Notesale: Turn your study into money

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SHORT NOTE –BUSINESS STUDIES
Section –I : Business and the environment
Chapter 1: What is business activity?
Needs/Wants:



Needs: things what we need to survive
...

Wants: something you would like to have but is not important for survival
...


Goods/Services:



Goods: Items that can be tangible, physically and having a monetary value
...

Services: Things which are not be tangible, physical but having a monetary value
...


Producer goods/Services

: Goods and services produced by one business to another
...


Chapter 2
Private Sector: Sector of the economy where all the factors of productions are owned by private individuals
and firms
...

Public sector: Sector of the economy where all the factors of productions are owned by the government
Public sector objectives: Reduce crime rates, increase number of students entering higher studies
Features of Business objectives: SMART (Specific, Measurable, Achievable, Relevant, Time limited)
Mission statement: Short statement that sets out overall vision of the company
...
(Easy to start but has unlimited liability)
1




Partnership: a business owned by two or more individuals
...
(has limited liability but financial
information should be published)



Public limited company: a business in which has an unlimited number of shareholders contribute funds
in return for shares which can be sold on the stock exchange
...
Eg:
McDonalds
Joint venture: when two or more companies share the cost, responsibility and profits of a business
venture
...






Liability:


Limited Liability: when the owner(s) of the company are responsible for the amount they invested &
they do not need to sell their private possessions settle the debt of the company
...


Incorporation:



Incorporated: when a business has a separate legal entity
...


Deed of partnership

: A binding legal document that states the formal rights of partners
...


Chapter 7
Factors of production: Land, labour, capital, enterprise
...

Ex: water, coal
Labour: The Mental or the physical effort of work provided by people
...

Ex: machinery
Enterprise: Use the land , labour and the capital the Entrepreneur should run the business

2

Chapter 8
Sectors:


Primary: sector of business that extracts natural resources
...




Secondary: sector of businesses that use raw materials produced by primary industries and transform
them into finished products
...




Tertiary: sector of businesses that sell goods and provide services
...




Non-profit making organization: include charities and voluntary organizations that are set up to fill a
perceived social need or provide help to community
...

Interdependence: each sector relies on each other
...

Factors to be considered when selecting the international location: cheap labour, political stability, Market,
Shareholders: individuals/organizations that own shares in a company
...
)
Dividends: amount of money given to shareholders
...

Eg: Sri Lanka Telecom took over Mobitel Company
Merger: when two businesses agree to join together to form a new business
...

Ex: Ford and Honda
...

Lateral: when firms who sell different but related products combine
...

Conglomerate: when firms who sell completely unrelated products combine
...

3

Demand: the amount of goods/services that consumers are willing to buy at a given price
...
2%)
Interest rates: price of borrowed money
...

Monetary policy: when the government adjusts money supply to control demand by interest rates
...


Protectionism: an approach used by a government to protect domestic producers
...

Examples for trade barriers:





Quota: a physical limit on the quantity of imports allowed
...

Tariff: a tax on imports
...


Exchange rate: the price of one currency in terms of another
...

Capital-intensive: using more capital than labour
...

Internal organization: internal structure of a business
...

Hierarchy: the structure of different levels of authority in a business organization
...

Span of control: shows the number of people over whom one person has direct control
...

Authority: the right to command and make decision
...

Human resources department: responsible for organizing training sessions, grievance handling
...

Channels of communication: routes along in which information might travel in a business:




Downward communication: a worker (usually manager) giving information to those lower in job status
than them
...

Horizontal communication: workers on the same level exchange information
...

Informal communication: the use of non-approved channels when communicating
...


Overcoming barriers to communication:






Training
Recruitment
Technology
Chain of command
Social events

5

 Communication methods
Internal communication: communication inside a business between employees e
...
a manager giving an
employee instructions
...
g
...

Methods of communication:





Face-to-face communication
Written communication
 Letters
 Reports
 Memos
 Forms
 Notice boards
Electronic communication
 Email
 Internet
 Mobile phones
 Intranets
 Video/teleconferencing
 Tannoy and PA systems
 Electronic notice boards

Chapter 19

Recruitment and selection
Process of attracting applicants for a job in an Organization is known as recruitment
...

2
...

4
...

6
...


Identify the type and number of staff needed
Prepare a job description and person specification
Advertise using appropriate media
Evaluate applicants and select a shortlist for interviews
Carry out interviews
Evaluate interviews and appoint the best candidate
Provide feedback for unsuccessful candidates

CV (Curriculum Vitae): a document used by a job seeker which lists personal details, qualifications, work
experience, referees and other details
...

6

Person specification: provides details of qualification, experience, skills, etc
...

Internal recruitment: recruiting staff who already works in the business
...

Chapter 20

Legislation and human resources
Employee protection:




Contract of employment: legally binding agreement between the employer and employee
...
but it is
illegal to not hire someone because of their race, gender, ethnicity, religion, age, disability or sexual
orientation
...
Unfair
dismissal is being dismissed illegally
...
If in an employment tribunal finds that a worker has been unfairly dismissed, it has the
power to reinstate that worker
...
This might involve:








Providing and maintaining adequate safety equipment and protective clothing
...

Guaranteeing a hygienic environment
...

Providing protection from hazardous substances
...

Providing adequate breaks for rest
...


Chapter 21

Training
Training is a process of increasing the knowledge and skills of a worker to enable them to do their jobs more
effectively
...

Company history, aims and objectives
...

Mentoring
...


Advantages
 Output is being produced
 Relevant because trainees are actually doing
the job
 Cheaper than other forms of training
 Easy to organize

Disadvantages
 Output may be lost if workers make mistakes
 May be stressful for the worker
 Staff may get frustrated about not getting paid
for training others
 Could be dangerous to others e
...
surgeon

Off-the-job training: workers receive training away from normal work area e
...
going to a college to learn how
to do the job or traveling oversea to learn about new techniques
...
g
...

 Improving labor flexibility: workers can be multi-skilled and benefit the business more
...

 New jobs in the business
...

Benefits of training:



Managers: businesses will benefit from training if productivity is increased
...


8

Costs of training:
o Training courses and other resources
...

o Employees leaving
...

Importance of motivation in business:
 Lower absenteeism: well-motivated workers enjoy work and don’t get absent
...

 More innovation: poor motivated workers do not really care about the business while well-motivated
workers will enjoy their work and innovate more
...

 More cooperation: well-motivated workers are more willing to cooperate and work with each other
...

Maslow’s hierarchy of needs:

How work can fulfill these needs:






Physiological
: adequate pay
...

Love and belonging : teamwork, good communication system and sports facilities
...

Self-actualization
: opportunities to be challenged
...

 Hygiene: factors that would leave workers dissatisfied if not present
...
The
gross pay is the rate x time
...


Overtime

: workers may be paid overtime for working extra hours
...
It is not paid according to time worked
and no overtime is paid
...


Commission

: workers are paid for reaching a target
...


Bonus payments

: they are paid in addition to basic wage or salary
...

Profit sharing

: workers are given a share of the profit as a bonus
...


: some businesses give employees shares in the companies, and they are entitled to a

Chapter 24

Non-financial rewards
Fringe benefits: ‘perks’ over and above the normal wage or salary
...

Job rotation: to allow employees to change jobs from time to time
...

Recognition and praise
...


Drawbacks of non-financial rewards:





Some workers may object to changing their routine
...
g
...

Employees may be unhappy if they suspect managers are using these methods to get more work out of
them without paying extra
...


Section 3: Accounting & Finance
Chapter 25

Sources of finance – short-term
The need for funds:
 Start-up capital: funds needed when first setting up a business
...

 Expansion: businesses may want to:
 expand capacity to meet growing orders
 develop new products
 branch into overseas markets
 diversify
 Emergency funding: businesses often get unexpected bills e
...
a tax demand
...
It is cheap as there is no interest,
dividends or administration
...

 Working capital
...

Short-term finance: money borrowed for one year or less
...

Bank loan (unsecured): fixed agreement between a business and a bank
...

Hire purchase: used to buy equipment, tools, vehicles and machinery
...
The goods to not legally belong to the
11





buyer till all the payments are complete
...
More
expensive than bank loans
...
]
Leasing: renting equipment/property
...

Credit cards
...


 Owner’s capital: it is a cheap source of finance as there is no interest but it is rarely enough
...
Interest payments are avoided but dividends must be paid
...
They are entitled to a fixed rate of
return, but have no voting rights
...

 Mortgages: borrower uses land/property and pays over monthly installments
...

 Venture capitalists: provide funds in exchange for an equity stake for companies that have some
potential but are considered risky by other investors
...

 Enterprise Finance Guarantee (EFG): is for a business with a turnover of up to 25 million euros who
cannot get the finance they need
...

[up to 20 billion euros]
 Capital for Enterprise fund (CFE): this allows companies to fund business development by selling debt
in exchange for an equity stake in their business
...

Choosing sources of finance:
 Cost
: businesses prefer the source of finance which has low cost
...

 Status and size of the business
...

 Risk
: companies sometimes have to choose between selling shares or taking out money when
raising finance
...

 Gearing is the amount of capital raised from loans in relation to the amount raised from the
sales of shares
...

 Low geared: small amount of loan capital
...

(Working capital = current assets – current liabilities)
Working capital cycle: the flow of liquid resources into and out of a business
...


Delaying payments to suppliers
Reducing production time so that goods can be sold more quickly
Reducing the time goods are stored before they are delivered to customers
Reducing the time it takes for customers to settle their bills

Problems with working capital:





Buying too many fixed assets
...
g
...

Unexpected fall in demand e
...
sudden change in fashion
...
g
...


Methods of improving working capital:





Get an over-draft or short-term loan
...

Sell goods for cash
...


Chapter 28

Budgets
Budget is a plan that shows how much money a business (or department) plans to spend/receive in the future
...
Most important because they affect all other
budgets
...
Shows output levels or
production costs
...
Shows how much money allocated
to the marketing department is spent
...

 Reduce fraud: all spending in a business has to be authorized by budget holders
...

 Planning: budgeting forcer management to think ahead
...
Budget holders have to justify expenditures
...

Chapter29

Cash flow forecasts
Cash flow is a document which represents cash inflows and outflows of the business
...


Cash flow




: The flow of money into and out of a business:

Cash inflows: the money coming into a business e
...
revenue, loans, capital from owners
...
g
...

Net cash flow: the difference between the cash inflow and outflow
...
It may be negative
...

Importance of cash flow forecasts:





Identifying cash shortages
...

Help when planning the business
...

Chapter 30

Costs
Costs: expenses that must be met when setting up and running a business
...

Variable costs
: The cost which do vary with levels of output (variable costs = cost per unit of
output x amount of output)
Total costs = fixed costs + variable costs
Average costs = total costs
...

Indirect costs: costs that cannot be identified with a particular unit of output
...


Total revenue: the amount of money a firm receives from the sale of output
...

(Profit/loss = total revenue – total costs)
Chapter 31

Break-even analysis
Break-even point: the point at which the total costs and total revenue are exactly the same
...


Break-even point in units =

Fixed cost

...

At any level of output below the break-even point, the business makes a loss
...

Margin of safety: the amount of output available to be sold above the break-even point where the
business makes a profit
...

Advantages and Limitations of Break Even Chart
...

15

Limitations
 Assume that all products
produced are sold

 It shows the business future profit
...


 It is only a prediction
 Accuracy depends on reliability
of data collected

Chapter 32

Profit and loss account
Measuring profit:


Gross profit : the profit made before expenses and overheads are subtracted
...

(Net profit = gross profit – expenses)
[*Note: if a business receives other incomes such as interest, net profit is then calculated with:
(gross profit + other income) – expenses
...

Distributed profit: profit that is returned to the owners of a business
...
It is divided into 3 sections:
1
...
This consists of:
 starts with turnover
 cost of sales
 gross profit = turnover – cost of sales
2
...
This consists of:
 gross profit
 total expenses/overheads
 operating profit = gross profit – total expenses
 non-operating profit: includes any income that does not come from sales e
...
dividends
 interest paid
 net profit
3
...
This consists of:
 net profit
 taxation
 net profit after taxation
 dividends given to shareholders
 Ends with retained profit
...

Some reasons for this are:
16

 Some goods are sold on credit
...

Therefore, the profit is greater than the cash
...
This will increase the cash, but have no
affect on the profit
...

 The amount of cash at the end of the year will be different from profit because at the beginning of the
year, the cash balance is unlikely to be zero
...





Assets: resources owned by a business e
...
buildings, machinery, equipment, stock and cash
...
Liabilities are a source of funds for a business
e
...
short term like overdraft or long term like mortgage
...
It is used to buy assets
...
Fixed assets: assets that will last for more than one year
...

2
...
They are liquid assets
...

3
...
Examples:

...
Working capital: [net current assets] this shows the amount of liquid resources a business has available
...
Long-term liabilities: any money owed for more than one year
...
Net assets: the total at the bottom of the first part of the balance sheet
...

7
...
Closing capital is found by
adding profit to the opening capital and then subtracting drawings
...

Uses of balance sheets:






Shows the value of all business assets, capital and liabilities
...
It can show how the money raised by the business has been
spent on different types of asset
...

By looking at the working capital, a firm can tell if it’s able to pay its everyday expenses or not
...


Chapter 34

The purpose of accounts
Who is interested in a business’s accounts?
17

Stakeholders:









Managers: they need up-to-date information to run the business
...

 Analysis and evaluation: managers will want to assess the performance of the company and this
can be done by making comparisons with competitors and with accounts from previous years
...

Employees: they need financial information during wage negotiations
...

Owners: they will obviously be interested in the performance and financial position of their business
e
...
to check if targets have been met for the year
...

Bankers: they need up-to-date financial information when deciding whether they should lend money to
a business or not
...

Investors and financial analysts: the accounts of PLCs are published and help to inform shareholders
about the progress and performance of the company
...


Other users:







Government: they use this info to monitor the progress of the economy and help evaluate the success of
its economic policies
...

Competitors: limited company accounts are made available to the public
...
Also, if a company is thinking about a takeover, it can use the
accounts to help make a decision
...

specialist ones that focus on business info
...

Auditors: every year the accounts of limited companies have to be checked by an independent firm of
accountants and registered auditors
...
]
Registrar of Companies: in many countries, limited companies have to register with the Registrar of
Companies
...


Chapter 35

Ratio Analysis
Ratio analysis is a numerical approach to investigating accounts by comparing two related figures
...

 Liquidity ratios: these measure how easily a business can pay its debts
...

 Shareholders’ ratios: these measure the returns to shareholders on their investment in the business
...
To increase it, turnover must be increased
or cost of sales reduced
...

(Net profit margin = Net profit
Turnover

x 100)

Current ratio: it is a liquidity ratio and focuses on current assets and current liabilities
...
This is because stocks are not treated as liquid resources as
stocks are not guaranteed to be sold
...
The advantage of this is that it relates the profit to the
size of the business
...
One approach might be to set targets
...


Section 4: Marketing
Chapter 36

Markets and the role of marketing
Market: a set of arrangements that allows buyers and sellers to communicate and trade in goods and services
...

19

Market share =

Total sale of a particular product
Total sales in the whole market

x 100

Marketing involves:








identifying the needs and wants of customers
designing products that meet these needs
understanding the threats from competitors
telling customers about the products
charging the right price
persuading the customers to buy products
making products available in convenient locations

Product and market orientation:



Market orientation: business focuses on the needs of consumers when developing products
...


Marketing strategies: set of plans designed to reach marketing objectives
...





Some businesses concentrate on producing one product for one particular segment e
...
Rolls Royce
targets a wealthy market
...
g
...

Some businesses aim their products at nearly all consumers e
...
large food manufacturers e
...
Heinz
...
For example, coats and jackets are more important to sell in Russia than in Qatar
...
g
...

Gender: males and females have different needs and wants e
...
magazines
...
g
...

20





Social class: businesses pay a lot of attention to different socio-economic groups
...
g
...

Ethnicity: different ethnic groups have different needs and wants because of their different cultures
...
g
...


Other methods of segmentation:



Some customers are repeat customers
...
A business might offer them
loyalty cards that entitle them to discounts
...
g
...


Benefits of market segmentation:





Increase in revenue e
...
Etihad charges first-class passengers more than twice the rate paid by
economy-class passengers for the same flight
...

Businesses may avoid wasting promotional resources by targeting products at different customers that
do not want them
...


Mass and niche markets:



Mass markets: this is when a business sells the same products to all consumers and markets them in the
same way e
...
McDonalds,cocacola
Niche markets: a small market segment which has sometimes gone untouched by larger businesses e
...

wedding planning, halal meat
...
4 p’s: product, price, promotion, place
...
They must be:




Functional: must perform the function for which they were bought e
...
a jacket must keep one warm
...

Unique Selling Point (USP): products will be more successful if it has a USP, which means a particular
characteristic that makes it different from others
...
A business will need to modify products or create
new ones when they decline
...
The price charged is determined by a number of factors which include:





The quality of a product
The costs of production
The prices charged by competitors
How much customers are prepared to pay

Promotion: Businesses have to make sure that consumers know about their products and they need to persuade
them to buy them
...

Factors that influence the marketing mix:







Nature of the product
Competition
Marketing budget
Competitors’ mix
Technology
Market research

Chapter 39

Price
Prices are influenced by supply and demand
...
It is what customers are willing to buy at a given price
...

Supply is determined by businesses
...
Increase in supply decreases prices
...


Factors that affect price:







Marketing mix
Costs
Consumers’ perceptions
Competition
Taxes
Objectives

Pricing strategies:
22

Cost-based pricing: [cost plus] adding a percentage to the costs of producing a product to get the price
...

Market-oriented pricing: pricing strategies based upon the conditions in the market:






Skimming/creaming: businesses can launch a product into a market for a high price for a limited period
of time
...
Price may be raised after establishment
...
g
...
99 looks cheaper than
$100
Loss leaders: products are sold at a price lower than cost
...

Discounts and sales: when businesses cut prices for a short period
...
This is a safe pricing strategy
...

Price leaders: one business sets a price and all others follow
...




Price elastic demand: where a price change will result in a significant change in demand
...
g
...


Chapter 40

Promotion
Aims of promotion:







Tell consumers about a new product
Remind customers about an existing product
Reach a widely dispersed target audience
Reassure customers about products
Show consumers that rival products are not as good
Improve or develop the image of the business

Above-the-line promotion: promotion that involves advertising in the media e
...
newspapers, television
...

Media
Television

Newspapers
and






Advantages
Huge audiences can be reached
The use of products can be demonstrated
Creative adverts can have great impact
Scope for targeting groups with digital TV









National and local coverage
Reader can refer back




23

Disadvantages
Very expensive
Message may be short lived
Some viewers avoid TV adverts
Delay between seeing adverts and
shopping
No movement or sound
Individual adverts may be lost in a sea of

magazines







Cinema

Radio

Posters and
billboards

Internet


















Informative advertising
Adverts are designed to increase consumer awareness
of products
...


adverts
Rivals’ products maybe advertised as well





Limited audience
Message may be only seen once
Message is short lived









Not visual
May be ignored
May lack impact
Can be intrusive when listening
Posters can get damaged by vandals
Only limited information can be shown
Difficult to evaluate effectiveness



Adverts can be linked to articles and
features
Scope for targeting with specialist
magazines
Relatively cheap
Big impact on big screen
Can be used for local and national
advertising
Specific age groups can be targeted
Sound and movement can be used
Sound can be used
Minority audiences allow targeting
Cheap production
Can target young people
Can produce national campaigns
Seen repeatedly
Good for short, sharp messages
Large posters can have a big impact
Can be updated regularly
Can be targeted
Hits and response can be measured
Cheap and easy to set up

Some adverts such as pop-up ones are
irritating
Possible technical problems



Persuasive advertising
Adverts are designed to put pressure on consumers to
buy a product
...


Below-the-line: promotion the does not involve using media advertising:









Sales promotions: incentives to encourage people to buy products
 Free gifts
 Coupons
 Loyalty cards
 Competitions
 Buy one get one free
 Money off deals
Public relations: improves image of the business
 Press release
 Press conference
 Sponsorship: making a financial contribution to an event in return for publicity
 Donations
Merchandising and packaging
 Product layout
 Display material
 Stock
Direct mailing: sending houses leaflets or letters
...

24



Exhibitions and trade fairs: businesses set up stands to promote their products
...


Choosing an appropriate method of production:







Cost: businesses have budgets and advertising can be expensive
...

Product type: certain products are better suited to certain methods of production e
...
a car manufacturer
will not use buy one get one free and supermarkets will not sell personally
...

Promotion is more important when a product is introduced than when it matures
...

Legal factors: many countries have legislations to protect consumers which can affect method and style
of promotion e
...
tobacco cannot be advertised on television
...

Direct selling: some producers market their products directly to the consumers
...

Mail order catalogues
Door-to-door selling
Direct response adverts
The internet
Direct mail
Shopping parties

Retailer: a business that buys goods from manufacturers and wholesalers and sells them in small quantities to
consumers
...

Agent/broker: an intermediary that brings together buyers and sellers
...

 Expensive brands and high quality products cannot be sold at places like supermarkets
...

Cost: businesses will choose cheapest method of distribution
...

Control: for some producers, it is important to have complete control over distribution
...
Branding is
used to:






differentiate the product from others
create customer loyalty
help recognition
develop an image
raise prices when the brand & image becomes strong

Packaging: businesses should consider packaging carefully because consumers often link quality of packaging
with the product quality itself
...
The product is still being researched, designed and tested
...

Introduction: this is when a business introduces new products with an official launch
...

Growth: if the product is successful, sales will start to grow
...

Maturity: eventually sales will start to level off
...
Cash flow will also be improving
...
Price is likely to fall and
promotion methods may fall
...
This is because consumer tastes
change, new technology emerges or new products appear in the market
...


Extension strategies: Method used to prolong the life of a product:






Finding new markets for the product - e
...
selling abroad
Finding new uses for a product – e
...
Ralph Lauren extending its polo brand for clothes into towels and
bedding
...

Develop the product range – e
...
a candy factory making new flavors for gum
...
g
...

27



Encourage more frequent use of the product – e
...
Kelloggs persuading people to eat cornflakes for
breakfast and supper
...
They have high market share and the potential for growth
...

Cash cows are mature products
...
They generate a steady flow of income for the business
...
If the right marketing action
is taken, they could do well
...

Dogs are at the end of their life cycle
...


Chapter 43

Market Research
Market research: the collection, presentation and analysis of information relating to the marketing and
consumption of goods and services
...
g
...
g
...
g
...
g
...
g
...
g
...
Methods:


Questionnaires: have a balance of open and closed questions, contain clear and simple questions, no
leading questions and be concise:
 Postal surveys
28





 Telephone interviews
 Personal interviews
 Online surveys
Focus groups or consumer panels: a focus group is where a number of customers are invited to attend a
discussion led my market researchers
...
The groups must be representative of the whole population
...

Test marketing: involves selling a new product in a restricted geographical area to test it before a
national launch
...
It can be collected from:







Business websites
Media
Commercial publications
Government publications
Internal data
Competitors

Sample: a small group of people who must represent a proportion of a total market when carrying out market
research
...

Human behavior is unpredictable
...
g
...


 Section 5: Production
Chapter 44

Economies and Diseconomies of Scale
Business growth: when a business begins to make a profit and expands to be more successful
...

External (inorganic): when a business grows by merger, takeover or joint venture
...






Purchasing/trading: larger businesses enjoy greater discounts from buying in bulk
...

Technical: larger businesses can afford more efficient equipment/machinery therefore produce more at
a lower cost
...

29



Managerial: larger businesses can employ more specialist staff/managers who can improve efficiency
of business
...

This is more likely to happen if the industry is concentrated in a particular region:





Skilled labor: if an industry is concentrated in an area, there may be a build up of labor with the skills
and work experience required by the industry
...

Infrastructure: if an industry dominates a region, it is likely that the roads, railways, ports, buildings and
other facilities will be shaped to suit the industry’s needs
...

Cooperation: when firms in the same industry are located close to each other, they are likely to
cooperate with each other so they can all gain
...





Management: larger businesses may have coordination problems among various departments within a
firm
...

Bureaucracy: too many resources used in administration that results in time wasted, slow decisionmaking and communication channels too long
...

Ex: making a wedding dress
...

Products can be custom made
...







Disadvantages
High labor costs as a result of skilled
workers
...

A wide range of specialist tools may be
needed
...


Batch production: when a business makes a number –batch- of products to the same design/specification and
then changes production to another product with different specifications
...

Unit costs are lower because output is
higher
...

More use of machinery is made
...

Careful planning and coordination is
needed
...

If batches are small, costs will still be
high
...


30

Flow production: large-scale production of a standard product, when each operation on a unit is performed
continuously one after another (conveyer belt)
...

Output can be produced quickly
...

Production speed can vary according to
demand
...

Huge set-up costs
...

Breaks in production can be very
expensive
...

Choosing an appropriate method of production:





Nature of product
...

Stage of development that a business has reached
...


Chapter 46

Productivity
Productivity: the amount of output that can be produced with a given quantity of time in relation to the amount
of resources used
...
of workers

Capital productivity = Total Output
Capital employed

Increasing labor productivity:





Education and training: government can invest in education system
...

Improve motivation of workers: firm can use financial incentives or non-financial incentives to
motivate workers
...

Increase labor flexibility: workers could be trained to do more than one job and switch around
...
This is
because new technology is more efficient
...


31

Other methods of increasing productivity:






Downsizing: this involves reducing capacity i
...
laying off workers and closing unprofitable divisions
...

Work study: this involves looking at a particular job very closely and working out the most efficient
way it can be done
...

Outsourcing: this means that work currently done by a business is given to a specialist that can do the
same work at a lower cost
...


Chapter 47

Lean production
Lean production: an approach to production aimed at reducing the quantity of resources used
...
Lean production





raises productivity
reduces costs and cuts lead times (the time between receiving an order and making a delivery)
reduces the number of defective products
improves reliability

Kaizen: a Japanese term which means continuous improvement
...








Advantages
Cash flow is improves
No waste, obsolete or damaged stock
...

No stock holding costs
...

Fewer suppliers
...

 Huge reliance on suppliers’ reliability
...

 Hard to cope with fluctuations in
demand
...


Cell production: involves producing a ‘family of products’ in a small self-contained unit (a cell) within a
factory
...
Each team focuses on particular area of
production and members will have common aims
...

Suggestion schemes: this encourages workers to suggest ideas for improving production or reducing cost
...
The use of tractors, mechanical harvesters, grain-drying machines and automatic feeding systems
has helped raise productivity in agriculture
...

New technology in the secondary sector: Production has become more capital-intensive in many industries
...






Computer Numerically Controlled machines (CNC): these are machines that carry out instructions fed
by computers
...
They move according to
instructions given by a computer
...

Computer Integrated Manufacturing (CIM): the use of computers to control the entire production
process
...

Marketing: the use of IT has made market research much easier
...

Retailing: technology has made retailing much easier as well
...

Leisure industry: technology allows people to travel without a ticket
...

Administration and communication: costs have been reduced
...


The costs and benefits of new technology:







Benefits
New products provide more choice
...

Less waste of resources
...

Tasks are easier for workers
...







Costs
High set-up and purchase costs
...

Job losses may cause conflict and
distress
...


E-commerce: the trading of goods and services electronically
...

Some is entirely done online, like downloading music or videos onto laptop or phone
...
This is e-tailing – ordering goods online and taking delivery
at home
...
Sometimes the services that are available to consumers are also available to businesses
...

Cheaper to businesses because costs are lower
...

Larger amount of choice
...

Only internet access needed
...

Cost of processing transactions is lower
...

Payments can be made and received online
...

Businesses can serve their customers 24/7
...
This means they can locate to cheaper premises
...
This usually includes the following
features:







physical appearance
reliability and durability
special features
suitability
repairs
customer service

Quality control: making sure that the quality of a product meets specified quality standards
...


Quality assurance: a method of working for businesses that takes into account customers’ wants when
standardizing quality
...

34

Total quality management (TQM) : All the employees of the Organization are responsible for the quality of
the products before it reaches final consumer
...
Each
worker only receives and passes on semi-finished work if it has reaches specified quality standards
...

Quality audits: statistical data is used to monitor quality standards
...

Teamwork: TQM stresses that teamwork is the most effective way of solving problems
...

Zero defects: this aims to ensure every product is free from defects
...

Helps develop ways of measuring
performance
...







Disadvantages
High training and implementation
costs
...

May be bureaucratic (many
documents
...


Importance of quality control:




Increased competition has forced firms to improve quality
...

Faulty products are costly for a business
...


35



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