IBDP B-Man Compiled Class Notes

Introduction

Welcome to "Libro de Administración de Empresas," a comprehensive compilation of all the notes I’ve
collected throughout my IBDP Business Management Standard Level lessons. This notebook is organised
according to the core topics outlined in the IB Business Management SL syllabus. Each section delves into
specific areas, providing clear explanations, relevant examples, and practical insights. Disclaimer: I’ve only
covered stuff I found important.

The book covers:

- Introduction to Business Management: Understanding the various types of business organisations,

their objectives, and the external environment in which they operate.

- Human Resource Management: Exploring how businesses manage their workforce, including
recruitment, training, motivation, and performance management.

- Finance and Accounts: Gaining insights into financial management, accounting principles, and the
interpretation of financial statements.

- Marketing: Learning about market research, marketing strategies, and marketing mix elements.

- Operations Management: Examining how businesses produce goods and services efficiently and
effectively.

This compilation serves as a valuable resource for organising and summarising key concepts, helping to
facilitate quick reference and aid in exam preparation.

TOPIC 1 - Introduction to Business Management

Business as a System

1. Definition of a System

a. The definition of a system is that of a complex and interconnected set of parts working
together to achieve a specific purpose.
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 b. Components or inputs/outputs and other understandings such as feedback (the information,
insights, issues, and input shared by your community about their experiences with your
company, product, or services) are integral to a system.

2. Categories of Business Inputs (Capitals)

a. Human - Human capital refers to the skills, knowledge, and abilities of individuals that
contribute to economic productivity and growth.

b. Physical - Physical capital represents the tangible assets such as machinery, buildings, and
infrastructure that are used in the production of goods and services.

c. Financial - Financial capital refers to funds or monetary assets available for investment or use
in business operations, including cash, stocks, bonds, and other financial instruments.

- Each business input is different based on product type, sales methods, employee skills, financing, and
required physical or intellectual work.

3. Business Processes

a. Four Functions (processes) in a business are

i. HRM or Human Resource Management which ensures correct staffing, manages

manpower and allocates resources appropriately.

ii. Marketing is responsible for selling the right product, at the right time. This is
preceded by market research, which is responsible for determining these factors.

iii. Finance and Accounts are responsible for managing the funds required to sustain the
business activities in the company. This includes managing inventory, daily finances,
capital expenses, and revenue expenses.

iv. Operations primarily concern itself with the core business processes, the day-to-day
running of the company, and ensuring a seamless transfer of tasks between all
departments.

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 4. Business Outputs

The outputs of a business are always either in the form of goods or services. Goods (a chair
or desk for example) are tangible and measurable products, meanwhile, services are
intangible offerings (education or health for example).

Distinctions between goods and services aren’t always clear in certain conditions. For
example, when you buy a Macbook, you’re buying the laptop which is a good but you’re also
purchasing Apple’s software offerings, which are services.

5. Feedback In Business

a. Feedback is often overlooked but is important for improvements. This is often looped so that
the output becomes an input to the same system.

b. There are positive and negative feedbacks. Negative feedback is corrective and stabilises the
system. Positive feedbacks reinforce and moves the system in the same direction

Fig 1 - Feedback Loops

c. Utilising feedback from customers, suppliers, employees, and the community helps the
business continuously improve, make informed decisions, and refine its processes.

Businesses in Society and Economy

Businesses contribute to the economic system by producing and distributing goods and services.
Components of the economic system include households, states, commons, and markets. Furthermore,
businesses create different ways to meet human needs and wants involving various organisations including

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other businesses, thus promoting a healthier economy. The economic system is further divided into sectors
for ease of navigation, these are:

Primary Sector - Involves the extraction or production of raw materials from Earth.

Secondary Sector - Encompasses manufacturing and processing, transforming raw materials into
products.

Tertiary Sector - Comprises businesses selling tangible and intangible products. Within this sector
also remains the distinction for businesses selling knowledge-based services (web design for
example), they’re known as the Quaternary Sector.

A country's resources and stage of economic development influence the prominence of its economic sectors.
As economies grow, there is typically a decline in the primary sector, an increase in the secondary sector,
and subsequently, growth in the tertiary and quaternary sectors.

Entrepreneurship and Business Challenges

The success of a business depends on internal strengths and weaknesses, including human resources,
finances, marketing and operations. The factors that determine success are a skilled and collaborative team,
adequate funding, a well-researched market, and efficient operations.

External Factors

The external factors are identified using STEEPLE analysis. STEEPLE analysis is a technique that
helps businesses strategize, evaluate, and resolve issues in their daily operations. This technique
ensures that you consider the changing environment when conducting market research.

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 Fig 2 - STEEPLE ANALYSIS

Internal Factors

A SWOT analysis helps identify the strengths, weaknesses, opportunities, and threats associated with
a specific project or your overall business plan.

Fig 3 - SWOT ANALYSIS

Economic Factors Affecting Businesses

Different Economic conditions in different regions call for different supply and demand. For example, when
income increases in a region, the demand for goods and services also increases.

It is necessary to understand GDP cycles when running a business. This essentially refers to being able to
comprehend Growth and Recessions.

Growth - The expansion in the economy means that there are more opportunities for businesses to raise
their income due to the increase in demand.

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 Fig 3 - Economic Growth of USA

Recession - It’s when the GDP declines for a period, and it impacts the demand and income opportunities
negatively. It results in falling incomes and higher unemployment.

Fig 4 - Economic Recessions of USA

Private Sector and Public Sector

Public vs. Private Sectors

- The private sector comprises businesses and organisations owned and operated by private
individuals or groups for profit

- While the public sector consists of government-owned and operated entities providing
services for the benefit of the public.

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 - Limited liability means that the owners or shareholders of a company are only liable for the
company's debts up to the amount of their investment.

- In contrast, unlimited liability means that the owners are personally responsible for all debts
and obligations of the business, potentially risking personal assets to cover business
liabilities.

Categories of Businesses

These are some of the crucial business categories to remember and are recurring themes in IBDP
Business Management Examinations.

Type of business Strengths Weaknesses When is it suitable?

Sole traders - Retention of profit for - Liability is - Small business

owner accounted for (corner store, coffee
- Control by the stall)
owner's
wealth.

Partnerships - Greater financial - Division - Small but growing

access (loss) of businesses
control
- Loss of Profit

Privately held - Limited Liability - Sources of - Small to Medium

companies - Finances are private finance are a enterprises.
- More control over the bit limited
counter
- Ability to make
decision

Publicly held - Greater sources of - Loss of - Large to

companies finance decision-maki multinational
- Equity finance ng control corporations

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 - Fear of
hostile
takeover

For-profit social - No tax - Environmental to

enterprise - Credibility product
organisations.

Non-profit social - Access to - Dependency - NGO’s or welfare

enterprise crowdfunding. on generosity organisation
- No tax

Vision And Mission Statements (Business Objectives)

Vision statement - A vision statement outlines the long-term aspirations and goals of an organisation,
defining where it aims to be in the future and the impact it seeks to achieve.

Mission statement - A mission statement articulates an organisation's purpose, values, and core objectives,
providing a framework for decision-making and guiding its actions and strategies.

Corporate social responsibility - Corporate social responsibility (CSR) refers to a company's commitment
to operate ethically and contribute positively to society, including environmental sustainability, social
well-being, and ethical business practices, beyond its legal obligations.

Stakeholders

Stakeholders in a business are individuals, groups, or organisations that have an interest in or are affected by
the activities and performance of the business. They can influence or be influenced by the business's
decisions, objectives, and policies. Each of these stakeholders has different interests and priorities, which
can sometimes lead to conflicts but can also provide a diverse range of perspectives and opportunities for the
business.

Internal Stakeholders

Internal stakeholders are individuals or groups within an organisation who have a direct interest or
involvement in its operations, such as employees, managers, and shareholders. They are

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 1. Owners/Shareholders: Individuals or entities that own shares in the company and have a financial
interest in its success.
2. Employees: People who work for the business and rely on it for their income and job security.
3. Customers: Individuals or organisations that purchase and use the business’s products or services.
4. Investors: Individuals or entities that invest capital into the business with the expectation of
financial returns.

External Stakeholders

External stakeholders are individuals or groups outside of the organisation who are affected by or can
affect its activities, such as customers, suppliers, government agencies, and the local community.
They are:

1. Suppliers: Companies or individuals that provide the raw materials, goods, or services needed for
the business to operate.
2. Creditors: Banks and other financial institutions or individuals that lend money to the business.
3. Government and Regulatory Bodies: Entities that enforce laws and regulations, collect taxes, and
ensure the business complies with legal standards.
4. Local Community: Residents and businesses located near the company that can be affected by its
operations, both positively and negatively.
5. Trade Unions: Organisations that represent the interests of employees in negotiations with
management.
6. Non-Governmental Organisations (NGOs) and Advocacy Groups: Groups that may have
interests in the business’s impact on social, environmental, or ethical issues.

Growth In Business

Growth, Pros vs Cons

1. Growth can offer numerous advantages to a company, including increased profitability

through economies of scale, expanded market share, and enhanced competitiveness.
2. Larger size often brings more resources and bargaining power, enabling better access to
financing, talent, and technologies.
3. Moreover, growth can open up opportunities for diversification and innovation, allowing
companies to spread risks and adapt to changing market conditions.
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 4. Rapid expansion can strain resources, leading to operational inefficiencies and diluting
corporate culture.
5. Moreover, larger organisations may face difficulties in maintaining agility and
responsiveness, making it harder to adapt to market shifts or changes in consumer
preferences.
6. Growth strategies such as mergers and acquisitions also carry inherent risks of integration
challenges, cultural clashes, and potential regulatory hurdles.

Internal Growth vs External Growth

Internal growth refers to a company's expansion achieved through its resources and activities, such
as increasing sales, expanding product lines, or developing new markets without involving external
entities.

External growth involves expanding a company's operations through activities that involve
collaboration or integration with other organisations.

Mergers occur when two companies combine to form a single entity, typically with both
companies relinquishing their original identities and forming a new, merged entity.

Acquisitions involve one company purchasing another company, often with the acquired
company becoming a subsidiary of the acquiring company.

Takeovers refer to situations where one company acquires another against its will or without
its consent, often through the purchase of a controlling stake in the target company's shares.

Joint ventures are partnerships between two or more companies to pursue a specific project
or business activity together, sharing resources, risks, and rewards.

Strategic alliances are cooperative agreements between companies to collaborate on projects

or activities that benefit both parties, often without forming a new entity or merging
operations.

Define

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Economies of scale refer to the cost advantages that a business can achieve by increasing its scale of
production, leading to lower average costs per unit of output as production volumes increase.

Diseconomies of scale occur when a company's cost per unit of output increases as the scale of
production increases, typically due to inefficiencies or difficulties in managing larger operations.

Regenerative businesses are enterprises that prioritise sustainability and environmental stewardship,
aiming to operate in a way that not only minimises harm to the environment but also contributes
positively to its restoration and regeneration.

Multinational companies are corporations that operate in multiple countries, with production
facilities, sales operations, and other business activities spanning across national borders.

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TOPIC 2 - Human Resource Management

The Role Of Human Resource Management

Key Definitions In HRM

HRM - The Business function that involves recruitment, training, compensation, and motivation of
employees to meet business objectives

WorkForce Planning - Forecasting how many and what type of employees are needed now and in
the future

➔ Collect and analyse data about the needs of the company.

- These data include the roles and numbers, labour turnovers, and general
efficiency.
- After Collecting the required data, develop an appropriate response plan.

Recruitment - This is the process of seeking, finding, and hiring people for a position available in an
organisation

Labour Turnover - The percentage of workers leaving the business in a period. It can lead to a loss
of valuable skills and disrupt workflow.

Training - Teaching employees new skills or improving the skills that they already have. Training
workers makes them resilient to change and aids the HRM in identifying and delivering appropriate
opportunities for employees in a business.

Appraisal - An assessment of an employee's performance can take many forms and involves steps
for continuous improvements in the workforce.

Dismissal - When the employer decides to terminate an employee's contract. This is usually done
after observing misconduct or repetitive poor work performance.

Redundancy - When the job someone is doing is no longer required and the business eliminates the
position.

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Internal and External Factors that influence human resource planning

Internal Factors

- Structure of the organisation: Usually a combination of appraisal and the usage of an organisation
chart to remove redundancy and address gaps in the organisation.
- The size of the organisation decides the complexity of planning.
- Budget planning such as funding for salaries, number of employees required, and additional funds.
- An HR needs to keep track of employees leaving and to ensure that other employees are trained so
they can be promoted when a vacancy arises.
- Flexitime refers to the flexibility of sharing the workload and distributing timings/shifts freely.
- Another key internal factor is motivation, which is directly proportional to productivity.

External Factors

This is essentially your STEEPLE analysis, utilising that would give you the external factors.

Temporary Work - The section of the economy that provides temporary work for freelancers.
Workers can have flexibility but do not have the same protections and benefits as those on long-term
contracts. This is mainly common in the creative industry.

Labour Laws - Labour Laws are easily affected by political changes. It can affect recruitment, pay,
training, working hours, policies related to leave, dismissal and many other issues.

Strategies to reduce the impact of change and resistance to change

Reasons for Resistance Explanations

Self Interest Employees may resist change to benefit themselves.

Low Tolerance Most people prefer stability and order, change will eventually
obstruct that.

Misinformation Not thinking the change is beneficial or having been led to

believe so.

Interpretation of Misunderstandings can lead to resistance to change.

Circumstances

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 HR Strategies in dealing with change

Fig 5 - Overcoming resistance to change

(The literal and contextual definitions are being used for these words.

Organisational Design

An organisational structure is the arrangement of an organisation that specifies the hierarchy of reporting,
as well as the duties and accountabilities of its staff.

Companies need to identify the most suitable structure for successfully carrying out their plans and reaching
their goals. They should assess the potential impact of the structure on the management of operations and
communication efficiency. A thoughtfully planned organisational structure contributes to clear
communication, operational efficiency, and clear lines of accountability.

1. Hierarchy: Hierarchy in organisational design refers to the arrangement of individuals within a

company according to levels of authority and responsibility. It establishes a clear chain of command
and helps define roles, responsibilities, and reporting relationships within the organisation.

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2. Bureaucracy: Bureaucracy is a system of administration characterised by strict procedures, detailed
rules, and a clear division of labour. It involves a hierarchical structure where decisions are made
based on a fixed set of guidelines, promoting consistency and efficiency in large organisations.

3. Chain of Command: The chain of command is the formal line of authority within an organisation,
depicted in the organisational hierarchy. It dictates who reports to whom, ensuring that instructions
and information flow from the top management down to the lower levels of the organisation.

4. Span of Control: Span of control refers to the number of subordinates that a manager or supervisor
can effectively oversee. A narrow span of control means fewer employees under one manager,
allowing for closer supervision, while a wide span of control involves more employees under one
manager, encouraging greater autonomy among subordinates.

5. Centralised and Decentralised Structures: Centralised structures concentrate decision-making

authority at the top levels of the organisation, leading to uniformity and control. Decentralised
structures distribute decision-making power across various levels, promoting flexibility, faster
decision-making, and empowerment of lower-level managers.

Fig 6 - Centralised vs Decentralised organisational structures

6. Matrix Structures: Matrix structures combine two or more types of organisational structures,
typically functional and project-based. Employees report to multiple managers—both functional

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 managers and project managers—allowing for better collaboration and resource sharing across
departments while managing specific projects or products.

Organisational Structure

In A business you have either a tall organisational structure, a flat organisational structure, or a structure
based on business variables.

Tall Organisational Structure

Definition: A tall organisational structure is characterised by multiple layers of management, leading

to a long chain of command.

Features:

- Multiple Hierarchical Levels: There are many layers of authority between the top
management and the employees at the bottom.
- Narrow Span of Control: Each manager supervises a small number of employees, allowing
for close supervision and control.
- Clear Chain of Command: There is a well-defined path for decision-making and
communication, often slow and formal.
- Advantages: Enhanced control and supervision, clear roles and responsibilities.
- Disadvantages: Slower decision-making process, potential for communication delays, and
higher administrative costs.

Flat Organisational Structure

Definition: A flat organisational structure features fewer hierarchical levels, resulting in a shorter
chain of command.

Features:

- Few Management Layers: There are only a few levels between top management and
front-line employees.
- Wide Span of Control: Managers oversee a larger number of employees, promoting
autonomy and responsibility.

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 - Decentralised Decision-Making: Decision-making is often pushed down to lower levels,
allowing for quicker responses and greater employee involvement.
- Advantages: Faster decision-making, improved communication, and increased employee
empowerment.
- Disadvantages: Potential for overworked managers, possible lack of control, and challenges
in maintaining consistency.

Structure Based on Business Variables

Fig 7 - Project Based Organisational Structure

Fig 8 - Region Based Organisational Structure

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 Definition: This structure is designed to adapt to various business variables such as product lines,
geographic locations, customer segments, or business functions.

Features:

- Flexibility: The structure can change in response to different business needs and external
conditions.
- Customised Design: It may incorporate elements of both tall and flat structures depending
on specific requirements.
- Focus on Key Variables: It organises teams or departments based on critical business
aspects such as products, regions, or customer types.
- Advantages: High adaptability, tailored management approaches, and targeted resource
allocation.
- Disadvantages: Complexity in coordination, the potential for confusion in roles, and the
need for effective communication systems.

Key Differences

Features of Tall Flat Situational

HRM Structure Structure Structure

Hierarchy Many hierarchical Few hierarchical levels. Flexible, customised

levels.
levels.

Span of Control Narrow span of control. A wide span of control. Variable span of control
based on business
needs.

Decision Making Centralised, slower Decentralised, faster Flexible

decision-making. decision-making. decision-making can be
either centralised or
decentralised.

Communication Slower, formal Faster, informal Communication varies

communication communication. with structure design.

Control Greater control and Less control, more Control levels vary
supervision. autonomy. based on business
requirements.

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Adaptive Organisational Structures

External Factor Explanation

● If the external market becomes highly volatile or uncertain, a business may

Market
Uncertainty benefit from a more flexible structure.

● Project-based structures can help a business to respond quickly to changing

market conditions than highly-structured hierarchies as they allow for
collaboration across functional areas and resources can be shared

● When technological change significantly impacts an industry a business may

Rapid
Technological require a structure that allows for innovation, agility and quick
Advancements
decision-making

● Flat structures can be suitable as they encourage information sharing,

collaboration and empowerment of employees at all levels

● For businesses expanding into international markets a regional organisational

Global
Expansion structure may be appropriate

○ It enables coordination and control of operations across different

countries taking into account local market dynamics, laws and
cultural differences

○ It supports centralised decision-making while allowing subsidiaries to

adapt to specific regional needs

Competitive
Pressures
● Intense competition may call for a structure that enables speed, efficiency
and customer responsiveness

● Decentralised structures empower teams to make faster decisions and

respond directly to customer demands

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 ● This promotes speed and encourages a customer-focused approach that may
provide a much-needed competitive edge

Types of Leadership

Key differences between leadership and management

In the following table, I have drawn out the differences between the leadership of a company and the
management.

Feature Leadership Management

Vision vs. Execution Leadership focuses on creating a Management focuses on executing plans,
vision, setting direction, and organising resources and ensuring tasks
inspiring others to follow are completed on time

Influence vs. Control Leadership focuses on influencing Management focuses on controlling

others to achieve a common goal resources and processes to ensure that
by inspiring and motivating objectives are met

People vs. Processes Leadership focuses on people, Management focuses on processes,

their needs, and their motivation structures and systems

Long-term vs. Short-term Leadership focuses on the Management focuses on short-term goals
long-term vision and strategy and targets

Creativity vs. Efficiency Leadership encourages creativity Management focuses more on efficiency
and innovation and productivity

Leadership Styles

Different approaches to leading and managing a team or business are reflected in leadership styles. The
behaviours and attitudes of a leader towards their team members influence the organisational culture,
productivity, and performance. Using a variety of leadership styles depending on the situation, a successful
leader will achieve the best results for their business. These are the following Leadership Styles -

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 Fig 9 - Leadership styles in a business. CC: SAVEMYEXAMS

Autocratic Leadership

Definition: Autocratic leadership is a style where the leader makes decisions unilaterally, without
much input from subordinates.

Features:

- Decision-Making: Centralised, with the leader retaining most of the control.

- Communication: Top-down, with instructions given by the leader.
- Control: High level of supervision and oversight.

Advantages:

- Quick decision-making, useful in crises.

- Clear expectations and directions for employees.

Disadvantages:

- This can lead to low employee morale and motivation.

- Limited input from team members, potentially stifles creativity and innovation.

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Laissez-Faire Leadership

Definition: Laissez-faire leadership is a hands-off approach where the leader provides minimal
direction and allows subordinates to make decisions.

Features:

- Decision-Making: Decentralised, with employees having freedom to make decisions.

- Communication: Minimal, with leaders providing guidance only when necessary.
- Control: Low supervision and oversight.

Advantages:

- Encourages creativity and innovation.

- High levels of job satisfaction and independence for employees.

Disadvantages:

- This can lead to a lack of direction and coordination.

- Potential for low productivity if employees lack self-motivation.

Democratic Leadership

Definition: Democratic leadership involves the leader actively seeking input from subordinates and
making decisions based on collective agreement.

Features:

- Decision-Making: Shared, with input from team members.

- Communication: Two-way, with open discussions and feedback.
- Control: Balanced supervision, with leaders guiding but also listening to employees.

Advantages:

- High employee engagement and morale.

- Better decisions through diverse input and collaboration.

Disadvantages:

- Slower decision-making process.

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 - Potential for conflict if consensus is not reached.

Paternalistic Leadership

Definition: Paternalistic leadership is a style where the leader acts as a parental figure, making
decisions that they believe are in the best interest of employees.

Features:

- Decision-Making: Centralised, but with consideration for employees’ well-being.

- Communication: Mostly top-down, but with some attention to feedback and employee
needs.
- Control: High supervision, with a focus on employee welfare and loyalty.

Advantages:

- Creates a loyal and motivated workforce.

- Employees feel cared for and valued.

Disadvantages:

- This can lead to dependency on the leader.

- Employees may feel their input is undervalued or ignored.

Hersey and Blanchard's Situational Leadership Model

According to Hersey and Blanchard's Situational Leadership Model, effective leadership requires matching
one's leadership style to the demands of the workforce being led. This implies that there is no
one-size-fits-all method for managing a company organisation.

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 Fig 9 - Hersey and Blanchard's Situational Leadership Model, CC: SAVEMYEXAMS

Employee Motivation

Employee motivation refers to the level of energy, commitment, and creativity that a company's workers
bring to their jobs. It is the internal and external factors that stimulate workers to take actions that lead to
achieving a goal.

Importance:

- Productivity: Motivated employees are more productive and efficient.

- Engagement: Higher motivation leads to increased employee engagement and job
satisfaction.
- Retention: Motivated employees are more likely to stay with the company, reducing turnover
rates.
- Innovation: A motivated workforce is more creative and willing to contribute ideas.
- Customer Satisfaction: Motivated employees tend to provide better service, enhancing
customer satisfaction and loyalty.

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Taylor's Scientific Management

Definition: Taylor's Scientific Management, developed by Frederick Winslow Taylor, is a theory of

management that analyses and synthesises workflows to improve labour productivity. Taylor
proposed that by optimising and simplifying jobs, productivity would increase.

Context of Motivation:

- Monetary Incentives: Taylor believed that financial rewards were the primary motivator for
workers. He introduced the idea of pay-for-performance.
- Standardised Work: Jobs are broken down into simple tasks, and employees are trained to
perform these tasks efficiently.
- Close Supervision: Managers closely monitor workers to ensure compliance with the
specified methods and procedures.

Maslow's Hierarchy of Needs

Definition: Maslow's Hierarchy of Needs, developed by Abraham Maslow, is a motivational theory

in psychology comprising a five-tier model of human needs, often depicted as hierarchical levels
within a pyramid. From the bottom of the hierarchy upwards, the needs are physiological, safety,
love and belonging, esteem, and self-actualization.

Context of Motivation:

- Physiological Needs: Basic needs such as food, water, and shelter. Employers can motivate
employees by ensuring these needs are met through adequate wages.
- Safety Needs: Security and protection. Job security, safe working conditions, and benefits
such as health insurance help fulfil these needs.
- Love and Belonging: Social needs such as friendships and family. Creating a supportive
team environment and fostering strong workplace relationships can motivate employees.
- Esteem Needs: Respect, recognition, and self-esteem. Providing opportunities for
achievements, recognition, and responsibility can satisfy these needs.
- Self-Actualization: Realising personal potential, self-fulfilment, and seeking personal
growth. Offering career development opportunities and challenging work can help employees
reach this level.

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 Herzberg's Motivation-Hygiene Theory

Definition: Herzberg's Motivation-Hygiene Theory, also known as the Two-Factor Theory,

developed by Frederick Herzberg, posits that certain factors in the workplace cause job satisfaction
(motivators), while a separate set of factors cause dissatisfaction (hygiene factors).

Context of Motivation:

- Motivators: Factors that are related to the nature of the work itself and how challenging it is.
These include achievement, recognition, the work itself, responsibility, advancement, and
growth. These factors lead to higher job satisfaction and motivation.
- Hygiene Factors: Factors that are related to the work environment. These include company
policies, supervision, salary, interpersonal relations, and working conditions. While these
factors do not necessarily motivate employees, their absence can cause dissatisfaction.

Types of Financial Incentives & Their Links to Motivational Theory

Incentive Explanation Link to Motivational Theories

Type

Piecework ● Employees are paid according to the ● Taylor's Scientific management

number of units or pieces they produce
● Commonly used in manufacturing or
assembly-line settings and encourages
workers to increase their output e.g.
garment factories in Bangladesh use this

Commission ● A percentage of sales revenue paid to ● Hygiene factor in Hertzberg's

workers who sell products or services Theory
● Commonly used in sales roles and ● Connects to Esteem Needs in
motivates staff to increase their sales Maslow's Hierarchy
revenue (salesperson of the month)

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Bonus ● An additional payment is given to staff ● Connects to Esteem Needs in
as a reward for achieving specific goals, Maslow's Hierarchy
completing projects on time, or (achievement)
exceeding performance expectations ● Herzberg believed that bonuses
● Motivates staff to work harder and as the main form of payment
achieve better results would negatively influence
individual behaviour in the
workplace (this was part of the
problem in the banking
industry leading up to the 2008
financial crash)

Profit share ● A portion of the company's profits are ● Motivator in Herzberg's

distributed among staff Theory as it creates buy-in to
● This encourages them to think like increased responsibility (help
owners, work collaboratively and focus the organisation succeed; be an
on the company's overall goals owner)

Performance ● Staff are paid based on their performance ● Hygiene Factor in Herzberg's
-related pay
which (theoretically) motivates staff to theory - and has been proven to
work harder and achieve better results cause significant
● This form of payment has been severely dissatisfaction when utilised
criticised as discriminatory and open to
abuse by managers

Fringe ● Financial rewards received by employees ● Fringe benefits may link to ego
Benefits
other than wages or salary such as needs in Maslow's hierarchy of
medical insurance, a company vehicle or needs especially if they are
a private pension plan linked to employees' position
in the organisational hierarchy

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Wages & ● Wages are usually paid to workers based ● Connects to safety needs in
Salaries on hours worked (time rate) or items Maslow's hierarchy of needs
produced (piece rate) and acts as a hygiene factor in
● Salaries are expressed on an annual basis Hertzberg's two-factor theory
and workers are paid a proportion ● Equitable and sufficient pay is
periodically (usually each month) required to avoid staff
dissatisfaction and retain
workers

Types of Non-financial Incentives & Their Links to Motivational Theory

Incentive Type Explanation Link to Motivational Theories

Empowerment ● Involves giving staff the authority and ● Maslow's 'Esteem' Needs
resources to make decisions and take as staff contribution is
action without first receiving valued
management approval ● A 'motivator' in Herzberg's
Two Factor Theory
● Increases staff sense of ownership and
(increase in responsibility)
responsibility, leading to improved
productivity

Team working ● Involves creating opportunities for staff ● Maslow's Love &
to work collaboratively Belonging, as well as
Esteem Needs
● Staff can share ideas and expertise,
leading to improved productivity and
innovation

28
 Job ● Involves adding more challenging or ● A 'motivator' in Herzberg's
enrichment
meaningful tasks to a job Two Factor Theory

● Staff feel more motivated and engaged,

leading to improved productivity

Job rotation ● Involves moving staff between different ● A 'motivator' in Herzberg's

roles in the business Two Factor Theory (the
work itself)
● Exposes staff to new challenges and
experiences which can increase
motivation, understanding and skill

Job ● Involves expanding staff's job duties to ● Mayo's Human Relations

enlargement
include additional tasks or Theory as it encourages the
responsibilities development of staff

● Engaging with a variety of tasks can ● A 'motivator' in Herzberg's

increase motivation and job satisfaction, Two factor Theory (the
leading to improved productivity work itself)

Types of Training

Training is the process of enhancing the skills, capabilities, and knowledge of employees for doing a
particular job. It is an organised activity aimed at imparting information and instructions to improve the
recipient's performance or to help them attain a required level of knowledge or skill.

Importance:

- Improves Performance: Helps employees perform their job more effectively.

- Enhances Skills: Keeps employees updated with new skills and technologies.
- Boosts Morale: Increases job satisfaction and motivation among employees.
- Ensures Consistency: Standardised procedures and practices within the organisation.

29
 - Reduces Turnover: Employees are more likely to stay with a company that invests in their
development.
- Increases Efficiency: Reduces the time and cost associated with mistakes and inefficiencies.

Induction Training

Definition: Induction training, also known as orientation training, is the initial training provided to
new employees to help them settle into their new role and the organisation.

Features:

- Introduction to the Company: Provides an overview of the company's culture, values,

policies, and procedures.
- Role-Specific Information: Educates new hires about their specific job roles,
responsibilities, and expectations.
- Integration: Helps new employees integrate into the team and understand the organisational
structure.
- Compliance: Covers necessary compliance and legal information, such as health and safety
protocols.

On-the-Job Training

Definition: On-the-job training (OJT) is a hands-on method of teaching the skills, knowledge, and
competencies needed for employees to perform their job in the actual work environment.

Features:

- Practical Learning: Employees learn by performing tasks under the supervision of

experienced colleagues or trainers.
- Immediate Application: Skills and knowledge gained are immediately applicable to the job.
- Cost-Effective: Typically less expensive than off-the-job training since it does not require
separate facilities or materials.
- Customization: Training can be tailored to the specific needs of the job and the employee.

30
Off-the-Job Training

Definition: Off-the-job training involves learning that takes place away from the normal work
environment. It often includes lectures, seminars, workshops, conferences, and simulations.

Features:

- Dedicated Learning Environment: Provides a distraction-free environment focused solely

on training.
- Broader Perspective: Allows employees to gain knowledge and skills that are not
immediately related to their current job but may be beneficial in the long term.
- Expert Instruction: Training is often conducted by external experts or specialists.
- Networking Opportunities: Employees can meet and interact with peers from other
organisations, which can lead to the exchange of ideas and best practices.

TOPIC 3 - Finance and Accounts

Entrepreneurs need finance to cover initial setup costs such as acquiring equipment, renting or purchasing
premises, conducting market research, hiring staff, and developing marketing strategies. Businesses also
require finance to fuel expansion and growth plans, which might involve opening new locations, entering
new markets, launching new products or services, and increasing production capacity. Finance is essential
for capital expenditure on machinery, technology, vehicles, and infrastructure, which enhances productivity
and efficiency.

Working capital is needed for day-to-day operations, including purchasing inventory, paying suppliers,
meeting payroll, and covering overhead costs. Investment in research and development (R&D) helps
businesses stay competitive and innovate. Effective marketing requires finance to develop and execute
campaigns, attract customers, and boost sales. Additionally, businesses need finance for risk management,
debt servicing, and measuring business performance through metrics like profits and working capital.

Sources of Finance

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 Source of Finance Advantages Disadvantages

Retained profits No debt, no interest Time consuming, you could

increase your own salary instead

Loans Quick & easy, increase credit You will have to pay it off and
score you need credit, assets at risk

Public investors Can raise a large amount of Vulnerable to hostile takeover,

money you have to publish all your
finances, lack of control

Private investors Can raise some good money Investors require equity and you
easily can lose some control

Share Capital Permanent source of capital Share the financial risk

Mortgage Properties Longer term, larger sum of Longer process, puts properties at
money, may be lower interest risk.

Selling Assets/Inventories Easy, quick money You can’t sell off important assets
and it can lead you to lose money,
may not have buyers

Overdraft Pay interest only on the amount High interest rates

overdrawn

Trade credit: A source of finance No interest paid Lose the discount on upfront
that allows a business to postpone payments
payments or to buy now & pay
later

Subsidies Government can pay for some of Not available to everyone

costs (depends on business)

Leasing No need to spend money on No ownership

buying the assets upfront

Microfinance Providers Job creation, Immoral: Charge high interest

Personal finances Easy to draw from Assets at risk (liability)

Crowdfunding Able to raise finances Have to pay people back

Business Angles Good source of finance for start Need to share profits.
up

Alternative Methods (Credits to Laurie, Jake, Anay)

Loan Shark No credit required, quick and High interest rates, he(not she)
easy, he seems very enthusiastic will break your legs and throw
to loan out the money you in a river if you don’t pay it
back.

32
Treasure Hunting Gold doubloons / Buried Treasure You have to find a genuine
treasure map first, danger of
booby traps

Gambling / Lottery Can make you mega millions, 1 in 1 billion chance, risky,
fun. addictive

Flipping(some ryan trahan stuff) Easy, selling assets, minimum Minimum wage level income
capital required

Bank robbery Quick and lots of money Need to invest in the equipment

Ponzi Scheme EASY money Need to find gullible people

Pyramid Scheme Several investors, different fraudulent system of making

sources. money

Gold panning Gold price will rise. The gold rush is over

War Profiteering Profiting off of conflict can Unethical

provide lots of profit

Become the loan shark Charge ridiculous interest on Have to break people's legs and
some single mother struggling to throw them in rivers
feed her children

Conquest Invasion and pillaging (funsies) Need to invest in tanks, bombers,

spears etc. unethical,
governments will try to stop
you(let them try)

Train Robbery A large quantity of goods to be Difficult now, was easier back in
sold my day

Digging up and selling old mines Family business, free military High mortality rate, loss of limbs
from minefields grade mines

Heisenberg Money, get your own show, street Invest in meth lab, not legal,
cred cancer

Transmuting lead into gold High profit Need to do research and learn
from the masters.

Mugging people Fun Unethical, unlawful

Becoming a car mechanic and Get to see the devastated faces of How much does an oil change
charging struggling single a single mother and her children cost
mothers triple of what they
should have to pay.

Blackmail Easy peasy, can make you a lot of Need to find dirt on someone
money

Marry a dying billionaire (or get Easy money, have sex Need to act heartbroken when he
adopted by a CEO) dies, need to have sex

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Begging No investment required Need to find homeless person
costume, rely on generosity of
public

Snake Oil Magical substance, high profits No scientific evidence

Join THE REAL WORLD Quick cheap money Still making minimum wage.
(hustlers university)

Steal from homeless people(if Can optionally throw bricks, May be punished by citizens.
you’re homeless, just buy a honeybuns
house)

Internal Sources of Finance

Definition: Internal sources of finance refer to funds that are generated from within the business
itself, without the need to borrow from external sources.

Types:

1. Retained Earnings: Profits that are not distributed to shareholders as dividends but are
reinvested in the business. This is a common source of finance for ongoing business
operations and expansion.
2. Sale of Assets: Selling off non-essential or underutilized assets such as equipment, property,
or inventory to generate cash.
3. Working Capital: Efficient management of working capital (e.g., better inventory control,
faster receivables collection) can free up funds for other uses within the business.
4. Owner’s Savings: Personal savings of the business owner(s) that are invested into the
business. This is common in startups and small businesses.

Advantages:

- No interest payments or need to repay, which helps improve cash flow.

- No dilution of ownership or control.
- Often quicker and easier to access than external sources.

Disadvantages:

- Limited by the amount of funds the business can generate internally.

- May lead to missed opportunities if internal funds are insufficient.

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 - Can put pressure on the business’s cash flow and operational funds.

External Sources of Finance

Definition: External sources of finance refer to funds that are obtained from outside the business.
These can be from various stakeholders such as financial institutions, investors, or other businesses.

Types:

1. Loans: Borrowing money from banks or other financial institutions. Loans need to be repaid
with interest over an agreed period.
2. Overdrafts: Short-term borrowing facility allowing businesses to withdraw more money than
is available in their bank account, up to an agreed limit.
3. Issuing Shares: Raising capital by selling ownership stakes (shares) to investors. This can be
through initial public offerings (IPOs) or additional share offerings.
4. Venture Capital: Investment provided by venture capital firms in exchange for equity,
typically used by startups and early-stage companies with high growth potential.
5. Grants and Subsidies: Funds provided by governments or other organizations that do not need
to be repaid. These are often available for specific projects or industries.
6. Trade Credit: Arrangements with suppliers to purchase goods or services on credit, paying for
them at a later date.
7. Leasing: Renting equipment or property rather than purchasing it outright, spreading the cost
over a period.

Advantages:

- Provides access to larger amounts of capital than internal sources.

- Can be structured to meet specific needs and repayment schedules.
- Diversifies the risk and can bring in additional expertise and resources (e.g., from venture
capitalists).

Disadvantages:

- Interest payments and repayment obligations can strain cash flow.

- Dilution of ownership and control when issuing shares.
- May involve covenants or conditions that restrict business operations.
35
 Summary

Internal sources of finance include retained earnings, sale of assets, working capital, and owner’s
savings. These sources are typically cheaper and do not dilute ownership but are limited by the
business's internal capacity.

External sources of finance encompass loans, overdrafts, issuing shares, venture capital, grants,
trade credit, and leasing. These sources can provide significant capital for growth and expansion but
often come with higher costs and obligations, including interest payments and potential loss of
control.

Decision Trees

A decision tree is a graphical representation used to visualize the possible outcomes, risks, costs, and
benefits of various decision paths, helping businesses make informed choices. It consists of nodes
representing decisions and chance events, connected by branches that illustrate the possible outcomes and
their probabilities.

The square indicates a decision should be made

Circle indicates that the outcome is uncertain(success/failures)

Crossed out lines- Option was rejected

36
 Pros Cons

Visual representation No qualitative factors

Risk consideration Estimated values
All options Prone to bias

Costing and Revenue

Define

➔ Direct Costs: Expenses directly tied to production, and varies with output. Examples include raw
materials, components and packaging.

➔ Indirect Costs: Expenses not directly related to production but contribute to operations. They relate
to the business as a whole and are often called overheads

➔ Fixed Costs: Remain constant regardless of production volume. E.g. building rent, management
salaries, insurance, bank loan repayments etc

➔ Variable Costs: Fluctuate in proportion to production or sales. E.g. raw material costs, wages of
workers directly involved in the production

37
➔ Revenue Streams: Sources of income for a business.

➔ Assets:

◆ Current: Resources expected to be converted into cash within a year.

◆ Non-Current: Longer-term investments or resources.

➔ Liabilities:

◆ Current: Obligations are due within a year.

◆ Non-Current: Longer-term debts or obligations.

38
Statement of Profit and Loss

Statement of financial position//Balance Sheet

39
Sales Revenue

Sales revenue is the value of the units sold by a business over a period of time, such as the revenue
earned by Apple Music from music downloads. It is a key performance measure used to identify
profit, calculated using the formula:

Sales Revenue = Quantity Sold × Selling Price.

Sales revenue typically increases with sales volume. While calculating sales revenue is
straightforward for a single product, it becomes more complex with multiple products. However,
computer systems facilitate easier tracking of sales revenue in such cases.

Break Even Analysis

1. List all fixed costs, which are expenses that do not change with the level of production or sales.
These may include:

- Rent or mortgage payments

40
 - Salaries and wages of permanent staff
- Insurance premiums
- Depreciation of equipment and buildings
- Utilities

2. List all variable costs, which are expenses that vary

directly with the level of production or sales. These Formulas
may include:

- Cost of raw materials Contribution per unit Selling price – variable cost per unit

- Direct labour costs (wages for hourly

workers) Total contribution Contribution per unit × output

- Production supplies
- Shipping and handling Break-even quantity (BEQ) Fixed cost ÷ contribution per unit

- Sales commissions
3. Calculate the Contribution Margin, and set up the Margin of safety Current level of output – break-even
point
plot by calculating all the following.

Fully labeled Break-Even Chart: Profit (at a certain level of (Output × contribution per unit) –
output) fixed costs

41
 4. Analyze the break-even point to understand the implications for the business. This includes:
- Assessing if the break-even point is achievable within the current market conditions.
- Identifying the margin of safety, which measures how much sales can drop before the business
reaches the break-even point.
- Making informed decisions about pricing, cost control, and sales strategies.

Profitability and Liquidity Ratios

A management tool of analyzing and judging the financial performance of a business. Numbers are taken
from the final accounts to analyze the firm’s position (e.g. short-term liquidity, long-term liquidity, etc.) by
assessing financial performances (i.e. ability to control expenses) and compare actual with projected or
budgeted figures (variance analysis).

Profitability ratios

Gross profit margin

● Shows the value of gross profit as a percentage of sales revenue

● GPM = (Gross profit / Sales revenue) x 100

● Improve the ratio by

● Raising sales revenue

● Increase or decrease prices (depending on price elasticity)

● Marketing

● Reducing direct costs

Net profit margin

● Shows the percentage of sales turnover turned into net profit

● NPM = (Net profit before interest and tax / Sales revenue) x 100

● Differences between GPM and NPM represent expenses

● A larger difference means more difficult overhead control

42
 ● Improve the ratio by

● Same as GPM but costs can be examined further

● Negotiate preferential payment terms with creditors and suppliers to improve

working capital

● Negotiate cheaper rent

● Reduce indirect costs

Return on capital employed (ROCE)

● Measures the financial performance of a firm compared with the amount of capital
invested

● ROCE = (Net profit before interest and tax / Capital employed)

● Figures show profit as a % of the capital used to generate it

● ROCE should be higher than interest rate in banks

● Benchmark: 20% ROCE, but has to be put into context of the business and the
industry in which it operates

● ROCE is the key/primary ratio

● Using your net profit before tax and interest as this allows better comparisons
– can’t control interest and tax rates

● Measures how well a firm can generate profit from its funds

● ROCE can be improved by

● Employ strategies to improve net profits

● Technically decreasing capital employed will improve the ratio, but this is not
desirable

Liquidity ratios

● The ability of the firm to pay its short-term liabilities

43
● Current ratio

● Relationship between current assets and current liabilities

● Current ratio = (Current assets / Current liabilities)

● Reveals if a firm is able to use its liquid assets to cover its short term debts

● Desirable ratio: 1.5 – 2.0

● > 2: may mean too much stocks (inventory) or too much stagnant money (just
standing there not being spent)

● Too low = too many debtors or current liabilities

● How to improve current ratio

● Raising the value of current assets

● Reducing the value of current liabilities

● Acid test ratio

● Relationship between the current assets (disregarding stock) and current liabilities

● This is done because stock may not be a liquid asset

● Acid test ratio = (Current assets less stocks / Current Liabilities)

● Desirable Ratio is AT LEAST 1:1

● < 1:1 ratio = liquidity crisis (not being able to pay short term debts

● Too high indicates holding too much cash and not using it effectively

● Affected stakeholders are the banks, creditors, and investors

● How can it be improved

● Raise the level of current assets

● Lower current liabilities.

44
Investment Appraisal

Investment appraisal is the evaluation of investments using quantitative techniques (looking for potential net
gains). Capital investment is based on 3 factors - the firm’s objectives, opportunities, and constraints.

● Qualitative issues that can be faced in making an investment

● Objectives of the firm

● External costs and benefits

● Current or expected state of the economy

● Past experiences

● Corporate image

● Whether the investment will conflict with a company’s values

● Exogenous shocks

● Unexpected economical change (e.g. fall in stock prices, rise in prices of housing,
etc.)

● Cash flows

● Estimated profits over the lifetime of the investment

● Cumulative cash flow

● Cash flow based on total cash is subtracted by total cash out for a specific duration of
time

● Cumulative cash flow = Total cash out – Net cash flow up to that period

● Methods of investment appraisal

● Payback period (PBP)

● Time it takes for an investment to repay the initial outlay

● Calculation is based on cash flows

45
 ● Short term, works with the nearest month

● Calculate month of payback = (Income required / Contribution per month)

● Contribution per month = (Cash flow for next year / 12)

● Important notes

● Projects with long payback will be disregarded but payback will rarely
be used by itself to make an investment decision

● How much of a deterrent is high risk?

● Advantage

● Simple and quick

● Firms can identify how long they can recoup and whether or not it will
break-even on a purchased asset

● Compare different investment projects

● Assess projects that yields quick returns

● Short term, so calculations are less prone to forecasting errors

● Disadvantages

● Encourages short-term approach to investment

● Contribution per month is likely to be constant

● Focuses on time as the key criterion rather than profit

● Lacks qualitative assessment

● Average rate of return (ARR)

● Calculates the average profit of an investment as a % of the investment

● Expressed as % to allow comparisons between investment projects with different

initial outlays

46
 ● Computation

● Calculate profit over lifetime of investment

● (Total cumulative cash flow – initial outlay) / No. of years of

investment’s life span

● ARR = (Average annual profit / Initial outlay) * 100

● Advantages

● Enables easy comparisons of the returns of different projects

● Disadvantages

● Ignores timing of cash inflows (e.g. seasonal factors)

● Project’s lifespan is needed, which might just be a

random guess

● Errors are likelier the longer the forecasting period.

TOPIC 4 - Marketing

The Market

What is Marketing?

Marketing is the process of promoting, selling, and distributing a product or service. It involves
researching and understanding consumer needs, creating value, and building strong customer
relationships to capture value in return. The primary goal of marketing is to attract and retain
customers by delivering superior value and satisfaction.

Product vs Market Orientation

Aspect Product Orientation Market Orientation

Focus Emphasizes the quality and features Focuses on identifying and meeting the
of the product itself. needs and wants of customers.

47
Philosophy "If we build it, they will come." "Find out what the customer wants and
provide it."

Approach to Prioritizes efficient production Prioritizes market research and customer

production processes and cost control. feedback to guide product development
and marketing efforts.

Product Develops products based on what the Develops products based on market
Development company is good at making. research and customer demand.

Customer Assumes that customers will favor Risk of higher initial costs due to
Consideration products with the best quality, extensive market research, but potentially
performance, or innovative features. higher success rates.

Risk Risk of creating products that may not Risk of higher initial costs due to
meet market needs or preferences, extensive market research, but potentially
leading to poor sales. higher success rates.

Marketing Strategy Often relies on aggressive sales Uses targeted marketing strategies to
techniques to push the product to the attract and retain customers based on their
market. preferences.

Examples Companies that prioritize Companies that prioritize customer

technological innovation or have a feedback, trends, and data to shape their
strong focus on their product features. products and services.

What is Market Share?

Market share is the portion or percentage of a market controlled by a particular company or product.
It reflects the company's competitiveness and dominance in a specific market relative to its
competitors. Market share is an important metric as it indicates the company's strength and success
in capturing sales within its industry.

How to Calculate Market Share

Market share can be calculated using the following formula:

Market Share = (Company’s Sales / Total Market Sales) × 100

Steps to Calculate Market Share:

Determine the Company's Sales: Identify the total sales revenue or the number of units sold by the
company within a specific period.

48
 Determine the Total Market Sales: Identify the total sales revenue or the number of units sold by
all companies within the same market and period. This information can be obtained from industry
reports, market research firms, or public financial statements.

Market Planning

Segmentation

Segmentation involves dividing a heterogeneous market into smaller, more homogeneous groups of
customers based on shared characteristics such as demographics, psychographics, or behavior.

Expansion: Market segmentation allows businesses to identify and cater to specific customer needs
and preferences more effectively. By understanding the unique attributes and behaviors of different
market segments, companies can tailor their marketing strategies, product offerings, and
communication efforts to resonate more deeply with each group. Segmentation can be based on
various factors:

- Demographics: Age, gender, income, education, occupation, and family size.

- Psychographics: Lifestyle, personality traits, values, interests, and attitudes.
- Geographic: Based on region, city, country, continent, etc.

Targeting

Targeting is the process of selecting one or more of these market segments as the focus of marketing
efforts, tailoring products, services, and messages to meet the specific needs and preferences of the
chosen segments.

Expansion: Once a market is segmented, businesses must decide which segments are most attractive
and viable to target. This involves evaluating the size, growth potential, profitability, and competitive
landscape of each segment. Targeting strategies can include:

- Undifferentiated Marketing: Aiming at the entire market with a single strategy, often used
for products with universal appeal.
- Differentiated Marketing: Developing different strategies for different segments, tailored to
the specific needs of each.

49
 - Concentrated Marketing: Focusing on a single segment or a few segments, ideal for niche
markets.
- Micro-Marketing: Tailoring products and marketing efforts to suit specific individuals or
local customer segments.

Niche Market

A niche market refers to a specialized subset of a larger market with unique needs or preferences that
are not adequately addressed by mainstream products or services.

Expansion: Niche markets are characterized by their distinct and specific demands. Companies
targeting niche markets often offer highly specialized products or services, catering to a smaller, but
highly focused customer base. Examples include vegan skincare products, handcrafted luxury
watches, or adventure travel for seniors. Targeting a niche market can provide several advantages:

- Reduced Competition: Niche markets often have fewer competitors, allowing businesses to
establish a strong presence.
- Higher Profit Margins: Specialized products can often command higher prices due to their
unique value.
- Stronger Customer Loyalty: By meeting specific needs, companies can build strong
relationships and brand loyalty.

Mass Market

A mass market refers to a broad and undifferentiated market consisting of a large and diverse group
of customers with varied needs and preferences.

Expansion: Mass marketing aims to reach as many people as possible with a single product or
message, assuming universal appeal. This strategy is often used for products that fulfill basic needs
and have wide usage, such as household items, basic food products, and popular consumer
electronics. Key characteristics include:

- High Volume Sales: Focuses on achieving high sales volume through widespread
distribution and marketing.

50
 - Economies of Scale: Mass production and distribution can lower costs, making products
more affordable.
- Broad Appeal: Marketing messages are generalized to attract a wide audience.

Product Differentiation

Product differentiation involves distinguishing a company's products or services from those of

competitors through unique features, quality, design, or other attributes to create perceived value
among customers.

Expansion: Differentiation is a key competitive strategy that helps businesses stand out in the
marketplace. By offering something unique, companies can attract specific customer segments,
reduce price sensitivity, and build brand loyalty. Differentiation can be achieved through various
means:

- Quality: Superior materials, craftsmanship, or performance.

- Features: Unique functionalities or advanced technology.
- Design: Aesthetic appeal, ergonomic design, or innovative packaging.
- Customer Service: Exceptional support, warranties, or personalized services.
- Branding: Strong brand identity, reputation, and emotional appeal.

Unique Selling Point (USP)

A unique selling point (USP) is a distinctive aspect or feature of a product or service that sets it apart
from competitors and provides a compelling reason for customers to choose it over alternatives.

Expansion: The USP is a critical component of a company's value proposition, highlighting what
makes its offerings unique and desirable. A strong USP clearly communicates the benefits and
advantages of a product, helping to attract and retain customers. Examples include:

- Innovative Technology: Cutting-edge features or capabilities not found in competitors'

products.
- Exceptional Quality: Superior materials or construction that ensures durability and
performance.
- Exclusive Services: Personalized experiences, customization options, or premium support.
- Competitive Pricing: Offering the best value for money within a particular category.
51
Market Research

Why do it?

➔ identifying consumers’ needs and wants and understanding consumers’ purchasing behaviour

➔ identifying potential changes in the market, such as changes in consumer spending patterns

➔ establishing what consumers like and dislike and testing new products

➔ evaluating existing marketing efforts in attracting consumers

➔ investigating new possibilities in existing or new markets

Focus groups:

An interview conducted with a group of individuals, usually with similar characteristics.

Types of market research (7ps)

Type of research Description

Product-based When a company tests a new product, it releases the product to a specific area for a
research limited time. This enables the company to gain large amounts of information about
how closely the product meets the needs of its target market. If test markets are
successful, the product will enjoy a full-scale launch. If not, the product can be
redesigned or scrapped.

Price-based In highly competitive markets, new companies may be forced to base their prices on
research those of their competitors. If this is the case, companies must regularly research the
market to find out the pricing strategies of competitors. Their own prices will then be
adjusted to ensure that they are in line with the competition.

Promotion-based It is important for companies to understand which media their target market accesses.
research If a company selects the wrong media and customers do not see or react to the
message, then money has been wasted.

Place-based Selecting the right distribution channels – the ways to distribute the product – can be
research the difference between success and failure. A range of research methods may be used
for this. Interviewing consumer experts or simply asking the target market
themselves can provide valuable insights.

52
People-based It is important that people representing a brand are well trained in how best to inform
research and support the customer. They need to offer the type of experience that would make
the customer want to make further purchases. Businesses rely on research to
understand the type of customer service experience that will ensure clients become
repeat customers.

Process-based Process-based research focuses on how to implement an appropriate process for

research delivering the service. It may involve benchmarking or comparing a company’s
service quality and speed to that of leading competitors.

Physical Market research around physical evidence involves researching the sensory and
evidence-based visual experiences of the customer. In a store, for example, this might include
research branding, the layout of the store or the store’s ambience. Supermarkets very often
perform a type of research called ‘shelf testing’, which helps them to understand
where to best place a specific product.

Primary research Secondary research

Pros Very specific to needs of research Cheap, cost effective

Qualitative data

Cons More costly (time and monetary) Not as specific

Types Surveys, interviews, focus Market analysis, peer reviewed

groups, observations journals, government

53
 publications, articles and online
data

The 7P’s of Marketing

Product - The product is the item or service that a company offers to its customers to satisfy their needs or
desires. It includes everything from design, features, and quality to functionality and branding. Businesses
must continuously innovate and improve their products to meet changing consumer preferences and stand
out in the market. Product variations and packaging also play a crucial role in attracting customers and
enhancing their experience.

Price - Price is the amount of money customers must pay to acquire the product or service. Setting the right
price involves balancing profitability with customer satisfaction and competitiveness. Various pricing
strategies, such as competitive pricing, penetration pricing, and price skimming, are used depending on the
market conditions and business goals. Discounts, payment terms, and pricing models (e.g., subscription vs.
one-time purchase) also influence the perceived value of the product.

Place - Place refers to the distribution channels and locations where the product is available to customers.
Effective distribution ensures that products are available in the right quantities, at the right locations, and at
the right times. This can involve physical stores, online platforms, wholesalers, and direct sales. The goal is
to make it convenient for the target audience to purchase the product, whether through retail, e-commerce, or
other means.

Promotion - Promotion encompasses all the activities and strategies used to communicate the value of the
product to the target audience. This includes advertising, public relations, sales promotions, social media
marketing, and personal selling. The aim is to generate awareness, interest, and demand for the product. An
effective promotional strategy considers the target market's preferences and leverages various channels to
reach them.

People - People refers to everyone involved in the marketing, sales, and delivery of the product or service.
This includes employees, salespeople, customer service representatives, and anyone else who interacts with
customers. The quality of customer interactions can significantly impact satisfaction and loyalty. Training,
motivation, and customer-focused culture are essential to ensure that staff provide excellent service and
contribute positively to the brand’s image.
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Process - Process involves the procedures, mechanisms, and flow of activities that deliver the product or
service to the customer. This includes everything from order processing, customer service, and delivery to
after-sales support. Efficient and well-designed processes enhance customer experience, reduce costs, and
ensure consistency in service delivery. Streamlining processes and adopting new technologies can improve
overall efficiency and customer satisfaction.

Physical Evidence - Physical evidence is the tangible proof that supports the existence and quality of the
product or service. This includes the physical environment where the service is delivered, branding,
packaging, brochures, and even the appearance of employees. Physical evidence helps to build trust and
credibility with customers, providing them with reassurance about the product or service they are
purchasing. It also plays a key role in differentiating the brand and enhancing the overall customer
experience.

Tools In Marketing

Product Life Cycle: The product life cycle describes the stages a product goes through from its introduction
to the market, through its growth and maturity, and eventually to its decline. The stages are typically
categorized as Introduction, Growth, Maturity, and Decline.

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BCG Matrix: The BCG Matrix, developed by the Boston Consulting Group, is a tool for analyzing a
company's product portfolio based on market growth and market share. It classifies products into four
categories: Stars (high growth, high market share), Cash Cows (low growth, high market share), Question
Marks (high growth, low market share), and Dogs (low growth, low market share).

Ansoff's Matrix: Ansoff's Matrix is a strategic planning tool used to identify and assess growth
opportunities by focusing on existing and new products and markets. It includes four strategies: Market
Penetration (existing products, existing markets), Product Development (new products, existing markets),
Market Development (existing products, new markets), and Diversification (new products, new markets).

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TOPIC 5 - Operations Management

Operations Management

Operations management is the administration of business practices aimed at ensuring maximum efficiency
within an organization. It involves planning, organizing, and supervising the processes involved in
production, manufacturing, or the delivery of services. The goal of operations management is to optimize the
use of resources, improve productivity, ensure high quality, and meet customer demands effectively and
efficiently.

Operations Management Responsibilities

Designing and Improving Processes

- Operations managers analyze existing processes and find ways to optimize them.
- Tools and techniques such as process mapping and lean production are used to identify
inefficiencies and eliminate waste.

Capacity Planning
- Operations managers determine the production capacity required to meet customer demand.
- Historical data and market forecasts are analyzed to ensure that production resources are
adequate to fulfill orders in a timely manner.

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 Stock Management
- Operations managers manage stock levels of raw materials, work-in-progress, and finished
goods.
- The aim is to minimize costs while ensuring enough stock is available to meet customer
demand and allow the production process to continue without running out of resources.

Supply Chain Management

- Operations managers work closely with suppliers to ensure the timely delivery of raw
materials and components.
- They establish relationships with suppliers, negotiate contracts, and monitor supplier
performance to ensure a reliable supply chain.

Quality Control
- Operations managers implement quality control measures to ensure products/services meet
the required quality standards.
- They develop and enforce quality assurance processes, conduct inspections, and address any
quality issues that arise.

Continuous Improvement
- Operations managers strive for ongoing improvement in processes, productivity, and
efficiency.
- Opportunities for innovation are identified, new technologies or techniques are implemented,
and a culture of continuous improvement (Kaizen) is encouraged among employees.

Scheduling and Logistics

- Operations managers develop production schedules and coordinate the flow of materials,
equipment, and labor to ensure smooth operations.

Production Methods

Production methods refer to the various processes and techniques used by businesses to produce goods and
services. Each method has its own advantages and is chosen based on factors like product type, volume of
production, customization level, and efficiency requirements. The main production methods include:

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Job Production

- Definition: Job production involves manufacturing custom products tailored to specific customer
requirements. Each product is completed before the next one is started, often requiring unique design
and specifications.
- Explanation: This method is commonly used for specialized or one-off items, such as custom
furniture, tailored clothing, or bespoke machinery. It allows for high customization and flexibility but
is typically time-consuming and labor-intensive.

Batch Production

- Definition: Batch production involves producing a set number of identical items in groups or
batches. Each batch goes through one stage of production before moving on to the next stage.
- Explanation: This method is suitable for products that require similar production processes but are
not needed in continuous production. Examples include bakery items, clothing, and pharmaceuticals.
It allows for flexibility in production volume and product variety but may lead to downtime between
batches.

Flow Production

- Definition: Flow production, also known as continuous production, involves producing items in a
continuous, streamlined process. Products move continuously through a series of standardized
production stages.
- Explanation: This method is ideal for high-volume, standardized products such as automobiles,
electronics, and bottled beverages. It emphasizes efficiency, with minimal downtime and high levels
of automation. However, it requires significant initial investment and is less flexible in
accommodating changes in product design.

Mass Customization

- Definition: Mass customization combines elements of mass production with those of customization,
allowing for high volumes of products tailored to individual customer preferences.
- Explanation: This method uses advanced technology and flexible manufacturing systems to produce
customized products at near mass production costs. Examples include customized sneakers,

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 personalized computers, and modular furniture. It offers a balance between efficiency and
personalization, meeting diverse customer needs without sacrificing economies of scale.

Location

Factor Explanation

Proximity to the ● Refers to the distance between the business location and the target market
market ● Locating near the market reduces transportation costs and increases its
accessibility to potential customers

Proximity to ● Refers to the availability of qualified and skilled workers in the area
labour ● Businesses often locate in areas with a high concentration of skilled labour to
ensure that they have access to the necessary workforce to run their operations
efficiently

Proximity to ● Refers to the availability of raw materials and supplies needed for the business
materials which will help to minimise transportation costs

Proximity to ● May be desired (or not) to take advantage of a shared customer base or to
competitors differentiate themselves by offering unique products or services

The nature of ● Different types of businesses have different requirements in terms of space,
the business infrastructure, and accessibility
activity ● E.g. A manufacturing plant may require a large space for equipment and a
loading dock for shipping and receiving goods, while a service business such
as a law firm may require less space and more accessible office locations

Infrastructure ● Includes transport and electronic networks that allow for products to be
supplied either physically or online
● Online businesses rely on a fast and reliable internet connection
● Good transport links provided by major trunk roads and efficient rail links are
particularly important for businesses that require an effective logistics
network

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