KEY TERMS DEFINITIONS:

- Vision statement: is a written document of an organisation’s long-term goals that it hopes to achieve in
the future. It is often an optimistic view of what the organisation hopes to accomplish.

- Monopoly: Complete control of something, especially an area of business.

- Situational leadership: The ability of a leader or manager to adjust their style of leadership to fit the
task or situation that they find themselves in.

- Autocratic leadership: The ability of a leader or manager to make decisions with little or no outside
input. Instead, autocratic leaders rely on their own ideas and instincts when making decisions.

ADVANTAGES AND DISADVANTAGES OF SITUATIONAL LEADERSHIP:

ADVANTAGES DISADVANTAGES

Improves productivity. (Every team member has a different level of May lead to confusion because there is a lot of change (The lack of
skill and motivation, using an adaptive form of leadership allows you uniformity in leadership style can cause team members to question
to evaluate everyone separately and maximise their output.) what they’re supposed to do and when.)

Focuses on team members (focus on employees) Does not focus on long term goals

Promotes flexibility (it focuses on the level of skill, motivation, and Leaders take a lot of responsibility (can lead to stress)
confidence)

It creates a comfortable environment for workers.

ADVANTAGES AND DISADVANTAGES OF AUTOCRATIC LEADERSHIP:

ADVANTAGES DISADVANTAGES

Fast decision making. Employees' ideas and feedback may not be sought or welcomed.

Better communication. No innovation.

More productivity. It creates a work culture based on the leader.

Employees are less stressed since they don't have to make It creates a lack of trust.
important decisions.

- Internal and external growth:

INTERNAL GROWTH: Expansion that is carried out by the organisation itself, without working with a
partner.
EXTERNAL GROWTH: Development that involves the participation of another organisation. That is, the
company works with another company in order to expand.

External growth methods:

- Marger: Is a form of external growth that usually results in two firms combining to form a third entity. This
new company then replaces the two that existed before the merger.
- Acquisition: When one firm purchases another firm.
 - Takeover: One firm offering to buy the shares from the shareholders of another firm, usually at a price
that exceeds their value in the stock market.
- Joint venture: Involve the creation of a new company by two or more 'parent' companies. The joint
venture is formed in order to carry out an aim or objective that might be difficult for each of the parent
companies to achieve on its own.
- Strategic alliances: Involve two or sometimes more organisations working together to realise a set of
common objectives.

ADVANTAGES AND DISADVANTAGES OF INTERNAL GROWTH:

ADVANTAGES DISADVANTAGES

Less risky Can be slow and strong competitors might enter the market.

Existing owners and shareholders maintain control. More employees means more salaries to pay; might not be able to
retain a good cash flow position.

Easier to control and coordinate It is slow.

Maintains corporate culture Diseconomies of scale. .

Relatively inexpensive.

ADVANTAGES AND DISADVANTAGES OF EXTERNAL GROWTH:

ADVANTAGES DISADVANTAGES

Is often faster. Need more control and knowledge of employees and assets.

Potential for economies of scale. Possibility of a culture clash between organisations involved.

Might improve access to capital. Loss of control and ownership.

Quick way to eliminate competition. Stakeholder conflicts.

- Financial motivational tools:

Salary: is a fixed annual sum that is usually paid over 12 equal monthly instalments.
Wages (time rate): is a payment made in weekly sums based on the number of hours one works.
Wages (piece work): means that a worker's pay is based on the number of units or 'pieces' they make
or complete.
Commission: is a type of reward system, which is most frequently seen in sales work. A salesperson
who works on commission gets paid a percentage of their total sales.
Profit-related pay: means that the employee receives a percentage of the profits that the company
makes that year.
Performance-related pay: means that the worker can receive additional money (bonuses) for reaching
pre-agreed objectives.
Employee share-ownership scheme: means that employees are given shares in the company as a
reward or, in some instances, they have the opportunity to buy shares at discounted prices.
 Fringe benefits (perks): are rewards are paid to the employee in addition to their salary, such as a
company car, housing allowance or free meals.

- Non-financial rewards:

Job enrichment: is when employees are given added tasks that require more skill or training.
Job rotation: is when employees change jobs for a period of time to learn a new task within a work
process, e.g. the different tasks in assembly line production work.
Job enlargement: is when tasks are added to an employee's job description. These tasks are mostly of
a similar level.
Empowerment: entails giving employees greater responsibility in deciding how to perform their job.
Purpose: is when the employee seeks to make a positive contribution with their work for the greater
good.
Teamwork: is the collaborative effort of a group of employees working together to achieve completion of
a task or goal.

- Economies of scale: refers to the case where the average unit cost of production decreases as the
level of output increases, where unit cost refers to the cost of producing a single unit of output. In
business, the explanation for this reduction in unit costs is usually described as resulting from
purchasing, technical, marketing, managerial, and financial economies of scale.

- Diseconomies of scale: describes the case when the average unit cost of production actually
increases as the level of output increases. This increase in average unit cost is usually explained by the
difficulty of managing very large operations.

- Recruitment:

The common steps of the recruitment process are:

1. Job analysis
2. Job description
3. Person specification
4. Job evaluation
5. Job advertisement
6. Selection

Step 1. Job analysis:

Job analysis is the study of what the job entails. It provides details of the skills, training, and tasks needed to
carry out the job and also the kinds of people who should be hired for their goal.
It can be used by businesses in many ways. For example, it is used to select employees and determine their
payment, promotion, and performance review.
Step 2. Job description:

The job description has a number of uses. It is a way to communicate to potential candidates what is expected of
them. It helps the HR department decide the qualities and qualifications the successful candidate must have. It
can also be used to judge whether the appointed employee manages the job well.

Step 3. Person specification:

The person specification is derived from the job analysis and job description and defines the qualities of the
individual needed to fill the vacancy, e.g. qualifications, experience, personality, and skills. (It sets out the
qualities, qualifications, experience, and skills needed to do the job)

Step 4. Job evaluation:

Job evaluation is an assessment of the value of the job in relation to other jobs so that the rewards and
remuneration can reflect its value.

Step 5. Job advertisement:

A job can be advertised internally if the company policy is to promote existing employees. If an internal candidate
is promoted, a vacancy lower in the hierarchy will appear. If there are no candidates internally, the company may
advertise the job externally. External advertising may be in a variety of places. These include employment
agencies, job centres, professional recruitment centres, newspapers, and other media, including the internet.

Step 6. Selection:

The process of selecting the most suitable candidate for the job is important and can be broken into several
steps. Why is it so important to select the 'right' employee for the job? If the candidate is unsuitable, the
organisation will have to deal with the employee's poor performance. There also will be extra costs for additional
training and replacement when the employee leaves or is dismissed.

● Application

After advertising a job vacancy, the organisation will start to receive applications from interested candidates.
These may take the form of a curriculum vitae (CV/resume) or application form, accompanied by references from
at least two referees and a covering letter. The application will include details such as name, address, nationality,
educational qualifications, previous job experience, hobbies, and interests. In the letter of interest or cover letter,
the candidate explains their interest in the job and what makes them the most suitable candidate. The HR
department will review the applications and select the most suitable candidates to shortlist, usually on the basis
of how well they match the person's specifications.
 ● Job interview

Interviewing is still the most commonly used method of selection. There may be just one interview or several,
again depending on the job vacancy. A representative of the HR department and a line manager, or an interview
panel, will usually organise and conduct job interviews with the candidates. The interview is an opportunity to
evaluate the candidate's skills, knowledge, and ability to do the job. As a result of the job interview, recruiters
need to tell candidates where they are in the process of recruitment or they risk some top candidates following up
on other job opportunities.

● Testing

The interview may be combined with tests. Achievement tests are designed to find out what the candidate knows
and can do. Aptitude tests aim to find out the potential of a candidate to perform specific tasks required by the
job. Personality tests or psychometric tests examine candidates' traits and personal characteristics. Intelligence
tests examine the overall mental ability of the candidate.

● Job offers

At the end of the selection process, the successful candidate is offered an employment contract which may be
subject to a successful medical test. The employment contract terms and conditions usually include job title, date
of commencement, job role and specification, working hours, payment, holiday and sick pay entitlement, pension
entitlement, disciplinary procedures, grievance procedures, notice requirements for termination for both employer
and employee, a signature of both parties. This concludes the process of recruitment and selection. Selection
involves costs for the organisation such as sending out application forms and engaging HR employees and
managers in the recruitment process.

- Labour turnover: Labour turnover is defined as the proportion of employees leaving within a given
period. The labour turnover of an organisation is measured by the number of employees leaving the
business divided by the entire work force.

Avoidable causes of employees leaving: (the company can take steps to prevent employees from leaving)

● Dissatisfaction with payment: sometimes employees feel they are underpaid and they leave when
another organisation offers them a better reward for their effort.

● Poor working environment: if the working environment (such as lighting, ventilation, and sanitation
facilities) is poor, employees may feel dissatisfied and look for more agreeable opportunities elsewhere.

● Job dissatisfaction: an employee may be doing a job that doesn't correspond exactly to their abilities
and qualifications. They may leave if they have the opportunity for a job that better suits their
qualifications and needs.
 ● Human resources policies: many organisations have an autocratic policy that requires strict obedience
to rules, so employees may feel dissatisfied and will look for an organisation that is more flexible.

● Lack of facilities: the organisation may lack medical and recreational facilities, which will make
employees dissatisfied. If the workplace is situated outside of town, a lack of convenient transport will
also cause a problem for employees.

● Dissatisfaction with working time: if employees are asked to work longer than normal hours without
overtime pay or are called into work during holidays or overnight, this is likely to create dissatisfaction.

Unavoidable causes of employees leaving:

● Family circumstances: employees may leave their job because of family circumstances, such as
moving to an area where there is better schooling for their children.

● Physical reasons: employees may find that their physical condition no longer allows them to do the
work, for example, if they have had an illness that prevents it.

● Marriage: some employees will relocate to a new area after they marry, for example, if job prospects
are better for one or another partner.

● Birth of children: parents of young children may choose to leave their jobs in order to provide childcare
for a longer period of time than maternity or paternity leave allows.

● Retirement: of course, employees usually retire from work when they reach a certain age.

● Dismissal (despedido): an employee may be dismissed from a job for a variety of reasons related, for
example, to their ability to do the job or to their conduct.

● Redundancy: the organisation may need to cut jobs as a result of reorganisation or a downturn in sales
revenue, and therefore some employees become redundant.

Costs of labour turnover:

Labour turnover is an ongoing issue in a business organisation and at least a low percentage of labour turnover
is to be expected and accounted for. But when the rate of labour turnover is high, there are some costs.

● Recruitment: the business will need to find new employees.

● Loss of productivity: the organisation will lose some of its productive potentials while it recruits new
employees and brings their skills and efficiency up to the level of the employees who have left.

● Inefficiency, machine breakdown, waste, defective products: while new employees are settling in, it
will take time for them to master the job to a high standard.
 ● Training: the newly recruited employees will need to be trained, which takes time and distracts the
current experienced employees from their tasks.

● Reputation of the company: a high labour turnover tarnishes the company's image and may make it
difficult to attract talented employees.

- Market share: Measures the value of a single company's sales compared with the sales of all
businesses in a market. (the percent of total sales in an industry generated by a particular company)

- Corporate social responsibility: Corporate social responsibility is when companies integrate social
and environmental concerns in their business. They are proactive in seeking ways to improve society
through their business activities.

- IMPORTANCE OF CSR:

CSR can help you attract and retain employees.

One of the major reasons people apply to various companies is because of their CSR strategy. From my
perspective, a CSR strategy shows a company is compassionate and treats all people, including
employees, well. And a business that is committed to improving the world is likely to attract more talent.

CSR can improve customers' perception of your brand.

CSR can enable you to better engage with customers.

It can help your business better engage with customers. Many forms of CSR involve businesses
interacting directly with members of society, who may also be customers or potential customers.

Improved public image.

An advantage over competitors.

You establish yourself as a company committed to going one step further by considering social and
environmental factors.

- Charities: Charities are non-profit organisations that exist to benefit the public.

- Non-governmental organisations (NGOs): are non-profit organisations that usually state their purpose
or mission as benefiting society or the environment.

- Pricing strategies:

Skimming pricing:

Price skimming is when companies set high prices when they introduce new products to the market. Then they
lower the price.

Launching a product with an initial high price to give an image of exclusivity and prestige.

This strategy is used for a short period of time.

An example of a company that uses price skimming is Apple.

ADVANTAGES DISADVANTAGES

Customers associate the high price with a high-value The high prices may make some customers not buy
or quality. (It promotes a high-quality image.) the product because it is too expensive.

Companies are able to obtain high revenues initially.

Penetration pricing:

Setting a low initial price for a product with the aim of attracting a large number of customers quickly and gaining
a high market share.

The objective of penetration pricing is to encourage consumers to try out a new product.

It is a short-term strategy. Once loyalty has been established, prices will be increased so that normal profit
margins can be achieved.

ADVANTAGES DISADVANTAGES

Market share and customer loyalty may be quickly Low profit margins are likely during the initial low
established. price.

Customers may not accept the price rise.

Cost-plus pricing:

Pricing method where a fixed percentage is added on top of the cost it takes to produce one unit of a product
(unit cost).

For example, say a builder estimates that it will cost £5,000 to build an extension on a client's home. Using
cost-plus pricing, the builder may decide to add 20% to cover their profit. Therefore, the price they charge to the
customer is £6,000.

ADVANTAGES DISADVANTAGES

It is simple, and easy to ensure all costs are covered. It fails to consider market needs when setting the
prices.

The prices can be set too high.

Price leadership:

Adopting a price that is slightly above rivals to give an image of prestige.

Price leadership is about communicating an image of quality.

ADVANTAGES DISADVANTAGES

It gives an image of high quality. Higher profit margins It is only suitable for market leaders. Price-sensitive
can be enjoyed. customers will be lost.

Price follower:

Setting a price that is similar to that of rivals.

The prices of chocolate bars will all be very similar to each other. Chocolate companies know that there are
dozens of different bars to choose from. Therefore, if they price theirs too high, customers will simply select a
rival’s good.

ADVANTAGES DISADVANTAGES

It is market oriented and should ensure potential It takes no account of cost, and profit margins may
customers are not lost because of a high price. therefore be low.

Physiological pricing:

Setting a price in a way that seems attractive to consumers.

It considers the psychological effect of pricing in customers.

ADVANTAGES DISADVANTAGES

It is simple to implement It is easy to copy. Therefore, any advantage may

quickly be eroded by rivals who follow the same
strategy.

The psychological effect can increase sales and

revenue.

Predatory pricing:

Temporarily setting an extremely low price so that rivals can not comete, forcing them to leave the market.

It is considered illegal in many countries.

Once rivals have left the market, the remaining firm can enjoy a monopoly position and can raise prices
accordingly.

This leaves consumers with less choice and forces them to pay higher prices.

ADVANTAGES DISADVANTAGES

Once competition is eliminated, higher prices and It is illegal in many countries

higher market share can lead to increased profits.

Price discrimination:

Charge different prices to different groups of consumers for the same product.

Different prices may be offered for: (examples of airports)

● tickets booked a long time in advance

● children
● frequent flyers
● group bookings
● 'premium' seats, such as those in the emergency exit aisle
● tickets bought online rather than through an agent
● people who want to board the plane early
● flexible tickets
● people who book return flights rather than single journeys.

ADVANTAGES DISADVANTAGES

Profits are maximized from each consumer segment. It is not possible in all markets.

In some cases it can benefit both customers and the Some customers may feel cheated.
company.

Loss leader:

Stores significantly reduce the price of a single item below cost price to attract customers, expecting customers to
buy other products while they are shopping.

Only suitable for multi-product retailers. (supermarkets)

 ADVANTAGES DISADVANTAGES

It can lead to a large boost in sales revenue. It is only possible for multi-product retailers.

- Subsidizing: Support (an organization or activity) financially.

- Stakeholders: A stakeholder is an individual or a group of people with an interest or concern in a

business.

There are two types of stakeholders: internal (CEO, different level managers, employees and
shareholders/owners) and external (customers, suppliers, unions, competitors, the government and
society as a whole).

Internal stakeholders: (managers, employees and shareholders/owners)

- MANAGER: The individuals who run the organisation. They are responsible both for setting aims and
objectives and making sure they are met.

In order to be successful, managers must create an environment where employees can work together to
meet these objectives.

They are interested in the success of their enterprise, as well as the advancement of their own careers.

- EMPLOYEES: Include individuals who work for the company but who are not responsible for managing
other employees.

Like managers, employees are motivated by compensation, benefits, job security, and working
conditions.

- SHAREHOLDERS: They are the owners of the company. Shareholders invest in a business in order to
receive a return on their investment. They are therefore primarily concerned with the company’s
profitability.

Shareholders are sometimes considered external stakeholders because in the case of large publicly
owned companies they are generally not involved in the day-to-day running of the company.

External stakeholders:

External stakeholders have less influence over the organisation than internal stakeholders.

- CUSTOMERS: Include both individuals and other businesses that purchase the output of the
organisation.

They demand good service and quality products that are also safe and are sold at a reasonable cost.
 - SUPPLIERS: Individuals and businesses that sell goods and services to another organisation.
They want to be paid fair and reasonable prices for these inputs. They also wish to maintain a stable
business relationship with the companies they supply in order to ensure a reliable market for their
goods. So they are concerned about the health and continued existence of the companies to which they
sell.

- GOVERNMENTS: Regulate organisations in order to protect the public interest.

They enforce laws and reprimand companies when necessary.

- UNIONS: Exist to protect employees’ livelihoods and rights.

- BANKS: Organisations funds so they can invest and carry out their operations.

Banks want to be sure that these loans are paid back.

- SOCIETY: Is affected by corporate behaviour.

When society’s interests are not adequately defended by the government, pressure groups may step in
to make sure corporate behaviour does not adversely impact the planet and its residents.

- COMPETITORS: Companies expect their competitors to engage in fair competition by adhering to laws
and ethical business practices.

- Distribution channels:

There are three types of distribution channels a firm may use:

● Wholesalers
● Retailers
● Agents and brokers

1) Wholesalers:

Wholesalers specialize in purchasing large quantities of products from producers, storing it, then selling it on to
retailers and sometimes consumers.

Imagine a small town that has four producers in it. We'll call them Producers A, B, C and D. Each of them makes
a unique product, which is demanded by the town's four retailers, Shops 1, 2, 3 and 4. All four retailers want to
buy all the products from all the producers. Without wholesalers, how many deliveries and collections would there
need to be? Each retailer would have four different deliveries, making 16 in total.

Now consider the same situation, but this time with a wholesaler. Each of the four producers now makes just a
single delivery to the wholesaler, which stores the goods and sells them on to the retailer. This means there need
to be eight deliveries, which is half the number without a wholesaler, saving time and cost for everyone involved.
 2) Retailers:

Retailers purchase goods from wholesalers and producers, then sell them to the final consumer.

Retailers also play an important role in promoting the brand image of a product.

3) Agents or brokers:

Agents may be used to aid any of the distribution channels.

They promote and sell products of producers. The key difference between an agent and a retailer is that the
agent does not own the product it is selling. Instead, it promotes the product and charges a commission on every
sale it arranges.

Examples: affiliate marketers, Ebay and travel agents.

Distribution:

A distribution channel is the path a product takes when it travels from producer to the final consumer.

Direct distribution:

Direct distribution does not use any intermediates. Producers sell directly to their consumers.

These businesses can control their own prices and do not have to pay any commission to agents, allowing them
to keep 100% of any sales revenue they receive.

Direct distribution also allows firms to enjoy close contact with their customers.

Example: local bakery or florist.

Indirect distribution:

Producers may decide to distribute their products using one or more intermediates.

● Producer to retailer to consumer.

● Producer to wholesaler to retailer to consumer.

- Secondary market research:

Secondary market research uses information that is already available. This will give us broader
information about our potential target audience, such as demographic information.
This can be done through:

● Market analysis
● Academic journals
● Government publications
● Media articles

ADVANTAGE: It is cheaper and can be carried out rapidly.

DISADVANTAGE: The information collected may be out of date and may not be reliable.

Market analysis:
This includes publications or reports to gather data about a particular market.

Specialist market research agencies such as www.euromonitor.com write and sell detailed market intelligence
reports for practically every market imaginable. The reports will include details from competitors analyses and
market shares, to target market profiles and relevant competition laws. Agencies update their reports regularly to
ensure they are relevant. A report can cost anything from a few hundred to thousands of dollars.

Academic journals:
Scholarly journals contain the very latest research and academic theory which has been published by academics
from the world’s leading universities.

Accessing these journals usually comes at a cost.

Government publications:

Governments from all over the world regularly publish data covering topics such as population statistics and
economic forecasts. This data can normally be seen as reliable and up-to-date.

This data will typically contain important information about the economic environment, such as economic growth,
the unemployment rate, inflation, sectoral information, or income data.

Governments normally release their data for free and update it regularly.

Media articles:
This includes newspapers and magazines. The websites and apps of newspapers and news channels are
updated practically every minute. Perhaps only social media contains more up-to-the-minute information.

It is able to access this information for free.