (provide
local jobs and/or support local disadvantaged groups) and Environmental (protect the
environment, do business in an environmentally sustainable way) – triple bottom line...
distinctively different from sole traders, partnerships, plcs not set up as social
(b) Discuss why an entrepreneur might choose to become a franchisee rather than start an
independent restaurant business.
The decision to adopt a franchisee model for restaurant ownership is likely to be influenced
by the suggested advantages of a franchisee arrangement:
– You adopt an existing successful/established business.
– You operate an established brand and reduce risks.
– The initial investment is probably smaller.
– An entrepreneur can focus on operating and driving the established brand.
– Ability to benefit from a franchised business relationship.
– Less likely to fail.
– In the short term probably more profitable.
These are advantages of a franchisee. There are limitations of course (and these could be
mentioned in an evaluative comment) but this question requires a focus on the
entrepreneurial advantages of choosing a franchisee arrangement.
Explain the importance of a mission statement to the employees of a public limited company.
A mission statement is a statement of the core business, purpose and focus of an organisation –
designed to resonate with internal and external stakeholders.
Mission statements are considered to be important for employees of a business in that it provides
the context for worker activity. The goals and philosophies in a mission statement may serve to
direct and motivate a workforce.
Mission statements may well reflect the beliefs and vision of senior management and is designed
to inspire employees and support distinctive organisational cultures.
P.L.Cs tend to be large and therefore need to make their overall aims and values clear to
employees (could be a very large number of employees) and the mission statement provides an
important reference point for them.
Can provide a sense of purpose in large businesses (P.L.Cs) – e.g. sense of shared values.
(a) Explain the weaknesses of ‘family owned’ businesses.
The inherent strengths of family owned businesses – businesses where the voting majority is
in the hands of the controlling family – are many for example:
• family dedicated to business – work hard to build and grow the company and re-invest
profits and
• there is pride and focus in reputation and quality of product and maintain good relations
with external stakeholders.
But, the weaknesses often outweigh the strengths, weaknesses such as:
• complexity of different roles played by family members and governance problems –
different motives and strategies from different family members
• too much informality, not enough clear business practices and procedures – with growth
may come significant conflict
• neglect of strategic management, succession planning, lack of external management
• plus, family owned businesses may have poor cost control, poor cash flow, poor
• means that the majority of family owned businesses are not sustainable
• discipline difficulties i.e. reluctance to discipline or sack family members
• family arguments might be brought into the work situation.
(b) Discuss why some businesses do not set a growth objective.
It is often assumed that one of the main objectives of a business is to grow – this may not be
the case. There may be reasons why a business cannot grow and reasons why a business
does not want to grow:
• Businesses may not have the option to set growth as an objective – they may operate in
a niche market.
• Limited capital may prevent growth.
• Businesses may be family businesses with neither the ambition nor the capacity to grow.
• Businesses do not have to grow to become (more) successful.
• They can exploit their advantages – a small business has manoeuvrability – it can act
and react fast.
• They can grow through outsourcing or joint ventures.
• Businesses can give customers the satisfaction of personal interacting and thus retain
their competitive advantage.
• Non-pecuniary benefits – being one’s own boss, flexibility are first order issues for small
business owners.
• Businesses often content to exploit entrepreneurial skills and competences in a selected
restricted area of business.
• The nature and composition of many businesses (e.g., small shops, solicitors,
accountants, restaurants, small-scale manufacturing, means that they do not seek
• Businesses survive and succeed by remaining small and supply to large businesses.
• Might be new/small business; growth is not yet an appropriate aim.
• Shareholders might not want a company to grow.

Explain why many businesses have corporate responsibility as an objective.

Corporate responsibility is a concept involving a business concern, not just for the bottom line but
for the interests of society. Businesses consider the impact of business decisions and activities
on customers, employees, communities and the environment.
• Concern for more than the bottom line.
• More awareness of the negative effects of damaging business activities.
• More legislation has developed to constrain business.
• Pressure groups can draw attention to poor business decisions and activities and damage
• Consumers tend to react positively to businesses that act in a socially responsible way.
• Corporate responsibility can produce competitive advantage – a U.S.P.
• Not all businesses are convinced and argue that the business of business is business and let
others pursue social issues.
(a) Explain the aims of a ‘social enterprise’ organisation.
• A business with mainly social objectives that reinvests profits into benefiting society,
rather than maximising returns to owners.
• Have distinctive aims and objectives – while sharing some characteristics of other types
of organisation – they rely on the market and sales for income – but they have a sense
of social mission and have social ownership structures.
• They seek to use business solutions to achieve public good – and operate in a wide
range of areas, e.g. health and social care, transport, childcare in U.K.
• So they have social and business aims (often referred to as “double bottom line”, or
some add environmental aims and are referred to as “triple bottom line”.
• They have economic objectives – profit to reinvest.
• They have social objectives – provide jobs and support communities, often
disadvantaged sections of communities.
They often have environmental objectives – to manage the business in an environmentally
sustainable way.
(b) Discuss the importance of ‘business enterprise’ in your country.
• Business enterprise defined as initiatives concerned with taking risks and setting up
businesses making things happen – business opportunities are identified and calculated
risks are taken.
• Those who take risks and show enterprise called entrepreneurs – they make a major
contribution to the development of business enterprise in a country – seize initiatives –
add value, create jobs – make profits – contribute to social investment via taxation.
• Business enterprise(s) considered to be important in that:
• Jobs are created.
• Economic growth – increased living standards – tax revenues for governments to spend
on infrastructure.
• Businesses grow, expand, diversify and support a more developed economy.
• Adds dynamism to an economy – increased use of I.T. and new technology.
• Helps improve international competitiveness – exports.
• Helps achieve social cohesion in a country and supply important social goods.
• Economic development comes from economic growth which is significantly supported by
business enterprise – countries become industrialised and modernised through
sustained business enterprise activity.
With the aid of two examples, explain how the objectives of one group of business stakeholders
could conflict with those of another group.
– Different stakeholders have different expectations, aspirations, and perceptions of what
businesses should do and how they should act, e.g. owners, managers, employees,
shareholders, suppliers, governments, communities.
– Conflict between stakeholders can occur in most kinds of business forms, e.g. partnership,
plc, family owned, public corporation.
– Conflict can occur over a range of issues such as: profit/dividend distribution, compensation,
investment decisions, social responsibility, product/service prices, location and
environmental concerns.
(a) Explain the strengths and weaknesses of a ‘co-operative’ legal structure for business. – These are joint ownership organisations – consumer, producer,
agricultural worker
co-operatives – member owned – meet common economic, social and cultural needs of
– Easy to set up.
– Open membership.
– Democratic management.
– Shared objectives.
– More responsible to communities and customers.
– Share surplus.
– Limited liability.
– Likely limited resources.
– Management can be inefficient.
– Disputes and differences can occur.
– Longer decision-making process.
– Lack of capital.
– Mass of members may lose interest.
(b) Discuss how ethics may influence the activities of a business.
Business ethics are concerned with how businesses treat the environment, work with
staff and suppliers to build a responsible company, relate to local communities and
produce a viable, sustainable company and adds value socially as well as
– Business ethics now part of the language of business, customers demand more and
management is trained to deliver more.
– May mean that a business makes explicit provision for ethical behaviour and ethical
– Might mean additional costs.
– More monitoring (e.g. of suppliers).
– May mean new and different practices, e.g. waste disposal – treatment of additional/
different shareholders.
– May be seen as part of brand building and reputational protection (USP).
– May be a source of additional investment for ethical investors.
– So positive and negative implications – becoming a necessity rather than a
discretionary approach to business decisions.
Explain why the objectives of a business could change over time.
A business may change its objectives over time for a number of reasons:
– Business objectives are the stated, measurable targets of how to achieve aims and a sense
of purpose.
– Business objectives may include: survival, growth, profit, maximisation, sales growth, ethical
and socially responsible objectives.
– Business objectives may change for several reasons, including:
○ initial objectives achieved (e.g. survival).
○ competitive environment changes.
○ technology might change product design.
○ new management and leadership.
○ new opportunities arise.
○ internal/external growth may lead to a revision of mission/purpose and objectives.
○ economic recession – external constraints.
○ becomes more ethical.
Discuss the advantages and drawbacks for a business of setting corporate responsibility
Corporate responsibility is said to operate when a company decides to go beyond normal
business /market principles and creates wealth in ways that avoid harm to, or protect, or enhance
social assets. There is recognition that there is a multiplicity of stakeholders not just
shareholders. Social and environmental concerns and objectives are integrated with business
concerns and objectives.
Advantages are said to be:
– Companies exercise their moral duty to promote social justice.
– It is good business practice.
– Such approaches can become powerful competitive advantages.
– It encourages greater loyalty from customers.
– It enhances the reputation of the business.
– It affects the bottom line-increases profitability.
– Contributes to company and environmental sustainability.
– Companies have a duty to correct any adverse social impacts caused.
Drawbacks are said to be:
– Costs are imposed that make businesses less efficient and this will subtract from overall
social welfare.
– It is unfair to shareholders as profits that belong to them are diverted to social projects.
– The market is likely to allocate resources more efficiently than political pressures – ‘the
business of business’ should be business and the making of profits.
– Accountability should be only to shareholders.
– Customers will have to pay higher prices.
– Leads to lack of business focus and is often done for negative reasons as a defensive
measure rather than for positive reasons.
Explain the rights and responsibilities of employees as a business stakeholder group.
The rights of employees as a stakeholder group include:
– To be treated within the minimum limits of protective legislation, e.g. minimum wage, health
and safety.
– To be treated by the employer according to employment contract.
– To be allowed to join a trade union – make representations to employers.
The responsibilities of employees as stakeholders include:
– To meet the conditions of the employment contract.
– To co-operate with management in all reasonable requests.
– To observe any ethical code of conduct.
Discuss the differences and similarities between ‘business enterprise’ and ‘social enterprise’.
Business enterprise defined as activity where the primary motive is profit – production of goods/
services to consumers at a profit – create wealth.
Social enterprise more narrowly defined – social mission-driven organisations applying market-
based strategies to achieve a social purpose/environmental purpose – re-investment of profits
into community or back into business.
– In many ways they are very different – but in some ways very similar.
– Business enterprise may be identified as: (entrepreneurs)
– create employment – generate business activity.
– increase economic growth – GDP of a country increased.
– business grows and develops – multi-nationals.
– innovation and technological development takes place.
– international competitiveness improved – export markets.
– economic development improves social cohesion.
– all the benefits of a successful market enterprise system.
– but can be socially responsible (and socially irresponsible) and advance social issues
and cohesion.
– Social enterprise may include: (triple bottom line)
– specific social benefit to economies (national and local).
– create employment for often disadvantaged employees and communities.
– protect and advance environmental issues alongside production processes.
– re-distribute production benefits, not just to shareholders or a limited number of
– complement wholly public sector owned organisations.
– highlight ways in which business enterprise can be improved.
– in so doing create employment – generate taxation and economic benefit.
Social enterprise units can be entrepreneurial and very efficient, and business enterprise units
can be very socially responsible.
(b) Briefly explain two distinctive characteristics of public sector enterprises (for example public
corporations or nationalised industries).
Characteristics of public sector enterprises may include:
Owned/controlled by the government.
Profit is not likely to be a major objective.
Social objectives are a priority.
May be loss-making or subsidised.
Finance comes mainly from government/state.
May be monopoly/critical services.
May be subject to direct political interference.
Produce merit goods.

(b) Briefly explain one way in which conflict may arise between different stakeholder groups in a
Conflict may arise between different stakeholder groups due to:
– Stakeholders who insist on social responsibility policies may conflict with short-term
shareholder interests (profit)
– Consumers/tax payers/communities may suffer at the expense of uncontrolled
shareholder pursuit of profit.
– Employees lose out with companies outsourcing or mechanising or cost cutting.
– Management may receive performance-related pay – other employees basic wage and
sickness, etc.

(a) State two aims of a ‘mission statement’.

A ‘mission statement’ is defined as a statement of what a business stands for – its core
purpose and focus. The aims of a mission statement include:
– Give/state the central purpose of a business in a single statement.
– To motivate employees.
– Stimulate interest by external interested parties.
– A context for a corporate culture.
– Provides guiding principles for business activity.

(b) Briefly explain how a ‘mission statement’ might be effectively communicated to the
stakeholders of a business.
Communication options might include:
– Publish in published company accounts and in communications to shareholders.
– Place in business and strategic business plans.
– Publish in company websites.
– Use internal newsletters and magazines.
– Use advertising and marketing literature.
– Staff training/appraisal.

(a) Explain why a business environment might be described as dynamic. [8]

A business environment may be described as dynamic in that:

– It is rarely static – the nature of business and markets suggests volatility and turbulence.
– Legislative/governmental influences change from time to time.
– Economic and social movements affect demand and supply.
– Technology is ever changing making new opportunities and threats.
– Local, national, international competition develops and changes.
– A business may be a part of the change dynamic, as well as needing to react to change
initiated by other factors.
– Financial factors often influential, currencies, exchange rates etc. – credit relevant
environmental change factors identified.
(b) Discuss the view that the only purpose of private sector businesses is to make profit, not to
pursue corporate responsibility objectives.
The view that business should focus solely on making profit and not be diverted into
corporate (social) responsibility objectives might comment on the following:
– More profit will allow a ‘trickle down’ effect and supply the resources to deal with social
– Entrepreneurs and managers should maintain a clear focus on ‘bottom line’ issues – play
to their strengths.
– Markets and prices are distorted – let businesses and markets do what they do best.
– Alternatively it is argued that the social cost of profit focus alone is too high.
– It is possible and necessary to combine profit pursuit with socially responsible business
– It is vital to continually assess the impact of business activity on the environment and to
require more responsible action.
– Corporate social responsibility is often now seen as an essential part of reputation
management and can act as a competitive advantage.

Explain how ethics could influence the objectives and activities of a private sector business.
The explanation will likely include a definition of ethics in business: ‘the moral guidelines that
determines business decision-making’ and may refer to the objectives a private sector business
might seek to achieve, e.g. profit maximisation, market share, growth, maximising short-term
sales revenue, maximising shareholder value.
The explanation of the influence of ethics on business objectives and activities might include:
– stop questionable business activities such as taking/giving bribes in order to secure
– engage in less polluting production processes.
– pursue social responsibility rather than just profit.
– stop exploiting workers/suppliers.
– extra focus/emphasis on safety issues.
– amending advertising/marketing in pursuit of higher ethical standards.
– stop price fixing, collusion with competitors.
– costs money/reduces profits in the short term.

State two features of a ‘public limited company’.

The features of a public limited company include:
– Limited liability.
– Legal personality.
– Public reports and accounts required.
– Shares, traded on Stock Exchange.
– Often large companies.
– Continuity assured.
– Capital can be raised and dividends paid out.
– Management separate from ownership.

(b) Briefly explain two advantages to a sole trader of changing to a partnership.

– Shared decision making.
– Additional capital injection.
– Business risk shared.
– Opportunity for specialisation in management areas.

Explain the likely conflict between the ‘triple bottom line’ objectives of a social enterprise
operating in your country.

‘The triple bottom line’ is the definition of the objectives of a social enterprise organisation –
economic, social and environmental. It is said to be a challenge in that:
– The focus of a triple bottom line business is broader than a simple profit-making
organisation and a Social Enterprise is a business that seeks to make money in socially
responsible ways through the pursuit of three primary objectives: economic, social,
environmental. As well as making money in a socially responsible way Social
Enterprises often seek to invest any surplus (profit) into society.

A Social Enterprise organisation, like other organisations, often has to make decisions
based on multiple and sometimes conflicting/competing objectives but the focus will be
on the ‘triple bottom line’.

The 3 ‘triple bottom line’ objectives are: 1. Economic – make a profit and survive. 2.
Social – ensure the well-being of people/employees, disadvantaged in the community,
customers etc. 3. Environmental – protecting the environment and managing the
business in an environmentally sustainable way.

There may well be tensions/conflicts between the 3 primary objectives of a Social

Enterprise. Perhaps the most notable tension is often caused by the need for a Social
Enterprise to remain economically viable and sustainable – being efficient, productive,
and profitable as it seeks to achieve its social and environmental objectives. There may
well be tensions and conflicts within each of the 3 objectives for example establishing
priorities for social and environmental objectives.

(b) Discuss the role business entrepreneurs could play in the future development of your country.

The discussion is likely to refer to the contribution business entrepreneurs might make to a
country in terms of the business enterprise culture and activities they bring or develop. An
initial explanation of entrepreneurial characteristics may follow with an emphasis on risk
taking, innovation, creating and strengthening business ventures, and generally improving
the national business enterprise culture and performance.

The contribution they make or may make to the future development of a country is likely to
depend on factors such as:
– The stage of development (economic) that a country is presently in
– The quality of the skills of the entrepreneurs.
– The support and encouragement given to the entrepreneurs by the government of a
– The external issues that may affect a country in the future, given a dynamic and political
external environment.
The role of business entrepreneurs could include activities such as:
– Stimulating business enterprise in whatever form as the engine of economic progress
and development.
– Support infrastructure development and progress.
– Create jobs – multiplies effect on economy.
– Fostering entrepreneurial spirit – innovation – change.
– Creating opportunities for funding – taking advantage perhaps of international funding and support.
– Entering into partnerships with government-funded structures and organisations.
– Educating people of the potential benefits of market activity and private sector

(a) State two aims of a social enterprise organisation.

Aims could include: to advance social objectives using business entrepreneurial activities
and methods...investment of surpluses in community initiatives rather than maximising
returns to owners...the pursuit of triple bottom line objectives (social, economic,
environmental)...concern for people, planet, profit...concern for human capital, fair
employment practices throughout the production chain...sustainable environmental
practices...wider definition of profit to encompass economic value created and the
distribution of real economic benefit to society.

(b) Briefly explain how entrepreneurs could benefit your country.

Entrepreneurs could bring to the country business qualities and attitudes such as the ability
to develop and pursue a business idea...combine land, labour, and capital to develop and
promote business activity, imagination, creativity, courage, energy, ruthlessness?, strategic
thinking, risk taking, passion, self confidence, visionary, energy, adaptability, charisma
motivator. Entrepreneurs could bring a dynamic/vital approach to business and stimulate
more effective business performance and activity.
(a) Explain the advantages for a franchisee of a ‘franchise’ as a form of business.

Franchises are a way of buying into an established business name, brand and success. The
franchisee might be organised as a sole trader, partnership, cooperative, or limited company
– pays a fee for the franchise, pays royalties to the franchiser...benefits from the market
position and advertising/marketing of the established business...may get help, advice,
training from the franchiser...examples include Body Shop, McDonalds, Pizza Hut.
Advantages include: a route into business – relatively small amount of capital required –
motivation in running own business without unlimited risks – selling a recognised
product/service – backed by successful marketing and business methods – more likely to
succeed than a single independent entrepreneur.

(b) Discuss the importance of small businesses to the economy of your country.

The discussion initially may seek to define small businesses, (SMEs) businesses employing
less than 20/50 staff (varies between countries) Importance might refer to: the value of small
businesses in providing employment opportunities...in many countries, including developed
economies, small businesses account for a significant % of employees (e.g. in New Zealand
97% of businesses employ 19 or fewer employees)...give opportunities for new
entrepreneurs to start up. Governments provide start up funds and incentives to encourage
small businesses to develop and so contribute to the economy...particularly in the tertiary
sector...small businesses considered to be more creative, innovative, and flexible–staff more
motivated. Provide a rich range and variety of products and services – can become national
and international organisations (e.g. software companies starting in a garage)...stimulate
other entrepreneurial activity. May make a particularly important contribution to the GDP and
economy of a country...emphasis by governments of such countries to invest in these small
businesses as well as inviting multi-national companies to come in.

Explain the main qualities of a successful entrepreneur.

An entrepreneur defined as a person who organises and manages a business–
assuming the risk in pursuit of profit...enterprise as a factor of production. Qualities
identified may include: innovative business ideas, new ventures, creativity,
visionary, inner drive to succeed, passion about their products/services, risk taking,
willing to learn, remove obstacles to progress, set big goals, strong self confidence,
assertive personality, focussed, willing to change, aware of latest technology and
ideas, thrives on competition, very energetic, likely to run small businesses but can
become successful leader of large companies. Credit examples such as Branson,
Sugar, Dyson etc.
N.B. These qualities are considered to be different to standard manager
functions/roles (such as planning, coordination etc.).

(a) Explain the advantages of a ‘co-operative’ as a form of business.

Cooperatives are joint ownership organisations.....different types–producer,
consumer, worker. Exist to provide a service to their members, owners, and the
public, and are a distinctive type of business organisation. There is often a
significant amount of democratic control and profits often shared/distributed to
members in proportion to investment. Consumer cooperatives generally in Europe
and Japan. Producer cooperatives common in agriculture particularly in developing
countries. Advantages include opportunities for joint ownership–more employee
motivation, shared objectives, opportunity to influence/participate in decisions,
produce a distinctive supportive culture, idealistic values, strength in unity, strength
in raising investment capital, stronger in negotiations with buyers, more responsible
to customers and community, can be innovative.

(b) Discuss the factors that could influence the success of a small business.
The discussion might initially define small businesses and their
characteristics...(small no. of employees...small turnover...small net profit etc.).
Factors affecting success are many (may be owner, venture or economy specific)
may include: degree of business acumen/expertise/experience – degree of
capitalisation/undercapitalisation...quality of business objectives...expand too
fast...quality of basic business functions and systems, e.g. planning, costing,
marketing, product development, poor/good location, poor/good internal controls
(costs and cash flow), level and type of competition, viability of business model
chosen...reward particular and country specific examples.

(b) Briefly explain two benefits of setting corporate objectives.

Corporate objectives are aligned to the mission statement but expressed in terms
that provide a much clearer guide for management and worker action. They focus
on specific outcomes and targets – e.g. profit maximisation, growth, market share,
survival. Thus benefits may include: give a specific context for operational
decisions, turn mission statements into achievable and measurable objectives,
give detailed expression to the mission statement of a business, give a clear guide
for management activity and strategy, give direction for the setting of
departmental/business unit targets.

(a) Explain the strengths and weaknesses of ‘family owned’ businesses.

Family controlled businesses are said to have strengths and weaknesses including

– Strengths: flexible, entrepreneurial, innovative, multi-tasking, quick decision-

making, long time horizons, aim is to pass on wealth, high level of trust and
commitment, loyalty, shared values, team spirit, high degree of internal control,
good lines of communication etc. Weaknesses: lack of management
experience/expertise, inflexible, role confusion, nepotism, autocratic, lack of
objectivity, family and business issues mixed up, family rivalries, innovation stifled,
lots of conflict etc...Obverse of strengths!

(b) Discuss internal growth as a way of expanding a business.

Discussion of expansion through internal growth (rather than external growth

actions such as mergers, vertical and horizontal integration) might include:
deliberate decision not to pursue external growth – avoid risks of external growth
such as the merging of additional companies, culture and work force resistance –
retain full management control through organic growth – retain core values –
decide to use own resources and grow incrementally, may be at a stage of
development where external growth is not possible.
Internal growth might include: open more outlets/divisions/branches/ in other
towns and cities – devolve and develop the existing business – grow the customer
base – create new products – increase operational efficiency.

(b) Briefly explain two advantages (other than limited liability) a private limited company has over a sole trader.

Advantages could include: separate legal personality of a private limited company, likely
continuation of a company in the event of the death of a shareholder, better able to raise
capital through sale of shares to family, friends, and employees, greater status than an
unincorporated business, original owner may still be able to retain control over the business.

(b) Briefly explain two advantages a public limited company has compared to a private limited

Advantages of a public limited company over a private limited company include:

The right to advertise shares for sale and have them quoted on the stock exchange, means
that potentially large sums of money can be raised from public issue of shares, also means
existing shareholders can quickly sell shares if they wish, this flexibility of share buying and
selling encourages the public to buy shares and invest in the business, the ability to raise
substantial funds may facilitate significant growth opportunities, recruit more experienced
staff and make more substantial capital investment decisions.

(b) Briefly explain two disadvantages to a sole trader of changing to a private limited company.

Disadvantages could include: legal procedures and costs involved in the change, the loss of
complete control over the business – now becomes answerable to other shareholders, no
longer keeps all the profits, must now send end of year accounts to appropriate authorities,
less secrecy over financial affairs, more interference likely in decisions relating to work
practices, growth plans etc.

(a) State two objectives of a private sector business.

Two objectives of a private sector business could include:

• make a profit
• satisfy shareholder demands
• grow the business
• increase market share
• provide employment
• survive.

(b) Describe two methods for measuring the size of a business.

• market share
• level of sales turnover
• number of employees
• value of capital employed (cost of replacement)
• the value of a business/market capitalisation.

Briefly explain the main functions of management.

• planning – e.g. setting goals, objectives, business planning, project planning

• organising – e.g. designing structures, mobilising resources, defining tasks, roles, systems
• leading – e.g. setting direction, defining vision, values, mission, motivating
• co-coordinating/controlling – e.g. monitoring systems and processes to reach goals, financial
controls, performance management.

Explain why many businesses fail within the first year of trading.

Answers might interpret the question as a small business (probably so but not necessarily
always). Estimated that 60% – 70% of small businesses fail in early years.
Reasons given may include:
• lack of focus – unclear objectives – priorities not determined
• failure to deliver a product/service demanded by customers
• business model may be flawed
• poor cash management – inadequate budgeting and planning
• growing too fast
• lack of business and management skills
• under-capitalised
• staffing problems
• environmental/economic conditions.

(a) Explain the strengths and weaknesses of small businesses.

Strengths might include:
• offers opportunity to entrepreneurs
• little start-up money may be required
• large percentage of revenue can be converted to profit
• flexible business organisation
• quick response to customer demands
• more personalised approach
• managing the assets may not be too demanding
• internal factors such as good internal communication, likelihood of workers feeling
‘included’ and recognised in a small organisation.
Weaknesses might include:
• lack of capital to expand
• difficult to build a customer base
• diseconomies of small scale
• owners may lack core management skills
• customers may prefer to trade with larger established companies
• difficulty with cash flow
• external competition with large businesses.

(b) Discuss the extent to which businesses are accountable to their stakeholders.

Discussion might initially define stakeholders: anyone affected by a business and/or able to
influence the decisions of a business.
• the essence of business answerability – possibly the notion of corporate governance
• multiple levels of answerability – legal, financial, ethical; the responsibility and
requirement to account to various stakeholders, not just the wealth maximisation of
• a range of business constituencies are concerned with business performance.
The extent of this accountability depends on a number of factors:
• the activity/influence of various stakeholders and the information made available to them
• the size and nature of the business organisation – different for a plc, private limited
company, partnership, and sole trader
• extent to which mechanisms such as published accounts, annual general meetings,
annual reports are used; role of media in revealing/exposing activity; inside a business
the type and level of communication to staff, trade unions etc.
• the power of an organisation to withhold information or dress up accounts
• passivity of stakeholders etc.

(b) State three problems of operating as a sole trader.

Possible responses may include:

• limited financial resources, unlimited liability
• personal responsibility for all decisions
• limitations of the one individual
• no continuity of existence, lack of economies of scale
• lack of specialisation in management
• long hours of working
• takes all risk.

(b) Explain two objectives a small business might have in the first year of trading.

Essentially looking for early business-wide objectives, e.g. survival, break-even, (then make
profit), become environmentally aware, gain market share, establish market reputation,
manage cash flow efficiently, retain staff etc.

5 (a) Explain the possible advantages to a business of autocratic leadership.

Top-down, directive, full control leadership with little employee input. Often compared
unfavourably with democratic leadership but arguably has advantages and in appropriate
contexts is potentially very effective:
• in military and other crisis situations (fire and rescue, police)
• in times of stress and emergency, an autocratic style may well be best style to adopt
• staff need to be told exactly what to do and when to do it.
Focus on the task rather than on suggestions of ways to perform. Businesses that focus on
the task can develop a competitive advantage through increased productivity. Groups/teams
often require authoritative leadership to perform effectively and autocratic direction and
leadership is sometimes necessary.

(b) Discuss the qualities of an effective business leader.

The question is about business leaders. Strong answers will do more than simply outline
some basic management roles and functions. Effective leaders may or may not be good
managers. They are described, however, as having a number of distinctive roles, e.g.:
• to give strategic direction
• to inspire others
• to shape and build organisations
• to communicate well
• to have a holistic concern for the organisation (see the big picture, think the big ideas)
• to be resilient
• to be sensitive/emotionally intelligent
• to be willing to make unpopular decisions etc.

(b) Outline two advantages that a partnership might have over a sole trader.

Advantages could include:

• possibly greater input of financial investment
• more skills and expertise available and more opportunity for specialisation
• partners can share decision-making, give moral and practical support to each other
• share the risks
• possibly easier to raise external funds
• generally share the workload.

Explain why it is important for a business to have clear objectives.

Well-defined objectives help a business to be clear about what it wants to achieve – gives a
sense of direction – provides a measure of how the business performance matches its
achievement aims – reference may be made to specific objectives, e.g. survival, growth, market
penetration, profitability etc.

Discuss how the closure of a business owning many large retail stores might affect different

Answers might initially define stakeholders and then identify different ones in this business
context – company closure:
• Employee – job losses, possibility of getting new jobs, depends on local and national
economic situation, probably low skill base, impact on personal family situation.
• Customers – loss of traditional store, reduced choice (though may already have switched
shopping loyalties thus causing the closure).
• Shareholders – if a plc, share price probably hit the floor, giving significant losses.
• Local community – job losses have a multiplier effect leading to local economic depression,
impact of large empty shops in shopping areas.
• Suppliers – possible short-term losses, in search of new buyers.
• Competitors – opportunity to move into the gap created by the closure etc.
Impact depends on the severity of the economic situation and some stakeholders damaged more
than others.

Discuss how the activities of a business might be constrained by ethical issues.

Answers could refer to the increasing requirement for businesses to take into account ethical
issues. Reference could be made to general business ethics such as the philosophy of a
business (shareholder v stakeholder) or corporate social responsibility or to specific business
ethics such as: accounting information – creative accounting, insider trading; HRM – treatment of
employees; sales and marketing – price fixing – disinformation; production – pollution and carbon emission; intellectual property – patent infringement;
international use of child labour etc.

Discuss how the objectives of stakeholder groups in a profitable business might be in conflict.

Discussion might initially define stakeholders – those influenced by or influencing an organisation

and its decisions. The essence of the scenario is a successful business. Stakeholders might be in
conflict in any business – successful or not – e.g. shareholders’ interests at the expense of other
stakeholders. In this example there may be specific conflicts of interest e.g. – shareholders want
high dividends and not long term investment – managers and workers want immediate salary
increases (versus long term security) – consumers want lower prices (vs innovation and high
quality) – environment groups want more investment in the reduction of waste and pollution, etc.
A range of potential conflicts exist with regard to the distribution of profits. The relative power and influence of stakeholders is important – and more
stakeholders might be in agreement than in conflict.

(b) Explain two possible disadvantages to a sole trader of changing to a private limited company.
Disadvantages could include: loss of ownership – no longer owning 100% of the business –
possible loss of control as may not be the majority shareholder – cost of conversion to a Ltd
company – may lose influence on key decisions, e.g. dividend policy, retained profits –
accounts need to be produced and made public – profits now need to be shown.

Discuss the benefits to a business of setting ethical objectives.

Discussion could include a definition of ethical objectives – ‘right and proper’ approach to
business decisions and actions – with examples in relation to pollution, treatment of staff,
suppliers, environmental issues and the potential impact of distinctive values and beliefs of a
company on its actions.
Potential impact of ethical objectives and behaviour on securing greater market share/
profitability/image/reputation might include: marketing and publicity benefits of the perception of
being ethical – high reputation say for treating an international supplier fairly and ensuring ethical
standards by that supplier – customer perception nationally and internationally – unique selling
point (USP) all help to enhance market share. (Some may point at the potential extra costs and
the need to balance costs and benefits of ethical objective-setting.)

Explain the importance of the profit maximisation objective to a business.

Explanation could refer to profit maximisation being a prime objective of a business – it supports
growth, investment, stakeholder satisfaction – shareholders are a key stakeholder driving the
share price and confidence in the business. Answers might well also recognise that profit
maximisation is not always the only or most important objective of a business. E.g. for a small
business market share is more important – survival in a highly competitive market. Some
answers might focus on the specifics of profit maximisation (e.g. pricing policy, profit

Explain how legislation affects the operations of businesses in your country.

Explanations will probably identify a number of key legislative measures that affects business
operations in any country – and then apply them to the context of a specific country.
Examples of legislative measures:
– conditions of employment
– rights of consumers
– competitive behaviour
– Health and Safety
– ethical considerations.

(b) Briefly explain one factor that determines the culture of a business.
Factors such as origin and development, influence of founders, impact of managers/leaders,
impact of the ‘type’ of business, large, small, nature of activity e.g. manufacturing, ‘engineer
culture’, service/customer-led culture, role, task, power, person, entrepreneurial v

Discuss the problems a new business might experience in its first year of trading.

Discussion could initially define a new business and give an example – problems identified
and discussed could include the following: financial – start-up costs – cash flow – capital
funding; marketing – establishing a position, decisions on advertising – promotion;

production – relations with suppliers – stock control; pricing – strategy – competitors break-
even – profit etc. There are endless possibilities dependent on the context and type of new

start-up business chosen. Focus must be on some sort of new business in a first year of

(b) Briefly explain the main advantages of a matrix organisational structure.

References to decision-making or hierarchy without explicit mention of the flow of authority to

be awarded 1 mark
(b) Explanations may refer to an emphasis away from functions towards projects or tasks;
reduce layers in hierarchy; combine line departments with project task teams; advantages:
encourages team approach, where staff are assigned by ability and skill, not rank or position;
traditional departmental barriers broken down; more varied work; greater motivation for
staffing multi-disciplinary teams; reduces bureaucracy.

State two advantages of being a sole trader.

(a) Full control, personal satisfaction, close to customers, personal profit, flexibility of working
hours, easy to set up etc.

(b) Briefly explain two objectives a small business might have, other than profit maximisation. Objectives might include: survival, market share, establish
the business, cover costs,
work/life balance, competitive market etc.