Why businesses exist A business is an

Why businesses exist? • A business is an organisation that produces goods and services to satisfy people’s wants and needs • Why Exist? – to make a profit, to provide income for owners, other reasons – ethical, social etc

Social Enterprise • a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.

Stakeholders – Groups / individuals that are affected by and/or have an interest in the operations and objectives of the business

Business Aims & Objectives • Survival – a short term objective, probably for small business just starting out, or when a new firm enters the market or at a time of crisis. • Profit maximisation – try to make the most profit possible – most like to be the aim of the owners and shareholders. • Profit satisficing – try to make enough profit to keep the owners comfortable – probably the aim of smaller businesses whose owners do not want to work longer hours. • Sales growth – where the business tries to make as many sales as possible. This may be because the managers believe that the survival of the business depends on being large. Large businesses can also benefit from economies of scale. • Other – increase market share, breakeven etc

Alternative Aims and Objectives Not all businesses seek profit or growth. Some organisations have alternative objectives. • Ethical and socially responsible objectives – organisations like the Co-op or the Body Shop have objectives which are based on their beliefs on how one should treat the environment and people who are less fortunate. • Public sector Organisations are run to not only generate a profit but provide a service to the public. This service will need to meet the needs of the less well off in society or help improve the ability of the economy to function: e. g. cheap and accessible transport service. . • Charities and voluntary organisations – their aims and objectives are led by the beliefs they stand for.

Aims & Objectives may differ with… • Type of Business – PLC? Sole Trader? Charity? Etc • Circumstances – eg in a recession a business may aim to maintain or increase market share as increasing sales or profit may not be possible • Time – A new business may look to survive and build a good reputation. In the medium term it may look to increase sales and make a profit. In the long term maximising profit may be the objective.

Sectors of Business Activity • Primary sector Involves the extraction and production of raw materials, such as coal, wood and steel. A coal miner and a fisherman would be workers in the primary sector. • Secondary sector Involves the transformation of raw materials into goods e. g. manufacturing steel into cars. A builder and a dressmaker would be workers in the secondary sector. • Tertiary sector Involves the provision of services to consumers and businesses, such as cinema and banking. A shopkeeper and an accountant would be workers in the tertiary sector

• Deindustrialisation – a fall in the relative importance of manufacturing and the secondary sector (falling secondary employment)

Primary Employment Fallen Secondary Employment Fallen Tertiary Employment Grown People replaced by machinery Incomes have risen so people have more to spend on services More primary produce imported due to lower production costs abroad More secondary goods imported due to lower production costs abroad (eg Labour Costs such as wages lower) Specialisation – UK specialises in higher value added services so more jobs in these areas • Primary Employment Fallen Primary resources such as coal used up More Leisure time means people have more time to use services such as leisure centres, cinemas etc leading to more jobs in these areas

Interdependence • Is the way in which businesses depend upon other businesses

• Identify and explain one reason why businesses such as Payne’s Pastries exist (2) • Identify three possible stakeholders in Payne’s Pastries and explain what they would want from the business (6) • Explain how the objectives of two stakeholder groups in Payne’s Pastries may conflict (3) • Payne’s Pastries is a new business explain how and why its objectives may change over time (6) • Payne’s Pastries is a private sector business. How might its objectives differ to a business in the public sector (4) • Mr Payne was thinking about setting up his business as a social enterprise. Explain what this means and how it might have affected his objectives (3) • State and explain one reason why Payne’s Pastries might be dependent on other businesses in the local area (2) • Look at the PS&T data. Identify and explain two trends you can see in the data (4) • Use the PS&T data to explain what is meant by deindustrialisation. (3)

Sole Proprietor • Unincorporated • Owned by one person – although can employ other people • Unlimited Liability – any losses have to be met by the owner. If the business fails and the debts cannot be paid the owner may lose his / her personal possessions. • Pay Income Tax - on Profit

• Easy to set up • Owner is in sole control • Financial Information is private • Owner keeps all profit • • Unlimited Liability Lack of Capital Shortage of Skills Illness / sickness / holidays difficult to cover

Partnership 2+ owners Unincorporated Unlimited Liability Deed of Partnership – legal document – owners details, how profit / losses shared, how much capital provided, how disputes settled • Sleeping Partner – invest capital but take no part in running the business • Pay Income Tax - on Profit • •

• More capital than sole trader • Specialist skills • Shared decision making • Easy to set up • Financial Info Private • • Shared Profit Unlimited Liability Disagreements Lack of Capital – compared to LTD or PLC

Private Limited Company • LTD • Incorporated • Limited Liability – If the business fails and cannot pay its debts the owners (shareholders) are not personally responsible • Owned by Shareholders • Shares can only be offered for sale privately – usually to family and friends • Run by Directors • Dividends – share of profits given to shareholders • Corporation Tax – on profit

• More capital raised from shares • Limited Liability • Separate Legal Identity • Continuity • Financial information available to general public • Shares cannot be offered for sale to general public • Lack of Capital (compared to PLC) • Shareholders may expect dividend

Public Limited Company • PLC • Shares can be offered for sale publicly • Shares bought and sold publicly on stock market • See LTD for other features

• More capital raised from selling shares publicly • Cost of setting up as PLC may be high • Takeover – as anyone can buy shares the original owners may lose control of the business

Other Business Types • Public Sector Organisations - owned / run by the government – objective to provide service • Charities – aim to raise money to support their cause – eg RSPCA • Cooperative – those businesses owned and operated by the people who work in the business – eg John Lewis – profits shared by workers

Multinational – Companies that have a head office in one country and manufacturing / service facilities in other countries • Lower Costs - Production can be located in countries where production costs are lower (eg China) • Nearer Markets Manufacturing bases can be located in countries nearer to the markets which they serve • Communication Problems • Cost of transporting goods between countries • Different legal requirements • Changes in exchange rates

Growth of Firms

Methods of Growth • Internal – Organic Growth • External – Inorganic Growth

External Growth - Integration • There are two main methods of external expansion (Integration) 1. ) A Merger – This is where 2 firms agree to join together and operate as one firm 2. ) A Takeover – This is where one firm buys another

Vertical Integration Backwards - join with a supplier eg……. Lateral Integration –Join with a firm at the same stage of a similar industry eg……. Horizontal Integration – 2 competitors at the same stage join eg……. FIRM Vertical Integration Forwards - join with a firm in a later stage of production eg……… Conglomerate – 2 firms with no obvious link join eg…….

Benefits & Costs of Mergers • • Economies of scale, which reduces unit costs. • Greater market share for horizontal integration, which means the business can often charge higher prices. • Spreads risks if products different. • Reduces competition if a rival is taken over. • Other businesses can bring new skills and specialist departments to the business. • • Diseconomies of scale if business becomes too large • Hard to Integrate - Clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration. • May need to make some workers redundant, especially at management levels – this may have an effect on motivation.

Exam Questions – B&B • Explain one advantage and one disadvantage to Ben of taking on Beth as a business partner (4) • How might the objectives of B&B differ to a public sector organisation or a charity? (4) • Explain one advantage and one disadvantage to Ben and Beth of changing from a partnership to a private limited company (4) • Explain 2 factors that Beth and Ben may have considered when deciding where to locate their craft shop (4) • Beth and Ben’s biggest supplier Biddle’s Biros is an MNC. Explain one advantage and one disadvantage to Biddle’s Biros of being an MNC (4) • Beth and Ben’s biggest competitor is a cooperative. The workers in this business are really motivated, explain why (3) • Beth and Ben now have 10 shops and they are thinking of merging with a competitor. Do you recommend they do this? You should discuss the advantages and disadvantages of mergers in your answer. (6)

The Recruitment & Selection Process 1. )Needs Analysis – need for recruitment is identified 2. ) Job Description – A summary of the main duties and responsibilities involved in a job 3. ) Person Specification – a document detailing the skills and qualities the potential employee needs to have 4. ) Job Advert designed and placed 5. ) Shortlisting – narrowing down the number of applicants to a more manageable number using CVs and Lof. A 6. ) Send for References – a report from a school or employer on the applicants qualities 7. ) Aptitude Tests – test of ability to do the job 8. ) Interview 9. ) Job Offered / Accepted

Internal & External Recruitment • Internal – Filling the job vacancy using employees from within the business • Gives existing employees greater opportunity to advance their careers in the business • May help to retain staff who might otherwise leave • Employer should know more about the internal candidate's abilities (= a reduced risk of selecting an inappropriate candidate) • Usually quicker and less expensive than recruiting from outside • External • Wider potential pool of applicants (may find someone better) • Brings new ideas and a fresh outlook to the business • May not be an appropriate person within the business

Recruitment Agencies • These businesses specialise in recruitment and selection. They often specialise in recruitment for specific sectors (e. g. , finance, travel, secretarial). They usually provide a shortlist of candidates based on the people registered with the agency. They also supply temporary or interim employees. • The main advantages with using an agency are the specialist skills they bring and the speed with which they normally provide candidates. They also reduce the administrative burden of recruitment. (do shortlisting for you. • The cost is the high agency fees charged - often up to 30% of the first year wages of anyone employed. BUT – you only pay if you employ!

Reasons for Training Staff • • • Support new employees (eg INDUCTION) Improve Skills (eg customer service) Improve Productivity Introduction of new technology or systems Knowledge of appropriate legislation – eg health and safety

Benefits of Training • • • Improve skills and ability to do job So…… Motivation UP Quality / Output / Productivity UP Customer Satisfaction UP Sales / Profits UP

On the Job – Training whilst remaining in the workplace

Off the Job – Training away from the place of work

Appraisal • A meeting that takes place at least once a year between the employer and their employee. It is a discussion about the employee’s performance in the business. • Targets may be set and ways of improving the performance may be suggested. • Training may be offered in order to overcome any areas of weakness.

Questions • The HR department has decided to use internal recruitment to recruit a new manager. Explain one advantage and one disadvantage of using Internal Recruitment (4) • Explain what is meant by a Job Description and how it could be used by the school to recruit a new business teacher (4) • Explain what is meant by a Person Specification and how it could be used to recruit a new business teacher (4) • Payne’s Planes needs to recruit 10 new cabin crew. It has already had 60 people apply. Recommend the methods of selection that Payne’s Planes might use to choose between the applicants (8) • Explain two reasons why Payne’s Planes may need to train its workers (4) • Explain two benefits to Payne’s Planes of staff training (4) • Payne’s Planes has just recruited a new trainee marketing assistant. Recommend whether Payne’s Planes should use on the job or off the job training to train the worker (6) • Explain how a yearly staff appraisal might help Payne’s Planes (3)

Monetary Methods of Motivation • • Time Rate Overtime Salary Piece Rate Commission Bonus Profit Sharing Fringe Benefits

Non Monetary Methods of Motivation • • Job Rotation Job Enrichment Job Enlargement Team Working Award Schemes Promotion Leadership Styles

Top Tip • You need to apply the method of motivation to the situation. Piece rate isn’t appropriate for sales staff! • Explain!!!! – which of the following is better? • Bonus – because employees will work hard to achieve the bonus and therfore will be more motivated and sell more • Bonus – because employees will be motivated because they will get a bonus

Style Leadership Styles Advantages Disadvantages Autocratic – This is where the leader makes all the decisions. There is little or no discussion with workers who are just expected to obey orders • Quick decision making. • Workers may feel Good in a crises situation demotivated • Good if the leader makes • Workers may have the right decisions experience and ideas that • Some workers need may benefit the business strong direction Democratic – This is where the leader discusses plans with workers who can influence decisions • Workers may feel • Slower decision making motivated and • May not be appropriate if committed as their ideas decisions need to be have been heard made quickly • May benefit from workers ideas and skills Laissez Faire – from the • If workers are French meaning leave to do. independent and The leader will decide upon motivated it may be the objectives and leave the appropriate workers to achieve them • Workers may lack direction • Workers may take advantage • May not suit all workers

Which Leadership Style? – it depends! • • On the business type On the business situation On the decision being made On the workers • You should think carefully about the business, type, situation and the workers when making a recommendation • A leader may use a number of different styles

Pay Slip A Teacher Robert Smyth Upper Market Harborough Payments Deductions Basic Pay £ 2656. 50 Income Tax £ 469. 39 TLR 2 £ 197. 00 Pension £ 182. 62 National Insurance £ 226. 55 Student loan £ 144. 00 Gross Pay = 2853. 50 Total Deductions = 1022. 56 Net Pay = 1830. 94

Pay Slips • Gross Pay – Pay before any deductions • Deductions – Money taken off a person’s gross pay for income tax, national insurance and pension contributions • Net Pay – Pay after all deductions have been taken off Gross Pay

Employment Laws Law Detail Equal Pay Act Introduced to ensure women are paid the same as men when they do similar work Race Relations Act Introduced to stop people being discriminated against on the grounds or race. Sex Discrimination Act Introduced to stop males or females being treated differently from members of the opposite sex Health & Safety at Work Act This law makes it the responsibility of the employer to protect workers from dangers in the workplace Minimum wage Introduced to stop workers being exploited by being paid to little. There are different bands for different ages. BUT – many workers earn above this anyway Disability Discrimination ACT Employers cant discriminate against disabled people when recruiting staff. They are expected to make reasonable changes to premises to allow disabled people to work in the business.

The minimum wage is due to increase - explain how this might affect businesses? The government increases the minimum wage Some businesses may have to pay their workers more BUT – Many firms may not be affected as they pay well above the minimum wage anyway! This will raise their costs reducing profit margins They may have to raise prices reducing their competitiveness or even lay off staff

Redundancy • When a workers employment is ended because the work they do is no longer needed. This may be because: • Machinery replaces workers • The firm is producing less so needs less workers • The firm has gone out of business

Trade Unions – organisations that represent the interest of workers that are its members Benefits of Membership • Collective bargaining – strength in numbers means that unions have power to negotiate for better pay, working conditions etc • Expert advice and support – Unions can employ expert lawyers etc. These can give workers expert advice about their rights and help with disputes • Trained Negotiators • Money –to pay for expensive court cases

• Industrial Action – refers to the action unions can take to achieve what they want in a dispute with employers. IMPORTANT – this is a last resort. It can harm the business which might ultimately harm the workers as well • Single Union Agreements – This is where workers all agree to be a member of the same union. It is good for workers as they all speak with one voice. For the business it is easier to negotiate with one union than several of them.

ACAS – Advisory, Conciliation and Arbitration Service • This is an organisation which helps to settle industrial relation disputes between employers and employees • It is in the interest of both the business and workers to reach an agreement as strikes and industrial action can harm both the workers and business

Possible Exam Questions • State and explain one monetary and one non monetary method of motivation (4 marks) • Payne’s Planes has been struggling over recent years and sales and profit have been falling with workers lacking motivation. Discuss whether Mr Payne should have a more autocratic leadership style (8) • Explain two laws that Payne’s Planes will need to follow when recruiting new staff (4 marks) • To what extent will a rise in the minimum wage be bad for Payne’s Planes (6 marks) • Explain the difference between redundancy and other forms of dismissal (4) • Explain two benefits to Payne’s Planes workers of joining a union (4) • Explain how Payne’s Planes may benefit from its workers being part of a union (4)

Organisation Charts • Help businesses by showing: • Who is responsible for which functions and tasks • What a person is accountable for • To whom a person is responsible and from whom they must take orders • Lines of communication • How different departments are linked together

Key Terminology • Chain of Command – The route through which instructions are issued by managers • Span of Control – The number of people who report directly to a manager • Layers – the number of levels in the hierarchy • Delegation – When authority is passed on to someone else lower down the organisation • Hierarchy – An organisation where power and responsibility are built up in layers. The most powerful people being at the top. • Line Manager – The person responsible for people and activities on a lower level in an organisation. • Subordinate – A person who reports directly to a line manager • Function – A department responsible for a particular area of a business • Tall Structure – An organisation with 4 or more levels in the hierarchy • Flat Structure – An organisation with less than 4 levels in the hierarchy • Line of Communication – The route through which messages pass in the organisation.

How and why the organisation of a business might change over time… • As a business grows it is likely to need more formal organisation with more departments. More workers will mean more managers are needed and there is likely to be more layers in the hierarchy. • Delayering – Sometimes an organisation will remove layers of management to improve efficiency. This saves money as the business wont need to pay the salaries of workers it has laid off. Workers may also feel more empowered as they will need to be given more responsibility

Flexible Working & Changing Work Practices • Part Time Employees – Reduces costs if a business does not need someone to work full time hours. Some employees may be looking for part time work due to family commitments etc. By offering part time work a business may benefit from being able to access this pool of potential workers. A business may also offer part time work to current employees who now require this due to changing family circumstances. • Seasonal Employees – A business may face a seasonal demand for its goods or services and so may employ more people on temporary contracts at these times. It cuts costs as staff can be lot go in the off season. • Temporary Staff – Some staff might be employed on temporary contracts. A business may do this if it faces a temporary increase in demand or if it is unsure if demand will continue into the future. Wages of temporary staff may be lower and it is easier to dispense with their services if necessary. Temporary staff may not be so committed or motivated though as they are not permanent employees. Staff may also be employed on a temporary contract to cover staff sickness or maternity leave.

• Flexible Working Hours – eg flexi time – A business may offer its workers flexible working hours. This can be attractive to workers particularly if they have family commitments. They may be more motivated as a result and the business may also be more able to attract good staff by offering this. Sometimes a business may impose flexible hours on its workers such as a zero hour’s contract. This reduces its costs but workers may be less motivated. Obviously this is only suitable for certain jobs and is dependent on the business. • Flexible Staff – Staff that are multi skilled and can do different jobs. Give the business more flexibility as staff can fill in and move between departments as necessary. • Teleworking - is a work arrangement in which employees enjoy flexibility in working location and hours. In other words, the daily commute to a central place of work is replaced by telecommunication links. Many work from home for some of the time using ICT. Obviously this is only suitable for certain jobs eg web page designer or graphic designer.

Communication There a number of technical terms you need to learn: • Internal communications take place between people within organisations • Internal communications happen within the business. • External communications take place between the business and outside individuals or organisations. • Vertical communications are messages sent between staff belonging to different levels of the organisation hierarchy. • Horizontal communications are messages sent between staff on the same level of the organisation hierarchy. • Formal communications are official messages sent by an organisation, eg a company memo, fax or report. • Informal communications are unofficial messages not formally approved by the business, eg everyday conversation or gossip between staff. • A channel of communication is the path taken by a message.

Communication • Communication makes a big impact on business efficiency. Effective communication means: • Customers enjoy a good relationship with the business, eg complaints are dealt with quickly and effectively. • Staff understand their roles and responsibilities, eg tasks and deadlines are understood and met. • Staff motivation improves when, for instance, managers listen and respond to suggestions.

Barriers to Communication • • • Timing Clarity Attitudes of Sender and Receiver Incorrect Method Feedback not received or not appropriate Problem with communication method

Impact of ICT • ICT stands for information communication technology. • Businesses have gained significantly from advances in computing. For example advances in ICT and telecommunications mean: • ADVANTAGES OF ICT • It is easy and cheap to send messages to multiple recipients by email or text. • Senders can check that a message has been received and understood. • ICT can be used to prepare documents, create presentations and record information • Workers have greater freedom about where to work • Businesses can communicate more effectively with both staff and customers • Productivity of workers might be higher

Impact of ICT • DISADVANTAGES • Workers may need training to use technology which may cost money • Expensive to invest in latest ICT • Technical Problems might occur with technology • Hackers can sometimes steal information • Workers need to be made aware of health and safety implications

Possible Exam Questions • Explain why tesco has a finance / human resources / marketing function (6 marks) • Explain how the organisation of Biddle’s Boots might have changed as the business has grown (6 marks) • Biddles Boots has recently considered delayering to become more competitive. Do you think the business should go through this process? You should discuss the costs and benefits of delayering in your answer (6 marks) • Waldron’s Websites uses teleworking. Discuss the costs and benefits of teleworking to Waldron’s Websites and its workers (8 marks)

Possible Exam Questions • Market Harborough Dental - State and explain two methods this business might use to communicate with its customers. Explain why the methods you have chosen are appropriate for this business (6 marks) • The list below shows three potential barriers to communication. Explain why each factor might be a barrier to communication for MH Dental. 1. ) Attitude of Sender 2. ) Language Used 2. ) Method Used (6 marks) • MH Dental is considering investing in ICT in its surgery. Recommend whether MH Dental should invest in ICT. You should discuss the potential costs and benefits in your answer (6 marks)