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Summary International Baccalaureate Diploma Business & Management Higher Level Notes
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Business & Management Higher Level Notes
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Business & Management NotesAdvantages of specialization (IISH)
1. Increased productivity – proficiency
2. Increased efficiency – Better use of scarce resources. Less time and resources wasted,
employees are more competent. Average costs of production
3. Standardization – Specialization results in constant standards/specifications met
4. Higher profit margins - Higher price for specialist and services
IISH
Disadvantages of specialization (BILC)
1. Boredom
2. Inflexibility
3. Lack of autonomy – lead to discontinuity
4. Capital costs – Purchase and maintenance of specialist machinery. Exhaust finance
BILC
Unit 1.2 Types of Organization
Identifying Market Opportunities
- Small firms and new businesses tend to thrive in niche markets
- Innovative ideas and creations -> unique selling point, legal protections to help
Possible problems faced by start – ups
1. Lack of financial capital
- Secure external funding for fixed capital
- Funds may be insufficient or the relatively high interest repayments may seriously affect
the cash flow position of the firm
- Remortgaging offers the lender more collateral (borrowers have form of security if they
fail to repay loan)
2. Cash Flow problems
- Financing working capital (money available for the daily running of a business is also
major problem
- Stock cannot be easily turned into cash, such as raw materials or semi-finished output
- Customers may also demand a lengthy credit period, resulting in poor cash flow, which
the business has to pay for wages, purchase of stock, suppliers, rent, utility bills, taxes
and interest payments on bank loans.
- Budgetary problems (failure to control costs of production) causes CF problems
3. Marketing problems
4. Un-Established customer base
5. People management problems
6. Legalities
- Any oversight could result in the business having to pay out compensation which would
damage the already vulnerable cash flow position on new firms
, 7. Production problems
- Overproduction leads to stockpiling, wastage and increased costs
- Underproduction leads to dissatisfied customers and loss of potential sales
8. High cost of production
- Purchasing assets (Small businesses cannot benefit from economies of scale
9. Poor location
10. External influences
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Profit-Based organizations
Sole traders
Advantages of the sole trader
1. Few legal formalities, start up costs are usually much lower
2. Flexibility in working practices, dictate working hours, higher self-esteem from being
successful, decisions making is quicker, no need to discuss or consult issues with others
3. Receives all, incentive
4. Privacy, cut down on costs of having to prepare detailed accounting records
5. Personalized service
FFRPP
Disadvantages of the sole trader
1. Limited sources of finance
2. Lack of continuity -
3. Unlimited liability
4. Higher costs of production -> Unable to exploit economies of scale. Less competitive
price
5. High risks, competition
6. Workload and stress
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Partnerships
Advantages of partnerships
1. Financial strength
2. Division of labour and specialization
3. Do not have to publicize financial records
Disadvantages of partnerships
1. Unlimited liability
2. Longer decision making
3. Disagreements and conflict
4. Lack of continuity
5. Huge amount of mutual trust within a partnership.
6. Many partnerships may still face difficulties in raising capital
,Companies
A private limited company
- Directors can maintain overall control of the business
- Owners have greater control of the business, as their shares cannot be traded on the
open stock exchange
- Cheaper to set up private limited than public.
By contrast, Public limited company is able to advertise and sell shares to general public
One disadvantage is dilution of control
Public companies are exposed to takeover bids from other investors that seek to purchase majority
stake in the company
Advantages of companies
1. Companies can raise large amounts of capital by selling shares. Selling shares become
permanent capital; it does not have to be repaid, unlike loans.
2. Companies have limited liability; attract both private and commercial investors
3. Companies benefit from continuity, since there is legal difference (divorce of ownership and
control).
4. Directors of company generally own large amount of shares in business, incentive to achieve
capital growth and dividends.
5. Economies of scale. If competitive rate of interest was not offered, companies can turn to a
rival of lender for financing.
6. Division of labour and specialization
CCCDED
Disadvantages of companies
1. Financial information public. Time consuming and expensive
2. Far more bureaucracy involved in the setting up and running of a limited company, need to
produce memorandum and articles of association. Lawyers must be hired to ensure that all
documentation is accurate. Advertising and promotion of the company’s share floatation
cost. AGM.
3. For shareholders, dividends are only paid out if business makes profit. Even if profit is made,
Board of directors may decide to retain large proportion of profits for financing investment
projects; this then leaves less profit that can be distributed as dividends to shareholders
4. Communication problems, impersonality.
FFFC
, Non-Profit and Non-Governmental Organizations
Advantages of charities
1. Exempt from paying income tax or cooperation tax
2. Charities can also register to be limited companies to protect interest of employees and
management who have limited liability
3. Provide financial support for welfare of society
4. Donors may get income tax allowances on funds that have been donated to charity. They
can raise incentive for donors to give money to charities.
Disadvantages of charities
1. Lack of profit motive may cause motivation problems
2. Limited liability means that those running charity may lead to inefficiencies or degree of
charity fraud since they are not held liable
3. Trustees, who are at top of organization, are not allowed to receive any financial benefits,
causing motivation problems
4. Go through process of being registered before they can commence their activities.
Governing bodies also place restrictions on what charities can and cannot do
5. Survive solely on one source of finance – donations. Tend to be first to lose out when there
is recession in the economy.
6. Financial activities and records must be recorded and reported to governing body set up by
government. Protect interest of donors to prevent misuse of charitable donations (fraud)
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Key Characteristic of public goods
1. Non-rivalry
2. Non excludability
3. Non Reject able
Unit 1.3 Organizational Objectives
Organizational objectives serve to guide a business and give it a sense of direction
1. To control – Objectives help to control a firm’s plans
2. To motivate
3. To direct
Importance of objectives
1. Sense of direction, purpose and unity. Help to unify and motivate management and workers
2. Form foundation for business decision-making. Can then create strategies to achieve these
goals
3. Encourage strategic thinking
4. Provide basis for measuring and controlling the performance of the workforce, the
management and the business as a whole
Mission Statements and Vision Statements
Vision statement
- outlines a business’s aspirations in the distant future
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