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ASSOCIATION OF BUSINESS EXECUTIVES

INTRODUCTION TO BUSINESS

NOTES LEVEL 4

OBJECTIVES

A general statement that highlights what the company want to achieve in the long term.
Objectives are SMART i.e. Specific, Measurable, Achievable, Realistic, Timed. Objectives
are quantitative in nature e.g. X company want to increase revenue by 20% in 2018

Corporate Aims

A general statement that highlights what the company want to achieve in the long term. Aims
are qualitative by nature e.g. X Company want to increase revenue or to be a market leader

Types of objectives

Survival -during periods of recession for eg 2007-2008 financial crises most firm their
objectives was geared towards survival
Profitability -a firm must make profit in order to satisfy the providers of capital and to
finance growth
Market share is often a longer term objective. The larger the share of a market the
more dominant a business can become, for example by setting price levels. This is
linked to competitive advantage whereby a firm attempts to achieve and maintain its
position in the market.
Sales maximization is an objective which appeals to managers who are paid bonuses
linked to increases in revenue. Managers can often pursue their own objectives so
long as they make enough profit to keep the shareholders happy.
Business growth - which can be internal or external growth
INNOVATION-most firms eg apple have the objective of want to see as an innovative
company by producing new products in the market
Corporate social Responsibility-Most firms have the objective of want to be seen as
caring for its stakeholders including the community
.

Corporate Strategy
Is method, approach or a game plan an organization uses to achieve its objectives

Benefits

Motivational tool

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Enables effective control and evaluation

facilitates coordination

effective use of resources

BUSINESS RESOURCES

Land
This is used in two senses:

(a) the space occupied to carry out any production process, such as the space for a
factory or office

(b) The basic resources within land, sea or air which can be extracted for productive use,
such as metal ores, coal and oil.
Labor
-Labor covers any mental or physical effort by humans used in a production process.

Capital

(a) Financial capital is the fund of money which, in a modern society, is usually
needed to acquire and develop real capital, both physical and human.
Entrepreneurship or Management Skills
-The expertise to run a business
Stakeholders
a stakeholder is anyone with an interest in the success of a business. The importance of the
stake depends on their relation to the organization.
The Interests of Stakeholders
The key stakeholders and their interests can be seen as follows.
(a) Owners

The key interest for the owners of any business is going to be profit. For shareholders,
that is likely to be just as clearly focused on dividend payments, but they will also have
an interest in overall business performance, especially as it could affect share prices.
(b) Workforce -are interested in about fair wages, good working conditions

(c) Customers
There may also be an interest in the continued existence of the business, high quality
goods at a cheap price
(d) Suppliers

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Suppliers look for lasting business relationships and fair treatment. The continued
survival of the business is important in relation to future orders. However, suppliers
also have a clear interest in the ability of the business to meet its obligations.
(e) Creditors
Creditors have a direct stake in private sector businesses. These are the banks and
other financial institutions that lend money to businesses. They want the businesses to
succeed so that the loans and interest charged are paid on time. If a business does
not repay its loan, the bank may sell the businesss assets to get its money back.
(f) The Community
In the local community, there will be interest in the overall business performance of
organisations as it affects local employment and prosperity. The success of many
small local businesses is likely to be linked to the continued presence and success of
big local businesses. However, there may be other issues related to the quality of life,
such as land use, pollution, traffic flows, etc. which affect the local community.

THE ECONOMY

Types of Economy
There are two basic economic systems of application to large scale modern societies:
A market economy, whereby what is produced, how it is produced and how goods
and services are distributed through the society is determined by buyers and sellers
within a "market
A planned economy, whereby what is produced, how it is produced and how goods
and services are distributed through the society is determined by some mechanism of
collective decision making and carried out according to a plan based on those
decisions.
Sectors of the Economy
It is generally accepted that an economy can be divided into three distinct sectors based on
the type of goods or services produced.
Primary sector In this sector, raw materials are produced, grown or extracted from
the earth. Typical examples of activities operating within the primary sector include
agriculture, mining and oil production.
Secondary sector This is essentially the manufacturing sector where raw materials
are processed and assembled into products for consumption by individuals. This
includes engineering and construction, as well as energy production.
Tertiary sector This includes all those businesses that provide a service, and hence
it is sometimes referred to as the service sector. It covers financial services, computer
software, health care, education, etc.., as well as leisure industries such sport and
entertainment. In the UK this is the largest of the three sectors, accounting for
approximately 75% of all business activity.
The Private Sector
Include Econet, Trust Academy etc.
Aims to make a profit to maximize their shareholder value
Owned by individuals a group of individuals
Are in the private sector

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Public Sectors
Include ZESA, NRZ, ZBC
Owned by the government
Aims to provide goods or services at an affordable price

BASIC FORMS OF BUSINESS ORGANISATIONS

THE SOLE TRADER

Also known as the sole proprietor, this is the oldest and simplest form of business enterprise.
The proprietor is the sole person who provides the financial resources and who makes the
decisions i.e. he/she both owns and runs the business.

Advantages and Disadvantages


There are a number of benefits from being a sole trader as opposed to any other form of
business organization.
A sole trader business can be established with the minimum of formalities, there are
few legal procedures and book-keeping and accounts are straightforward.
The owner has independence and control there is no need to consult with others
about decisions.
The business can respond flexibly to market changes and to customers' demands as
decisions can be taken quickly.
Any profit goes to the proprietor.
Personal supervision by the owner should mean that good customer relations can be
established and that employees are well motivated.
On the other hand, there are disadvantages.
Finance is usually limited to any money the proprietor can provide or borrow from the
bank, building society or family and friends, and this limits the scale of the business.
Unlimited liability means that, if the business gets into trouble, the owner stands to lose
everything, including the family house if it has been put up as security for loans.
Expansion is limited to ploughing back the profits, and lack of finance may prevent the
business from reaching a viable size.
The firm depends on the sole proprietor, so there may be problems in taking holidays
or if the owner is ill, and the business is likely to cease with the death of the owner.
Any one person's range of expertise is limited, so the sole trader may be reliant on
others for certain aspects of the business for example, a sole trader may be good at
repairing the bodywork of damaged cars, but completely lacking in financial and
marketing skills and need to contract with others for these activities.
PARTNERSHIPS

"The relation which subsists between persons carrying on a business in common


with a view of profit".
Advantages and Disadvantages

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Like the sole proprietor and the very small limited company, they are small enough to
be flexible and the partners are close enough to the "grass roots" of the business to
know what is going on. The principle of professional accountability to clients and
customers is retained.
The legal and financial procedures are relatively simple for example, the accounts of
the business need only be prepared for the information of the partners and for the
calculation of tax liabilities. There is no obligation to publish accounts.
There can be division of labour between the partners so that each can specialise and
benefit from each other's expertise in the running of the business. Such working
arrangements are based on trust and mutual confidence between partners.
Partnerships need not be too bureaucratic, and systems and controls in the enterprise
need not be too complex.
Partners may cultivate a degree of interchangeability so that if one is ill or away from
the business, other partners can take over the work.
While operating as individuals, the partners can share the cost of common premises,
staff and services, as in the cases of doctors, dentists and solicitors.
It is easier for partnerships to raise extra resources in order to expand or develop
unlike the sole proprietor, the partnership is likely to have more assets to use as
security for loans. A partnership can also raise more capital by adding new partners.
The main disadvantages of partnerships derive from shared ownership and control of the
enterprise.
Partners have unlimited liability financial failure of the partnership can spell personal
financial ruin for the partners.
The withdrawal or death of a partner may dissolve the firm.
Any partner can enter into an agreement which binds the others.
Decision making may be difficult and slow as all the partners have to agree one
difficult partner could create problems.

For a variety of reasons partnerships are not as stable as sole trader firms. Shared
control means the possibilities of disagreements and delays. Partners are human
beings with human feelings; some partners may be dishonest, some may be lazy or
there may be clashes of personality.

Private and Public Limited Companies


The main differences between private limited companies and plcs are as follows:
Shares in private companies can only be traded with the agreement of the
shareholders and they cannot be offered to the general public.
Shares in public companies can be offered to the general public and are often, though
not always, freely traded on stock exchanges.
A private company must have at least two shareholders while a public company must
have at least seven.
A private company must have at least one director (two if the Company Secretary is a
director) and a public company must have at least two directors.
Advantages and Disadvantages

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The advantages of the public limited company (plc), the dominant form of company in the
commercial sector, are as follows:
The company enjoys the legal status of incorporation, which means that it has an
existence and identity apart from the people who set it up and those who work in it.
Shareholders, directors and employees may retire or die, but the company lives on.
There is continuity of succession, because the continuation and legal standing of a
company are not affected by the death of a member or withdrawal of a director.
Companies have a separate legal entity from the shareholders who, therefore, cannot
be sued for the actions of the company.
Those who invest in limited companies have limited liability so may be more ready to
take a limited risk.
Ownership is largely separate from control, so the company may be run by
professional managers who, if they fail to perform well, can be replaced. Investors can
put money into shares without taking any responsibility for running the company.
Large amounts of capital can be raised from large numbers of investors, especially for
new and more risky ventures. (But private companies can approach only a limited
number of members.)
Stocks and shares can easily be transferred so that investors can recover their capital.
The larger scale of operations of public companies and larger private companies
makes it possible to employ specialist managers.
Control of a company is obtained by owning 51% of its ordinary shares, so that it is
possible to build up large groups of companies through a holding company which holds
shares in the subsidiaries.
Whilst these advantages are strong, you should recognize that there are downsides to this
form of business organization.
The procedures for setting up a company are costly and complicated compared to
starting other forms of enterprise.
Detailed annual accounts have to be prepared, audited and submitted to the Registrar,
an Annual Report made to shareholders and a register of shareholdings has to be
maintained. (Smaller companies, in terms of turnover, have a lesser burden in this
respect.) The publication of such financial and other information may assist
competitors.
Shareholders have little control in practice, as individual shareholdings tend to be small
and most shares are held by the investing institutions and unit trusts, which have rarely
taken an interest in the management of the firms in which they hold shares.
Small and new companies may find it difficult to borrow or get credit because lenders
know that limited liability may make it impossible to get their money back.
Managers are unlikely to put in as much effort as the sole trader or partners. Incentive
schemes for directors and senior managers have been severely criticized as too
generous, and the Cadbury Committee recommended that non-executive directors
should decide pay and incentives for these senior people.
Professional managers may put their interests and careers before the interests of the
shareholders, indulging in "empire building" and drawing high salaries and expenses
not fully justified by their performance.
Companies may become large and bureaucratic, which can lead to a slow response to
change or new opportunities.

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Public companies are vulnerable to take-over bids from rivals who make an offer to buy
their shares.

THE POLITICAL ENVIRONMENT

It includes the following


is the government stable
the tax which the government charging e.g. in Zimbabwe firms are charged high taxes
Political stability e.g. Zimbabwe is not stable in politics due to political violence and
this chases away Investors
the role of political parties and politicians

THE ECONOMIC ENVIRONMENT
Includes the following

Interest Rates
The rate of interest can be defined as both the cost of borrowing money and the reward for
saving it.
Effects of interest rate
For instance, a rise in the rate of interest will not only increase the cost of borrowing to the
firm, but also reduce the disposable incomes of consumers, which has a consequence for its
sales. If interest rates rise, consumers are less likely to borrow money and so are likely to
reduce their demand for most products. Likewise, those consumers who do not need to
borrow might choose to take advantage of the increased rewards from saving and in turn,
reduce their demand for certain goods and services.
On the other hand low interest rate will increase the disposable income of consumers and
money supply in the market thus leading to an increasing of price (inflation)

Exchange Rates
The exchange rate is the price of one countrys currency expressed in terms of another e.g. 1
British pound = $1, 2 US dollar

Inflation
Inflation can be defined as a rise in the general price level of an economy over a period of
time and is expressed as a percentage. It represents a loss in the purchasing power of
money.
As noted earlier, inflation is usually associated with excessive growth in demand within an
economy. Two types of inflationary effect can be seen:
Cost push inflation caused by businesses needing to pay higher prices for factors
of production which are increasingly scarce. Remaining supplies gets stronger. The
result is that firms are often forced to increase their prices, thereby, creating inflation.

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Demand pull inflation caused where there is excess demand for the available
goods and services in the economy and firms are unable to satisfy the current level of
demand. As a result, they increase prices to ration off this excess.
Unemployment
Unemployment occurs when someone seeking work is unable to find any.
It is accepted that there will always be a certain level of unemployment in any economy.
There are three main reasons for this.
(a) Structural
This type of unemployment is present when the economy changes in a fundamental
way. As an economy evolves, and particularly as the growth of the tertiary sector has
taken place, there has been a shift away from the manufacturing sector to the service
sector. This results in many workers losing their jobs. Although there may be growth
in the new occupational areas, those jobs are often in different locations and demand
different skills.
Changes in technology are also a cause of structural unemployment, when businesses
replace labour with machines, and also when employers look for a different range of
skills.
(b) Cyclical
This type of unemployment is when businesses make staff redundant at times of
recession when the demand for goods and services falls and there is less need for
staff.
(c) Frictional
This particular type of unemployment occurs when individuals are in between jobs. In
effect, these are people who have left one job and are in the process of applying for
another. Governments try to reduce frictional unemployment by improving the quality
of information about job vacancies.

Effects of unemployment
If unemployment rises, it can affect businesses in a number of ways. For instance, it can
make it more difficult for businesses to maintain their planned level of sales and can thus
negatively affect both their cash flow and profits. This is because if consumers have lost
their jobs they are likely to have a reduction in their disposable income and cut back on their
expenditure. On the other hand, it can make it easier for firms to deal with excessive wage
demands and may well be able to renegotiate both wages and costs for raw materials as the
economic climate worsens.

If unemployment falls, it can mean that firms will benefit through increased sales and profits.
Increased consumer disposable income feeds increased expenditure in the shops and
therefore benefits businesses. However, if this growth is excessive and too fast then it could
lead to wage-price inflationary spirals which in turn could create inflation and the need for
interest rate increases, which would cause firms the problems already discussed.

The Business Cycle


This sequence is referred to as the business cycle and is characterized by a series of
changes in demand for goods and services within the economy which affects most
businesses within it.

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(a) Recession
During a period of recession an economy is characterized by the following features:
Businesses witness a fall in demand for their goods and services
Reductions in output
Firms start to shed labor
Fewer job vacancies are available
Businesses cut back investment
Reductions in profits which may eventually lead to losses l Increases in the
number of business failures.

(b) Recovery
Following government policies designed to stimulate a recovery (cutting interest rates,
etc.), businesses slowly witness an increase in the demand for their products.
However, recovery is slow because firms are apprehensive as to whether or not this
recovery will be temporary or permanent. As a result, they are cautious about
engaging in further investment and this lack of confidence often means that
unemployment remains high as they are reluctant to recruit new staff.
(c) Boom
Once businesses start to see increased levels of demand, business confidence rises
and provides the stimulus for firms to embark upon business investment. Sales are
increasing as is the profitability of the firms. Stocks that had built up are gradually
being run down, businesses require new recruits and unemployment starts to fall.
(d) Downturn
As business costs rise during the boom phase, it eventually acts as a disincentive to
further investment and growth. Once interest rates have risen to slow down the rate of
economic growth, consumers once again reduce their expenditure as the cost of
borrowing rises. Moreover, they may well still wish to consume, but higher mortgage
interest payments and credit card bills mean that they have less disposable income to
spend in the shops.
Firms are less able to carry out investment, to help grow their business, as the cost of
borrowing has increased which reduces profitability and makes investment a more
risky venture. So, once again, businesses will start to make staff redundant and run
down stocks in an attempt to protect profitability.
Government Economic Policy
The Government intervenes in the economy to carry out a range of policies, including:
Raising revenue through taxation to pay for general public spending
Controlling inflation
Stimulating growth and employment
Redistribution of income
Regional development
Support for declining industries
Support for research and development.

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THE SOCIAL ENVIRONMENT

it includes the following

tastes and preferences

age distribution e.g. in Harare there is a lot of young adults than in rural areas

Culture e.g. in India they dont eat beef MacDonalds had to manufacture a vegetable
Beggar

THE TECHNOLOGICAL ENVIRONMENT

it include the following

the internet which has been used by companies to market their goods and services

email which is cheap and instant thus increasing the effectiveness of firm

Video conferencing which has reduced travelling expenses since business pple now
can do meetings using Skype

THE ECOLOGICAL ENVIRONMENT

We noted that public concern about the environment is a major feature of the social
environment. Concerns about global warming, the potential exhaustion of natural resources
and threats to the diversity of life plants and animals are all real and business has a key
role in assuring the future of the planet. Concerns are also felt at more local levels, for
example in respect of dealing with waste and used products.
McDonald's has been severely criticized on a number of fronts for the destruction of rain
forests to turn into land for raising cattle (a claim it has consistently denied), and for the use
of polystyrene packaging (with a life of a thousand years) for its fast food. In response, the
company joined with an environmental pressure group to find ways of reducing the ecological
impact of its business. As well as trying systems to recycle used polystyrene, which is
possible, the company used a different packaging material which could not be recycled, but
which took up much less space in dumps. It has gone on to examine all aspects of its
operation to reduce the effects on the environment, a move which has both resulted in cost
reductions and pleased its customers.

THE LEGAL ENVIRONMENT

Government Legislation
Businesses operate within the confines of the rules set out by the governments of the
countries within which they operate. This legislation can, on occasions, have a profound
effect on how the business functions. Indeed, failure to work within the law can affect a firms
reputation and incur financial penalties. In the UK businesses are subject to legislation from
the UK government and from Europe.
By and large, the legislation affecting business has been passed to regulate the way in which
organizations carry out their operations with the aim of protecting consumers, employees and
other stakeholders from exploitation and harm. Thus, as we have seen in the previous
chapter, various Acts of Parliament regulate the way in which companies operate. Other

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Acts regulate the types of goods and services that can be sold, and the way in which they
are sold.

ECONOMIES AND DISECONOMIES OF SCALE

-Economies of scale refer to the savings made in terms of the cost of producing each unit of
production as a result of increasing size.

Managerial economies
Managerial economies result from being able to employ more specialists and support them
with advanced computer systems and better training. The large firm can attract better
qualified staff.
Financial economies
When a large organisation borrows are large sum of money will be charged less interest
thereby enjoying financial economies
Marketing economies
Marketing economies reduce the unit cost of sales. It does not cost much more to sell a
large amount than a smaller one. More potential customers can be reached by using
television advertising at a lower cost per head, even though the total cost may be much
higher than spending on other media by smaller firms.
Buying economies
Buying economies arise from the quantity discounts offered to large customers. These
usually reflect the savings from not having to split up bulk production and repackage it, or
the benefits from a long production run without the cost of resetting machinery. Quality
control can be tighter, with less waste through having to return faulty parts.
Internal Diseconomies of Scale

Caused by the following:


Communication difficulties caused by longer chains of command
Delays in responding to market changes because of slow decision-making processes
and the need to consult
Bureaucracy, which results in excessive administration costs
Poor morale and motivation as people feel that they do not have a stake in the firm
Information overload for managers, who cannot absorb enough detail to make informed
decisions.
Large firms can become such heavy users of labour and raw material supplies that they
create shortages and drive up wages and prices against themselves. With a large workforce,
trade unions may be able to exert strong influence to achieve wage increases. Managers in
market dominating firms grant higher wages easily and accept overmanning because the
costs can be passed on to consumers. Specialisation means that a small number of workers
become key personnel who are able to disrupt production for example, a banks mainframe
computer operators.

Why small firms can and do survive.

They are near their customers

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The size of the market is limited for example, it may be localised as in the case of
house repairs and alterations, so jobbing builders are small firms.
They also offer good customer service and also have personal relationships with their
customers
They respond quickly to market changes
They also offer credit to their customers
Open for long even public holidays

Influences on location

When choosing a good location for a business, there are six important points to consider.
These are access to:

Natural resources

An area that is rich in raw materials attracts industry. For instance, the steel industry was
located in Yorkshire due to the rich sources of coal with which to smelt the nearby iron.

Transport links

Canals were the quickest way of moving bulky material around until railways were built. Now
a network of motorways makes it easy to transport goods. Some industries still need to be
close to transport links, so produce can be moved to market quickly and cheaply, eg
newspaper printers and distributors.

The workforce

It used to be a problem to find enough people to make up the workforce but with high levels
of unemployment this is no longer an issue. However, workers with specialist skills are often
needed. Many engineering and technology firms locate near universities, where people with
the right skills are often available.

Markets

Getting produce to market is no longer a problem because of the extensive transport and
communications links in the UK. It can be an advantage being located near a densely
populated market like Greater London, but the land costs are usually higher. Supermarkets
and restaurants locate near their markets, or customers.

Methods of production

The types of goods and size of potential orders will affect the method of production used.
There are three methods of production you need to be familiar with:

Job production

An individually designed house is an example of job production. This method is used when a
customer makes an order for something to be made to his or her own specifications, for
example a made-to-measure wedding dress, a personally designed house, a motorway or a
passenger cruiser.

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Batch production

This method is used when the size of the market for a product is not clear, and where there
is a range within a product line. A certain number of the same goods will be produced to
make a up a batch or run, for example clothes (where a batch of size 12 clothes in blue
might be made, then a batch of size 10 in red), or carpets. This method involves using
estimates.

monitored

adjusted accordingly

Mass or flow production

Chocolate bars are mass produced. Large-scale production benefits from economies of
scale, such as division of labour and specialisation. This method is used when there is a
mass market for a large number of identical products, for example, cars, computers,
chocolate bars or toasters. The product passes from one stage of production to another
along a production line.

Accounting

Revenue: Income from sales of goods and services

Fixed cost: All costs which do not change with the change in output. Example rent, interest
charges.

Variable cost: All costs which change with the change in output. Example materials, fuel
and labour

Profit

This is simply a comparison between the sales revenue and total costs of a firm. The key
formula is:

Profit = Sales Revenue -Total Costs

Break-Even

This is often one of the immediate objectives of a business. A business is said to break even
when:

Sales Revenue = Total Costs

Working Capital

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This is the finance needed by the firm for the day-to-day running of the business

Failure by the business to have sufficient working capital can cause a number of problems,
including:

Difficulty paying its suppliers on time. The knock on effect of this is that the firm may lose
favourable credit terms or be refused credit in the future.

It may need to borrow additional monies from the bank, thereby incurring additional interest
payments, which will reduce the profits of the business.

It may lose out on being able to take advantage of purchasing economies of scale by not
being able to buy in sufficient quantities to secure the maximum discounts.

Cash Flow

-Cash flow is not profit. It is simply the flow of money into and out of a business over a given
time period.

Advantages of a cash flow statement

1. It shows the actual cash position available with the company between the two balance
sheet dates which funds flow and profit and loss account are unable to show and therefore it
is important to make a cash flow report if you want to know about the liquidity position of the
company.

2. It helps the company in making accurate projections regarding the future liquidity position
of the company and hence arrange for any shortfall in money by making arrangements in
advance and if there is excess than it can help the company in earning extra return out if idle
funds.

3. It acts like a filter and is used by many analyst and investors to judge whether company
has prepared the financial statements properly or not because if there is any discrepancy in
the cash position as shown by balance sheet with cash flow statement than it means that
statements are incorrect.

Disadvantages of a cash flow forecast

1. Since it shows only cash position, it is not possible to arrive at actual profit and loss of the
company by just looking at this statement alone.

2. In isolation this is of no use and it requires other financial statements like balance sheet,
profit and loss etc, and therefore limiting its use

Budgets

A budget is a document that translates plans into money - money that will need to be spent
to get your planned activities done (expenditure) and money that will need to be generated to
cover the costs of getting the work done (income).

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It is an estimate, or informed guess, about what you will need in monetary terms to do your
work.

Advantages Disadvantages

It provides targets If the target is unrealistic, it can be


demotivating

Involving staff motivates them If staff are not involved, demotivation

You can use variances to highlight If not flexible, the business could lose
weaknesses business opportunities

The coordination between departments is Conflicts may arise if, especially between
improved managers, if targets are not met, hence
leading to a reduction in the level of morale

Spending is controlled Large amounts of

Sources of Finance

Internal sources of finance: The money raised from inside the business

External sources of finance: The money raised from outside the business

Internal

Sales of assets - Business might sell off old, obsolete assets which are no longer used by
the business to raise additional cash for the business.

Advantage Disadvantage

Better use of capital A new business might not have


any old or obsolete assets

Reduction in working capital - Cutting the stock levels can also help the business to raise
additional cash.

Advantage Disadvantage

Costs related to storage of stock is May lead to shortage of stock and


reduced loss of sales

External

Short Term

Bank overdraft

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- Bank overdraft is a facility given by banks to its business customers, people having current
accounts. Through this facility the customers can overdraw their accounts to a greater value
than the balance in the account. To overdrawn amount is agreed in advance with the bank
manager. The bank assigns a limit to overdraw from the account and the business can meet
its short term liabilities by writing cheques to the extent of limit allowed.

Advantage Disadvantage

No need for collaterals or security. Interest rates are usually variable and
higher than bank loans.
More flexible and the overdraft amount
can be adjusted every month Cash flow problems can arise if the
according to needs. bank asks for the overdraft to be
repaid at a short notice.

Medium Term

Hire purchase

- It involves purchasing an asset paying for it over a period of time. Usually a percentage of
the price is paid as down payment and the rest is paid in instalments for the period of time
agreed upon. The business has to pay an interest on these instalments.

Leasing

-Leasing involves using an asset, but the ownership does not pass to the user. Business can
lease a building or machinery and a periodic payment is made as rent, till the time the
business uses the assets. The business does not need to purchase the asset.

Advantage Disadvantage

The business can benefit The total cost of leasing may


from the asset without end up higher than the
purchasing it. purchasing of asset

Usually the maintenance of


the asset is done by the
leasing firm.

Recruitment

internal or external

may mean promotion


olves appointing someone from outside the organization

Advantages of internal recruitment Advantages of external recruitment

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There is less risk because the employer already New ideas are brought into the organization from
knows the person and their capabilities outside
The cost of advertising is saved, so the recruitment Advertising externally may reach more widely into
process is cheaper. (In some countries and the business community (e.g. a teacher might be
organisations, however, equal opportunities attracted to an educational publishing company and
legislation means that all positions have to be bring useful experience and knowledge to the job)
advertised.
The opportunity for promotion within the organization Internal jealousies are avoided from promotion
encourages people to work hard
Induction costs are saved.

External sources of Recruitment

There are several external recruitment sources which may be used, either on their own or in
combination. No single source is better or worse than the others. Managers must evaluate
each source in relation to its merits for particular vacancies.

Advertising
Many jobs are filled in response to advertisements. To be successful, the
advertisement should be well worded and placed in an appropriate medium. The
choice of medium depends on the nature of the job for example, low-grade clerical
jobs in local weekly newspapers, more specialised jobs in regional or national papers
and sometimes in trade and professional journals. The cost and delay will be greater
for these higher grade positions.
Consultants (headhunters)
This type of agency is more expensive and is used for more demanding and high-
ranking positions. The service provided usually includes advertising and preparing a
profile. Preliminary interviews are carried out and a small number of applicants, well
matched to the profile, are presented to the client.
Universities and colleges
When the recruitment is for recently qualified graduates, it makes sense to contact
the educational establishments directly. Most universities and colleges operate
careers services, providing introductions to employers free of charge.
Careers offices
These are a good source of school-leaver applicants for appropriate vacancies.
Casual enquiries
These occur where applicants write or call. It is a free source and applicants can be
provided quickly.
Recommendations
These may be made by existing employers and other contacts and are often a cheap
and quick source of new staff. There is, however, a potential problem in that the
people recommended are likely to be of the same social and ethnic groups as existing
staff.

Which source?
The choice of recruitment sources for particular vacancies should take account of
factors such as:

ABE
Human Resources 18

(a) The speed with which it is necessary to fill the vacancies.


(b) The costs involved.
Cost is an important element in effective recruitment. Making sure you have
selected the right person for the job.
Quality should not be compromised without careful consideration.

INDUCTION TRAINING -The purpose of induction is to enable the new employee to


understand and work effectively in both the organisation and the job itself.

A lot of information about both can be provided in written form along with the formal offer of
employment, in documents such as:

1. Statement of particulars of employment which must be provided to new employees


this is a statutory requirement
2. Employee handbooks, which some companies provide

Safety policy statements (another statutory requirement) Apart from the details of the job,
other general points covered in an induction programme will include:

1. Introduction to other employees


2. Physical layout of the workplace
3. Essential procedures, such as for claiming expenses, payment of wages, etc.
4. Important safety provisions, such as fire evacuation procedures
5. General information about the organisation foe example, history and
development, trading policies, company projects, responsibilities of each
department, HR policies and procedures, etc.

ABE
HR PLAN STEPS
1. Analysis of existing resources Stock taking of existing staff
2. HR demand forecasting how many HRM we need in the future
3. HR supply forecasting from which sources e.g. universities
4. HR plan
By bringing together information obtained from the first three stages, an analysis of the
action required to bridge the gap between the demand forecast and the supply forecast is
made.
The options for this are considered in the next section.
HRP Strategies
Strategy for shortage of staff
There are a number of options for dealing with this situation:
(a) Promote, transfer or second internally
(b) Recruit externally
(c) Redeploy or retrain staff
(d) Increase the number of part-time staff
(e) Use agency staff
Strategy for surplus of staff
The options where this situation applies are as follows.
(a) Stopping recruitment putting a freeze on any further recruitment externally, either in
specified types of staff or across the board.
(b) Using natural wastage as workers leave they are not replaced.
(c) Seeking redeployment/transfers employers have a statutory obligation to seek
alternative employment for employees whose jobs are threatened by redundancy. Restrictions
on the mobility of staff, both geographically and occupationally, inhibit the scope for redeploying
staff, but the prospects should be investigated.
(d) Encouraging early retirements staff inventories can indicate the numbers of staff
members due to retire at normal dates and the potential number who might consider retiring
earlier. This can be an expensive way of reducing staff numbers, if compensation for reduced
pension entitlement is provided.
(e) Reducing overtime a substantial amount of overtime may be worked on a regular
basis. It makes good sense to reduce, or even eliminate, this work, if there are risks that some
employees will be made redundant. Trade unions may react to a threat of redundancies by
banning overtime work anyway.
Training Methods
On-the-job training
On-the-job training can be one of the cheapest yet most effective methods of training. It
enables knowledge and skills to be passed on in a realistic working environment and
provides the opportunity for trainees to learn from established experts who are familiar
with work processes and the intricacies of using a piece of machinery, its component
parts, etc.
Methods include:
(a) Job rotation trainees gain experience by doing a range of different jobs.
(b) Attachments or secondments trainees spend periods of time in various
departments, often as an assistant to a more senior member of staff, in order to gain
knowledge and experience of the organisation and its activities from a different
perspective.
(c) Action learning trainees learn a new job by doing it under the supervision of an
experienced person.
(d) Job shadowing (often called sitting by Nellie) trainees learn the job by watching
or working with an experienced post-holder. There is a possible difficulty here,
though, in that bad habits can easily be passed on to an "impressionable" trainee.
. Off-the-job training
This encompasses both of the following:
1. Formal external education and training courses run at universities and colleges on a
day release, evening or full-time basis, as well as distance, open and flexible
learning courses. These usually lead to some form of qualification or certified
recognition of achievement.
2. Specific skills training or development activities which take place away from the
normal workplace and are often provided by specialist training agencies. These may
be tailored to the particular needs of the organisation or be of general application.

MOTIVATION -is the reason why people work, and it drives them to work better.

Importance of motivation in a business


1. To achieve its set goals and targets
2. Improves efficiency and productivity
3. Reduces wastage
4. lower level of staff turnover which leads to lower recruitment and training costs
5. Lower rate of absenteeism
6. Better quality of products which improves the business image in the long run
Financial rewards
Pay may be the basic reason why people work, but different kinds of pay can motivate people
differently. Here are the most common methods of payment:
Wages
Wages are paid every week, in cash or straight into the bank account, so that the employee
does not have to wait long for his/her money. People tend to pay wages to manual workers
There are some ways that wages could be calculated:
Time rate
Time rate is payment according to how many hours an employee has worked. It is used in
businesses where it is difficult to measure the output of a worker.
benefits
Easy to calculate the wage of the employee. A time-sheet must be filled out by the Accounts
department to calculate the wage.
disadvantages
Both good and bad workers get paid the same wages. Therefore, more supervisors are
needed to maintain good productivity. A clocking-in system is needed to know how many
hours an employee has done.
Piece rate
Piece rates are paid depending on how many units they have produced. There is usually a base
pay (minimum wage) and the piece rate is calculated as a bonus on how many units were
created. Piece rates are found in businesses where it is possible to measure workers
productivity.
Pros
- Encourages workers to work faster and produce more goods.
Cons
-Workers will often neglect quality, and businesses will need a quality control system which is
expensive. Workers who focus on quality will earn less. Tension is caused when some workers
earn more than others. If machinery breaks down, employees earn less. That is why there is a
guaranteed minimum pay.

Commission
A percentage is paid, usually to sales staff, depending on the value of goods they have sold.
Workers are encouraged to sell more. However, they could persuade customers to buy products
they don'r really want, making the company look bad. Just like the piece rate, in a bad month
where there are little sales, worker's pay will fall.
Profit sharing
o Employees receive a percentage of the profits made. However, they will get nothing if the
business doesn't make a profit. This is often used in the service sector, where it is hard to find
an employees contribution to the company.
Bonus
o A lump sum paid to employees who have done well. It is usually paid at the end of the year or
before holidays. However, this could cause jealousy between workers. Giving bonuses to a
team works better.
Performance related pay
o Employee pay is linked to the effectiveness of their work. It is often used in organisations
where it is hard to measure productivity. It uses the system of appraisal: employees are
observed and their colleagues are interviewed to determine their effectiveness. Afterwards, the
immediate superior of the employee has a meeting with them to discuss their effectiveness.
Share ownership
o Employees receive some shares from the company. They will either benefit from dividends or
sell the shares when their price has risen. They will be more motivated because they feel like
apart of the company.
Motivating factors - non-financial motivators
There are other factors that motivate people in a business, and they are often called perks or
fringe benefits. They may be having free accommodation, free car, etc... However, when you
look at it, it is just money in different forms. Here is a list of these motivators:
Children's education.
Discounts on company products.
Free Healthcare.
Company vehicle.
Free accommodation.
Share options.
Expense accounts.
Pension.
Free holidays

THORIES OF MOTIVATION
Maslow
Maslow created what is know as the hierarchy of needs. In this diagram, there are 5 different
types of motivation:
1. Physiological needs: basic requirements for survival.
2. Security needs: the need to by physically safe.
3. Social needs: the need to belong and have good relationships with co-workers.
4. Esteem needs: the need for self-respect and to be respected by others.
5. Self-actualisation needs: the need to reach your full potential and be promoted.
Herzberg
To Herzberg, humans have hygiene factors, or basic animal needs of humans. We also have
motivational factors/motivators, that are required for the human to grow psychologically.
Hygiene factors:
1. Status.
2. Security.
3. Working conditions.
4. Company policies and administration.
5. Relationship with supervisor.
6. Relationship with subordinates.
7. Salary.
Motivational factors:
1. Achievement.
2. Recognition.
3. Personal growth/development.
4. Advancement/promotion.
5. Job satisfaction.
To Herzberg, if the hygiene factors are not satisfied, they will act as demotivators. They are
not motivators, since the motivating effect quickly wears off after they have been satisfied.
True motivators are Herzberg's motivational factors.

MARKETING
The Marketing Mix
The 'marketing mix' is a set of controllable, tactical marketing tools that work together to achieve
company's objectives. Elements of the marketing mix are often referred to as 'the four Ps':
1. Product - A tangible object or an intangible service that is mass produced or
manufactured on a large scale with a specific volume of units. Intangible products are
often service based like the tourism industry & the hotel industry. Typical examples of a
mass produced tangible object are the motor car and the disposable razor. A less
obvious but ubiquitous mass produced service is a computer operating system.
2. Price The price is the amount a customer pays for the product. It is determined by a
number of factors including market share, competition, material costs, product identity
and the customer's perceived value of the product. The business may increase or
decrease the price of product if other stores have the same product.
3. Place Place represents the location where a product can be purchased. It is often
referred to as the distribution channel. It can include any physical store as well as virtual
stores on the Internet.
4. Promotion Promotion represents all of the communications that a marketer may use in
the marketplace. Promotion has four distinct elements - advertising, public relations,
word of mouth and point of sale.

Introduction Stage
Product launched into the market.
Sales grow slowly.
Informative advertising is done.
Firm might not earn a profit at this stage.
Price skimming may be used if the product is new invention and has no competitors.
Competitive pricing may be used if it already has lot of competitors.

Growth Stage
Sales grow rapidly.
Persuasive advertising may be used.
Prices may be reduced if faced by stiff competition.
Firm starts earning profits.

Maturity Stage
Sales increase slowly and reach the highest sales figures.
Competition is at the maximum level as many new me too products may be in the market.
Promotional pricing might be a good option.
Profits are at the highest level as the firm is also getting economies of scale.
Repetitive advertising is done to remind the consumers.

Saturation Stage
Sales are stagnant.
Maximum competition but no new competitors and the market is already crowded with the
same types of products.
Promotional pricing or competitive pricing may be a good choice.
Advertising efforts at its highest point.

Decline Stage
Sales start to decline.
Profits start to come down.
Marketing research it done to find out whether this decline is permanent or temporary. If the
decline is permanent in nature then stop the production of the product, otherwise implement
extension strategies.
Advertising is reduced.

Types of research
Market research -is the collection of information or data to better understand what is happening
in the market place. A firm's marketing department needs to know about economic trends, as
well a consumers' views. Based on this information, they can put together a marketing plan,
which will meet their own needs as well as those of their consumers.
There are two general types of research:
Primary or field research
The marketing department of a firm or a specialist research organisation can provide this.
Typically, the data is gathered in face-to-face interviews, by telephone, by post or via the
internet, using questionnaires. This is called a survey. Sometimes potential consumers are
asked to test products, and their responses are recorded. Field research[getting primary or new
data] has the advantage that the firm itself has control over the whole process. The
disadvantages are that it takes longer and is more expensive.
Secondary or desk research
This is the use of existing data that has already been collected.
It can be anything from a company's own sales statistics to Department of Trade and Industry
reports. Other secondary sources of information include journals, company reports, government
statistics, and surveys published by research organisations. Traditionally, these have been
paper based, but more and more information is now available on CD-ROM or on-line through
the Internet. Desk research[getting secondary or existing data] has the advantages of being
cheaper and quicker than field research. The disadvantages are not knowing if the findings are
accurate, or how relevant they will be to your product.

Market segments
Just as you can divide an orange up into segments you can divide the population as a whole
into different groups of people or segments that have something in common. Segmenting the
market makes it easier to identify groups of people with the same consumer needs and wants.
Marketers therefore look for categories they can use to divide up the population.
There are five commonly used categories:
Age
The population can be divided by age in years (eg 0-16, 17-25) or by the stage of life reached
(eg schoo lchild, teenager). For example, a pensioner will have similar needs to those of other
pensioners but different needs from those of a teenager.
Gender
Products may be targeted at a specific gender group. For instance, cosmetics have been
traditionally targeted at women while DIY has been targeted at men.
Culture
People's needs and wants as consumers will vary according to their religion, language, social
customs, dietary habits and ethnic background. In the UK businesses provide for a wide range
of different cultures. For example, there are magazines and newspapers in many different
languages and Halal butchers in areas with large Muslim populations.
Income
The population can be segmented according to annual salary (eg 15,000, 30,000 etc.), or
type of job and social class. Establishing a group's disposable income[money left after essential
incomes] is important so that products can be targeted to the relevant income group. This is
called a socioeconomic segment. The socio-economic groups A, B, C1, C2, D and E describe
how much the head of the household earns.
Lifestyle
People are grouped according to the way they lead their lives and the attitudes they share. For
example, young professionals may drive a sports car because of the image they want to project.
Married parents might want the same things, but have to provide for their children, which is a
large extra cost. They will need a family car to suit their lifestyle.

Applying the product life cycle to the marketing mix


Marketing teams watch for changes in the business environment and react to them. They
respond to consumer needs, the actions of competitors or government and use the following
strategies during each stage of the product life cycle.
Introduction
To make the target market aware of the new product it is important to heavily promote it. A
special introductory price [firstly less then rise] may help push the product.
Growth
As sales and profitability increase, the selling price may be reduced to make the product more
attractive. Continued advertising around the brand name will help to sustain sales. The
marketing team may consider expanding its distribution, to reach more consumers.
Maturity
Competitors will usually have entered the market at this stage. If their products are as good but
cheaper the company may lose some of its market share. The pricing strategy must be
reviewed.
Marketers may also put added value onto their product, by offering accessories or insurance, for
example.
Decline
Marketing cannot save a product at this stage, but targeting a different and smaller segment can
prolong its life.

Price Strategies
Cost Plus Pricing
It involves estimating how many of the product will be produced, then calculating the total cost
of producing this output and finally adding a percentage mark-up for profit.
(Total Cost/Output)* % mark-up=Selling price
Penetration Pricing
Involves setting the price lower than the competitors prices. This strategy is usually followed
where there is a lot of competition and the product launched may not be unique.
Price Skimming
This is where the product is launched at a premium price. It is common with products which are
a new invention and people are willing to pay a premium price because of the novelty factors. It
is quite common with Mobile phones and other technological products.

GIFT SIMAU: GRAD DIP BUSINESS MANAGEMENT (ABEUK), POST GRADUATE DIP IN PROJECT
MANAGEMEMT (PMZ)

FULL MEMBER PMZ, FULL MEMBER ABE UK

CONTACT DETAILS: gsimau@gmail.com