Download ABE L4 - Introduction to Business PDF

TitleABE L4 - Introduction to Business
TagsStrategic Management Marketing Employment Stakeholder (Corporate)
File Size2.0 MB
Total Pages164
Table of Contents
                            IB Intro 2010 Final
IB 01 2010 Final
IB 02 2010 Final
IB 03 2010 Final
IB 04 2010 Final
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Document Text Contents
Page 1




QCF Level 4 Unit


Chapter Title Page

Introduction to the Study Manual iii

Unit Specification (Syllabus) v

Coverage of the Syllabus by the Manual ix

1 Business Objectives, Resources and Accountability 1
Introduction 2
Business Objectives 2
Business Resources 5
Accountability 8

2 Business Structures 15
Introduction 17
The Economy 17
Basic Forms of Business Organisations 21
The Sole Trader 22
Partnerships 25
Companies 27
Public Sector Organisations 32
Not-For-Profit Organisations 35

3 The Business Environment 37
Introduction 38
Analysing the Environment 38
The Political Environment 40
The Economic Environment 41
The Social Environment 48
The Technological Environment 48
The Ecological Environment 50
The Legal Environment 51

4 Production 55
Introduction 56
Production Systems and Techniques 56
Economies and Diseconomies of Scale 59
Location 63

Page 2



Chapter Title Page

5 Marketing 69
Introduction 71
The Nature of Marketing 71
Market Analysis and Research 76
Marketing Plans 81
Customers and Markets 83
The Product 87
Pricing 91
Promotion 94
Distribution 98
The Marketing Mix and the Product Life Cycle 99

6 Business Accounting and Finan ce 101
Introduction 102
Basic Terms 102
Basics of Business Finance 105
Sources of Finance 107
The Finance Providers 112
Business Financial Structure 113

7 Human Resources 121
Introduction 123
Concept and Scope of Human Resource Management 123
Human Resource Planning 126
Recruitment and Selection 132
Training and Development 139
Motivation 143
Remuneration 148

Page 82

72 Marketing


Where an organisation is able to meet its customers' needs effectively and efficiently, its
ability to gain an advantage over its competitors will be increased (for example, by allowing it
to sell a higher volume and/or at a higher price than its competitors). It is consequently also
more likely to be able to meet its profit objectives.

Marketing as a Philosophy and a Set of Techniques

We need to distinguish between marketing as a fundamental philosophy and marketing as a
set of techniques. The techniques are unlikely to be effective in a company that has not
taken on board the full philosophy of marketing.

As a business philosophy, marketing puts customers at the centre of all the organisation's
considerations. This is reflected in basic values such as the requirement to understand and
respond to customer needs and the necessity to constantly search for new market
opportunities. In a truly marketing oriented organisation, these values are instilled in all
employees and should influence their behaviour without any need for prompting. For a fast
food restaurant, for example, the training of serving staff would emphasise those items, such
as the speed of service and friendliness of staff, which research had found to be most valued
by existing and potential customers.

The personnel manager would have a selection policy which recruited staff who could fulfil
the needs of customers rather than simply minimising the wage bill. The accountant would
investigate the effects on customers before deciding to save money by cutting stock holding
levels. It is not sufficient for an organisation to simply appoint a marketing manager or set up
a marketing department. Viewed as a philosophy, marketing is an attitude which pervades
everybody who works for the organisation. It is often said that if a company has done its
marketing effectively, its products should be so well designed for customers that they ‘sell
themselves’. Marketing is, therefore, much more than just selling.

To many people, marketing is simply associated with a set of techniques. As an example,
market research is a technique for finding out about customers' needs, and advertising is a
technique to communicate the benefits of a product offer to potential customers. However,
these techniques can be of little value if they are undertaken by an organisation that has not
fully taken on board the philosophy of marketing.

The techniques of marketing also include, among other things, pricing, the design of
channels of distribution and new product development. However, although the sections of
this chapters are arranged around specific techniques, it must never be forgotten that all of
these techniques are interrelated and can only be effective if they are unified by a shared
focus on customers.

Many companies claim to be ‘marketing oriented’ but their words are greater than their
actions. Here are some tell-tale signs of companies who are probably not truly marketing

In the car park, the prime parking spots are reserved for directors and senior staff
rather than customers

Opening hours are geared towards meeting the needs of staff rather than the
purchasing preferences of customers

Management's attitude towards lax staff is conditioned more by the need to keep
internal peace than the need to provide a high standard of service to customers

When confronted with a problem from a customer, an employee will refer the customer
on to another employee without trying to resolve the matter themselves ("It's not my

The company listens to customers' comments and complaints, but has poorly defined
procedures for acting on them

Page 83

Marketing 73


Advertising is based on what senior staff want to say, rather than a sound analysis of
what prospective customers want to hear

Goods and services are distributed through channels which are easy for the company
to set up, rather than what customers prefer.

To what extent does the company you work for, or other companies which you know, reflect
these signs. It would be a surprise if they have none of them!

The Marketing Management Process

Marketing is an ongoing process which has no beginning or end. It is usual to identify four
principal stages of the marketing management process which involve asking the following

Figure 5.1: The Marketing Management Process


Where are we now? How does the company's market share compare to its
competitors? What are the strengths and weaknesses of the company and its
products? What opportunities and threats does it face in its marketing environment?


Where do we want to be? What is the mission of the business? What objectives
should be set for the next year? What strategy will be adopted in order to achieve
those objectives (for example, should the company go for a high price/low volume
strategy, or a low price/high volume one)?


How are we going to put into effect the strategy which leads us to our objectives?


Did we achieve our objectives? If not, why not? How can deficiencies be rectified? In
other words, go back to the beginning of the process and conduct further analysis.

Note that these stages are common to any management process in business – the
translation of goals and objectives into strategic and operational plans, and their
implementation. The key to marketing management is the orientation towards customers.


Where are we now?


Where do we want to be?


How will we get there?


Did we manage to get there?

Page 163

Human Resources 153


(a) They are dependent on the quality of appraisal which can be arbitrary, subjective
or inconsistent, especially when the appraisers have not been adequately

(b) Unless they are carefully designed and managed they can demotivate some
employees who may be providing a reasonable if not exceptional contribution.

(c) Merit payments, as distinct from bonuses, create extra payroll costs when
benefits such as pensions are related to base pay.

(d) Merit payments are effectively permanent increases in salary, yet the quality of
performance in future years may not justify this payment.

(e) They are only effective as a motivator if rewards are clearly related to
performance and are of a significant value.

(f) They may not deal with the problem of highly rated staff who have reached the
top of their scale and for whom there are no immediate prospects of promotion
(consideration may need to be given to bonus payments in these circumstances).

 Incentive and bonus schemes

These schemes seek to provide a basis for rewarding performance outside of the basic
pay structure for performance related to the achievement of defined objectives, targets
and standards.

Incentives and bonuses are similar in that they are both lump sum payments related in
some defined way to performance, but we can distinguish between them as follows.

(a) Incentives are payments linked to the achievement of previously set and agreed
targets. They aim to encourage better performance and then reward it, usually in
fixed proportion to the extent to which the target has been reached. Incentive
schemes are found from shop floor to boardroom and can be applied to
individuals or groups. They vary principally in the type and range of targets

(b) Bonuses are essentially rewards for success and are paid either at the time the
individual or group achieves something outstanding, or at a given point in the
year. By their very nature, bonuses tend to be discretionary. The amount paid
out depends upon the recommendations or decisions of the employee's boss, the
Chief Executive or the board, and is constrained only by budgetary limits.
Bonus schemes are, therefore, often less structured than incentive schemes.

There are a number of established incentive schemes.

(i) Profit Sharing

Profit sharing has been used successfully by companies for many years. It
basically speaks for itself insofar as employers share a proportion of the profits
with employees. The level of reward that is allocated to employees usually
depends on their length of service and where they are on the salary
band/incremental scale. Most schemes apply only to senior management
those whose decisions are related directly to the overall performance of the

Not all the profits shared are monetary. Companies may decide to allocate
shares to employees, these shares then yielding a dividend and also hopefully
increasing employee commitment to the achievement of organisational goals
because they have a stake in the business. When making profit-share payments
by way of shares, employers should remember that the value of shares can go
up and down. If they go down, employee commitment may wane, so it is

Page 164

154 Human Resources


sensible that other types of bonuses are used as a supplement (not necessarily

(ii) Payment by Results Groups

The group can work towards an agreed target and then distribute it equally
between them. This saves the employer monitoring the performance of individual
workers. The main drawback of occurs when some group members complain
that their peers are not putting in the same performance and commitment but are
receiving the same rewards.

(iii) Payment by Results Individuals

Here, the most common schemes are those applied to manual workers, where
individual payments on top of basic pay, which may be quite low, are dictated by
"piecework" i.e. payment according to the number of units produced. This has
long been regarded as the prime motivational tool because the more the
employee produces, the higher his/her earning capacity. However, it may also be
a demotivator insofar as morale can drop if for any reason the standards of
production necessary for what is seen as an appropriate level of reward cannot
be achieved.

Another, very different, example of this type of system can be seen in respect of
salespeople who earn commission related to the volume or value of their sales.

Finally, there are a number of advantages in using incentive or bonus schemes as
opposed to merit pay:

 rewards are sometimes immediately payable for work done well

 bonuses can be linked to specific achievements of future targets and this
constitutes both a reward and an incentive

 payment is not continued as part of base salary irrespective of future

 lump sum payments are very appealing, as opposed to receiving a small amount
each month as part of salary

 additional rewards can be given to people at the top of their salary scale without
damaging the integrity of the salary structure.

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